About one in three major U.S. Defense Department weapons programs since 1997 have had cost overruns of as much as 50 percent over their original projections, according to congressional auditors.
The overruns, found in 47 of 134 programs included in a study by the U.S. Government Accountability Office, were enough to trigger a law that requires congressional notifications and potential termination. Only a single program has been terminated during that review process -- the Bell Helicopter Textron $6.78 billion Army Armed Reconnaissance Helicopter, the GAO said.
The overruns “are often the result of multiple, interrelated factors,” including adding capabilities to the program, the GAO said in testimony prepared for delivery today before a Senate Homeland Security panel.
Still, “the primary reasons for unit cost growth that led to breaches were engineering and design issues, schedule issues and quantity changes,” the GAO said. Many program cost estimates also “were based on inaccurate assumptions,” it said.
Overruns occurred most often with aircraft, satellite and helicopter programs, according to the GAO.
The GAO report is based on a Pentagon database that contains information about programs dating to 1997. It is the most complete compilation of the size and scope of weapons overruns reported to Congress since the reporting law, known as Nunn-McCurdy, was enacted in 1982. It also includes a listing of defense contractors that managed the programs with the most cost breaches.
The testimony and a separate annual report on current weapons status, due today, may spur calls for budget cuts of more than the $78 billion planned by Defense Secretary Robert Gates for deficit reduction through fiscal year 2016.
Senator Tom Carper, a Delaware Democrat and the chairman of the panel holding today’s hearing, said the GAO testimony “highlights a troubling pattern” that “underscores a fiscal reality our nation must face -- we simply cannot balance our budget when we consistently pay hundreds of billions of dollars more than expected for our major weapons systems.”
“Too many of these projects are spiraling out of control,” Carper said. “When one in three major weapons systems experience cost overruns significant enough to trigger Nunn-McCurdy -- meaning, in some cases, over 50 percent -- we know we have a serious problem.”
Under a weapons acquisition reform bill signed into law in 2009, the Pentagon has stepped up scrutiny of weapons cost estimates in their early stages. The department is also compelling contractors to accept more financial risk through the increased use of fixed-price incentive fee contracts instead of contracts that require the government to pay for overruns.
The Joint Chiefs of Staff has also started a Nunn-McCurdy “trip wire” process to provide an early warning of significant cost growth.
“Our analysis supports the need to identify breaches earlier because we found that 40 percent occurred after a production decision had been made -- when a program had fewer options for restructuring,” the GAO said.
Eighteen programs reported overruns on multiple occasions that triggered the reporting and termination review process, said the oversight agency.
A Lockheed Martin Corp. satellite designed to provide early warning of a missile attack has had four formal cost breaches, the most of any program. It is scheduled to be launched around May 4, after a delay of nine years caused by technical and quality problems.
The Space Based Infrared Systems-High satellites are designed to orbit 23,300 miles in space, using staring sensors to spot missile launches. Their cost began at around $4.7 billion in 1996 and has increased to $15.1 billion, according to the GAO, which reported problems with the program in 2003.
Lockheed Martin managed or was teamed on 16 of the 47 programs that triggered Nunn-McCurdy, according to the listing.
One chronic area of concern is the military services’ underestimation of a program’s development costs.
Initial development of the General Dynamics Corp.-led Army Warfighting Information Network-Tactical, or WIN-T, was understated by at least $1.3 billion, “or nearly 160 percent as of July 2008 in part because the estimates assumed that commercial radio technology would be available,” the GAO said. “This assumption proved to be wrong.”