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Acquisition Reform: Effect on Weapon System Funding (Letter Report, 10/29/97, GAO/NSIAD-98-31).

GAO reviewed the military services' estimated acquisition reform cost
reductions on 63 major weapons programs to determine the extent to which
the reported cost reductions from acquisition reform will provide funds
from approved budgets to support weapons modernization.

GAO noted that: (1) while GAO continues to support the Department of
Defense's (DOD) effort to reform its acquisition processes, GAO's review
raises concerns about the extent to which cost reductions from
acquisition reform that the services have reported will be available to
fund DOD's modernization program in the near term; (2) of the $29
billion in estimated cost reductions reported by the services, GAO's
analysis shows that only $7.2 billion or 25 percent of the reductions
are expected to occur between 1995 and 2002 from an approved budget; (3)
most of the remaining $21.8 billion reported by the services are
reductions that either occured before 1995 or are anticipated to occur
beyond fiscal year (FY) 2002; (4) a significant portion of the $7.2
billion had been used to meet needs within the program generating the
reduction; (5) acquisition reform cost reductions may be offset by cost
increases elsewhere in the programs; (6) analysis of 33 of the 63
programs reporting acquisition reform cost reductions shows that after
taking into account these reductions and after adjusting for inflation
and quantities of systems being bought, total acquisition costs for
these programs increased an average of 2 percent; (7) this suggests that
the estimated cost reductions from acquisition reform are being offset
by cost increases elsewhere in the programs or reinvested within the
programs; (8) consequently, few funds will be available for other DOD
acquisition programs; and (9) classified programs and others that could
not be fairly compared to the baseline were excluded from the analysis.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-31
     TITLE:  Acquisition Reform: Effect on Weapon System Funding
      DATE:  10/29/97
   SUBJECT:  Defense procurement
             Procurement practices
             Defense cost control
             Advanced weapons systems
             Cost analysis
             Budget cuts
             Defense economic analysis

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


Report to the Secretary of Defense

October 1997

ACQUISITION REFORM - EFFECT ON
WEAPON SYSTEM FUNDING

GAO/NSIAD-98-31

Acquisition Reform

(707155)


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

  DOD - Department of Defense
  GPS - Global Positioning System
  JTIDS - Joint Tactical Information Distribution System
  JDAM - Joint Direct Attack Munition
  O&M - operations and maintenance
  SAR - Selected Acquisition Reports

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


B-272651

October 29, 1997

The Honorable William Cohen
The Secretary of Defense

Dear Mr.  Secretary: 

Over the last several years, the Department of Defense (DOD) has
placed priority attention on reforming its acquisition processes and
has emphasized that savings resulting from acquisition reforms are
needed to help fund weapons modernization.  Responding to a request
by the Under Secretary of Defense for Acquisition and Technology, the
military services estimated acquisition reform cost reductions on 63
major weapon programs.  We have reviewed the services' estimates to
determine the extent to which the reported cost reductions from
acquisition reform will provide funds from approved budgets to
support modernization. 


   BACKGROUND
------------------------------------------------------------ Letter :1

In March 1996, the Under Secretary of Defense for Acquisition and
Technology directed DOD service acquisition executives and the
Director, Defense Logistics Agency, to provide consistent data
supporting their acquisition reform cost reduction estimates. 
According to DOD, the services generally used the 1995 President's
budget as the baseline for estimating cost reductions because it
reflected the financial and program content of weapon programs in
mid-1994, before DOD's current acquisition reform efforts were
implemented.  The services compared the 1995 President's budget to
the 1997 President's budget to estimate cost reductions from
acquisition reform.  They also estimated the cost reductions relating
to current acquisition reform initiatives beyond fiscal year 2002. 

As we discussed in our recent high-risk report\1 on defense weapon
systems acquisition, the ultimate effectiveness of DOD's current
initiatives to reduce the cost 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 could, over time, improve the effectiveness
of its acquisition processes.  However, it may take several years of
continued implementation before tangible results can be documented
and sustained. 


--------------------
\1 High-Risk Series:  Defense Weapon Systems Acquisition
(GAO/HR-97-6, Feb.  1997). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

While we continue to support DOD's effort to reform its acquisition
processes, our review raises concerns about the extent to which cost
reductions from acquisition reform that the services have reported
will be available to fund DOD's modernization program in the near
term. 

Of the $29 billion in estimated cost reductions reported by the
services, our analysis shows that only $7.2 billion, or 25 percent of
the reductions, are expected to occur between 1995-2002 from an
approved budget.  Most of the remaining $21.8 billion reported by the
services are reductions that either occurred before 1995 or are
anticipated to occur beyond fiscal
year 2002.  A significant portion of the $7.2 billion had been used
to meet needs within the program generating the reduction. 

