The Price Is Right

Cost estimation is becoming a hot-button topic as the Pentagon tries to keep ballooning contracts in check.

Defense Department acquisition officials are fed up hearing words like "overrun," "escalation" and "run amok" during conversations about the costs of their large procurement programs. So they are trying to reframe the discussion and the Pentagon's methods of estimating acquisition price tags. Even Defense Secretary Robert Gates has gotten involved, listing realistic cost estimates as one of the department's top three acquisition reform priorities when he unveiled its detailed budget proposal in April.

Bill Haseltine, president of the Society of Cost Estimating and Analysis and a senior analyst for U.S. Special Operations Command, seems slightly taken aback by the attention the "cost community" is receiving these days. But Haseltine, a 30-year veteran of the cost estimating and acquisition fields, says the attention is warranted because inaccurate cost estimation leads agencies to jump into programs without fully understanding how minor changes in requirements or technology can lead to major cost increases. "From the costing point of view, government has not fully understood all the risks it was implicitly accepting at the time it made a decision to proceed," he says.

The Government Accountability Office recently published a 440-page "Cost Estimating and Assessment Guide" (GAO-09-3SP). For a report heavy on mathematical charts and jargon, the guide lays out in very clear terms the role emotions play in the process. GAO warns that without established procedures for ensuring realism and objectivity, "bias and over-optimism creep into estimates." This tendency is one of the reasons officials are trying to isolate cost analysts from business and political influences.

Deputy Defense Secretary William J. Lynn told lawmakers in May that cost estimates tend to assume every step in the development process will go as planned. "They do not include sufficient provision for unexpected technological, production or other challenges," he says.

John J. Young, who was undersecretary of Defense for acquisition, technology and logistics until late April, echoes the concern about over- optimism. He warns that government employees learn quickly that naysayers don't get promoted, despite the need for honesty and pragmatism throughout the acquisition process.

"People need to be able to be realistic and say something can't be done in a certain amount of time or for a particular budget," Young says. "You can't spin straw into gold."

Defense officials are vowing to increase the department's in-house number-crunching capabilities. According to Shay Assad, director of Defense procurement and acquisition policy, the department is planning to hire about 800 contract pricing specialists and cost estimators in the coming years. Even industry groups are supporting the increase.

Stan Soloway, president of the Professional Services Council, a contractor association, names cost estimation as one of the few critical positions government must be careful about outsourcing to the private sector. "If I was really managing well, I would step back and say, 'It may be fine for me to use outside cost and pricing support to some extent, but I sure as heck better have in-house enough cost and pricing capability so I have someone inside who can evaluate what my outside consultants are telling me.' "

Besides expanding the size and capabilities of the department's independent cost arm, the Cost Analysis Improvement Group, Defense will invest in education and training programs, Lynn says. To give analysts better information, the department will focus on improving contractor reporting of actual costs. He also has stated the department will more closely tie its funding requests to CAIG's assessments of what programs will cost.

Agencies "absolutely need to increase their ability to do in-house estimating," Haseltine says, adding the best candidates for the job are technically skilled and have a quantitative background and deep understanding of the acquisition and budget processes.

As with many other personnel gaps, Defense must compete for talent with private sector firms that perform similar work and pay more. But Haseltine says he is optimistic people will be drawn to the opportunity. This is especially true now that the job is focused more exclusively on cost estimation, he says. In the past the position included other responsibilities such as program management.

Haseltine says he has been very happy with his own move to government two years ago after decades in the private sector. "I decided I was interested in helping the government, and more specifically [U.S. Special Operations Command] do a better job of estimating the cost of systems acquisition and support," he says, "and have found that my ability to directly affect USSOCOM's acquisition of systems has been significant."