Rethinking Acquisition Reform: Cost-Growth Solutions May Aggravate More Important Problems

Abstract

There is increasing dissatisfaction with cost growth in major defense acquisition programs. Cost growth crowds out other investments, stresses budgets or causes schedule slips, all of which result in a military force that is less capable than previously expected. Several recent studies have recommended two categories of reforms: capital budgeting reforms seek stability in acquisition accounts, and rational cost model reforms seek to reduce the percentage increase of final cost over budget estimates. In both categories, undesirable secondary effects may be worse than the desirable primary effects; specifically, reforms that reduce cost growth may do so by driving total costs higher. This study examines these reforms and discusses their secondary effects. The paper concludes that the current practice of generating low estimates, coupled with dissatisfaction with cost growth may best serve to limit total cost.

Keywords: cost growth, cost estimating, defense department, capital budgeting, government procurement

JEL Classification: D73, G31, H56, H61