Our review also indicates that acquisition reform cost reductions may
be offset by cost increases elsewhere in the programs.  Our analysis
of 33 of the 63 programs reporting acquisition reform cost reductions
shows that after taking into account these reductions and after
adjusting for inflation and quantities of systems being bought, total
acquisition costs for these programs increased an average of 2
percent.  This suggests that the estimated cost reductions from
acquisition reform are being offset by cost increases elsewhere in
the programs or reinvested within the programs.  Consequently, few
funds will be available for other DOD acquisition programs.  We
excluded classified programs and others that could not be fairly
compared to the baseline from our analysis. 


   ONE QUARTER OF DOD'S ESTIMATED
   COST REDUCTIONS REFLECT
   REDUCTIONS FROM APPROVED
   BUDGETS
------------------------------------------------------------ Letter :3

The services estimated that acquisition reform reduced the cost of
acquiring major weapon systems by about $29 billion.  However, our
review indicated that only about one quarter of that amount ($7.2
billion) represents reductions from approved budgets and is expected
to occur between fiscal year 1995 and 2002.  About $5.6 billion
represents unbudgeted cost reductions based on actions occurring in
years before the baseline 1995 President's budget and about $13.9
billion is expected to occur after fiscal year 2002--the last year
covered by the President's 1997 budget.  The remaining $2.3 billion
of the $9.5 billion in cost reductions of the services' estimates
occurring between fiscal year 1995 and 2002 were unbudgeted cost
reductions.  (See fig.  1.)

   Figure 1:  DOD's Estimated Cost
   Reductions From Acquisition
   Reform

   (See figure in printed
   edition.)

DOD reported cost reductions from acquisition reform for 63 of its
major weapon programs.  Ten of these programs account for about 65
percent of the estimated $29-billion reduction in the cost of
developing and procuring these programs.  One program, the Air
Force's C-17 program, accounts for $5.4 billion, or about 19 percent
of the $29 billion.  In February 1997, we reported that C-17 program
costs had only decreased by $174 million.\2 Although the C-17 program
production costs decreased, these savings were offset by increases
for research and development, aircraft modifications, military
construction, and field support.  Figure 2 shows DOD's estimated cost
reductions due to acquisition reform for the 10 programs claiming the
largest reductions.  (See app.  I for a description of each of these
10 weapon programs and the types of acquisition reform initiatives
DOD says it is implementing to achieve the cost reductions.)

   Figure 2:  Weapon Programs
   Claiming the Largest
   Acquisition Reform Cost
   Reductions

   (See figure in printed
   edition.)


Among the services, the Air Force is claiming the largest amount of
total acquisition reform cost reductions, estimated at $14.9 billion,
or
51.6 percent.  The Navy follows with about $8.9 billion (30.6
percent), and the Army with about $5.2 billion (17.8 percent). 


--------------------
\2 Military Airlift:  Options Exist for Meeting Requirements While
Acquiring Fewer C-17s (GAO/NSIAD-97-38, Feb.  19, 1997). 


   ESTIMATED COST OF MAJOR WEAPON
   PROGRAMS INCREASED DESPITE
   ACQUISITION REFORM
------------------------------------------------------------ Letter :4

Using estimates contained in the December 1993 and December 1995
Selected Acquisition Reports (SAR), we analyzed the costs for 33 of
63 weapon programs reporting acquisition cost reductions to determine
the effect of acquisition reform on program cost estimates.  The 33
programs account for about $17.7 billion of the $29 billion in
acquisition reform cost reductions reported by the services (see app. 
III).  Our analysis shows that the cost of the programs increased, on
average, by about 2 percent, after adjusting for quantity changes and
inflation.  Among the services, the Army showed a 0.5-percent
decrease, the Navy an increase of 1.4 percent, and the Air Force
showed an increase of 3.2 percent. 

Twenty-three of the 33 programs experienced an average cost increase
of 3.1 percent, with the increase ranging from 0.5 to 66 percent. 
Cost increases for these programs ranged from $19.9 million to $2.2
billion and averaged about $478 million (fiscal year 1997 dollars). 
These increases suggest that acquisition reform cost reductions for
these programs have been offset by cost increases or by reinvestments
within the programs.  Ten of the programs we analyzed experienced
cost decreases ranging from 0.3 to 19 percent, with an average cost
decrease of 4 percent.  The cost reductions for these programs ranged
from $15.3 million to $716.1 million with an average decrease of
$293.4 million (fiscal year 1997 dollars). 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :5

In commenting on a draft of this report, DOD generally concurred with
the comments and views presented in the report and stated that DOD
shares our concern about the extent to which acquisition reform cost
reductions would be available to fund modernization.  DOD's comments
are presented in their entirety in appendix IV. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

We analyzed the services' estimates of cost reductions attributed to
acquisition reform for development and procurement of their major
weapon programs.\3 To determine if acquisition reform initiatives
generated additional funds for modernization, we compared the cost
estimates of 33 of the 63 programs reporting acquisition reform cost
reductions to determine whether the costs had increased or decreased. 
Initially, we included all major weapon systems that reported
acquisition reform cost reductions.  However, we then eliminated 30
programs that (1) had classified cost information, (2) did not have a
SAR that we could use as a baseline, (3) experienced a significant
program restructuring, and/or (4) did not report production costs for
the system. 

