Cost and Time Overruns for Major Defense Acquisition Programs

Abstract

Cost and time overruns in Major Defense Acquisition Programs (MDAPs) have become a high-profile problem attracting the interest of Congress, government and watchdog groups. According to the GAO, the 98 MDAPs from FY2010 collectively ran $402 billion over budget and were an average of 22 months behind schedule since their first full estimate. President Obamas memorandum on government contracting of 4 March 2009 also highlighted this issue. This paper presents findings of research on the root causes of cost and schedule delays for 92 MDAP active in 2010 and 12 cancelled programs. The results do not establish causality but do indicate multiple notable correlations. Inaccurate cost estimates are responsible for the strongest correlation with net cost growth changes and are associated with 40 percent of the accumulated cost overruns. In addition, the start year has little impact on the compound annual growth rate of cost overruns. This suggests that relatively better performance of newer programs may prove illusionary as programs age. Finally, fixed price contracts appear to have relatively smaller overruns, although this may tell us more about which programs are likely to receive fixed price contracts rather than what effect fixed price contracts may have on program performance.