Impact of political-economy variables on cost growth in military weapon system contracts

Date01 March 2013
Published date01 March 2013
AuthorJonathan D. Ritschel
Subject MatterPublic policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue
Jonathan D. Ritschel*
ABSTRACT. For decades, cost growth in major military weapon system
programs has been problematic. The result is a multitude of studies
documenting internally focused causes of Department of Defense (DoD)
acquisition cost growth and a spawning of acquisition reforms that have
provided little relief to the problem. The missing components of these prior
analyses are the larger economic and political factors that contribute to cost
growth. This study analyzes cost growth in major DoD development and
procurement contracts through a holistic political-economy construct
including the effect of the political party of the President and Congress, and
the liberal-conservative record of the Armed Services Committees. These
political-economy constructs in both development contracts and
procurement contracts are found to be more robust.
Cost growth in military weapon systems has been an object of
concern and area of active public policy for over thirty years. Desp ite
numerous acquisition reform legislations aimed at the development
and procurement processes, cost growth has not subsided (Arena et
al, 2006). Indeed, in their most recent report, GAO (2013) finds cost
growth of $74.4 billion from the previous year.
* Jonathan D. Ritschel, PhD, is an Assistant Professor, Department of
Systems Engineering and Management, the Air Force Institute of
Technology. His research interests include public choice, the effects of
acquisition reform on cost growth in DOD weapon systems, research and
development cost estimation, and economic institutional analysis. The views
expressed in this article are those of the author and do not necessarily
reflect the views of the Department of Defense or any of its agencies.
Copyright © 2013 by PrAcademics Press
Compounding the issue, in the wake of the Great Recession,
proposed austerity measures have intensified the pressure on DoD
acquisition programs. Therefore, it is not surprising that cost growth
garners significant attention in both public policy actions and interest
from researchers.
Understanding the factors that affect cost growth in military
weapon system contracts is a necessary first step to providing a
solution. Previous research (Drezner et al, 1 993; Jarvaise et al,
1996; Swank et al, 2000; Porter et al, 2009; Gansler, 2010) focus on
internal linkages to cost growth: funding stability, requirements
definition, program management, cost estimation error, and
technology readiness are common strands in this literature. Other
past research efforts focus on the effects of a specific acquisition
reform initiative on cost growth (Searle, 1997; Christensen et al,
1999; Smirnoff and Hicks, 2008). These previous research efforts
neglect the public choice literature1 and must be considered
incomplete from a political-economy perspective. Adding to the
problem, many of the previous research efforts aggregate the data to
Service or OSD level analysis, obscuring the underlying interactions.
Filling the void necessitates an analysis of cost growth in military
weapon systems through an integrated political-economy construct at
the individual weapon system level. Traditional explanations from the
literature on cost growth must be combined with economic and
political variables to construct a fully specified model. This paper
models the approach through a thorough examination of individual
Acquisition Category I (ACAT I) Air Force, Army, and Navy contracts
from 2000-2008. Specifically, individual econometric models are
developed for the Research and Development (R&D) and
procurement phases of individual acquisition programs. This
program phase delineation accounts for the unique characteristics of
the program’s life cycle. In addition, utilizing econometric techniques
allows for a complete statistical analysis that i ncorporates all the
hypothesized facto rs that affect cos t growth.
Prior to econometric modeling, several issues are addressed.
First, a complete understanding of the cost growth concept is
provided. Cost growth denotes different meanings to different
audiences, necessitating an explicit definition for this analysis.
Following this, an analysis of the existing literature on cost growth is
examined. Revealing the findings of previous studies provides insight

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