Causes and Impact of Cost Growth; Proposed Bill S. 2397; and Discussion of DOD's Selected Acquisition Reporting System

Better cost reporting is an essential first step to controlling cost growth which will occur on every new system acquired unless measures are taken to correct the situation. Not all cost growth can be prevented, and some growth may be necessary to achieve maximum program benefits. However, most cost growth can be controlled. The most essential ingredient for controlling cost growth is honesty in preparing and reporting cost estimates at the outset of a program. Congress approves programs based on initial estimates; therefore, they should be as accurate as possible. Too often, early cost projections are roughly estimated. Further, program advocates often attempt to sell programs to agency management and Congress with low cost estimates and high expectations for solving technical problems. The use of optimistic inflation rates in developing cost estimates also contributes to cost growth. Congress should be aware that funds needed for future budgets and appropriations may be much more than estimated. Cost growth can be aggravated by general uncertainty about funding. The impact of cost growth is detrimental to the economy and, for defense acquisitions, has direct and highly visible effects. Because of cost growth, projects cannot be accomplished with appropriated funds, and projects can be adversely affected if additional funding is not approved. Proposed legislation attempts to curtail cost growth on major civil acquisitions by: (1) requiring civil agencies to periodically report status information on major acquisitions; and (2) providing that, when the cost of a major civil acquisition grows by 25 percent or more, any additional funds must be authorized by Congress. Such a system will provide Congress and agency management with oversight data on the progress of projects and allow the ready identification of problems; however, a reporting system should not be viewed as a panacea. The Department of Defense's Selected Acquisition Reporting (SAR) system provides useful information on the status and progress of selected major acquisitions and provides categories for recording specific causes of cost growth. Specific recommendations for improving the program include requiring that the SAR system include important systems which are in an advanced development stage and expanding the required mission capability assessment statement.