2400, DOD is to buy minimum quantities of a new weapon. DOD Often Decreases Production Rates of Proven Weapons

It is not uncommon for DOD to reduce the annual production quantities of proven weapons, stretching out full-rate production schedules for years. For 17 of the 22 proven weapons we reviewed, the actual production rates were 57 percent lower than originally planned. As a result of reduced rates, production of the 17 weapons will take an average of over 8 years, or 170 percent, longer to complete than originally planned. Extended Schedules Result in Higher Acquisition Costs

Because of their reduced annual production rates and stretched out schedules, the acquisition of the 17 weapons we reviewed in full-rate production has cost nearly $10 billion more, through fiscal year 1996, than the program offices estimated based on their original planned production rates. Making Large Investments in Untested Weapons Increases Cost and Performance Risks

The practice of allocating funds during low-rate production to increase annual production quantities before successful completion of initial operational test and evaluation has frequently been wasteful. As we reported in November 1994, the consequences of buying large quantities of untested weapons are increased acquisition costs, the accumulation of unsatisfactory weapons that require costly modifications to meet performance requirements and, in some cases, the deployment of substandard weapons to combat forces. By minimizing the quantities of weapons procured during LRIP, DOD can reduce the risk associated with producing untested weapons and increase the funding available to produce other proven systems in full-rate production at planned rates, lowering their unit cost. However, because DOD often budgets available funding for unnecessary increases in low-rate production quantities of unproven weapons, it rarely is able to buy proven weapons at originally planned full-rates. Recommendations

We recommend that the Secretary of Defense revise DOD’s weapon acquisition policies to require that (1) annual quantities of weapons bought during LRIP be limited to the minimum necessary to complete initial operational test and evaluation and prove the production line and (2) rates and quantities not be increased during low-rate production to ease the transition into full-rate production unless DOD clearly establishes that the increase is critical to achieving efficient, realistic, and affordable full production rates and can be accomplished without affecting the efficient production of proven systems. DOD’s comments have not addressed (1) the negative effect of the current approach on the industrial base, (2) the cost implications, and (3) the delayed deployment of proven weapons.
Why GAO Did This Study

GAO reviewed the Department of Defense's (DOD) weapons acquisition procedures, focusing on: (1) DOD's practice of reducing the annual production of weapons below planned optimum rates during full-rate production; (2) the reasons for this practice; and (3) the effect of this practice on the costs and availability of weapons.

What GAO Found

GAO found that: (1) DOD has inappropriately placed a high priority on buying large numbers of untested weapons during low-rate initial production to ensure commitment to new programs and thus has had to cut by more than half its planned full production rates for many weapons that have already been tested; (2) this practice is wasteful because DOD must often modify, at high cost, the large numbers of untested weapons it has bought before they are usable and must lower annual buys of tested, proven weapons, stretching out full-rate production for years due to a lack of funds; (3) GAO has repeatedly reported on DOD's practice of procuring substantial inventories of unsatisfactory weapons requiring costly modifications to achieve satisfactory performance and, in some cases, deployment of substandard weapons to combat forces; (4) GAO found the practice of reducing planned full production rates to be widespread; (5) primarily because of funding limitations, DOD has reduced the annual full-rate production for 17 of the 22 proven weapons reviewed, stretching out the completion of the weapons' production an average of 8 years longer than planned; (6) according to DOD's records, if these weapons were produced at their originally planned rates and respective cost estimates, the quantities produced as of the end of fiscal year 1996 would have cost nearly $10 billion less; (7) at the same time, DOD is funding increased annual quantities of weapons in low-rate production that often are in excess of what is needed to perform operational tests and establish the production base; (8) if DOD bought untested weapons during low-rate initial production at minimum rates, more funds would be available to buy other proven weapons in full-rate production at more efficient rates and at lower costs; and (9) this would reduce costly modifications to fix substandard weapons bought in low-rate production and allow full-rate production of weapons with demonstrated performance to be completed and deployed to combat forces earlier.