[Note: In this post I use the NAS cost figures, which are based on numbers for FY 2010.  I do not attempt to account for things which have happened since then.  For example, since 2010 test failures have led to both an increase in the total buy of GBI interceptors from 52 to 57 and increased testing costs. Thus future GMD costs will be higher than in the budgets shown here. However, such costs increases are likely more than offset by the fact that two or three years of spending that the NAS Report counts as future costs are now “sunk” costs.]

Figure 1.  Figure 4-1 from NAS study.

As the caption states, Figure 4-1 shows the 20 year lifecycle costs (LCCs) for various missile defense alternatives considered in the NAS report. The 20 year LCCs start in FY 2010 and are given in FY 2010 dollars.  The first section of the figure shows the NAS costs for five boost-phase systems, the middle section shows midcourse defense systems, including both the GMD and the proposed GMD-E systems, and the last section shows costs for two terminal defenses, Patriot PAC-3 and THAAD.

The first two columns of the middle, midcourse section compare the cost of completing and operating for 20 years the current GMD system to the cost of developing, procuring and operating their proposed new GMD-E system, also for 20 years. 

Surprisingly, the NAS Report’s Figure 4-1 purports to show that this new GMD-E system can be developed, procured and operated for 20 years at a lower cost than completing the current GMD system and operating it for 20 years. 

Why is this surprising?  Because the GMD system is nearly complete. Only the last 12 GBI interceptors remain to be bought.  Yet according to the NAS Report, the development and procurement costs associated with deploying these last 12 interceptor are billions of dollars greater than the cost of developing and deploying a much larger number of their proposed new, more capable GMD-E interceptors. How is this possible?

In this and the next several posts, I will attempt to assess and explain this NAS Report finding. It is a complicated subject, and so I will break it up into several posts. In this first part, I focus on only two things:

(1) Showing how the NAS Panel obtained their projected cost figures for the GMD system, as shown in their Figure 4-1;

and

 (2) Showing that they double count Operations and Sustainment (O&S) costs for the GMD system, leading to an error of about two and a half billion dollars.

(1) How did the NAS Report obtain its projected cost estimates for the GMD system?

Figure 2 below shows an enlargement of the center section of the NAS Report’s Figure 4-1.

Figure 2: Enlargement of center section of NAS Figure 4-1.

Simply by measuring with a ruler, we can roughly convert the first two columns on Figure 2 into numbers (all figures in billions of dollars), with the results shown in Figure 3 below.

Figure 3: NAS Report Figures for GMD and GMD-E Costs (extracted from Figure 2)

Note that because the MDA does not provide separate Development and Procurement costs for the GMD system (since under the current MDA approach, the deployment of the GMD system is an R&D cost), the NAS Report provides only a single combined figure for the GMD system. Also note that the costs for these systems include only the interceptors (including their basing costs) and their fire control system; the radars and other sensors are not included in either of these two cost estimates. 

The first column in Figure 3, labeled “GMD,” shows the NAS Report’s estimated cost to complete the current GMD system and to operate it for 20 years as being about $18.5 billion, divided between about $12.6 billion for development and procurement and $5.9 billion for 20 years of operations and support.

Now, let’s focus in on just the “Development + Procurement” part of the GMD cost.  The NAS Report describes specifically in Appendix E (pp. E-46 to E-49) how these costs were estimated.  These costs are summarized in their Table E-30, reproduced below as Figure 4.

Figure 4: NAS Table E-30 for GMD System LCC

As noted previously, the NAS Report uses a single combined figure for the GMD Development and Procurement cost, so although this figure appears twice in the table, it should only be counted once in adding up to the total.  For some unknown (to me) reason, the $1.1 billion figure for MILCON is not added into the final totals, even though it is added in in the corresponding NAS Table for their proposed GMD-E system.[3]

Footnote (a) of Table E-30 makes it clear how the NAS obtained this Development and Procurement cost.  It says that they took the FY 2012 Missile Defense Agency’s (MDA) GMD system RDT&E budget and summed the costs for FY 2010 through FY 2016 to get $6.8 billion.  The average spending for each of those seven years is then 6.8/7 ≈ $0.965 billion. The NAS’s “Minimum” Development and Procurement figure was the obtained by adding four more years of RDT&E  spending (through 2020) at this average rate of  $0.965 billion giving a total of $6.8 billion + $3.9 billion = $10.6 billion (within rounding-off errors).  Their “Maximum” Development and Procurement figure of $14.5 billion was similarly obtained by assuming four more years of additional spending (through 2024 — at which point the system would have been operational for 20 years) giving a total of $10.6 billion + $3.9 billion = $14.5 billion.

The average of the Table E-30’s “Minimum” and “Maximum” Development and Procurement costs is then $(10.6 +14.5)/2 billion = $12.55 billion, essentially the same as the $12.6 billion we obtained from the NAS Report’s Figure 4-1. The $5.8 billion for O&S in Table E-30 ($290 million/year) is also the same (within measurement errors) as the $5.9 billion we obtained from measuring the NAS Reports Figure 4-1.

Can we simply reproduce the NAS Report’s numbers?    Figure 5 shows a summary table from the MDA’s GMD FY 2012 RDT&E budget.[4] 

Figure 5: Summary Table from MDA FY 20102 RDT&E Budget (Vol. 2, p. 87).

Figure 6: Breakdown of MDA FY 2012 GMD RDT&E MD 08 Category

The Sustainment subcategory is described in the FY 2012 MDA Budget: “The Operations and Sustainment mission provides for the operations, maintenance, repair, training, sustaining engineering (including stockpile reliability and logistics) of the Ground-Based Midcourse Defense System.”[5]  But since the NAS is including a separate line item of $290 million per year for Operations and Support, it is clear that, in every year except FY 2010, the sustainment costs are being double counted. Thus this double count needs to be subtracted out. How much should be subtracted out?

The NAS Report uses an average figure of $290 million per year for GMD O&S, for a total of $5.8 billion over 20 years, or $290 million per year.  This $290 million per years is described as being an average cost from FY 2010 though FY 2015 based on numbers provided by MDA.[6]  This number is significantly higher than the MDA FY 2012 budget’s sustainment number of $242 million.  However, only 83% of the $290 million figure cited by the NAS Report is actually paid for by the MDA (the other 17% is attributed to U.S. Army manpower and operations).  Thus the amount actually paid by MDA is $290 million x 0.83 = $ 241 million, similar to the $242 million sustainment amount in the FY 2012 MDA budget. 

The $242 million in Sustainment for FY 2012 is, however, significantly higher than the $184 million for this same subcategory in FY 2011.  On the other hand, as shown in Figure 7 below, if we go back five years, we get an average annual sustainment of $228 million.[7]  Thus it does not seem unreasonable to use the NAS’s number of $242 million/year to remove this O&S double-count in future years.

  Figure 7: MDA GMD Sustainment Costs

Subtracting these double-counted Sustainment costs, we get the results in Figure 8 below.

 

Figure 8.  NAS GMD development and procurement costs corrected for O&S double count.