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Cover
================================================================ COVER


High-Risk Series

February 1997

DEFENSE WEAPON SYSTEMS ACQUISITION

GAO/HR-97-6

Defense Weapon Systems Acquisition


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  FYDP - Future Years Defense Program

Letter
=============================================================== LETTER



February 1997

The President of the Senate
The Speaker of the House of Representatives

In 1990, the General Accounting Office began a special effort to
review and report on the federal program areas its work identified as
high risk because of vulnerabilities to waste, fraud, abuse, and
mismanagement.  This effort, which was supported by the Senate
Committee on Governmental Affairs and the House Committee on
Government Reform and Oversight, brought a much-needed focus on
problems that were costing the government billions of dollars. 

In December 1992, GAO issued a series of reports on the fundamental
causes of problems in high-risk areas, and in a second series in
February 1995, it reported on the status of efforts to improve those
areas.  This, GAO's third series of reports, provides the current
status of designated high-risk areas. 

This report discusses our concerns about the Department of Defense's
annual expenditure of billions of dollars to acquire new weapon
systems.  It focuses on continuing weaknesses in the way major weapon
system requirements are determined, planned, budgeted, and acquired. 
The underlying conditions and cultural attitudes that help foster
these weaknesses have been addressed in more detail in our report
Weapons Acquisition:  A Rare Opportunity for Lasting Change
(GAO/NSIAD-93-15, Dec.  1992).  This report also focuses on our
ongoing evaluations of the Department's efforts to address these
long-standing problems. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of the Congress, the
Director of the Office of Management and Budget, and the heads of
major departments and agencies. 

James F.  Hinchman
Acting Comptroller General
of the United States


OVERVIEW
============================================================ Chapter 0

The national defense budget, measured in constant 1997 dollars,
declined from a peak of $415.8 billion in fiscal year 1985 to $269.9
billion in fiscal year 1996--a reduction of about 35 percent.  Even
though a large part of the reduction was in funding for the
development and procurement of new and improved weapon systems, the
Department of Defense (DOD) still spends about $79 billion annually
to research, develop, and acquire weapon systems.  While DOD's
expenditures have produced many of the world's most capable weapon
systems, its weapon system acquisition processes have often proved
costly and inefficient, if not wasteful. 


   THE PROBLEM
---------------------------------------------------------- Chapter 0:1

Despite DOD's past and current efforts to reform the acquisition
system, wasteful practices still add billions of dollars to defense
acquisition costs.  Many new weapon systems cost more and do less
than anticipated, and schedules are often delayed.  Moreover, the
need for some of these costly weapons, particularly since the
collapse of the Soviet Union, is questionable.  DOD has perpetuated
its history of establishing questionable requirements for weapon
systems; projecting unrealistic cost, schedule, and performance
estimates; and beginning production before adequate testing has been
completed.  These problems have been discussed in more detail in our
cross-cutting reports entitled Weapons Acquisition:  A Rare
Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec.  1992) and
Weapons Acquisition:  Low-Rate Initial Production Used to Buy Weapon
Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994) as well as in
our reports on individual programs (see Related GAO Products at the
end of this report). 


   PROGRESS
---------------------------------------------------------- Chapter 0:2

DOD's leadership has emphasized its commitment to reforming its
weapon system acquisition processes.  DOD's goal is to become the
world's smartest buyer, continuously reinventing and improving the
acquisition process while taking maximum advantage of emerging
technologies that enable business process reengineering.  In the area
of "what to buy," DOD is focusing its efforts on (1) greater reliance
on commercial products and processes and (2) more timely infusion of
new technology into new or existing systems.  In the area of "how to
buy," DOD's efforts have been directed at, among other things,
increasing teamwork and cooperation, encouraging risk management
rather than risk avoidance, reducing reporting requirements, and
reducing nonvalue-added layers of review and oversight.  In addition,
the Congress has passed a series of legislative reforms for the
system acquisition process. 


