Expanding Operating and Support Cost Analysis for Major Programs During the DoD Acquisition Process

Legal Requirements, Current Practices, and Recommendations

by Michael Boito, Tim Conley, Joslyn Fleming, Alyssa Ramos, Katherine Anania

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Research Questions

  1. What are the legal requirements for CAPE and the military departments regarding O&S ICEs and ICAs?
  2. What is CAPE's O&S cost-estimating workload due to these requirements?
  3. What resources (personnel, data, time, etc.) are available to perform these duties?
  4. What required duties related to O&S costs can CAPE not accomplish because of resource constraints?
  5. How can CAPE improve its ability to meet the requirements?

The Weapon System Acquisition Reform Act of 2009 established the Office of Cost Assessment and Program Evaluation (CAPE) in the Office of the Secretary of Defense and mandated a broad set of cost analysis duties, including conducting independent cost estimates (ICEs) and independent cost assessments (ICAs) for major defense acquisition programs at key acquisition milestones. Subsequent laws have mandated additional duties, especially related to program operating and support (O&S) costs, including requirements to conduct or approve life-cycle cost estimates early in acquisition, identify risk drivers in estimates at milestone decisions, and examine alternatives that may reduce O&S costs. The authors assessed the cost analysis requirements for O&S costs by reviewing relevant laws and U.S. Department of Defense (DoD) guidance; assessed the resources available to conduct the analyses, including numbers of cost-estimating personnel, the data typically available to inform cost analyses, and cost-estimating processes and timelines; interviewed government and industry subject-matter experts to understand past and current DoD cost-analysis activities; reviewed the literature; and developed recommendations to improve weapon system O&S cost analysis during the acquisition phase. The authors found that CAPE lacks sufficient personnel and data to perform all the cost activities mandated by law or to do them with rigor. Recommendations include steps to match CAPE personnel levels with the workload and provide cost analysts access to the relevant data, including expertise in product-support activities, needed to inform cost estimates.

Key Findings

O&S costs are often underestimated, especially in early phases

  • Over time, constant-dollar estimates sometimes double or triple.
  • Information is usually initially extrapolated from data for previous systems; later, experience with actual, fielded systems improves the data on which estimates are based.

Many newer systems are not meeting reliability and availability goals

  • Fewer systems are meeting their reliability and availability goals when tested.
  • This reflects a declining trend in the reliability and suitability of recently tested systems compared with those tested decades ago.
  • All this affects the ultimate cost of O&S.

CAPE's O&S cost workload and resources are mismatched, making it difficult to do all it has been tasked to do

  • Legislation has, at various times, established or added to what CAPE is supposed to accomplish. Staffing and related resources have not kept pace.
  • Not all the information required to do these assessments is readily available to CAPE. This includes information held in various service systems. Data on contractor costs are also lacking. And CAPE needs more access to subject-matter expertise in many areas.
  • As a result of such resource constraints, CAPE is not able to fully accomplish some of its duties.

Recommendations

  • Augment CAPE staff.
  • Continue management support of existing efforts to address data gaps and make additional data available to support O&S cost analyses.
  • Strengthen the OSD role to encourage improved O&S cost and logistics outcomes.
  • Make OSD subject-matter experts available continuously to the program.

Table of Contents

  • Chapter One

    The U.S. Department of Defense Cost Analysis Ecosystem and the Office of Cost Assessment and Program Eval

  • Chapter Two

    Legal Requirements for CAPE O&S Cost Activities

  • Chapter Three

    CAPE Operating and Support Cost-Estimating Activities, Workload, and Processes

  • Chapter Four

    CAPE Resources for O&S Cost Activities

  • Chapter Five

    Assessment of CAPE's Compliance with Recent Laws Regarding O&S Cost- Estimating Activities

  • Chapter Six

    Recommendations for Meeting CAPE's Statutory Responsibilities for O&S Cost Analysis

  • Chapter Seven

    Recommendations for Improving O&S Outcomes in DoD

  • Appendix A

    O&S Cost Estimates in Selected Acquisition Reports

  • Appendix B

    Visibility and Management of Operating and Support Costs Systems

  • Appendix C

    Synopsis of CAPE's Organizational Predecessors, Role, and Functions

This research was sponsored by the Office of Cost Assessment and Program Evaluation within the Office of the Secretary of Defense and conducted within the Acquisition and Technology Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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