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GAO-11-295R: 

United States Government Accountability Office: 
Washington, DC 20548: 

March 9, 2011: 

The Honorable Thomas Carper:
Chairman:
Committee on Homeland Security and Governmental Affairs:
Subcommittee on Federal Financial Management, Government Information, 
Federal Services, and International Security:
United States Senate: 

Subject: Trends in Nunn-McCurdy Cost Breaches for Major Defense 
Acquisition Programs: 

Dear Mr. Chairman: 

For nearly 30 years, the statutory provision, known as Nunn-McCurdy, 
[Footnote 1] has been an oversight tool for Congress to hold the 
Department of Defense (DOD) accountable for cost growth on major 
defense programs. A Nunn-McCurdy breach occurs when a program's unit 
cost exceeds certain thresholds. When that happens, DOD must notify 
Congress of the breach. There are a number of statutory provisions 
that help implement cost growth reporting under Nunn-McCurdy. For the 
purposes of this report, we refer to these statutory provisions as the 
Nunn-McCurdy process. In September 2010, you requested that we examine 
trends in Nunn-McCurdy breaches and factors that may be responsible 
for these trends. In this report, we also discuss changes DOD is 
making or proposing to make to the Nunn-McCurdy process. 

To identify trends in Nunn-McCurdy breaches, we collected and analyzed 
existing data on breaches from DOD's Defense Acquisition Management 
Information Retrieval system, which contains data on breaches since 
1997. DOD officials also provided us with a list of programs that 
breached the cost growth thresholds since 1997, which we analyzed to 
remove duplicate entries.[Footnote 2] In addition, we reviewed 
analyses by the Office of the Director of Cost Assessment and Program 
Evaluation to verify our data. We utilized information from SARs 
[Footnote 3] for individual weapon systems to explore trends by 
various program characteristics including military service, type of 
weapon system, and contractor. To identify factors responsible for 
trends in Nunn-McCurdy breaches, we reviewed DOD's root cause analyses 
and analyzed data from SARs, compared breach trends to statutory 
changes, and summarized our past findings on programs that have 
experienced breaches. To identify factors responsible for trends and 
identify changes DOD is making or proposing to make to the Nunn-
McCurdy process, we interviewed relevant officials from the offices of 
the Undersecretary of Defense for Acquisition, Technology, and 
Logistics; Performance Assessments and Root Cause Analyses; Cost 
Assessment and Program Evaluation; the Comptroller; and the Joint 
Staff. We also reviewed DOD policy memoranda and proposed legislation 
to learn about the current policy and proposed legislative changes. 

We conducted this performance audit from November 2010 to March 2011 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Results in Brief: 

Since 1997, there have been 74 Nunn-McCurdy breaches involving 47 
major defense acquisition programs. There were a larger number of 
breaches in 2001, 2005, 2006, and 2009, which coincides with changes 
in statute or presidential administration. The statutory changes added 
a program's original baseline estimate as a new benchmark against 
which to measure cost growth. During the last two changes in 
presidential administration, DOD did not submit annual comprehensive 
SARs, which, along with other factors, may have affected when breaches 
were reported. The Air Force had a higher proportion of total breaches 
compared to its proportion of total programs, whereas the Navy had a 
smaller proportion of breaches compared to its proportion of programs. 
Aircraft, satellite, and helicopter programs have experienced the 
largest number of breaches. Thirty-four different prime contractors 
were listed in the SARs for the programs that breached. Of the 47 
programs that breached, 18 programs breached more than one time. 

Nunn-McCurdy breaches are often the result of multiple, interrelated 
factors. Our analysis of DOD data and SARs showed that the primary 
reasons for the unit cost growth that led to Nunn-McCurdy breaches 
were engineering and design issues, schedule issues, and quantity 
changes. Cost increases resulting from engineering and design issues 
may indicate that those programs started without adequate knowledge 
about their requirements and the resources needed to fulfill them. 
Many programs also cited revised cost estimates as a factor behind 
breaches, suggesting estimates were based on inaccurate assumptions. 
Our previous work shows that without the ability to generate reliable 
cost estimates, programs are at risk of experiencing cost overruns, 
missed deadlines, and performance shortfalls. 

DOD has instituted a process to provide earlier warning of potential 
breaches and plans to propose changes to try to limit the effect of 
breaches caused by quantity changes. Specifically, the Joint Staff has 
implemented a Nunn-McCurdy trip wire process to evaluate the factors 
that are contributing to cost growth so that programs can take 
mitigating actions. Our analysis shows nearly 40 percent of Nunn- 
McCurdy breaches occurred after a production decision had been made-- 
when a program has fewer options for restructuring. DOD also plans to 
propose a legislative amendment to reduce several statutory 
requirements added in 2009 for Nunn-McCurdy breaches when it 
determines the breach was caused primarily by quantity changes that 
were unrelated to poor performance. Tracking changes in research and 
development costs, which are not sensitive to quantity changes, would 
be one way DOD could evaluate program performance in this context. 

