The problem of cost growth in major weapon system acquisition programs has plagued the Department of Defense for several decades. This report examines the Air Force experience with should-cost reviews — a special form of contract cost analysis intended to identify contractor inefficiencies and lower costs to the government — and options for enhancing the Air Force's capability to conduct such reviews.
The Air Force's Experience with Should-Cost Reviews and Options for Enhancing Its Capability to Conduct Them
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- What has been the Air Force experience with should-cost reviews?
- 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.
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.
- 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
Background on Contract Pricing and Negotiation in the Department of Defense Acquisition Environment
What Has Been the Air Force Experience with Should-Cost Reviews?
The Use of Should-Cost Analysis and Similar Techniques in Commercial Businesses
How Can the Air Force Enhance Its Capability to Conduct Should-Cost Reviews?
Recommendations and Conclusions