   OUTLOOK FOR THE FUTURE
---------------------------------------------------------- Chapter 0:3

The ultimate effectiveness of DOD's current initiatives to reduce the
costs and improve the outcomes of its acquisition processes cannot
yet be fully assessed because they are in various stages of
implementation.  DOD is pursuing a number of positive initiatives
that should, over time, improve the cost-effectiveness of its
acquisition processes and is reporting some success in terms of cost
savings or avoidance and other benefits.  However, it may take
several years of continued implementation before tangible results can
be documented and sustained. 

While these initiatives are commendable, DOD continues to (1)
generate and support acquisitions of new weapon systems that will not
satisfy the most critical weapon requirements at minimal cost and (2)
commit more procurement funds to programs than can reasonably be
expected to be available in future defense budgets.  The fundamental
reforms needed to correct these problems have not yet been
formulated, much less instituted, by DOD and the Congress.  However,
the likelihood of continuing fiscal constraints and reduced national
security threats should provide additional incentives for real
progress in changing the structure and dominant culture of DOD's
system acquisition processes. 


BACKGROUND
============================================================ Chapter 1

In our previous high-risk reports, we reported that, while DOD
continues to produce many of the world's most technologically
advanced and capable weapon systems, the processes through which
weapon requirements are determined and systems are acquired have
often proved costly and inefficient, if not wasteful.  DOD frequently
has experienced cost overruns, schedule delays, and performance
shortfalls in its weapon acquisition programs.  Too often, we found
that DOD

  -- acquired systems that were not the most cost-effective solution
     for mission needs;

  -- developed unrealistic cost, schedule, and performance estimates
     that led to program instability and cost increases;

  -- developed and supported programs that could not be executed as
     planned with available funds;

  -- established program acquisition strategies that were
     unreasonable or risky at best; and

  -- committed too much money before a program proved to be suitable
     for production and fielding. 

We reported that the underlying cause of these persistent and
fundamental problems was a prevailing culture dependent on
continually generating and supporting the acquisition of new weapons. 
Inherent in this culture are powerful incentives and interests that
influence and motivate the behaviors of participants in the
process--including components of DOD, the Congress, and industry.  It
is not unusual for these interests to override the need to satisfy
the most critical weapon requirements at minimal cost. 

We reported that cultural changes were needed to (1) control
interservice competition and self-interest that have led to the
acquisition of unnecessary, overlapping, or duplicative capabilities;
(2) discourage the overselling of programs through optimistic cost,
schedule, and performance estimates and the use of high-risk
acquisition strategies; and (3) limit the incorporation of immature
technologies into new weapons to reduce the risk of technological
failures. 

Our earlier high-risk reports noted that a number of acquisition
reforms either had been or were being implemented in response to (1)
studies like those done by the Packard Commission and other blue
ribbon panels, (2) the diminished Soviet threat, and (3) budget
reductions.  Nevertheless, our reports have noted that parochial
interests and incentives were delaying or preventing the timely
rationalization of defense weapon system requirements and
acquisitions in the post-Soviet threat era.  Many weapon systems were
being developed and produced, despite the fact that the Soviet threat
upon which they were justified had diminished.  We also noted that
defense cutbacks would require DOD to rely more on commercial
products and practices to reduce costs and ensure an adequate defense
industrial capability. 


WEAPON SYSTEMS ACQUISITION
PROBLEMS PERSIST
============================================================ Chapter 2

Although DOD has begun many acquisition reform initiatives since our
previous high-risk reports (see subsequent discussion), pervasive
problems persist regarding (1) questionable requirements and
solutions that are not the most cost-effective available; (2)
unrealistic cost, schedule, and performance estimates; (3)
questionable program affordability; and (4) the use of high-risk
acquisition strategies. 


   QUESTIONABLE REQUIREMENTS AND
   SOLUTIONS THAT ARE NOT THE MOST
   COST-EFFECTIVE AVAILABLE
---------------------------------------------------------- Chapter 2:1

DOD acquisition policies require analyses of missions, mission needs,
costs, and weapon system alternatives to ensure that cost-effective
solutions are matched to valid needs before substantial resources are
committed to a particular program.  An important objective is to
minimize overlap and duplication among weapon systems that perform
the same or similar missions.  This objective is of particular
concern when more than one service participates in similar mission
areas.  We have found that while the services conduct considerable
analyses in justifying major acquisitions, these analyses can be
narrowly focused, without full consideration of alternative
solutions, including the joint acquisition of systems with the other
services. 

