Pentagon Weapons Costs Curbed by Obama-Era Reforms, GAO Finds

(Bloomberg) -- Pentagon acquisition reforms imposed by the Obama administration and Congress helped rein in the costs of major weapons, although the savings are leveling off, congressional auditors have found.

“Our assessment shows that the progress DoD has made since 2010” to reduce cost growth in its portfolio “has now flattened out,” Comptroller General Gene Dodaro said in the Government Accountability Office's 15th annual report on major weapons systems. The combined estimated cost of the 78 programs in the latest study is $1.46 trillion, or $9.4 billion more than their original estimates.

“More encouraging, we found that programs that started development” after legislation was enacted in 2009 and the Pentagon's “Better Buying Power Initiatives” started in 2010 “saw cost decreases over the past two years, indicating that recent reforms may be having a positive impact,” Dodaro said in the report.

The GAO report may help the Defense Department and the Trump administration defend against the perception of runaway spending on new weapons, even as they try to sell the public on plans to increase military funding by $54 billion in fiscal 2018. That would be 10 percent over the current budget cap limits, or about 3 percent more than what former President Barack Obama's budget had projected for next year.

Still, the annual report singled out “significant cost increases in a few large shipbuilding programs” as a major contributor to cost increases; Trump wants to increase the Navy fleet to 355 ships from about 275 today.

‘Stunner' to Stable

Weapons costs soared so much during President George W. Bush's administration that Tina Jonas, the Defense Department's comptroller at the time, called the GAO's report in April 2008 “a stunner,” and vowed that “we have got to do better in managing costs.” It showed $401 billion in projected cost increases from 2000.

Cost overruns remain “one of the enduring” sources of “anger and discontent in this committee and among the American taxpayers,” Senate Armed Services Committee Chairman John McCain told Heather Wilson, Trump's nominee for Air Force secretary, during her confirmation hearing on Thursday.

“I have to tell you we haven't gotten a lot of cooperation from the Department of Defense,” said McCain, who singled out soaring costs from 2002 to 2010 on Lockheed Martin Corp.'s F-35 fighter jet, the Pentagon's costliest weapons system.

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The GAO praised recent progress on the F-35, saying its total projected acquisition cost declined by $7.6 billion over the past year “with no changes to its planned procurement quantities” of 2,443 aircraft. It added, though, that “much of these savings were generated by changes in estimating assumptions for savings in future lots.”

While Trump criticized F-35 costs as “out of control” in late 2016, he claimed credit for the $728 million in savings on an $8.2-billion contract for the latest batch.

The GAO said the program for Boeing Co. to build new Air Force One planes for the executive branch is now estimated to cost $3 billion through 2021 for two aircraft, including research, development, and production. Trump had criticized that plane, too, describing it as a $4 billion program before claiming credit for lobbying the contractor to bring down costs.

The GAO said the Pentagon has increased its “buying power” by $11 billion, “which resulted from some programs finding procurement efficiencies that more than offset inefficiencies in other programs.” In the last year, projected costs for the 19 newest of the 78 programs reviewed were reduced by a combined $3.4 billion.

Defense companies “have consistently shown strong market performance,” regardless of whether military programs “experienced cost increases, decreases or stability,” indicating that “investors expect the performance of these companies to be strong for some time to come,” the GAO said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net.

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert, Ros Krasny