Defense Acquisitions
Role of Lead Systems Integrator on Future Combat Systems Program Poses Oversight Challenges Gao ID: GAO-07-380 June 6, 2007The Army's Future Combat Systems (FCS) program features multiple new systems linked by a first-of-a-kind information network. The Army contracted with a lead systems integrator (LSI) for FCS that could serve in a more expansive role than a typical prime contractor would. In response to a congressional mandate, this report addresses (1) why the Army decided to employ an LSI for the FCS program; (2) the nature of the LSI's working relationship with the Army; and (3) how FCS contract fees, provisions, and incentives work. In conducting its work, GAO reviewed extensive program documentation and held discussions with key officials at DOD and throughout the FCS program.
In 2003, the Army contracted with an LSI for FCS because of the program's ambitious goals and the Army's belief that it did not have the capacity to manage the program. The original timeframe for FCS's development was a shorter time frame than for an individual weapon system program, let alone a complex systems-of-systems program with a high number of immature technologies at program start. The Army realized that its compartmentalized workforce did not lend itself to the kind of crosscutting work that the FCS program would demand. The Army workforce also did not have the expertise needed to develop the FCS information network or enough people to support the program had it been organized into separate program offices. In contracting with the Boeing Company as LSI, the Army believed it found a management partner who could define and develop FCS and reach across the Army's organizations. Boeing subcontracted with another company, Science Applications International Corporation, to assist with its responsibilities as LSI. The working relationship between the LSI and the Army is complex. The LSI is a traditional contractor in terms of developing a product for its customer, the Army, but also serves like a partner to the Army in management of the FCS program. In its management role, the LSI makes decisions collaboratively with the Army. An advantage of this arrangement is that the LSI and Army can maintain flexibility when dealing with shifting priorities. However, that relationship may pose significant risks to the Army's ability to provide oversight over the long term. The Office of the Secretary of Defense is in a position to provide this oversight but thus far has allowed the Army to depart significantly from best practices and the Office's own policy for weapon system acquisitions. For example, the Office of the Secretary of Defense has also allowed the Army to use its own cost estimates rather than independent--and significantly higher--cost estimates when submitting budget requests. The Army's experience with the LSI on the FCS program may provide the Office of the Secretary of Defense insights on broader acquisition management issues. The Army has structured the FCS contract consistent with its desire to incentivize development efforts. The definitized cost-reimbursable research and development contract valued at $17.5 billion contains up to a 15 percent total fixed/incentive fee, or about $2.3 billion. As with many research and development contracts, the FCS contract obligates the contractor to put forth its best efforts, but does not assure successful outcomes. Assuming that critical design review is completed in 2011, the Army will have paid the LSI over 80 percent to cover the contract costs, plus a possible 80 percent of its fee or profit. GAO has previously reported that most cost growth in DOD weapon system programs occurs after critical design review. Therefore, it is possible for the LSI to have garnered most of its payouts in costs and fees early next decade, even if despite its best efforts, the FCS capability ends up falling far short of the Army's goals. The Army notes that its fee structure is intended to encourage good performance early in the program.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-380, Defense Acquisitions: Role of Lead Systems Integrator on Future Combat Systems Program Poses Oversight Challenges
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
June 2007:
Defense Acquisitions:
Role of Lead Systems Integrator on Future Combat Systems Program Poses
Oversight Challenges:
GAO-07-380:
GAO Highlights:
Highlights of GAO-07-380, a report to congressional committees
Why GAO Did This Study:
The Army‘s Future Combat Systems (FCS) program features multiple new
systems linked by a first-of-a-kind information network. The Army
contracted with a lead systems integrator (LSI) for FCS that could
serve in a more expansive role than a typical prime contractor would.
In response to a congressional mandate, this report addresses (1) why
the Army decided to employ an LSI for the FCS program; (2) the nature
of the LSI‘s working relationship with the Army; and (3) how FCS
contract fees, provisions, and incentives work.
In conducting its work, GAO reviewed extensive program documentation
and held discussions with key officials at DOD and throughout the FCS
program.
What GAO Found:
In 2003, the Army contracted with an LSI for FCS because of the
program‘s ambitious goals and the Army‘s belief that it did not have
the capacity to manage the program. The original timeframe for FCS‘s
development was a shorter time frame than for an individual weapon
system program, let alone a complex systems-of-systems program with a
high number of immature technologies at program start. The Army
realized that its compartmentalized workforce did not lend itself to
the kind of crosscutting work that the FCS program would demand. The
Army workforce also did not have the expertise needed to develop the
FCS information network or enough people to support the program had it
been organized into separate program offices. In contracting with the
Boeing Company as LSI, the Army believed it found a management partner
who could define and develop FCS and reach across the Army‘s
organizations. Boeing subcontracted with another company, Science
Applications International Corporation, to assist with its
responsibilities as LSI.
The working relationship between the LSI and the Army is complex. The
LSI is a traditional contractor in terms of developing a product for
its customer, the Army, but also serves like a partner to the Army in
management of the FCS program. In its management role, the LSI makes
decisions collaboratively with the Army. An advantage of this
arrangement is that the LSI and Army can maintain flexibility when
dealing with shifting priorities. However, that relationship may pose
significant risks to the Army‘s ability to provide oversight over the
long term. The Office of the Secretary of Defense is in a position to
provide this oversight but thus far has allowed the Army to depart
significantly from best practices and the Office‘s own policy for
weapon system acquisitions. For example, the Office of the Secretary of
Defense has also allowed the Army to use its own cost estimates rather
than independent”and significantly higher”cost estimates when
submitting budget requests. The Army‘s experience with the LSI on the
FCS program may provide the Office of the Secretary of Defense insights
on broader acquisition management issues.
The Army has structured the FCS contract consistent with its desire to
incentivize development efforts. The definitized cost-reimbursable
research and development contract valued at $17.5 billion contains up
to a 15 percent total fixed/incentive fee, or about $2.3 billion. As
with many research and development contracts, the FCS contract
obligates the contractor to put forth its best efforts, but does not
assure successful outcomes. Assuming that critical design review is
completed in 2011, the Army will have paid the LSI over 80 percent to
cover the contract costs, plus a possible 80 percent of its fee or
profit. GAO has previously reported that most cost growth in DOD weapon
system programs occurs after critical design review. Therefore, it is
possible for the LSI to have garnered most of its payouts in costs and
fees early next decade, even if despite its best efforts, the FCS
capability ends up falling far short of the Army‘s goals. The Army
notes that its fee structure is intended to encourage good performance
early in the program.
What GAO Recommends:
GAO recommends that the Secretary of Defense take steps to strengthen
oversight of the FCS program and assess whether the experience of the
LSI on FCS has broader implications for DOD acquisition management. DOD
concurred with GAO‘s recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-380].
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]
Contents:
Letter:
Results in Brief:
Background:
Army Decision to Use LSI Framed by Scope of Program and Workforce
Limitations:
Close Working Relationship between Army and LSI Increases the Burden of
Oversight:
Contract Provides Incentives for Best Effort but Not Accountability for
Program Outcomes:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Overview of FAR Provisions Included in Future Combat
Systems Lead Systems Integrator Contract:
Appendix III: Comments from the Department of Defense:
Table:
Table 1: Fee events and schedule for FCS contract:
Figures:
Figure 1: Key Events in FCS Program's Acquisition:
Figure 2: RDT&E Percentage Increase throughout the Product Development
Cycle for 29 Programs Completed or in Production:
Abbreviations:
CAS: Cost Accounting Standards:
DFARS: Defense Federal Acquisition Regulation Supplement:
DOD: Department of Defense:
FAR: Federal Acquisition Regulation:
FCS: Future Combat Systems:
LSI: lead systems integrator:
OCI: Organizational Conflict of Interest:
PIA: Procurement Integrity Act:
SAIC: Science Applications International Corporation:
SOSCOE: System of Systems Common Operating Environment::
TINA: Truth in Negotiations Act:
WMI: Warfighter Machine Interface:
United States Government Accountability Office:
Washington, DC 20548:
June 6, 2007:
Congressional Committees:
With the Future Combat Systems (FCS) program, the Army is embracing a
new warfighting concept by replacing most of its combat systems with a
family of manned and unmanned vehicles and systems linked by an
advanced information network. The warfighting concept embodied by FCS
involves breaking with Army traditions and making unprecedented
technological leaps. After several decades of developing systems
through disconnected warfighter communities within the Army, FCS is
proposed as an integrated, system-of-systems concept rather than having
integration occur after systems are produced. Using this new approach,
the Army intends to manage trade-offs across individual warfighter
communities and weapon systems, save cost, and accelerate delivery.
Recent estimates show that the total investment cost of the FCS program
will be at least $163 billion and perhaps over $200 billion when
complementary programs are included.
