House Armed Services Subcommittee hearing

PENTAGON: The Air Force has substantially driven down its acquisition costs for the second year in a row, doubling its success in cutting cost estimates from $7 billion last year to $13.4 billion this year. But not all is rosy in acquisition land. Schedule problems continue to mount, getting a “poor” rating from the service, with more than 102 months added to major programs between September 2012 and September 2013.

Since it’s a reasonable question to ask: Did they do this just by changing the assumptions underlying the costs? The answer is no. So, just as we report when the cost of a program soars, as in a Nunn-McCurdy breach, we report when those costs come down, especially when the number is repeated and is substantial. (Bear in mind that, as always, we are talking about cost estimates, known in Pentagon acquisition speak as Acquisition Performance Baselines.)

Here’s the meat: 24 of the Air Force’s 32 major programs “have reduced their acquisition program cost estimates by approximately $13.4 billion,” writes Robert Pollock, director of the Air Force’s acquisition excellence and change office.

But the puzzle is, how can programs take so much longer and not cost more? Lt. Gen. Charles R. Davis, the Air Force’s top uniformed acquisition official, was blunt. “There is true cost reduction here to the programs, which is totally counterintuitive to schedule growth in the programs,” he said in an interview in his Pentagon office.

A congressional aide with whom we shared the executive summary of the study (the Air Force Acquisition Annual Performance Assessment) offered these insights, saying the fractured state of congressional appropriations may well have affected the service’s acquisition costs.

“At first glance it would appear that they were likely impacted by the six months CR [Continuing Resolution] last year in some form or fashion in not being able to execute program funding,” the aide said in email. “And I would venture to guess that schedules are increasing and APBs are decreasing because they are taking funding from programs — which would naturally extend schedules — but likely also decreasing the quantity of end-items procured or developed, resulting in the decreasing APBs.”

Davis says the cost decreases are real. He says sequestration is, as best the services can tell, not the cause of the costs decline. However, explaining the incongruity of schedule increases coupled with cost decreases isn’t easy. Basically, Air Force acquisition leaders aren’t sure what’s going on.

The general pointed to several factors he believes helped lead to the decline in costs. A combination of companies doing a better job of building in risk to their bids with better government management of program reserves is helping defray cost increases may be helping. A major factor may also be, Davis thinks, that the disaster programs that have so badly scarred the Air Force acquisition community and Congress — such as the F-35, NPOESS (a deeply troubled weather satellite program), and some IT programs — are behind them. They’ve either been canceled, broken up or the programs have gone through their peak cost growth.

AQ Program Assessment Slide 3

“i think you’re starting to see we are not starting all the new audacious big programs that we were,” he said. The Air Force now is mostly doing upgrades to programs or has scaled back its requirements, having learned its lessons from what Davis called programs like the F-35 that were “doomed the day the contract was signed.”

“We are not building the next F-35 and most of our investment dollars are spread across what I consider relatively simple modification programs with relatively mature technologies,” the general said.

AQ Program Assessment Slide 2

Davis also attributes some of the decline in costs to better acquisition management, driven by the policies known as Better Buying Power developed by former Deputy Secretary of Defense Ash Carter and Frank Kendall, the head of Pentagon acquisition.

“I think having our program managers focus on the business deal and the strategy up front is paying off,” he said. Part of that is reflected in the drop in the number of successful contract protests filed with the Government Accountability Office.

 

GAO Protest Slide 1

Given the skepticism sure to greet the Air Force’s latest numbers on the Hill and among the service’s many critics, I asked Gen. Davis what he would tell Hill staffers given the chance.

“I would say, look at the data before you continue to lump Air force acquisition to the sins of the past. Look at the facts,” he said. “I think the staffer on the Hill should understand there has been progress made in controlling costs on acquisition. There has been progress made in limiting our appetitive for exquisite requirements. i think there has been progress made on adequately funding programs.”

(Here’s the story we did a little over a year ago about the first decline in costs.)

Comments

  • Don Bacon

    I see that the F-35 is on the list as a contributor to the “reduction.”
    Har-dee-har-har with a $200m faulty warplane.

    But then it gets somewhat realistic

    “i think you’re starting to see we are not starting all the new
    audacious big programs that we were,” he said. The Air Force now is
    mostly doing upgrades to programs or has scaled back its requirements,
    having learned its lessons from what Davis called programs like the F-35
    that were “doomed the day the contract was signed.”

    “We are not building the next F-35 and most of our investment dollars
    are spread across what I consider relatively simple modification
    programs with relatively mature technologies,” the general said.

    So it’s a toss-up. I’ll take the reduction on the doomed program.

  • bridgebuilder78

    You can save a lot more by canceling the Junk Strike Fighter.

  • PolicyWonk

    Eisenhower once said (while he was POTUS, to paraphrase) that If he told generals that they’d get an extra star if they could find ways to save defense dollars, he’d be trampled as they stampeded out the door to start cutting costs – and all the howling about defense expenditures on the part of the military would all but instantaneously cease.

  • ELP

    And now that the revisionist history is out of the way, look at all of the General Davis comments when he was the DOD manager of the F-35 program. Many of his comments were misleading. And today? F-35 costs going down? Hardly, there is no complete go to war F-35 to verify that what you have actually works…and is under a reasonable sustainment cost. === “Historically, the JSF program has had a problem with accepting bad news. Six years ago, the Government Accountability Office warned that the program was likely to overrun its budget and schedule, which at the time called for full initial operational capability in 2012-14. Lockheed Martin countered that “the F-35 program is on schedule” and the Pentagon program manager, USAF Maj. Gen. Charles Davis, asserted: “We do not agree with that estimate, there is no basis for that estimate, and we do not support it.” Three years of drift went by before it was officially accepted that the GAO’s fears had been conservative.” —source: Bill Sweetman, ‘Opinion: No Time For Inaccuracy On JSF Costs’, 20Jan14, Aviation Week===
    —— The cost on the F-35 is not going down. Consider that in 2006 USAF extended the buy timeline for all of its F-35 full-rate production per year from 110 per year to 80 per year due to cost climb. This changed the final buy time from 2027-28 to 2037….. Then in 2008, USAF plans and programs–the people that tell the USAF boss how to make ends meet–stated when F-35 full-rate production started (again thinking 2014) that USAF could only afford to buy 48 F-35s per year. There has been no change to that thinking: USAF is unable to buy F-35s to-plan, because they are too expensive. USAF will not see 1763 F-35s. Doubtful it will see half that. Maybe not even a quarter. And, when will Full Rate Production happen? The only consistent trend is that keeps getting pushed. All for an aircraft that will not be able to take on emerging threats and is too expensive to own and operate for lessor threats. As part of the original plan, USAF should have been ordering 110 F-35s this year.
    General Davis, and many other’s in his peer group have no track-record of credibility. There is your real journalism for the day. And it was free.

  • kjm

    Cost, schedule, performance; pick two.