	Trends in DOD’s Portfolio of Major Acquisitions

There can be little doubt that we can—and must—get better outcomes  from our weapon system investments. As seen in table 1, the value of  these investments in recent years has been on the order of $1.5 trillion or  more, making them a significant part of the Federal discretionary budget. Also, as indicated in table 1, 42 percent of programs have had unit cost  growth of 25 percent or more. For example,  50 of the 80 programs in the portfolio reduced their total acquisition costs  over the past year. A number of these programs have improved their  buying power by finding efficiencies. It is the “how to” side of acquisitions. Recent, significant changes to the policy  include those introduced by the Weapon Systems Acquisition Reform Act  of 2009 and the Department’s own “Better Buying Power” initiatives  which, when fully implemented, should further strengthen practices that  can lead to successful acquisitions. The policy provides a framework for  developers of new weapons to gather knowledge at appropriate stages  that confirms that their technologies are mature, their designs are stable,  and their production processes are in control. These improvements do not yet signify a trend or suggest that a corner  has been turned and, in fact, we found in our annual assessment of  programs that most are not yet fully following a knowledge-based  acquisition approach. In other words, the reforms have not yet been institutionalized  within the services. Further,  some programs are significantly at odds with the acquisition process. The question is why aren’t we  doing it?” To that point, reforms have been aimed mainly at the “what”  versus the “why.” They have championed sound management practices,  such as realistic estimating, thorough testing, and accurate reporting. Seen this way, the practices prescribed in policy are only  partial remedies. The acquisition of weapons is much more complex than  this and involves very basic and strongly reinforced incentives to pursue  weapons that are not always feasible and affordable. I will now discuss several factors that illustrate the pressures that create  incentives to deviate from sound acquisition management practices. While the department has worked hard to overcome  this fragmented decision making paradigm and policies have been written  to force more integrated decisions and more accountability, we continue  to see programs that have experienced cost and schedule growth. Collectively, as participants’ needs are translated into actions on weapon  programs, the purpose of such programs transcends efficiently filling  voids in military capability. Government and industry  defense managers often go to great lengths to preserve the myth that  large defense programs are developed and produced through the free  enterprise system.” But neither the defense industry nor defense  programs are governed by the free market; “major defense acquisition  programs rarely offer incentives resembling those of the commercial  marketplace.”

		The Right People

Dr. Fox also points out that in private industry, the program manager  concept works well because the managers have genuine decision-making  authority, years of training and experience, and understand the roles and  tactics within government and industry. Other acquisition reform studies  over the past decade have highlighted this issue as well. Drawing on our extensive body of work in weapon system acquisition,  there are six areas of focus regarding where to go from here. These are  not intended to be all-encompassing, but rather, practical places to start  the hard work of realigning incentives with desired results. DOD must  be open to examining best practices and implementing new rules to really  integrate the processes into one and holding all communities accountable  for decisions. Identify significant program risks upfront and resource them: Weapon  acquisition programs by their nature involve risks, some much more than  others. More closely align budget decisions and program decisions: Because  budget decisions are often made years ahead of program decisions, they  depend on the promises and projections of program sponsors. Investigate other tools to improve program outcomes: There are ways to  structure an acquisition program that would create opportunities for better  outcomes.
Why GAO Did This Study

DOD's acquisition of major weapon systems has been on GAO's high risk list since 1990. Over the past 50 years, Congress and DOD have continually explored ways to improve acquisition outcomes, including reforms that have championed sound management practices, such as realistic cost estimating, prototyping, and systems engineering. While some progress has been made, too often GAO reports on the same kinds of problems with acquisition programs today that it did over 20 years ago.
The topic of today's hearing is: “Reform of the Defense Acquisition System.” To address the topic, this testimony discusses (1) the performance of DOD's major defense acquisition program portfolio; (2) the management policies and processes currently in place to guide those acquisitions; (3) the incentives to deviate from otherwise sound acquisition practices; and (4) suggestions to temper these incentives. This statement draws from GAO's extensive body of work on DOD's acquisition of weapon systems.

What GAO Found

The Department of Defense (DOD) must get better outcomes from its major weapon system investments, which in recent years have totaled around $1.5 trillion or more. Recently, there have been some improvements, owing in part to recent reforms. For example, 50 of the 80 weapon system programs in the portfolio reduced their total acquisition costs over the past year, and a number of them also improved their buying power by finding efficiencies. Still, cost and schedule growth remain significant; 42 percent of programs have had unit cost growth of 25 percent or more.
DOD's acquisition policy provides a structured framework for developers to gather knowledge at appropriate stages that confirms that their technologies are mature, their designs stable, and their production processes are in control. The Weapon Systems Acquisition Reform Act of 2009 and DOD's recent “Better Buying Power” initiatives introduced significant changes that, when fully implemented, should further strengthen practices that can lead to successful acquisitions. While recent reforms have benefited individual programs, it is premature to say there is a trend or a corner has been turned. The reforms still face implementation challenges and have not yet been institutionalized within the services.
Reforms that focus mainly on the mechanisms of the acquisition process are only partial remedies because they do not address incentives to deviate from sound practices. Weapons acquisition is a complex system, complete with incentives to pursue programs that are not always feasible and affordable. These incentives stem from several factors. For example, the fragmented decision making paradigm in DOD and different participants involved in the acquisition process impose conflicting demands on weapon programs so that their purpose transcends filling voids in military capability. Also, the budget process forces funding decisions to be made well in advance of program decisions, encouraging undue optimism. Finally, DOD program managers' short tenures and limitations in experience and training can foster a short-term focus and put them at a disadvantage with their industry counterparts.
Drawing on its extensive body of work in weapon systems acquisition, GAO sees several areas of focus regarding where to go from here: 1) examining best practices to integrate critical requirements, resources, and acquisition decision making processes; 2) attracting, training, and retaining acquisition staff and managers so that they are both empowered and accountable for program outcomes; 3) at the start of new programs, using funding decisions to reinforce desirable principles such as well-informed acquisition strategies; 4) identifying significant risks up front and resourcing them; 5) exploring ways to align budget decisions and program decisions more closely; and 6) investigating tools, such as limits on system development time to improve program outcomes.
These are not intended to be all-encompassing, but rather, practical places to start the hard work of holding decision makers more accountable and realigning incentives with desired results.