Major Defense weapons systems not fully funded, GAO reports

The Defense Department is spending more on its major weapons programs than it can financially support, deferring the costs of multibillion-dollar programs well into the future, according to a new report from congressional investigators.

The Government Accountability Office found that the Pentagon often does not allocate full funding to develop its most expensive weapons systems -- despite a departmental policy that requires a long-term budgetary approach.

"At a time when the federal budget is strained by spending needs for a growing number of national priorities, it is imperative that DoD get the best value for every dollar of its significant investments," the report said. "Yet DoD has more major weapons system programs in its portfolio than it can afford."

Defense expects the costs to develop and purchase all major weapons systems in its portfolio will reach $1.6 trillion, roughly a third of which is expected to be spent during the next five years. But, GAO suggests that the department may not have the funds to pay the final tab.

From 1992 to 2007, the estimated acquisition costs remaining for major weapons programs increased almost 120 percent, while the annual funding provided for them increased by 57 percent.

This trend has created "a fiscal bow wave that may be unsustainable," the report said. "If this trend goes unchecked and fiscal pressures to reduce spending continue to grow as expected, Congress will be faced with a difficult choice to either pull funds from other federal programs to support DoD's acquisitions or accept less warfighting capability than promised."

GAO reviewed cost estimates and budget data for 20 of Defense's 95 major weapons programs. The watchdog agencygroup conducted detailed analyses on five programs: the Global Hawk, Joint Strike Fighter, Future Combat Systems, Warfighter Information Network-Tactical, and Multi-Mission Maritime Aircraft.

More than 75 percent of the programs that GAO reviewed were not fully funded in the Future Years Defense Program, which serves as the department's investment strategy.

Defense underestimated development costs for some programs by as much as 40 percent, in part because "DoD's flawed funding process is largely driven by decision-makers' willingness to accept unrealistic cost estimates," the auditors found.

For example, the lines of codes the Pentagon now estimates it needs to support the Future Combat Systems, a smart force of manned and unmanned systems and a sensor network linked by a battlefield communications system, are nearly triple the original assumptions, leading to an increase in software development costs approaching $8 billion, the report said.

The Army also miscalculated the costs needed to implement its tactical telecommunications system. Agency leaders assumed that the radios and software needed to support the Warfighter Information Network-Tactical program would be commercially available. But once system development began, the service discovered that the technology needed significantly more development and integration, the report found.

To compensate for shortfalls in funding, Defense often shifts funds from one program to pay for another, reduces its system capabilities, cuts procurement quantities, pushes back schedules or in rare cases, terminates a program, according to GAO.

The report also blamed a system in which military program offices compete among themselves for available resources. To maintain a competitive edge or to help their program stand out, GAO said, services develop unrealistically low-cost estimates that fit within established funding levels. "Ultimately, such reactive practices obscure true program costs and contribute to the instability of many programs and poor acquisition outcomes," the report stated.

In its official response, Defense said it had taken steps to implement an overall investment strategy and to significantly revise its acquisition policy, adopting a knowledge-based approach.

The strategy "will enhance existing policy and substantively contribute to improved cost estimates, better informed decision making and shorter cycle times," said Nancy Spruill, director of acquisition resources and analysis at Defense.

But while improvements have been made, department officials acknowledge that changes in appropriations make it impossible to plan too far ahead with certainty. "At times, these external influences will also cause turbulence in program execution," Spruill wrote.

GAO has been highly critical in recent years of how Defense spends and allocates resources on its major weapons systems. In March 2007, GAO reported that Defense lacked an effective, integrated portfolio management system that takes into account its entire major weapon system program.

Last April, the auditors found that the Pentagon's major weapons programs were failing to deliver capabilities as promised, even with expanding costs and schedules.