Defense Acquisitions
Future Combat System Risks Underscore the Importance of Oversight Gao ID: GAO-07-672T March 27, 2007The Army's Future Combat System (FCS) is a program characterized by bold goals and innovative concepts--transformational capabilities, system-of-systems approach, new technologies, a first-of-a-kind information network, and a total investment cost of more than $200 billion. As such, the FCS program is considered high risk and in need of special oversight and review. Today's testimony is based on work conducted over the past year in response to (1) the National Defense Authorization Act for Fiscal Year 2006, which requires GAO to report annually on the FCS acquisition; and (2) the John Warner National Defense Authorization Act for Fiscal Year 2007, which requires GAO to report on the role of the lead systems integrator in the Army's FCS program. Accordingly, this statement discusses (1) the business case for FCS to be successful and (2) the business arrangements for the FCS program.
The Army has far less knowledge about FCS and its potential for success than is needed to fulfill the basic elements of a business case. Those elements are not new to the Army, nor to the Department of Defense (DOD), which addresses such criteria in its weapon system acquisition policy. The Army has made improvements to the program, such as lengthening time frames for demonstrating capabilities and for providing capabilities to current forces. While the Army has also made progress, what it still lacks in knowledge raises doubts about the soundness of the FCS business case. The Army has yet to fully define FCS requirements; FCS technologies that should have been matured in 2003, when the program started, are still immature; key testing to demonstrate FCS performance will not be completed and maturity of design and product will not be demonstrated until after production starts in 2013; and an independent cost estimate from the Office of the Secretary of Defense is between $203 billion and $234 billion, a far higher figure than the Army's cost estimate. To achieve its goals for the FCS program, the Army decided to employ a lead systems integrator (LSI) to assist in defining, developing, and integrating the FCS. This decision reflected the fact that not only were FCS goals ambitious, but also that the Army had limited capacity to manage the undertaking. Boeing Corporation is the LSI. Its relationship with the Army on FCS breaks new ground for collaboration between the government and a contractor. The close working relationship has advantages and disadvantages. An advantage is that such a relationship allows flexibility in responding to shifting priorities. A disadvantage is an increase in risks to the Army's ability to provide oversight over the long term. The contract itself is structured in such a way as to enable the LSI to be paid over 80 percent of its costs and fees by completion of the critical design review in 2011--a point after which programs typically experience most of their cost growth. This is consistent with the Army's desire to provide incentives for the development effort. On the other hand, this contract, as with many cost-reimbursable research and development contracts, makes the contractor responsible for providing its best efforts, but does not assure a successful FCS. The foregoing underscores the important role of the Office of the Secretary of Defense in providing oversight on the FCS program. To date, the Office of the Secretary of Defense has largely accepted the Army's approach to FCS, even though it runs counter to DOD's policy for weapon system acquisition. GAO believes the Office of the Secretary of Defense needs to hold the FCS program accountable to high standards at the congressionally directed decision in 2009 on whether to proceed with FCS. Financial commitments to production will grow rapidly after that point. The Office of the Secretary of Defense should also be mindful of the department-wide implications of the future use of LSIs as well as the system-of-systems approach to developing weapon acquisitions.
GAO-07-672T, Defense Acquisitions: Future Combat System Risks Underscore the Importance of Oversight
This is the accessible text file for GAO report number GAO-07-672T
entitled 'Defense Acquisitions: Future Combat System Risks Underscore
the Importance of Oversight' which was released on March 27, 2007.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony before the Subcommittee on Air and Land Forces, Committee on
Armed Services, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, March 27, 2007:
Defense Acquisitions:
Decisions on Future Combat System Risks Underscore the Importance of
Oversight:
Statement of Paul L. Francis, Director:
Acquisition and Sourcing Management:
GAO-07-672T:
GAO Highlights:
Highlights of GAO-07-672T, a testimony before the Subcommittee on Air
and Land Forces, Committee on Armed Services, House of Representatives
Why GAO Did This Study:
The Army‘s Future Combat System (FCS) is a program characterized by
bold goals and innovative concepts”transformational capabilities,
system-of-systems approach, new technologies, a first-of-a-kind
information network, and a total investment cost of more than $200
billion. As such, the FCS program is considered high risk and in need
of special oversight and review.
