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[Note: Footnotes in the body of this report are numbered consecutively 
from 1-27. Footnotes in the appendices are numbered consecutively from 
1-50.]

Report to Congressional Committees:

April 2004:

MISSILE DEFENSE:

Actions Are Needed to Enhance Testing and Accountability:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-409]:

GAO Highlights:

Highlights of GAO-04-409, a report to congressional committees 

Why GAO Did This Study:

The Department of Defense (DOD) has treated ballistic missile defense 
as a priority since the mid-1980s and has invested tens of billions of 
dollars to research and develop such capabilities. In 2002 two key 
events transformed DODs approach in this area: (1) the Secretary of 
Defense consolidated existing missile defense elements into a single 
acquisition program and placed them under the management of the 
Missile Defense Agency (MDA) and (2) the President directed MDA to 
begin fielding an initial configuration, or block, of missile defense 
capabilities in 2004. MDA estimates it will need $53 billion between 
fiscal years 2004 and 2009 to continue the development, fielding, and 
evolution of ballistic missile defenses.

To fulfill a congressional mandate, GAO assessed the extent to which 
MDA achieved program goals in fiscal year 2003. While conducting this 
review, GAO also observed shortcomings in how MDA defines its goals.

What GAO Found:

MDA accomplished many activities in fiscal year 2003such as software 
development, ground and flight testing, and the construction of 
facilities at Fort Greely, Alaskaleading up to the fielding of the 
initial block of the Ballistic Missile Defense System. During this 
time, however, MDA experienced schedule delays and testing setbacks, 
resulting in the fielding of fewer components than planned in the 2004-
2005 time frame. For example, delays in interceptor development and 
delivery have caused flight tests (intercept attempts) of the Ground-
based Midcourse Defense (GMD) element to slip over 10 months. In flight 
tests conducted during fiscal year 2003, MDA achieved a 50 percent success rate in intercepting target missiles. While MDA is increasing the operational realism of its developmental flight testse.g., employing an operational crew during its late 2003 ship-based intercept attemptthe GMD element has not been tested under unscripted, operationally realistic conditions. Therefore, MDA faces the challenge of demonstrating whether the capabilities being fielded, consisting primarily of the GMD element, will perform as intended when the system becomes operational in 2004. Finally, MDAs cost performance during fiscal year 2003 was mixed. The prime contractors of four system elements completed work at or near budgeted costs during this time, but prime contractors for two system elements overran budgeted costs by a total of about $380 million.

GAO found that program goals do not serve as a reliable and complete 
baseline for accountability purposes and investment decision making 
because they can vary year to year, do not include all costs, and are 
based on assumptions about performance not explicitly stated. For 
example, between its budget requests for fiscal years 2004 and 2005, 
MDA revised its estimated cost for the first fielded block of missile 
defense capability. This first block is costing $1.12 billion more and 
consists of fewer fielded components than that planned a year earlier. 
In addition, MDAs acquisition reports for Congress do not include 
life-cycle costs, which normally provide explicit estimates for 
inventory procurement, military construction, operations, and 
maintenance. Finally, MDA does not explain some critical assumptions
such as an enemys type and number of decoysunderlying its 
performance goals. As a result, decision makers in DOD and Congress do 
not have a full understanding of the overall cost of developing and 
fielding the Ballistic Missile Defense System and what the systems 
true capabilities will be.

Elements of MDAs Ballistic Missile Defense System: 

[See PDF for image]

[End of figure]

What GAO Recommends:

GAO recommends that DOD carry out independent, operationally realistic 
testing of each block being fielded. GAO also recommends that MDA set 
cost, schedule, and performance baselines for each block being 
fielded. DOD agreed to establish these baselines but stated that 
formal operational testing is not required before entry into full rate 
production.

www.gao.gov/cgi-bin/getrpt?GAO-04-409.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robert E. Levin at (202) 
512-4841 or levinr@gao.gov.

[End of section]

Contents:

Letter: 

Scope and Methodology: 

Results in Brief: 

Background: 

Assessment of Progress and Key Risks: 

Observations on the Usefulness of MDA Program Goals for Conducting 
Oversight: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Comments from the Department of Defense: 

Appendix II: Summary: 

Appendix II: Aegis Ballistic Missile Defense: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Progress Assessment: Cost: 

Program Risks: 

Appendix III: Summary: 

Appendix III: Airborne Laser: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Progress Assessment: Cost: 

Program Risks: 

Appendix IV: Summary: 

Appendix IV: Command, Control, Battle Management, and Communications: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Progress Assessment: Cost: 

Program Risks: 

Appendix V: Summary: 

Appendix V: Ground-based Midcourse Defense: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Progress Assessment: Cost: 

Program Risks: 

Appendix VI: Summary: 

Appendix VI: Kinetic Energy Interceptors: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Program Assessment: Performance: 

Program Assessment: Cost: 

Program Risks: 

Conclusion: 

Recommendation for Executive Action: 

Appendix VII: Summary: 

Appendix VII: Space Tracking and Surveillance System: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Progress Assessment: Cost: 

Program Risks: 

Appendix VIII: Summary: 

Appendix VIII: Theater High Altitude Area Defense: 

Background: Element Description: 

Background: History: 

Background: Developmental Phases: 

Progress Assessment: Schedule: 

Progress Assessment: Performance: 

Program Assessment: Cost: 

Program Risks: 

Appendix IX: Fiscal Year 2002 Assessment: 

Appendix X: GAO Contact and Staff Acknowledgments: 

Tables:

Table 1: BMDS Elements: 

Table 2: MDA Block 2004 Defensive Capability Goals: 

Table 3: BMDS-wide Block 2004 Program Goals: 

Table 4: GMD-Related Block 2004 Program Goals: 

Table 5: Aegis BMD-Related Block 2004 Program Goals: 

Table 6: C2BMC-Related Block 2004 Program Goals: 

Table 7: Prime Contractor Cost and Schedule Performance in Fiscal Year 
2003: 

Table 8: BMDS Performance Metrics: 

Table 9: Planned Aegis Ship Availability for the BMD Mission (Block 
2004): 

Table 10: Missile-Related Activities, Fiscal Year 2003: 

Table 11: SM-3 Missiles Delivered, Expended, and in Inventory: 

Table 12: Aegis BMD Ground Tests: 

Table 13: Aegis BMD Flight Tests: 

Table 14: Aegis BMD Planned Cost: 

Table 15: ABL Program Hardware Deliveries, Fiscal Year 2003: 

Table 16: ABL Program Test Events, Fiscal Year 2003: 

Table 17: ABL Planned Cost: 

Table 18: Block 2004 C2BMC Activities--Develop, Test, Verify Software: 

Table 19: Block 2004 C2BMC Activities--Communications and Integration: 

Table 20: C2BMC Planned Cost: 

Table 21: Progress of Major GMD Construction Projects: 

Table 22: GMD Flight and Booster Tests, Fiscal Year 2003: 

Table 23: Block 2004 Flight Test Program Leading to IDO--Schedule 
Delays:

Table 24: GMD Planned Costs: 

Table 25: Cost of Block 2004 GMD Defensive Capability: 

Table 26: KEI Planned Cost: 

Table 27: Block 2006 STSS Activities--Testing Hardware Components: 

Table 28: Block 2006 STSS Activities--Software Development: 

Table 29: Planned Annual Cost: 

Table 30: Block 2004 THAAD Activities--Contract Alignment: 

Table 31: Block 2004 THAAD Activities--Component Design Reviews: 

Table 32: Block 2004 THAAD Activities--Element Design Reviews: 

Table 33: Block 2004 THAAD Activities--Ground Testing: 

Table 34: Block 2004 THAAD Activities--Flight Testing: 

Table 35: THAAD Planned Cost: 

Figures:

Figure 1: Phases of a Ballistic Missile's Trajectory: 

Figure 2: Fiscal Year 2003 Cost Performance (SM-3 Contract Only): 

Figure 3: Fiscal Year 2003 Schedule Performance (SM-3 Contract Only): 

Figure 4: Fiscal Year 2003 Cost Performance: 

Figure 5: Fiscal Year 2003 Schedule Performance: 

Figure 6: Fiscal Year 2003 Cost and Schedule Performance: 

Figure 7: GMD Element: 

Figure 8: Fiscal Year 2003 Cost and Schedule Performance: 

Figure 9: Fiscal Year 2003 Cost Performance: 

Figure 10: Fiscal Year 2003 Schedule Performance: 

Figure 11: Fiscal Year 2003 Cost and Schedule Performance: 

Abbreviations:

ABL: Airborne Laser:

Aegis BMD: Aegis Ballistic Missile Defense:

AFB: Air Force Base:

ALI: Aegis LEAP Intercept:

ARS: Active Ranger System:

BC/FC: Beam Control/Fire Control:

BILL: Beacon Illuminator Laser:

BMC2: Battle Management, Command and Control:

BMDS: Ballistic Missile Defense System:

BV: Booster Validation:

C2BMC: Command, Control, Battle Management, and Communications:

CDR: Critical Design Review:

COIL: Chemical Oxygen-Iodine Laser:

CONOPS: Concept of Operations:

CONUS: Continental United States:

CSD: Chemical Systems Division:

CTF: Control Test Flight:

DACS: Divert and Attitude Control System:

DOD: Department of Defense:

DOT&E: Director, Operational Test and Evaluation:

DRR: Design Readiness Review:

EKV: Exoatmospheric Kill Vehicle:

EMD: Engineering and Manufacturing Development:

EVMS: Earned Value Management System:

FM: Flight Mission:

FT: Flight Test:

FY: Fiscal Year:

GAO: General Accounting Office:

GBI: Ground Based Interceptor:

GMD: Ground-based Midcourse Defense:

ICBM: Intercontinental Ballistic Missile:

IDO: Initial Defensive Operations:

IFICS: In-Flight Interceptor Communications System:

IFT: Integrated Flight Test:

IMP: Integrated Master Plan:

IMS: Integrated Master Schedule:

IOC: Initial Operational Capability:

JNIC: Joint National Integration Center:

KEI: Kinetic Energy Interceptors:

LEAP: Lightweight Exoatmospheric Projectile:

LRIP: Low-Rate Initial Production:

MDA: Missile Defense Agency:

MDNT: Missile Defense National Team:

NFIRE: Near Field Infrared Experiment:

NMD: National Missile Defense:

OSC: Orbital Sciences Corporation:

OTA: Other Transaction Agreement:

PD&RR: Program Definition and Risk Reduction:

PDR: Preliminary Design Review:

PMRF: Pacific Missile Range Facility:

POET: Phase One Engineering Team:

RDT&E: Research, Development, Testing, and Evaluation:

SAR: Selected Acquisition Report:

SBIRS: Space-Based Infrared System:

SBX: Sea-Based X-band Radar:

SCF: Seeker Characterization Flight:

SDACS: Solid Divert and Attitude Control System:

SDD: System Development and Demonstration:

SIL: System Integration Laboratory:

SM: Standard Missile:

STSS: Space Tracking and Surveillance System:

TILL: Target Illuminator Laser:

THAAD: Theater High Altitude Area Defense:

TPM: Technical Performance Measure:

USNORTHCOM: U.S. Northern Command:

USPACOM: U.S. Pacific Command:

USSTRATCOM: U.S. Strategic Command:

WSMR: White Sands Missle Range; 

Letter April 23, 2004:

Congressional Committees:

The Department of Defense (DOD) has been making significant investments 
in the development of ballistic missile defenses for decades. From 
1985, when the Strategic Defense Initiative was launched, through 2003, 
DOD spent tens of billions of dollars to research and develop these 
capabilities. It estimates that it will need $53 billion between fiscal 
years 2004 and 2009 to continue the development, fielding, and 
evolution of ballistic missile defenses.

During the past 2 years, DOD significantly transformed the approach it 
takes in acquiring ballistic missile defenses. In January 2002, the 
Secretary of Defense refocused the ballistic missile defense program 
into a broad-based research and development effort managed by the 
Missile Defense Agency (MDA). The Secretary granted MDA flexibility to 
employ a "capability-based," evolutionary approach for the development 
of these defenses. Under this new approach, MDA defines, develops, and 
fields operational capabilities--in 2-year blocks--of a single, 
multilayered, overarching system referred to as the Ballistic Missile 
Defense System (BMDS). The system has no fixed design or final 
architecture. The Secretary of Defense also gave MDA management 
responsibility over the existing ballistic missile defense programs 
already under development by the military services. These programs, 
which were previously recognized by DOD as major defense acquisition 
programs, are now considered "elements" of the BMDS. (See table 1 for a 
description of BMDS elements under development.):

In December 2002, the President directed DOD to begin fielding an 
initial set of missile defense capabilities in 2004. In accordance with 
the President's direction, MDA is readying a defensive capability for 
operation, called Initial Defensive Operations (IDO), by September 30, 
2004. IDO is expected to provide the United States protection against 
limited long-range ballistic missile attacks from Northeast Asia. MDA 
will enhance this capability to complete the first increment of the 
BMDS--known as the Block 2004 defensive capability--by the end of 
December 2005. This capability is expected to provide additional 
protection from ballistic missiles launched from the Middle East.

The National Defense Authorization Act for Fiscal Year 2002[Footnote 1] 
directed DOD to establish schedule, testing, performance, and cost 
goals for its ballistic missile defense programs for the years covered 
by the Future Years Defense Plan.[Footnote 2] The act also directed us 
to assess, at the conclusion of each of fiscal years 2002 and 2003, the 
extent to which MDA achieved the goals it established.[Footnote 3] 
Because the agency had not established goals in fiscal year 2002, we 
were unable to assess its progress for that year.[Footnote 4] However, 
MDA did establish schedule, testing, performance, and cost goals for 
its Block 2004 program and submitted them to Congress in February 2003 
with its fiscal year 2004 budget and in April 2003 with its Selected 
Acquisition Report for the BMDS.[Footnote 5] The goals describe the 
composition of the block configuration under development; provide the 
costs and schedule associated with developing, testing, and fielding 
the Block 2004 BMDS; and summarize the performance capabilities that 
MDA expects to achieve with the Block 2004 defensive capability.

To fulfill the congressional mandate in the Authorization Act, we 
addressed the following question in this report: To what extent has MDA 
and its elements progressed in achieving stated goals through their 
fiscal year 2003 activities? While conducting this review, we observed 
shortcomings in how MDA defines its Block 2004 program goals. Our 
report includes these observations and our recommendations for 
improvement.

Scope and Methodology:

We assessed MDA's progress made during fiscal year 2003 toward its 
Block 2004 program goals by reviewing the progress of individual BMDS 
elements, because MDA program goals are ultimately derived from 
element-level efforts. We selected seven elements for our review on the 
basis of congressional interest and because they account for about 70 
to 75 percent of the cumulative research and development funds MDA 
budgeted for fiscal years 2002 through 2009. We compared each element's 
actual cost, completed activities, demonstrated performance, and test 
results with their internal fiscal year 2003 cost, schedule, 
performance, and testing goals.

To assess progress toward program schedule goals, we examined, for each 
element, prime contractor Cost Performance Reports, the Defense 
Contract Management Agency's analyses of these reports, System Element 
Reviews, and other agency documents to determine whether key activities 
scheduled for the fiscal year were accomplished as planned. We also 
developed a data collection instrument to gather additional, detailed 
information on completed program activities, including tests, design 
reviews, prime contracts, and estimates of element performance.

Because MDA allocates a large percentage of its budget to fund prime 
contractors that develop system elements, and because MDA's cost goal 
did not apply to fiscal year 2003 expenditures, we limited our review 
of cost-related matters to assessments of prime contractor cost 
performance. To make these assessments, we applied earned value 
analysis techniques to data captured in contractor Cost Performance 
Reports. We compared the cost of work completed with the budgeted costs 
for scheduled work for the fiscal year 2003 period. Results were 
presented in graphical form to determine fiscal year 2003 trends. We 
also used data from the reports to project the likely costs at the 
completion of prime contracts through established earned value 
formulas.

We also analyzed data related to system effectiveness provided by MDA, 
focusing on the Ground-based Midcourse Defense and Aegis Ballistic 
Missile Defense elements--the weapon components of the Block 2004 
defensive capability. We supplemented this information by holding 
discussions with, and attending overview briefings presented by, 
various program office officials. Furthermore, we interviewed officials 
within DOD's office of the Director, Operational Test and Evaluation, 
to learn more about the adequacy of element test programs and the 
operational capability demonstrated by them to date.

As we reviewed documents and held discussions with agency officials, we 
looked for evidence of key cost, schedule, and technical risks. We 
identified key risks as those for which we found evidence of problems 
or significant uncertainties that could negatively affect MDA's ability 
to develop, demonstrate, and field a militarily useful capability 
within schedule and cost estimates.

During our review, we observed shortcomings in how MDA defines its 
goals that could make oversight by external decision makers more 
difficult. To pursue this matter, we examined how MDA reported its 
goals by reviewing MDA budget submission statements that were submitted 
for fiscal years 2004 and 2005. In addition, to gain insight into the 
formulation of the goals, we held numerous discussions with MDA 
officials and reviewed acquisition documents such as MDA's Integrated 
Master Plan, Integrated Program Plan, and System Integration Strategy.

Our work was primarily performed at MDA headquarters, Arlington, 
Virginia; Aegis Ballistic Missile Defense Program Office, Arlington, 
Virginia; Airborne Laser Program Office, Albuquerque, New Mexico; 
Command, Control, Battle Management, and Communications Program Office, 
Arlington, Virginia; Ground-based Midcourse Defense Program Office, 
Arlington, Virginia; Kinetic Energy Interceptors Program Office, 
Arlington, Virginia; Space Tracking and Surveillance System Program 
Office, Los Angeles, California; and the Theater High Altitude Area 
Defense Project Office, Huntsville, Alabama. We also visited the office 
of the Director, Operational Test and Evaluation, Arlington, Virginia.

We conducted our review from June 2003 through April 2004 in accordance 
with generally accepted government auditing standards.

Results in Brief:

MDA completed many activities in fiscal year 2003--such as software 
development, ground and flight testing, and facility construction at 
various BMDS sites--leading to the planned initial fielding of the BMDS 
by September 2004. During this time, however, MDA experienced 
significant schedule delays, conducted little testing of the integrated 
BMDS, and incurred cost overruns. Also, as a result of testing 
shortfalls, the predicted effectiveness of the Block 2004 system will 
be largely unproven. Furthermore, between its budget requests for 
fiscal years 2004 and 2005, MDA revised the goals for its first fielded 
block of missile defense capability by increasing costs by $1.12 
billion and decreasing the number of fielded components.

Our overall assessment of MDA's progress in fiscal year 2003 toward 
meeting its schedule, testing, performance, and cost goals is discussed 
below. Key risks associated with the development and fielding of system 
elements are summarized as well.

* Schedule and testing. Primary system elements that make up the 
fielded Block 2004 defensive capability--Ground-based Midcourse 
Defense (GMD) and Aegis Ballistic Missile Defense (BMD)--are executing 
aggressive schedules to meet the fielding dates prescribed under the 
President's directive. These elements completed a number of activities 
that MDA expects will lead to the achievement of its program goals. For 
example, construction activities for facilities at Fort Greely, Alaska, 
and other GMD sites were completed on or ahead of schedule. However, 
based on progress made in fiscal year 2003, the actual defensive system 
to be fielded by September 2004 will have fewer components than 
planned. For example, we found that MDA will not meet its upper-end 
goal of fielding 10 GMD interceptors by September 2004. In addition, 
the agency will be hard-pressed to achieve its goal of producing and 
delivering an inventory of 20 GMD interceptors by December 2005, 
because GMD contractors have yet to meet the planned production rate.

MDA completed many activities toward the completion of the BMDS Test 
Bed, the venue in which system elements are integrated and tested. 
However, some element-level testing did not progress as planned. During 
fiscal year 2003, MDA achieved a 50-percent success rate on hit-to-kill 
intercepts--one success out of two attempts for each of the GMD and 
Aegis BMD elements. Also during this time period, delays in GMD 
interceptor development and delivery caused flight tests (intercept 
attempts) leading up to IDO to slip 10 months or more. Furthermore, 
unanticipated problems in system-integration efforts caused key 
Airborne Laser (ABL) demonstration events to slip over a year.

* Performance. MDA predicts with confidence that the September 2004 
defensive capability will provide protection of the United States 
against limited attacks from Northeast Asia. However, testing in 2003 
did little to demonstrate the predicted effectiveness of the system's 
capability to defeat ballistic missiles as an integrated system. None 
of the components of the defensive capability have yet to be flight 
tested in their fielded configuration (i.e., using production-
representative hardware).

* Cost. We assessed prime contractor cost performance for six BMDS 
elements funded under the Block 2004 program. Four of the six elements 
completed fiscal year 2003 work at or near budgeted costs. However, 
work on ABL and GMD cost much more than budgeted. The ABL contractor 
overran budgeted costs by $242 million and the GMD contractor by $138 
million.

* Key risks. Our analysis of fiscal year 2003 activities indicates 
there are key risks associated with the development and fielding of 
elements of the Block 2004 program. For example, significant 
uncertainty remains about how much more time and money are required to 
complete ABL integration activities and whether ABL can be proven to 
work effectively. MDA recently announced that a new contract structure 
is being implemented to more efficiently demonstrate the technology.

Also, as a result of testing shortfalls and the limited time available 
to test the BMDS being fielded, system effectiveness will be largely 
unproven when the initial capability goes on alert at the end of 
September 2004. Delays in flight testing presented MDA with limited 
opportunities to demonstrate the operation of hardware and software 
being fielded and to resolve any problems that may be uncovered during 
flight testing before September 2004. In addition, although MDA is 
attempting to make flight tests as realistic as possible, these tests 
will not be conducted under the unscripted conditions that characterize 
operational testing. Independent, operational testing through an 
operational test agent outside of the program being developed, and 
through the input of DOD's independent operational test and evaluation 
office, is intended to demonstrate objectively how capable a system 
truly is and whether the warfighter can trust it to be suitable and 
effective.

During our review, we observed shortcomings in how MDA defines its 
Block 2004 program goals. As discussed below, program goals do not 
serve as a reliable and complete baseline for oversight and investment 
decision-making because they can vary year-to-year, do not include 
life-cycle costs, and are based on assumptions about performance not 
explicitly stated.

* Variable program goals. MDA's methodology for establishing program 
goals--both cost and block content--allows for variations from one year 
to the next. MDA recognized that the first BMDS block will cost more 
and deliver fewer fielded components than originally planned. As 
reported in DOD budget submissions for fiscal years 2004 and 2005, the 
Block 2004 cost goal increased from $6.24 billion to $7.36 billion, the 
Aegis BMD interceptor inventory decreased from 20 to 9, the number of 
Aegis BMD ships upgraded for the long-range surveillance and tracking 
mission decreased from 15 to 10, and the potential operational use of 
ABL and the sea-based radar[Footnote 6] as sensors is no longer part of 
Block 2004. The variability weakens accountability because the goals 
cannot serve as a reliable baseline for measuring cost, schedule, and 
performance status over time.

* Reporting life-cycle costs. DOD categorizes the BMDS as a Research, 
Development, Testing, and Evaluation (RDT&E)-only program costing $53 
billion between fiscal years 2004 and 2009. Accordingly, the BMDS 
Selected Acquisition Report does not specify costs for procurement, 
military construction, and operations and maintenance that are part of 
a full life-cycle cost estimate. Given the imminent fielding of a 
missile defense capability, procurement of inventory, and funding of 
operation and sustainment costs, this Selected Acquisition Report 
provides an incomplete cost picture to decision makers in DOD and 
Congress. MDA officials told us that they are working to include life-
cycle cost estimates in future Selected Acquisition Reports for the 
BMDS.

* Assumptions about performance. BMDS performance goals, such as the 
probability of engagement success, are based on assumptions regarding 
the system's capability against certain threats under various 
engagement conditions. Neither the engagement conditions nor critical 
assumptions about the threat--such as the enemy's type and number of 
decoys--used in establishing these goals are explicitly stated as part 
of MDA's program goals. Without these implicit assumptions being 
explained, the operational capability of the fielded system is 
difficult to fully understand.

To more independently test the BMDS and give the warfighter greater 
confidence that the system will perform as intended, we are 
recommending that independent, operationally realistic testing and 
evaluation be conducted for each BMDS block configuration being 
fielded. Also, to enhance accountability and the ability of decision 
makers in Congress and DOD to provide oversight, we are recommending 
that cost, schedule, and performance baselines, including full life-
cycle costs, be established for each block configuration being fielded 
and that year-to-year variations in baselines be explained. DOD 
concurred with our recommendations regarding cost, schedule, and 
performance baselines but non-concurred with our recommendations for 
operational testing.

In commenting on the draft report, DOD stated that there is no 
statutory requirement to conduct operational testing of developmental 
items and that it will conduct formal operational test and evaluation 
when an element of the BMDS matures and transitions from MDA to a 
military service and before entry into full-rate production. We retain 
our recommendation that DOD conduct independent, operational testing of 
block configurations being fielded. Given that inventory is being 
procured and the system is being fielded, decision makers considering 
further investments in the system should have an independent, objective 
assessment of whether the fielded system can be trusted to perform as 
intended.

Background:

MDA has the mission to develop and field a Ballistic Missile Defense 
System capable of defeating ballistic missiles of all ranges in all 
phases of flight. In particular, the system is intended to defend the 
U.S. homeland against intercontinental ballistic missile 
(ICBM)[Footnote 7] attacks and to protect deployed U.S. armed forces, 
which are operating in or near hostile territories, against short-and 
medium-range ballistic missiles. Additionally, the BMDS is to evolve 
into a system that is capable of defending friends and allies of the 
United States. Figure 1 depicts the three phases of a missile's flight 
during which the BMDS is designed to engage it.

Figure 1: Phases of a Ballistic Missile's Trajectory:

[See PDF for image]

[End of figure]

Much of the operational capability of the Block 2004 BMDS results from 
capabilities developed in legacy programs. These include the GMD, Aegis 
BMD, and Patriot elements. Existing space-based sensors would also be 
available, including Defense Support Program satellites, for the early 
warning of missile launches. The Block 2004 BMDS can be viewed as a 
collection of semi-autonomous missile defense systems interconnected 
and coordinated through the Command, Control, Battle Management, and 
Communications (C2BMC) element. Functional pieces of system elements, 
such as radars or interceptors, are referred to as "components.":

Block 2004 program goals involve developmental activities of five MDA 
elements: Aegis BMD, ABL, C2BMC, GMD, and Theater High Altitude Area 
Defense (THAAD).[Footnote 8] As indicated above, three of these five 
elements--GMD, Aegis BMD, and C2BMC--comprise the Block 2004 defensive 
capability that is currently being fielded. MDA is also funding the 
development of two other elements--Space Tracking and Surveillance 
System (STSS) and Kinetic Energy Interceptors (KEI)--but these elements 
are part of future blocks of the MDA missile defense program.

Table 1 provides a brief description of these seven elements.[Footnote 
9] More complete descriptions of these elements are provided in the 
appendixes of this report.

Table 1: BMDS Elements:

Element: Aegis Ballistic Missile Defense; 
Missile defense role: A ship- based element designed to destroy short-
and medium-range ballistic missiles during the midcourse phase of 
flight. The element's mission is to defend deployed U.S. forces and to 
perform early tracking of long- range ballistic missiles in support of 
the GMD mission. It is planned to be operational in Block 2004.

Element: Airborne Laser; 
Missile defense role: An air-based element designed to destroy all 
classes of ballistic missiles during the boost phase of flight.

Element: Command, Control, Battle Management, and Communications; 
Missile defense role: MDA plans to make this the integrating and 
controlling element of the BMDS. It is planned to be operational in 
Block 2004.

Element: Ground-based Midcourse Defense; 
Missile defense role: A ground-based element designed to destroy long-
range ballistic missiles during the midcourse phase of flight. Its 
mission is to defend the U.S. homeland when it becomes operational in 
Block 2004.

Element: Kinetic Energy Interceptors; 
Missile defense role: A land- based element designed to destroy long-
range ballistic missiles during the boost and ascent phases of flight. 
Its capability is expected to be available in Block 2010.

Element: Space Tracking and Surveillance System; 
Missile defense role: Envisioned as a constellation of satellites for 
missile warning and tracking, STSS satellites are intended to support 
the missile defense mission. Any real operational capability of next-
generation satellites will not be available until the next decade.

Element: Theater High Altitude Area Defense; 
Missile defense role: A ground-based element designed to destroy short-
and medium-range ballistic missiles during the late-midcourse and 
terminal phases of flight. Its mission is to defend deployed U.S. 
forces and population centers. It is planned to be operational in 
Block 2008. 

Sources: MDA (data); GAO (presentation).

[End of table]

During Block 2006, MDA will focus on fielding additional hardware and 
enhancing the performance of the BMDS. For example, MDA plans to field 
additional GMD interceptors at Fort Greely, add new radars that can be 
deployed overseas, and incorporate enhanced battle management 
capabilities into the C2BMC element.

For Blocks 2008 and 2010, MDA plans to augment the Block 2006 
capability with boost phase capabilities being developed in the ABL and 
KEI programs. Additionally, MDA plans to field the THAAD element for 
protecting deployed U.S. forces against short-and medium-range 
ballistic missiles.

According to MDA officials, the integrated BMDS offers more than simply 
the deployment of individual, autonomous elements. A synergy results 
from information sharing and enhanced command and control, yielding a 
layered defense with multiple shot opportunities. This preserves 
interceptor inventory and increases the opportunities to engage 
ballistic missiles.

MDA Block 2004 Program Goals:

MDA developed overarching goals for the development and fielding of the 
Block 2004 BMDS.[Footnote 10] The goals describe the composition of 
Block 2004; provide the costs and schedule associated with its 
development, testing, and fielding; and summarize its performance 
capabilities. As part of MDA's Statement of Goals, MDA also identified 
and scheduled a number of events that must be completed by individual 
program elements in 2004 and 2005 if the goals are to be achieved.

At the core of MDA's Block 2004 program goals is the continued 
development and testing of ABL, Aegis BMD, C2BMC, GMD, and THAAD. These 
goals are referred to as "Block 2004 Development Goals" and identify 
the developmental areas MDA is funding during the Block 2004 time 
frame, that is, during calendar years 2004 and 2005. MDA also 
established a complementary set of goals--referred to as Block 2004 
"Operational Alert Configuration"Goals[Footnote 11]--in response to 
the President's December 2002 direction to begin fielding a ballistic 
missile defense capability. These fielding goals build directly upon 
the development goals and identify the operational missile defense 
capability that MDA expects to deliver by the end of December 2005.

The Block 2004 cost goal covers budgeted costs for development and 
fielding during calendar years 2004-2005. When MDA submitted its fiscal 
year 2004 budget in February 2003, MDA declared that its Block 2004 
cost goal was $6.24 billion. However, MDA recently revised its Block 
2004 cost goal with the submission of its fiscal year 2005 budget in 
February 2004. The revision reflects updated developmental costs and an 
update to the additional costs associated with the initial fielding. 
MDA's Block 2004 cost goal is now $7.36 billion.

The missile defense capability of Block 2004 is primarily one for 
defending the United States against long-range ballistic missile 
attacks. As summarized in table 2, it is built around the GMD element, 
augmented by Aegis BMD radars, and integrated by the C2BMC element. The 
Block 2004 BMDS also contains the Patriot PAC-3 element for point 
defense of deployed U.S. armed forces against short-and medium-range 
ballistic missiles. Because MDA no longer has funding or management 
responsibility over Patriot, an assessment of progress made by the Army 
in fiscal year 2003 toward delivering the listed capability was not 
addressed in this review. Patriot-specific goals are, therefore, not 
listed in the table.

Table 2: MDA Block 2004 Defensive Capability Goals:

BMDS element: GMD; IDO[A] (Sept. 30, 2004): 
* Up to 10 interceptors; 
* Upgraded Cobra Dane radar; 
* 1 upgraded early warning radar; 
* Fire control nodes; 
Block 2004 (Dec. 31, 2005): 
* 20 interceptors; 
* Upgraded Cobra Dane radar; 
* 2 upgraded early warning radars; 
* Fire control nodes; 
Functionality: Defend the U.S. homeland against ICBM attacks.

BMDS element: Aegis BMD; IDO[A] (Sept. 30, 2004): 
* 5 missiles[B]; 
* 3 Aegis destroyers (long-range surveillance and tracking only); 
* 1 Aegis cruiser; 
Block 2004 (Dec. 31, 2005): 
* 9 missiles; 
* 10 Aegis destroyers (long-range surveillance & tracking only); 
* 3 Aegis cruisers; 
Functionality: Sea-based defense against short-and medium- range 
ballistic missiles; early tracking of ICBMs to support the GMD mission.

BMDS element: C2BMC; IDO[A] (Sept. 30, 2004): 
* Software Build 4.3; 
* Suites (command centers) and supporting hardware at various 
locations; 
Block 2004 (Dec. 31, 2005): 
* Software Build 4.5; 
* Suites (command centers) and supporting hardware at various 
locations; 
Functionality: Integrating and controlling element of the BMDS. 

Sources: MDA (data); GAO (presentation).

[A] Defensive capability goals associated with IDO are not formally 
documented. The goals listed were derived from element-level documents 
and from discussions with MDA officials.

[B] An intercept capability by Aegis BMD is not part of the September 
2004 IDO.

[End of table]

Assessment of Progress and Key Risks:

In this section, we summarize our assessment of MDA's progress in 
fiscal year 2003 toward achieving Block 2004 program goals. Key risks 
associated with developing and fielding system elements are summarized, 
as well. Detailed evaluations of element progress and risks are given 
in the appendixes of this report.

Schedule and Testing Assessment: Many Activities Completed, but Slips 
Have Occurred:

MDA identified a number of events that must be completed to meet Block 
2004 program goals. These activities, which are part of MDA's program 
goals, are ultimately derived from element-level efforts and, in 
general, have completion dates in calendar years 2004 or 2005 to 
coincide with the start of defensive operations. Progress made toward 
achieving Block 2004 goals, relative to these defining events, is 
summarized in tables 3 through 6.

Table 3: BMDS-wide Block 2004 Program Goals:

Event: Establish Block 2004 BMDS Configuration (Required date: 2Q FY 
2003[A]); 
Progress assessment: As part of its block planning process, MDA defines 
the BMDS capabilities that can be realistically promised for delivery 
within the established block schedule and budget. The design of block 
capabilities follows an iterative approach under which a number of 
possible block alternatives--candidate BMDS capabilities that satisfy 
specific objectives and goals--are developed and assessed. This event 
was accomplished in fiscal year 2003 with the delivery of the "Block 
2004 Configuration Definition" and Version 1.6 of the Block 2004 
architecture.

Event: Stand up Block 2004 BMDS Test Bed (Expected date: 4Q FY 2004); 
Progress assessment: MDA made significant progress toward the 
completion of the BMDS Test Bed, the venue in which system elements 
are integrated and tested. Many of the GMD activities completed in 
fiscal year 2003 for the development of the operational BMDS also 
pertain to the construction of Test Bed infrastructure at various GMD 
sites. The largest construction effort is at Fort Greely, where 
missile silos and supporting facilities are being built. All 
construction activities for Block 2004 are on, or ahead of, schedule.

Event: Complete verification testing (Expected date: 4Q FY 2005); 
Progress assessment: MDA intends to verify that all elements and 
components of the Block 2004 architecture have been sufficiently 
tested. Although GMD and Aegis BMD each conducted two flight tests 
during fiscal year 2003--each achieved one intercept out of two 
attempts--element-level testing did not progress as planned. GMD flight 
tests (intercept attempts) leading up to IDO have slipped 10 months, 
largely a consequence of delays in interceptor development and 
delivery. Accordingly, the test schedule leading up to the September 
2004 IDO has been severely compressed, limiting MDA's opportunity to 
characterize GMD's performance prior to the initial fielding.

Sources: MDA (data); GAO (presentation).

Note: FY = fiscal year.

[A] We use the notation "2Q FY 2003" to mean the second quarter of 
fiscal year 2003 and an identical format for other time periods.

[End of table]

Table 4: GMD-Related Block 2004 Program Goals:

Event: Complete 1st Ground Based Interceptor (GBI) installation in 
Alaska and California (Expected date: 4Q FY 2004); 
Progress assessment: The GMD program had been working to deliver and 
install up to 10 interceptors at Fort. Greely, Alaska, and Vandenberg 
Air Force Base, California, for the September 2004 defensive 
capability. Many site preparation activities have been accomplished, 
including the construction of facilities and interceptor silos at Fort 
Greely. However, as highlighted in the GMD appendix, we found that MDA 
will not be able to field its upper-end goal of 10 GMD interceptors by 
September 2004. Rather, MDA expects to field 5 interceptors by 
September 2004 and complete the goal of 10 interceptors by February 
2005.

Event: Complete 2nd GBI installation in Alaska (Expected date: 4Q FY 
2005); 
Progress assessment: The GMD program aims to increase its inventory of 
interceptors for the Block 2004 defensive capability to 20 by December 
2005. The production and delivery of all 20 interceptors by the end of 
Block 2004 is uncertain--GMD contractors have not demonstrated they can 
meet the increased production rate. In particular, the production rate 
for the GMD kill vehicle must increase by 50 percent.

Event: Complete upgrade of early warning radars (Expected date: 4Q FY 
2005); 
Progress assessment: The GMD program is upgrading two early warning 
radars--one at Beale Air Force Base, California, and another at 
Fylingdales Airbase in England--to enable the radars to more 
accurately track launched missiles for the planning of intercept 
engagements. The upgrades consist of hardware and software 
improvements. The completion of the Beale upgrade is on track for 
meeting the September 2004 IDO date. MDA has not yet begun upgrading 
the early warning radar at Fylingdales.

Event: Complete sea-based X-band (SBX) radar (Expected date: 1Q FY 
2006); 
Progress assessment: The GMD program office is managing the 
development of a sea-based X-band radar to be first tested by the end 
of Block 2004. During fiscal year 2003, MDA initiated the acquisition 
of SBX components, including its sea-based platform. MDA program 
officials stated that the SBX will be fielded as a test asset at the 
end of Block 2004 (December 2005), and budget documentation indicates 
that it will be placed on alert as an operational asset during Block 
2006.

[End of table]

Sources: MDA (data); GAO (presentation).

Table 5: Aegis BMD-Related Block 2004 Program Goals:

Event: Complete surveillance and tracking upgrade of up to 9 Aegis BMD 
destroyers (Expected date: 3Q FY 2004); 
Progress assessment: Aegis BMD will be used as a forward-deployed 
sensor to provide surveillance and early tracking of long-range 
ballistic missiles to support the GMD mission. This is being 
accomplished through the improvement of Aegis BMD software. By 
September 2004, MDA expects to have upgraded three destroyers for this 
role rather than its goal of 9. Aegis destroyers for this role have 
been identified and are scheduled for modification.

Event: Complete upgrade of up to 6 additional Aegis BMD destroyers 
(Expected date: Block 2006); 
Progress assessment: The Aegis BMD program had been working to complete 
the upgrade of a total of 15 Aegis destroyers by December 2005 to 
provide surveillance and early tracking of long-range ballistic 
missiles in support of the GMD mission. Aegis destroyers for this role 
have been identified and are scheduled for modification. However, MDA 
has altered this goal and now plans to upgrade a total of 10 
destroyers during Block 2004 and the remaining 5 during Block 2006.

Event: Deliver up to 20 Standard Missile (SM)-3 missiles (Expected 
date: 4Q FY 2005); 
Progress assessment: MDA had plans to deliver and install up to 20 
Aegis BMD missiles--the SM-3--on Navy cruisers by December 2005. 
Although MDA completed an associated design review and initiated 
planning for production, it altered this goal and now plans to field 9 
missiles.

Event: Complete upgrade of 3 Aegis BMD cruisers with engagement 
capability (Expected date: 4Q FY 2005); 
Progress assessment: MDA is planning to field three Aegis cruisers, 
with an inventory of SM-3 missiles, for defense against short-and 
medium-range ballistic missiles. This requires physical modification to 
the ships as well as software upgrades for the engagement role. Aegis 
cruisers for this role have been identified and are scheduled for 
modification.

[End of table]

Sources: MDA (data); GAO (presentation).

Table 6: C2BMC-Related Block 2004 Program Goals:

Event: Complete C2BMC operational suites (Expected date: 4Q FY2005); 
Progress assessment: The C2BMC program faces a tight schedule to get 
the BMDS on alert by the end of September 2004 for IDO. Our analysis 
shows, however, that it is on track for delivering the software build 
planned for this capability. The program also is continuing with 
integration activities and is completing activities needed to make the 
BMDS operational. 

Sources: MDA (data); GAO (presentation).

[End of table]

Performance Assessment: Effectiveness of System's Operational 
Capability Remains Largely Unproven:

MDA reports that performance indicators associated with Block 2004 
elements are generally on track for meeting expectations. This 
methodology leads MDA to predict with confidence that the September 
2004 defensive capability will provide full coverage of the United 
States against limited attacks from Northeast Asia.

However, testing in 2003 did little to demonstrate the predicted 
effectiveness of the system's capability, as an integrated system, to 
defeat ballistic missiles. Without sufficient test data to anchor MDA's 
analyses, models, and simulations, the predicted effectiveness of the 
system will remain largely unproven when IDO is available in September 
2004. As discussed below, the uncertainty stems from a lack of system-
level testing--using production-representative hardware under 
operationally realistic conditions--of the Aegis BMD and GMD elements 
and the highly scripted nature of developmental tests to date.

The GMD program, which comprises the largest portion of the Block 2004 
defensive capability, has demonstrated the capability to intercept 
target warheads in flight tests over the past 5 years. In fact, the 
program has achieved five successful intercepts out of eight attempts. 
However, because of range limitations, these flight tests were 
developmental in nature and, accordingly, engagement conditions were 
repetitive and scripted. Furthermore, as noted in our recent reports on 
missile defense, none of GMD's components of the defensive capability 
have been flight tested in their fielded configuration (i.e., with 
production-representative hardware).[Footnote 12] For example, the GMD 
interceptor--booster and kill vehicle--will not be tested in its Block 
2004 configuration until the next intercept attempt, which the GMD 
program office plans to conduct in the fourth quarter of fiscal year 
2004. This intercept attempt will also test, for the first time, battle 
management software that will be part of the September 2004 defensive 
capability. Finally, MDA does not plan to demonstrate the operation of 
the critical GMD radar, called Cobra Dane, in flight tests before 
fielding IDO.

Similarly, the Aegis BMD program has demonstrated the capability to 
intercept a non-separating target through its successes in four out of 
five attempts. These successes are noteworthy, given the difficulty of 
achieving hit-to-kill intercepts. In his fiscal year 2002 report, DOD's 
Director, Operational Test and Evaluation (DOT&E)[Footnote 13] noted 
the successes but pointed out that the flight tests were developmental 
in nature and neither operationally realistic nor intended to be so. 
Test scenarios and target "presentation"[Footnote 14] were simple 
compared with those expected to be encountered during an operational 
engagement. While MDA is increasing the operational realism of its 
developmental flight tests--e.g., the Aegis Ballistic Missile Defense 
element employed an operational crew during its December 2003 intercept 
attempt--tests completed to date are highly scripted.

Cost Assessment: Prime Contractor Fiscal Year 2003 Performance Mixed:

We used contractor Cost Performance Reports to assess the prime 
contractors' progress toward MDA's cost and schedule goals during 
fiscal year 2003. The government routinely uses such reports to 
independently evaluate these aspects of the prime contractors' 
performance. Generally, the reports detail deviations in cost and 
schedule relative to expectations established under the contract. 
Contractors refer to deviations as "variances." Positive variances--
activities costing less or completed ahead of schedule--are generally 
considered as good news and negative variances--activities costing more 
or falling behind schedule--as bad news. We addressed cost performance 
at the element level because the agency does not generate a single, 
overarching cost performance report for its contracts. Our detailed 
findings are presented in the element appendixes of the report.

As shown in table 7, the Aegis BMD, C2BMC, STSS, and THAAD prime 
contractors performed work in fiscal year 2003 at or near budgeted 
costs. However, work completed in the ABL and GMD programs cost more 
than budgeted. The ABL prime contractor overran its budgeted cost by 
approximately $242 million, and the GMD prime contractor's work cost 
about $138 million more than expected.

Table 7: Prime Contractor Cost and Schedule Performance in Fiscal Year 
2003:

Dollars in millions.

BMDS element: ABL; 
Cost variance: $$(242); 
Schedule variance[A]: $$(28); 
Comments: The underestimated complexity of integrating ABL 
subcomponents into a flightworthy configuration was responsible for the 
majority of the cost overruns on the ABL Block 2004 contract.

Aegis BMD; 
Cost variance: $7.4; 
Schedule variance[A]: $0.8; 
Comments: The prime contractor's cost and schedule performance 
reported here reflects that of only the contractor for the Aegis BMD 
interceptor (SM-3) and not of the entire Aegis BMD element. We note, 
in addition, that the cost and schedule variances do not account for 
overruns incurred from developmental problems with the interceptor's 
divert system. These efforts were removed from the SM-3 contract and 
not reported in the cost performance reports we received from MDA.

BMDS element: C2BMC; 
Cost variance: $5.3; 
Schedule variance[A]: $(0.4); 
Comments: C2BMC work on the prime contract during fiscal year 2003 was 
completed under budget.

BMDS element: GMD; 
Cost variance: $(138); 
Schedule variance[A]: $(50.9); 
Comments: Developmental and delivery problems with the interceptor were 
the leading contributor to cost overruns and schedule slips during 
fiscal year 2003.

BMDS element: KEI; 
Cost variance: $N/A; 
Schedule variance[A]: $N/A; 
Comments: Because the prime contract was awarded in December 2003 
(fiscal year 2004), no fiscal year 2003 data existed for an assessment 
of the contractor's cost and schedule performance.

BMDS element: STSS; 
Cost variance: $(1.0); 
Schedule variance[A]: $(6.1); 
Comments: Contractor cost and schedule performance steadily declined 
during fiscal year 2003 and into fiscal year 2004. In October 2003 
alone, the prime contractor exceeded its budget by $3 million.

BMDS element: THAAD; 
Cost variance: $(12.0); 
Schedule variance[A]: $(12.2); 
Comments: The contractor's positive cost and schedule variance eroded 
somewhat during fiscal year 2003, which was driven by the missile 
component but offset by other THAAD components. With 49 percent of the 
THAAD contract completed, the prime contractor is, overall, under 
budget and ahead of schedule. 

Sources: Contractors (data); GAO (analysis).

Note: Negative variances are shown with parentheses around the dollar 
amounts of the variances.

[A] "Schedule variance" represents the value of planned work by which 
the prime contractor is behind schedule.

[End of table]

MDA Faces Many Key Risks in Developing and Fielding BMDS Elements:

Our analysis of fiscal year 2003 activities indicates that there are 
key risks associated with developing and fielding BMDS elements. Key 
risks are those for which we found evidence of problems or significant 
uncertainties that could negatively affect MDA's ability to develop, 
demonstrate, and field a militarily useful capability within schedule 
and cost estimates. Key risks associated with BMDS elements expected to 
be fielded during Block 2004--Aegis BMD, GMD, and C2BMC--are 
exacerbated by the tight schedule to meet the September 2004 date for 
IDO.

Element-specific risks are summarized below. A more complete discussion 
of these risks can be found in the appendixes of this report.

ABL. The complexity and magnitude of integration activities to deliver 
a working system for the shoot-down demonstration have been 
substantially underestimated. Accordingly, the program continues to be 
at risk for additional cost growth and schedule slips. We also found 
that the uncertainty regarding the element's ability to control 
environmental vibration on the laser beam--jitter--is a serious 
performance risk for the Block 2004 aircraft. Furthermore, we note that 
weight distribution across the airplane may be a key risk for future 
blocks.

Aegis BMD. The program office is under a tight deadline to complete the 
development and testing of long-range surveillance and tracking 
software by the September 2004 date for IDO. By September, this 
software will not have been field-tested, and hence, its performance 
will be uncertain. However, program officials acknowledged that the 
greatest performance risk to the Aegis BMD program pertains to its 
interceptor's divert system, the subsystem that generates "divert 
pulses" to control the orientation and direction of the interceptor's 
kill vehicle. Program officials do not expect to implement any design 
changes to the divert system for the first set of five missiles being 
procured. Even with a reduced divert capability, program officials 
affirm that the missile's performance is adequate for Block 2004 
threats. Finally, there are also questions about the contractor's 
readiness to produce interceptors.

C2BMC. The C2BMC is tracking and mitigating key BMDS-specific risks 
pertaining to the fielding of the initial capability by September 2004 
and the Block 2004 defensive capability by December 2005. Notably, 
development of the C2BMC element is proceeding concurrently with the 
development of other BMDS elements, and changes in one element's 
design--especially in how that element interfaces with the C2BMC 
element--could cause temporary incompatibilities during Block 2004 
integration that could delay fielding. In addition, the BMDS concept of 
operations continues to evolve, leading to uncertainties about how the 
C2BMC element will be operated. Finally, uncertainty regarding the 
reliability of communications links with the Aegis BMD element 
threatens to degrade overall system performance.

GMD. The GMD program faces significant testing and performance risks 
that are magnified by the tight schedule to meet the September 2004 
date for IDO. Specifically, delays in flight testing--caused by delays 
in GMD interceptor development and delivery--have left the program with 
only limited opportunities before IDO to demonstrate the performance of 
fielded components and to resolve any problems uncovered during flight 
testing. In addition, uncertainty with the readiness of interceptor 
production could prevent MDA from meeting its program goal of fielding 
20 interceptors by December 2005. Finally, an unresolved technical 
issue with the kill vehicle adds uncertainty to element performance.

KEI. From discussions with program officials, we found that KEI 
software costs could be underestimated, putting the program at risk for 
cost growth. The program office also acknowledges that it faces 
challenges in developing the first operational boost phase intercept 
capability that employs hit-to-kill concepts.

STSS. The STSS program is on track for completing activities leading to 
the launch of the two demonstration satellites in 2007, provided that 
unforeseen problems do not arise during the process of (1) testing, 
assembling, and integrating hardware components of the satellites, 
which have been in storage for 4 years, and (2) developing software and 
integrating software and hardware--areas that historically have been 
responsible for negatively affecting a program's schedule.

THAAD. The THAAD program office is on track to develop, demonstrate, 
and field the Block 2008 THAAD element within schedule and cost 
estimates, provided that the contractor performs as efficiently as it 
has in the past.

One risk area that covers the entire BMDS for Block 2004 (and future 
blocks) is whether the capabilities being developed and fielded will 
work as intended. As discussed above, testing to date has done little 
to demonstrate system effectiveness, because production-representative 
hardware is still being developed and has yet to be flight tested. 
Furthermore, tests to date have been developmental in nature and, 
accordingly, engagement conditions were repetitive and scripted. In the 
future, MDA is taking a number of actions to increase testing 
complexity and realism. However, it has no plans to conduct operational 
testing on the IDO or Block 2004 configurations being fielded.

An operational test assesses the effectiveness of the system against 
the known threat and its suitability in an environment that mimics 
expected use. U.S. law requires that such tests be carried out on major 
defense acquisition programs under the oversight and with the approval 
of DOT&E.[Footnote 15] The law requires that DOT&E report test results 
to the Secretary of Defense and congressional defense committees before 
a full-rate production decision is made.[Footnote 16] As the principal 
operational test and evaluation official within DOD, DOT&E is 
independent of program offices and reports directly to the 
Secretary.[Footnote 17]

In establishing MDA, the Secretary of Defense specified that when a 
decision is made to transition a block configuration to a military 
service for procurement and operations, an operational test agent would 
be designated.[Footnote 18] The Secretary specified further that an 
operational test and evaluation would be conducted at the end of the 
transition stage. In fielding IDO and the Block 2004 configuration, no 
decision is being made to transition the block configuration to a 
service. Thus, no operational test agent is being designated and no 
operational test and evaluation is planned. Furthermore, the fielding 
of IDO and the Block 2004 configuration is not connected to a full-rate 
production decision that would clearly trigger statutory operational 
testing requirements.

MDA plans to incorporate both developmental and operational test 
requirements in integrated flight tests. It will also conduct 
operational assessments that involve the warfighter. Nonetheless, 
because these tests are scripted by MDA, they do not provide the 
opportunity for an independent assessment of how the equipment and its 
operators will function under unscripted, unforeseen conditions. An 
independent and objective assessment would, instead, involve having an 
independent operational test agent plan and manage tests that 
demonstrate operational effectiveness and suitability and having DOT&E 
approve the test plans and report its assessment of the test results to 
the Secretary and Congress. Such independent, operationally realistic 
testing of a missile defense capability being fielded for operational 
purposes, which meets the statutory definition of "operational test and 
evaluation,"[Footnote 19] would not be considered a developmental test 
and evaluation for which DOT&E is precluded from being assigned 
responsibility.[Footnote 20]

Observations on the Usefulness of MDA Program Goals for Conducting 
Oversight:

MDA revised its program goals in February 2004 to reflect that the 
first BMDS block--Block 2004--will cost $1.12 billion more but consist 
of fewer fielded components than originally planned. Despite these 
revisions, we observed shortcomings in how MDA defines its goals. 
Specifically, the goals do not provide a reliable and complete baseline 
for accountability purposes and investment decision making because they 
can vary year to year, do not include life-cycle costs, and are based 
on assumptions about performance not explicitly stated.

Program Cost and Content Goals Vary Year-to-Year:

MDA's program goals can vary from year to year. The Block 2004 cost 
goal of $7.36 billion is actually a budget allocation for program 
activities associated with the block's development and fielding. The 
flexibility available in its acquisition strategy allows MDA to request 
additional funding for the second year of a block or defer or cancel 
program activities if the budget allocation is not sufficient to 
deliver the BMDS as planned. Because the budget (i.e., the cost goal) 
and program content are subject to change over the 2-year block period, 
the goal cannot serve as a reliable baseline for measuring cost, 
schedule, and performance status over time.

A comparison of MDA's fiscal year 2004 and 2005 budget submissions 
illustrates how the cost goal and the program content can vary from 
year to year. In fiscal year 2004, MDA's cost goal for Block 2004 was 
$6.24 billion. When MDA submitted its fiscal year 2005 budget, the 
Block 2004 cost goal had increased to $7.36 billion. Additionally, 
Aegis BMD interceptor inventory decreased from 20 to 9, the number of 
Aegis BMD destroyers upgraded for the long-range surveillance and 
tracking mission decreased from 15 to 10, and the potential operational 
use of ABL and the sea-based X-band radar as sensors is no longer part 
of Block 2004.

The 2004 and 2005 budget submissions also presented changes in cost 
estimates for Blocks 2006, 2008, and 2010. Estimated costs for Block 
2006 increased by $4.73 billion, which is largely attributed to an 
increase in planned GMD funding by $2.23 billion for fiscal years 2005 
through 2007. Estimated costs for Block 2008 decreased by $8.33 
billion, from $16.27 billion to $7.93 billion. The decrease results 
largely from MDA's deferring KEI development to future blocks, which 
alone reduces estimated KEI costs for Block 2008 by $7.23 billion. 
Finally, estimated costs for Block 2010 increased by approximately 
$3.42 billion, of which $2.89 billion for the KEI program contributes 
to the increase.

MDA program officials acknowledged the increase in the Block 2004 cost 
goal but indicated that it should be seen as an adjustment resulting 
from internal realignments of funds over the fiscal years 2004-2009 
Future Years Defense Plan. For example, as noted above, a significant 
portion of funds originally allocated to Block 2008 was redistributed 
to Blocks 2004, 2006, and 2010. Overall, between its 2004 and 2005 
budget submissions, MDA's fiscal years 2004-2009 budget increased by 
about $3.23 billion, an increase of 6.5 percent. Program officials also 
noted that MDA's budget increase is the direct result of additional 
funds being planned for fielding, as opposed to an increase in funding 
for research and development.

While such flexibility is commonly seen with concept and technology 
development efforts, the Secretary of a military department is required 
by law to establish cost, schedule, and performance baselines for major 
defense acquisition programs entering the System Development and 
Demonstration (SDD)[Footnote 21] phase of the acquisition 
cycle.[Footnote 22] The program manager is required to report 
deviations from established baselines to senior DOD management. The 
baseline description also forms the basis of regular reporting to 
Congress on the status of the program through the Selected Acquisition 
Reports, including significant cost overruns.[Footnote 23]

In establishing MDA in January 2002, the Secretary of Defense directed 
that BMDS elements enter the standard acquisition process at the 
Production and Deployment phase, which follows SDD. MDA has not 
addressed when, how, and if the BMDS, its block configurations, or its 
program elements will enter SDD--the typical initiation of an 
acquisition program. Accordingly, the agency has not established 
baseline descriptions for its block configurations that can be used to 
reliably measure the progress of the BMDS during development and for 
consistently reporting to Congress and senior DOD management on the 
cost, schedule, and performance status of the program.

Limited Reporting to Congress on Life-Cycle Costs:

Congressional decision makers have traditionally used Selected 
Acquisition Reports to oversee the acquisition of weapon systems 
programs. Accordingly, MDA produces a Selected Acquisition Report 
annually, but because the missile defense program is not treated as 
being in the SDD phase of acquisition, reporting is limited. Programs 
that have not begun the SDD phase are not required to report life-cycle 
cost estimates, including all costs for procurement, military 
construction, and operations and maintenance, in the Selected 
Acquisition Report.[Footnote 24]

Life-cycle cost estimates are important because an investment in a 
weapon system has ramifications beyond developing and procuring an 
inventory. Once operational, the system requires resources to ensure 
its continued operation, maintenance, and sustainment. For example, 
operators and maintenance personnel must be available to keep the 
system on alert and ready to perform its mission. Such costs--which MDA 
refers to as "operations and sustainment" costs--have been under review 
by MDA since 2003.

Original MDA estimates for operations and sustainment costs across the 
Future Years Defense Plan (fiscal years 2004-2009) ranged from $1.9 
billion to $3.5 billion. However, during the fall of 2003, MDA worked 
with the military services to better define requirements, which lowered 
the estimates while still maintaining acceptable levels of readiness 
and alert. Since there is no precedent for estimating what the actual 
contractor logistical services costs might be, MDA agreed to fund the 
GMD contractor for these costs for fiscal years 2005 and 2006 and begin 
aggregating actual costs. MDA estimates that contractor logistical 
services will cost approximately $105 million in fiscal year 2005.

