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The Congress is currently considering ways to improve the efficiency of acquiring weapons systems for the nation's defense. One alternative, endorsed by the President's Commission on Defense Management (Packard Commission), would approve multiple years of advanced funding for weapons systems, based on milestones that occur during the acquisition process. Last year, the Congress authorized the use of "milestone budgeting" and requested that the Department of Defense designate several programs to test its effectiveness.

In order to assist the Congress in its deliberations on milestone budgeting, the Senate Budget Committee requested that the Congressional Budget Office (CBO) examine its potential advantages and disadvantages and issues related to implementation. In accordance with CBO's mandate to provide objective analysis, the report makes no recommendations.

G. Wayne Glass of CBO's National Security Division prepared the study, under the general supervision of Robert F. Hale and John D. Mayer, Jr. The author thanks Col. James J. Lindenfelser (USAF, ret.), formerly of the professional staff of the Packard Commission, for his comments on an earlier draft. (External reviewers bear no responsibility for the final product, which rests solely with CBO.) The author also gratefully acknowledges the contributions of Roy Meyers of CBO's Budget Analysis Division and William Kostak of the National Security Division. Patricia H. Johnston edited the manuscript and Rebecca J. Kees prepared it for publication.
 

Edward M. Gramlich
Acting Director
July 1987
 
 

SUMMARY

I - INTRODUCTION

• Background
• Other Special Budgeting Techniques

II - POTENTIAL GAINS FROM MILESTONE BUDGETING

• Overall Advantages
• Program Stability
• Savings
• Budget Review Workload

III - POTENTIAL PROBLEMS UNDER MILESTONE BUDGETING

• Budget Inflexibility
• Budget Variability

IV - ISSUES IN FORMULATING A MILESTONE BUDGET PLAN

• Issues of Scope
• Issues of Process
• Action to Date and Future Steps

APPENDIXES

A - Effects of Lump-sum Funding
B - Major Weapons Systems Subject to Re view by Defense Acquisition Board
 

TABLES
1.	Number of Major Changes In Research and Development Programs, Fiscal Years 1982-1986
2.	Number of Major Changes In Weapons Production Programs, Fiscal Years 1982-1986
3.	Estimated Additional Costs of Weapons Systems Resulting from Program Stretchouts
4.	Costs of Production Stretchouts, Fiscal Years 1983-1987
5.	Congressional Workload for R&D and Production Phases, Under Two Milestone Budgeting Options
FIGURES
II-l.	DoD Weapons Acquisition Budget
II-2.	Percent of R&D Budget Exempt from Review Under Two Milestone Options
III-3.	Percent of DoD Production Budget Exempt from Review Under Two Milestone Options
III-4.	Total DoD Budget Variability Under Two Milestone Options
A-l.	R&D Budget Variability Under Two Milestone Options
A-2.	Production Budget Variability Under Two Milestone Options

 

In 1986, the Congress enacted legislation that directed the Secretary of Defense to designate several weapons programs for Congressional consideration as possible candidates for "milestone budgeting." Milestone budgeting is a new method of funding under study by the Congress to replace, at least partially, the annual budget process for the research and development (R&D) and procurement of weapons systems. Under the legislation that authorized the milestone approach, the Congress could approve up to five years of program funding in advance. Milestone budgets would be based on program estimates established at the development and production milestones that occur during the weapons acquisition process. (See box for a description of milestones.) Unless problems arose, the Congress would not again review program authorization--and perhaps appropriation--until the next milestone or until five years had elapsed.

The primary purpose of the legislation is to increase program stability, which, in turn, would enhance program management. Milestone budgeting would also reduce program costs and workloads on reviewers in Congress and the Department of Defense (DoD). Recently endorsed by the Packard Commission on Defense Management, the milestone budgeting concept has also been supported in a number of other major reviews of the defense acquisition process, including the Report of the Commission on Government Procurement (1972), the Defense Resource Management Study (1979), and the Carlucci Initiatives (1981). In order to assist the Congress in its deliberations concerning further implementation of milestone budgeting, this study examines its potential advantages and disadvantages, and discusses issues related to formulating an implementation plan.

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