Today‘s testimony is based on work conducted over the past year in
response to (1) the National Defense Authorization Act for Fiscal Year
2006, which requires GAO to report annually on the FCS acquisition; and
(2) the John Warner National Defense Authorization Act for Fiscal Year
2007, which requires GAO to report on the role of the lead systems
integrator in the Army‘s FCS program. Accordingly, this statement
discusses (1) the business case for FCS to be successful and (2) the
business arrangements for the FCS program.
What GAO Found:
The Army has far less knowledge about FCS and its potential for success
than is needed to fulfill the basic elements of a business case. Those
elements are not new to the Army, nor to the Department of Defense
(DOD), which addresses such criteria in its weapon system acquisition
policy. The Army has made improvements to the program, such as
lengthening time frames for demonstrating capabilities and for
providing capabilities to current forces. While the Army has also made
progress, what it still lacks in knowledge raises doubts about the
soundness of the FCS business case. The Army has yet to fully define
FCS requirements; FCS technologies that should have been matured in
2003, when the program started, are still immature; key testing to
demonstrate FCS performance will not be completed and maturity of
design and product will not be demonstrated until after production
starts in 2013; and an independent cost estimate from the Office of the
Secretary of Defense is between $203 billion and $234 billion, a far
higher figure than the Army‘s cost estimate.
To achieve its goals for the FCS program, the Army decided to employ a
lead systems integrator (LSI) to assist in defining, developing, and
integrating the FCS. This decision reflected the fact that not only
were FCS goals ambitious, but also that the Army had limited capacity
to manage the undertaking. Boeing Corporation is the LSI. Its
relationship with the Army on FCS breaks new ground for collaboration
between the government and a contractor. The close working relationship
has advantages and disadvantages. An advantage is that such a
relationship allows flexibility in responding to shifting priorities. A
disadvantage is an increase in risks to the Army‘s ability to provide
oversight over the long term. The contract itself is structured in such
a way as to enable the LSI to be paid over 80 percent of its costs and
fees by completion of the critical design review in 2011”a point after
which programs typically experience most of their cost growth. This is
consistent with the Army‘s desire to provide incentives for the
development effort. On the other hand, this contract, as with many cost-
reimbursable research and development contracts, makes the contractor
responsible for providing its best efforts, but does not assure a
successful FCS.
The foregoing underscores the important role of the Office of the
Secretary of Defense in providing oversight on the FCS program. To
date, the Office of the Secretary of Defense has largely accepted the
Army‘s approach to FCS, even though it runs counter to DOD‘s policy for
weapon system acquisition. GAO believes the Office of the Secretary of
Defense needs to hold the FCS program accountable to high standards at
the congressionally directed decision in 2009 on whether to proceed
with FCS. Financial commitments to production will grow rapidly after
that point. The Office of the Secretary of Defense should also be
mindful of the department-wide implications of the future use of LSIs
as well as the system-of-systems approach to developing weapon
acquisitions.
What GAO Recommends:
GAO has recently recommended that the Secretary of Defense (1)
establish specific criteria for evaluating the FCS program at a key
2009 decision and (2) analyze alternative courses of action in the
event FCS is unlikely to deliver needed capabilities. DOD concurred
with GAO‘s recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-672T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Paul L. Francis at (202)
512-4841 or francisp@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Department of the Army's
Future Combat System (FCS), a networked family of weapons and other
integrated systems. FCS is in the forefront of efforts to help the Army
transform itself into a lighter, more agile, and more capable combat
force by using a new concept of operations, new technologies, and a new
information network linking whole brigades together. This is an
extraordinary undertaking that will involve a total investment cost on
the order of $200 billion over the next few decades.
My statement today is based on the work that we have conducted over the
past year in response to (1) the National Defense Authorization Act for
Fiscal Year 2006, which requires GAO to report annually on the product
development phase of the FCS acquisition;[Footnote 1] and (2) the John
Warner National Defense Authorization Act for Fiscal Year 2007, which
requires GAO to report on the role of the lead systems integrator in
the Army's FCS program.[Footnote 2] Accordingly, I will focus my
statement on the business case and the business arrangements for the
FCS program.