In addition, because DOD does not routinely develop information on
joint mission needs and aggregate capabilities, it has little
assurance that decisions to buy, modify, or retire systems are sound. 
Based on our reviews of air power mission areas, for example, some
planned modernization programs will add only marginally to already
formidable capabilities, while the need for others has been lessened
by the changed security environment.  For some programs, there are
viable, less costly alternatives. 

We continue to uncover examples of questionable mission needs and of
systems that are not the most cost-effective solution to a mission
need.  For example: 

  -- The operational deficiencies in the F/A-18C/D aircraft cited by
     DOD to justify buying the F/A-18E/F either have not materialized
     as projected or can be corrected with nonstructural changes to
     the C/D.  Furthermore, the E/F's operational capabilities will
     be only marginally improved over the C/D model but will cost an
     additional $17 billion.  Continuing to procure and upgrade the
     F/A-18C/D in the interim would be more cost-effective. 

  -- Although the Navy plans to remanufacture 72 of the AV-8B day
     attack model aircraft and convert them to aircraft with night
     attack and radar capabilities, procuring new AV-8B radar attack
     aircraft would be more cost-effective. 

  -- The Navy continues to develop and plans to produce a $249
     million upgrade to the propulsion system of the MK-48 torpedo. 
     However, the need for the upgrade is questionable because it is
     based on faulty assumptions regarding the launching submarine's
     reduced vulnerability to enemy attack. 

  -- The Joint Tactical Unmanned Aerial Vehicle Projects Office
     continued to proceed with the acquisition of the $340 million
     Hunter shipboard variant, even though all Navy fleet commanders
     stated that they did not want the system on Navy ships.  Until
     the program was terminated by DOD, the Navy was at risk of
     investing in a system that would not be used. 

  -- The Army and the Navy continue to pursue combat identification
     systems--at a cost of more than $4 billion--based on different
     technologies without fully considering how and at what cost
     these systems would be integrated. 

  -- After more than 4 years of advanced development, some Navy
     officials questioned whether the intercooled recuperated gas
     turbine engine would provide a viable and timely return on the
     investment of over $400 million needed to develop it.  However,
     the Navy continues to develop the engine as a preplanned product
     improvement for its destroyers. 

  -- The Longbow Hellfire missile procurement plan is inadequate
     because about 3,200 unrequired missiles are to be procured for
     $540 million to $750 million.  Also, a significant number of
     missiles will be procured and lose up to one-half of their
     shelf-life before Longbow Apache aircraft are available. 

  -- The Army overstated expected benefits and understated technical
     risks associated with major systems included in its helicopter
     modernization strategy.  Some users were concerned that the
     strategy could result in an inappropriate mix and quantity of
     helicopters and therefore adversely affect their operational
     effectiveness.  Also, DOD and Army studies did not fully
     consider alternatives that could accomplish many of the planned
     roles and missions of the strategy's centerpiece--the Comanche. 


   UNREALISTIC COST, SCHEDULE, AND
   PERFORMANCE ESTIMATES
---------------------------------------------------------- Chapter 2:2

In our 1992 high-risk report, we noted that the desire of program
sponsors to keep cost estimates as low as possible and to present
attractive milestone schedules had encouraged the use of unreasonable
assumptions about the pace and magnitude of the technical effort,
material costs, production rates, savings from competition, and other
factors.  We noted that in DOD's culture, the success of
participants' careers is more dependent on moving programs through
the process than on achieving better program outcomes.  Accordingly,
overselling a program works in the sense that programs are started,
funded, and eventually fielded.  The fact that a given program costs
more than estimated, takes longer to field, and does not perform as
promised is secondary to fielding a "new and improved" system. 