Background: 

Enacted in 1982, the Nunn-McCurdy statutory provision requires DOD to 
notify Congress whenever a major defense acquisition program's unit 
cost experiences cost growth that exceeds certain thresholds. This is 
commonly referred to as a Nunn-McCurdy breach. The purpose of the 
statute was to provide Congress greater visibility into major defense 
programs' cost growth and to encourage DOD to manage and control cost 
growth. There are two types of Nunn-McCurdy breaches: significant 
breaches and critical breaches.[Footnote 4] A breach of the 
significant cost growth threshold occurs when the program acquisition 
unit cost or the procurement unit cost increases by at least 15 
percent over the current baseline estimate or at least 30 percent over 
the original baseline estimate.[Footnote 5] A breach of the critical 
cost growth threshold occurs when the program acquisition unit cost or 
the procurement unit cost increases by at least 25 percent over the 
current baseline estimate or at least 50 percent over the original 
baseline estimate. 

The Nunn-McCurdy statute has been amended a number of times over the 
years. One of the most significant changes to the statute occurred in 
the National Defense Authorization Act for Fiscal Year 2006, when 
Congress added the original baseline estimate as a benchmark against 
which to measure cost growth. The original baseline estimate is 
defined as the baseline description prepared before the program enters 
development, or at program initiation, whichever is later, without 
adjustment or revision.[Footnote 6] By adding the original baseline 
estimate as a benchmark against which to measure cost growth, and by 
restricting the circumstances in which an original baseline estimate 
may be revised,[Footnote 7] DOD can no longer avoid Nunn-McCurdy 
breaches by simply revising a program's baseline estimate. While DOD 
acquisition policy still allows current baseline estimates to be 
revised, the policy was modified in 2008 to limit the circumstances 
under which this may be done.[Footnote 8] 

Another significant change occurred in the Weapon Systems Acquisition 
Reform Act of 2009, in which Congress enacted a new provision 
requiring the Secretary of Defense to terminate a program that 
experiences a breach of the critical cost growth threshold, unless the 
Secretary submits a written certification to Congress.[Footnote 9] 

Now, Congress must be notified in writing of breaches and the 
information must be included in the appropriate quarterly or annual 
SAR. For significant breaches, no further action is required. For 
critical breaches, DOD is required to take a number of additional 
steps, including conducting a root cause analysis and reassessing 
estimated program costs. Programs with critical breaches must be 
terminated unless the Secretary of Defense certifies that: 

* continuation of the program is essential to national security, 

* there are no alternatives to the program providing acceptable 
capability to meet the joint military requirement at less cost, 

* the program's new estimates for program acquisition unit cost or 
procurement unit cost are reasonable, 

* the program is higher priority than other programs whose funding 
must be reduced to accommodate the growth in cost of the program, and: 

* the program's management structure is adequate to manage and control 
program acquisition unit cost or procurement unit cost. 

If the program is not terminated, the Secretary of Defense must (1) 
restructure the program to address the root causes of the cost growth; 
(2) rescind the most recent milestone or key decision point approval 
and withdraw any associated certification; (3) require a new milestone 
or key decision point approval before taking certain contracting 
actions to ensure that the program can be restructured without 
unnecessarily wasting resources; (4) report on all funding changes 
made as a result of the growth in cost of the program, including 
reductions made in funding for other programs to accommodate the cost 
growth; and (5) conduct regular reviews of the program. 

Trends in Nunn-McCurdy Breaches: 

Since 1997, there have been 74 Nunn-McCurdy breaches involving 47 
major defense acquisition programs. There were a larger number of 
breaches in 2001, 2005, 2006, and 2009, which coincides with changes 
in statute or presidential administration. The statutory changes added 
a new benchmark against which to measure cost growth. During the last 
two changes in presidential administration, DOD did not submit annual 
comprehensive SARs, which, along with other factors, may have affected 
when breaches were reported. The Air Force had a higher proportion of 
total breaches compared to its proportion of total programs. Aircraft, 
satellite, and helicopter programs constituted the largest number of 
the breaches. Thirty-four different prime contractors were listed in 
the SARs for the programs that breached. Of the 47 programs that 
breached, 18 programs breached more than one time. 

Nunn-McCurdy Breaches Increased after Changes in Statute or 
Presidential Administration: 

The number of Nunn-McCurdy breaches varied from 1997 to 2009, with 
increases in some years coinciding with changes in statute or 
presidential administration. As a result of Congress requiring DOD to 
measure cost growth against the original baseline estimate, the number 
of breaches reported increased in 2005 and 2006, as shown in table 1. 
In 2005 SARs, 13 of the 17 breaches were measured against a program's 
original baseline estimate, the benchmark for measuring cost growth 
that was added by the amendment to Nunn-McCurdy.[Footnote 10] DOD 
released its December 2005 SARs on April 7, 2006, and the changes to 
Nunn-McCurdy were reflected in these SARs. As shown in table 1, the 
number of breaches was also high in 2001 and 2009--the first years of 
new presidential administrations. During both transitions, no annual 
comprehensive SARs were submitted, which, along with other factors, 
may have affected when breaches were reported.[Footnote 11] For 
example, according to DOD, during the transition from one 
administration to another in 2001, the cost of several programs 
breached Nunn-McCurdy thresholds because of a change in management 
philosophy, which included fully funding these programs to higher 
independent cost estimates. A presidential transition also affected 
cost reporting for 2008. According to DOD, cost data for the December 
2008 SARs could not be updated for all programs because the fiscal 
year 2011-2015 Future Years Defense Program was not complete, due to 
the transition from one presidential administration to another. 

Table 1: Nunn-McCurdy Breaches by Calendar Year, 1997-2009: 

Year: 2009; 
Number of breaches: 8; 
Original baseline: 4; 
Current baseline: 4; 
Both current and original baseline: 4. 