Summary:
We look at a business case as comprising those elements that are key to
making an acquisition likely to result in a product that performs as
required for the time and money promised. A sound business case
includes firm requirements; mature technologies; an acquisition
strategy that demonstrates design and production maturity; and adequate
funding to cover a realistic cost estimate. When FCS was approved to
begin in May 2003, it was far from having a sound business case,
especially given its unprecedented size and complexity. Specifically,
requirements were not well defined; technologies were very immature;
the acquisition strategy was aggressive and did not allow for
demonstrating design and production maturity until after the production
decision; and despite the insufficient basis for good cost estimates,
providing the resources at the estimated costs was a great challenge.
Since then, there have been a number of improvements in the program.
The schedule was doubled to allow for more demonstrations and to spin
capabilities out to the current forces; requirements are better
understood, even to the system level; technologies have gotten more
mature; cost estimates have grown substantially, making them more
realistic. Still, it is 4 years later, and progress should be expected.
The Army, doing well by its own measures, is well behind business case
measures. Requirements are still being defined; technologies are years
away from needed maturity levels; key demonstrations of design and
production will still come after the production decision; and
independent cost estimates are significantly higher than the Army's.
To achieve its goals for the FCS program, in 2003 the Army decided to
employ a lead systems integrator (LSI) to assist in defining,
developing, and integrating the FCS. The Army's decision to employ a
lead systems integrator for the FCS program was framed by two factors:
(1) the ambitious goals of the FCS program and (2) the Army's limited
capacity to manage it. In the case of the FCS, the Army has structured
a contract with Boeing as the LSI to define a partner-like relationship
and provide incentives for performance. Evaluating the use of an LSI on
FCS involves consideration of several interwined factors which are not
separable, such as the system-of-systems scope and the technical
challenges. Our concerns about the executability of the program aside,
the contract provisions and relationship with the LSI are both
consistent with the Army's vision for FCS and candid with respect to
its workforce limitations. On the other hand, the limits and risks of
the contractual arrangements must also be recognized. The Army has
forged a partner-like relationship with the LSI which at the same time
involves the Army more with decisions the LSI makes and involves the
LSI more with decisions the Army makes. When coupled with the scope and
significance of the program, this situation poses risks for the Army's
ability to provide oversight over the long term. The current FCS
contract provides for a relatively high level of compensation for the
LSI, over 80 percent of which can be earned by completion of the
critical design review. This is significant because most key
demonstrations occur after this review and, historically, most cost
growth also occurs after the review. Because of the technical and other
uncertainties, as a research and development contract, it is possible
for the LSI to perform satisfactorily and earn its fees even if the FCS
is unable to deliver the required performance.
The foregoing underscores the important role the Office of the
Secretary of Defense (OSD) can play in providing oversight on the FCS
program. While the Army works to manage the program, OSD must work to
oversee the program. To date, OSD has largely accepted the Army's
proposals for approving, planning, and restructuring FCS, even when
they run counter to OSD's own policies and independent assessments. For
a program with the unique arrangements, risks, and significance of the
FCS, OSD's role in overseeing FCS requires more than milestone
decisions at the beginning and end of development, with annual reviews
in between. OSD needs to hold the FCS program accountable to high
standards, which are not necessarily the standards the Army adheres to.
The go/no-go decision OSD will hold in 2009 will be important to
defining its role in the program. We believe the use of an LSI on FCS
is more significant than a contracting arrangement for a single
program. It breaks new ground in collaborative relationships and
increasing contractor responsibilities. Accordingly, we also believe
OSD should put itself not only in a position to oversee the progress of
the FCS program, but to evaluate the DOD-wide implications of the LSI
and system--of--systems approach to developing weapons.
Background:
The FCS concept is designed to be part of the Army's Future Force,
which is intended to transform the Army into a more rapidly deployable
and responsive force--one that differs substantially from the large
division-centric structure of the past. The Army is reorganizing its
current forces into modular brigade combat teams, each of which is
expected to be highly survivable and the most lethal brigade-sized unit
the Army has ever fielded. The Army expects FCS-equipped brigade combat
teams to provide significant warfighting capabilities to DOD's overall
joint military operations.