We continue to find examples where program projections appear to be
overly optimistic and risks excessive in light of the current budget
and security environment: 

  -- The Joint Air-to-Surface Standoff Missile Program contains
     significant schedule and cost risks.  The plan is to develop and
     initially deploy the Air Force's most capable precision-guided
     munition in 5 years for no more than $700,000 per missile. 
     However, the plan does not appear to allow enough time to
     develop and test the complex technology needed and to integrate
     the missile into the appropriate aircraft. 

  -- DOD's recurring flyaway cost estimate of $44 million per unit
     (in fiscal year 1996 dollars) for the F/A-18E/F is understated. 
     This estimate is based on buying a total of 1,000 aircraft and
     producing 72 aircraft per year.  However, both quantities are
     overstated because the Marines no longer plan to buy the
     F/A-18E/F, and the Congress has questioned the affordability of
     producing 72 aircraft per year.  We have calculated that by
     reducing the number of aircraft to be procured and the annual
     production rate to more realistic goals, the E/F unit recurring
     flyaway costs would more likely be $53 million (in fiscal year
     1996 dollars). 

Also, in our 1995 high-risk report, we stated that the quality and
credibility of cost information available to decisionmakers remain a
problem.  DOD has acknowledged, and our financial statement audit
work has consistently confirmed, significant problems in the
comprehensiveness and accuracy of DOD's reported cost information. 
Most recently, in March 1996, we reported that the Navy's financial
reports excluded billions of dollars invested in building aircraft
and missiles and modernizing weapon systems.  We also found that the
Navy's reported costs for ships under construction did not include
all relevant costs, such as those for outfitting and post delivery. 


   QUESTIONABLE PROGRAM
   AFFORDABILITY
---------------------------------------------------------- Chapter 2:3

We reported in 1992 that DOD's Future Years Defense Program (FYDP)
could not be executed with available funds.  We concluded that DOD's
tendency to overestimate the funding that would be available in the
future, coupled with the tendency to underestimate program costs, had
resulted in the advent of more programs than could be executed as
planned.  When DOD finally faced funding reality, it often reduced,
delayed, and/or stretched out programs--substantially increasing the
cost of each system.  In addition to the higher unit costs caused by
program stretchouts, another downside to the affordability issue is
DOD's potential inability to address valid requirements when
available resources are consumed on questionable priorities.  For
example, the Army chose to use most of its available resources to
procure Comanche helicopters and upgrade Apache helicopters and
deferred or canceled the funding of other Army helicopter
modernization programs, such as medical evacuation and cargo
helicopters, that the Army believes are important to the performance
of its aviation missions. 

Again, in our 1995 high-risk report, we noted that the imbalance
between resources and programs in DOD's 1995-99 FYDP could exceed
$150 billion.  The spending plan contained billions of dollars in
understated costs and overstated savings and reductions, such as (1)
less costs and more savings than expected from base closures, (2)
less costs than expected for environmental remediation and
peacekeeping operations, (3) more savings than expected from the
Defense Management Report Initiatives, (4) understated cost growth in
weapon system acquisitions, and (5) understated inflation estimates. 
In addition, DOD used undistributed future adjustments that amounted
to unspecified overprogramming. 

We continue to find numerous problems with DOD's budgeting and
spending practices for weapon system acquisitions.  For example: 

  -- In analyzing the infrastructure-related program elements of the
     FYDP, we found no significant net infrastructure savings to DOD
     between fiscal year 1996 and 2001.  Nonetheless, DOD is pursuing
     a number of major system acquisition programs on the assumption
     that such savings will materialize. 

  -- In June 1996, we testified that DOD's ambitious aircraft
     modernization program did not appear to be affordable, given
     reasonable expectations of available funding.  We pointed out
     that the proposed level of aircraft investments was more
     consistent with the former Cold War era than with the current
     security environment. 


   HIGH-RISK ACQUISITION
   STRATEGIES
---------------------------------------------------------- Chapter 2:4

We reported in 1992 and 1995 that high-risk acquisition strategies
were being based on the need to meet the threat and to reduce
acquisition costs.  We noted that one common characteristic of
high-risk strategies is the acquisition of weapons based on
optimistic assumptions about the maturity and availability of
enabling technologies.  We recommended that research and technology
efforts be disassociated from weapon programs until they reach the
demonstration and validation phase (now called the program definition
and risk-reduction phase). 

