If Not The F-35 Then What?
Would canceling the F-35 make sense now? The U.S. has invested time and money into it and the requirement still exists. Is there a plan that...Fixed Price for DDG-1000
Filed under: Business Line, Companies, Congress, Contract Awards, Department of Defense, Events, General Dynamics, Maine, Northrop Grumman Corp., Restructuring, Services, States, U.S. Navy, production program
As part of the reforms announced by Secretary Gates’ a few weeks ago one was to end the DDG-1000 program at three ships and restart the DDG-51 production line. General Dynamics will build the last two as the first is under construction by Northrop Grumman. Northrop will get the DDG-51 work to make up for the cancellation. The New York Times is reporting that GD agreed to a fixed price contract for hulls numbers two and three.
Normally fixed price contracts are used for when full rate production gets underway. The first few batches of a product are made as part of the cost plus development contract. This spreads the risk to the Government. Obama has said he wants more fixed price contracts to save money on defense programs that tend to go over schedule and cost. Of course a lot of that is due to issues with requirements or testing or just making the thing that add time and money.
DoD uses two ways to look at unit cost when it comes to managing a program. One is the total of all procurement and R&D funding spread over the quantity of the items being bought. Another just takes the total procurement cost and divides that by the quantity. As you build more of an item the R&D is spread over more units slowly lowering that cost. If things begin to require more procurement then that cost goes up. Slowing down a program and buying the same quantity over a longer time effectively increases total program costs greatly. There is always some fixed cost applied each year if you build one, ten or a hundred of an item. The more years it takes the more those fixed costs add up.
With this program it may be OK to use a FFP contract as the costs are more known and fixed. If there are issues GD will be taking a risk as they might not get back all the money it takes them to build the ships. This is why Cost Plus contracts are used for development and ironing out production. In this case it will be an interesting experiment to see if it works out for the Government and the contractor.
HASC to ask GAO to investigate protests
Filed under: Congress, Contract Awards, Editorial, Federal Budget Process, GAO, Protest
As part of their work on the defense budget the HASC is going to ask the GAO to investigate whether there are too many protests. See the story here. As we have previously discussed ad nauseum there is little disincentive for a losing contractor to protest. At the best they win, and the worst they lose but it takes little time and money to cut the necessary legal documents and fax them in. With the number of large contracts declining, and their worth growing, there will continue to be protests as the various contracts awarded. It has not just been for large development and procurement contracts, there have been protests of service ones as well. The GAO dismisses most of the protests as it takes a really big screw up by the acquisition and contract people to uphold them, but the delay the programs and cost the winner and the government time and money. Since the right to protest is pretty much part of Federal contract law it will be hard to change the number without changing that, unless the Congress wants to start punishing for frivolous protests. That is not common in American legal tradition, but we will see.
Congress states the obvious
Filed under: Congress, Department of Defense, Federal Budget Process, development program, production program
In response to this GAO report a while back Congress had some hearings to bash DoD acquisition programs. The article is here. The title is a little unfair in that “wastes” is a strong word. Few programs are terminated or canceled outright and those that do usually have some technology spill over. Developing, testing and producing major weapon and IT systems is hard. The system often does underestimate time and costs at the beginning, but it takes only one failed test to blow a schedule and millions of dollars. This is especially true of missile systems where your test assets are expensive enough and get expended in the test. Software development is often much more complicated and costly then originally thought, even though DoD has several decades of experience in this kind of matters. That doesn’t mean there is not room for improvement, but the only way to severely reduce time and money is to allow only incremental steps in capability. It is the never ending paradigm of weapon acquisition.
Shockingly weapon systems tend to be late and more expensive then originally planned
Filed under: Department of Defense, Federal Budget Process, GAO, development program
In their regular annual review of weapon system acquisition the GAO figured out the current programs are on average 2 years behind schedule and a few billion over initial budget estimates. See the story here. Shocking!! This has always been the trend with these large systems. The initial cost estimates and schedules are optimistic and are based on the requirement set that exists when the contract is awarded. As the program develops and requirements change it takes time and money to fix the issues as they develop. Testing, which usually doesn’t happen until later in the program, reveals issues that take time to fix and then adds additional tests. All of these factors have been consistent for years. The only way that this is not going to happen is if everything goes perfectly, which is a little unrealistic expectation.
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