3.4. Cost Estimation for Major Defense Acquisition Programs
3.4.1. Independent Cost Estimates
3.4.2. DoD Component Cost Estimates
3.4.3. Office of Cost Assessment
3.4.3.1. Cost Assessment Reviews (Pre-Milestone Decisions and Full-Rate Production)
3.4.3.1.1. Cost Assessment Review Events—180 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.2. Cost Assessment Review Events—45 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.3. Cost Assessment Review Events—21 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.4. Cost Assessment Review Events—10 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.5. Cost Assessment Review Events—3 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.2. Cost Estimates for Milestone A Reviews
3.4.1. Independent Cost Estimates
The Director, Cost Assessment and Program Evaluation (DCAPE), conducts independent cost estimates (ICEs) for Major Defense Acquisition Programs (MDAPs) and Major Automated Information Systems (MAIS) programs for which the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) is the Milestone Decision Authority. An ICE is required for MDAPs prior to certification at Milestone A, certification at Milestone B, before any decision to enter into low-rate initial production or full-rate production, and in advance of certification following critical cost growth. An ICE is required for MAIS programs that have experienced a critical change. An ICE may be conducted by DCAPE for MDAPs and MAIS programs for which USD(AT&L) is the MDA at any time considered appropriate by DCAPE or upon the request of the USD(AT&L).
For ACAT ID programs, DCAPE conducts the ICE (as described in Section 3.4.3), and for ACAT IC programs, the appropriate Service Cost Center or Defense Agency equivalent conducts the ICE. The Service Cost Centers are in the financial management organizations of their respective military departments, and are outside of their department's acquisition chain-of-command.
DCAPE and the Secretary of the Military Department concerned are required by Congress to report certain elements of program cost risk for MDAP and MAIS programs. For such programs, DCAPE and the Secretary of the Military Department concerned (or the head of the Defense Agency concerned) must state the confidence level used in establishing a cost estimate, the rationale for selecting the confidence level, and ensure that the confidence level provides a high degree of confidence that the program can be completed without the need for significant adjustment to program budgets.
The confidence level disclosure shall be included in the ADM approving the APB; in any other cost estimates for MDAPs or MAIS programs prepared in association with the estimates prepared in accordance with Section 3.4.1, above; and for MDAPs, in the next Selected Acquisition Report prepared in accordance with 10 U.S.C. § 2432, or for MAIS programs, in the next quarterly report prepared in accordance with 10 U.S.C. § 2445c.
3.4.2. DoD Component Cost Estimates
DCAPE reviews all cost estimates and cost analyses conducted in conjunction with MDAPs and MAIS programs. In order to accomplish this, 10 U.S.C. § 2334(b) requires that DCAPE promptly receive the results of all cost estimates and analyses conducted by military departments and Defense Agencies (together, “DoD Component Cost Estimates”).
Each DoD Component establishes a DoD Component-level cost position for all MDAPs and MAIS programs at milestone reviews. To support the Department's full funding policy for acquisition programs (see section 3.2.3), as well as statutory certifications and regulatory requirements, the DoD Component is expected to fully fund the program to this cost position in the current President's Budget Future Years Defense Program (FYDP), or commit to full funding of the cost position in the next President's Budget FYDP, with identification of specific offsets to address any funding shortfalls that may exist in the current FYDP. In addition, the appropriate Deputy Assistant Secretary of the Military Department for Cost and Economics (or defense agency equivalent) signs for the DoD Component-level cost position, and the DoD Component Acquisition Executive and the Component Chief Financial Officer endorses and certifies that the FYDP fully funds the program consistent with the DoD Component-level cost position. This policy was promulgated in the OSD Memorandum, "Required Signed and Documented Component-level Cost Position for Milestone Reviews," dated March 12, 2009.
3.4.3. Office of Cost Assessment
3.4.3.1. Cost Assessment Reviews (Pre-Milestone Decisions and Full-Rate Production)
3.4.3.1.1. Cost Assessment Review Events—180 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.2. Cost Assessment Review Events—45 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.3. Cost Assessment Review Events—21 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.4. Cost Assessment Review Events—10 Days before Overarching Integrated Product Team (OIPT) Meeting
3.4.3.1.5. Cost Assessment Review Events—3 Days before Overarching Integrated Product Team (OIPT) Meeting
The Office of Cost Assessment (CA), within the Office of Cost Assessment and Program Evaluation (CAPE), receives the results of and reviews all cost estimates and cost analyses and associated studies conducted by the DoD Components for major defense acquisition programs (MDAPs) and major automated information system (MAIS) programs and has timely access to any records and data in the Department.
During the CA review process, CA staff may engage in discussion with the DoD Components regarding any discrepancies related to the cost estimates and comment on deficiencies regarding the methodology or execution of cost estimates. Furthermore, the Director, CAPE, is authorized to concur with the choice of a cost estimate used to support the acquisition program baseline (APB).