We also reported in 1992 and 1995 on the high-risk practice of
beginning production of a weapon system before development, testing,
and evaluation are complete.  When a highly concurrent strategy is
used, critical decisions are made without adequate information about
a weapon's demonstrated operational effectiveness, reliability,
logistic supportability, and readiness for production.  Also, rushing
into production before critical tests have been successfully
completed has resulted in the purchase of systems that do not perform
as intended.  These premature purchases have resulted in lower-than-
expected availability for operations and have quite often led to
expensive modifications.  In late 1994, we reported that DOD's policy
to begin low-rate initial production of weapons without doing any
operational testing and evaluation had resulted in the procurement of
substantial quantities of unsatisfactory weapons.  These weapons
required costly modifications, and in some cases, substandard systems
were deployed to combat forces.  We noted that in today's national
security environment, proceeding with low-rate production without
demonstrating that the system will work as intended should rarely be
necessary.  Nevertheless, DOD still begins production of many major
and nonmajor weapons without first ensuring that the systems will
meet critical performance requirements, as indicated in the following
examples: 

  -- The F-22 aircraft program involves considerable technical risk
     because it embodies important technological advances that are
     critical to its operational success.  Nevertheless, DOD plans to
     begin producing the F-22 well before beginning initial
     operational testing and to commit to the production of 80
     aircraft at a cost of over $12 billion before initial
     operational testing is complete. 

  -- Under the Army's restructured Comanche program, production
     decisions will be made before operational testing starts,
     thereby continuing the high degree of risk associated with
     concurrent development and production.  However, the extension
     of the development phase and the acquisition of six additional
     aircraft under the restructured program provide the Army with
     the opportunity to conduct operational testing before committing
     funds to any production. 

  -- The Army's strategy to accelerate production of the Joint Stars
     Ground Stations unnecessarily risks millions of dollars on an
     unproven system.  Because earlier versions of the ground station
     have performed poorly in developmental tests and have not
     completed an operational test, we believe that buying more
     systems than are needed for operational testing significantly
     raises the risk of procuring a costly and ineffective system. 

  -- Despite numerous performance problems that surfaced in
     developmental tests of the ALR-67(V)3 radar warning receiver,
     the adverse consequences from the premature procurement of
     earlier versions of the ALR-67, and the production of sufficient
     test articles for all operational testing, the Navy plans to
     begin low-rate production before determining the system's
     operational effectiveness and suitability through completion of
     operational testing. 

  -- The Army plans to commit funds for producing 40 early prototype
     interceptors of the Theater High Altitude Area Defense System
     well before testing provides assurance of the system's
     capabilities, even though the program has already experienced
     significant cost, schedule, and technical performance problems. 
     Also, the Army does not need these interceptors for testing but
     has plans for deploying them as needed. 

  -- The Joint Tactical Unmanned Aerial Vehicle Project Office plans
     to start low-rate production of the Maneuver System before its
     performance is demonstrated in operational testing.  In
     addition, the units to be produced are not intended for
     operational testing, one of the key rationales for starting
     initial production. 

  -- The Air Force continued to buy the ALQ-135 Band 3 jammer despite
     its deficient performance, resulting in the premature deployment
     of systems with limited capability to protect the F-15. 
     Although developmental tests showed the Band 3 to have serious
     performance flaws, the Air Force procured most of the total
     program quantity without demonstrating acceptable operational
     performance. 


ACQUISITION REFORM INITIATIVES
============================================================ Chapter 3

The reduced Soviet threat and declining defense budgets have created
both an opportunity and a challenge for DOD to reform its weapon
system acquisition processes.  In our 1992 high-risk report, the need
for and the nature of acquisition reforms centered on improving
weapon requirements determination and acquisition organizations and
processes.  In our 1995 report, we state that while these reforms
remain critical, the impact of reduced defense procurement on the
defense industry, together with the budget-driven need to reduce
procurement costs, elevated the importance of reform efforts designed
to broaden DOD's industrial base by increasing reliance on commercial
products and processes.  The Secretary of Defense stated that, to
meet the new national security challenges, DOD must

  -- maintain its technological superiority and a strong national
     industrial base by relying more on commercial state-of-the-art
     products and technology, assisting companies in the conversion
     from defense-unique to dual-use production, aiding in the
     transfer of military technology to the commercial sector, and
     preserving defense-unique core capabilities and

  -- reduce acquisition costs (including overhead costs) through the
     adoption of business processes characteristic of world-class
     buyers. 

