How does the cost performance of defense contracts vary among services and contractors? Evidence from major defense acquisition programs (MDAP)
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Authors
Euske, K.J.
San Miguel, Joseph
Wang, Chong
Subjects
Cost variance
cost performance index
schedule performance index
APB breaches
Nunn-McCurdy breaches
cost performance index
schedule performance index
APB breaches
Nunn-McCurdy breaches
Advisors
Date of Issue
2012
Date
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Abstract
This research examines how the cost performance of defense contracts
varies among the Air Force, Army, Navy, and the Department of Defense
(DoD) and among five major defense contractors: Boeing, Lockheed
Martin, Northrop Grumman, Raytheon, and General Dynamics. Data for
these analyses was extracted from the recently established Defense
Acquisition Management Information Retrieval (DAMIR) web-based
interface for management information on Major Defense Acquisition
Programs (MDAP). Note that, in addition to the three military services,
MDAP data is also reported for DoD itself. Data analysis indicates that the Navy ranks last among the military
services and DoD in cost performance for MDAP contracts, while the Air
Force ranks best. Of the defense contractors, Raytheon ranks last in cost
performance and General Dynamics is next to last. Furthermore, the
Navy contracts more frequently with Raytheon and General Dynamics
than do the other services or DoD. Explanatory factors for poor cost
performance may be due to factors such as the Navy’s lack of oversight,
the quality of the acquisition workforce, the defense contractors’ cost
inefficiency, ethical lapses, or weak corporate governance, or combinations
of these factors.
In addition, the schedule performance data was also identified. Tests of
statistical significance on the schedule performance difference generally
yield no results except for one relationship which indicates that the Navy
is more likely to have Acquisition Program Baseline (APB) schedule
breaches than its counterparts. Finally, cost performance data is
examined for statistically significant differences between the two major
categories of defense contracts: fixed-price contracts and cost-plus
contracts. However, no significant findings were discovered.
Type
Article
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Funding
Financial support from the Acquisition Research Program at Naval Postgraduate School is greatly appreciated.
Format
Citation
Advances in Management Accounting, Volume 20, pp. 75–100, 2012