House Bill Would Strengthen Nunn-McCurdy Provision

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Spurred by the skyrocketing cost growth in the U.S. Air Force’s space portfolio, the U.S. House of Representatives is hoping to add discipline to the Pentagon’s acquisition process in part by strengthening an existing procurement oversight law.

The law, known as the Nunn-McCurdy provision, requires the Pentagon to notify Congress when cost growth on a major acquisition program reaches 15 percent. If the cost growth hits 25 percent, Nunn-McCurdy requires the Pentagon to justify continuing the program based on three main criteria: its importance to U.S. national security; the lack of a viable alternative; and evidence that the problems that led to the cost growth are under control.

The House version of the 2006 Defense Authorization Act, which passed May 25, would amend Nunn-McCurdy so as to require the Pentagon to submit to Congress an analysis of alternatives to a given program if its cost grows by 15 percent. The analysis must include the costs associated with completing the program with no changes; completing it with some design, requirements or manufacturing changes; and building alternative systems.

The change would, in effect, lower the cost-growth threshold for providing detailed information on problem programs from 25 to 15 percent. However, termination would be an unlikely outcome for programs that are only 15 percent over budget, according to a House staffer.

The Nunn-McCurdy requirement that the senior acquisition agent — in the case of space programs, the undersecretary of the Air Force — recertify a program whose costs have grown by 25 percent would not be affected by the amendment, the staffer said.

The House bill also proposes to close off a loophole that enables the Pentagon in some instances to simply increase its so-called baseline cost estimate for a program before the Nunn-McCurdy threshold for recertification is breached. Lawmakers believe the Air Force may have used this loophole to avoid having to recertify the Advanced Extremely High Frequency satellite communications system. The Air Force notified Congress last year that the program’s estimated cost had grown by 15 percent.

Under the amended law, the Pentagon would be barred from changing its baseline cost estimate for a program until after it has breached the 25 percent inflation threshold. The Pentagon would be able to change the estimate if it has made significant changes to the scope of program in question, but would then have to notify Capitol Hill, the staffer said.

The proposed changes to Nunn-McCurdy, while inspired by problems with space systems, would apply to all Pentagon acquisition programs.

The most recent example of a non-classified space program that triggered the 25 percent threshold for recertification was the Space Based Infrared System (SBIRS) High missile warning satellites. That occurred in 2002, and the Pentagon was able justify continuing the program based on the Nunn-McCurdy criteria.

The SBIRS High program again breached the 15 percent notification threshold earlier this year.

“The committee is alarmed by the number of space acquisition programs experiencing unexpected cost growth over the past decade,” the House Armed Services Committee said in the report accompanying its version of the defense authorization bill. “Virtually every major space acquisition program has experienced or sits dangerously close to a Nunn-McCurdy breach.”

The House proposal also would force the secretary of defense to get more closely involved in acquisition programs earlier in the process. Specifically, the defense secretary would be required to sign off on programs before the start of preliminary design work, a milestone known in Pentagon procurement parlance as Key Decision Point B for space programs and Milestone B for others.

The secretary, who would not be able to delegate this responsibility, would have to certify that the program likely will be affordable and stands a good chance of accomplishing its mission. Closer oversight from the top Pentagon official would increase the likelihood of heading off potential problems on programs before they spiral out of control, the staffer said.

The House report also lays some of the blame for the Pentagon’s space procurement problems on poor cost estimates, and calls on the Government Accountability Office to audit the Air Force’s cost analysis capability. The committee expressed concern that the Air Force does not have formal training or career development programs for cost analysts, and noted that the Air Force Space and Missile Systems Center in Los Angeles, which oversees the acquisition of space programs, is understaffed in this area.

Further, the Air Force Cost Analysis Agency, which is based in Arlington, Va., lacks the funding and personnel to make the changes necessary to improve its ability to accurately predict the cost of space programs, according to the report. The House directs the secretary of the Air Force — a post that has been filled by officials in an acting capacity since January — to take on this issue and make the improvements.

The Senate Armed Services Committee did not include similar language in its version of the bill, and is unconvinced at this time that House provisions are necessary, a congressional aide said.

The Senate version of the bill is awaiting a vote on the Senate floor. Once that bill is passed, members of the House and Senate armed services committees will meet to sort out differences between their respective bills before sending a final version to the White House for the president’s signature.