Our methodology was adapted from one previously used by our office
and the Rand Corporation to evaluate the effect of acquisition reform
on weapon system costs.\4 For the 33 programs selected for analysis,
we used current program estimates from the December 1993 SAR as a
baseline and compared them to the current estimate of the December
1995 SAR.  These two periods were selected because they coincided
with the time periods DOD used to estimate cost reductions from
acquisition reform.  The programs were adjusted for quantity changes
and the effects of inflation because such changes are often caused by
forces outside the program.  We normalized the quantity differences
between the 1993 and 1995 SARs by adjusting the total costs reported
in the December 1995 SAR to reflect the 1993 SAR baseline quantity. 
To normalize the quantity, we subtracted the cost changes attributed
to variances in program quantities.  This is one of three common
techniques used to normalize quantity.\5

To determine any cost differences between the December 1993 and 1995
SAR, we calculated the cost variance for each system by comparing the
adjusted current estimate of the December 1995 SAR total program cost
to the current estimate of the December 1993 SAR.  All of the
calculations were performed using base year dollars.  In some cases,
the base year dollar from the December 1993 SAR differed from the
December 1995 SAR.  In those cases, we used the same inflator the
program used to inflate the December 1993 SAR information.  If the
SAR did not contain information on the inflation factor that was
used, we used the DOD deflators published by the Office of the Under
Secretary of Defense (Comptroller). 

The results using this methodology have three important limitations: 

  -- First, the results of our analysis cannot be exclusively linked
     to the acquisition reform initiatives because of the effect of
     other factors such as prior improvement programs, program
     stretch-outs, and other unknown factors. 

  -- Second, the acquisition reform initiatives have only been in use
     for a few years.  The full cost impact of acquisition reform
     will likely not be known for several years until programs
     developed and produced under the new acquisition process are
     delivered. 

  -- Third, the effect of reinvesting the cost reductions in programs
     cannot be separated from other program cost changes. 

The National Defense Authorization Act for Fiscal Year 1997 required
DOD to conduct a Quadrennial Defense Review.  As part of the review,
DOD assessed a wide range of issues, including the defense strategy
of the United States and the force structure required to support that
strategy.  As a result, DOD may reduce the quantities being bought of
some weapon programs.  Our analysis does not take into account the
effect of any restructuring resulting from the Quadrennial Defense
Review. 

We reviewed reports from the Congressional Research Service and DOD,
as well as our own prior reports.  We also interviewed Office of the
Secretary of Defense, Navy, Army, and Air Force officials responsible
for developing and implementing acquisition reform. 

This review was conducted in accordance with generally accepted
government auditing standards. 


--------------------
\3 For the purposes of this report, we define cost reductions as
reductions to the costs of developing and procuring weapon systems. 
We exclude reductions claimed in operations and maintenance (O&M)
costs since most programs did not report O&M cost reductions.  Of the
total of about $16 billion in O&M cost reductions that was reported,
about $14 billion was claimed by the LPD-17 program, which estimated
that the reductions would occur after fiscal year 2002. 

\4 Acquisition:  DOD's Defense Acquisition Improvement Program:  A
Status Report (GAO/NSIAD-86-148, July 23, 1986) and Edmund Dews and
Giles K.  Smith, Acquisition Policy Effectiveness:  Department of
Defense Experience in the 1970s, Rand Corp.  (R2516-DR&E, Oct. 
1979). 

\5 Paul G.  Hough, Pitfalls in Calculating Cost Growth from Selected
Acquisition Reports Rand (N-3136-AF, 1992). 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to appropriate congressional
committees; the Secretaries of the Army, the Navy, and the Air Force;
and the Director of the Office of Management and Budget.  Copies will
be made available to others upon request. 

If you or your staff have any questions concerning this report,
please contact me on (202) 512-4841.  Major contributors to this
report were Charles W.  Thompson, Assistant Director; Jose A.  Ramos,
Evaluator-in-Charge; and Mary Offerdahl, Senior Evaluator. 

