The five major American defense contractors have averaged far higher cost growth on development contracts for Major Defense Acquisition Programs (MDAP) than other contractors while the opposite is true for early production contracts, according to a new study prepared by the Defense Department’s acquisition office that analyzes performance of major defense programs between FY ’94 and FY ‘11.
Boeing [BA] and Lockheed Martin [LMT] experienced 46 percent and 42 percent cost growth, respectively, on average for MDAP development contracts while General Dynamics [GD] had 36 percent, Northrop Grumman [NOC] 31 percent and Raytheon [RTN] 25 percent versus a 16 percent average for all other contractors, says the 2013 annual report, Performance of the Defense Acquisition System.
As for schedule growth on MDAP development programs, Boeing again led the way with 17 percent growth followed by GD and Northrop Grumman at 6 percent, Lockheed Martin at 1 percent and Raytheon, which averaged no growth, according to the study. All other defense contractors also averaged no schedule growth, it says.
The study also looked at two subsets of cost and schedule growth, aircraft and ship development contracts. On aircraft development contracts Northrop Grumman averaged 162 percent cost growth followed by Lockheed Martin with 56 percent and Boeing with 52 percent. For schedule growth, Boeing programs averaged 39 percent, Northrop Grumman 4 percent, while Lockheed Martin was actually minus 9 percent, the study shows. It says that the Lockheed Martin and Northrop Grumman schedule results are “not significantly different.”
 |
| Pentagon. Photo: Department of Defense |
On ship development contracts, GD and Northrop Grumman averaged 45 percent and 42 percent cost growth, respectively, while for schedule growth GD averaged 47 percent and Northrop Grumman 22 percent, the study says. It also says, however, that there are no statistical differences between the two companies due to a small sample size.
While the major prime contractors averaged higher cost and schedule growth than other contractors on MDAP development contracts, not so for early production MDAP contracts, at least with cost growth. Cost growth on these contracts by other defense contractors averaged 37 percent, while Raytheon came in at 16 percent, GD 15 percent, Lockheed Martin 8 percent, Northrop Grumman 2 percent and Boeing barely above zero.
As for program schedules, the major primes experienced the most growth, with Raytheon at 29 percent, Boeing 15 percent, Lockheed Martin 3 percent, GD 2 percent, and Northrop Grumman none on average. Other defense contractors averaged 1 percent.
Like with development contracts, the study also looked at early production contracts for aircraft and ships. Lockheed Martin averaged nearly 10 percent cost growth on early production aircraft contracts while Northrop Grumman had 2 percent and Boeing none. On the other hand, Northrop Grumman experienced 39 percent schedule growth, Boeing 17 percent and Lockheed Martin none.
For early ship production contracts the study says the results are not significantly different, as Northrop Grumman averaged 27 percent cost growth to GD’s 24 percent, while for schedule growth GD averaged 5 percent to none for Northrop Grumman.
The report also takes a detailed look at the performance of various major defense programs, analyzing them through program level and contract level data, but avoids “claims of whether the outcomes of technical performance are worth the cost (generally) and cost growth (specifically).” It cites a separate study of the six Navy original frigates beginning in 1794, noting that new ships were based on innovative and unconventional designs, and experienced cost and schedule growth and program instability and involved heated debates within the political establishment.
However, the report says that the “ships were spectacular successes” in operation, adding that “The unexpectedly high cost bought capabilities that proved important in warfare.” It notes that modern weapons programs such as the M-1 tank, the F-15 fighter and the Ohio-class submarine also had similar experiences as the original Navy frigates, including cost growth and schedule delays.
The study goes on to say that “The existence of cost growth therefore does not necessarily mean that the acquisition was a mistake.”