Pentagon misreports or ignores long-term weapons costs

Introduction

The Obama administration’s 2013 defense spending plan, detailed as part of its overall new federal budget, includes $178.8 billion to buy new weapons, ranging from jet fighters and artillery to naval cruisers and satellite systems. But the real costs of these programs to the federal budget are unlikely to be disclosed in its budget documents or dozens of detailed weapons program reports due on Capitol Hill in March, according to a recent federal audit report.

The true costs of some of the biggest pieces of the U.S. arsenal are mostly hidden, the audit concluded, because the Defense Department’s public documents typically list only how much has been spent or will be spent to acquire its fighters, ships, and vehicles.

The long-term costs of owning such armaments, including all the operations, maintenance, and repair expenses, are often misstated or ignored in the Pentagon’s reports to Congress, or compiled only in an aggregate number that defeats careful analysis of rising costs in individual programs or prudent planning for future military spending, according to the auditors.

About 70 percent of the cost of major armaments have often been obscured in this way, according to a figure given to the auditors by officials at the Pentagon. The estimate appears in a little-noticed General Accountability Office report to the House Armed Services committee dated Feb. 2.

The significance of this oversight is not hard grasp: Anyone who owns a computer printer knows that repeatedly buying the ink eventually draws far more from your wallet than the machine itself, making it useful to have a plausible forecast of those expenses in advance.

But the military services and the officers who buy new weapons have frequently slighted or ignored a longstanding requirement by the Pentagon’s head office that they tally and carefully forecast all operating and support costs, track changes in those costs, and compare the results to similar tallies for existing or older weapon systems.

They have, in short, failed to provide the data needed to determine if the Pentagon has set aside sufficient funds to pay for all the fuel, retooling, and new parts that major weapons will require over lifetimes spanning decades. The problem has grown in importance because military spending has abruptly lost its political immunity from austerity pressures and substantial spending increases are no longer likely.

Pentagon officials have themselves repeatedly expressed frustration at not having accurate estimates of lifecycle costs. On Feb. 6, Frank Kendall, a former Raytheon executive who has been nominated to become the Defense Department’s top weapons acquisition official, told an audience at the Center for Strategic and International Studies in Washington that “one of our single biggest problems is starting things that we should never have started” because they turn out to be unaffordable after deployment. He said this was one reason why “it’s hard to even get an answer” to a question about whether military procurement is plagued by the same problems it had a decade ago.

To reach their conclusions, the GAO auditors examined three years of Pentagon weapons program reports — known as Special Acquisition Reports — to Congress, ending in 2010. In their own 43-page report, they said statements in these reports about weapon system operations and support costs were often “inconsistent and sometimes unreliable, limiting visibility needed for effective oversight of these costs.”

Of the 84 programs that furnished these reports, eleven omitted the long-term cost data altogether; more than half failed to explain in a useful way how they calculated it; and 57 percent failed to compare the costs to those incurred by older programs. These omissions flouted a law Congress enacted in 1985 and expanded in 1991 and 1994, requiring comprehensive reporting and analysis of lifecycle costs.

The auditors looked particularly closely at fifteen major programs — including the Air Force’s controversial and trouble-prone F-35 fighter jet program, the Army’s High Mobility Artillery Rocket System, and the Air Force and Marine Corps’ V-22 hybrid helicopter/aircraft program — and found seven had misstated operations and support expenses in all three years.

“Actual O&S costs … were significantly higher than had been anticipated” for the V-22, the GAO report stated. The administration’s 2012 budget contains $1.9 billion to buy 21 V-22 aircraft and continue research and development, but the program overall will cost billions more and not be completed until 2020.

The worst offender among the military services was the Air Force; of the ten programs that in 2010 completely ignored the requirement to report operations and support costs, eight were “major modifications to, or subsystems of, Air Force weapon systems,” according to the GAO’s report. Included were two modifications to its large C-5 transport plane, which officials have said will cost $8.6 billion at the outset.

But the most financially consequential mistake by the service might have been its underreporting in 2010 of the projected costs of keeping aloft the F-35, the troubled, budget-busting fighter jet that is now projected to be the most costly single weapons program in military history. 2010 was the year that a presidentially-appointed deficit commission proposed to drastically cut the Air Force’s production of the F35 and to kill a Marine Corps version, the F-35B (the Obama administration decided not to take the latter advice).

The Air Force’s report projected that the average hourly flying cost, for operating and supporting each one of the several thousand planes that will be built, would likely be $16,425. But the auditors discovered that officials included 528 “ghost” planes in this estimate — planes that the Air Force knew at the time would not be built — which lowered the average cost per plane. And the Air Force also deliberately excluded certain indirect costs, the expense of replacing support equipment, and the cost of modifying the aircraft, it acknowledged.

The correct, projected, hourly estimate for each plane was, according to the GAO, $23,557, or around 43 percent higher. But even that figure is expressed in “2002 dollars,” making it a sizable underestimate of future expenditures. And the tally also remains suspect because, as the audit states, “there are numerous formulas” used with the Pentagon for calculating costs per flying hour, and no apparent effort to make them uniform.

The administration’s proposed 2013 budget includes $9.1 billion to buy 29 F35 aircraft, although an internal Pentagon report last November said there was “a lack of confidence in the design stability” of the aircraft. The program’s projected overall costs have risen by two-thirds since 2002 and are now expected to be nearly $400 billion; its total operation and support costs shot up by $50 billion from 2009 to 2010, according to the audit.

In the same speech where he acknowledged an overall lack of progress on procurement reform, Kendall said that “putting the F-35 into production years before the first test flight was acquisition malpractice. It should not have been done, OK?”

He added: “But we did it, OK?” The Pentagon is now “working our way through that,” he said.

The auditors challenged the F35 program’s decision to report only its own estimates of operation and support costs to Congress, a problem that they said afflicted twenty-three of the major programs they studied. “History has shown a pattern of higher, more accurate cost estimates the further away from the program office” they are prepared, the auditors said.

That finding suggests managers either become victims of hubris or deliberately try to hide affordability issues that kill programs before they get off the ground. In legislation enacted in 2009, Congress highlighted this problem and required costs to be estimated by an office reporting directly to the Secretary of Defense, but compliance has been spotty.

Various excuses were cited during the audit, but one that kept recurring – particularly among Air Force officials — was that operations and support costs are not the program office’s responsibility because they come from someone else’s budget. Managers of the Navy’s troubled Multi-Band Terminal program, a satellite communications program for ships, cited that explanation for excluding certain likely repair costs and military personnel expenses, resulting in an estimate that the auditors said was about a quarter of the real expenses.

The cost estimates provided to Congress also in many cases were not updated as Pentagon regulations require, and more than 40 percent of the programs examined did not attempt any cost comparison between current and previous weapons systems. Some of the managers said doing so would be impossible, because the new systems offered unprecedented capabilities.

The GAO also cited managers’ complaints that “current guidance is vague, unclear, open to interpretation, and does not provide useful information or examples.” It urged the department to do better.

Alan F. Estevez, the assistant secretary of defense for logistics and material readiness, responded positively and promised to revise the guidelines. Budget documents released on Feb. 13 state that by September 30, 2012, the department wants “affordability” analyses to be produced for all programs moving into the technology development phase.

But Estevez said the department “is not in a position” yet to tell Congress routinely why its long-term cost estimates change from one report to another — to delineate, in other words, which factors have made costs climb or saved the department money.

“There is a wide range of activities related to the management and control of O&S costs” already underway, Estevez said in his Jan. 27 written reply to the GAO report, and “we would prefer to defer these additional reporting requirements … for now.”