§ 2432, the Secretary of Defense shall submit  to Congress at the end of each fiscal-year quarter a report on current  major defense acquisition programs. DOD’s Reports to Congress on Estimated Weapon System O&S Costs Were Inconsistent and Sometimes Unreliable

Program offices reporting life-cycle O&S cost estimates in the SAR were  often inconsistent in their cost reporting and also did not follow best  practices for presenting cost estimates. Such deficiencies may limit visibility  needed for effective oversight of long-term weapon system O&S costs  during the acquisition process. Program Offices Were Inconsistent in Reporting Estimated Life-Cycle O&S Costs and Did Not Incorporate Best Practices for Presenting These Cost Estimates

The SAR statute requires that life-cycle cost reporting for major weapon  systems be uniform, to the extent practicable, across the department, but  we found a number of inconsistent practices in how program offices were  reporting life-cycle O&S cost estimates in the SAR. Based on the SAR  submissions we reviewed, program offices were inconsistent in (1) the  explanatory information they included with the cost estimates, (2) the  source of the cost estimate they cited as the basis for the reported costs,  (3) the unit of measure they used to portray average costs, (4) the  frequency with which they updated reported costs, and (5) the reporting of  antecedent system costs. In addition to these inconsistencies, we found  that SAR submissions also did not incorporate best practices for  presenting cost estimates, such as tracking cost changes over time and  identifying cost drivers. In addition, 11 systems did not provide O&S cost  estimates in the 2010 SAR. Another 35 programs (42 percent) did not cite  a source, as previously noted. Specifically, 57 (68 percent) of the 84 programs reporting O&S costs in  the 2010 SAR did not report O&S costs for an antecedent system. Program Offices Sometimes Provided Unreliable Life-Cycle O&S Cost Estimates in Their SARs

SARs are intended to provide Congress with authoritative program  information on the cost, schedule, and performance of major weapon  systems, but we found that some programs submitted unreliable O&S  cost data. While some of the program offices  told us specific reasons for the errors, others did not provide an  explanation. DOD Could Improve O&S Cost Reporting with Detailed Implementation Guidance and a More Effective SAR Review Process

DOD’s reports to Congress on estimated weapon system O&S costs were  often inconsistent and sometimes unreliable due to a lack of detailed  implementation guidance for reporting these costs. In addition, DOD’s  process for reviewing the O&S cost sections of the SAR prior to final  submission did not provide assurance that the program offices reported  costs uniformly, to the extent practicable, and that these reported costs  were reliable. In the absence of improvements to the SAR guidance and  to DOD’s review process, deficiencies in reporting estimated life-cycle  O&S costs are likely to continue. DOD’s existing implementation guidance collectively provides minimal,  and in some areas conflicting, instructions for O&S cost reporting. The SAR data submitted by program offices are subject to multiple  reviews within the military services and by OSD, but this review process  has not provided assurance that O&S costs are reported consistently and  reliably. The  revisions, at a minimum, should provide additional detail on the following  areas:  the explanatory information that should be included in the O&S  narrative, including the specific assumptions underlying the cost  estimate; the source to be used as the basis for reported O&S cost estimate  information, especially when more than one source is available (such  as a program office cost estimate, service cost estimate, and CAPE  independent cost estimate); a consistent unit of measure for reporting average costs over time by  commodity type—or other designated weapon system group—as  agreed to by OSD and the services;  criteria for identifying an antecedent system and reporting on the  results of the cost comparison in the SAR; and reporting O&S costs for major modifications to existing weapon  systems. Appendix I: Scope and Methodology

To determine the extent to which the selected acquisition reports (SAR)  provide consistent and reliable operating and support (O&S) cost  estimate information that enables effective oversight of major weapon  system costs, we reviewed statutory requirements in 10 U.S.C. § 2432 for  reporting weapon system life-cycle costs in the SARs, as well as  Department of Defense (DOD) implementation guidance for the SAR. After  determining that a total of 84 of the 95 weapon systems included O&S  costs in their December 2010 SARs, we analyzed the annual SARs that  were submitted for these systems between 2005 through 2010.Specifically, we analyzed the SARs to determine the types and scope of  explanatory information included in the O&S narrative accompanying the  cost estimate data; the source of the O&S cost estimate cited as the basis  for the reported costs; the units of measure used to present O&S costs;  the frequency that O&S costs were updated from year to year; and the  extent to which O&S costs for antecedent systems were reported.
Why GAO Did This Study

