The Defense Department will soon implement an internal acquisition management policy that will allow defense agencies to reallocate money saved in their acquisition programs.
In a memorandum dated April 22, Ashton Carter, deputy undersecretary of defense for acquisition, logistics and technology, outlined guidance for the armed services to implement his “will-cost/should-cost” program.
“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.”
The “should cost” part of the program entails scrutiny of every cost of a program, tracking of cost and performance trends, and identifying cost savings alternatives throughout a program’s cycle. It also entails more intense contractor negotiations and benchmark comparisons of similar programs from the same contractor. Carter also is looking for program managers to 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.
As for the “will cost” part of the policy, each military service is required to submit to Carter a report that details progress in determing what programs should cost, or will-cost estimates by using historical examples from similar programs. Carter said that previous predicted cost-estimates often created a self-fulfilling prophecy based on cost projections, rather than focusing on cost savings.
“Will-cost is what the cost estimators tell you that you are destined to pay if you keep doing things they way you’re doing them,” Carter said at a missile defense conference in March. “They are, in general, credible, but they are also, in general, depressing. They tell you that you want to spend more money than you want to, and these days, more than you can afford.
Each of the military services was asked to identify five programs to be used as models for should-cost management. The proposed models include 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, as well as many others.
“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.