DOD continues to implement a variety of acquisition reform
initiatives and is reporting some success in terms of cost savings or
avoidance and other benefits.  We are now evaluating the status of
several of these initiatives.  However, it is too soon to fully
assess the extent to which these changes are reducing costs and
improving outcomes of current defense acquisition programs. 


   ONGOING ACQUISITION REFORM
   INITIATIVES
---------------------------------------------------------- Chapter 3:1

DOD's goal is to become the world's smartest buyer, continuously
reinventing and improving its acquisition processes while taking
maximum advantage of emerging technologies that enable business
process reengineering.  Two of the areas that DOD is emphasizing are
the requirements determination and resource allocation
processes--"what to buy"--and the acquisition process--"how to buy."

In terms of "what to buy," DOD's efforts have focused on (1) greater
reliance on commercial products and processes and (2) more timely
infusion of new technology into new or existing systems.  For
example: 

  -- On June 29, 1994, the Secretary of Defense signed a directive
     entitled "Specifications and Standards--A New Way of Doing
     Business." As a result, (1) requirements in solicitations are
     being described in performance terms; (2) if military or federal
     specifications or standards are necessary, waivers must first be
     obtained; and (3) solicitations for new acquisitions that cite
     military or federal specifications or standards typically also
     contain language encouraging offerors to propose alternatives. 
     DOD has made significant progress in disposing of the huge
     inventory of military specifications and standards through
     cancellation, consolidation, conversion to a guidance handbook,
     or replacement with a performance specification or nongovernment
     standard. 

  -- The use of cooperative agreements and other transactions appears
     to provide some opportunities to remove barriers between the
     defense and civilian industrial bases, in particular by
     attracting firms that traditionally did not perform research for
     DOD. 

  -- The Advanced Concept Technology Demonstration Program emphasizes
     the ability to reduce operational risk early in the acquisition
     process, to compress the acquisition cycle time, and to
     stimulate innovation.  This program allows technologists and
     operational users to work together as a team to assess the
     usefulness of mature technologies.  It also gives experienced
     military commanders an opportunity to develop the operational
     concepts that address current and future military needs prior to
     major acquisition decisions and large dollar commitments. 

  -- To assist the Joint Requirements Oversight Council in advising
     the Chairman of the Joint Chiefs of Staff on joint war-fighting
     capabilities, the joint warfare capability assessment process
     was established in 1994.  If key acquisition decisions are
     thoroughly addressed at such higher organizational levels,
     competing demands, available resources, and the needs of theater
     commanders could be more fairly assessed before a specific
     program is started.  However, based on our recent review of
     DOD's combat air power capabilities and programs, the joint
     warfare capability assessment process could be improved by
     conducting more comprehensive assessments of joint requirements
     and existing capabilities.  The broader assessments would help
     the Secretary of Defense make the difficult tradeoff decisions
     across the services that may be required. 

In considering "how to buy," DOD has focused on increasing teamwork
and cooperation, encouraging risk management rather than risk
avoidance, reducing reporting requirements, and reducing layers of
review and oversight that add no value.  For example: 

  -- DOD has designated a number of participants for the Defense
     Acquisition Pilot Program.  The participants are given
     regulatory relief from certain statutes, regulations, and
     internal DOD acquisition directives.  Savings are expected from,
     among other things, the reduction of intrusive government
     oversight in contractors' plants and reduced documentation
     requirements. 

