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Nunn-McCurdy Unable to Rein in Soaring F-35 Costs April 1, 2010

Posted by Alexander Brozdowski in Analysis.
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By Alex Brozdowski

Today the F-35 Joint Strike Fighter formally breached Nunn-McCurdy statutory provisions designed to contain defense acquisition costs.  The program has exceeded original estimates by over 50%, is years behind schedule, and is facing Nunn-McCurdy reporting for its second time. But it will not be canceled.

The episode underscores the limits of Nunn-McCurdy in controlling acquisition costs.  Critical breaches often lead to changes in program management or structure – as has already occurred with the Joint Strike Fighter. The law stops short, however, of automatically eliminating programs in breach.  Instead, it requires the Secretary of Defense to certify that these programs satisfy four criteria:

  1. The program is essential to national security.
  2. No program alternatives exist which provide equal or greater military capability at less cost.
  3. New estimates of unit cost are reasonable.
  4. Management structure is adequate to manage and control unit costs.

The statute permits each of these four items to be checked off with minimal explanation, and Congress seldom denies a certification. As a consequence, the rigor in the Nunn-McCurdy process depends heavily on the personalities of the Defense Secretary and of the members of Congress receiving the Secretary’s report.

To his credit, Secretary Gates and his staff have recently shown some initiative on cost control. In February, Secretary Gates replaced the F-35 project manager and withheld $614 million in performance fees from the lead contractor, Lockheed Martin. And just weeks ago, LTG Patrick O’Reilly, head of the Missile Defense Agency, announced that he would withhold funding from unnamed contractors for poor workmanship on missile interceptor components. Yet there is no insurance that their successors will continue this trend.

Such a personality-dependent approach to cost control is insufficient. Over the last decade, acquisition program costs have risen, development cycles have lengthened, and in 2008 the GAO concluded that nearly 70% of DOD’s 96 largest weapon programs went over budget.  Congress took steps to address these shortcomings in the Weapons Acquisition Reform Act of 2009 by establishing a new DOD office of Performance Assessments and Root Cause Analysis (PARCA).  Defense acquisition chief Ashton Carter expressed confidence on Monday that this office will help officials get “real-time updates” on the health of acquisition programs.

Establishing PARCA is a good start toward institutionalizing accountability.  Bringing DOD up to basic standards of financial auditing would be equally, if not more significant. The Nunn-McCurdy statute itself could also benefit from more objective certification requirements. Including rigorous performance measurements in certification requests would better inform Congress on exactly what it is buying.

Regrettably, absent these reforms and until PARCA matures, the JSF program is accelerating through procurement despite being far behind schedule and way over budget.

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