Research and Innovation

Managing Lifetime Costs of Large Military Acquisitions

June 26, 2017

LMI Staff

How much does a fighter jet cost? Often, one thinks of the initial purchase price, but a more accurate answer would include the costs to operate and maintain that jet over its lifetime. Past experience shows that the initial cost will be about 20–25 percent of the lifetime costs.

Large purchases, such as jets, ships, or submarines, are called Acquisition Category I (ACAT-1) or ACAT II purchases. The program office in charge of these acquisitions prepares a Life-Cycle Sustainment Plan (LCSP), which estimates likely costs to maintain and run equipment, including labor costs.

The LCSP was created to improve military budgeting and planning and requires input from teams that interact with the equipment. However, there are many challenges. Through the LMI Research Institute (LRI), LMI is undertaking an independent research and development (IR&D) project to learn more about the challenges in implementing LCSPs today. Through interviews, a literature review, and independent analysis of LCSP documents, we are coalescing the experiences and wisdom of many experts into a white paper.

Involve Sustainment Experts Earlier and More Effectively

The military services understand they need to improve estimates of ongoing costs. This is why the LCSP was developed in the first place, and it eventually led to the congressional mandate for a new type of acquisition team member: the program support manager (PSM). The PSM’s primary responsibility is advocating for life-cycle management and product support, including sustainment costs.

Despite these efforts, those involved in the process often report that the LCSP is treated as a checklist instead of as a living, planning document used for collaboration. The feedback of hundreds of reviewers can be overwhelming to reconcile, becoming an administrative burden. Often the recommendations of those consulted are not synthesized in the plan itself.

Those who specifically focus on a program’s sustainment and maintenance are engaged too late in the process, eliminating the ability to prevent a future problem or create opportunity for efficiency. For example, a tech data manual for a C-17 requires one person to fuel and another to hold open the fuel door. One person should be able to perform both of these jobs simultaneously, but maintenance personnel were not brought in to consult with the engineers to provide this feedback. Significant savings can be found if the acquisition planners, operations personnel, and engineers all collaborate at the beginning of the design and planning process. 

LCSP as a Living Document

The Life-Cycle Sustainment Plan is meant to be a living document updated every 5 years. However, during sustainment, leadership rarely requests an updated document, so LCSPs are rarely updated. Some program offices do follow this practice, but it is not widespread, often depending on leadership preference. In many cases, a new program will pull an old LCSP off the shelf and copy over the contents with few adjustments, sometimes failing to critically think about the plan’s application to the new program.

Acquisition teams that do not update their LCSPs constrain their ability to learn from past mistakes. There is little feedback from the warfighters or maintainers, and those who acquire equipment on a big-picture level are left out of planning.

In addition to planning for sustainment earlier, by prioritizing data gathering after fielding, future program offices or acquisition teams can improve the accuracy of their sustainment cost estimates. If the LCSP is updated as it should be, decades of data can be gathered and documented, and the acquisition community can benefit as a whole.

Importance of Technical Data Rights

In the past, systems did not rely on complex computer coding at the same level as today’s equipment. Automated systems today might bring efficiency and ease of use, but computer system programming, updates, and repairs are very expensive. Our increased dependence on computers results in new types of costs tied to contracts with technical providers. For example, a jet may have a diagnostic computer that functions like a car dashboard and indicates when specific subsystems need maintenance or repair. But, developers may own these systems. If something breaks or needs updating, the contractor must be paid to fix it, sometimes at a higher price than what it would cost a government repair center.

These systems were in place for decades, and the military pays the contractor at rates set by the contractor after it is too late to negotiate effectively. The cost must be tackled earlier in acquisition planning. The pace of change in military technology is very fast and the need to stay abreast of emerging technologies requires even more innovation. Contracts should be negotiated earlier, when data rights can be negotiated in a competitive market among multiple potential providers so DoD can ensure the best provider at the best price.

Implementing the Improvements

Program managers are responsible for researching and acquiring major military purchases with a mindset of cradle to grave—or from research to disposal. However, program managers tend to be incentivized to reduce initial purchase costs, stay on schedule, and focus on performance—not to consider long-term operational cost. If more incentives focus on sustainment, a more accurate, less expensive, long-term budget estimate could result.

How can the military achieve more effective and efficient sustainment estimate goals? LMI continues to explore the LCSP process as part of our LRI LCSP IR&D initiative. This initiative is nearing its second stage of the research process and we welcome opinions and feedback from all.

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