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  • November 2014
    M T W T F S S
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Potential Savings Exist in MDAP

The current economic climate, record national debt, and automatic cuts to the Department of Defense (DOD) posed by sequestration have placed defense spending on the political front burner.  Leaders in Washington, even inside the Pentagon, have stated publicly the dangers of continued deficit spending.  On August 26, 2010, Admiral Mike Mullen, then-Chairman of the Joint Chiefs of Staff, referred to the national debt as the “single-biggest threat to our national security.”

DOD spending has risen dramatically over the past decade.  Without accounting for the wars in Iraq and Afghanistan, the budget for the DOD has more than doubled since 2001.  In 2011, the Pentagon’s budget accounted for more than half of U.S. discretionary spending.  The Major Defense Acquisition Program portfolio (MDAP) consists of programs that require research, development, testing, and evaluation expenditures in excess of $365 million (in fiscal year [FY] 2000 constant dollars), or procurement in excess of $2.19 billion (in FY 2000 constant dollars).  The portfolio has grown exponentially in recent years, from 54 programs in 2005 to 96 in 2011.  Currently, the MDAP contains programs with a total estimated lifetime acquisition cost of $1.58 trillion.  Unfortunately, many of the programs contained within the MDAP are riddled with cost overruns and delays, making them a good place to begin looking for savings whether or not sequestration is enacted.

According to the Government Accountability Office’s (GAO) annual report on the MDAP released in March 2012, the total acquisition cost of the programs over the past year has increased by more than $74.4 billion, or five percent.  Shockingly, the largest portion, $31.1 billion, is attributed to problems on the private contractor side, including “factors such as inefficiencies in production.”  Other causes for the substantial cost growth include $29.6 billion due to changes in quantities ordered and $13.7 billion because of rising research and development expenses.  In addition, the majority of MDAP programs have experienced unit-acquisition cost growth, meaning taxpayers are getting less bang for their bucks.

The GAO report blamed problems inherent in the defense acquisitions process for the rise in costs, stating that the majority of MDAP programs are not demonstrating knowledge at key decision points, which means that the acquisition processes are advancing under riskier circumstances.  Programs that move forward without adhering to a knowledge-based acquisition approach will contain technology, design, and production risks, leading to cost growth and delays.

Much of the cost growth of the MDAP can be attributed to a small number of programs, chiefly the F-35 Joint Strike Fighter (JSF).  Taxpayers have long been burned by the JSF procurement process, described by Acting Under Secretary of Defense for Acquisition, Technology, and Logistics Frank Kendall in February 2012 as “acquisition malpractice.”  According to the GAO report, the JSF is “the costliest, the poorest performer in terms of cost growth, and the program with the largest remaining funding needs,” and accounts for the majority of the research and development, procurement, and acquisition cost growth in the MDAP over the past year.  Critically, this growth occurred without alterations in the number of planes ordered.  Overall, the JSF program is set to cost $1.5 trillion over 55 years, a 50 percent increase from the original estimate of $1 trillion.

Congress has not used its main cost-cutting tool to combat overruns in defense acquisition programs.  The Nunn-McCurdy Amendment allows Congress to terminate DOD weapons procurement programs if total cost grows above 25 percent of the original estimate and the Defense Secretary fails to submit a letter certifying that the program is essential to national security, along with several other criteria.  It will probably not come as a surprise to learn that Nunn-McCurdy is not frequently utilized given the Pentagon’s predilection to continue acquisition programs despite cost overruns and for members of Congress to maintain funding regardless of performance.

On a positive note, the DOD has achieved substantial savings over the last several years by canceling several high-profile programs, such as the Future Combat System and the VH-71 Presidential Helicopter Replacement Program.  The DOD should reevaluate the necessity of each existing MDAP project with an eye toward achieving further savings, with more intense scrutiny applied to MDAP projects that have repeatedly breached Nunn-McCurdy.

The DOD should also adopt the GAO’s recommendations regarding a “knowledge-based acquisition approach.”  To reverse the latest trends of spiraling costs in the MDAP, it must incorporate within its procurement system a methodology that ensures contractors proceed with development only after determining that their technologies are mature and designs are stable.  This will help to limit future cost growth and delays.

The current economic climate necessitates reform in all areas of the budget.  Trimming the fat from the MDAP and reducing cost growth will allow the DOD to maintain priority acquisition programs while contributing to debt reduction, a concern of the highest strategic importance as characterized by the highest ranking officials – both civilian and military.

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