Senate Panel Blasts $295 Billion Of Cost Overruns In Pentagon Programs; That Equals More Than 16 Times NASA Budget, About 30 Times More Than MDA Budget

The National Polar-orbiting Operational Environmental Satellite System (NPOESS) is an example of problem procurement programs, specifically afflicted with "unrealistic performance expectations," Sen. Carl Levin, chairman of the Senate Armed Services Committee, said.

NPOESS was one of four especially troubled programs that Levin cited as he opened a hearing where he lashed out at acquisitions that have hit taxpayers with a total $295 billion of cost overruns while often coming in far behind schedule and with many fewer capabilities than were promised initially.

By comparison, the $295 billion of cost overruns that Levin excoriated is equivalent to 16 times the entire annual NASA budget, and about 30 times the Missile Defense Agency yearly outlays.

Levin hammered home the point that cost overruns in some problem programs devour money that otherwise could be spent in other procurement areas to provide more capability to warfighters, who along with taxpayers are the true losers in this equation. If that $295 billion hadn’t been swallowed up by cost overruns, he noted, it would be enough to buy two aircraft carriers, eight attack submarines, 500 V-22 Osprey helicopter/airplanes, 500 next-generation stealth fighter planes , 10,000 armored vehicles called MRAPs, and still pay for the entire Army Future Combat System of new-technology vehicles, aircraft, communications and more.

Originally, Levin noted, NPOESS — an eye in the sky to gather data on Earth and its environment, among other items — was to have included 14 environmental sensors on six satellites linked to a ground system.

NPOESS Problems

"The system turned out to be so complex and unmanageable that … costs doubled, forcing the Department [of Defense and other agencies] to eliminate one of the planned satellites and five of the planned sensors, and make several of the other sensors less complex," Levin said.

Disappearance of those capabilities constituted a real loss, according to Levin.

"The Department is now trying to figure out how to restore some of the capability that will be lost as a result of the elimination of planned sensors," Levin noted.

But that may not be a simple, guaranteed outcome.

John Young, undersecretary of defense for acquisition, technology and logistics, also voiced concerns about NPOESS as he spoke with journalists after he testified before Levin at the hearing.

Young was asked by Space & Missile Defense Report whether NPOESS costs now are under control or whether they still are rising rapidly, and whether there is a plan to replace those capabilities lost when sensors were eliminated or altered on the satellite system, so that there is no interruption in years of continuous historical data on the Earth and its environment. For example, a sensor or capability removed from NPOESS might be placed on another satellite.

Replacing capabilities is something to be considered, Young said, but costs of any such move must be considered as well.

"That program was headed for unexecutable, unaffordable" problems, he said. "And so we made decisions to constrain the capability in that, and get the minimum capability set" by removing some sensors and keeping the most essential capabilities.

"The answer to your question is, if there’s a risk that some data sets and data streams won’t be delivered in at least this first satellite, can you do it in another block? Will you have to do it another system? Those are the things that we need to assess," Young replied.

"But alternately, I can’t keep chasing everything and blowing the budget. This program’s already been through severe cost problems."

NPOESS is a joint multi-agency program, and some lawmakers have said widely dispersed responsibility slowed progress in the program.

More broadly, Young continued, one must place in context those criticisms by the Government Accountability Office that Levin and other senators cited, which disclosed the $295 billion of cost overruns.

This is not simply a sign of Pentagon mismanagement, and as well it doesn’t prove that contractors are greedy.

Instead, there are multiple, unavoidable causes of ballooning prices on military hardware, Young said.

For example, he said, consider the F-35 Joint Strike Fighter (JSF), the Lightning II. The JSF is the most costly military procurement program in history, estimated at $199 billion when the contract was awarded in late 2001, and now estimated at about $300 billion. This is a program led by Lockheed Martin Corp. [LMT], with leading roles played by Northrop Grumman Corp. [NOC] and BAE Systems. Engines for the planes involve Pratt & Whitney, a unit of United Technologies Corp. [UTX], and Congress is moving to ensure that General Electric [GE] also gets some of the work. On one variant of the plane, the Shot Take-Off and Vertical Landing (STOVL) fighter for the Marine Corps and some international buyers, there is a compressor, or fan, mae by Rolls Royce taking power from the engine to enable the plane to land and take off where there is no airport.

Just because the price of the plane rose doesn’t mean there is a problem in the Pentagon procurement offices, or with the contractors, Young argued.

Actually, he said, "JSF has executed reasonably well. We’ve used the Configuration Steering Board to refuse changes in requirements" that can run up prices. And, he said, much of the cost increases that have occurred are the result of actions by the armed forces, cutting the number of planes that the original contract said should be purchased.

Young said that "90 percent of that cost increase is driven by the quantity reductions that have been made, particularly by the Navy. So, is it cost growth when I decide to buy less? I would suggest to you it’s not. It’s not even a bad reflection on Lockheed."

And there are other cost-drivers that can’t be blamed on either the military or on Lockheed, he said, such as soaring commodities costs on materials used to build the planes.

"I mean, something that’s lost in this hearing is, because of the worldwide market, we’ve seen materials costs escalate 100 percent, or in fact multiples of 100 percent," Young said. When materials costs soar, "is that cost growth in the program? Do I need beat the … program managers for those issues? I would say no. I’m sorry I bring that to the table."

To be sure, Young stressed that he isn’t a bit pleased with soaring program prices. "It’s equally bad in some of the ways we’ve discussed, because I won’ get to buy something else for the warfighter, and that’s my goal," he said. "I want to control everything I can control. But healthcare, and particularly global materials costs that have escalated by multiple factors are something that I don’t think I can hold program managers accountable" for, or to say the managers caused those price increases. "I can’t punish them for it. I can hold them accountable, and ask them to try to remediate it, if possible, but they’re not going to fix a doubling or tripling in the price of steel and specialty commodity metals."

Levin recommended formation of a new Pentagon office, the director of independent cost assessment, with authorities and responsibilities to oversee costs and contain them by amassing independent cost estimates.

(Please see separate story on NPOESS sensor contract in this issue.)