The impact of economic factors and acquisition reforms on the cost of defense weapon systems

This paper evaluates how defense budget instability, consolidation of the defense industry, acquisition reform, war, and cost estimating error are related to cost overruns in major Department of Defense Acquisition projects from 1979 to 2002. Employing a panel model of service specific cost overruns, with fixed effects, we find that funding instability in O&M and R&D budgets had large impacts on procurement costs overruns. We further found that unexpected inflation and armed conflict led to higher levels of Procurement cost overruns. Finally we found that the acquisition reforms of the Nunn–McCurdy Act of 1982, the Packard Commission Recommendations of 1986 and the Federal Acquisition Streamlining Act (FASA) of 1994 resulted in significant reductions in procurement cost overruns.