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 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 role of the LSI is not simply that of a
traditional prime contractor, but also includes some elements of a
partner to the government in ensuring the design, development and
prototype implementation of the FCS network and family of systems. The
pros and cons of LSI arrangements have been the subject of much debate
on the FCS and other programs, such as the Coast Guard's Deepwater
program. The Institute for Defense Analyses, the Army Audit Agency, and
GAO have highlighted potential risks with the LSI approach on the FCS
program. In light of the scope of the FCS program and its associated
cost estimates, as well as concerns over the role of the LSI, Congress
mandated that GAO review and report on the use of an LSI on
FCS.[Footnote 1] Our letter dated March 15, 2007 satisfied the
reporting requirements for that mandate. As agreed with committee
staff, this report addresses the questions from the mandate,
specifically: (1) why the Army decided to employ an LSI for the FCS
program; (2) the nature of the LSI's working relationship with the
Army; and (3) how the contract fees, provisions, and incentives work.
In conducting our work, we reviewed extensive program documentation
pertaining to the business arrangement between the Army and LSI. This
included such items as the program contract and acquisition strategy.
In addition, we held discussions with key officials at DOD and
throughout the FCS program, including representatives from the Army,
the LSI and various subcontractors. We also drew significantly on
existing GAO work on weapon system acquisitions. We conducted our work
from May 2006 through June 2007 in accordance with generally accepted
government accountability standards. Further detail about our scope and
methodology is provided in Appendix I of this report.
Results in Brief:
The Army's decision to contract with 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 5˝ 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. Thus, they used a
contractor--a Lead Systems 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 contracted
with the Boeing Company to serve as the LSI for the FCS system
development and demonstration phase. Boeing subcontracted with Science
Applications International Corporation to assist in performing the LSI
functions.
The relationship between the Army and the LSI is complex. 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
close partner-like relationship with the LSI, the Army sought to gain
advantages such as maintaining flexibility to deal with shifting
priorities. The Army saw this as needed because the LSI was to help
define the FCS solution as well as to develop it. At the same time,
this relationship, coupled with the vast scope of FCS and the synonymy
of the program with the future Army, poses risks for the Army's ability
to provide oversight 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 though it is 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 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 also
allowed the Army to use its cost estimates rather than OSD's own
independent--and significantly higher--cost estimates when submitting
budget requests.
The Army has structured the FCS contract consistent with its desire to
incentivize development efforts and make it financially rewarding for
the LSI for making such efforts. In general, contracts are limited in
that they cannot guarantee a successful outcome. This is true for the
FCS contract, and specific aspects of the contract could make it even
more difficult to tie the LSI's performance to the actual outcomes of
the development effort. By the time the FCS critical design review is
completed in 2011, the Army will have paid out over 80 percent of total
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. The Army shares
responsibility with the LSI for making key decisions and to some extent
the Army's performance may affect the performance of the LSI. For
example, the Army has to bear responsibility for the successful
completion of essential complementary programs and separate technology
development efforts. Accordingly, the Army has to make important
judgments about what contract outcomes and changes it is responsible
for versus the LSI. As with most cost-reimbursable research and
development contracts, the LSI is responsible to put forth its best
efforts on the development of the FCS capability. If, given that
effort, the FCS capability falls short of needs, the LSI is not
responsible and is still entitled to have its costs reimbursed and may
still earn its full fee.
We are making several recommendations to the Secretary of Defense,
including: (1) to reassess OSD's approach to overseeing the FCS
program, including asserting its own markers for success, particularly
in the areas of cost, technology maturity, design maturity, and
production maturity; and (2) to assess whether the experience of the
LSI on FCS has broader implications for acquisition management, such as
the ability of the DOD workforce to manage a system-of-systems
acquisition. In commenting on the draft of this report, DOD concurred
with our recommendations. However, DOD believes that the business
relationship between the Army and LSI for the FCS program is typical
when compared to other major system acquisitions. We maintain our
position that the scope and complexity of the FCS system-of-systems
creates a business relationship that is not typical of other weapon
system acquisitions. Further, DOD believed that the characterization of
the requirements definition process in the report was inaccurate. We
have clarified our characterization of the LSI role but maintain our
position that the LSI has a significant role in the requirements
definition and refinement process for the FCS program. DOD's comments
are included in their entirety in Appendix III of this report.
Background:
In May 2003, the Army and Boeing entered into an "other transaction
agreement" for the system development and demonstration phase of the
FCS program. Other transaction agreements are not subject to the
Federal Acquisition Regulation (FAR) and this gave the Army
considerable flexibility to negotiate the terms and conditions with
Boeing as the LSI. The Army's rationale for using such an agreement was
to encourage innovation and to use its wide latitude in tailoring
business, organizational, and technical relationships to achieve the
program goals. Congress raised concerns over the use of the agreement
for the development of a program as large and risky as FCS, and the
Secretary of the Army directed that the other transaction agreement be
converted to a FAR-based contract. In March 2006, the Army definitized
a FAR-based contract with Boeing for the remainder of FCS development.
Science Applications International Corporation (SAIC) has a contract
with Boeing to provide assistance in performing the LSI functions. All
of the work performed from May 2003 through September 2005 is accounted
for under the prior other transaction agreement, and all work after
September 2005 is included under the new contract. Appendix II of this
report provides a brief discussion of the conversion of the FCS
contract from an other transaction agreement to a FAR-based contract.
The LSI as an entity is intended as a single contractor responsible for
developing and integrating the FCS system of systems within a given
budget and schedule. Furthermore, the LSI was intended to act
throughout the system development and demonstration phase to optimize
the FCS capability, maximize competition, ensure interoperability and
maintain commonality to reduce life-cycle cost. The Army established a
number of key tenets that it wanted to achieve on the FCS program, in
partnership with the LSI. They include:
* create opportunity for best of industry to participate;
* leverage government technology base to maximum extent;
* associate ongoing enabling efforts with LSI-led activity;
* maintain a collaborative environment from design through life-cycle;
* as a minimum, achieve commonality at subsystem/component level;
* design/plan for technology integration and insertion;
* maintain and shape the industrial base for the future;
* retain competition throughout future force acquisition;
* have appropriate government involvement in procurement processes;
* achieve consistent and continuous definition of requirements;
* maintain and shape government acquisition community;
* achieve program affordability--balance performance and sustainment;
and:
* have a "one team" operating with partnership and teamwork.
An LSI creates an additional tier in the management structure of the
FCS program that would not appear in an acquisition program for a major
individual system. The Army itself does not have a direct contractual
relationship with the prime-item developers as it would when buying a
single system, but rather works through the LSI. This additional tier
serves as a layer of separation between the customer (the Army) and the
platform developers (the tier immediately below the LSI). The Army
believes that this additional layer is required to bring all of the
developers together to a single point of communication and interaction
for the Army. The Army, LSI and platform developers are all members of
the "one-team" structure of the FCS program.
The current contract between the Army and Boeing continues into fiscal
year 2015 and the Army intends to begin low-rate initial production in
2013. The Army intends to start full-rate production in 2016. The Army
plans to achieve initial operational capability in fiscal year 2015 and
full operational capability in fiscal year 2017. The Army intends to
continue FCS procurement through fiscal year 2030, eventually equipping
15 brigade combat teams--about one-third of the current active force.
Figure 1 shows the schedule of key events for the FCS program.
Figure 1: Key Events in FCS Program's Acquisition (in Fiscal Years):
[See PDF for image]
Source: Army (data); GAO (analysis of presentation).
[End of figure]
The Army has recently decided to make a number of key changes to the
FCS program as it was considering funding plans for the fiscal 2008-
2013 period. These changes include eliminating or deferring certain FCS
systems, increasing quantities of some systems, reducing quantities of
other systems, reducing annual procurement rates, and delaying key
program milestone dates. For example, the Army deleted or deferred four
systems from the FCS system of systems architecture and delayed the
start of initial FCS production by five months.
Army Decision to Use LSI Framed by Scope of Program and Workforce
Limitations:
The FCS program's complexity and aggressive schedule is unprecedented
for the Army. As we have reported, the program was not near ready for
starting the system development and demonstration phase when it did,
primarily because the majority of the needed technologies were
immature. The Army not only went forward with FCS, it did so with a
planned schedule less than that of a single new system. The Army
determined that with its existing acquisition workforce and
organizations, it did not have the agility, capability, or capacity to
manage the program without an LSI to assist with certain aspects of
program management. In using an LSI, the Army also wanted to structure
a development contract that would create incentives for the contractor
to succeed and profit in development and to increase competition at
lower levels in the supplier chain.
Concurrent Development and Integration of FCS Is Most Complex
Acquisition Army Has Ever Undertaken:
The sheer scope and complexity of the program was driven by the Army's
desire to concurrently develop and field all systems as an integrated
unit. The backbone of this unit is a ubiquitous network through which
all systems of FCS will operate and communicate--a first-of-a-kind
network that will also have to be developed. FCS represents a huge
technological leap in system development and acquisition. Some of the
major technical challenges faced in the program include:
* The 14 major weapon systems or platforms have to be designed and
integrated simultaneously and within strict size and weight
limitations.
* At least 46 technologies that are considered critical to achieving
critical performance capabilities will need to be matured and
integrated into the system of systems.
