What is a Nunn-McCurdy Breach?

Introduction

For 30 years, the Nunn-McCurdy Act (10 U.S.C. §2433) has served as one of the principal mechanisms for notifying Congress of cost overruns in Major Defense Acquisition Programs (MDAPs). The act establishes thresholds to determine if an MDAP or designated major subprogram of an MDAP experiences a cost overrun. Nunn-McCurdy thresholds are based on a comparison between a program’s actual costs and the current baseline estimate or original baseline estimate. A program that has cost growth that exceeds any of these thresholds is said to have a Nunn-McCurdy breach and the Department of Defense (DOD) must notify Congress of the breach.

Background

In the early days of the Reagan Administration, a number of high-profile weapon systems, including the Black Hawk helicopter and the Patriot missile system, experienced substantial cost overruns. Responding to public concern over escalating cost growth, Senator Sam Nunn and Representative David McCurdy spearheaded the passage of the Nunn-McCurdy Act, which was
intended to create a reporting requirement for programs experiencing cost overruns. It was believed that publicly exposing cost overruns would force DOD to rein in cost growth. According to Representative McCurdy,

The assumption behind the Nunn-McCurdy provision of the fiscal 1983 defense authorization bill was that the prospect of an adverse reaction from the Office of Management and Budget, Congress, or the public would force senior Pentagon officials to address the question of whether the program in question—at their newly reported, higher costs—were worth continuing.

Nunn-McCurdy was not originally intended to create a mechanism for managing programs or allocating funds. The rationale for an after-the-fact report was a matter of some debate. During floor debate on the original amendment in 1981, Senator John Tower, then chairman of the Senate
Armed Services Committee, said that the reporting requirements were like “closing the gate after the horse has galloped off into the boondocks.”

Consequences of a Critical Nunn-McCurdy Breach

In the event of a critical breach, the Secretary of Defense is required to conduct a root-cause analysis to determine what factors caused the cost growth that led to a critical breach, and, in consultation with the Director of Cost Assessment and Program Evaluation, assess

1. the estimated cost of the program if no changes are made to the current
   requirements,
2. the estimated cost of the program if requirements are modified,
3. the estimated cost of reasonable alternatives to the program, and
4. the extent to which funding from other programs will need to be cut to cover the cost growth of this program.

After the reassessment, the program must be terminated unless the Secretary of Defense certifies in writing no later than 60 days after a SAR is provided to Congress that the program will not be terminated because it meets certain requirements.31 A certification, which uses the exact wording
as found in 10 U.S.C. Section 2433a(b), certifies that

1. the program is essential to national security,
2. the new cost estimates have been determined by the Director of Cost Assessment
   and Program Evaluation to be reasonable,
3. the program is a higher priority than programs whose funding will be reduced to
   cover the increased cost of this program, and
4. the management structure is sufficient to control additional cost growth.

A certification must be accompanied by a copy of the root-cause analysis report.A program that is not terminated must

1. be restructured in a manner that addresses the root cause of the cost growth,
2. have its prior milestone approval rescinded, and
3. receive a new milestone approval before taking any contract action—including signing new contracts or exercising options—without approval from the Milestone Decision Authority.

DOD must also (1) notify Congress of all funding changes made to other programs to cover the cost growth of the program in question and (2) hold regular reviews of the program.