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Pentagon's top buyer targets cost growth in major programs

Jul. 15, 2013 - 06:00AM   |  
Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall briefs the media last year on the updates to Better Buying Power 2.0.
Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall briefs the media last year on the updates to Better Buying Power 2.0. (Thomas Brown / Staff file photo)

WASHINGTON — A data-driven review of big-ticket Pentagon programs going back 20 years shows that, no matter the platform or type of contract, the majority of developmental programs exceeded their planned budgets by 30 percent, a number that the Pentagon’s top weapons buyer says he wants to bring down.

“I don’t think it’s unusual for a development program to overrun by 10 to 20 percent,” Frank Kendall, undersecretary for acquisition, logistics and technology, told Defense News during a July 12 interview. “If we could get the average down from about 30 percent to 20 percent or 10 percent, I’d be very happy. But I want to avoid things that overrun by 200, 300 or 400 percent.”

Raytheon showed the least cost growth of the five major US Defense Department prime contractors, according to the report, “Performance of the Defense Acquisition System.”

A team of analysts within the DoD’s acquisition directorate compiled the data into the 126-page report over the past year. Kendall plans to update the report annually and release it in the spring. Additional data and analysis will be added within future updates of the report.

The study looked primarily at major acquisition programs since DoD collects the most data on these efforts.

“I put [the report] out with the idea in part that it would stimulate a lot of thought, and maybe dispel a few myths, and be a basis for a lot of more productive discussions that are based on how we are doing and what we can do to improve,” Kendall said.

“Over the years, our net performance has not changed very much, despite all the efforts at acquisition reform,” he said. “There’s a little bit of an indication we’re getting better, but it’s not dramatic and there’s a lot [of ] scatter in the data.”

The goal of the report is to “confront our own performance, try to understand it as thoroughly as we can and learn from it, and figure out what works and what doesn’t and where we should focus our efforts to improve,” Kendall said.

Jacques Gansler, who served as the Pentagon’s acquisition chief during President Clinton’s second term in the late 1990s, said the report is “really an important first step,” and the next step involves getting responses.

“It’s a real first cut at analysis, but there’s still a lot to be done,” Gansler said.

Kendall said he was most surprised that programs experienced similar cost growth under both fixed-price and cost-plus contract types.

“It could tell us that we’re using the right contract for the job that we’re doing,” he said. “It could also tell us that we’re not applying fixed price the way it should be applied.”

A more in-depth analysis will be done to better understand this trend, Kendall said.

“We should not be seeing large cost growth on those [types of] contracts,” he said.

Between 1992 and 2011, DoD development programs exceeded their planned budgets by an average of 30 percent, Kendall said.

DoD historically does a much better job projecting production costs than development costs, Kendall added.

As for contractors, Boeing developmental programs showed the most schedule growth, when compared with Lockheed Martin, Northrop Grumman, General Dynamics and Raytheon.

The information shows DoD has a difficult time purchasing and developing new helicopters. Between 1997 and 2011, 10 of 13 of its helicopter programs experienced cost growth at least 15 percent above original estimates.

Kendall said these programs need to be examined individually to determine the cause.

The Bell-Boeing V-22 Osprey tilt-rotor, Boeing-Sikorsky Comanche, Bell armed reconnaissance helicopter and Lockheed Martin VH-71 Presidential Helicopter Program collectively experienced tens of billions of dollars in development cost increases. The V-22 was the only one of these four to enter production.

Poor performance in the way contracts were set up and managed was identified as the cause of cost growth in 10 of 18 DoD programs where prices climbed more than 30 percent above the original estimate. Five of those 18 programs had unrealistic cost and schedule estimates, according to the report.

“The single most important factor in program success is the strength of the management team on the industry side and on the government side,” Kendall said. “Good managers, good chief engineers, good contracting people, good program managers on both sides will set up a program for success and they will manage it for success. All the process controls in the world can’t make up for poor management.”

Kendall hopes acquisition workforce professionalism initiatives in his Better Buying Power 2.0 acquisition reform effort will help improve these management issues.

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