Challenges of Developing LCC Estimates for NATO, where National Interests and Compromises Influence Decisions
Torilli, P.; Rezendes, J.
MCR Federal, LLC

The North Atlantic Treaty Organisation (NATO) is an alliance comprised of 26 nations located in both North America and Europe. Each nation is fully committed to satisfying the articles set forth in the North Atlantic Treaty (signed on 4 April 1949 in Washington D.C.). NATO's primary role is to safeguard the freedom and security of its member countries (allies) by both political and military means. NATO is committed to defending its member countries against aggression, threats of aggression and that an attack against one nation (or more) is an attack against all. Additionally, NATO is an inter-governmental organisation of which each member nation retains its own sovereignty, however all decision making is taken jointly and on the basis of consensus.

Achieving consensus on the procurement, ownership and operations of weapons systems at NATO can become extremely difficult and therefore requires a lot of flexibility and political compromising. It becomes even more challenging when trying to jointly fund the procurement of these systems and commonly fund the operations and sustainment.

Two general ways to fund programmes/projects at NATO are: (1) common funding; and/or (2) joint funding. Common funding involves all member nations pooling their monetary resources into budgets that are managed directly by NATO. The projects are commonly financed by all member nations through a common funding source and the cost sharing arrangements are in accordance with pre-determined, agreed-to formulas. Joint funding involves member nations pooling their monetary resources into budgets on those programmes/projects that are managed by nations themselves and through a joint type "funding arrangement". These arrangements are based on cost sharing agreements written in Multinational Memorandum of Understanding (MMOU) type documents which are signed by those nations partaking in the programme (like-minded nations). The funding decisions are made by these participating nations and ultimately through a Board of Directors (BOD) type organisation. Not all 26 nations need to join and contribute to a joint funded programme.

There are many challenges to developing LCC estimates for NATO where national interests and compromises often influence decisions. Some of the obstacles in the decision making process may include the inability to readily agree on: affordability; the overarching system architecture; time lines (schedule); technology sharing; disclosure of information; the industrial construct (single Prime contractor vs. Joint Venture); the procurement strategy (single contract vs. multiple, contract type, etc); the cost sharing formulas; work sharing (Industrial Participation) arrangements; funding sources (joint or common); and many others. Though the primary goal of programme acquisition is to obtain a capability for NATO, many nations often seek to achieve a greater Return On Investment (ROI) and maximize their nation's Economic Benefits (EB).

This paper explores the many uncertainties that result from national interest and influences in the NATO consensus-driven decision-making process that challenge the cost analyst when developing LCC estimates for NATO decision-makers.