Summary: The Congress and the Department of Defense have been increasingly concerned over the ever-rising costs of weapon systems. The dramatic increase in costs since World War II, coupled with constrained peacetime budgets, has resulted in the production of relatively small quantities of many weapon systems and has seriously affected overall military capabilities.
GAO believes the major effects on the costs have resulted from: (1) attempts to deploy systems with new technology and high performance; (2) low rates of production due to budget constraints and desires to maintain active production bases as long as possible; (3) absence of price competition between contractors; (4) lack of real motivation on the part of contractors to reduce costs; (5) the impact of socioeconomic programs, Government controls, and red tape; and (6) a nationwide problem of reduced research and development expenditures and lessening productivity. Some steps that have been taken by the Department of Defense in attempts to eliminate costs include: (1) revising profit policies to provide incentives for contractors to increase capital investments; (2) providing protection against contract terminations; (3) conducting design-to-cost programs; (4) providing value engineering incentives; (5) conducting a manufacturing technology improvement program; (6) increasing attention to contractors' work measurement systems; (7) performing should-cost analysis of contractors' operations; and (8) supporting contractor independent research and development. While these programs are generally worthwhile, they will not have a major impact on overall costs because of the desire for high technology systems, the budget constraints, and the military and political considerations which may preclude any radical departure from current practices.
