Army Defends Future Combat System Costs

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InsideDefense.com NewsStand | Jen DiMascio | July 19, 2006

The Army's internal cost estimates for the Future Combat System differ sharply from an independent, internal Pentagon estimate recently delivered to Congress, a service official said last week.

In a review mandated by Congress, the Cost Analysis and Improvement Group -- based within the Office of the Secretary of Defense -- estimated the price of FCS has increased from $175 billion in May 2003 to up to $307.2 billion over its entire life cycle, according to the May 2006 report. The Army's most recent life cycle estimate sets the price tag at $229.5 billion, up from $149.3 billion in 2003, according to a chart provided by the Army during a July 12 Pentagon roundtable with reporters.

“We agree to disagree with respect to they have their estimate and we have our estimate,” Maj. Gen. Jeffrey Sorenson said. “It comes down to presentation of the data to the defense acquisition executive, and he makes the call.”

He added that Ken Krieg, the Pentagon's acquisition chief, has not told FCS program officials to adjust their budget to the CAIG estimate, which acquisition chiefs have done in the past when programs were struggling.

“The point being made here is that to date, the program is on track, on cost,” Sorenson said.

The two estimates differ primarily with regard to what the program might have to pay for operation and maintenance costs, Sorenson said.

The CAIG estimates those O&M costs will total $87.9 billion, according to the report delivered to Congress. The Army, meanwhile, says the O&M costs will reach $41.8 billion -- a difference of $46.1 billion.

According to Sorenson, the gap in estimates “is a difference of opinion on the commonality of systems and the amount of time needed to refresh systems and the way the estimates are done.”

The Army approaches its cost position from a “bottoms-up approach” that calculates each piece that will be needed to build FCS, Sorenson said. The CAIG relies instead on parametric models based on historic evaluations of other defense acquisition programs, he said.

In addition to O&M accounts, the estimates also differ with respect to procurement accounts and funding for research, development, test and evaluation. The CAIG projects each of those accounts will cost $17 billion more than the Army estimates.

Those two estimates cannot be compared, because the models used are too different to be reconciled, Sorenson said.

Most of the difference in cost growth over time is due to the program's restructuring in 2004 that added five platforms and four years to the program's time line, Sorenson said. Other factors that have increased the program's research and development cost over the last three years are experimentation, spin outs and updated estimates, according to the chart.

A briefing chart shows a breakdown of procurement cost increases.

The cost grew 32 percent, because the service will buy more Infantry Carrier Vehicles, Non-Line-of-Sight Launch System, and Unmanned Ground Vehicles for each brigade combat team than it planned to in 2003. The price increased by 19 percent to add additional capabilities to FCS -- like the Active Protection System, changes to the Joint Tactical Radio System and the Warfighter Information Network Tactical and placing a turret on the Non-Line-of-Sight Mortar. FCS costs grew 5 percent, because the Army is opting to buy FCS BCTs at a slower rate than originally planned, according to figures provided by the service.

The CAIG and individual services often differ in how much programs will cost, said Jacques Gansler, a former Pentagon acquisition official.

Both the CAIG and the Army have used honest approaches to arrive at their figures, he said. It is difficult to estimate the cost of a program like FCS, because the eventual cost of materials that have yet to be developed is difficult to predict, he added.

On balance, most defense programs wind up closer to the CAIG estimate than their service projection, but not always, Gansler pointed out. The Joint Direct Attack Munition, run by the Air Force and the Navy, is one notable exception, Gansler said.

If the service manages FCS like most defense acquisition programs and focuses on performance, then its costs are likely to match the CAIG's historic-based analysis. But if the Army really focuses on what the program will cost, the FCS program can come in closer to its own estimate, he said.