Fundamentally, the FCS concept is to replace mass with superior
information--that is, to see and hit the enemy first rather than to
rely on heavy armor to withstand a hit. This solution attempts to
address a mismatch that has posed a dilemma to the Army for decades:
the Army's heavy forces had the necessary firepower needed to win but
required extensive support and too much time to deploy while its light
forces could deploy rapidly but lacked firepower. If the Future Force
becomes a reality, then the Army would be better organized, staffed,
equipped, and trained for prompt and sustained land combat, qualities
intended to ensure that the Army would dominate over evolving,
sophisticated threats. The Future Force is to be offensively oriented
and will employ revolutionary concepts of operations, enabled by new
technology. The Army envisions a new way of fighting that depends on
networking the force, which involves linking people, platforms,
weapons, and sensors seamlessly together in a system-of-systems.
In 2006, Congress mandated that the Secretary of Defense conduct a
milestone review for the FCS program, following the preliminary design
review scheduled for early 2009.[Footnote 3] Congress stated that the
review should include an assessment of (1) whether the requirements are
valid and can be best met with the FCS program, (2) whether the FCS
program can be developed and produced within existing resources, and
(3) whether the program should continue as currently structured, be
restructured, or be terminated. The Congress required the Secretary of
Defense to review specific aspects of the program, including the
maturity of critical technologies, program risks, demonstrations of the
FCS concept and software, and a new cost estimate and affordability
assessment and to submit a report of the findings and conclusions of
the review to Congress.
Congressional Defense Committees have asked GAO on numerous occasions
to report and testify on FCS activities. This statement report is
primarily based on that work, much of which was conducted between March
2006 and March 2007 and in accordance with generally accepted
government auditing standards.
Status of FCS Business Case:
In our March 2007 report,[Footnote 4] we found that despite the
investment of $8 billion already made in the FCS program, it still has
significantly less knowledge--and less assurance of success--than
required by best practices or DOD policy. By early 2009, enough
knowledge should be available about the key elements of the FCS
business case to make a well-informed decision on whether and how to
proceed with the program. If significant doubts remain regarding the
program's executability, DOD will have to consider alternatives to
proceeding with the program as planned. Central to the go/no-go
decision will be demonstrable soundness of the FCS business case in the
areas of requirements, technology, acquisition strategy, and finances.
Our specific findings in the areas of requirements, technologies,
acquisition strategy, and finances are summarized below.
Requirements Definition:
The Army has made considerable progress in defining system-of-systems
level requirements and allocating those requirements to the individual
FCS systems. This progress has necessitated significant trade-offs to
reconcile requirements and technical feasibility. A key example of this
has been the decision to allow a significant increase in manned ground
vehicle weight to meet survivability requirements that in turn has
forced trade-offs in transportability requirements. The feasibility of
FCS requirements still depends on key assumptions about immature
technologies, costs, and other performance characteristics like the
reliability of the network and other systems. As current assumptions in
these areas are replaced with demonstrated performance, more trade-offs
are likely. At this point, the Army has identified about 70 high-level
risks to be resolved to assure the technical feasibility of
requirements. A challenge for the Army in making these trades--which
are practical necessities--is determining the cumulative effect of an
individual decision on overall requirements. For example, a decision to
discontinue a munition technology could result in less lethality,
possibly less survivability if our vehicles have to shoot more than
once to defeat an enemy, and less responsiveness due to the weight
added by carrying more ammunition and fuel.
As it proceeds to the preliminary design review and the subsequent go/
no-go milestone, the Army faces considerable challenges in completing
the definition of technically achievable and affordable system-level
requirements, an essential element of a sound business case. The Army
will have to complete definition of all system-level requirements and
the network as well as the preliminary designs for all systems and
subsystems. By the time of the review, it should be able to demonstrate
that the FCS will satisfy key performance parameters and the Army's
user community with a program that is as good as or better than what is
available with current forces. To do this, the Army will have to
mitigate FCS technical risks to significantly lower levels and make
demonstrable progress toward meeting key FCS goals including weight
reduction, reliability improvement, and average unit production cost
reduction.
Maturity of Technology:
The Army has made progress in the areas of critical technologies,
complementary programs, and software development, but it will take
several more years to reach the level of maturity needed in 2003.