Sincerely yours,

David E.  Cooper
Associate Director
Defense Acquisitions Issues


WEAPON PROGRAMS CLAIMING THE
LARGEST ACQUISITION REFORM COST
REDUCTIONS
=========================================================== Appendix I


   C-17 GLOBEMASTER III
--------------------------------------------------------- Appendix I:1

The C-17 is a wide body, air refuelable, four engine, turbofan
aircraft that is the replacement for the C-141 transport, and it will
complement the larger, but less maneuverable, C-5 aircraft.  The Air
Force's C-17 program estimated cost reductions of about $5.4 billion
due to acquisition reform cost reductions.  This amount was arrived
at by adding the $2.7 billion in savings resulting from a Should Cost
review, $1.7 billion in savings projected from accelerating the
production schedule, and $1 billion in savings due to using a
multiyear procurement strategy.\1 The Air Force attributed these
reductions to the use of acquisition streamlining, best practices,
and cost reduction initiatives.  Specifically, according to the Air
Force, it used integrated product teams and reduced specifications,
standards, and contract data requirements.  Also, the team identified
reductions in direct labor, overhead, and work to offload from the
prime contractor to suppliers. 

In February 1997, we reported that despite the cost reduction
initiatives taken by the government and the contractor, the total
estimated program cost for the C-17 had only decreased by about $174
million from the $43 billion January 1994 Air Force cost estimate.\2
C-17 production cost savings were offset by increased cost estimates
for research and development, aircraft modifications, military
construction, and field support.  The contract prices for the last 50
aircraft could increase by an additional $1 billion because of the
ceiling prices contained in the multiyear production contract. 


--------------------
\1 In 1994, the Air Force performed a should cost review to promote
economies and efficiencies that would make the C-17 program more
affordable.  This review covered the remaining 88 aircraft buy. 

\2 For additional information on the C-17 program, see Military
Airlift:  Options Exist for Meeting Requirements While Acquiring
Fewer C-17s (GAO/NSIAD-97-38, Feb.  19, 1997). 


   F/A-18 E/F NAVAL STRIKE FIGHTER
--------------------------------------------------------- Appendix I:2

The Navy's F/A-18 E/F program follows prior unsuccessful attempts to
modernize the Navy's tactical aviation fleet.  The program originated
from the 1988 Hornet 2000 study conducted by the Naval Air Systems
Command and McDonnell Douglas Aerospace Corporation and was approved
as a major modification program in 1992.  This aircraft is a
high-performance twin-engine, multimission aircraft that provides
flight escort, interdiction, fleet air defense, close-air support,
and tactical reconnaissance.  According to the Navy, the estimated
total program cost will be $89.2 billion, $5.8 billion in development
costs and $83.4 billion in procurement costs for 1,000 aircraft.\3

According to the Navy, the program avoided about $3 billion in costs
prior to fiscal year 1995.  It attributes these cost avoidances to
innovations and changes in the relationship with the contractors that
led to a design that could affordably meet operational mission and
inventory requirements.  A multidisciplinary government-industry
integrated product team was used throughout the engineering and
manufacturing design process.  Concurrent design and manufacturing
implementation efforts, according to the Navy, eliminated serial work
and multiple design iterations.  In addition, investment in high
speed machining, laser alignment tools, and use of modern tooling
techniques contributed to achieving the affordability goal, according
to the Navy. 


--------------------
\3 For additional information on the F/A-18 E/F program, see Navy
Aviation:  F/A-18E/F Will Provide Marginal Operational Improvement At
High Cost (GAO/NSIAD-96-98, June 18, 1996). 


   JOINT DIRECT ATTACK MUNITION
--------------------------------------------------------- Appendix I:3

The Joint Direct Attack Munition program (JDAM) is a joint Air Force
and Navy program to provide current fighter and bomber aircraft the
capability to accurately and precisely attack fixed, or relocatable,
land and maritime targets under adverse weather conditions from
medium and high altitudes.  JDAM is a tail guidance kit, consisting
of an inertial navigation system aided by the Global Positioning
System (GPS), that is used to upgrade existing general purpose bombs. 
Through controlled tail fin movements, the kit directs the bomb to
the target.\4

The Air Force estimates that the JDAM program cost reductions will be
about $3 billion.  Research, development, test, and evaluation cost
savings accounted for $49.8 million of the $78.1 million reported as
cost reductions from an approved budget.  These cost reductions were
attributed to efficient use of wind tunnel testing, which resulted in
reducing or eliminating some tests, reduced the cost of test
instrumentation, and streamlined the B-1/JDAM test program.  The Air
Force attributed the remainder ($28.3 million) to reducing the unit
costs from $42,000 to $14,000.  The balance of the cost reduction is
comprised of a $2.9-billion cost avoidance, which the Air Force
attributes to the reduction in the unit price of the system.  The
Under Secretary of Defense (Acquisition and Technology) designated
JDAM as one of the Defense Acquisition Pilot Programs.\5


--------------------
\4 For additional information, see Joint Direct Attack Munition: 
Low-Rate Initial Production Decision (GAO/NSIAD-97-116R, Mar.  17,
1997). 

\5 Defense Acquisition Pilot Programs are given regulatory and
statutory relief to explore new approaches to doing business. 


