October 16, 2020 Public Contract Law Journal

Defense Wins Championships, But Also Cost Taxpayers Billions: How Additions to the Nunn-McCurdy Act Can Transform It from a Mere Reporting Requirement to an Effective Cost Control Mechanism

by W. Benjamin Phillips, III

W. Benjamin Phillips, III received his JD with a concentration in Government Procurement from The George Washington University Law School in May 2020 and is a former Notes Editor of the Public Contract Law Journal. He completed his Bachelor of Arts in Economics, with a minor in General Business, at the University of Maryland, College Park. The author thanks the Public Contract Law Journal Student Editorial Board for their time, insight, and support throughout the note writing process. Additionally, the author thanks his mother, father, sisters, cousin, and close friends for their encouragement and support throughout his academic endeavors.

Abstract

The Nunn-McCurdy Act, first introduced in 1982 and then made permanent law in the National Defense Authorization Act for Fiscal Year 1983, was established to provide visibility into the cost overruns associated with defense acquisition programs. The Nunn-McCurdy Act has different requirements for defense acquisition programs that breach certain cost growth thresholds, with the most significant breach requiring termination of the program unless certified by the Secretary of Defense. Given this, the Act essentially requires the Department of Defense to report programs that breach certain cost thresholds to Congress but does nothing to actually prevent the cost overruns from happening again. This Note suggests amending the Nunn-McCurdy Act to add language that makes a program that has experienced three breaches subject to Congressional review, eliminating the possibility for the Secretary of Defense to simply certify the program again. Additionally, this Note suggests providing Congress with the option to assess a penalty on the Department of Defense’s appropriations for the following fiscal year relative to the number of programs that experience multiple breaches. Finally, this Note suggests providing various termination methods that seek to receive some return on investment before a program is terminated completely.

I. Introduction

When it comes to military spending, no nation on the planet comes close to matching the expenditures of the United States.1 In 2015, world military spending totaled over $1.6 trillion, of which the U.S. accounted for thirty-seven percent.2 In fiscal year 2018, the United States spent more on national defense than China, Russia, Saudi Arabia, India, France, the United Kingdom, and Germany combined, $649 billion to their combined $609 billion.3 “Military spending is the second-largest item in the [U.S.] federal budget after Social Security.”4 According to the Congressional Budget Office, about one-sixth of federal spending goes to national defense.5

Given the significant sums of money the United States puts into the military, Congress enacted a number of statutes that aim to monitor and limit the amount of defense spending.6 One of these statutory mechanisms is 10 U.S.C. § 2433, also known as the Nunn-McCurdy Act (the Act). In its current form, the Nunn-McCurdy Act requires a defense program that experiences a breach of its critical cost growth threshold to be terminated unless certified by the Secretary of Defense.7 The Act originated from a serious concern within Congress “about the continued escalation in the unit costs of some of our major defense systems”8 at “great cost to the taxpayer.”9 While this provision seems like the perfect mechanism to control cost overruns and waste in defense program spending, the Nunn-McCurdy Act could do more to reduce the occurrence of such breaches.

The Nunn-McCurdy Act should be amended to incorporate language that limits how many times the Secretary of Defense can certify a program that has experienced multiple breaches before that program becomes subject to congressional review. When coupled with some sort of penalty that affects the Department of Defense (DoD or Department)’s appropriations for the following fiscal year, the Department likely would enhance its control of program cost growth. Additionally, the Act should require that termination be preceded by statistical analysis that compares methods of termination and the cost/ value associated with each method. In other words, a program should not be terminated immediately after the Secretary of Defense or Congress decides not to certify it but should instead be terminated following a determination of what method provides the most value for the Department’s expenditures.

This Note begins by providing an overview of the Nunn-McCurdy Act and explores the Act’s history from its inception in 1981 through major changes Congress made to the Act in the National Defense Authorization Act of 2006 and Weapons System Acquisition Reform Act of 2009. Next, the Note explores trends in the occurrences of Nunn-McCurdy breaches by looking at what events correlate with an increase in breaches and what type of acquisitions most often experience a breach. This section highlights the VH-71 program as an example of how poor acquisition practices often result in a Nunn-McCurdy breach. Finally, this Note concludes by suggesting language that should be added to the Nunn-McCurdy Act to transform it from a mere reporting requirement to an effective cost control mechanism.

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