Year: 2008; 
Number of breaches: 4; 
Original baseline: 1; 
Current baseline: 3; 
Both current and original baseline: 2. 

Year: 2007; 
Number of breaches: 5; 
Original baseline: 1; 
Current baseline: 4; 
Both current and original baseline: 1. 

Year: 2006; 
Number of breaches: 10; 
Original baseline: 9; 
Current baseline: 1; 
Both current and original baseline: 7. 

Year: 2005; 
Number of breaches: 17; 
Original baseline: 13; 
Current baseline: 4; 
Both current and original baseline: 2. 

Year: 2004; 
Number of breaches: 7. 

Year: 2003; 
Number of breaches: 2. 

Year: 2002; 
Number of breaches: 3. 

Year: 2001; 
Number of breaches: 11. 

Year: 2000; 
Number of breaches: 0. 

Year: 1999; 
Number of breaches: 3. 

Year: 1998; 
Number of breaches: 3. 

Year: 1997; 
Number of breaches: 1. 

Source: GAO analysis of DOD data. 

[End of table] 

Since 1997, there have been 74 Nunn-McCurdy breaches involving 47 
major defense acquisition programs. Thirty-nine were critical breaches 
and 35 breaches were significant breaches. The larger number of 
critical breaches in 2001, 2006, and 2009 were also likely due to the 
statutory changes, instances where DOD did not submit a SAR, and other 
factors, such as funding programs to higher independent cost estimates. 

Figure 1: Critical and Significant Breaches by Calendar Year, 1997- 
2009: 

[Refer to PDF for image: stacked vertical bar graph] 

Submission date: 1997; 
Significant: 1; 
Critical: 0. 

Submission date: 1998; 
Significant: 3; 
Critical: 0. 

Submission date: 1999; 
Significant: 1; 
Critical: 2. 

Submission date: 2000; 
Significant: 0; 
Critical: 0. 

Submission date: 2001; 
Significant: 2; 
Critical: 9. 

Submission date: 2002; 
Significant: 1; 
Critical: 2. 

Submission date: 2003; 
Significant: 0; 
Critical: 2. 

Submission date: 2004; 
Significant: 4; 
Critical: 3. 

Submission date: 2005; 
Significant: 14; 
Critical: 3. 

Submission date: 2006; 
Significant: 2; 
Critical: 8. 

Submission date: 2007; 
Significant: 4; 
Critical: 1. 

Submission date: 2008; 
Significant: 1; 
Critical: 3. 

Submission date: 2009; 
Significant: 2; 
Critical: 6. 

Source: GAO analysis of DOD data. 

No breaches were reported in 1997 and 2000. 

Note: This figure uses the terms significant and critical to 
categorize reported program cost growth. We note, however, that prior 
to 2006, the statute did not use those terms to describe the cost 
growth thresholds. 

[End of figure] 

Air Force Programs Constitute a Higher Proportion of Nunn-McCurdy 
Breaches: 

The Air Force had a higher proportion of total breaches compared to 
its proportion of total programs, whereas the Navy had a smaller 
proportion of breaches compared to its proportion of programs. 
Specifically, out of 134 total major defense acquisition programs from 
1997 to 2009, 36 (or 27 percent) are Air Force, 37 (or 28 percent) are 
Army, 12 (or 9 percent) are DOD, and 49 (or 37 percent) are Navy 
programs. Of the 74 breaches during the same time, 27 (or 36 percent) 
are Air Force, 19 (or 26 percent) are Army, 11 (or 15 percent) are 
DOD, and 17 (or 23 percent) are Navy programs. 

Figure 2: Proportion of Nunn-McCurdy Breaches and Major Defense 
Acquisition Programs by DOD Component, 1997-2009: 

[Refer to PDF for image: vertical bar graph] 

Component: Air Force; 
Major defense acquisition programs: 27%; 
Breaches: 36%. 

Component: Army; 
Major defense acquisition programs: 28%; 
Breaches: 26%. 

Component: DOD; 
Major defense acquisition programs: 9%; 
Breaches: 15%. 

Component: Navy; 
Major defense acquisition programs: 37%; 
Breaches: 23%. 

Source: GAO analysis of DOD data. 

[End of figure] 

Programs that breach the Nunn-McCurdy cost growth thresholds range 
from unmanned aircraft to munitions. Aircraft, satellites, and 
helicopters constitute the largest number of the 74 breaches. We could 
not determine whether the number of breaches by program type was 
proportional because DOD's Defense Acquisition Management Information 
Retrieval system did not have information on the program type for all 
134 programs from 1997-2009. Missile Defense Agency programs do not 
report Nunn-McCurdy breaches. We recommended in 2010 that the Missile 
Defense Agency establish cost baselines and report variances in those 
baselines to Congress.[Footnote 14] 

Table 2: Nunn-McCurdy Breaches by Program Type, 1997-2009: 

Program type: Aircraft; 
Number of breaches: 19. 

Program type: Aircraft (Bomber); 
Number of breaches: 2. 

Program type: Aircraft (Fighter); 
Number of breaches: 5. 

Program type: Aircraft (Other); 
Number of breaches: 4. 

Program type: Aircraft (Transport); 
Number of breaches: 5. 

Program type: Aircraft (Unmanned); 
Number of breaches: 3. 

Program type: Helicopters; 
Number of breaches: 13. 

Program type: Satellites; 
Number of breaches: 11. 

Program type: Chemical demilitarization programs; 
Number of breaches: 7. 