   JAVELIN ADVANCED ANTITANK
   WEAPON SYSTEM-MEDIUM
--------------------------------------------------------- Appendix I:4

The Javelin program is a joint Army and Marine Corps program expected
to increase the infantry's lethality against advanced armor threats. 
Javelin is a man portable, fire-and-forget, antitank weapon system
that is composed of two major components--a command launch unit and a
round, which is a missile sealed in a disposable launcher container. 
For operation of the system, the round is mated with the launch unit,
but the launch unit may also be used in a stand-alone mode for
battlefield surveillance and target detection.  The Army expects
Javelin to defeat armored targets out to distances of 2,000 meters,
during the day or night and in adverse weather.\6

The Army estimates that Javelin cost reductions will be about $1.4
billion.  According to the Army, cost reduction efforts, accelerated
procurement, multiyear contracting, and a productivity improvement
program will result in these savings.  The procurement savings were
used to accelerate production and finance producibility and operation
and support cost reduction initiatives, and a portion was returned. 


--------------------
\6 For additional information on this program, see Army Acquisition: 
Javelin Is Not Ready for Multiyear Procurement (GAO/NSIAD-96-199,
Sept.  26, 1996). 


   DDG-51 GUIDED MISSILE DESTROYER
--------------------------------------------------------- Appendix I:5

The DDG-51 is a multimission guided missile destroyer that can
operate independently or as a unit of Carrier Battle Groups and
Surface Action Groups, in support of Underway Replenishment Groups
and Marine Amphibious Task Forces.  These ships operate in
multithreat environments that include air, surface, and subsurface
threats.  Further, the DDG-51 can respond to low intensity
conflict/coastal and littoral offshore warfare in addition to open
ocean conflict providing or augmenting power projection and forward
presence requirements.  The ship features an all steel hull and
deckhouse and a gas turbine engine propulsion system. 

The DDG-51 program estimates that it will save over $1.2 billion in
program costs.  Part of the savings was attributed to an
affordability initiative started by the program manager who
voluntarily offered to reduce the program's budget by $30 million per
ship, beginning with the Flight IIA ships in fiscal year 1994.  The
program office maintains a database to track the initiatives and
estimates that the program will achieve about $20 million of the $30
million.  According to program officials, the savings were achievable
due to adherence to acquisition reform principles. 


   F-22 ADVANCED TACTICAL FIGHTER
--------------------------------------------------------- Appendix I:6

The F-22, the Air Force's next-generation air superiority fighter, is
expected to be a low-observable, highly maneuverable aircraft and is
to be used to penetrate enemy airspace and achieve a first-look,
first-kill capability by using air-to-air weapons against enemy
aircraft.  The F-22 is characterized by its low observable highly
maneuverable airframe, a new engine capable of supersonic cruise
without having to use an afterburner, and advanced integrated
avionics. 

According to the Air Force, the F-22 achieved cost savings of $5
million by reducing contract data requirements and staffing.  In
addition, the F-22 achieved a cost avoidance of $1.1 billion by
employing lean logistics, according to the Air Force.  These savings
may be offset by the recommendations of the F-22 Joint Cost
Estimating Team, which recommended extending the engineering and
manufacturing development phase to reduce program risk.  As a result,
an additional $2.2 billion will be required, which, the Air Force
says, will be funded by eliminating $706 million budgeted for
preproduction verification aircraft and infusion of $1,453 million,
which is funded by extending the production ramp up and decreasing
the number of aircraft procured during production ramp up.  In
addition, the Joint Cost Estimating Team expects to contain the $13.1
billion in production cost growth through the use of multiyear
contracts, producibility enhancements, business and human resource
consolidations, outsourcing, and aggressive material management.  Our
review of the Air Force's F-22 restructuring plan found that the
projected costs are optimistic.\7 The Air Force's planned reductions
are greater than those achieved on prior fighter programs. 


--------------------
\7 For additional information, see Tactical Aircraft:  Restructuring
of the Air Force F-22 Fighter Program (GAO/NSIAD-97-156, June 4,
1997). 


   NAVSTAR GPS
--------------------------------------------------------- Appendix I:7

NAVSTAR GPS is a space-based radio positioning, navigation, and time
distribution system.  GPS provides precise, continuous, all-weather,
common-grid positioning, velocity, navigation, and time reference
capability to multiple users worldwide.  The GPS Block IIF program is
expected to develop, produce, verify, and field and support space and
ground systems to sustain GPS in the next century.  The Air Force
anticipates procuring 33 Block IIF satellites. 

The Air Force estimates that GPS cost reductions exceeded $1 billion. 
According to the Air Force, the GPS Block IIF program saved $181
million by implementing acquisition reform and competing the
satellite buy.  In addition, the program reduced the number of
military specifications and military standards from 100 to 2 and
reduced the number of contract data requirements from 300 to 3. 
Further savings were achieved by using a multiyear procurement to
purchase the Block IIF satellites, as well as the use of commercial
off-the-shelf hardware and software for the satellite production and
the control system development.  In addition, the program estimated
an additional $821 million in unbudgeted cost reductions that were
attributed to the same efforts used to achieve the savings
reductions. 


