Unfounded technical expectations and component quantity or cost changes are consistently-cited causes of Defense Department programs' cost overruns, finds a new report from Rand Corp. The report examines the root cause of cost overruns in programs that exceed the Nunn-McCurdy threshold.

For the Wideband Global Satellite program, an increase in component costs was the significant root cause of cost overruns, as the program expanded to a third phase, adding two more satellites to the first two blocks of satellites, find report authors.

WGS launched in three blocks: Block I consisted of three satellites, Block II consisted of three satellites and Block II's follow on, or Block IIf, added a seventh and eighth satellite to the program.

"The unit cost to the government of WGS Block II was roughly 50 percent more expensive than Block I ($377 million compared with $239 million), and Block IIf is again roughly 50 percent more expensive than Block II ($574 million compared with $377 million)," find report authors.

Rand reports that the increase is largely due to DoD cutting the program into blocks, which stops and restarts the production line in a commercial market that has progressed beyond the outdated technology in a WGS system that was planned back in 2001.

"Reflecting a general shift in market requirements, Boeing shifted its commercial satellite offerings from its HS702HP (high-power) bus to its HS702MP (medium-power) bus. This shift has left WGS supporting the production of parts that no longer have much commercial demand, thereby raising the cost of these components," reports Rand.

The DoD currently plans for a total purchase of 12 WGS satellites and the program has not been cancelled, despite serious cost overruns. These days, "the WGS program is essentially healthy and relatively well managed," report authors say, adding that there is no reason to expect that the cost of subsequent satellites after WGS 8 will increase. 

The lesson-learned from WGS's budget overrun, however, is that DoD relied on industry to continue progressing in one direction and it changed tack. "When the government links one of its programs to a company's commercial base, it assumes an additional measure of risk," explain report authors. "This probably would not have occurred if all Boeing had to do was pull parts from an active commercial line."

The Nunn-McCurdy Amendment--introduced in the 1982 Defense authorization bill by Sen. Sam Nunn (D-Ga.) and Rep. Dave McCurdy (D-Okla.)--requires all DoD programs that run more than 15 percent over budget to undergo congressional review and all DoD programs more than 25 percent over budget to be terminated unless the secretary of defense can defend the program and obtain permission to continue from Congress. According to a March 2011 Government Accountability Office report, there had been 74 Nunn-McCurdy breaches involving 47 major Defense acquisitions since 1997.

For more:
- download the full Rand report or summary

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