Program officials report that the number of critical technologies they
consider as mature has doubled in the past year. While this is good
progress by any measure, FCS technologies are far less mature at this
point in the program than they should be, and they still have a long
way to go to reach full maturity. The Army only sees the need to reach
a technology readiness level that requires demonstration of
capabilities in a relevant environment by 2011. This does not assure
that these capabilities will actually perform as needed in a realistic
environment, as required by best practices for a sound business case.
We also note that last year, technology maturity levels had been the
result of an independent assessment, while the current levels have been
determined by the FCS program office. The Army has made some difficult
decisions to improve the acquisition strategies for some key
complementary programs, such as Joint Tactical Radio System and
Warfighter Information Network-Tactical, but they still face
significant technological and funding hurdles. Finally, the Army and
the LSI are attempting to utilize many software-development best
practices and have delivered the initial increments of software on
schedule. On the other hand, most of the software development effort
lies ahead, and the amount of software code to be written--already an
unprecedented undertaking--continues to grow as the demands of the FCS
design becomes better understood. The Army and the LSI have recognized
several high-risk aspects of that effort and mitigation efforts are
underway.
As it approaches the preliminary design review and the subsequent go/
no-go milestone review, the Army should have made additional progress
in developing technologies and software as well as aligning the
development of complementary programs with the FCS. The Army faces many
challenges, such as demonstrating that critical technologies are mature
and having this maturity independently validated. The Army will need to
mitigate the recognized technical risks and integrate the technologies
with other systems. It will also need to address cost, schedule, and
performance risks related to software and mitigate those risks to
acceptable levels. Finally, the Army must settle on the set of
complementary programs that are essential for FCS success, ensure
adequate funding for these systems, and align their schedules with the
FCS schedule.
Knowledge-Based Acquisition Strategy:
The FCS acquisition strategy and testing schedule has become more
complex as plans have been made to spin out capabilities to current
Army forces. The strategy acquires knowledge later than called for by
best practices and DOD policy, although the elongated schedule of about
10 years provides a more realistic assessment of when capabilities can
be delivered. Knowledge deficits for requirements and technologies have
created enormous challenges for devising an acquisition strategy that
can demonstrate the maturity of design and production processes. Even
if setting requirements and maturing technologies proceed without
incident, FCS design and production maturity are not likely to be
demonstrated until after the production decision is made. The critical
design review will be held much later on FCS than other programs, and
the Army will not be building production-representative prototypes to
test before production. The first major test of the network and FCS
together with a majority of prototypes will not take place until 2012.
Much of the testing up to the 2013 production decision will involve
simulations, technology demonstrations, experiments, and single-system
testing. Only after that point, however, will substantial testing of
the complete brigade combat team and the FCS concept of operations
occur. However, production is the most expensive phase in which to
resolve design or other problems found during testing. Spin-outs, which
are intended to accelerate delivery of FCS capabilities to the current
force, also complicate the acquisition strategy by absorbing
considerable testing resources.
As the Army proceeds to the preliminary design review in 2009, it faces
a number of key challenges in the remaining portions of the acquisition
strategy. It must complete requirements definition and technology
maturity. The spin-out capabilities must be demonstrated before
committing to production. System integration must be completed and the
Army should be preparing to have released at least 90 percent of the
engineering drawings by the time of the critical design review, a best
practice. Finally, the program schedule must allocate sufficient time,
as needed, to test, fix and retest throughout the FCS test program.
Each FCS system, the information network, and the FCS concept should be
thoroughly tested and demonstrated before committing to low rate
initial production in 2013.
Program Costs and Funding:
In 2006, we reported that FCS program acquisition costs had increased
to $160.7 billion--76 percent--since the Army's original estimate of
$91.4 billion (figures adjusted for inflation). While the Army's
current estimate of $163.7 billion is essentially the same, an
independent estimate from the Office of the Secretary of Defense puts
the acquisition cost of FCS between $203 billion and $234 billion. The
comparatively low level of technology and design knowledge at this
point in the program portends future cost increases. Our work on a
broad base of DOD weapon system programs shows that most developmental
cost increases occur after the critical design review, which will be in
2011 for the FCS. Yet, by that point in time, the Army will have spent
about 80 percent of the FCS's development funds. Further, the Army has
not yet fully estimated the cost of essential complementary programs
and the procurement of spin-out items to the current force. The Army is
cognizant of these resource tensions and has adopted measures in an
attempt to control FCS costs. However, some of these measures do
involve reducing program scope in the form of lower requirements and
capabilities, which will have to be reassessed against the user's
demands. Symptomatic of the continuing resource tension, the Army
recently announced that it was restructuring several aspects of the FCS
program, including reducing the scope of the program and its planned
annual production rates to lower annual funding demands.
