By MARCUS WEISGERBER Published: 28 Apr 2011 17:55
The Pentagon will implement a new cost estimating strategy on 14 major acquisition programs in an attempt to make the weapons' projected price tags more realistic and save money, according to a U.S. Defense Department memo.
The Air Force, Army and Navy will apply "should-cost" metrics to multibillion-dollar efforts - such as the F-35 Joint Strike Fighter - to achieve greater savings than more traditional cost estimating.
"These programs will be used to communicate and demonstrate to other DoD offices and Congress the intent and advantages associated with managing to a should-cost estimate that is lower than the program budget," Pentagon acquisition executive Ashton Carter wrote in an April 22 memo to senior DoD officials. "The delta between Should-Cost and Will-Cost will be managed consistently with the contract type(s) being used in the program."
In addition to the F-35, the Air Force has identified the Global Hawk Block-30 and Block-40, Space Based Infrared System, Evolved Expendable Launch Vehicle and Advanced Extremely High Frequency Satellite System as its "model" programs.
The Army has chosen the Joint Air-to-Ground Missile, UH-60M Black Hawk, Ground Combat Vehicle, Paladin Product Improvement and NETT Warrior programs. The Navy has chosen the F-35, E-2D Hawkeye, VXX Presidential Helicopter, Littoral Combat Ship and SSBN(X) Ohio Submarine Replacement programs.
"It is essential that we eliminate cost overruns and begin to deliver programs below budget baselines that are set using independent Will-Cost estimates," Carter wrote. "I believe this is achievable if Program Managers continuously perform Should-Cost analysis that scrutinizes every element of government and contractor cost."
Carter has directed the services to prepare an annual report on will-cost and should-cost management, the first of which is due to him Nov. 1.
Carter's should-cost teams could help DoD prime contractors operate more efficiently, according to Nick Schwellenbach - director of investigations for the Project on Government Oversight, a nonprofit government watchdog.
"You use independent cost estimate will-cost to help plan budgets over the long run, tame unreasonable expectations at the onset, and control for the contractors' and military services' rosy expectations of technological performance, integration, and cost," Schwellenbach wrote on the organization's blog. "You use should-cost to help negotiate better contracts with a relatively uncompetitive defense industry. Ideally, you beat the will-cost expectations, but there are risks."
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