SARS Report
August 19, 2004

The Department of Defense has released details on major defense acquisition program cost and schedule changes since the December 2003 reporting period. This information is based on the Selected Acquisition Reports (SARs) submitted to the Congress for the June 30, 2004 reporting period.

SARs summarize the latest estimates of cost, schedule, and technical status. These reports are prepared annually in conjunction with the President’s budget. Subsequent quarterly exception reports are required only for those programs experiencing unit cost increases of at least 15 percent or schedule delays of at least six months. Quarterly SARs are also submitted for initial reports, final reports, and for programs that are rebaselined at major milestone decisions.

The total program cost estimates provided in the SARs include research and development, procurement, military construction, and acquisition-related operation and maintenance (except for pre-Milestone B programs which are limited to development costs pursuant to 10 USC 2432). Total program costs reflect actual costs to date as well as future anticipated costs. All estimates include anticipated inflation allowances.

The current estimate of program acquisition costs for programs covered by SARs for the prior reporting period (December 2003) was $1,332,027.2 million. After adding the costs for new programs (listed below) and subtracting the costs for final reports (listed below) from the December 2003 reporting period, the adjusted current estimate of program acquisition costs was $1,267,552.2 million. There was a net cost increase of $1,524.9 million (+0.1 percent) during the current reporting period (June 2004), which was due primarily to higher cost estimates for the CVN 21 and SBIRS High programs.

For the June 2004 reporting period, there were quarterly exception SARs submitted for 14 programs. The reasons for the submissions are provided below.

Army:

Chem Demil (Chemical Demilitarization) – The SAR was submitted to report schedule slips of six months or more since the December 2003 report. Specifically, the Start of Operations at Pine Bluff Chemical Agent Disposal Facility is expected to slip seven months from July 2004 to February 2005. The Completion of Operations at the Aberdeen Chemical Agent Disposal Facility is expected to slip 10 months from July 2005 to May 2006. The 100% Agent Destroyed milestone at Newport Chemical Agent Disposal Facility is expected to slip 16 months from January 2006 to May 2007. Finally, the Start of Construction at the Blue Grass Chemical Agent Destruction Pilot Plant is expected to slip eight months from January 2005 to September 2005. There were no cost changes reported since the December 2003 SAR.

Navy:

AIM-9X Missile – The SAR was submitted to rebaseline from a Development to a Production Estimate following the May 2004 approval of Full-Rate Production (Milestone III) by the Assistant Secretary of the Navy for Research, Development, and Acquisition. There were no cost changes reported since the December 2003 SAR.

ASDS (Advanced SEAL Delivery System) – The SAR was submitted to report a schedule slip of approximately 17 months (from May 2004 to October 2005). The production decision (Milestone C) was postponed until successful demonstration of the new lithium ion battery in ASDS-1 and testing of other design changes made to improve acoustic signature and reliability. There were no cost changes reported since the December 2003 SAR.

CVN 21 (Future Aircraft Carrier) – The SAR was submitted to rebaseline the program from a Planning to a Development Estimate following approval of entry into System Development and Demonstration (Milestone B) in April 2004. Program development costs increased by $727.6M (+20.2%) from $3,605.8 million to $4,333.4 million, due primarily to a revised estimate of development costs approved at Milestone B. As a result of Milestone B approval, the program entered into the System Development and Demonstration phase in April 2004, and $31,748.7 million of procurement for three carriers has been added to the SAR. Previously, the CVN 21 SAR was limited to development costs only (per 10 USC 2432).

H-1 Upgrades – The SAR was submitted to report schedule slips of six months or more. Completion of Integrated Testing slipped by eight months (from August 2004 to April 2005) and the Start of Full Rate Production (Milestone III) slipped by six months (from August 2005 to February 2006), due to the tailboom annealing issues and associated schedule growth. Initial Operational Capability (IOC) for the AH-1Z slipped by 15 months (from March 2008 to June 2009), due to a change in the Marine Corps procurement profile to expedite replacement of the aging UH-1Y fleet. There were no cost changes reported since the December 2003 SAR.

MIDS-LVT (Multi-Functional Information Distribution System-Low Volume Terminal) – The SAR was submitted to rebaseline the program from a Development to a Production Estimate following Navy approval of Full Rate Production (Milestone III) in June 2004. There were no cost changes reported since the December 2003 SAR.

V-22 – The SAR was submitted to report a schedule slip of 30 months (from September 2004 to March 2007) in Initial Operational Capability (IOC) of the MV-22, and a schedule slip of 15 months (from June 2006 to September 2007) in Initial Operational Test and Evaluation completion of the CV-22. These delays were due to a new and expanded definition of IOC for the MV-22 in a change to the V-22 Joint Operational Requirements Document, and to a delay in Developmental Test of the CV-22 due to late return to flight, parts shortages, and transfer of test points from MV to CV. There were no cost changes reported since the December 2003 SAR.

Air Force:

EELV (Evolved Expendable Launch Vehicle) – The SAR was submitted to report a schedule slip of six months (from March 2005 to September 2005) in the Heavy Lift Vehicle First Operational Flight. This delay was due to scheduling conflicts at the Spacecraft Processing and Integration Facility at Cape Canaveral Air Force Station. Program costs decreased $557.1 million (-1.7%) from $32,346.5 million to $31,789.4 million, due primarily to variances between previous and new launch vehicle prices (-$8,249.0 million), launch quantity reductions (-$6,119.0 million), and shifts in payloads between vehicle classes (-$135.0 million). These decreases were partially offset by increases for infrastructure sustainment payments (+$12,791.3 million), program office technical support and operation expenses (+$908.4 million), and amortization of construction cost for the west coast launch pad (+$231.0 million).

SBIRS (Space Based Infrared System) High The SAR was submitted to report a Nunn-McCurdy unit cost breach (i.e., a unit cost increase of 15% or more) and schedule delays of six months or more. Program costs increased $1,354.4 million (+15.7%) from $8,631.2 million to $9,985.6 million, due primarily to an increased Engineering and Manufacturing Development estimate associated with technical performance challenges (+$1,118.4 million). Other cost increases are due to a one-year slip in Geosynchronous Earth Orbit (GEO) Satellites 1 and 2 deliveries (from September 2006 to September 2007, and from September 2007 to September 2008, respectively) (+$45.0 million), an extension of the contract beyond FY 2010 (+$131.8 million), an increased requirement associated with GEO satellites 3, 4, and 5 parts obsolescence due to program delays (+$182.0 million), addition of GEO 4 (FY 2012) and GEO 5 (FY 2013) funding due to restoration of launch support capability (+$66.2 million), and increased sustainment costs (+$111.6 million). These increases were partially offset by decreases associated with removal of Block II redesign funds that were reported in the last two annual SARs but were not included in the approved Acquisition Program Baseline (-$412.0 million). The Under Secretary of the Air Force signed a Nunn-McCurdy Unit Cost breach notification letter to Congress on June 17, 2004.

New SARs

(As of June 30, 2004)

The Department of Defense has submitted initial SARs for five new programs (listed below). These reports do not represent cost growth. Baselines established on these programs will be the point from which future changes will be measured. The current cost estimates are provided below:

* Pre-Milestone B program reporting development (RDT&E;) costs only in accordance with the provisions of 10 USC 2432.

For more detailed information on the SARs report, please go to www.defenselink.mil/news/Aug2004/d20040819PP.pdf .