Defense Acquisitions
Assessment of DOD Efforts to Enhance Missile Defense Capabilities and Oversight
Gao ID: GAO-08-506T February 26, 2008
Funded at $8 billion to $10 billion per year, the Missile Defense Agency's (MDA) effort to develop and field a Ballistic Missile Defense System (BMDS) is the largest research and development program in the Department of Defense (DOD). The program has been managed in 2-year increments, known as blocks. Block 2006, the second BMDS block, was completed in December 2007. By law, GAO annually assesses MDA's progress. This testimony is based on GAO's assessment of MDA's progress in (1) meeting Block 2006 goals for fielding assets, completing work within estimated cost, conducting tests, and demonstrating the performance of the overall system in the field, and (2) making managerial improvements to transparency, accountability, and oversight. In conducting the assessment, GAO reviewed the assets fielded; contractor cost, schedule, and performance; and tests completed during 2007. GAO also reviewed pertinent sections of the U.S. code, acquisition policy, and the charter of a new missile defense board. We have previously made recommendations to improve oversight in the areas that MDA has recently taken action. We also have a draft report that is currently with DOD for comment that includes additional recommendations.
In the past year, MDA has fielded additional and new assets, enhanced the capability of some existing assets, and achieved most test objectives. However, MDA did not meet the goals it originally set for the block. Ultimately, MDA fielded fewer assets, increased costs by about $1 billion and conducted fewer tests. Even with the cost increase, MDA deferred work to keep costs from increasing further, as some contractors overran their fiscal year 2007 budgets. Deferring work obscures the cost of the block because such work is no longer counted as part of Block 2006. The cost of the block may have been further obscured by a way of planning work used by several contractors that could underestimate the actual work completed. If more work has to be done, MDA could incur additional costs that are not yet recognized. MDA also sets goals for determining the overall performance of the BMDS. Similar to other DOD programs, MDA uses models and simulations to predict BMDS performance. We were unable to assess whether MDA met its overall performance goal because there have not been enough flight tests to provide a high confidence that the models and simulations accurately predict BMDS performance. Moreover, the tests done to date have been developmental in nature, and do not provide sufficient realism for DOD's test and evaluation Director to determine whether BMDS is suitable and effective for battle. GAO has previously reported that MDA has been given unprecedented funding and decision-making flexibility. While this flexibility has expedited BMDS fielding, it has also made MDA less accountable and transparent in its decisions than other major programs, making oversight more challenging. MDA, with some direction from Congress, has taken significant steps to address these concerns. MDA implemented a new way of defining blocks--its construct for developing and fielding BMDS increments--that should make costs more transparent. For example, under the newly-defined blocks, MDA will no longer defer work from one block to another. Accountability should also be improved as MDA will for the first time estimate unit costs for selected assets and report variances from those estimates. DOD also chartered a new executive board with more BMDS oversight responsibility than its predecessor. Finally, MDA will begin buying certain assets with procurement funds like other programs. This will benefit transparency and accountability, because to use procurement funding generally means that assets must be fully paid for in the year they are bought. Previously, MDA has been able to pay for assets incrementally using research and development funds. Some oversight concerns remain, however. For example, MDA does not plan to estimate the total cost of a block, nor to have a block's costs independently verified--actions required of other programs to inform decisions about affordability and investment choices. Also, the executive board faces a challenge in overseeing MDA's large technology development efforts and does not have approval authority for some key decisions made by MDA.
GAO-08-506T, Defense Acquisitions: Assessment of DOD Efforts to Enhance Missile Defense Capabilities and Oversight
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Testimony before the Subcommittee on Defense, Committee on
Appropriations, U.S. House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, February 26, 2008:
Defense Acquisitions:
Assessment of DOD Efforts to Enhance Missile Defense Capabilities and
Oversight:
Statement of Paul Francis, Director, Acquisition and Sourcing
Management:
GAO-08-506T:
GAO Highlights:
Highlights of GAO-08-506T, a testimony before the Subcommittee on
Defense, Committee on Appropriations, U.S. House of Representatives.
Why GAO Did This Study:
Funded at $8 billion to nearly $10 billion per year, the Missile
Defense Agency‘s (MDA) effort to develop and field a Ballistic Missile
Defense System (BMDS) is the largest research and development program
in the Department of Defense (DOD). The program has been managed in 2-
year increments, known as blocks. Block 2006, the second BMDS block,
was completed in December 2007. By law, GAO annually assesses MDA‘s
progress.
This testimony is based on GAO‘s assessment of MDA‘s progress in (1)
meeting Block 2006 goals for fielding assets, completing work within
estimated cost, conducting tests, and demonstrating the performance of
the overall system in the field, and (2) making managerial improvements
to transparency, accountability, and oversight.
In conducting the assessment, GAO reviewed the assets fielded;
contractor cost, schedule, and performance; and tests completed during
2007. GAO also reviewed pertinent sections of the U.S. code,
acquisition policy, and the charter of a new missile defense board.
We have previously made recommendations to improve oversight in the
areas that MDA has recently taken action. We also have a draft report
that is currently with DOD for comment that includes additional
recommendations.
What GAO Found:
In the past year, MDA has fielded additional and new assets, enhanced
the capability of some existing assets, and achieved most test
objectives. However, MDA did not meet the goals it originally set for
the block. Ultimately, MDA fielded fewer assets, increased costs by
about $1 billion and conducted fewer tests. Even with the cost
increase, MDA deferred work to keep costs from increasing further, as
some contractors overran their fiscal year 2007 budgets. Deferring work
obscures the cost of the block because such work is no longer counted
as part of Block 2006. The cost of the block may have been further
obscured by a way of planning work used by several contractors that
could underestimate the actual work completed. If more work has to be
done, MDA could incur additional costs that are not yet recognized. MDA
also sets goals for determining the overall performance of the BMDS.
Similar to other DOD programs, MDA uses models and simulations to
predict BMDS performance. We were unable to assess whether MDA met its
overall performance goal because there have not been enough flight
tests to provide a high confidence that the models and simulations
accurately predict BMDS performance. Moreover, the tests done to date
have been developmental in nature, and do not provide sufficient
realism for DOD‘s test and evaluation Director to determine whether
BMDS is suitable and effective for battle.
GAO has previously reported that MDA has been given unprecedented
funding and decision-making flexibility. While this flexibility has
expedited BMDS fielding, it has also made MDA less accountable and
transparent in its decisions than other major programs, making
oversight more challenging. MDA, with some direction from Congress, has
taken significant steps to address these concerns. MDA implemented a
new way of defining blocks”its construct for developing and fielding
BMDS increments--that should make costs more transparent. For example,
under the newly-defined blocks, MDA will no longer defer work from one
block to another. Accountability should also be improved as MDA will
for the first time estimate unit costs for selected assets and report
variances from those estimates. DOD also chartered a new executive
board with more BMDS oversight responsibility than its predecessor.
Finally, MDA will begin buying certain assets with procurement funds
like other programs. This will benefit transparency and accountability,
because to use procurement funding generally means that assets must be
fully paid for in the year they are bought. Previously, MDA has been
able to pay for assets incrementally using research and development
funds. Some oversight concerns remain, however. For example, MDA does
not plan to estimate the total cost of a block, nor to have a block‘s
costs independently verified”actions required of other programs to
inform decisions about affordability and investment choices. Also, the
executive board faces a challenge in overseeing MDA‘s large technology
development efforts and does not have approval authority for some key
decisions made by MDA.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-506T]. For more information, contact Paul
Francis, (202) 512-4841, francisp@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Missile Defense Agency's
(MDA's) strategy for acquiring a Ballistic Missile Defense System
(BMDS) and its progress in fielding Block 2006-its second increment of
capability.
MDA has been charged with developing and fielding the Ballistic Missile
Defense System (BMDS), a system expected to be capable of defending the
United States, deployed troops, friends, and allies against ballistic
missiles of all ranges in all phases of flight. In fulfilling this
charge, MDA placed an initial set of missile defense components in the
field in December 2005. These components are collectively referred to
as Block 2004. Recently, MDA delivered its second increment of
capability--Block 2006--which includes additional components as well as
performance enhancements.
The National Defense Authorization Acts for fiscal years 2002 and 2006
mandated that we prepare annual assessments of MDA's ongoing cost,
schedule, testing, and performance progress. In March 2008, we plan to
issue our report covering MDA's progress toward achieving Block 2006
goals during fiscal year 2007 as well as its efforts to improve
transparency, accountability, and oversight. My statement today will
focus on the issues covered in that report. We conducted this
performance audit from May 2007 to March 2008 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Summary:
During Block 2006, MDA fielded additional and new assets, enhanced the
capability of some existing assets, and achieved most test objectives.
In short, MDA increased BMDS capability. However, MDA did not meet the
goals it originally set for the block. Ultimately, MDA fielded fewer
assets, increased costs by about $1 billion and conducted fewer tests.
Even with the cost increase, MDA deferred work to keep Block 2006 costs
from increasing further, as some contractors overran their fiscal year
2007 budgets. We could not determine the full cost of the block as
deferred work is no longer counted as part of the block. Further,
several BMDS contractors plan work in such a way that could result in
MDA incurring costs that are not yet recognized. We could not assess
attainment of another MDA goal: the overall performance of fielded
assets as an integrated BMDS. This is because (1) there have not been
enough flight tests to validate the models and simulations that are
used to predict system-level performance, (2) the reliability of some
interceptors could be affected by problematic parts that have not been
replaced yet, and (3) tests done to date have been developmental in
nature, and do not provide sufficient realism for DOD's test and
evaluation Director to determine whether BMDS is suitable and effective
for battle.
MDA has been given unprecedented funding and decision-making
flexibility that has expedited the fielding of assets but also lessened
the transparency and accountability needed for oversight. In the past
year, MDA has taken significant actions to improve oversight. First,
MDA has adopted a new block approach that offers several improvements-
unit costs for selected assets will now be tracked and work will no
longer be deferred from one block to another. Second, DOD has
established an executive board to review and make recommendations on
MDA's acquisition strategy, plans, and funding that could play a more
significant role than its predecessor. Third, Congress directed that
MDA begin using procurement funds to purchase certain assets, which
generally means they must be fully paid for in the year they are
bought. Previously, using research and development funding, MDA could
pay for assets over several years, making it difficult to determine
their cost. Some oversight concerns remain, however. For example, MDA
will not estimate the total cost of each block nor have that cost
independently verified, as is done for other major programs. While the
new executive board promises to be more substantive than its
predecessor, it will not have the information or the approval authority
to provide the oversight that a Defense Acquisition Board provides on
other major programs. It also faces the unique challenge of evaluating
technology development efforts that range from $2 billion to about $5
billion a year--efforts that normally do not have a firm cost,
schedule, and performance baseline.
We have previously made recommendations to improve oversight in the
areas that MDA has recently taken action. We also have a draft report
that is currently with DOD for comment that includes additional
recommendations.
Background:
Funded at $8 billion to nearly $10 billion annually, MDA's BMDS is the
largest research development program in the Department of Defense's
budget. Since the 1980s, DOD has spent more that $100 billion on the
development and early fielding of this system and it estimates that
continued development will require an additional $50 billion between
fiscal years 2008 and 2013.
Since 2002, MDA has worked to fulfill its mission through its
development and fielding of a diverse collection of land-, air-, sea-,
and space-based assets. These assets are developed and fielded through
nine BMDS elements and include the Airborne Laser (ABL); Aegis
Ballistic Missile Defense (Aegis BMD); BMDS Sensors; Command, Control,
Battle Management, and Communications (C2BMC); Ground-based Midcourse
Defense (GMD); Kinetic Energy Interceptors (KEI); Multiple Kill
Vehicles (MKV); Space Tracking and Surveillance System (STSS); and
Terminal High Altitude Area Defense (THAAD).[Footnote 1]
To develop a system capable of carrying out its mission, MDA, until
December 2007, executed an acquisition strategy in which the
development of missile defense capabilities was organized in 2-year
increments known as blocks. Each block was intended to provide the BMDS
with capabilities that enhanced the development and overall performance
of the system. The first 2-year block, known as Block 2004, fielded a
limited initial capability that included early versions of the GMD,
Aegis BMD, Patriot Advanced Capability-3, and C2BMC elements. The
agency's second 2-year block-Block 2006-culminated on December 31, 2007
and fielded additional BMDS assets. This block also provided improved
GMD interceptors, enhanced Aegis BMD missiles, upgraded Aegis BMD
ships, a Forward-Based X-Band-Transportable radar, and enhancements to
C2BMC software. On December 7, 2007, MDA's Director approved a new
block construct that will be the basis for all future development and
fielding, which I will discuss in more detail shortly.
To assess progress during Block 2006, we examined the accomplishments
of nine BMDS elements that MDA is developing and fielding. Our work
included examining documents such as Program Execution Reviews, test
plans and reports, production plans, and Contract Performance Reports.
We also interviewed officials within each element program office and
within MDA functional directorates. In addition, we discussed each
element's test program and its results with DOD's Office of the
Director, Operational Test and Evaluation. In following up on
transparency, accountability, and oversight issues raised in our March
2007 report, we held discussions with officials in MDA's Directorate of
Business Operations to determine whether its new block structure
improved accountability and transparency of the BMDS. In addition, we
reviewed pertinent sections of the U.S. Code to compare MDA's current
level of accountability with federal acquisition laws. We also
interviewed officials from the Office of the Under Secretary of Defense
for Acquisition, Technology, and Logistics and DOD's Joint Staff to
discuss the oversight role of the new Missile Defense Executive Board
(MDEB). Additionally, we reviewed the MDEB charter to identify the
oversight responsibility of the board.
Fielded Capability Increased, but Less than Planned at Higher Cost:
MDA made progress in developing and fielding the BMDS during 2007.
Additional assets were fielded and/or upgraded, several tests met
planned objectives, and other development activities were conducted. On
the other hand, fewer assets were fielded than originally planned, some
tests were delayed, and the cost of the block increased by
approximately $1 billion. To stay within the revised budget despite
increasing contractor costs, MDA deferred some budgeted work to future
blocks. Such deferrals, coupled with a planning methodology used by
some contractors that could obscure cost reporting, prevent us from
determining the full cost of Block 2006. MDA was able to meet most test
objectives despite delays in several elements' test schedules. Neither
we nor DOD could evaluate the aggregate performance of fielded assets
because flight testing to date has not generated sufficient data. An
evaluation of aggregate performance would also have to consider that
(1) some parts in fielded interceptors identified as potentially
problematic have not been replaced yet, and (2) tests done to date have
been developmental in nature and do not provide sufficient realism for
DOD to determine if the BMDS is suitable and effective for battle.
Fielding of Assets and Cost:
During Block 2006, MDA increased its inventory of BMDS assets while
enhancing the system's performance. It fielded 14 additional Ground-
based interceptors, 12 Aegis BMD missiles designed to engage more
advanced threats, 4 new Aegis BMD destroyers, 1 new Aegis BMD cruiser,
and 8 Web browsers and 1 software suite for C2BMC. In addition, MDA
upgraded half of its Aegis BMD ship fleet, successfully conducted four
Aegis BMD and two GMD intercept tests, and completed a number of ground
tests to demonstrate the capability of BMDS components.
Although MDA fielded an increased capability, it was unable to deliver
all assets originally planned for Block 2006.[Footnote 2] The Sensors
element was the only Block 2006 element to meet all of its original
goals set in March 2005 while the remaining elements--GMD, Aegis BMD,
C2BMC--were unable to meet all of their original quantity goals.
Sensors delivered a second FBX-T in January 2007 while the GMD element
fielded 14 of 15 Ground-Based interceptors originally planned during
Block 2006. Last year, we reported that MDA delayed the partial upgrade
of the Thule early warning radar--one of GMD's original goals--until a
full upgrade could be accomplished. Additionally, the Aegis BMD element
delivered 4 additional Destroyers and 1 new Cruiser as originally
planned, but did not meet its original goal for missile deliveries--
delivering 12 of 19 SM-3 missiles planned for the block. C2BMC also did
not deliver two of the three software suites originally planned for
Block 2006.
MDA's Block 2006 program of work culminated with higher than
anticipated costs. In March 2007, we reported that MDA's cost goal for
Block 2006 increased by approximately $1 billion because of greater
than expected GMD operations and sustainment costs and technical
problems. If the contractors continue to perform as they did in fiscal
year 2007, we estimate that at completion, the cumulative overrun in
the contracts could be between about $1.9 billion and $2.8 billion. To
stay within its revised budget, MDA deferred some work it expected to
accomplish during the block. When work is deferred, its costs are no
longer accounted for in the original block. In other words, if work
planned and budgeted for Block 2006 was deferred to Block 2008, that
work would be counted as a Block 2008 cost. Because MDA did not track
the cost of the deferred work, the agency could not make an adjustment
that would have matched the cost with the correct block. Consequently,
we were unable to determine the full cost of Block 2006.
Another reason why it is difficult to determine the actual cost of
Block 2006 is a planning methodology employed by MDA prime contractors
that can obscure the full cost of work. Contractors typically divide
the total work of a contract into small efforts in order to define them
more clearly and to ensure proper oversight. Work is planned into types
of work packages including: (1) level of effort-work that contains
tasks of a general or supportive nature and does not produce a definite
end product and (2) discrete--work that has a definable end product or
event. When work is discrete, delivery of the end product provides a
sound basis for determining actual contractor performance. When
discrete work is instead planned as level of effort, the contractor's
performance becomes less transparent because work is considered
complete when the time planned for it has expired, whether or not the
intended product has been completed. Earned value management does not
recognize such variances in completing scheduled work and to the extent
more work has to be done to complete the product, additional costs
could be incurred that are not yet recognized.[Footnote 3] Many of
MDA's prime contractors plan a large percentage of their work as level
of effort. MDA officials agree that its contractors have improperly
planned discrete work as level of effort, and are taking steps to
remedy the situation.
We also observed that while several contractors had difficulty with
controlling costs, during fiscal year 2007, MDA awarded approximately
90 percent or $579 million of available award fee to its prime
contractors. In particular, contractors developing the ABL and Aegis
BMD Weapon System were rated as performing very well in the cost and/or
program management elements and received commensurate fees, even though
earned value management data showed that their cost and schedule
performance was declining. Although DOD guidance discourages the use of
earned value performance metrics in award fee criteria, MDA includes
this--one of many factors for consideration in rating contractors'
performance--in several of its award fee plans. The agency recognizes
that there is not always a good link between its intentions for award
fees and the amount of fee being earned by its contractors. In an
effort to rectify this problem, the agency has begun to revise its
award fee policy to align agency practices more closely with DOD's
current policy that better links performance with award fees.
Testing and Performance of Fielded Capability:
Most test objectives were achieved during 2007, although several BMDS
programs experienced setbacks in their test schedules. The MKV, KEI,
and Sensors elements were able to execute all scheduled activities as
planned. The Aegis BMD, THAAD, ABL, STSS, and C2BMC elements
experienced test delays, but all were able to achieve their primary
test objectives. GMD successfully completed an intercept with an
operationally representative interceptor and a radar characterization
test. A second intercept test employing the SBX radar has been delayed
because a target malfunction delayed the execution of the first
intercept test. The SBX capability is important as it is a primary
sensor to be used to engage ballistic missiles in the midcourse phase
of flight. As of yet, this capability has not been verified through
flight testing.
As we reported in March 2007, MDA altered its original Block 2006
performance goals commensurate with the agency's reductions in the
delivery of fielded assets.[Footnote 4] For several reasons,
information is not sufficient to assess whether MDA achieved its
revised performance goals. First, MDA uses a combination of simulations
and flight tests to determine whether performance goals are met.
However, too few flight tests have been completed to ensure the
accuracy of the models and simulations predictions. Second, confidence
in the performance of the BMDS is reduced because of unresolved
technical and quality issues in the GMD element. For example, the GMD
element has experienced the same anomaly during each of its flight
tests since 2001. This anomaly has not yet prevented the program from
achieving any of its primary test objectives, but to date neither its
source nor solution has been clearly identified. Program officials plan
to continue their assessment of test data to determine the anomaly's
root cause. The performance of some fielded GMD assets is also
questionable because they contain parts identified by auditors in MDA's
Office of Quality, Safety, and Mission Assurance as less reliable or
inappropriate for use in space that have not yet been replaced. MDA has
begun to replace the questionable parts in the manufacturing process
and to purchase the parts for retrofit into fielded interceptors.
However, it will not complete the retrofit effort until 2012.
Finally, tests of the GMD element have been of a developmental nature,
and have not included operationally representative test geometries in
which GMD will perform its mission. MDA has added operational test
objectives to its developmental test program, but the objectives are
mostly aimed at proving that military personnel can operate the
equipment. The lack of data has limited the operational test and
evaluation Director's annual BMDS assessment to commenting on aspects
of tests that were operationally realistic and thus has prevented the
Director from determining whether the system is suitable and effective
for the battlefield.
Key Steps Taken to Enhance BMDS Oversight, But More Can Be Done:
Since its initiation in 2002, MDA has been given a significant amount
of flexibility. While this flexibility allows agile decision making, it
lessens the transparency of MDA's acquisition processes, making it
difficult to conduct oversight and hold the agency accountable for its
planned outcomes and costs. As we reported in March 2007, MDA operates
with considerable autonomy to change goals and plans, which makes it
difficult to reconcile outcomes with original expectations and to
determine the actual cost of each block and of individual operational
assets. In the past year, MDA has begun implementing two initiatives--
a new block construct and a new executive board--to improve
transparency, accountability, and oversight. These initiatives
represent improvements over current practices, although we see
additional improvements MDA can make. In addition, Congress has
directed that MDA begin buying certain assets with procurement funds
like other programs, which should promote accountability for and
transparency of the BMDS.
New Block Structure Offers Improvements, but Does Not Resolve All
Issues:
In 2007, MDA redefined its block construct to better communicate its
plans and goals to Congress. The agency's new construct is based on
fielding capabilities that address particular threats as opposed to the
previous biennial time periods. MDA's new block construct makes many
positive changes. These include establishing unit cost for selected
block assets, incorporating into a block only those elements or
components that will be fielded during the block, and abandoning the
practice of deferring work from block to block.
These changes should improve the transparency of the BMDS program and
make MDA more accountable for the investment being made in missile
defense. For example, the actual cost of each block can be tracked
because MDA will no longer defer work planned for one block, along with
its cost, to a future block. In addition, MDA plans to develop unit
cost for selected BMDS assets--such as THAAD interceptors--so that cost
growth of those assets can be monitored. In addition, the agency plans
to request an independent verification of these unit costs and report
significant cost growth to Congress. However, MDA has not yet
determined all of the assets that will report a unit cost or how much a
unit cost must increase before it is reported to Congress.
Although improvements are inherent in MDA's proposed block construct,
the new construct does not resolve all transparency and accountability
issues. For example, MDA officials told us that the agency does not
plan to estimate the full cost of a block. Instead, the cost baseline
reported to Congress will include all prior costs of the block and the
expected budget for the block for the 6 years included in DOD's Future
Years Defense Plan.[Footnote 5] Costs beyond the 6TH year of the plan
will not be estimated. Once baselined, if the budget for a block
changes, MDA plans to report and explain those variations to Congress.
Because the full cost of each block will not be known, it will be
difficult for decision makers to compare the value of investing in each
block to the value of investing in other DOD programs or to determine
whether a block is affordable over the long term. Other DOD programs
are required to provide the full cost estimate of developing and
producing their weapon system, even if the costs extend beyond the
Future Years Defense Plan.
Another issue yet to be addressed is whether the concurrent development
and fielding of BMDS assets will continue. Fully developing an asset
and demonstrating its capability prior to production increases the
likelihood that the product will perform as designed and can be
produced at the cost estimated. To field an initial capability quickly,
MDA accepted the risk of concurrent development and fielding during
Block 2004. It continued to do so during Block 2006 as it fielded
assets before they were fully tested. For example, by the end of Block
2004, the agency realized that the performance of some ground-based
interceptors could be degraded because the interceptors included
inappropriate or potentially unreliable parts.[Footnote 6] As noted
earlier, MDA has begun the process of retrofitting these interceptors,
but work will not be completed until 2012. Meanwhile, there is a risk
that some interceptors might not perform as designed. MDA has not
addressed whether it will accept similar performance risks under its
new block construct or whether it will fully develop and demonstrate
all elements/components prior to fielding.
MDA has not addressed whether it will transfer assets produced during a
block to a military service for production and operation at the block's
completion. Officials representing multiple DOD organizations recognize
that transfer criteria are neither complete nor clear given the BMDS's
complexity. Without clear transfer criteria, MDA has transferred the
management of only one element--the Patriot Advanced Capability-3--to
the military for production and operation. For other elements, MDA and
the military services have been negotiating the transition of
responsibilities for the sustainment of fielded elements-
-a task that has proven to be time consuming. Although MDA documents
show that under its new block construct the agency should be ready to
deliver BMDS components that are fully mission-capable, MDA officials
could not tell us whether at the end of a block MDA's Director will
recommend when management of components, including production
responsibilities, will be transferred to the military.
New Executive Board Offers Improved, but Not Full, Oversight:
Oversight improvement initiatives are also underway for MDA. In March
2007, the Deputy Secretary of Defense established a Missile Defense
Executive Board (MDEB) to recommend and oversee implementation of
strategic policies and plans, program priorities, and investment
options for protecting the United States and its allies from missile
attacks. The MDEB is also to replace existing groups and structures,
such as the Missile Defense Support Group.
The MDEB appears to be vested with more authority than the Missile
Defense Support Group. When the Support Group was chartered in 2002, it
was to provide constructive advice to MDA's Director. However, the
Director was not required to follow the advice of the group. According
to a DOD official, although the Support Group met many times initially,
it did not meet after June 2005. This led to the formation of the MDEB.
Its mission is to review and make recommendations on MDA's
comprehensive acquisition strategy to the Deputy Secretary of Defense.
It is also to provide the Under Secretary of Defense for Acquisition,
Technology and Logistics, with a recommended strategic program plan and
a feasible funding strategy based on business case analysis that
considers the best approach to fielding integrated missile defense
capabilities in support of joint MDA and warfighter objectives. The
MDEB will be assisted by four standing committees. These committees,
who are chaired by senior-level officials from the Office of the
Secretary of Defense and the Joint Staff, could play an important
oversight role as they are expected to make recommendations to the
MDEB, which in turn, will recommend courses of action to the Under
Secretary of Defense and the Director, MDA as appropriate.
Although the MDEB is expected to exercise some oversight of MDA, it
will not have access to all the information normally available to DOD
oversight bodies. For other major defense acquisition programs, the
Defense Acquisition Board has access to critical information because
before a program can enter the System Development and Demonstration
phase of the acquisition cycle, statute requires that certain
information be developed. [Footnote 7] However, in 2002, the Secretary
of Defense deferred application of DOD policy that, among other things,
require major defense programs to obtain approval before advancing from
one phase of the acquisition cycle to another. Because MDA does not yet
follow this cycle, and has not yet entered System Development and
Demonstration, it has not triggered certain statutes requiring the
development of information that the Defense Acquisition Board uses to
inform its decisions. For example, most major defense acquisition
programs are required by statute to obtain an independent verification
of life-cycle cost estimates prior to beginning system development and
demonstration, and/or production and deployment. Independent life-
cycle cost estimates provide confidence that a program is executable
within estimated cost. Although MDA plans to develop unit cost for
selected block assets and to request that DOD's Cost Analysis
Improvement Group verify the unit costs, the agency does not yet plan
to do so for a block cost estimate.
Statute also requires an independent verification of a system's
suitability for and effectiveness on the battlefield through
operational testing before a program can proceed beyond low-rate
initial production.[Footnote 8] After testing is completed, the
Director for Operational Test and Evaluation assesses whether the test
was adequate to support an evaluation of the system's suitability and
effectiveness for the battlefield, whether the test showed the system
to be acceptable, and whether any limitations in suitability and
effectiveness were noted. However, a comparable assessment of the BMDS
assets being fielded will not be available to the MDEB as MDA conducts
primarily developmental tests of its assets with some operational test
objectives. As noted earlier, developmental tests do not provide
sufficient data for operational test officials to make such an
assessment of BMDS.
MDA will also make some decisions without needing approval from the
MDEB or any higher level official. Although the charter of the MDEB
includes the mission to make recommendations to MDA and the Under
Secretary of Defense for Acquisition, Technology and Logistics on
investment options, program priorities, and MDA's strategy for
developing and fielding an operational missile defense capability, the
MDEB will not necessarily have the opportunity to review and recommend
changes to BMDS blocks. MDA documents show that the agency plans to
continue to define each block of development without requiring input
from the MDEB. According to a briefing on the business rules and
processes for MDA's new block structure, the decision to initiate a new
block of BMDS capability will be made by MDA's Director. Also cost,
schedule, and performance parameters will be established by MDA when
technologies that the block depends upon are mature, a credible cost
estimate can be developed, funding is available, and the threat is both
imminent and severe. The Director will inform the MDEB as well as
Congress when a new block is initiated, but he will not seek the
approval of either.
Finally, there will be parts of the BMDS program that the MDEB will
have difficulty overseeing because of the nature of the work being
performed. MDA plans to place any program that is developing technology
in a category known as Capability Development. These programs, such as
ABL, KEI, and MKV, will not have a firm cost, schedule, or performance
baseline. This is generally true for technology development programs in
DOD because they are in a period of discovery, which makes schedule and
cost difficult to estimate. On the other hand, the scale of the
technology development in BMDS is unusually large, ranging from $2
billion to about $5 billion dollars a year--eventually comprising
nearly half of MDA's budget by fiscal year 2012. The MDEB will have
access to the budgets planned for these programs over the next five or
six years, each program's focus, and whether the technology is meeting
short term key events or knowledge points. But without some kind of
baseline for gauging progress in these programs, the MDEB will not know
how much more time or money will be needed to complete technology
maturation. MDA's experience with the ABL program provides a good
example of the difficulty in estimating the cost and schedule of
technology development. In 1996, the ABL program believed that all ABL
technology could be demonstrated by 2001 at a cost of about $1 billion.
However, MDA now projects that this technology will not be demonstrated
until 2009 and its cost has grown to over $5 billion.
MDA Directed to Use Procurement Funding:
In an effort to further improve the transparency of MDA's acquisition
processes, Congress has directed that MDA's budget materials delineate
between funds needed for research, development, test and evaluation;
procurement; operations and maintenance; and military
construction.[Footnote 9] Congress gave MDA the flexibility to field
certain assets using research, development, test and evaluation funding
which allowed MDA to fund the purchase of assets over multiple years.
