DOD Cost Overruns: Trends in Nunn-McCurdy Breaches and Tools to Manage Weapon Systems Acquisition Costs

This testimony discusses tools available to minimize Department of Defense (DOD) cost overruns and our recent work on the Nunn-McCurdy process. For nearly 30 years, the statutory provision known as Nunn-McCurdy has been a tool for Congress to use to hold DOD accountable for cost growth on major defense programs. 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. 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 two types of Nunn-McCurdy breaches: significant breaches and critical breaches. 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. 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 process has been amended a number of times over the years. For example, in the Weapon Systems Acquisition Reform Act of 2009, 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 of Defense submits a written certification to Congress. This statement focuses on (1) trends in Nunn-McCurdy breaches, (2) factors that may be responsible for these trends, (3) changes DOD is making or proposing to make to the Nunn-McCurdy process, and (4) other tools DOD can use to minimize cost overruns. This testimony includes information from our March 2011 report on Nunn-McCurdy breaches, which is being released today. The report contains information on the scope of our analysis and the methodology used. In addition, we drew on our published body of work on weapon system acquisitions and best practices to identify tools that can be used to minimize cost overruns.