Cover: Measuring Changes in Service Costs to Meet the Requirements of the 2002 National Defense Authorization Act

Measuring Changes in Service Costs to Meet the Requirements of the 2002 National Defense Authorization Act

Published 2004

by Chad Shirley, John A. Ausink, Laura H. Baldwin

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The 2002 National Defense Authorization Act set goals for the Department of Defense to achieve savings in service contract expenditures over a ten-year period through changes in contracting practices and improvements in management techniques. The authors of this report investigated ways to measure whether the Air Force is achieving these cost-reduction goals. Measurement of changes in the cost of purchased services over time first requires defining a clear universe of those services. A successful service cost methodology then must control for changes in the nature of services purchased over time and estimate what those services would have cost in a given year in the absence of changes in contracting practices and management techniques. The Act requires the measurements to be reported not only historically but also forecast up to five years into the future. The authors recommend how best to implement each element of the legislative requirement among services that have stable demand. Statistical analyses can then extrapolate savings estimates to those with less stable demand.

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The research reported here was sponsored by the United States Air Force and conducted within RAND Project AIR FORCE.

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