DOD issues 'should-cost' guidance for achieving acquisition savings

DOD Undersecretary Ashton Carter is expanding on plans he announced last September to reign in runaway acquisition spending on major weapons programs.

The Defense Department is set to begin implementing an internal acquisition management tool that is geared to better estimate the costs of defense programs and save money.

In a recently released memo dated April 22, Ashton Carter, undersecretary of defense for acquisition, logistics and technology, outlined further guidance for the services to implement the “will-cost/should-cost” strategy he first outlined last September in his efficiency initiatives.

"It is essential that we eliminate cost overruns and begin to deliver programs below budget baselines that are set using independent will-cost estimates," Carter wrote in the memo. "I believe this is achievable if program managers continuously perform should-cost analysis that scrutinizes every element of government and contractor cost."

Carter’s guidelines for should-cost analysis include close scrutiny of every cost of a program; tough negotiations with contractors even if there is only one bidder; tracking of cost and performance trends; benchmark comparisons of similar programs and other programs from the same contractor; and identifying alternatives throughout a program’s cycle that could contribute savings.

Carter is also calling for program managers to establish and implement incentives to reward and reinforce use of the should-cost initiative, with those rewards going to both government managers and industry managers who meet performance goals.

Each of the military services was asked to identify five programs to be used as models for broader implementation of should-cost management. Among the proposed models are high-profile programs like the F-35 Joint Strike Fighter, from both the Air Force and Navy; the Army’s ground combat vehicle; and the Navy’s littoral combat ship.

Additionally, the other programs the services identified include:

  • The Air Force’s Global Hawk Block-30 and Block-40, Space Based Infrared System, Evolved Expendable Launch Vehicle and Advanced Extremely High Frequency Satellite System.
  • The Army’s Joint Air-to-Ground Missile, UH-60M Black Hawk, Paladin Product Improvement and Nett Warrior programs.
  • The Navy’s E-2D Hawkeye, VXX Presidential Helicopter and SSBN(X) Ohio Submarine Replacement.

"These programs will be used to communicate and demonstrate to other DOD offices and Congress the intent and advantages associated with managing to a should-cost estimate that is lower than the program budget," Carter said in the memo.