   LONGBOW APACHE
--------------------------------------------------------- Appendix I:8

This program reported cost reductions of $1 billion.  All helicopters
in the Apache fleet are to be modernized with new avionics and be
capable of firing both the laser-guided Hellfire missile and a
radar-aided Longbow Hellfire "fire-and-forget" missile.  These
improvements are designed to, among other things, allow the Apache to
conduct precision attacks in adverse weather, automatically engage
multiple targets, and operate on the digital battlefield of the
future.  Additionally, 227 of the 758 upgraded Apaches will be
equipped with a new mast-mounted, millimeter-wave fire control radar
and more powerful engines.  The Longbow Apache weapon system is
composed of three components--a modernized Apache helicopter, a fire
control radar, and a Longbow Hellfire missile. 

The Army plans to upgrade 227 of its AH-64A Apache attack helicopters
into a new version known as the AH-64D Longbow Apache.  The $1
billion cost reduction is attributed to continuous use of a multiyear
procurement strategy and increasing the yearly quantities to an
economic order quantity of 72 aircraft per year.  Additionally, the
Longbow Apache has incorporated a number of acquisition reform
initiatives, according to the Army.  For example, in the request for
proposals, the Army said performance specifications replaced 18
military specifications, military standards were reduced from 29 to
1, and the statement of work was reduced from 113 to 25 pages. 
Further, the contract data requirements were reduced from 117 to 14,
and the DOD Cost/Schedule Control System Criteria were replaced with
the contractors' management systems.  These cost savings for aircraft
procurement, according to the Army, were applied within the program
to increase the procurement quantities in the first multiyear
contract and the outyear savings were given back to the service. 


   LPD-17 AMPHIBIOUS TRANSPORT
   DOCK SHIP
--------------------------------------------------------- Appendix I:9

The Navy estimates that the LPD-17 program, a functional replacement
for the LPD-4, LSD-36, LKA-113, and LST-1179 classes of amphibious
ships used for embarking, transporting, and landing elements of the
Marine landing force, will avoid $1 billion in procurement costs. 
According to the Navy, acquisition reform reduced costs due to a
reduction of specifications, equipment, and the application of
advanced computerized modeling and simulation.  Procurement cost
avoidances of $1 billion were achieved, according to the Navy, by
eliminating the need for a dual-source arrangement for the program. 
The Navy expects to improve the ship's quality and reduce ownership
costs by selecting higher quality systems and components during ship
design and construction.  Also, they expect to avoid costs by using
more commercial design and construction methods and the use of
commercial off-the-shelf equipment. 


   JOINT TACTICAL INFORMATION
   DISTRIBUTION SYSTEM
-------------------------------------------------------- Appendix I:10

The Joint Tactical Information Distribution System (JTIDS) is a
family of terminals to provide improved combat capability in fighter
aircraft, command and control centers, and surface air defense units
by providing real-time, netted, jam-resistant, secure data, and voice
communications.  JTIDS is a joint service program with the Air Force
as the lead service. 

The Air Force estimates that JTIDS cost reductions exceeded $745
million.  According to the Air Force, the JTIDS program office
incorporated various acquisition reform initiatives that contributed
to reducing the cost of the terminals.  The Air Force estimated a
$143-million cost reduction in terminal production costs from
acquisition reform initiatives such as eliminating contract data and
testing requirements.  In addition, Multifunction Information
Distribution System terminal costs were reduced by $486 million by
implementing the cost savings initiatives developed by the Air
Force's Affordability Manufacturing Technology Demonstration program. 


DEPARTMENT OF DEFENSE ESTIMATES OF
ACQUISITION REFORM COST REDUCTIONS
BY PROGRAM
========================================================== Appendix II

                              (Dollars in millions)

                             Acquisition
                                  reform     Total cost from     Total cost from
                          cost reduction           12/93 SAR           12/95 SAR
--------------------  ------------------  ------------------  ------------------


