The Air Force's Experience with Should-Cost Reviews and Options for Enhancing Its Capability to Conduct Them

by Michael Boito, Kevin Brancato, John C. Graser, Cynthia R. Cook

Download

Download eBook for Free

Full Document

FormatFile SizeNotes
PDF file 0.3 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

Summary Only

FormatFile SizeNotes
PDF file 0.1 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

Purchase

Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback64 pages $20.00 $16.00 20% Web Discount

Research Questions

  1. What has been the Air Force experience with should-cost reviews?
  2. How can the Air Force enhance its capability to conduct should-cost reviews?

The problem of cost growth in major weapon system acquisition programs has plagued the Department of Defense for several decades. Recent Air Force and Department of Defense guidance has emphasized should-cost reviews — a special form of contract cost analysis intended to identify contractor inefficiencies and lower costs to the government — as a way to address this problem. This report examines the Air Force experience with should-cost reviews and discusses options for enhancing the Air Force's capability to conduct such reviews. The researchers interviewed participants in should-cost reviews of Air Force programs from the 1980s through 2011 and reviewed the literature on the use of should-cost reviews by the Department of Defense and commercial businesses. They found that few Air Force personnel have experience with should-cost reviews but also that there is little evidence that should-cost reviews save money compared with other forms of contract pricing and negotiation. The authors discuss options for establishing a dedicated Air Force capability to conduct should-cost reviews, but they recommend that the Air Force first confirm the effectiveness of such reviews.

Key Findings

The Effectiveness of Should-Cost Reviews Is Uncertain

  • There is a lack of evidence that should-cost reviews save money compared with other forms of contract pricing and negotiation, as well as a lack of evidence about key factors or circumstances that determine the success of should-cost reviews.
  • Although should-cost reviews can identify inefficiencies and potential ways to reduce costs, this does not automatically translate to savings. The Air Force must be willing and able to use the results of the analyses to negotiate lower prices on contracts.
  • Production processes have changed since the heyday of the Department of Defense's use of should-cost reviews in the 1970s, with most of the manufacturing of weapon systems now being outsourced rather than done by prime contractors. This suggests the need for a different focus and different techniques for should-cost reviews from those used in the past.

The Air Force's Capability to Conduct Should-Cost Reviews Is Limited

  • The Air Force assembles teams to conduct should-cost reviews on an ad hoc basis and does not have a dedicated capability to conduct such reviews, which hampers the retention of institutionalized knowledge, experience, and lessons learned.
  • Few Air Force personnel have experience with should-cost reviews, and little if any training in how to do them has been provided to participants in recent reviews.

Recommendations

  • The Air Force should first determine whether should-cost reviews result in savings compared with other forms of contract negotiation, under what circumstances, and using what methodologies.
  • The Air Force should assess lessons learned from recent should-cost reviews.
  • Using the results of the above two recommendations, the Air Force should develop training on how to conduct should-cost reviews.
  • Following an industry best practice, the Air Force should establish databases of cost, schedule, earned value, and technical information useful for cost-estimating and pricing activities.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Background on Contract Pricing and Negotiation in the Department of Defense Acquisition Environment

  • Chapter Three

    What Has Been the Air Force Experience with Should-Cost Reviews?

  • Chapter Four

    The Use of Should-Cost Analysis and Similar Techniques in Commercial Businesses

  • Chapter Five

    How Can the Air Force Enhance Its Capability to Conduct Should-Cost Reviews?

  • Chapter Six

    Recommendations and Conclusions

Research conducted by

The research described in this report was sponsored by the United States Air Force and conducted by RAND Project AIR FORCE.

This report is part of the RAND Corporation technical report series. RAND technical reports may include research findings on a specific topic that is limited in scope or intended for a narrow audience; present discussions of the methodology employed in research; provide literature reviews, survey instruments, modeling exercises, guidelines for practitioners and research professionals, and supporting documentation; or deliver preliminary findings. All RAND reports undergo rigorous peer review to ensure that they meet high standards for research quality and objectivity.

Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.