How does the Cost Performance of Defense Contracts Vary Among Services and Contractors? Evidence from Major Defense Acquisition Programs (MDAP)

Abstract

This research examines how the cost performance of defense contracts varies among the Air Force, Army, Navy, and the Department of Defense (DoD) and among five major defense contractors: Boeing, Lockheed Martin, Northrop Grumman, Raytheon, and General Dynamics. Data for these analyses was extracted from the recently established Defense Acquisition Management Information Retrieval (DAMIR) web-based interface for management information on Major Defense Acquisition Programs (MDAP). Note that, in addition to the three military services, MDAP data is also reported for DoD itself.

Data analysis indicates that the Navy ranks last among the military services and DoD in cost performance for MDAP contracts, while the Air Force ranks best. Of the defense contractors, Raytheon ranks last in cost performance and General Dynamics is next to last. Furthermore, the Navy contracts more frequently with Raytheon and General Dynamics than do the other services or DoD. Explanatory factors for poor cost performance may be due to factors such as the Navy's lack of oversight, the quality of the acquisition workforce, the defense contractors’ cost inefficiency, ethical lapses, or weak corporate governance, or combinations of these factors.

In addition, the schedule performance data was also identified. Tests of statistical significance on the schedule performance difference generally yield no results except for one relationship which indicates that the Navy is more likely to have Acquisition Program Baseline (APB) schedule breaches than its counterparts. Finally, cost performance data is examined for statistically significant differences between the two major categories of defense contracts: fixed-price contracts and cost-plus contracts. However, no significant findings were discovered.

Citation

Euske, K.J., San Miguel, J. and Wang, C. (2012), "How does the Cost Performance of Defense Contracts Vary Among Services and Contractors? Evidence from Major Defense Acquisition Programs (MDAP)", Epstein, M.J. and Lee, J.Y. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 75-100. https://doi.org/10.1108/S1474-7871(2012)0000020010