Air Force programs
--------------------------------------------------------------------------------
Advanced Medium                   $701.0           $12,917.2           $11,388.0
 Range Air-to-Air
 Missile
E-3 Airborne Warning               211.7               893.4               903.4
 and Control System
 Radar
B-1 Conventional                     8.2              No SAR             1,089.1
 Mission Upgrade
 Program
B-2 Advanced                        60.0              No SAR              No SAR
 Technology Bomber
C-130J                             300.5              No SAR              No SAR
C-17A Globemaster                5,366.0            21,368.1            41,750.6
 III
Cheyenne Mountain                   15.0             1,652.0             1,761.4
 Update/Cheyenne
 Mountain Complex C/
 ITWAA
Common Missile                     207.7            See Army            See Army
 Warning System
Defense                              0.0             2,042.2             2,343.4
 Meteorological
 Satellite Program/
 NPOESS
F-22 Air Superiority             1,129.7            71,590.9            70,093.1
 Fighter Program
NAVSTAR GPS                      1,002.0            11,538.1            16,840.1
JDAM                             2,960.3               681.5             2,470.6
Joint Primary                      300.0               302.8             3,663.8
 Aircraft Training
 System
Joint Service                       18.9               666.6               646.2
 Imagery Processing
 System
Joint Surveillance                  42.7             9,043.9             9,351.6
 Target Attack Radar
 System
JTIDS                              745.5             2,005.3             2,089.8
MILSTAR                            578.6          Classified          Classified
Space Based Infrared               644.0              No SAR             2,576.8
 System
Titan IV Expendable                661.8            37,708.5            23,562.2
 Launch Vehicle

Army programs
--------------------------------------------------------------------------------
Advanced Field                       0.1               949.7             1,161.6
 Artillery Tactical
 Data System
Advance Threat                      27.2              No SAR             3,378.2
 Infrared
 Countermeasures/
 Common Missile
 Warning System
Abrams Upgrade                     744.0             6,397.8             6,694.2
Longbow Apache                   1,001.5             8,211.8             8,275.2
Brilliant Anti-                     50.2             3,254.0             3,042.1
 Armor Submunitions
Blackhawk UH-60L                   133.2             9,970.2             4,778.6
Bradley Fighting                   296.6             4,185.3             4,125.9
 Vehicle System
 Upgrade
Chemical                             6.6              No SAR            13,612.6
 Demilitarization
Crusader                            29.0              No SAR             2,641.1
Family of Medium                     0.1            15,875.3            16,376.0
 Tactical Vehicles
Joint Surveillance                 $15.8            $1,585.7            $1,387.1
 Target Attack Radar
 System Ground
 Service Module
Javelin                          1,425.5             5,096.6             3,826.2
Longbow Hellfire                     0.0             3,498.1             2,606.9
Multiple Launch                     12.5             6,281.5             6,802.8
 Rocket System
Palletized Load                      8.6             1,042.2             1,237.2
 System
Patriot (PAC-3, DOD)               158.0             1,772.0             5,899.3
Sense and Destroy                   12.9             4,785.0             2,703.6
 Armor (SADARM )
Single Channel                     264.6             4,366.3             3,806.2
 Ground and Airborne
 Radio System
Secure Mobile Anti-                540.0               944.8               978.5
 Jam Reliable
 Tactical Terminal
Army Tactical                      340.4             2,590.5             4,409.1
 Missile System
Theater High                       101.5             4,819.0             4,947.2
 Altitude Air
 Defense

Navy programs
--------------------------------------------------------------------------------
Sidewinder AIM-9X                  134.4              No SAR               682.3
AN/SQQ-89 Surface                   48.0             3,820.0             3,996.1
 Ship Undersea
 Warfare Combat
 System
AV-8B Remanufacture                 21.8              No SAR             2,318.3
Cooperative                        367.8              No SAR             2,587.8
 Engagement
 Capability
DDG-51 Destroyer                 1,195.0            56,799.9            57,095.2
E-2C Hawkeye Carrier               590.6              No SAR             3,331.1
 Based Airborne
 Early Warning
 Command and Control
 System
EHF SATCOM                          47.1             2,334.0             2,150.2
F/A-18C/D                           24.0            38,921.3                 0.0
F/A-18E/F                        3,000.0            89,128.1            80,958.7
Joint Standoff                     143.0             2,878.0            10,564.9
 Weapon System
LHD-1                               55.0             8,514.4             7,907.9
LPD-17 Amphibious                1,000.0                59.1                72.9
 Transport Dock Ship
Multifunction                       12.0             1,092.1             1,129.9
 Information
 Distribution
 System-Low-Volume
 Terminal
New Attack Submarine               555.3              No SAR            64,891.4
 Program
Standard Missile-2                   1.0             8,263.8             8,759.5
 Block I, II, III,
 A, B
Standard Missile-2                   0.3             4,915.5               864.7
 IV
SSN-21 Seawolf-AN/                  62.8            12,908.2            13,124.3
 BSY-2
Naval Undergraduate                 41.8             5,980.9             5,417.0
 Jet Flight Training
 System (T-45TS)
Tomahawk                           566.2            12,649.8            13,847.1
Trident II Missile                 190.0            25,513.5            27,702.5
UHF Follow-on                     $185.0            $1,720.5            $1,868.5
 Communication
 Satellite
V-22                               639.9             6,636.4            46,599.7
--------------------------------------------------------------------------------

LIST OF WEAPON SYSTEMS WE REVIEWED
========================================================= Appendix III

                              (Dollars in millions)