  -- As a result of the recommendations from an internal DOD team
     that reviewed the oversight and review process for major
     systems, the Secretary of Defense directed the use of integrated
     product teams.  The purpose of the teams, which include all the
     acquisition process stakeholders, is to build more successful
     acquisition programs by developing executable and affordable
     program strategies and plans and to identify and resolve
     problems early.  This directive shows a fundamental shift in
     practice from conducting after-the-fact oversight to early
     problem identification and correction by program stakeholders. 
     The use of integrated product teams is accompanied by the
     elimination of a one-size-fits-all approach to decision
     documentation. 

  -- In March 1996, DOD issued an update to its regulations governing
     the acquisition of major weapon systems.  Among other things,
     this update (1) incorporated new laws and policies, including
     the Federal Acquisition Streamlining Act; (2) separated
     mandatory policies and procedures from discretionary practices;
     and (3) reduced the sheer volume and complexity of the
     regulations. 

  -- In its December 1994 report, The DOD Regulatory Cost Premium:  A
     Quantitative Assessment, the management consulting firm of
     Coopers and Lybrand identified over 120 regulatory and statutory
     "cost drivers" that increase the price DOD pays for goods and
     services.  In response to the study, DOD established a working
     group to track myriad reforms to reduce the cost of managing and
     overseeing DOD's contracts.  Although DOD expects substantial
     savings from reforming DOD's management and oversight
     requirements, we found that the savings are likely to be
     significantly less than expected. 

  -- In the past 2 years, DOD has developed policies and procedures
     that reflect a broader approach to ensuring that products
     perform the way they are supposed to.  The approach is based on
     teaming with the contractor to control processes while reducing
     reliance on inspection.  We concluded that the results of this
     approach could be enhanced if DOD implemented some of the
     advanced quality concepts found in the commercial world. 

In addition to DOD's efforts, the Congress has enacted reforms in the
Federal Acquisition Streamlining Act of 1994 and the Clinger-Cohen
Act of 1996.  Some of the reforms involve fostering the development
of measurable cost, schedule, and performance goals and incentives
for acquisition personnel to reach those goals.  Among other things,
the legislation requires federal agencies to (1) establish cost,
schedule, and performance goals for acquisition programs and annually
report on their progress in meeting those goals; (2) establish
personnel performance incentives linked to the achievement of the
goals; and (3) submit recommendations for legislation to facilitate
and enhance the management of acquisition programs and the
acquisition workforce based on performance.  We recently reported
that DOD had complied with the majority of the requirements in these
areas.  However, DOD has not yet established a personnel system with
enhanced incentives.  DOD reports a number of barriers to
establishing such a system. 

DOD is also striving to reduce costs through an initiative known as
"cost as an independent variable." Under this initiative, once the
system performance and target cost are decided (on the basis of cost-
performance tradeoffs), the assumption is that the acquisition
process will make cost more a constraint and less a variable but
that, nonetheless, the needed effectiveness and suitability of the
system will be assured.  Today, threats are not increasing in
capability at as fast a rate as in the past, and the DOD acquisition
budget is decreasing in response to this changed national security
environment.  Therefore, it is more appropriate to make cost a
stronger driver in system design.  Such an approach is also more
consistent with commercial practices in new system developments,
where market forces drive the price at which a new system can be
offered.  DOD expects this initiative to provide quality products
that fully meet the warfighter's needs but allow for substantial
reductions in their costs; more stability for each program; shorter
program cycle times; and innovative design, manufacturing, support,
and contracting approaches. 


WHAT NEEDS TO BE DONE
============================================================ Chapter 4

Success in achieving greater integration of DOD and commercial
products and practices, as with the other acquisition reforms, will
require DOD to overcome cultural and structural barriers.  DOD has
the ingredients for making lasting improvements to its weapon system
acquisition processes--the need, the opportunity, and the leadership. 
Nevertheless, it is too soon to tell how successful DOD will be in
overcoming cultural and structural barriers.  In our opinion,
achieving real and lasting change will require DOD's continued
commitment to full and effective implementation of acquisition reform
strategies and initiatives, along with congressional support. 