Program type: Munitions; 
Number of breaches: 5. 

Program type: Command, control, communications and intelligence; 
Number of breaches: 5. 

Program type: Missiles; 
Number of breaches: 4. 

Program type: Ships; 
Number of breaches: 2. 

Program type: Submarines; 
Number of breaches: 3. 

Program type: Ground combat; 
Number of breaches: 2. 

Program type: Other[A]; 
Number of breaches: 2. 

Program type: Transport vehicles; 
Number of breaches: 1. 

Source: GAO analysis of DOD data. 

[A] Includes Land Warrior and Evolved Expendable Launch Vehicle 
programs. 

[End of table] 

Establishing Prime Contractor Trends in Nunn-McCurdy Breaches Is 
Difficult Based on the Information in SARs: 

We reviewed SARs for programs with Nunn-McCurdy breaches and found 34 
contractors involved in those programs. (See enclosure I for a list of 
Nunn-McCurdy breaches by program and contractors). It is difficult to 
track prime contractors and establish trends in Nunn-McCurdy breaches 
based on the information in SARs for several reasons. For example, 
some programs have multiple prime contractors and some contractors 
have experienced mergers and acquisitions over the life of programs. 

Only One Program That Has Breached Multiple Times Has Not Been 
Recertified to Continue: 

Of the 47 programs that breached, as shown in table 3, 18 programs 
breached more than one time. Only one of the programs with multiple 
breaches--the Armed Reconnaissance Helicopter--was not recertified 
after a breach of the critical cost growth threshold. The Navy Area 
Theater Ballistic Missile Defense was also not recertified and was 
terminated because of poor performance and projected future cost and 
schedule problems. Other programs that have experienced a breach-- 
including Advanced Seal Delivery System, Army Tactical Missile System- 
BAT, Comanche Reconnaissance Attack Helicopter, Land Warrior, and the 
VH-71 Presidential Helicopter Replacement--have also been terminated, 
but it is unclear whether the breach precipitated the termination. 

Table 3: Programs with Repeat Breaches, 1997-2009: 

Program: Space Based Infrared System High; 
Number of breaches: 4. 

Program: Advanced Extremely High Frequency Satellite; 
Number of breaches: 3. 

Program: Advanced Threat Infrared Countermeasure/Common Missile 
Warning System; 
Number of breaches: 3. 

Program: C-130 Avionics Modernization Program; 
Number of breaches: 3. 

Program: Chemical Demilitarization-Chemical Materials Agency; 
Number of breaches: 3. 

Program: F-35 Lightning II (previously Joint Strike Fighter); 
Number of breaches: 3. 

Program: Global Hawk; 
Number of breaches: 3. 

Program: Guided Multiple Launch Rocket System; 
Number of breaches: 3. 

Program: Joint Air-to-Surface Standoff Missile; 
Number of breaches: 2. 

Program: Armed Reconnaissance Helicopter; 
Number of breaches: 2. 

Program: B-1B Conventional Mission Upgrade Program; 
Number of breaches: 2. 

Program: Chemical Demilitarization-Chemical Materials Agency Newport; 
Number of breaches: 2. 

Program: Expeditionary Fighting Vehicle; 
2. 

Program: H-1 Upgrades; 
Number of breaches: 2. 

Program: Advanced Anti-Tank Weapon System - Medium (Javelin); 
Number of breaches: 2. 

Program: Joint Primary Aircraft Training System; 
Number of breaches: 2. 

Program: National Polar-orbiting Operational Environmental Satellite 
System; 
Number of breaches: 2. 

Program: Virginia Class Submarine (SSN 774); 
Number of breaches: 2. 

Source: GAO analysis of DOD data. 

[End of table] 

Factors Responsible for Nunn-McCurdy Breaches: 

Nunn-McCurdy breaches are often the result of multiple, interrelated 
factors. Our analysis showed that the primary factors responsible for 
the unit cost growth that led to Nunn-McCurdy breaches were 
engineering and design issues, schedule issues, and quantity changes. 
A large number of programs that breached also cited revised estimates, 
requirements changes, and economic changes as factors that contributed 
to the breach. DOD began conducting root cause analysis for some 
programs that experienced a Nunn-McCurdy breach in 2009, which 
provides more detail on the factors responsible for breaches than was 
previously available. 

Engineering and Design Issues Are the Most Cited Contributors to Nunn- 
McCurdy Breaches: 

Our analysis of DOD data and SARs showed that the primary factors 
responsible for the unit cost growth that led to Nunn-McCurdy breaches 
are engineering and design issues, schedule issues, and quantity 
changes. Major defense acquisition programs that breached Nunn-McCurdy 
cost growth thresholds often cited multiple, interrelated factors for 
the breaches. For example, the Expeditionary Fighting Vehicle program 
breached after the program was restructured to extend the system 
design and development phase and enable time for the system to be 
redesigned to meet reliability requirements. According to DOD SARs, a 
large number of programs that breached also experienced the following: 

* revised estimates due to changes in program assumptions; 

* requirements changes, such as adding capabilities; and, 

* economic changes, such as increased costs of airframe manufacturing, 
labor, and materials or application of current inflation indices. 

Figure 3: Factors Cited in SARs as being Responsible for Nunn-McCurdy 
Breaches: 

[Refer to PDF for image: vertical bar graph] 

Factor responsible for breaches: Engineering/design issues; 
Number of breaches citing this factor: 50. 

