DEFENSE DEPARTMENT

Soaring Costs Not Likely to Slow Down Global Hawk

5/1/2006
By Sandra I. Erwin

SoaringCostsThe Global Hawk spy aircraft has become — in the eyes of its Defense Department supporters — a shining example of leap-forward technology. The aircraft also has emerged as a cautionary tale for what government auditors consider a high-risk and costly approach to building weapon systems.

At the same time that the Pentagon was enthusiastically endorsing Global Hawk in its quadrennial defense review in February, congressional investigators were questioning why the aircraft was 35 percent over budget and were recommending that the Defense Department slow down the program.

A key concern for the Defense Department during the past year has been whether Global Hawk would breach cost ceilings set in the so-called Nunn-McCurdy legislation. That law requires the Pentagon to justify to Congress why it needs to continue to buy a system whose price tag is anywhere from 15 percent to 50 percent higher than previous estimates.

In 2005, the Air Force informed the Defense Department that Global Hawk was running 18 percent above its projected cost. The Government Accountability Office — in response to a query from Sen. John Warner, R-Va., chairman of the Armed Services Committee — concluded that the aircraft in fact was 31 percent more expensive than its original estimate. The Pentagon swiftly rejected GAO’s findings, arguing that the agency had miscalculated the costs by including sensor upgrades and the redesign of the airframe as part of the price.

“The 31 percent increase is incorrect, because it includes retrofit costs that are not part of the approved acquisition program,” says a Pentagon spokeswoman. The actual increase, the department calculates, is 22.5 percent.

Most recently, GAO revised its cost projections for Global Hawk, citing a 35 percent jump from a March 2001 price of $60.9 million to $82.3 million in January 2006. Each Global Hawk system includes the aircraft, ground stations and spares.

The Pentagon, meanwhile, announced in April that Global Hawk is one of 25 military systems whose unit cost increased by more than 50 percent from their original estimate. The program, nonetheless, is not technically a Nunn-McCurdy breach. A waiver in the law allows the Defense Department to measure its costs from a revised base estimate, rather than the original.

According to the updated data released by the Pentagon, Global Hawk total program costs increased from $6.5 billion to $7.8 billion. The added costs are attributed to labor, accounting changes, a correction of RQ-4B design deficiencies, a schedule extension, incorporation of new capabilities, sensor retrofit and a quantity increase of three air vehicles — raising the size of the entire fleet from 51 to 54.

Despite rising costs, the Defense Department plans to accelerate the production of Global Hawk. The Pentagon has given the Air Force the green light to procure the aircraft at the rate of six or seven per year. So far, seven have been delivered, and 17 are in various stages of production, says Larry Dickerson, unmanned aviation analyst at Forecast International, a market intelligence firm. At least two aircraft have been lost in crashes, and two are on loan to the Navy for experiments.

Dickerson argues that the Defense Department only has itself to blame for the Global Hawk’s soaring costs. Once the aircraft started showing what it could do, the Pentagon decided to pile on more sophisticated and expensive features. “It’s like buying cars. If you buy every bell and whistle, it’s going to cost you a lot of money,” says Dickerson. “If they stopped doing that and accepted the current capabilities, maybe they’d keep the costs under control.”

The modifications required a redesign of the airframe. Under current plans, the Air Force will shift from the current RQ-4A version of the Global Hawk, to the RQ-4B variant, which has capacity for larger sensor payloads and can carry 5,000 pounds of extra weight. The wingspan, at 131 feet, is wider than the 116-foot A model.

The reason why the Defense Department took an aggressive stance on this program is that it lacks an alternative, says Dickerson. No other aircraft in the inventory can fly at 65,000 feet for 32 hours at a time. Now that Global Hawks are available, “more people want them,” he adds. “Reconnaissance assets are too limited. Also, they are finding that pilots don’t like reconnaissance missions. They’d rather do combat missions. They don’t like to fly a racetrack pattern for eight hours.”

Other unmanned aircraft currently in operation, such as the Predator, are not considered adequate substitutes, says Dickerson. “Predator doesn’t have as much endurance … or the same payload.”

By claiming that upgrades should not be factored into cost overruns, the Pentagon so far has been able to get around having to justify the increase and defend the program under the Nunn-McCurdy legislation, says James McAleese, a defense industry analyst.

“An intended consequence of the quadrennial defense review was the assured endorsement of the program, regardless of any cost problems,” he says. It is understandable why the Defense Department is throwing so much political support behind this program, McAleese notes. “It’s a capability they need.”

The program also has become a test case for the Pentagon’s “spiral” approach to developing weapon systems, which calls for incremental additions of new equipment to existing aircraft. It could set a precedent for whether a program should be penalized for boosting its technical performance requirements and consequently driving up costs beyond what is acceptable under the Nunn-McCurdy rule.

The Air Force typically has not factored upgrades into aircraft procurement costs, McAleese explains. It is not unusual for the Air Force to fund aircraft improvements or “modifications” in research-and-development accounts — under the category known as “operational system development.” In fiscal year 2007, the Air Force requested $14 billion for operational system development efforts. “It’s a huge issue for the Air Force,” McAleese says.

If the $14 billion were included in procurement estimates, the cost projections for aircraft would rise dramatically. Of the $14 billion requested in 2007, $250 million is for Global Hawk upgrades. The Air Force is seeking to buy six Global Hawks in fiscal 2007 at a cost of $504.5 million.

The manufacturer of Global Hawk, Northrop Grumman Integrated Systems, rebukes GAO’s analysis. “Global Hawk system has provided unprecedented support to the global war on terrorism, completing more than 5,400 combat flight hours to date,” the company says in a statement to the news media.

Air Force spokesman Doug Karas says it is standard Defense Department policy to not include modifications in procurement costs. “In calculating the 18 percent number, the Air Force followed a long-standing Department of Defense practice of excluding all field modifications in the selected acquisition report and Nunn-McCurdy unit cost calculations,” he writes in a statement to National Defense. “GAO does make a legitimate point that some sensor systems now scheduled for installation as field modifications were previously a part of the Global Hawk acquisition program baseline. However, including those sensors in the unit cost calculation would yield a unit cost increase of 22.5 percent, not 31 percent.” The Defense Department, meanwhile, “is reviewing acquisition reporting policies and the Air Force is prepared to update its practices based on that review.”

The Defense Department formally rejected a GAO recommendation that it scale back the Global Hawk B program. “The department is managing risk in the Global Hawk program,” writes Mark Schaeffer, acting director of defense systems, in a letter to GAO.

Michael Sullivan, director of acquisition management at GAO, says the Pentagon historically has done a poor job keeping programs on budget and on schedule, and Global Hawk offers further proof of that. The Defense Department’s own acquisition rulebook advises against doing exactly what the Air Force is now doing with Global Hawk, Sullivan says in an interview. Under the policies now in place — known as the 5000 Series — procurement managers are warned not to start production or make major investments until they have a stable design and mature technologies.

GAO recognizes that the Defense Department is eager to deliver technologies to the field and that it often is willing to risk substantial sums of money to achieve high-performance systems. “From our point of view, that’s fine,” Sullivan says. But in the case of the Global Hawk B, the Pentagon is risking far more than it should, because the new sensor package it wants is years away from being a mature technology. “Global Hawk is just typical of most weapon systems we see,” Sullivan says. “They start with very tough requirements, which they don’t know they can achieve … It’s like trying to ride a bicycle starting out in 10th gear.”

The Global Hawk originally started out with simple requirements, he says. “They were able to build the A model pretty well. But they added requirements that have now put them behind in cost and schedule.”

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