With the nation facing fiscal challenges and the potential for tighter defense budgets, Congress and the Department of Defense (DOD) have placed more attention on controlling the billions of dollars spent annually on weapon system operating and support (O&S) costs. These costs include, costs for repair parts, maintenance, and personnel, and account for about 70 percent of the total costs of a weapon system over its life cycle. The selected acquisition report (SAR) is DODs key recurring status report on the cost, schedule, and performance of major defense acquisition programs and is intended to provide authoritative information for congressional oversight of these programs. Oversight of O&S costs is important because many of the key decisions affecting these life-cycle costs are made during the acquisition process. GAO reviewed weapon system O&S cost estimates that DOD submits in the SAR. Specifically, GAO determined the extent to which the SARs provide consistent and reliable O&S cost estimate information that enables effective oversight of these weapon system costs. To conduct its review, GAO analyzed SAR data for 84 major systems that submitted O&S cost estimates in the 2010 SAR and selected a nonprobability sample of 15 systems for more in-depth review.

What GAO Found

DODs reports to Congress on estimated weapon system O&S costs are often inconsistent and sometimes unreliable, limiting visibility needed for effective oversight of these costs. The SAR statute requires that life-cycle cost reporting for major weapon systems be uniform, to the extent practicable, across the department, but GAO found a number of inconsistent practices in how program offices were reporting life-cycle O&S cost estimates in the SAR. Program offices were inconsistent in (1) the explanatory information they included with the cost estimates; (2) the source of the cost estimate they cited as the basis for the reported costs; (3) the unit of measure they used to portray average costs; (4) the frequency with which they updated reported costs; and (5) the reporting of costs for an antecedent system being replaced by the new weapon system. For example, 35 (42 percent) of the 84 programs that reported O&S costs in the 2010 SAR did not cite a source of these data, contrary to DODs guidance, and 57 (68 percent) of the programs did not report O&S costs for an antecedent system. Also, O&S cost submissions in the SAR did not always incorporate best practices for presenting cost estimates, such as tracking cost changes over time and identifying cost drivers. In addition, 11 systems did not provide O&S cost estimates in the 2010 SAR.
Although SARs are intended to provide Congress with authoritative program information on major weapon systems, 7 of the 15 sample programs GAO reviewed submitted unreliable O&S cost estimate data in the 2007, 2009, or 2010 SARs. For example, an Air Force program underreported O&S costs by $2.1 billion (fiscal year 2002 dollars), or 18 percent. While some of the program offices did not provide an explanation for the errors in the submitted data, others cited specific reasons. For example, one Navy program office underreported O&S costs in the SAR and explained that it excluded certain costs that were not under its control, such as externally funded spare parts and military personnel. However, excluding such costs is contrary to the SAR statute. An Air Force program reported current and projected funding for the program rather than estimated life-cycle O&S costs. This practice also had the effect of underreporting these costs.
DODs reports to Congress on estimated weapon system O&S costs were often inconsistent and sometimes unreliable due to a lack of (1) detailed implementation guidance for reporting these costs and (2) an effective process for reviewing the O&S cost sections of the SAR before final submission to Congress. DODs guidance collectively provides minimal instructions for O&S cost reporting. The guidance also does not incorporate some of the best practices GAO has identified for presenting cost estimates. Further, although the SAR data submitted by program offices are subject to multiple reviews within the military services and by the Office of the Secretary of Defense, this review process has not provided assurance that O&S costs are reported consistently and reliably. In the absence of improvements to the SAR guidance and to the review process, deficiencies in reporting O&S costs are likely to continue. Improved reporting of O&S costs in the SAR could help to place more emphasis on assessing, managing, and controlling long-term weapon system O&S costs.

What GAO Recommends

To enhance visibility of weapon system O&S costs during acquisition, GAO recommends that DOD improve its guidance to program offices on cost reporting and also improve its process for reviewing these costs prior to final submission of the SAR to Congress. DOD concurred with GAOs recommendations.