Factor responsible for breaches: Schedule issues; 
Number of breaches citing this factor: 44. 

Factor responsible for breaches: Quantity changes; 
Number of breaches citing this factor: 41. 

Factor responsible for breaches: Revised estimates; 
Number of breaches citing this factor: 38. 

Factor responsible for breaches: Economic changes; 
Number of breaches citing this factor: 35. 

Factor responsible for breaches: Requirement changes; 
Number of breaches citing this factor: 34. 

Factor responsible for breaches: Support costs; 
Number of breaches citing this factor: 23. 

Factor responsible for breaches: Funding issues; 
Number of breaches citing this factor: 21. 

Factor responsible for breaches: Production issues; 
Number of breaches citing this factor: 16. 

Source: GAO analysis of DOD data. 

[End of figure] 

Cost increases resulting from engineering and design issues may 
indicate that those programs started without adequate knowledge about 
their requirements and the resources needed to fulfill them. For 
example, we reported in 2003 that the Space Based Infrared System High 
program was too immature to enter the system design and development 
phase and was based on faulty and overly optimistic assumptions about 
software reuse and productivity levels, the benefits of commercial 
practices, management stability, and the level of understanding of 
requirements.[Footnote 15] The program has breached four times. 

Many programs cited revised cost estimates as a factor behind 
breaches, suggesting estimates were based on inaccurate assumptions. 
Our previous work shows that without the ability to generate reliable 
cost estimates, programs are at risk of experiencing cost overruns, 
missed deadlines, and performance shortfalls. In 2008, we reported 
that development costs for major acquisition programs are often 
underestimated at program initiation--by 30 to 40 percent in some 
cases--in large part because the estimates are based on limited 
knowledge and optimistic assumptions about system requirements and 
critical technologies.[Footnote 16] For example, initial development 
cost estimates for the Army's Warfighter Information Network-Tactical 
communications system were understated by at least $1.3 billion, or 
nearly 160 percent as of July 2008, in part because the estimates 
assumed that commercial off-the-shelf radio technology would be 
available. This assumption proved to be wrong, and the program 
breached in 2006. Similarly, DOD officials told us that the estimates 
for the Armed Reconnaissance Helicopter were based on an assumption 
that the program would be able to quickly ramp up production using a 
helicopter frame built commercially by Bell Helicopter. However, when 
the business base for the commercial helicopter did not materialize, 
this key assumption changed, and the program was ultimately canceled. 

In a 2009 presentation on Nunn-McCurdy breaches, DOD's Office of 
Acquisition Resources and Analysis cited several factors as being 
responsible for breaches. 

Table 4: Factors for Nunn-McCurdy Breaches Cited by DOD: 

Reason cited: Reductions in quantity; 
Example(s) cited: Guided Multiple Launch Rocket System. 

Reason cited: Change in requirements since baseline; 
Example(s) cited: Global Hawk. 

Reason cited: Development or production stretch-out; 
Example(s) cited: F-22 Advanced Tactical Fighter, National Polar-
orbiting Operational Environmental Satellite System. 

Reason cited: Technical or performance/reliability issues; 
Example(s) cited: Armed Reconnaissance Helicopter, Expeditionary 
Fighting Vehicle. 

Reason cited: Inadequate baseline cost estimate; 
Example(s) cited: Chemical Demilitarization, Space Based Infrared 
System High. 

Source: DOD. 

[End of table] 

According to DOD, not all breaches are indicators of poor performance 
because quantity reductions or capabilities added to a program after 
it begins can affect unit cost. For example, the Excalibur program's 
unit costs increased by nearly 200 percent in 2010 as a result of 
reducing quantities from 30,000 to 6,264. However, the overall cost of 
the program decreased by 36 percent to $1.6 billion. While in the case 
of Excalibur the Army reduced quantities based on capability needs, we 
have previously reported that quantities are often reduced in response 
to cost overruns on programs.[Footnote 17] Of the 41 programs in our 
analysis that reported quantity changes as a contributor to unit cost 
increases, 26 experienced quantity decreases. 

As a result of the Weapon System Acquisition Reform Act of 2009, DOD 
began conducting root cause analysis for programs that experienced a 
Nunn-McCurdy breach of the critical cost growth threshold. This 
analysis provides more detail on the factors responsible for breaches 
than was previously available in SARs. SARs contain general categories 
that help classify the reasons for cost growth and were the primary 
mechanism for understanding the factors responsible for breaches. For 
example, DOD's December 2009 SAR summary stated that the DDG-1000 
program breached due to a quantity decrease from 10 to 3 ships and not 
as a result of poor performance. However, the root cause analysis also 
reported that the program also faced technical and fiscal challenges, 
such as incorporating 10 new transformational technologies, 4 of which 
were immature at program start. In addition, the Apache Block III 
program cited procurement quantity increases as the primary cause of 
its 2009 breach. The Army added 56 newly built aircraft to an existing 
program that was remanufacturing and upgrading existing aircraft. The 
program cites the higher unit cost of the new aircraft as the dominant 
cause of the breach; however, the root cause analysis report pointed 
out that cost estimates from the Office of the Director of Cost 
Assessment and Program Evaluation indicated that the program would 
have experienced a critical breach without the addition of the 56 new 
build aircraft. 

