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Pentagon Improves Holding Down Weapons Costs, Auditor Finds

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March 28 (Bloomberg) -- Cost growth in the Pentagon’s portfolio of major weapons has stabilized in the last year as many programs show signs of increased efficiency, the U.S. Government Accountability Office said today.

The congressional audit agency’s annual report today on the Pentagon’s $1.6 trillion weapons portfolio struck a more optimistic note than in past years on progress in reducing costs.

Eight of the Pentagon’s top 10 most costly programs reported net decreases totaling $4.9 billion, according to the report. An exception was the most expensive weapon, Lockheed Martin Corp.’s F-35 fighter, which increased by $101 million from last year.

Of the 84 programs in the portfolio that provided detailed cost data, 52 “expected to deliver capabilities at lower unit costs than they were projecting a year ago, while the remaining 32 experienced unit cost increases,” according to the GAO, the investigative arm of Congress.

The reductions were about 3.4 percent from a year ago on average, while the increases averaged 4.3 percent, the GAO found.

The GAO said some of the improvement stems from a 2009 weapons acquisitions law as well as the Pentagon’s “Better Buying Power” initiative. Both promoted increased use of independent cost analysis.

The new appraisal contrasts with criticism such as that in a March 2009 report, when the agency said cost growth for the top 96 weapons programs remained “staggering” even as it slowed.

Spending Cuts

Today’s report may provide encouragement for defense contractors making their case for continued funding as the Department of Defense faces spending cuts of as much as $500 billion over nine years under the deficit-reduction process known as sequestration.

“While improvements over the past year are promising, DoD must continue to be committed to following sound” acquisition principles “and holding programs accountable for meeting cost and schedule goals for this progress to be sustained,” the GAO said.

The report also said the Pentagon “continues to accept the inherent risks in allowing programs to begin production before completing developmental testing.”

Carrier’s Cost

The cost of the Navy’s CVN-78 Gerald R. Ford class aircraft carrier, built by Huntington Ingalls Industries Inc., increased by $533 million, according to the GAO.

The DDG-51 destroyer program built by Huntington Ingalls and General Dynamics Corp. saw a cost reduction of $1.6 billion, while the contractors’ Virginia-class submarine program dropped $1.4 billion in overall costs, according to GAO.

The seaframe cost of the Littoral Combat Ships built by Lockheed Martin and Austal Ltd. has decreased $1.3 billion, GAO said.

“Interestingly, none of the decreases” in costs “were due to quantity reductions,” said GAO. “In several cases -- notably ship programs -- the cost decreases were due to changes in program estimating assumptions.”

The report found that the U.S. has “incurred significant costs” associated with two failures in 2010 of the latest-model missile defense warhead from Raytheon Co.

The costs in connection with the failed tests, extensive analysis and ground and flight testings have increased to more than $1.2 billion from an initial estimate of $236 million. Bloomberg News reported the estimated increase in April 2012.

“Further cost growth is possible if the remaining corrections, including flight tests, lead to any discoveries,” the GAO said.

The warhead must be verified as corrected before the Pentagon proceeds with spending an additional $1 billion to buy 14 new Orbital Sciences Corp. interceptors to bolster West Coast missile defenses by 2017. The Pentagon this month announced the plan to add more interceptors in Alaska.

NSN LITYGR6S972B <GO> Weapon Overruns Slow, Stay ‘Staggering,’ GAO Says

NSN KHC7X80D9L35 <GO> Pentagon Weapons Cost Growth, Schedule Slips Worsen, GAO Says 

NSN JYM7UU0YHQ0Y <GO> Raytheon Warhead Failure Costing Pentagon $1 Billion to Repair

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

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net