I do want to point out the significance of the financial commitments
the Army will make in the next few years. The fiscal year 2008 request
includes $99.6 million in FCS procurement funds. Those funds are to
procure long lead items for production of (1) non-line-of-sight cannon
and other manned ground vehicles, and (2) the initial set of FCS spin-
out kits. The fiscal year 2008 request will also fund plant
facilitization to support FCS production beginning in fiscal year 2009.
Procurement funds rise quickly thereafter, growing from $328.6 million
to $1.27 billion to $6.8 billion in fiscal years 2009, 2011, and 2013,
respectively.
By the time of the preliminary design review and the congressionally
mandated go/no-go milestone in 2009, the Army should have more of the
knowledge needed to build a better cost estimate for the FCS program.
The Army should also have more clarity about the level of funding that
may be available to it within the long-term budget projections to fully
develop and procure the FCS program of record. Also, by that time, the
Army will need to have developed an official Army cost position that
reconciles the gap between the Army's estimates and the independent
cost estimate . In the cost estimate, the Army should clearly establish
if it includes the complete set and quantities of FCS equipment needed
to meet established requirements. Based on this estimate, the Army must
ensure that adequate funding exists in its current budget and future
years to fully fund the FCS program of record including the development
of the complementary systems deemed necessary for the FCS as well as to
procure the FCS capabilities planned to be spun out to the current
forces.
Actions Recommended in Our March 2007 Report:
In our March 2007 report, we noted that it was important that specific
criteria--as quantifiable as possible and consistent with best
practices--be established now to evaluate the sufficiency of program
knowledge. We recommended specific criteria that should be included in
the Secretary of Defense's evaluation of the FCS program as part of the
go/no-go decision following the preliminary design review in 2009. DOD
agreed with this recommendation and noted that the decision will be
informed by a number of critical assessments and analyses, but was
unspecific as to criteria. We agree that while it is necessary that
good information--such as that included in DOD's response--be presented
at the decision, it is also necessary that quantitative criteria that
reflect best practices be used to evaluate the information.
-67We also noted that in view of the great technical challenges facing
the program, the possibility that FCS may not deliver the right
capability must be acknowledged and anticipated. We therefore
recommended that the Secretary of Defense analyze alternative courses
of action DOD can take to provide the Army with sufficient
capabilities, should the FCS be judged as unlikely to deliver needed
capabilities in reasonable time frames and within expected funding
levels. DOD agreed with this recommendation as well, citing it would
rely on ongoing analyses of alternatives. We believe that it is
important to keep in mind that it is not necessary to find a rival
solution to FCS, but rather the next best solution should the program
be judged unable to deliver needed capabilities.
FCS Program Recently Restructured:
The Army recently made a number of key changes to FCS to keep program
costs within available funding levels. Core program development and
production costs were reduced by deleting or deferring four of the
original systems, but these savings were offset by adding funding for
spin-outs and ammunition, which had previously not been funded. The
program's cost estimate reflecting the adjustment is now $161.2
billion, a slight decrease from $163.7 billion that we previously
reported. Highlights include:
² Four systems deleted or deferred: the Class II and III unmanned
aerial vehicles, the intelligent munitions system, and the armed
robotic vehicle. The munitions system will continue outside of FCS,
while the robotic vehicle will continue in the science and technology
environment.
² Quantity changes: Class I unmanned aerial vehicle quantities will be
cut in half. Quantities of non-line-of-sight launch systems and
precision attack missiles were also reduced. The Army will buy eight
additional Class IV unmanned aerial vehicles for each brigade combat
team.
² Production rate reduction: Annual FCS production will be reduced from
1.5 to 1 brigade combat team. This change will extend FCS production by
about 5 years to 2030.