* The development, demonstration, and production of as many as 170
complementary systems and associated programs must be synchronized with
FCS content and schedule. This will also involve developing about 100
network interfaces so the FCS can be interoperable with other Army and
joint forces.
* An estimated 63 million lines of software code, more than 3 times the
amount being developed for the Joint Strike Fighter program.
In addition to the complexity of the integration task, the Army also
outlined an unprecedented timeline for FCS's development--about 5˝
years--a shorter timeline than typical for a single weapon system
development. We have pointed out a third source of risk, in addition to
complexity and schedule, namely that the program started before it was
ready for system development and demonstration because the majority of
its critical technologies were immature. Mature technologies are
central to having a sound business case at the start of development.
Cognizant of these risks, the Army believed it could achieve its goals
through use of an LSI because of the technical expertise and workforce
flexibility that a private company could bring to the program. In fact,
the Army wanted the LSI to help it define the FCS solution.
Mismatches between Scope and Pace of FCS and Capacity of Army
Workforce:
The Army determined it could not meet the challenges of the FCS scope
and accelerated schedule with its workforce alone and with traditional
management approaches. Army leadership saw its workforce as stovepiped
into organizations having areas of expertise that were not a full match
for what FCS needed and not large enough with the right skills to staff
several separate program offices. Army leadership did not see its
workforce as being well-suited to making the tradeoffs and integration
that the FCS program demanded.
As an integrated system of systems, defining requirements and designing
solutions for FCS would necessitate crossing two sets of organizational
lines. The first involves the Army's traditional warfare communities,
such as infantry, armor, artillery, and aviation. In the past, these
communities developed their own requirements and their own weapon
systems. FCS program officials noted that the Army had little success
integrating such separately developed platforms because the individual
communities did not coordinate their development efforts; specifically,
they did not interface across communities during development to ensure
systems were being designed to work with each other. A second
organizational line involves the users, who develop requirements, and
the developers, who manage the weapon systems. Much of the Army's
previous experience with major integration efforts was problematic
because of a lack of coordination between the developers and the users.
Each system was developed separately and integrated into the force
after the fact. The users' needs to have multiple systems integrated
and working together in the field were thus not sufficiently considered
in the development process. The Army believed that an LSI could achieve
this more effectively than an Army program office because a contractor
had greater flexibility to work across these lines.
Capability of the Army's workforce was also a factor in the decision to
use an LSI. The Army's traditional areas of technical expertise, such
as in armored vehicles like tanks, were not sufficient to address all
the needed expertise for FCS. FCS performance is controlled to a great
extent--estimated at 95 percent--by software. Current estimates put the
amount of software needed at 63 million lines--the most ever for a
weapon system--much of which will be needed for the information network
that is the heart of FCS. The Army did not have sufficient skills in
software and networks to manage this effort. Even with the LSI, the
relative thinness of the Army's expertise in these areas is evident in
the integrated product teams through which the Army and the LSI jointly
manage the program. For example, according to an LSI program official,
there are 28 LSI representatives for every Army representative on the
team responsible for developing the information network. However,
according to data provided by an Army official, on the manned ground
vehicles team, where the Army has more expertise, there are only about
15 LSI representatives for every Army representative[Footnote 2].
Service contractors separate from the LSI are counted among the Army
program office representatives. Thus, the actual numbers of individuals
who work for the Army directly is lower than these numbers represent.
A third factor was workforce capacity. If the FCS platforms were to be
developed as separate programs, each platform would need its own
workforce, meaning several separate Army program offices, each with a
full complement of acquisition and technical staff. The demand for this
many people would have been a challenge in light of the decline in its
acquisition workforce throughout the 1990s. DOD estimates put the
decline of its civilian workforce at 38 percent--much of it in
acquisitions--from 1989 through 2002. Hence, the Army would not have
the capacity to manage a multi-system effort like FCS with separate
program offices and likely would have had to turn to contractors to
fully staff the program offices.
Other Goals in Using an LSI on FCS:
In addition to the complexity and workforce implications of FCS, the
Army saw an opportunity for the LSI to give its best effort in
development and to create more competition at lower supplier levels.
Army leadership involved with setting up the FCS program believed that
traditionally, contractors made much of their profit in production, not
in research and development. Thus, the Army reasoned, the contractors
are not as motivated by research and development as they are by
production. Army leadership believed that by using an LSI that would
not necessarily have to be retained for production, the Army could get
the best effort from the contractor during the system development and
demonstration phase, while at the same time making the effort
profitable for the contractor.
Army leadership also set up the FCS program and contract in such a way
that it would create more competition and have more influence over the
selection of suppliers below the LSI. Army leadership noted that
traditionally, once the Army hired a prime contractor, that contractor
would bring its own supplier chains. The Army was not very involved in
the choice of the suppliers. In FCS, the prime contractor--or LSI--is
mainly an integrator, and the Army called for the LSI to hold a
competition for the next tier of contractors. The Army had veto power
over these selections. In addition, the Army directed that the LSI
contract with integrators at lower levels in the program and the Army
has been involved with these selections. These integrators also hold
competitions to select suppliers for those systems. This strategy kept
the first tier of contractors (the one-team) from bringing their own
supplier chains and pushed competition and Army visibility down lower
in the supplier chain. It was also a means for the Army to ensure
commonality of key subsystems across FCS platforms. Thus, for example,
each of the manned ground vehicles would use the same sensors and
engines, rather than the past practice of each vehicle having its own
unique set of subsystems.
Close Working Relationship between Army and LSI Increases the Burden of
Oversight:
The relationship between the Army and the LSI is complex. 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 also performs
certain program management and integration responsibilities for the
entire program and has a partner-like relationship with the Army. In
forging a close partner-like relationship with the LSI, the Army sought
to gain advantages such as maintaining flexibility to deal with
shifting priorities. At the same time, this relationship, coupled with
the vast scope of FCS and the synonymy of the program with the future
Army, poses risks for the Army's ability to provide independent
oversight 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 though it is at wide variance from
the best practices embodied in OSD's own acquisition policies.
Boeing Is a Key Supplier for Critical Software:
For the FCS program, Boeing serves as a traditional supplier,
developing two software-intensive subsystems for the Army.
Specifically, the Boeing unit that is serving as LSI is developing the
System of Systems Common Operating Environment (SOSCOE). Additionally,
a separate Boeing unit is developing the Warfighter Machine Interface
(WMI). Both are critical to the success of FCS and, as noted by one
program manager, will affect the FCS systems being developed by other
contractors.
As part of the original 2003 other transaction agreement to begin
system development and demonstration, the LSI was permitted to
internally develop SOSCOE rather than contracting that work out to a
separate supplier. This make decision was approved by the Army.
Referred to in the statement of work as the "information management
backbone" for FCS, SOSCOE has been likened to a computer operating
system like Microsoft Windows®. All FCS systems will have to interface
with this software to function as a single, integrated brigade combat
team. Ultimately, the success of the FCS program hinges on the
successful development of SOSCOE.
Boeing is also developing WMI. This work was awarded as a separate
competitive subcontract by Boeing as the LSI to a separate unit within
the Boeing Company under the original 2003 other transaction agreement.
The software will provide a common interface for the soldiers in the
brigade combat unit to receive information. The goal of this software
is to provide an integrated presentation of all types of battlefield
information.
Subsequent to the award of WMI, the current FCS contract for system
development and demonstration was definitized with language that
provides a process to mitigate potential conflicts of interest on the
part of Boeing or SAIC as LSI. Under the predecessor other transaction
agreement, an organizational conflict of interest clause required that
certain safeguards be put in place when either a Boeing or SAIC unit
wanted to compete for a subcontract. Under the current contract, an
organizational conflict of interest clause is included that completely
prohibits either company from competing for any work at any tier for
any proposed subcontract under the FCS contract. So, although an award
was made to Boeing under the predecessor other transaction agreement,
any further awards are prohibited for the duration of the contract.
Close Working Relationship May Pose Risks:
The government's relationship with a contractor--regardless if it is an
LSI or a more traditional prime contractor-for a major project like a
weapon system can range from a distant, arms-length relationship to a
close, partner-like relationship. An arms-length relationship is
characterized by separation between the government as the customer and
the contractor as the supplier or developer. In this arrangement,
communications between the government and the contractor are more
likely to be periodic and formal. For weapon system programs, these
kinds of relationships can often be found in situations in which the
government can establish detailed technical specifications for the
weapon system, enabling the contractor to design and develop a weapon
system to meet the specifications without much government involvement.
An arms-length relationship optimizes the independence of the
government by minimizing the interaction between its staff and that of
the contractor. The downside of this type of relationship is that
information can flow slowly between the two parties, and decision-
making can be sequential and untimely. For example, if the government
were to wait 6 or more months between program reviews, work done in the
interim could go astray from the government's wishes and have to be
redone.
In a partner-like relationship, the government and the contractor work
together on a continual basis to decide what work is to be done. Over
the past 10 years, DOD has attempted to employ more partner-like
arrangements on its programs. For example, in the 1990s, DOD program
offices began employing integrated product teams, which are
multidisciplinary teams that have the cross-functional talent from both
the government and the contractor to make more informed decisions about
a product's design, production, and support.[Footnote 3] In addition,
DOD has attempted to increase its use of performance-based contracting,
in which agencies contract for results rather then processes and leave
the determination of how best to achieve the results to the contractor.
DOD guidance on performance-based contracting states that a positive
relationship between the government and the contractor is essential to
that kind of arrangement. For example, the guidance notes that the
government and industry should work together as a team to communicate
expectations, agree on common goals, and identify and address problems
early on to achieve desirable outcomes. Such a partner-like
relationship is intended to enable more real-time, better informed
decisions, reduce rework, and provide increased flexibility to adjust
to new demands.
A partner-like relationship can also pose risks for the government.
Depending on the closeness of the working relationship, 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, the
partner-like relationship between the Army and the LSI breaks new
ground and as such these risks are present. More specifically, in FCS
the Army is more involved in the selection of subcontractors than we
have seen on other programs, which 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 for oversight over the long
term.
The degree of the Army's collaboration with the LSI in the FCS program
and the possible risks this poses can be illustrated in the following
areas:
Requirements. The Army initially established the operational
requirements for FCS. Based on those requirements, the Army and LSI are
collaboratively refining the FCS system of systems requirements and
system-level requirements (or system specifications). This refinement
process has also resulted in changes and clarifications to the FCS
operational requirements. The collaboration allows both parties to
agree on and refine requirements that they believe are feasible based
on system-of-systems requirements analysis conducted by the LSI and its
subcontractors. Subsequently, the Army and LSI can reach agreement on
what requirements are appropriate to achieve the FCS capability within
cost and schedule goals. For example, the Army and LSI recently
collaborated on the feasibility of the manned ground vehicle weight
requirement. As a result of this collaboration, the Army decided to
trade off the original air transport requirement that FCS manned ground
vehicles weigh no more than 24 tons because they did not have enough
armor to meet the survivability requirement. The Army and LSI again
collaborated with the Army ultimately deciding that the requirement for
vehicle weight be allowed to grow to as much as 29 tons to provide the
needed armor. This change was significant, because the FCS vehicles
will now have to be transported by a larger aircraft, the C-17, rather
than by the C-130 transporter. Part of the reason for the change was
that, according to program officials, an advanced armor being developed
by the Army did not prove as effective as expected within desired
weight parameters. There are several other key technologies that are
still immature, and to the extent they do not perform as expected,
requirements could continue to be changed to match what is technically
possible. This could help ensure that FCS development can continue but
may produce less value in terms of capability for the investment.
Subcontract Selections. The Army and the LSI collaborate on subcontract
selection decisions in contracting tiers below the prime contractor
level. Subcontract selections at these levels have normally been made
by the contractors without much government involvement. Army officials
participated in the selection process for the one team subcontracts
awarded by the LSI to build and integrate major platforms.[Footnote 4]
The Army also plays a role in the selection of lower tier
subcontractors. For example, the Army participated in the selection of
a subcontractor to build the Active Protection System to protect
vehicles from rocket propelled grenades. This is a fourth-tier
subcontractor. Although the Army is involved with the selections, the
subcontracts are awarded by the LSI or other lower-tier contractors, so
traditional government bid protest remedies are not available to the
losing contractors, as with any procurement between private
entities.[Footnote 5] To the extent that a subcontractor selected with
the Army's involvement underperforms, the Army may bear some
responsibility for the long term consequences of that performance.
Test and Evaluation. The LSI has a lead role in developmental testing
and verification of technical requirements throughout FCS development.
For the FCS program, testing and evaluation of system prototypes will
be managed through a combined test organization co-led by the LSI and
the Army and made of up representatives of the LSI, Army Test and
Evaluation Command and the Army's FCS program management office. In its
role co-leading the test organization, the LSI will coordinate and
perform a number of activities to ensure FCS performance is effectively
and efficiently achieved. Building and testing prototypes is funded
through the LSI contract, and the LSI will recommend how many and what
type prototypes will be fabricated. Typically, the Army test command
conducts and/or monitors system development tests and conducts
operational tests of systems to provide an objective, performance-based
evaluation of system capabilities against expectations in weapons
programs. Their independent role is an important source of information
on how well a program is progressing. In the FCS situation, the Army
test command is in the position of relying on the LSI to plan for and
conduct sufficient developmental testing--as well as proper corrective
actions for identified issues--which is an important precursor to a
successful operational test program. This has led to concerns by
members of the Army test community about their ability to conduct
sufficient independent testing, while having to work so closely with
the LSI. It also raises the question of whether the LSI is too involved
with testing its own solution.
Involvement in Production. According to the FCS program manager, the
Army plans to contract with Boeing during fiscal year 2008 for the
initial production of FCS capabilities to be spun out to the current
forces and for the early production of the FCS non-line-of-sight
cannon. The current LSI development contract for the core FCS systems
extends almost 2 years beyond the FCS initial production decision. The
Army does not expect that the initial brigades outfitted by FCS will
meet the upper range of its requirements, and has made the LSI
responsible for planning future FCS enhancements in the production
phase. The LSI is also responsible for defining and maintaining a FCS
growth strategy for integrating new technologies into brigade combat
teams. This role keeps the LSI involved in the FCS program in the
production phase and could make the LSI indispensable to the Army.
FCS Program Can Benefit from Stronger OSD Oversight:
OSD is in a position to provide the arms-length oversight that can
counterbalance some of the potential risks associated with the Army's
level of involvement with both the FCS program and the LSI. Thus far,
OSD has not played an active oversight role but rather has allowed FCS
to proceed according to the Army's plans. It has passed on
opportunities to assert its own positions on knowledge-based
acquisition and cost estimates. In response to a statutory requirement,
OSD has committed itself to a formal decision review of the program
following its preliminary design review in 2009.
In August 2004, the Institute for Defense Analyses expressed concerns
that the collaborative arrangement between the Army and LSI created an
inherent tension between the roles of Army participants as both
teammates and customer representatives. The Institute expressed the
need for a corporate perspective on the FCS program on behalf of the
Army, so an independent eye could be put toward cost, schedule and
performance issues. This may be a difficult principle for the Army to
put into practice. The FCS program is nearly synonymous with the Army's
future forces and necessarily requires the commitment and involvement
of Army leadership. FCS represents the bulk of the Army's investment
portfolio.
Additionally, the nature of FCS being made up of several programs that
are large enough to have been individual acquisitions in and of
themselves, reduces the level of granularity of oversight that may have
otherwise been exercised over those programs. Major defense acquisition
programs have certain reporting requirements under law that provide
information to decision-makers about those programs. The programs
within FCS are not designated separately from FCS, so the reporting
requirements for them are not the same as if they were separately
designated. Since FCS generally meets those reporting requirements at
the system-of-system level, the granularity of reporting on individual
systems within FCS is less defined.
OSD can help provide the corporate perspective on FCS through its
oversight role. To date, OSD has kept informed of the program and
reviews the program annually. However, it held only one corporate-level
decision meeting on FCS at which it approved the program to begin
despite its being at odds with DOD's own standards for such program
initiation. Although OSD has remained involved in the program, it has
thus far largely accepted the program as defined by the Army.
Specifically, in May 2003, the Under Secretary of Defense (Acquisition,
Technology, and Logistics) approved the FCS program to begin the system
development and demonstration phase, referred to as the milestone B
decision. It is DOD policy for programs to have mature technologies at
that point, and for programs to be evolutionary in nature--that is, an
incremental improvement over existing capabilities. FCS was neither, as
all of the program's 49 critical technologies[Footnote 6] were immature
and the program was a revolutionary departure from existing Army
capabilities. Instead, the Army is following its own, lower standard
for technology maturity--achievement by the critical design review in
2011--over 7 years later than called for by DOD policy.
Upon making that decision, the Under Secretary recognized the FCS
program's immaturity and stated that there would be a milestone B
update review 18 months later. This was to be a decision-making review
for which the Under Secretary had listed several action items that the
FCS program had to complete in order to continue. However, this review
never occurred and the FCS program continued as originally planned. OSD
has not since revisited its decision to approve the program. Since that
time, program costs and schedule have roughly doubled.[Footnote 7]
Accordingly, last year, we recommended that OSD hold a decision-level
meeting. However, while OSD stated that it would have a Defense
Acquisition Board review, it would not commit to making it a milestone
decision review. It had not planned another decision meeting until the
FCS production decision, referred to as milestone C. This would have
been too late to have any material effect on the course of the program,
short of cancellation which is extremely rare at that point in a
program. Subsequently, Congress intervened and required that OSD hold
the formal decision meeting, currently scheduled for 2009.[Footnote 8]
DOD has since proposed a serious approach to making that decision,
which is encouraging from an oversight perspective.
Recognition and reporting of cost growth is another area in which OSD
has deferred to the Army. The Army has recently restructured the FCS
program to reduce the number of systems and reduce planned production
rates to stay within expected funding levels. This will mark the second
restructuring of the program in 4 years, which has seen program
investment costs increase from $77.2 billion in constant 2003 dollars
to $119.2 billion in 2005 according to Army estimates, and again to at
least $150.5 billion in 2006 according to an independent cost estimate.
The Army estimates the cost of the recently restructured program to be
slightly different than its 2005 estimate. The cost increases that have
occurred since 2003 have largely been determined by the Army and OSD to
be changes in scope, a distinction that is important for cost reporting
purposes. As we have previously reported,[Footnote 9] DOD has allowed
unit cost increases associated with quantity reductions or increases in
capabilities to be excluded from a determination of a Nunn-McCurdy
breach.[Footnote 10] DOD refers to these as programmatic adjustments
and has concluded that nearly all of FCS' 76 percent cost increase--
based solely on Army estimates--falls in this category. As a result,
the Secretary of Defense has not had to carry out an assessment of the
program or make a certification to Congress. Such an assessment and
certification of FCS would have had value from an oversight
perspective.
A recent decision not to use an independent cost estimate may have had
a similar effect on cost reporting. In May 2006, the OSD Cost Analysis
Improvement Group submitted an independent cost estimate that showed
its estimate of FCS investment costs to be 24-43 percent higher than
the Army estimate prepared by the FCS program office. OSD did not adopt
this estimate. While OSD is not obligated to adopt its independent
estimates, previous experience has shown these estimates to be more
accurate than the typically optimistic service estimates and could have
been become an additional factor to consider in a Nunn-McCurdy
determination.
Contract Provides Incentives for Best Effort but Not Accountability for
Program Outcomes:
The Army has structured the FCS contract consistent with its desire to
incentivize development efforts and make it financially rewarding for
the LSI for making such efforts. In general, contracts are limited in
that they cannot guarantee a successful outcome. This is true for the
FCS contract, and specific aspects of the contract could make it even
more difficult to tie the LSI's performance to the actual outcomes of
the development effort. Key demonstrations of the actual capabilities
of FCS systems will take place after the LSI has been able to recoup
over 80 percent of its costs and had the opportunity to earn most of
its fees. The Army shares responsibility with the LSI for making some
key decisions and to some extent the Army's performance may affect the
performance of the LSI. As with many cost-reimbursable research and
development contracts, the LSI is responsible to put forth its best
effort on the development of the FCS capability. If, given that effort,
the FCS capability falls short of needs, the LSI is not responsible and
still it is entitled to have its costs reimbursed and may earn its full
fee.
FCS Contract Provides the LSI a High Level of Compensation:
The current contract for completing FCS's system development and
demonstration phase provides a relatively high level of compensation in
terms of total dollars, fee, and price of labor. The definitized
contract between the Army and the LSI is a cost-reimbursable contract
that is valued at $17.5 billion, comprised of $15.2 billion in cost and
up to a 15-percent fee of $2.3 billion. The remaining costs and fees
from the earlier other transaction agreement were separated from the
current FAR-based contract that was definitized in March 2006. The
current contract period, which includes both the remaining work from
the other transaction agreement and the definitized action, effectively
runs from September 2005 through the first quarter of fiscal year 2015.
Under the FCS contract, the LSI is required to put forth its best
efforts to ensure a successful system. The Army will reimburse the
LSI's allowable costs and reward the contractor with profit in the form
of a fixed and an incentive fee for its efforts. The fixed fee is paid
annually and the incentive fee is earned incrementally based on the
LSI's demonstrated achievement of established performance, cost and
schedule criteria that are associated with program events.
The total fee of 15 percent (which includes the potential incentive
fees) is based on the total value of the contract, as estimated at
contract inception. However, the benefit to the LSI is very favorable
when considering the cost of the work the LSI actually performs, versus
the amount that it subcontracts out to other firms. On FCS, the LSI
will actually perform about $8.7 billion worth of the work when
combining the costs under the previous other transaction
agreement[Footnote 11] and subsequent FAR-based contract. Using that as
a base, the potential fee of $2.7 billion roughly amounts to a 30
percent profit on the work the LSI actually does itself. According to
an analysis conducted within the Office of the Secretary of Defense,
this is a relatively high ratio of profit to value of work performed
when compared with other large development programs.
As with most cost reimbursable contracts, the reimbursable costs of the
prime contractor include its costs and the costs and fees of lower tier
subcontractors. The prime's fee is separate from its reimbursable
costs. For example, if a company is awarded a prime development
contract for $300 million, that figure includes both costs and fees of
the contractor's subcontracts. The prime contractor's fees are
calculated on the $300 million cost figure included in the contract,
but are not allowed to go up if the contract costs increase.
Accordingly, if the prime contractor then awards a subcontract for $100
million of costs and pays the subcontractor a fee of $15 million, the
full $115 million paid to the subcontractor is part of the $300 million
of the prime contractor's estimated reimbursable costs. The prime
contractor is entitled to be reimbursed for the full $300 million in
costs from the government plus be paid any fee it has earned. The
result of the FCS LSI arrangement is an additional layer of
subcontractors and associated costs. Thus, the costs and fees of all
the prime item developers and their subcontractors are included in the
$15.2 billion in costs reimbursable to the LSI under its contract with
the Army. The LSI's potential $2.3 billion fee is calculated based on
these costs, as with a typical prime contract.
Based on data provided by FCS program officials, the cost of LSI
personnel is high relative to their government counterparts. The Army
is paying the average LSI full-time equivalent about 25 percent more
than the average cost of a federal employee in the senior executive
service. These costs assume salary, benefits, and other costs of
maintaining an employee on the program. We have recently reported that
contractor personnel also cost the Missile Defense Agency about 25
percent more than their government counterparts.[Footnote 12] However,
the comparison data for missile defense personnel is based on all
program personnel, not just the members of the more highly compensated
senior executive service.
Majority of Program Fees and Costs Are Available to the LSI before FCS
Systems Demonstrate Their Performance:
Under the terms of the FCS contract, the LSI can earn over 80 percent
of its $2.3 billion fee by the time the program's critical design
review is completed in 2011, and roughly 80 percent of contract costs
will have been paid out by the Army by that point. Yet the actual
demonstration of individual FCS prototypes and the system-of-systems
will take place after the design review. Our work on past weapon system
programs shows that most cost growth--symptomatic of problems--occurs
after the critical design review.
The fee the LSI can earn under the FCS contract is divided between a
fixed fee of $1.13 billion that will be paid in annual installments and
an incentive fee of $1.14 billion that, according to a program
official, can be earned on an incremental basis as the LSI accomplishes
certain performance, cost and schedule criteria associated with each of
nine key program events. Thus, it can earn portions of its incentive
fees prior to occurrence of the event. Typically, incentive fees for
weapon acquisition programs are based largely on how well the
contractor achieves cost targets, but the LSI is eligible to receive a
minimum of 50 percent of its available incentive fee based on
performance criteria, not cost. Additionally, the contract provides for
rolling over any unearned incentive fees to subsequent events. This
means that if work under a fee event is delayed, the Army can decide to
delay the associated fee as well and pay it when the work does get
done. To the extent that the contractor is responsible for the delay,
rollover can allow the contractor to get a second chance to recoup
performance fee that it did not perform well enough to earn according
to criteria at the original event, but it will not recoup the portion
of the fee associated with schedule performance. A high-level program
official did tell us that the Army plans to allow roll-over at only one
program event, if the LSI does not earn its full fee at that event.
Previous GAO work on fees highlighted the use of rollover as an
indication that the fee structure for the program lacks the appropriate
incentives, transparency, and accountability for an effective pay for
performance system.[Footnote 13] The nine fee events used to evaluate
the performance of the LSI, along with the fixed and incentive fees
that can be earned are listed in the table below.
Table 1: Fee events and schedule for FCS contract:
Dollars in millions.
Fiscal year: 2005;
Event: No Event;
Incentive Fee: [Empty];
Fixed Fee: 3.4;
Total Fee: 3.4.
Fiscal year: 2006;
Event: In-Process Preliminary Design Review (Capability Maturity 0);
Incentive Fee: 101.1;
Fixed Fee: 191.7;
Total Fee: 292.8.
Fiscal year: 2007;
Event: No Event;
Incentive Fee: [Empty];
Fixed Fee: 178.0;
Total Fee: 178.0.
Fiscal year: 2008;
Event: Engineering Maturity 1;
Incentive Fee: 125.2;
Fixed Fee: 168.0;
Total Fee: 293.2.
Fiscal year: 2009;
Event: Preliminary Design Review (Capability Maturity 1);
Incentive Fee: 255.3;
Fixed Fee: 160.6;
Total Fee: 415.9.
Fiscal year: 2010;
Event: Engineering Maturity 2;
Incentive Fee: 145.3;
Fixed Fee: 148.4;
Total Fee: 293.7.
Fiscal year: 2011;
Event: Capability Maturity 2 (Critical Design Review);
Incentive Fee: 317.8;
Fixed Fee: 129.1;
Total Fee: 446.9.
Fiscal year: 2012;
Event: Engineering Maturity 3;
Incentive Fee: 59.8;
Fixed Fee: 76.4;
Total Fee: 136.2.
Fiscal year: 2013;
Event: Capability Maturity 3;
Incentive Fee: 96.8;
Fixed Fee: 51.7;
Total Fee: 148.5.
Fiscal year: 2014;
Event: Engineering Maturity 4;
Incentive Fee: 22.6;
Fixed Fee: 22.0;
Total Fee: 44.6.
Fiscal year: 2015;
Event: Verification Complete;
Incentive Fee: 19.9;
Fixed Fee: 4.6;
Total Fee: 24.5.
Totals;
Event: [Empty];
Incentive Fee: 1,143.6;
Fixed Fee: 1,133.9;
Total Fee: 2,277.7.
Source: U.S. Army data and GAO analysis:
Note: Although the incentive fees are earned incrementally, the above
incentive fee values are presented with each discreet event they are
associated with for clarity of presentation. The above values reflect
the events which occurred under the current contract, which began in
September 2005. Thus, the incentive event in FY 2005, which occurred
prior to that month, is not included above as it was paid under the
other transaction agreement. Also, dollar amounts may not add up to
totals because of rounding.
[End of table]
To date, the LSI has completed one incentive event under the FAR
contract and received 100 percent of the available incentive fee for
its efforts. By the time the Army completes the critical design review
in 2011, the LSI could earn over 80 percent of its incentive fee and
over 80 percent of its total fee. The critical design review is
important because our work has shown that by this point in time, a
weapon system's design should be stable enough to release 90 percent of
engineering drawings for manufacturing. This level of knowledge is
demonstrative that the design is stable and capable of meeting
performance requirements. It is the point at which managers of a
program can determine whether or not to build production-representative
prototypes to demonstrate the actual performance of the design.
We have found that most cost growth on weapon system development
programs occurs after the critical design review. As shown in figure 2,
historical information on 26 major programs that have completed
development experienced about 28 percent cost growth, with almost 20
percent after critical design review.[Footnote 14]
Figure 2: RDT&E Percentage Increase throughout the Product Development
Cycle for 29 Programs Completed or in Production:
[See PDF for image]
Source: GAO analysis of DOD data.
[End of figure]
This pattern of cost growth occurs because most programs hold critical
design review before the design is stable. Subsequent building and
testing of prototypes has led to the discovery of problems that are
costly to fix in the late stages of development. We have already
reported that the critical design review for the FCS program will occur
before the program has attained a sufficient level of knowledge to
ensure that technologies are mature. Moreover, the Army does not plan
to build production-representative prototypes for testing, relying
instead on less mature prototypes and simulations. This sequence of
events sets the stage for much discovery about the FCS's actual
performance and potential problems after the design review and after
most of the fee can be paid to the LSI.
Connecting Contract Performance with Program Performance Will be
Difficult:
For several reasons, it will be difficult to connect the LSI's
performance on the contract with the success of the program. The
contract itself, like those for other weapon system developments, does
not insure the Army against an unsuccessful outcome. While the Army can
gauge the progress under the contract, the LSI is responsible for
providing best efforts, not successful outcomes. The criteria for fee
events are not directly related to achievement of total program
outcomes, and the partner-like involvement with the LSI creates a
situation in which the Army's performance can affect the LSI's
performance.
The FCS contract is a cost-reimbursement research and development
contract. In this respect, it is no different than most contracts to
develop weapon systems. Essentially, under a research and development
contract, the contractor, or LSI in the case of FCS, is required to
provide its best efforts at developing a capability or weapon system to
the Army but is not responsible for actually producing the capability.
Best efforts are measured by the inputs the contractor puts toward
development of the system. Specifically, it must put the resources and
processes in place to demonstrate its best efforts at developing the
Army's desired capability. If the weapon systems, individually or
collectively, fail to provide that capability, the LSI is not
responsible as long as it has put forth best effort.
The contract fee events reflect the best effort nature of the LSI's
performance and do not require the successful demonstration of specific
program knowledge or outcomes. For example, the criteria for the most
recent incentive fee event (which was valued at a total of about $100
million) included such items as an updated force effectiveness
analysis, the update and approval of program technical performance
measures, and the completion of certain requirements and planning
products. However, the incentive fee event criteria do not specify what
is expected in terms of the effectiveness analysis results, the current
status of the technical performance measures, or when and how the
requirements process should be completed. Army program officials point
out that this fee structure is meant to create incentives for the LSI
to focus on putting processes in place to ensure successful development
of the system. They also note that in some past programs, contracts had
devoted inadequate resources to such activities. As noted in previous
GAO work[Footnote 15] and in NASA contracting guidance for major system
acquisitions,[Footnote 16] input factors such as those used as criteria
for the fee events in FCS are valuable, but they do not provide
indications of success relative to the desired end result of the
program.
Because of its close involvement with the LSI, the Army has to make
judgments about what contract outcomes and changes it is responsible
for versus the LSI. The Army has already made judgments like these.
When the FCS program was restructured in 2004, the cost estimate and
the program schedule increased significantly as the Army changed the
scope of the program by increasing requirements and adding deferred
systems to the contract. The Army attributed the changes in cost and
schedule to the changes in scope and took responsibility for them,
absolving the LSI of responsibility. Evaluated against the revised cost
and schedule estimates, the Army awarded the LSI the full incentive fee
at the next program evaluation event. Such adjustments in the LSI's
contractual responsibilities are possible in the future as well because
the criteria for each fee event are not set until the year the event
occurs and payment of fee associated with each event is done
incrementally based on accomplishment of specific criteria for each
event. This could allow the Army to adjust the fee criteria based on
the status of the program at the time. Thus, if the LSI and Army
determine that a certain segment of work due to be completed by the
time of an event cannot be completed, the criteria for assessing that
segment can be shifted out of that event. This occurred in the most
recent program event where the scope of work associated with
approximately $105,000 in fee was shifted to the subsequent fee event.
The Army and LSI decided this was necessary because accomplishment of
the criteria associated with that fee was better suited for the next
fiscal year.
The Army's own performance may be a factor in these decisions. For
example, the Army is responsible for maturing some of the key
technologies the LSI will need to integrate into the FCS systems. If
these technologies do not succeed, then the expectations of the LSI may
have to be adjusted accordingly. The decision to increase the weight
requirement for the manned ground vehicles is illustrative. Part of the
reason for the decision was the fact that an advanced, lightweight
armor the Army was developing outside the FCS contract was not
performing as expected. While the decision affected the vehicle design,
the LSI was not responsible for development of the armor technology.
Conclusions:
Evaluating the use of the LSI on FCS involves consideration of several
intertwined factors. Some, like the best efforts provisions 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 any other
program. FCS is not the first program to use an LSI, but the extent of
the partner-like relationship between the Army and the LSI breaks new
ground. Collectively, they make the LSI arrangement in the FCS context
unique.
We have reported the great costs and risks DOD has accepted by
committing to FCS investments. We have expressed concern that the FCS
program moved forward with insufficient knowledge and, therefore, an
insufficient business case. However, that aside, if one accepts the FCS
program for what it is and where it is in the development cycle, the
Army has set up a contractual relationship that is both consistent with
its vision for FCS and candid with respect to its workforce
limitations. The Army has been thoughtful about what it is trying to
accomplish collaboratively with the LSI, and has been working hard to
make progress, including facing up to difficult tradeoffs. On the other
hand, the limits of the contractual arrangements must also be
recognized. Given the unprecedented challenge FCS represents, it is
unrealistic to expect that any contracting approach alone could assure
a successful outcome. Ultimately, the risks of successful outcomes will
be borne by the government. The contractual arrangements are not a
substitute for having the high level of knowledge that a sound business
case requires.
The Army has shown a high tolerance for accepting risk and
responsibility on this program. In addition to accepting high technical
risk, the Army has accepted responsibility for lowering the performance
of some individual systems, deleting some and adding other systems,
reducing quantities, and increasing costs and schedules. The Army has
determined the bulk of cost and schedule changes since 2003 to be
programmatic or scope-related. This determination has had two effects.
First, the changes became the responsibility of the Army, entitling the
LSI to earn full fee thus far. Second, the changes are excluded from a
determination of a Nunn-McCurdy breach and its reporting and
certification requirements. Over time, the Army runs the risk of
becoming increasingly vested as it makes these and other decisions and
less able to change course. Yet, the government must safeguard its
ability to change course in the future as demonstrated knowledge
replaces projections.
The foregoing underscores the important role of OSD in providing
oversight on the FCS program and holding the program accountable to its
own policies. While the Army works to manage the program, it is
important that OSD hold the program accountable to best practice
standards embedded in its policies. The go/no-go decision it will hold
in 2009 provides an opportunity for OSD to do so. The use of an LSI on
FCS also needs to be seen as more significant than a contracting
arrangement for a single program. At the very least, a proposal to use
an LSI approach on any new program should be seen as a risk at the
outset, not because it is conceptually flawed, but because it indicates
the government may be pursuing a solution that it does not have the
capacity to manage. Such solutions ought not to be accepted as
inevitable or unavoidable. Instead, they require additional scrutiny
before they are approved and increased oversight if they are approved.
Recommendations:
We recommend that the Secretary of Defense:
* reassess OSD's approach to overseeing the FCS program, including
asserting its own policy-based markers for progress, particularly in
the areas of cost, technology maturity, design maturity, and production
maturity.
* ensure that there is the best link possible between the fee events in
the FCS contract and actual FCS demonstrations;
* review major FCS program changes to ensure that determinations for
the government to accept changes as being programmatic or scope-related
in nature are carefully scrutinized; and:
* assess whether the experience of the LSI on FCS has broader
implications for acquisition management, such as the ability of the DOD
workforce to manage a system-of-systems acquisition.
Agency Comments and Our Evaluation:
DOD concurred with our recommendations. DOD stated that it was updating
its acquisition policy to address markers for progress in a number of
areas including cost, technology maturity, design maturity, and
production maturity. DOD agreed to use a variety of technical
assessments to inform the Defense Acquisition Board on the FCS
program's progress against its policy-based markers. It is important
that the Department be as specific as possible and consistent with its
own acquisition policy in setting expectations that the FCS program
must meet. The Department also agreed to review the FCS award fee plan
and to continue scrutinizing FCS program changes and accurately report
against the program baseline. DOD noted that the FCS program scope has
been expanded to add capability and to meet affordability constraints.
In our view, some of the changes in scope were also made to correct
shortcomings in the original acquisition strategy. It is important for
DOD to be able to make such distinctions for reporting purposes.
In concurring that the Secretary of Defense assess whether the
experience of the LSI on FCS has broader implications for acquisition
management, DOD stated that its acquisition policy is being updated to
better manage and control system and system-of-systems acquisitions. In
addition to exploring how to improve the management of systems-of-
systems and LSIs, it is important for DOD to look at the more strategic
questions such as whether and under what circumstances these approaches
should be taken. For example, are systems-of-systems too large a scope
to manage and report as a single acquisition program? Is using an LSI
preferable to getting a better match between the acquisition programs
being conceived and the acquisition workforce DOD has to manage them?
Should DOD be looking at reducing the scope of programs, increasing the
capability of its own workforce, or both to achieve this match?
DOD also stated that it considers the business relationship for the FCS
development contract to be typical of a prime contract for a major
system because the FCS contractor performs a substantial portion of the
development work for the program. As there is no universally accepted
definition of a LSI, this distinction may be more a matter of opinion
than fact. In our opinion, the role played by the FCS LSI is not
typical of a DOD contractor. Two characteristics, in our view,
distinguish a LSI from a traditional contractor. First, the integrator
is managing across what would traditionally have been program lines,
versus subsystems within a program. Second, in so managing, the
integrator is acting on behalf of, and in the interests of, the
government. The Army was specific about needing a different, partner-
like contracting arrangement like this when it began the FCS program.
We also note that while the FCS LSI is performing substantive work on
software systems, its portion of total work is low relative to major
prime contractors elsewhere in DOD and it is not directly involved in
the development of any hardware for the FCS system-of-systems.
Finally, the Department noted that the role of the FCS prime contractor
in requirements determination is not correctly framed in our draft
report and that we confuse operational requirements with design
specifications. We have characterized the LSI's role in this report as
requirements refinement, rather than requirements definition. The
requirements work being led by the FCS LSI is intended to complete the
definition of the system-of-systems requirements and the system-level
requirements. Two aspects of this role are, in our view, distinctive.
First is the fact that because FCS is a system-of-systems, the
functions performed are one level higher than they would have been for
a typical single-system program. Thus, while the Army determines the
operational requirements for the FCS brigade combat team the LSI is
heavily involved with its subcontractors and the Army in setting the
requirements for individual systems. On single system programs, the
Army would have set the requirements for the individual system. Second,
the FCS solution is being formed concurrent with the development of
individual technologies and the design of systems. Thus, as the
limitations of technology and design are discovered, the LSI works with
the Army to change or refine the requirements to conform to these
limitations. While this process is not atypical of weapon system
acquisitions, the vast scope and large technical leaps sought in the
FCS program requires greater involvement by the LSI in the refinement
process.
DOD's comments are reprinted in Appendix III. DOD also provided
technical comments, which were addressed throughout the report as
appropriate.
We are sending copies of this report to the Secretary of Defense; the
Secretary of the Army; and the Director, Office of Management and
Budget. Copies will also be made available to others on request. In
addition, the report will be available at no charge on the GAO Web site
at http://www.gao.gov.
Please contact me on (202) 512-4841 if you or your staff has any
questions concerning this report. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Other contributors to this report were Assistant
Director William R. Graveline, Noah B. Bleicher, Lily J. Chin, Brendan
S. Culley, Michael D. O'Neill, Kenneth E. Patton, and Thomas P.
Twambly.
Signed by:
Paul L. Francis:
Director:
Acquisition and Sourcing Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services;
House of Representatives:
The Honorable John P. Murtha, Jr.
Chairman:
The Honorable C. W. (Bill) Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To identify factors that led to the Army's decision to use an LSI for
the FCS program and to determine the work performed by the LSI, we
performed the following:
* We obtained and analyzed the program documents including the FCS
system development and demonstration contract, statement of work, Army
FCS acquisition strategy report, and FCS operational requirements
document to gain an understanding of the terms and conditions of LSI
responsibilities, the structure and processes of the program, and goals
of the Army. We reviewed FCS subcontracts to understand the nature of
the FCS one team and to ascertain how Federal Acquisition Regulation
clauses were flowed down after FCS contract conversion. We reviewed
Army audits, Defense Contract Management Agency and Defense Contract
Audit Agency reports, as well as GAO reports and testimonies.
* We reviewed Army and DOD guidance as well as the Federal Acquisition
Regulation to understand government contracting standards and
procedures used for the acquisition of major weapon systems.
* We interviewed FCS program officials from the Tank-Automotive and
Armaments Command, DOD's Office of Acquisitions, Technology, and
Logistics, Defense Contract Audit Agency, and Defense Contract
Management Agency to gain insight into why the Army chose and LSI
business arrangement, how it is performing, and potential concerns for
the future.
* We interviewed one team partner officials from 12 of the major
platform development offices to receive feedback from those
implementing the program decisions made by the LSI. These discussions
focused on differences, benefits, and drawbacks of the LSI business
approach when compared to more traditional, prime contractor
arrangements. As many of these firms have extensive experience in
defense contracting, we spoke about alternatives that the Army could
have used for the FCS procurement. Finally, these discussions allow us
to gain insight into the implementation and impact of the other
transaction agreement to FAR contract conversion.
To evaluate the implications of the Army's relationship with the LSI,
we performed the following:
* We reviewed and collected information from the acquisition strategy
report, statement of work, the FAR-based contract, documents related to
source selection decisions, the integrated master schedule and
documents related to the in-process preliminary design review, and the
operational requirements document to identify the roles and
responsibilities of the Army and LSI.
* We interviewed key Army and LSI program managers, who were
responsible for the overall FCS program, the Army and LSI leaders of
the major integrated product development teams and met with selected
officials from the first tier of major subcontractors to assess
communication and decision making within the program.
To evaluate the Army's criteria for assessing the LSI's performance, we
conducted the following:
* We reviewed the financial terms of the contract, the criteria for
assessing the LSI's performance at program incentive events contained
in the contract and integrated master plan and conducted quantitative
analyses of the contract's fixed and incentive fees;
* We reviewed the LSI's presentations for the Army's assessment and
also interviewed Army officials, who were responsible for reviewing the
LSI's performance. To evaluate the program's financial reporting
systems, we interviewed officials from the Defense Contract Management
Agency and Defense Contract Audit Agency.
To accomplish our work, we visited and interviewed officials from the
Army Tank and Automotive Command, Warren, Mich; Army integrated product
team leaders in Huntsville, Ala., Hazelwood, Mo., Fort Picatinny, N.J;
LSI officials, in Hazelwood, Mo. and Huntington Beach, Calif. In
addition, we interviewed 12 one team partners across the United States.
We also interviewed officials from the Defense Contract Management
Agency, Defense Contract Audit Agency and the Office of the Secretary
of Defense's Cost Analysis Improvement Group.
We conducted our review between May 2006 and June 2007 in accordance
with generally accepted government accounting standards.
[End of section]
Appendix II: Overview of FAR Provisions Included in Future Combat
Systems Lead Systems Integrator Contract:
The Federal Acquisition Regulation (FAR) provides uniform policies and
procedures for acquisitions by federal government executive agencies.
Depending on the type of contract entered into, different FAR clauses
and provisions are used to protect the government's interests and
define the terms of the agreement. Likewise, contracting officers
structure a contract appropriately depending on the products or
services being procured. A multitude of FAR provisions and agency FAR
supplement provisions give contracting officers a wide range of options
to tailor government contracts to meet the specific agency needs. While
many FAR clauses are required to be incorporated in all contracts of a
particular type, other provisions are only required to be included as
applicable.
