April 24, 2007
DOD Lists 8 Nunn-McCurdy Breaches In Latest Selected Acquisition Reports
BNA Federal Contracts Daily

Eight major defense acquisition programs were reported to Congress as having experienced Nunn-McCurdy Act unit cost breaches, according to the Defense Department's April 9 release of Selected Acquisition Reports (SARs) submitted to Congress for the December 2006 reporting period. Because seven of the eight programs have experienced "critical cost growth" levels--that is, unit costs that have grown at least 25 percent above the current acquisition program baseline (APB) or 50 percent of the original APB --each of these seven programs must be certified by the defense secretary as meeting certain conditions if it is to continue.

The seven programs are:

C-130 Avionics Modernization Program (AMP), Expeditionary Fighting Vehicle (EFV),

Guided Multiple Launch Rocket System (GMLRS),

Joint Air-to-Surface Standoff Missile (JASSM),

Joint Primary Aircraft Training System (JPATS),

Land Warrior, and

Warfighter Information Network-Tactical (WIN-T).

Determinations of whether to certify these programs will be made by June 5, DOD said. Because the Land Warrior program already has been terminated, it will not be subject to the certification requirement.

The eighth program on the breach list, the Force XXI Battle Command Brigade and Below Program (FBCB2), did not reach the critical cost growth level. Rather, its cost growth was "significant"--at least 15 percent over the current baseline estimate or at least 30 percent over the original baseline estimate.

Jeff Green of J.A. Green & Company, who until recently was a professional staff member for defense acquisition matters on House Armed Services Committee, told BNA the breach listing reflects the impact of provisions in the fiscal year 2006 defense authorization act (Pub. Law No. 109-163) that restrict DOD's ability to rebaseline program costs.

Congress's intention in those provisions was to "stop the practice of moving the goal post" for programs nearing Nunn-McCurdy unit cost growth thresholds by locking in programs' original baseline estimates, Green said.

The result of the tightened requirements has been a slew of Nunn-McCurdy unit cost growth reporting last year and more this year, Green observed. The legislation is probably among the more significant major defense acquisition program policy reforms in several years, he said.

Critical Cost Growth Triggers Certification Requirement

Under the Nunn-McCurdy Act, if a program is to continue in the face of critical cost growth, the secretary of defense must certify that:
the acquisition is essential to national security; no acquisition program alternatives exist that could provide an equal or greater capability at a lower cost to the government; the new estimates of acquisition unit cost or procurement unit cost are reasonable; and the program's management structure is sufficient to manage and control acquisition unit or procurement unit costs.

The FY 2006 defense authorization act also requires that, for any program experiencing critical cost growth, DOD must prepare an additional analysis and explanation.

Further, Congress included language in the FY 2007 defense authorization act (Pub. L. No. 109-364) requiring DOD to solicit Defense Acquisition Challenge program proposals in the event of a Nunn-McCurdy breach, and requiring the defense secretary to assess any design, engineering, manufacturing, or technical integration issues that contributed significantly to the critical cost growth.

This requirement, included in Section 213 of the act, was sponsored by Rep. Duncan Hunter (R-Calif.), then chairman and now ranking Republican on the House Armed Services Committee.

Green said DOD currently would be in the process of implementing the FY 2007 defense authorization legislation.

The House Armed Services Committee, in its oversight plan for the 110th Congress released early this year, stated that it intends to monitor DOD implementation of the revisions made to Nunn-McCurdy Act cost reporting requirements in the previous two defense authorization bills.

89 Defense Acquisition Programs Represented

The newly released SARs for the period from September through December 2006 represents a total of 89 DOD acquisition programs estimated to cost a total of more than $1,684 billion. The actual and future anticipated program costs, with anticipated inflation figured in, include research and development, procurement, military construction, and acquisition-related operations and maintenance cost estimates.

With regard to the breaching programs, the SARs indicate that estimated costs for the Air Force's C-130 AMP increased more than $1 billion, from $4.9 billion to just under $6.0 billion, a 21.2 percent increase. And the WIN-T program estimated costs increased by $2.2 billion, from $14.2 billion to $16.4 billion, for a 15.5 percent increase.

The SARs also includes summary information on cost changes in several other major acquisition programs.

DOD's Joint Strike Fighter program costs have grown by $23.4 billion, or 8.5 percent, from $276.5 billion to $299.8 billion, "due primarily to a decrease in the annual procurement quantities and a stretch-out of the production buy schedule" that now extends to 2034. Other estimated cost revisions, including for airframe materials and support expenses, factored into the overall program costs increase.

Another aircraft program, the Air Force F-22A, is reported to have increased in cost by $2.7 billion, or 4.3 percent, from $62.6 billion to $65.3 billion. The cost growth is due primarily to a revised estimate for "the replan of Increments 3.1 and 3.2", additional funding for the first year of a multiyear procurement, and an increase in support costs for two operating locations.

Also highlighted in the latest SARs is the Navy's Littoral Combat Ship program, which as of last December saw its costs increase by 13.9 percent, from $1.7 billion to $1.9 billion, because of delays in the development of LCS 0 by contractor Lockheed Martin Corp., and the postponement of LCS 1, which is being built by General Dynamics Corp.

The Navy in January issued a stop work order for LCS 3, also under construction by Lockheed Martin, and on April 12 terminated the cost plus contract for the construction of that vessel after the service and the contractor failed to agree on terms for a fixed-price incentive contract.