Programs continue despite cost overruns, GAO says

Tuesday - 3/29/2011, 4:30pm EDT

WFED's Jared Serbu

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By Jared Serbu
Defense Reporter
Federal News Radio

A federal law intended to identify and fix or terminate Defense programs whose costs have begun to spiral out of control has succeeded in bringing such a program to an end only once in the last 14 years, Congressional investigators found in a report released Tuesday.

The statutory provision, known as the Nunn-McCurdy amendment, requires the Department of Defense to notify Congress when one of its program's costs grow beyond either 15 percent of its current baseline estimate or 30 percent of its original baseline estimate. An even higher trigger point, known as a critical breach under Nunn-McCurdy, occurs when costs balloon past 25 percent of the current baseline or 50 percent of the original baseline.

Government Accountability Office investigators found 74 breaches in 47 major Defense acquisition programs since 1997, the earliest date available in DoD databases. GAO found 18 of those programs had crossed the Nunn-McCurdy threshold more than once, and in one case—the Space-Based Infrared System High—the program reported four separate breaches.

Despite that, GAO was only able to identify one program that DoD cancelled because of repeated Nunn-McCurdy breaches: the Armed Reconnaissance Helicopter, although DoD has also terminated a number of programs for cost reasons on its own accord.

GAO detailed its findings in a report released Tuesday in response to a request by the Senate Homeland Security subcommittee on federal financial management.

Frank Kendall, principal deputy undersecretary of Defense for acquisitions, told the subcommittee that DoD has been grappling with the problem of cost overruns throughout the more than 30 years he has spent on the government side of Defense contracting.

The Defense Department, he said, is engaged in an effort to adopt a cost-conscious attitude to all of its activities, not only major weapons systems.

"We are trying to do everything we can to change the way people think about the money they're spending," Kendall said. "On the government side, that's a cultural change. That's an attitude change, and the way that people think about what success is. On the industry side, we have to have stronger incentives. We have to have consequences when people don't deliver. Most of the time we'd like to do that in fees. We often don't want to kill a program, we want to get the program, so we're strengthening our incentives to do that."

Kendall said DoD also was focused on tailoring its contracts to create clear, defined, affordable requirements, rather than signing onto technological hopes that might never materialize, as he said frequently happened with past acquisitions.

"We spent years in development, chasing a project that turned out to be unaffordable," he said. "And we were forced to eventually confront that it was unaffordable, kind of around the time that the Nunn-McCurdy breach would occur. That's way too late. We shouldn't be starting unaffordable programs. We're really stressing the beginning of the process."

GAO found Nunn-McCurdy breaches tend to spike following a change in acquisition laws or a change in presidential administrations.

Sen. Tom Carper (D-Del.), chairman of the subcommittee, said understaffing in the ranks of political appointees who would normally be keeping tabs on Defense programs also is to blame.

"We have executive branch Swiss cheese," Carper said. "Senators [Charles] Schumer, [Lamar] Alexander, myself and others are introducing a bill that will reduce by a third the number of folks who have to go through the confirmation process. The opposition to that is in some committees, where the committee chairs don't want to give up the ability to screen those 400 or 500 positions that we want to take out of the confirmation process."

Kendall, saying he was speaking for himself and not DoD, signaled he would be among the last to object to such a measure. He said the Senate delayed his own confirmation for months for political reasons that had nothing to do with his position.

"I was on hold for several months because of the tanker acquisition, which had nothing to do with my candidacy," he said. "It's a very onerous and time-consuming process. People are often held in limbo, and it's very hard to recruit people who know they're going to have to go through that process. I think those people could easily be brought in as non-career (senior executive service), and we'd have our team on board much more quickly."

This story is part of Federal News Radio's daily DoD Report. For more defense news, click here.

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