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Annual Growth of Contract Costs for Major Programs in Development and Early Production

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Technical Report,01 Oct 2015,21 Mar 2016

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Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics Washington United States

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A new measure of cost growth and thus cost control and tradeoffs was developed to look for longitudinal performance trends over the last three decades. This measure examines annual cost changes across major contracts for development and early production on major defense acquisition programs, including overruns and scope changes. This measure should not be mistaken for the total costs of these programs but should show similar trends as other measures of total program cost growth. A 5-year moving average of the annual inflation-adjusted changes was used to smooth the data, revealing striking patterns. Statistical analysis found that the combined effect of three factors accurately models these dynamics the defense budget structural changes in the Goldwater-Nichols since 1990 and Better Buying Power since 2012 eras and a self-correcting behavior that adjusts for prior differences between the actual growth and the anticipated cost growth from these budgetary, structural, and constant factors. Structural reductions are not due to schedule changes, quantity changes, or increased amounts of early production contracts in those periods, but changes are due to other factors, such as recent drops in total cost growth on development contracts and earlier drops on early production contracts.

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