Time To Revise Nunn-McCurdy

It is like Banquo’s ghost is haunting the Department of Defense. Actually, it is two other ghosts: that of former senator and defense expert Sam Nunn and former representative Dave McCurdy. What haunts the Pentagon and stands as the lasting legacy of these two former defense experts and leading lights of the pro-defense Democrats is the Nunn-McCurdy amendment. In force since 1982, the Nunn-McCurdy amendment to the Defense Authorization Act requires Congressional notification when the cost of a DoD weapons program exceeds 15 percent of that projected and calls for the termination of programs whose total cost grows by more than 25 percent over the original estimate, unless the Secretary of Defense jumps through a set of specified hoops.

The Nunn-McCurdy amendment is a good example of that worst of all Washington phenomena, good intentions running amok. The two lawmakers proposed the amendment in reaction to a series of massive cost overruns for Pentagon weapons programs. Programs such as the billion dollar Sergeant York air defense system that could not tell the difference between a helicopter and the exhaust fan in a mess hall had driven Congress to distraction. It was an effort to improve Congressional oversight of defense programs and to enforce some planning and spending discipline on the military.

The problem with Nunn-McCurdy is that it makes no distinction between problems caused by technical difficulties, mismanagement or a misestimation of costs when it directs DoD to report on programs whose costs exceed the 15 and 25 percent thresholds. However, many so-called Nunn-McCurdy breaches are not the fault of the contractors who develop and build the systems or the program managers who provide oversight. They are a consequence of changes in procurement quantities or in requirements. In effect, it is often the government’s fault that costs have escalated, not the programs’.

Take some recent examples of “significant” Nunn-McCurdy breaches. Secretary Gates cancelled the Marine Corps’ Expeditionary Fighting Vehicle (EFV). But because billions had been spent in development costs with no vehicles to be produced, by definition the program suffered a massive, actually infinite, cost growth since the total costs expended now were divided by zero actual units. The same is true for the cancelled National Polar-Orbiting Operational Environmental Satellite System (NPOESS). Or how about the C-27J, a light cargo aircraft? The original program called for 78 aircraft but when the Army withdrew from the program the total buy was cut in half to 38 aircraft. You don’t have to be smarter than a fifth grader to know that when you halve the denominator the product of the division doubles.

There are numerous examples of ongoing programs in which Nunn-McCurdy breaches are a function of changes in the quantities to be procured or the timelines for acquisition. The so-called Nunn-McCurdy breach for the Global Hawk program has almost nothing to do with problems with the aircraft. According to the Air Force’s report, the breach was caused by a quantity reduction, spares and sensor depot standup, diminishing manufacturing sources, and ground station and communications system modernization. The Global Hawk is a marvelous long-endurance, high altitude unmanned aircraft that is currently conducting surveillance over Afghanistan and Libya.

Similarly, the F-35 Joint Strike Fighter program has been forced to report Nunn-McCurdy breaches in the past that were the consequence of decisions to restructure the program, add more testing and delay the ramp up to full production. The Pentagon actually could avoid the breach and get the F-35 at a lower per unit price if it simply upped the rate of production. This would permit the Lockheed-Martin production team to buy materials more efficiently, make better use of its factory space and workforce and more rapidly achieve learning curve savings. Lockheed Martin still is intent on achieving the targeted price of around $65 million a copy for the conventional take off and landing variant over the life of the program. Achieving this goal requires achieving economical rates of production and that is up to the government.

It is difficult to take a Nunn-McCurdy breach seriously when cost growth is driven primarily by the government’s decisions. We need a new requirement (how about the Levin-McKeon amendment) by which the Pentagon has to report every time its decision to change requirements, timelines or production rates cause a defense program to go off the rails. We could then reserve Nunn-McCurdy breaches for those rare occasions when it’s the equipment manufacturer’s fault that a program goes awry.