² Consolidation of spin-outs: Spin-outs will be reduced from four to
three and the content of the spin-outs have changed. The Army has now
funded procurement of the spin-outs that had previously been unfunded.
² Schedule extension: Initial FCS production has been delayed 5 months
to February 2013 and initial and full operational capabilities dates
have been delayed 6 months to June 2015 and June 2017, respectively.
According to Army officials, the Army's initial assessment found little
difference between 14 and 18 systems on the capabilities of the FCS
brigade combat team. When the program was approved in 2003, it also had
14 systems. In 2004, when it was restructured, 4 systems were added
back in, bringing the total to 18, plus the network. It is not clear
how the overall performance of the system can be insensitive to the
changes in the composition of the FCS systems. Similarly, we do not yet
have an understanding on why FCS production costs have not increased
because of the lower production rates and consequent additional years
of production. Generally, slowing down the production rate increases
costs as the fixed costs of production facilities must be incurred for
more years.
FCS Business Arrangements:
To achieve the Army's goals for the FCS program, in 2003 the Army
decided to employ a lead systems integrator (LSI) to assist in
defining, developing, and integrating FCS. In the past few years, DOD
and other agencies have applied the LSI concept in a variety of ways.
In the case of the FCS program, the LSI shares program management
responsibilities with the Army, including defining the FCS solution
(refining requirements), selecting and managing subcontractors, and
managing testing. Evaluating the use of the LSI on FCS involves
consideration of several intertwined factors, which collectively make
the LSI arrangement in the FCS context unique. Some, like the best
efforts nature of a cost reimbursable research and development
contract, are not unique to the LSI or to FCS. Other factors differ not
so much in nature, but in degree from other programs. For example, FCS
is not the first system-of-systems program DOD has proposed, but it is
arguably the most complex. FCS is not the first program to proceed with
immature technologies, but it has more immature technologies than other
programs. FCS is not the first program to employ an LSI, but the extent
of the partner-like relationship between the Army and the LSI breaks
new ground. these factors:
Army Use of an LSI Framed by Scope of Program and Workforce
Limitations:
The Army's decision to employ a lead systems integrator for the FCS
program was framed by two factors: (1) the ambitious goals of the FCS
program and (2) the Army's capacity to manage it. As envisioned in 2003
when the program started, FCS presented a daunting technical and
management challenge: the concurrent development of multiple weapon
systems whose capabilities would be dependent on an information network
also to be developed. All of this was to take place in about 5½ years-
-much faster than a single weapon system typically takes. Army leaders
believed the Army did not have the workforce or flexibility to manage
development of FCS on its own within desired timelines. The Army saw
its limitations in meeting this challenge as (1) cultural: difficulty
in crossing traditional organizational lines; (2) capability: shortage
of skills in key areas, such as managing the development of a large
information network; and (3) capacity: insufficient resources to staff,
manage, and synchronize several separate programs. In addition to the
complexity and workforce implications of FCS, the Army saw an
opportunity with an LSI to create more incentives for a contractor to
give its best effort in development and to create more competition at
lower supplier levels. Thus, they employed a contractor--a lead
system's integrator-with significant program management
responsibilities to help it define and develop FCS and reach across
traditional Army mission areas. In May 2003, the Army hired the Boeing
Corporation to serve as the LSI for the FCS system development and
demonstration phase. Boeing subcontracted with Science Applications
International Corporation, another defense contractor, to assist in
performing the LSI functions.
Close Working Relationship Increases the Burden of Oversight:
The relationship between the Army and the LSI is complicated. On the
one hand, the LSI plays the traditional role of developing a product
for its customer, the Army, and on the other hand the LSI acts like a
partner to the Army in ensuring the design, development, and prototype
implementation of the FCS network and family of systems. In forging a
partner-like relationship with the LSI, the Army sought to gain
managerial advantages such as maintaining flexibility to deal with
shifting priorities. A partner-like relationship also poses long-term
risks for the government. Depending on the closeness of the working
relationship, the government's ability to provide oversight can be
reduced compared with an arms-length relationship; more specifically,
the government can become increasingly vested in the results of shared
decisions and runs the risk of being less able to provide oversight
compared with an arms-length relationship, especially when the
government is disadvantaged in terms of workforce and skills. In the
case of FCS, these risks are present. The Army is more involved in the
selection of subcontractors than we have seen on other programs,
involvement that can, over time, make the Army somewhat responsible for
the LSI's subcontracting network. On the other hand, the LSI is more
involved with influencing the requirements, defining the solution, and
testing that solution than we have seen on other programs. This is not
to say that the level of involvement or collaboration between the Army
and the LSI is inherently improper, but that it may have unintended
consequences over the long term.