The Army's original FCS Other Transaction Agreement was converted into
a FAR-based cost-reimbursable research and development contract in
2006. According to the Army, the new FCS contract includes the FAR and
Defense Federal Acquisition Regulation Supplement (DFARS) requirements
appropriate for this type of procurement. While GAO confirmed the
Army's analysis of the FAR-based contractual provisions, it did not
conduct an independent detailed examination of every applicable clause
in the contract. However, GAO did confirm the inclusion of several FAR
requirements that address areas of key concern.
* Cost Accounting Standards (CAS) - Two FAR part 12 provisions
pertaining to the use and administration of CAS have been included in
the FCS contract.
* Procurement Integrity Act (PIA) - The FCS contract includes the two
FAR clauses required to address PIA concerns.
* Truth in Negotiations Act (TINA) - TINA standards for cost and
pricing data are addressed in three FAR part 12 provisions. Additional
information regarding exceptions and requirements for cost and pricing
data are included separately in the FCS contract.
* Organizational Conflict of Interest (OCI) - Although the predecessor
other transaction agreement contained an OCI clause that required
certain safeguards be put into place if and when Boeing and SAIC
competed for subcontracts, it did not preclude them from such
competitions. The FCS FAR contract includes an OCI provision that
precludes the Boeing/SAIC LSI team from competing for any FCS
subcontract awards. Though FCS subcontractors may compete for
additional FCS subcontracts, the OCI provision in the FCS contract
requires that steps be taken to ensure an absence of any organizational
conflicts of interest during subcontractor selection activities.
Additionally, this clause provides instruction on how proprietary
information should be protected.
[End of section]
Appendix III: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
3000 Defense Pentagon:
Washington, DC 20301-3000:
Acquisition, Technology And Logistics:
May 17 2007:
Paul L. Francis:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Francis:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-07-380, "Defense Acquisitions: Role of Lead Systems
Integrator on Future Combat System Program Poses Oversight Challenges,"
dated April 20, 2007 (GAO Code 120555).
The report recommends the Secretary of Defense take steps to strengthen
oversight of the FCS program and assess whether the experience of the
LSI on FCS has broader implications for DOD acquisition management.
The Department concurs with the GAO recommendations and our comments
are enclosed. Detailed technical comments were provided separately.
There are two additional points of clarification worthy of note. First,
we consider the business relationship for the FCS System Development
and Demonstration contract to be typical of a prime contract for a
major system because the FCS prime contractor performs a substantial
portion of the developmental work for the program, to include providing
the System of System Common Operating Environment software.
Additionally, the role of the FCS prime contractor in requirements
determination is not correctly framed in this report, confusing the
operational requirements in the Army's Operational Requirements
Document (ORD) with design specifications that the contractor derives
from those operational requirements.
Sincerely,
Signed by:
David G. Ahern:
Director:
Portfolio Systems Acquisition:
Enclosure:
As stated:
GAO Draft Report - Dated April 20, 2007 GAO Code 120555/GAO-07-380:
"Defense Acquisitions: Role Of Lead Systems Integrator On Future Combat
System Program Poses Oversight Challenges"
Department Of Defense Comments To The Recommendations:
Recommendation l: The GAO recommended that the Secretary of Defense
reassess OSD's approach to overseeing the Future Combat System (FCS)
program, including asserting its own policy-based markers for progress,
particularly in the areas of cost, technology maturity, design
maturity, and production maturity. (p. 26/GAO Draft Report):
DoD Response: Concur. The Department's acquisition policy instruction
is being updated. The modification is intended to address the
Department's policy regarding markers for progress in a number of areas
including cost, technology maturity, design maturity and production
maturity. For the FCS program, the Defense Acquisition Board (DAB),
aligned with the program's Preliminary Design Review, will receive a
number of critical assessments to support the Department's FCS
acquisition and budget decisions. These include a Technology Readiness
Assessment to address technology maturity; an independent cost estimate
to address program cost, and a System Engineering assessment to address
design and production maturity. These assessments will inform the DAB
on progress against the Department's policy-based markers for program
progress.
Recommendation 2: The GAO recommended that the Secretary of Defense
ensure that there is the best link possible between the fee events in
the FCS contract and actual FCS demonstrations. (p. 26/GAO Draft
Report):
DoD Response: Concur. The Director, Defense Procurement and Acquisition
Policy will review the FCS award fee plan.
Recommendation 3: The GAO recommended that the Secretary of Defense
review major FCS program changes to ensure that determinations for the
government to accept changes as being programmatic or scope-related in
nature are carefully scrutinized. (p. 26/GAO Draft Report):
DoD Response: Concur. The Department reviews program changes at least
yearly in support of Selected Acquisition Report submissions. The FCS
program scope has been expanded to include delivery of selected FCS
capabilities to the current force, referred to as Spin-Outs.
Additionally, the production timeframe was expanded due to department
affordability constraints, slowing the delivery schedule for the FCS
brigades. The department will continue to scrutinize FCS program
changes and accurately report against the program baseline.
Recommendation 4: The GAO recommended that the Secretary of Defense
assess whether the experience of the lead system integrator on FCS has
broader implications for acquisition management, such as the ability of
the DoD workforce to manage a system-of-systems acquisition. (p. 26/GAO
Draft Report):
DoD Response: Concur. There are a number of Department activities
ongoing that support this recommendation. The Defense Acquisition
University (DAU) addresses system-of-system management, and systems
engineering in many of its acquisition workforce training programs. DAU
continually reassesses and updates its training material, case studies,
and course work to reflect implications for acquisition management of
things such as the FCS program experiences with system-of-system
management. Additionally, an update to the acquisition policy (DoDI
5000.2) is in process and a key component is the Department's
revitalization of the system engineering process to better manage and
control system and system-of-system acquisitions. Furthermore, there is
a Defense Federal Acquisition Regulation Supplement case that
implements the limits on contractors acting as lead system integrators
as included in the FY 2007 NDAA.
[End of section]
FOOTNOTES
[1] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364, § 115 (2006).
[2] These figures exclude staff provided by "one-team" subcontractors
on the integrated product teams.
[3] GAO, Best Practices: DOD Teaming Practices Not Achieving Potential
Results, GAO-01-510 (Washington, D.C.: April 10, 2001).
[4] The Defense Contract Management Agency is also involved in most FCS
subcontractor selections.
[5] Traditional government bid protest remedies allow contractors to
protest decisions made by federal government agencies with regard to
contract awards. Under bid protest provisions, such disputes can be
submitted to the Comptroller General of the United States for
resolution within 100 days.
[6] Since 2006, a Critical Technology Working-Level Integrated product
Team recommended that the Army remove three critical technologies from
its assessment. The team concluded that these technologies did not
conform to DOD's definition of critical technologies because, in its
view, the technologies did not constitute a unique or novel
application.
[7] Program cost comparison is between the original Army cost estimate-
-$77.2 billion--at the start of system development and demonstration in
2003 and the May 2006 independent estimate--$150.5-162.7 billion (base
year 2003 dollars).
[8] Pub. L. No. 109-364, § 214.
[9] GAO, Defense Acquisitions: Information for Congress on Performance
of Major Programs Can Be More Complete, Timely and Accessible, GAO-05-
182 (Washington, D.C.: March 28, 2005).
[10] 10 U.S.C. § 2433 (requires the Secretary concerned to report to
Congress when a program's acquisition unit cost increases by at least
15 percent over the current baseline estimate or increases by over 30
percent over the original baseline estimate and requiring the Secretary
of Defense to carry out an assessment of the program and provide a
written certification to Congress when a program's acquisition unit
cost increases by at least 25 percent over the current baseline
estimate or increases by 50 percent over the original baseline
estimate).
[11] The other transaction agreement had a total value of $3.3 billion,
with costs of $2.9 billion and fee of $0.4 billion. For the entire FCS
system development and demonstration effort, the total contractual
value is $20.8 billion, made up of $18.1 billion in cost and $2.7
billion in fee.
[12] GAO, Defense Acquisitions: Missile Defense Acquisition Strategy
Generates Results but Delivers Less at a Higher Cost, GAO-07-387
(Washington, D.C.: March 15, 2007).
[13] GAO, Defense Acquisitions: DOD Wastes Billions of Dollars through
Poorly Structured Incentives, GAO-06-409T (Washington, D.C.: December
19, 2005).
[14] For a description of the methodology behind this analysis, please
see GAO, Defense Acquisitions: Assessments of Selected Weapon Programs,
GAO-06-391 (Washington, D.C.: March, 31, 2006).
[15] GAO, NASA Procurement: Use of Award Fees for Achieving Program
Outcomes Should Be Improved, GAO-07-58 (Washington, D.C.: January 17,
2007).
[16] NASA, Award Fee Contracting Guide (Washington, D.C.: June 27,
2001).
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