                                   12/95 SAR
                                     Program                          Percent of
                                        cost                 Program     program
                                  normalized                    cost        cost
                                         for   12/93 SAR    Increase    Increase
                            Base    quantity     Program          or          or
          Program           year     changes        cost  (decrease)  (decrease)
Service   ------------  --------  ----------  ----------  ----------  ----------
Army      Advanced          1996    $1,133.6      $919.9      $213.7          23
           Field
           Artillery
           Tactical
           Data System
          Brilliant         1991     2,508.0     2,578.1      (70.1)         (3)
           Anti-Armor
           Submunition
           s
          Blackhawk         1971     1,858.7     1,917.5      (58.8)         (3)
           UH-60L
           Utility
           Helicopter
          Bradley           1994     3,455.4     3,065.6       389.8          13
           Fighting
           Vehicle
           System
           Upgrade
          Joint             1989     1,064.4     1,272.9     (208.5)        (16)
           Surveillance
           Target
           Attack
           Radar
           System
           Ground
           Service
           Module
          Javelin           1990     3,382.6     3,728.8     (346.2)         (9)
           Advanced
           Anti-Tank
           Weapon
           System-
           Medium
          Longbow           1996     7,366.6     7,010.6       356.0           5
           Apache
          Longbow           1996     2,402.9     2,968.0     (565.0)        (19)
           Hellfire
           Missile
           System
          Multiple          1978     3,118.3     3,052.8        65.5           2
           Launch
           Rocket
           System
          Palletized        1993       896.3       997.6     (101.3)        (10)
           Load System
          Sense and         1989     1,502.9       906.7       596.2          66
           Destroy
           Armor
          Single-           1984     2,597.5     3,090.6     (493.1)        (16)
           Channel
           Ground and
           Airborne
           Radio
           System
          Secure            1992       811.0       754.3        56.7           8
           Mobile
           Anti-Jam
           Reliable
           Tactical
           Terminal
          Average Cost                                                     (0.5)
           Increase or
           (Decrease)
Navy      AN/SQQ-89         1985     3,418.9     3,429.8      (10.9)        (<1)
           Surface
           Ship
           Antisubmari
           ne Warfare
           System
          DDG-51            1987    41,948.2    41,023.5       924.7           2
           Guided
           Missile
           Destroyer
          F/A-18 E/F        1990    54,687.6    53,858.8       828.8           2
           Naval
           Strike
           Fighter
          LHD-1             1982     6,042.2     6,288.8     (246.6)         (4)
           Amphibious
           Assault
           Ship
          Navy EHF          1990     1,891.7     1,875.0        16.7           1
           SATCOM
           Program
          SSN-21/AN/        1990    12,201.2    12,039.9       161.3           1
           BSY-2
           Attack
           Submarine-
           Combat
           System
          Standard          1984     2,565.4     2,619.3      (53.9)         (2)
           Missile-2
           Block IV
           Surface-
           to-Air
           Missile
          Standard          1984     7,061.6     6,975.0        86.6           1
           Missile-2
           Block I,
           II, III
           A, B
           Surface-
           to-Air
           Missile
          Trident II        1983    19,776.8    19,563.5       213.3           1
           Sea
           Launched
           Ballistic
           Missile
          Ultra High        1988    $1,558.7    $1,433.6      $125.1           9
           Frequency
           Follow-on
           Communicati
           ons
           Satellite
          Average Cost                                                       1.4
           Increase or
           (Decrease)
Air       Advanced          1992    12,003.3    11,923.4        79.9           1
 Force     Medium
           Range Air-
           to-Air
           Missile
          E-3 Airborne      1989       730.3       696.2        34.1           5
           Warning and
           Control
           System
           Radar
          C-17A             1996    23,174.6    23,053.6       121.0           1
           Globemaster
           III
          Cheyenne          1989     1,665.0     1,570.8        94.2           6
           Mountain
           Update
          Defense           1975       875.2       778.9        96.3          12
           Meteorologi
           cal
           Satellite
           Program
          F-22              1990    50,885.9    49,074.3     1,811.6           4
           Advanced
           Tactical
           Fighter
          Joint             1983     6,119.2     5,813.4       305.8           5
           Surveillance
           Target
           Attack
           Radar
           System
          NAVSTAR           1979     3,364.1     2,593.7       770.4          30
           Global
           Positioning
           System
           Satellite
          NAVSTAR           1979     3,133.0     3,089.3        43.7           1
           Global
           Positioning
           System User
           Equipment
          Titan IV          1985    23,653.3    23,160.5       492.8           2
           Space
           Booster
          Average Cost                                                       3.2
           Increase or
           (Decrease)
--------------------------------------------------------------------------------



(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================= Appendix III

See comment 1. 


The following are GAO's comments on the Department of Defense's
letter dated October 3, 1997. 

GAO COMMENTS

1.  DOD's technical comments were considered and changes were made
where appropriate. 

*** End of document. ***





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