OSD is in a position to provide this oversight, but thus far has
largely accepted the program and its changes as defined by the Army,
even when they are at wide variance from the best practices embodied in
OSD's own acquisition policies. In 2003, OSD approved the FCS for
system development and demonstration prematurely despite the program's
combination of immature technologies and short schedule and then
declined to follow through on plans to make a better informed decision
18 months later. OSD has allowed the Army to use its cost estimates
rather than OSD's own independent--and significantly higher--cost
estimates and has agreed with the Army's determination that the bulk of
cost increases since 2003 are the result of scope changes and thus do
not trigger congressional reporting requirements. In the fiscal year
2007 National Defense Authorization Act, Congress mandated that DOD
hold a formal go/no-go decision meeting on the FCS in 2009. DOD has
since proposed a serious approach to making that decision, a step that
is encouraging from an oversight perspective.
Contract Provides Incentives for Best Effort but Cannot Assure Success:
The Army has structured the FCS contract consistent with its desire to
incentivize development efforts and make it financially rewarding for
the LSI to make such efforts. In that regard, the FCS contract pays
well. According to an independent estimate from the Office of the
Secretary of Defense, the fee payable to the LSI is relatively high
based on the value of work it actually performs, and its average
employee assigned to the program costs more than a federal executive.
The business arrangement between the Army and LSI has been converted
from an other transaction agreement to a Federal Acquisition Regulation-
based contract. Yet, there remain substantive risks on whether the
contract can result in a successful program outcome. As with many cost-
reimbursable research and development contracts, the contractor is
responsible for putting forth its best effort to ensure a successful
FCS. However, if that system fails to meet expectations or requirements
despite that effort, the LSI is not responsible.
The Army provides incentive payments through nine program events called
out in the current contract, for which the LSI must demonstrate
progress in setting up and implementing various program processes. By
the time the FCS critical design review is completed in 2011, the Army
will have paid out over 80 percent of the costs of the LSI contract,
and the LSI will have had the opportunity to earn more than 80 percent
of its total fee. While the Army rationally notes that it is important
to use fees to encourage good performance early, the experiences of
previous weapon systems shows that most cost growth occurs after the
critical design review. Key demonstrations of the actual capabilities
of FCS systems will take place after this point. The Army shares
responsibility with the LSI for making key decisions and to some extent
the Army's performance affects the performance of the LSI. For example,
some of the technologies critical to the FCS are being developed by the
Army, not the LSI. If the technologies do not perform as planned, the
LSI may not be responsible for the consequent trade-offs in
performance. Furthermore, the Army is responsible for all program
changes and therefore can adjust its expectations of the LSI according
to those changes and the LSI may still earn its full fee.
Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you or members of the subcommittee may have.
Contacts & Staff Acknowledgments:
For future questions about this statement, please contact Paul Francis
at (202) 512-4841 or francisp@gao.gov.
Staff Acknowledgments:
For future questions about this statement, please contact me at (202)
512-4841. Individuals making key contributions to this statement
include William R. Graveline, William C. Allbritton, Noah B. Bleicher,
Lily J. Chin, Brendan S. Culley, Marcus C. Ferguson, Michael D.
O'Neill, Kenneth E. Patton, Thomas P. Twambly, Adam Vodraska, and
Carrie R. Wilson.
(120632):
FOOTNOTES
[1] Pub. L. No. 109-163 §211
[2] Pub. L. No. 109-163 §115
[3] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364 §214 (2006).
[4] GAO, Defense Acquisitions: Key Decisions to be Made on Future
Combat System, GAO-07-376 (Washington, D.C.: Mar. 15, 2007).
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site.
To have GAO e-mail you a list of newly posted products every afternoon,
go to www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548:
Public Affairs:
Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548:
