Monday, September 21, 2020

Assessing American Military Spending

While Main Street America was distracted with all things COVID, in June 2020, the United States Government Accountability Office (GAO) released its Defense Acquisition Annual Assessment to Congress.  In this report, the GAO looks at the investments that the Department of Defense plans to make as it acquires new major weapons systems including aircraft, ships, satellites and increased investments in information technology.  Given the ramping up of the Cold War Part II with Russia and China, it is interesting to see how much Washington is willing to spend on defending the homeland from what it sees as a multipolar threat.


Let's open this posting with a definition.  Major Defense Acquisition Programs or MDAPs are generally programs designated by the Secretary of Defense as such or that are estimated to require eventual total expenditure for research, development, test and evaluation of more than $480 million or for procurement of more than $2.79 billion in fiscal year 2014 constant dollars.


Now, let's look at the GAO assessment.  The assessment summarizes the costs and scheduling measures for 121 weapons and information technology programs as shown here:



The report notes that Major Defense Acquisition Programs which account for the vast majority of the combined portfolio of weapons and IT programs have stabilized non-quantity-related cost growth but that they continue to proceed with limited knowledge and inconsistent software development approaches and cybersecurity practises.


Here is a graphic showing the number and cost of Major Defense Acquisition Programs (MDAP) from 2008 to 2019 (in billions of 2020 dollars):


On a year-over-year basis, the Department of Defense has invested $44 billion more in funding to its 2019 MDAP portfolio, up significantly from the $19 billion increase between 2017 and 2018.  Between 2018 and 2019, total acquisition cost estimates for DoD's 85 current MDAPs grew by $64 billion  (a 4 percent increase) that was driven by decisions to increase quantities of some weapons systems including a doubling of the number of missiles it plans to acquire through the Air Force's Joint Air-to-Surface Standoff Missile program.  Over the one year period, on average, deliverability schedules increased by just over one month (a one percent increase).  That said, it is key to note that since their initial or first cost estimates, these 85 MDAPs have accumulated over $628 billion in total cost growth (a 54 percent increase) and deliverability schedules increased by more than 2 years (a 29 percent increase).


Here is a table showing the cost changes to the DoD's 2019 portfolio of 85 MDAPs over the past year:


In total, portfolio acquisition costs have increased by $63.8 billion (a 3.7 percent increase) over the past year, in part due to quantity increases ($49.3 billion in total).  This includes increased procurement costs of $49.33 billion (a 3.5 percent increase) and increased research and development costs of $14.69 billion (a 4.6 percent increase).  Of the 85 MDAPs, nine programs increased their total costs by 25 percent, accounting for more than $43 billion in total increased costs.


Here is a table showing the MDAPs with the highest increases in cost from the first full estimate:


It is important to note that, in some cases, program inefficiencies have led the DoD to reduce quantities.  In the case of the Navy's DDG 1000 Zumwalt Class Destroyer, development cost growth led the Navy to reduced quantities from 32 ships to three ships which, in turn, pushed up the average per-unit procurement costs.  Here is a breakdown of the Zumwalt issues showing that the Navy still won't have operational testing of the lead ship until September 2021 and delivery of a ship with its combat system in place until September 2022:


Let's close with this quote from the analysis:


"Among MDAPs we surveyed, we found that programs continue to move forward without the benefit of knowledge at key acquisition points, while future MDAPs reported plans to modestly increase the implementation of knowledge practices. These practices are key because we have found a statistically significant correlation between implementation of certain knowledge-based practices and improved cost and schedule performance. We also found, among the MDAPs we surveyed, inconsistent implementation of leading software development approaches and cybersecurity practices. This included longer than expected delivery times for software and delays completing statute-based cybersecurity vulnerability evaluations."


The American defense industry would like to thank American taxpayers for their unfettered generosity, even during the COVID-19 era.


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