Changes to DOD Practices and Proposed Changes to Nunn-McCurdy Process: 

DOD has instituted a process to provide earlier warning of potential 
breaches and plans to propose changes to try to limit the effect of 
breaches caused by quantity changes. Specifically, the Joint Staff has 
implemented a Nunn-McCurdy trip wire process to evaluate the factors 
that are contributing to cost growth so that programs can take 
mitigating actions. Our analysis shows nearly 40 percent of Nunn- 
McCurdy breaches occurred after a production decision had been made-- 
when a program has fewer options for restructuring. DOD also plans to 
propose a legislative amendment to reduce several statutory 
requirements added in 2009 for Nunn-McCurdy breaches when it 
determines the breach was caused primarily by quantity changes that 
were unrelated to poor performance. Tracking changes in research and 
development costs, which are not sensitive to quantity changes, would 
be one way DOD could evaluate program performance in this context. 

DOD Is Taking Steps Intended to Provide Earlier Warning of Potential 
Breaches and Plans to Propose Other Changes to the Nunn-McCurdy 
Process: 

DOD has instituted a process to provide earlier warning of potential 
breaches. Specifically, the Joint Staff has implemented a Nunn-McCurdy 
trip wire process, whereby some programs are reviewed when their 
current cost estimate exceeds either 10 percent of the current 
baseline or 25 percent of the original baseline. The process is 
intended to evaluate the factors that are contributing to cost growth 
so that programs can take mitigating actions. Officials stated that 
while it is too early to determine if the process successfully 
prevents critical breaches, they believe it has the potential to do 
so. Our analysis supports the need to identify breaches earlier 
because we found nearly 40 percent of Nunn-McCurdy breaches occurred 
after a production decision had been made--when a program has fewer 
options for restructuring. 

Additionally, the Undersecretary of Defense for Acquisition, 
Technology, and Logistics is currently drafting a proposed legislative 
amendment to reduce several statutory requirements for Nunn-McCurdy 
breaches of the critical cost growth threshold added in 2009, if DOD 
determines the breach was caused primarily by quantity changes that 
were unrelated to increases in unit cost. According to DOD officials, 
Excalibur is an example of a program that would qualify for this 
relief. The Excalibur program experienced a Nunn-McCurdy breach of the 
critical cost growth threshold after the Army reduced quantities from 
30,000 to 6,264. The quantity reductions were the result of Army 
assessments of munitions usage and needs, rather than in response to 
program-specific cost concerns. According to DOD officials, the 
proposed legislation would not apply to programs like the DDG-1000, in 
which quantities were decreased from 10 to 3 ships, in part in 
response to concerns about its affordability. One method of measuring 
cost growth that would not be sensitive to quantity changes is to 
analyze changes in research and development costs. This might also 
help to identify problem programs earlier in the acquisition process. 
We examined research and development cost increases for major defense 
acquisition programs in 2009 and found if the Nunn-McCurdy cost growth 
thresholds were applied to only research and development costs, nine 
programs that have not experienced a Nunn McCurdy breach would have 
experienced a breach of the critical threshold and four programs would 
have experienced a breach of the significant threshold.: 

Table 5: Programs That Would Experience a Breach if Nunn-McCurdy Cost 
Growth Thresholds Were Applied to Research and Development Costs: 

Program: CH-53K - Heavy Lift Replacement; 
Type of breach: Significant. 

Program: Cooperative Engagement Capability; 
Type of breach: Critical. 

Program: CVN-68 Class/Carrier Replacement Program (CVN 77); 
Type of breach: Critical. 

Program: Joint Mine Resistant Ambush Protected; 
Type of breach: Critical. 

Program: Joint Standoff Weapon; 
Type of breach: Critical. 

Program: Joint Tactical Radio System Handheld, Manpack, and Small Form 
Fit; 
Type of breach: Critical. 

Program: Joint Tactical Radio System Network Enterprise Domain; 
Type of breach: Critical. 

Program: LHA Replacement Amphibious Assault Ship; 
Type of breach: Significant. 

Program: Multifunctional Information Distribution System - Joint 
Tactical Radio System; 
Type of breach: Critical. 

Program: Patriot Advanced Capability - 3; 
Type of breach: Critical. 

Program: Patriot/Medium Extended Air Defense System Combined Aggregate 
Program Missile; 
Type of breach: Significant. 

Program: Stryker Family of Vehicles; 
Type of breach: Significant. 

Program: Warfighter Information Network-Tactical, Increment I; 
Type of breach: Critical. 

Source: GAO analysis of DOD data. 

[End of table] 

Agency Comments and Our Evaluation: 

DOD provided technical comments, which we incorporated as appropriate. 

As we agreed with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 20 days from the date of this letter. At that time, we will send 
copies of this letter to DOD and other interested congressional 
committees. In addition, these documents will be available at no 
charge on GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions, please contact me at (202) 512-4841 or 
sullivanm@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
letter. GAO staff members who made key contributions to this report 
are listed in enclosure II. 

Sincerely yours, 

Signed by: 

Michael J. Sullivan:
Director Acquisition and Sourcing Management: 

Enclosures - 2: 

[End of section] 

Enclosure I: Programs That Experienced a Nunn-McCurdy Breach and Their 
Contractors, 1997-2009: 

This enclosure provides a list of the contractors that were listed in 
Selected Acquisition Reports for programs that experienced a Nunn- 
McCurdy breach. 

Table 6: Programs That Experienced a Nunn-McCurdy Breach and Their 
Contractors, 1997-2009: 

Program: Advanced Anti-Tank Weapon System - Medium (Javelin); 
Contractors: Texas Instruments/Martin Joint Venture, Raytheon/ 
Lockheed Martin Joint Venture. 