Congress recently restricted MDA's authority and required MDA to
purchase certain assets with procurement funds. Using procurement funds
will mean that MDA will be required to ensure that assets are fully
funded in the year of their purchase, rather than incrementally funded
over several years. Additionally, our analysis of MDA data shows that
incremental funding is usually more expensive than full-funding, in
part, because inflation decreases the buying power of the dollar each
year. For example, after reviewing MDA's incremental funding plan for
THAAD fire units and Aegis BMD missiles, we analyzed the effect of
fully funding these assets and found that the agency could save about
$125 million by fully funding their purchase and purchasing them in an
economical manner.
Upcoming Report:
* Our annual report on missile defense is in draft and with DOD for
comment. It will be issued in final by March 15, 2008. In that report,
we are recommending additional steps that could build on efforts to
further improve the transparency, accountability, and oversight of the
missile defense program. Our recommendations include actions needed to
improve cost reporting as well as testing and evaluation. DOD is in the
process of preparing a formal response to the report and its
recommendations.
Mr. Chairman, this concludes my statement. I would be pleased to
respond to any questions you or members of the subcommittee may have.
Contacts and Staff Acknowledgments:
For questions about this statement, please contact me at (202) 512-4841
or Francisp@gao.gov. Individuals making key contributions to this
statement include David Best, Assistant Director; LaTonya D. Miller;
Steven B. Stern; Meredith Allen Kimmett; Kenneth E. Patton; and Alyssa
Weir.
Footnotes:
[1] The BMDS also includes a 10th element, Patriot Advanced Capability-
3 (PAC-3), which has been transferred to the Army for production,
operation, and sustainment. This report does not evaluate PAC-3 because
its initial development is complete and is now being managed by the
Army.
[2] n March 2006, MDA made reductions to its block 2006 goals. It was
able in nearly all instances to meet or exceed these revised goals. Two
elements--GMD and C2BMC--were able to exceed their revised fielding
goals. In addition, the Aegis BMD element was able to meet its revised
block goals for one of its two components. The program upgraded all
planned ships, but fielded three fewer Aegis BMD Standard Missile-3s
(SM-3) than planned because the missiles were delayed into 2008 to
accommodate an unanticipated requirement to deliver three missiles to
Japan.
[3] Earned Value Management (EVM) is a program management tool that
integrates the technical, cost, and schedule parameters of a contract.
During the planning phase, an integrated baseline is developed by time
phasing budget resources for defined work. As work is performed and
measured against the baseline, the corresponding budget value is
"earned". Using this earned value metric; cost and schedule variances
can be determined and analyzed. EVM is program management that provides
significant benefits to both the Government and the contractor.
[4] Defense Acquisitions: Missile Defense Acquisition Strategy
Generates Results but Delivers Less at a Higher Cost, GAO-07-387
(Washington, D.C.: Mar.15, 2007). BMDS performance goals included a
numerical goal for the probability of a successful BMDS engagement, a
defined area from which the BMDS would prevent an enemy from launching
a ballistic missile, and a defined area that the BMDS would protect
from ballistic missile attacks.
[5] There are five blocks included in the new block construct--1.0,
2.0, 3.0, 4.0, and 5.0. MDA expects to initially develop budget
baselines and report variances to this baseline for Blocks 1.0, 2.0,
and a portion of 3.0.
[6] See Defense Acquisitions: Missile Defense Agency Fields Initial
Capability but Falls Short of Original Goals, GAO-06-327 (Washington,
D.C.: Mar. 15, 2006).
[7] The Defense Acquisition Board advises the Under Secretary of
Defense for Acquisition, Technology, and Logistics on critical
acquisition decisions.
[8] 10 U.S.C § 2399 requires completion of initial operational test and
evaluation of a weapon system before a program can proceed beyond low-
rate initial production. According to DOD policy, low-rate initial
production is intended to result in completion of manufacturing
development in order to ensure adequate and efficient manufacturing
capability and to produce the minimum quantity necessary to provide
production or production-representative articles for operational test
and evaluation, establish an initial production base for the system;
and permit an orderly increase in the production rate for the system,
sufficient to lead to full-rate production upon successful completion
of operational (and live-fire, where applicable) testing.
[9] The National Defense Authorization Act for Fiscal Year 2008, Pub.
L. No. 110-181, § 223.
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