Although CA will provide periodic reviews, certain reviews are regular and required. For programs subject to CAPE review (normally Acquisition Category ID) that are approaching Milestone decisions or the Full-Rate Production Decision Review, CA staff conducts a comprehensive review, establishes a formal position on a program's life-cycle cost, and advises the Milestone Decision Authority accordingly. The CA review consists of preparation of an independent life-cycle cost estimate as well as an assessment of the DoD Component Cost Estimate. This section provides a brief summary of the major events associated with the CA review and provides additional information on the procedures for each event. A more comprehensive description of the Cost Assessment review process is found in DoD 5000.04-M, "DoD Cost Analysis Guidance and Procedures," Section 2.
Table 3.4.3.1.T1 provides a brief summary of the major events and timelines associated with a Cost Assessment review leading to a Defense Acquisition Board milestone decision review:
Table 3.4.3.1.T1. Cost Assessment Timeline Associated with a DAB Milestone Decision Review
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Event
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Date
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- Cost Assessment Review Kick-off Meeting
- Draft Cost Analysis Requirements Description (CARD) Delivered by DoD Component
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180 days before Overarching Integrated Product Team (OIPT) meeting
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- Cost Assessment Briefs Preliminary Independent Life-Cycle Cost Estimate (LCCE) to Program Manager (PM)
- Draft Documentation of DoD Component Cost Estimate Delivered by DoD Component
- Final CARD Delivered by DoD Component
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45 days before OIPT meeting
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- Cost Assessment Review Meeting
- PM Representative Briefs Program Defined in CARD, and Program Office Cost Estimate
- DoD Component Representative Briefs Component Cost Position, if applicable
- Cost Assessment Briefs Final Estimate of Independent LCCE to PM
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21 days before OIPT meeting
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- Final Documentation of DoD Component Cost Estimate Delivered by DoD Component
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10 days before OIPT meeting
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- OSD Cost Assessment Report Delivered to OIPT Members
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3 days before OIPT meeting
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3.4.3.1.1. Cost Assessment Review Events—180 Days before Overarching Integrated Product Team (OIPT) Meeting
The Cost Assessment (CA) review process begins roughly six months before the planned Defense Acquisition Board milestone review. At that time, the draft Cost Analysis Requirements Description (CARD) is provided to CA for review. The CARD is used to describe formally the acquisition program for purposes of preparing both the DoD Component Cost Estimate and the CA independent cost estimate. CA staff promptly evaluates the CARD for completeness and consistency with other program documents (such as capability needs documents, acquisition strategy, etc.). As part of this evaluation, CA staff may require access to privileged information such as contractor proposals that are proprietary or source selection sensitive. CA staff will follow all necessary procedures to ensure that the integrity of the privileged information is protected.
The expectation is that the CARD should be sufficiently comprehensive in program definition to support a life-cycle cost estimate. Normally, CA staff provides any necessary feedback to the DoD Component if any additional information or revisions are needed. If the CARD is found to be deficient to the point of unacceptability, the Deputy Director, CA, will advise the OIPT leader that the planned milestone review should be postponed.
At roughly the same time that the draft CARD is submitted, CA staff announces its upcoming review in a formal memo. The memo initiates a working-level kick-off meeting that is held with representatives from the program office cost estimating team, the CA independent cost estimate team, and other interested parties (typically DoD Component or OSD staff members). The purpose of the meeting is to discuss requirements and issues for the upcoming milestone review, the scope of the cost estimates, and ground rules and assumptions on which the estimates will be based. Much of the discussion will focus on material provided in the draft CARD. This ensures that both cost teams have a common understanding of the program to be costed. In addition, ground rules are established for CA interactions with the program office. CA staff also coordinates any travel or visit requirements with appropriate DoD Component points of contact.
3.4.3.1.2. Cost Assessment Review Events—45 Days before Overarching Integrated Product Team (OIPT) Meeting
Per DoD Instruction 5000.02, Enclosure 7, section 4, Cost Assessment (CA) staff will brief the preliminary independent Life-Cycle Cost Estimate (LCCE) to the program manager (PM) 45 days before the OIPT meeting. In a similar timeframe, the program office should provide draft documentation of its estimate to the CA staff, and if applicable, the DoD Component should provide draft documentation of the DoD Component Cost Position. The CA report eventually submitted to the OIPT and to the Defense Acquisition Board membership provides not only the CA independent cost estimate but also an evaluation of the DoD Component Cost Estimate. It is therefore important for the DoD Components to submit well-documented cost estimates that are ready for review.
The specific standards for the cost documentation are described in DoD 5000.04-M, "DoD Cost Analysis Guidance and Procedures," Sections 1 and 2. In general, the documentation should be sufficiently complete and well organized that a cost professional could replicate the estimate, given the documentation. Along with the draft documentation of the program office cost estimate, the DoD Component provides an updated (and final) Cost Analysis Requirements Description to CA staff. At the same time that the documents are provided, CA staff will provide feedback and identify any emerging cost issues to the program manager and DoD Component staff, in part based on CA work to date on its independent cost estimate.
