“Latest Actual Costs”

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The $379 billion report

I’ve been reading the publicly-released Pentagon Selected Acquisition Reports for decades. They’re the one place you can get a bottom-line price on various U.S. military weapons systems. But they’re generally two-page summaries, not the detailed reports that generate those summaries.

So hats off to Steven Aftergood’s Secrecy Project at the Federation of American Scientists. He has just offered taxpayers a peek at the detailed SAR for the Pentagon’s new F-35 fighter, now beginning production. It’s the most costly program in Pentagon history (and, by God, that’s saying something): $379 billion for 2,457 jets for the Air Force, Marines and Navy.

The full report is here, and Bill Sweetman of Aviation Week’s dissection is here. But I just want to focus on a narrow slice of the report that shows just how rotten military procurement is (not has become — is. It has always been this bad; the numbers just keep getting bigger).

Frank Kendall, the Pentagon’s No. 2 weapons-buyer, recently explained the challenges associated with buying weapons: “I’d like to say, somewhat glibly perhaps, that the acquisition system only has two problems: planning and execution.”

F-35: Increasingly troubled

Let’s take a look at the so-called “current change explanations” for procuring the F-35 that start on page 42 (!) of the SAR. If Pentagon budgeting and estimating were honest and rigorous, there would be as many increases in cost as decreases. But seeing as Pentagon budgeting and estimating is neither honest nor rigorous, price hikes beat out price drops 23 to 4. And one of those four is a reduction in inflation, something beyond the Pentagon’s control. None of the reductions tops $2.5 billion, while most of the increases are larger than that. Bottom line: the price of the F-35 program jumped nearly $50 billion over the last three months of 2010.

In the middle of list of explanations are six in a row that cite the phrase “latest actual costs” as justification for adding more than $10 billion to the program’s price. And that hike is for only the LRIP — low-rate initial production — contracts.

This looks like a case of what’s known inside the Pentagon as buying-in — estimating cheaper prices to land the contract, only to watch them steadily rise as the blueprints become real. Some in the military also call it low-balling. The less genteel among us — taxpayers, in other words — may prefer to call it fraud.