Program: Advanced Extremely High Frequency Satellite; 
Contractors: Lockheed Martin. 

Program: Advanced Seal Delivery System; 
Contractors: Northrop Grumman. 

Program: Advanced Threat Infrared Countermeasures/Common Missile 
Warning System; 
Contractors: Lockheed Sanders Inc, BAE Systems. 

Program: Apache Block III; 
Contractors: McDonnell Douglas Helicopter, Longbow Limited Liability 
Company. 

Program: Armed Reconnaissance Helicopter; 
Contractors: Bell Helicopter Textron. 

Program: Army Tactical Missile System/BAT; 
Contractors: Lockheed Martin Missiles, Northrop Grumman Corporation, 
Vought Systems. 

Program: B-1B Conventional Mission Upgrade Program; 
Contractors: McDonnell Douglas/The Boeing Company. 

Program: C-130 Avionics Modernization Program; 
Contractors: The Boeing Company. 

Program: C-130J Hercules; 
Contractors: Lockheed Martin. 

Program: C-5 Reliability Enhancement and Reengining Program; 
Contractors: Lockheed Martin. 

Program: CH-47F Improved Cargo Helicopter; 
Contractors: Boeing Helicopters. 

Program: Chemical Demilitarization-Assembled Chemical Weapons 
Alternatives; 
Contractors: Bechtel National Inc., Bechtel Parsons BG. 

Program: Chemical Demilitarization-Chemical Materials Agency; 
Contractors: Bechtel National Inc., Westinghouse, Washington Demil 
Co., EG&G Defense Materials, Parsons Infra & Tech Group. 

Program: Chemical Demilitarization-Chemical Materials Agency Newport; 
Contractors: Parsons Infra & Tech Group. 

Program: Chemical Demilitarization Legacy; 
Contractors: Raytheon Engineers & Construction, Raytheon Demil 
Company, Bechtel National, INC, EG&G Defense Materials. 

Program: Comanche Reconnaissance Attack Helicopter; 
Boeing Sikorsky, LHTEC. 

Program: DDG 1000 Destroyer; 
Contractors: BAE Systems Armament Systems Division, Raytheon 
Integrated Defense Systems, Bath Iron Works, Northrop Grumman 
Shipbuilding. 

Program: E-2D Advanced Hawkeye; 
Contractors: Northrop Grumman Corporation. 

Program: Evolved Expendable Launch Vehicle - Atlas V, Delta IV; 
Contractors: Lockheed Martin Corporation, McDonnell Douglas 
Corporation. 

Program: Expeditionary Fighting Vehicle; 
Contractors: General Dynamics. 

Program: F/A-18E/F Super Hornet; 
Contractors: McDonnell Douglas, General Electric. 

Program: F-22 Advanced Tactical Fighter; 
Contractors: Lockheed Martin Aero Corporation, United Technologies 
Corporation. 

Program: F-35 Lightning II (previously Joint Strike Fighter); 
Contractors: Lockheed Martin, Pratt and Whitney, General 
Electric/Rolls-Royce. 

Program: Family of Medium Tactical Vehicles; 
Contractors: Stewart & Stevenson Services. 

Program: Force XXI Battle Command Brigade and Below; 
Contractors: DRS Tactical Systems, Northrop Grumman Space and Missile 
Systems. 

Program: Global Hawk; 
Contractors: Northrop Grumman Corporation. 

Program: Guided Multiple Launch Rocket System; 
Contractors: Lockheed Martin Missiles and Fire Control - Dallas. 

Program: H-1 Upgrades; 
Contractors: Bell Helicopter Textron. 

Program: Joint Air-to-Surface Standoff Missile; 
Contractors: Lockheed Martin. 

Program: Joint Primary Aircraft Training System; 
Contractors: Raytheon Aircraft, Raytheon Aerospace. 

Program: Joint Tactical Radio System Ground Mobile Radios; 
Contractors: The Boeing Company. 

Program: Land Warrior; 
Contractors: General Dynamics. 

Program: Longbow Apache; 
Contractors: Boeing Company, Longbow Limited Liability Co., Lockheed 
Martin Federal. 

Program: LPD 17 Class Amphibious Transport Dock Ship; 
Contractors: Avondale Alliance, Bath Iron Works. 

Program: MH-60R Multi-Mission Helicopter; 
Contractors: Lockheed Martin, Sikorsky Aircraft Corporation. 

Program: MH-60S Fleet Combat Support Helicopter; 
Contractors: Sikorsky Aircraft Company, Lockheed Martin Corporation. 

Program: National Polar-orbiting Operational Environmental Satellite 
System; 
Contractors: Northrop Grumman Space Technology. 

Program: Navstar GPS; 
Contractors: Boeing North American. 

Program: Navy Area Theater Ballistic Missile Defense; 
Contractors: Coleman Research Corporation, Lockheed Martin GES, 
Standard Missile Company, Raytheon Systems Corporation. 

Program: Presidential Helicopter Replacement (VH-71); 
Contractors: Lockheed Martin Systems Integration. 

Program: Remote Minehunting System; 
Contractors: Lockheed Martin. 

Program: Space Based Infrared System High; 
Contractors: Lockheed Martin Space Systems. 

Program: V-22 Joint Services Advanced Vertical Lift Aircraft (Osprey); 
Contractors: Allison Engine Co., Bell Boeing, Rolls Royce. 