3.4.3.1.3. Cost Assessment Review Events—21 Days before Overarching Integrated Product Team (OIPT) Meeting
Per DoD Instruction 5000.02, Enclosure 7, section 4, CA staff will brief the results of the independent cost estimate to the program manager 21 days before the OIPT meeting. This is normally handled as part of the CA review meeting. At this time, the program office should provide their final estimate to the Cost Assessment staff, and the DoD Component should provide the final DoD Component Cost Position. Other invited OSD and Joint Staff representatives may attend these reviews/exchanges. A typical presentation format for the Cost Assessment review meeting would include:
- Program overview and status
- Program office acquisition cost estimate
- Summary of results
- Methodology for high-cost elements
- Rationale for DoD Component cost position, if applicable
- Comparison of (time-phased) program office cost estimate to current funding
- Operating and Support cost estimate
In addition, at the CA meeting, CA staff provides any further feedback to the program office and DoD Component staff. If appropriate, CA staff will provide a presentation of the major areas of difference between its independent cost estimate and the program office cost estimate and/or DoD Component cost position.
3.4.3.1.4. Cost Assessment Review Events—10 Days before Overarching Integrated Product Team (OIPT) Meeting
At least 10 days before the OIPT meeting, the DoD Component provides final documentation if its cost estimate (program office cost estimate, or DoD Component Cost Position where applicable).
3.4.3.1.5. Cost Assessment Review Events—3 Days before Overarching Integrated Product Team (OIPT) Meeting
Cost Assessment (CA) staff's final report is delivered to the OIPT leader at least three days before the OIPT meeting. Immediately thereafter, it is distributed to the OIPT members and is available to the DoD Component staff. The expectation is that any issues had already emerged in prior discussions and that the final CA report should not contain any surprises. The report normally is two to three pages and typically includes the following:
- Summary of DoD Component Cost Estimate
- Summary of Cost Assessment independent cost estimate
- Comparison or reconciliation of the two estimates
- Assessment of program risks
- Comparison of (time-phased) Cost Assessment cost estimate to current program funding
- Recommendations concerning program funding
3.4.3.2. Cost Estimates for Milestone A Reviews
Per DoD Instruction 5000.02, Enclosure 2, section 5.c.(5), the DoD Component at Milestone A submits a cost estimate for the proposed materiel solution(s). Also, per 10 U.S.C. § 2334, the Director of Cost Assessment and Program Evaluation (DCAPE) conducts an independent cost estimate in advance of Milestone A certification. In order to facilitate these estimates, the cost estimating procedures at Milestone A will track those at the other milestone decisions points. This includes the required preparation of a Cost Analysis Requirements Description (CARD), see below, although the early stage of the program development will necessitate less specificity in many of the required elements within the CARD.
The actual process and timing leading to the DoD Component estimate may vary among programs, and therefore, a tailored approach should be developed and proposed. Early in the Materiel Solution Analysis Phase, the Program Manager and DoD Component staff should work with the OSD Office of Cost Assessment (CA) and Acquisition Resources & Analysis staffs to develop a plan and schedule for delivery of the cost estimate to support the upcoming Milestone A review. The plan is subject to approval of the Milestone Decision Authority (MDA).
The DoD Component Cost Estimate, in addition to the DCAPE independent cost estimate, is used to support the MDA certification requirements for Milestone A (10 U.S.C. § 2366a). The emphasis for the Milestone A cost estimate is to provide costing adequate to support the selection of the preferred materiel solution(s) identified by the Analysis of Alternatives, and to support a determination by the MDA that current funding for the Technology Development Phase (required technology development, competitive prototyping, and possibly preliminary design of the end-item system) is adequate. The Milestone A cost estimate is a complete estimate of the system life-cycle cost. However, for the costs associated with the acquisition phases beyond Technology Development (i.e., Engineering and Manufacturing Development, Production and Deployment, and Operations and Support), the Milestone A cost estimate typically would not have the same level of rigor or fidelity as will later cost estimates (prepared for milestones B and beyond). Although the cost estimate addresses the complete life-cycle cost, since it must support the Analysis of Alternatives process, only the program development and procurement costs are subject to certification.
The DoD Component Cost Estimate submitted at Milestone A should be based on a sound description of the program and follow the general requirements of the CARD. Understandably, programs at Milestone A are less well-defined than programs at later milestone decision points. The Initial Capabilities Document, Technology Development Strategy, Systems Engineering Plan, Test and Evaluation Strategy, and Analysis of Alternatives, together with the CARD, should be used to provide a technical and programmatic description that should be the foundation for the cost estimate.
Note that if the certified cost estimate grows at least 25 percent during the Technology Development Phase, then the Program Manager must notify the MDA of the increase. The MDA in turn consults with the Joint Requirements Oversight Council to reassess program requirements and the military need(s) for the system. See DoD Instruction 5000.02, Enclosure 2, section 5.c.(3) for further guidance.
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