While we support DOD's reengineering of its weapon system acquisition
processes, not all of the specific reforms are sufficient.  For
example, in 1994, we recommended that DOD establish better controls
over the start and continuation of low-rate initial production.  DOD
agreed to consider our specific suggestions when it updated its
acquisition regulations.  However, in the 1996 update of those
regulations, DOD included no controls over low-rate initial
production.  We believe DOD missed an opportunity to reduce the risk
of prematurely starting production.  Also, DOD needs to be careful in
its zeal to reduce unnecessary documentation and oversight
requirements so that it does not, in effect, eliminate the functions
necessary to ensure that acquisition programs are meeting their
objectives in a cost-effective manner. 

Finally, DOD and the Congress need to take much stronger actions to
effectively control the influence of the acquisition culture,
particularly as it (1) generates and supports the acquisition of new
weapon systems that do not necessarily satisfy the most critical
weapon requirements at minimal cost and (2) willingly commits more
procurement funds to programs than can reasonably be expected to be
available in future defense budgets.  Although many recommendations
from a variety of sources have addressed these long-standing issues,
little or no effective action has yet been taken.  Some of the
suggestions that should be given serious consideration include

  -- planning programs and resources on a joint mission basis;

  -- examining cost and performance tradeoffs among alternatives more
     rigorously before a particular approach is chosen;

  -- making the warfighters responsible for participating in the
     selection of weapon systems based on joint mission needs and
     deciding whether or not a program is affordable;

  -- linking program decisions in a more durable way to DOD's
     long-term budget;

  -- maintaining continuous competitive alternatives to solve mission
     needs throughout the acquisition process;

  -- aggressively pursuing high-risk (breakthrough) technology before
     weapon system research and development; and

  -- conducting programs in an environment of stable funding and
     management. 

These reforms will be difficult to implement, but DOD and the
Congress must take aggressive steps to address a culture that has a
very strong influence on almost every facet of DOD's weapon system
acquisition processes. 


RELATED GAO PRODUCTS
============================================================ Chapter 5

Acquisition Reform:  Implementation of Title V of the Federal
Acquisition Streamlining Act of 1994 (GAO/NSIAD-97-22BR, Oct.  31,
1996). 

Combat Air Power:  Joint Mission Assessments Needed Before Making
Program and Budget Decisions (GAO/NSIAD-96-177, Sept.  20, 1996). 

Best Practices:  Commercial Quality Assurance Practices Offer
Improvements for DOD (GAO/NSIAD-96-162, Aug.  26, 1996). 

Navy Aviation:  F/A-18E/F Will Provide Marginal Operational
Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996). 

Acquisition Reform:  Efforts to Reduce the Cost to Manage and Oversee
DOD Contracts (GAO/NSIAD-96-106, Apr.  18, 1996). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, Apr.  4, 1996). 

Comanche Helicopter:  Testing Needs to Be Completed Prior to
Production Decisions (GAO/NSIAD-95-112, May 18, 1995). 

Tactical Aircraft:  Concurrency in Development and Production of F-22
Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr.  19, 1995). 

High-Risk Series:  Defense Weapon Systems Acquisition (GAO/HR-95-4,
Feb.  1995). 

Electronic Warfare:  Most Air Force ALQ-135 Jammers Procured Without
Operational Testing (GAO/NSIAD-95-47, Nov.  22, 1994). 


1997 HIGH-RISK SERIES
============================================================ Chapter 6

An Overview (GAO/HR-97-1)

Quick Reference Guide (GAO/HR-97-2)

Defense Financial Management (GAO/HR-97-3)

Defense Contract Management (GAO/HR-97-4)

Defense Inventory Management (GAO/HR-97-5)

Defense Weapon Systems Acquisition (GAO/HR-97-6)

Defense Infrastructure (GAO/HR-97-7)

IRS Management (GAO/HR-97-8)

Information Management and Technology (GAO/HR-97-9)

Medicare (GAO/HR-97-10)

Student Financial Aid (GAO/HR-97-11)

Department of Housing and Urban Development (GAO/HR-97-12)

Department of Energy Contract Management (GAO/HR-97-13)

Superfund Program Management (GAO/HR-97-14)
























The entire series of 14 high-risk reports can be ordered using the
order number GAO/HR-97-20SET.