Program: Virginia Class Submarine (SSN 774); 
Contractors: General Dynamics EB Corporation. 

Program: Warfighter Information Network - Tactical; 
Contractors: General Dynamics Government Systems. 

Program: Wideband Global SATCOM; 
Contractors: Boeing. 

Source: GAO analysis of DOD data. 

[End of table] 

[End of section] 

Enclosure II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Michael J. Sullivan, (202) 512-4841 or sullivanm@gao.gov. 

Acknowledgments: 

In addition to the contact named above, Ron Schwenn, Assistant 
Director; Robert Bullock; Kristine Hassinger; Leigh Ann Nally; Ken 
Patton; Morgan Delaney Ramaker; and Roxanna Sun made key contributions 
to this report. 

[End of section] 

Footnotes: 

[1] 10 U.S.C. § 2433. The statutory provision is known as Nunn-McCurdy 
because it was first introduced by Senator Nunn and passed as a 1-year 
provision as part of the Department of Defense Authorization Act, 
1982. 127 Cong. Rec. 9760-63 (1981); Pub. L. No. 97-86, § 917. The 
following year, Representative McCurdy introduced a permanent 
provision based on Senator Nunn’s provision, which was enacted as part 
of the Department of Defense Authorization Act, 1983. 128 Cong. Rec. 
18345-48 (1982); Pub. L. No. 97-252, § 1107. 

[2] We considered an entry to be a duplicate if the program reported 
the exact same breach over multiple Selected Acquisition Reports 
(SAR). The most common duplicates were significant breaches, which 
continue to be reported annually until a new acquisition program 
baseline is approved. 

[3] 10 U.S.C. § 2432. 

[4] The Nunn-McCurdy statute did not use the terms “significant” or 
“critical” to describe the cost growth thresholds until 2006, when the 
statute was amended by section 802 of the National Defense 
Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163. 

[5] Program acquisition unit cost is the total cost of development, 
procurement, acquisition operations and maintenance, and military 
construction divided by the number of units procured. Procurement unit 
cost is the total procurement cost divided by the number of units to 
be procured. 

[6] 10 U.S.C. § 2435(d). The original baseline estimate serves as the 
current baseline estimate until a revised acquisition program baseline 
is prepared. Department of Defense Instruction 5000.02, Operation of 
the Defense Acquisition System Enclosure 4, Table 6 (Dec. 8, 2008). 
(Hereinafter cited as DODI 5000.02 (Dec. 8, 2008)). 

[7] DOD can only revise the original baseline estimate if the program 
breaches the critical cost growth threshold. 10 U.S.C. § 2435(d). 

[8] The 2008 revision to DOD’s acquisition policy limits the 
circumstances in which the current baseline estimate may be revised 
to: (1) milestone decisions and full rate production, (2) as a result 
of a major program restructure that is fully funded and approved, or 
(3) as a result of a program deviation if primarily the result of an 
external cause beyond the control of the program manager. DODI 
5000.02, Enclosure 4, Table 6 (Dec. 8, 2008). 

[9] Weapon Systems Acquisition Reform Act of 2009, Pub. L. No. 111-23, 
§ 206 (codified at 10 U.S.C. § 2433a(b)). 

[10] National Defense Authorization Act for Fiscal Year 2006, Pub. L. 
No. 109-163, § 802. 

[11] DOD is required to submit SARs to Congress at the end of each 
fiscal year quarter on current major defense acquisition programs, 
although certain exceptions apply. SARs for the first quarter of a 
fiscal year are known as comprehensive annual SARs. Each comprehensive 
annual SAR is required to be submitted within 60 days after the date 
on which the President transmits the budget to Congress for the 
following fiscal year. 10 U.S.C. § 2432(b)(1), (c)(4), (f). While DOD 
is required to report breaches in quarterly SAR submissions, most 
breaches are typically reported in comprehensive annual SARs. 

[12] If a program and a subprogram or more than one subprogram 
breached in the same SAR, we counted that as one breach. 

[13] If a program reported a breach of both the significant and 
critical cost growth thresholds in the same SAR, we counted only the 
critical breach. If a program reported a breach of the significant 
cost growth threshold and subsequently reported a breach of the 
critical threshold before the program was rebaselined, we counted the 
two breaches separately. 

[14] GAO, Defense Acquisitions: Missile Defense Transition Provides 
Opportunity to Strengthen Acquisition Approach, [hyperlink, 
http://www.gao.gov/products/GAO-10-311] (Washington, D.C.: Feb. 25, 
2010). 

[15] GAO, Defense Acquisitions: Despite Restructuring, SBIRS High 
Program Remains at Risk of Cost and Schedule Overruns, [hyperlink, 
http://www.gao.gov/products/GAO-04-48] (Washington, D.C., Oct. 31, 
2003). 

[16] GAO, Defense Acquisitions: A Knowledge-Based Funding Approach 
Could Improve Major Weapon System Program Outcomes, [hyperlink, 
http://www.gao.gov/products/GAO-08-619] (Washington, D.C., July 2, 
2008). 

[17] [hyperlink, http://www.gao.gov/products/GAO-08-619]. 

[18] For this analysis, we considered an increase in research and 
development cost of at least 30 percent over the original estimate to 
be a breach of the significant cost growth threshold and an increase 
of at least 50 percent over the original estimate to be a breach of 
the critical cost growth threshold. 

[End of section] 

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