We note, in addition, that Congress expressed specific interest in 
obtaining life-cycle cost information for missile defense programs 
entering Engineering and Manufacturing Development (EMD), otherwise 
known as SDD. Specifically, Congress required MDA, with its statement 
of goals, to provide an annual program plan for each missile defense 
program that enters EMD.[Footnote 25] Section 232(b) of the act 
further specified that each program plan is to include a funding 
profile (estimating significant research and development, procurement, 
and construction), together with the estimated total life-cycle costs 
of the program. During the period covered by our review, MDA did not  
provide any program plans detailing life-cycle costs.

MDA officials told us that the agency is working to better define its 
operations and sustainment costs and include total life-cycle costs in 
future Selected Acquisition Reports to Congress. They recognized that 
an understanding of total life-cycle costs for elements being fielded 
would help the military services plan their future budgets for 
procurement and operations and sustainment. However, MDA has not 
committed to when those reports would include total life-cycle costs.

Some Assumptions about Performance in Block 2004 Goals Are Unstated:

BMDS performance goals are based on assumptions regarding the system's 
capability against threats under a variety of engagement 
conditions.[Footnote 26] However, critical assumptions used in 
establishing these goals--such as the type and number of decoys--are 
not clearly explained. Without knowing these implicit assumptions, an 
understanding of the operational capability of the fielded system is 
incomplete.

As defined in table 8, MDA utilizes three performance metrics--
probability of engagement success, defended area, and launch area 
denied--for measuring the capability of the Block 2004 BMDS to engage 
and negate ballistic missile attacks.

Table 8: BMDS Performance Metrics:

Performance metric: Probability of engagement success (PES); 
Definition: The probability that the BMDS hits, damages, and kills a 
booster, bus, or warhead in a ballistic missile attack. PES is derived 
from the probabilities associated with missile defense functions such 
as detection, track, discrimination, and hit-to-kill.

Performance metric: Defended area; 
Definition: The areas for which BMDS can provide protection. As a 
metric, it is generally represented as a map of the area that can be 
defended with at least one intercept opportunity when the attack is by 
ballistic missiles launched from a specified launch area.

Performance metric: Launch area denied; 
Definition: The launch area of those ballistic missiles capable of 
reaching defended areas and which the BMDS can engage; i.e., the area 
from which an enemy cannot attack without being engaged by the BMDS.

Source: Missile Defense Agency.

[End of table]

MDA assigned values to its performance metrics to communicate the 
defensive capability of the Block 2004 system against ballistic missile 
attacks but did not explain the assumptions underlying those 
values.[Footnote 27] For example, although the probability of 
engagement success is affected by adversary parameters--trajectory, 
decoys, and warhead type--as well as the performance and orchestration 
of the defense elements, we found that these factors are not explicitly 
defined and provided in MDA's Statement of Goals. Because threat 
characteristics such as countermeasure sophistication and warhead 
dynamics all factor into the determination of the performance metrics, 
knowledge of these assumptions is vital to understanding the true 
capability of the system.

Conclusions:

MDA's new acquisition strategy for acquiring ballistic missile defenses 
is designed to give MDA greater flexibility so it can, for example, 
more easily develop and introduce new technologies to address evolving 
threats. However, having such flexibility does not diminish the 
importance of ensuring accountability over the substantial investments 
in missile defense. In exercising their oversight and funding 
responsibilities, decision makers in Congress and DOD would benefit 
from having more information about the expected performance and costs 
of the BMDS.

Although MDA is executing a test program that aims, over time, to make 
its tests more complex and realistic, the agency has no plans to 
incorporate unscripted conditions found in operational testing. If 
independent, operationally realistic testing of block configurations 
being fielded were conducted and DOT&E approved, assessed, and reported 
on this testing, decision makers in Congress and DOD would have greater 
assurance that the fielded BMDS is an effective system when considering 
further investments in the system. With its statutorily based 
independence, DOT&E is in the best position to determine whether a 
weapon system can be trusted to work as intended when placed in the 
hands of the warfighter and to report operational test results 
objectively. We recognize that MDA may not have time before fielding 
IDO or Block 2004 to plan and carry out such testing. However, the 
agency should have the opportunity to conduct operational realistic 
testing of the Block 2004 configuration, once it is fielded.

Notwithstanding that interceptor inventory is being procured, 
operations and sustainment costs are being funded, and the IDO system 
is nearing the time when it will be fielded, MDA has not treated the 
development and deployment of this capability as an acquisition program 
(i.e., one that has entered the SDD phase) subject to reporting program 
status (from the baseline) and life-cycle cost information that 
Congress traditionally receives for its oversight responsibilities. 
Accordingly, accountability would be strengthened if MDA provided 
Congress with the program status and life-cycle cost information that 
is typically associated with SDD status. Such actions would also help 
the military services with their future budgeting for procurement and 
operations and sustainment costs. MDA officials told us that the agency 
is working toward including life-cycle cost information in these 
reports. Follow-through is needed.

Another means for MDA to strengthen accountability is through an 
improved definition of BMDS program goals and explanation of changes 
using the current reporting mechanisms. The Selected Acquisition 
Reports and MDA budget submissions would be much more useful for 
oversight and investment decision making if program goals for block 
configurations being fielded reflect program baselines that do not vary 
year-to-year; year-to-year changes in estimates are fully explained; 
full life-cycle costs for block configurations being fielded are 
presented; and assumptions behind performance goals are explicitly 
stated.

Recommendations for Executive Action:

To provide increased confidence that a fielded block of the BMDS will 
perform as intended when placed in the hands of the warfighter and that 
further investments to improve the BMDS through block upgrades are 
warranted, we recommend that the Secretary of Defense take the 
following three actions:

* direct the Director, MDA, to prepare for independent, operationally 
realistic testing and evaluation for each BMDS block configuration 
being fielded and appoint an independent operational test agent to plan 
and conduct those tests;

* assign DOT&E responsibility for approving such test plans; and:

* direct DOT&E to report its evaluation of the results of such tests to 
the Secretary and the congressional defense committees.

To provide decision makers in DOD and Congress with a reliable and 
complete basis for carrying out oversight of the BMDS program, we 
recommend that the Secretary of Defense take the following two actions:

* direct the Director, MDA, to establish cost, schedule, and 
performance baselines (including full life-cycle costs) for each block 
configuration of the BMDS being fielded and:

* direct the Director, MDA, to explain year-to-year variations from the 
baselines in the Selected Acquisition Report to Congress.

Agency Comments and Our Evaluation:

DOD's comments on our draft report are reprinted in appendix I. DOD did 
not concur with our three recommendations on operational testing and 
evaluation but concurred with our two recommendations regarding cost, 
schedule, and performance baselines.

In not concurring with our first recommendation, DOD stated that there 
is no statutory requirement for it to operationally test developmental 
items. That is, DOD is required only to operationally test a major 
defense acquisition program such as the ballistic missile defense 
system to assist in the decision as to whether to enter full-rate 
production. However, because of the capability-based structure under 
which MDA is operating, the decision to enter full-rate production will 
not be made in the foreseeable future and, in fact, may never occur. 
Given that significant resources have already been expended to procure 
inventory and field the system, and given that decision makers are 
continually being asked to invest further in the system, we believe DOD 
should provide evidence from independent, objective testing that the 
system will protect the United States as intended in an operationally 
representative environment.

In not concurring with our first recommendation, DOD also stated that 
MDA is attempting to incorporate operational test objectives into 
developmental tests. For example, MDA conducted an Aegis BMD intercept 
test in December 2003 that included some conditions likely to be 
encountered during an armed conflict. However, as noted in our recent 
report on missile defense testing, MDA has not yet begun to incorporate 
operational realism on tests of the GMD element, which provides the 
bulk of the initial BMDS capability. GMD flight tests leading up to IDO 
are constrained by range limitations, are developmental in nature and, 
accordingly, are executed with engagement conditions that are 
repetitive and scripted. It is unlikely that MDA will be able to make 
developmental tests completely operationally realistic. Developmental 
tests are, by definition, conducted under controlled conditions so that 
the cause of design problems can be more easily identified and fixed 
and the achievement of technical performance specifications can be 
verified. Additionally, because operational test conditions are more 
stressing, operational testing provides an opportunity to identify 
problems or deficiencies that might not be revealed in developmental 
tests but need to be addressed in subsequent BMDS blocks.

In not concurring with our second recommendation, DOD stated that DOT&E 
already has statutory responsibility for reviewing and approving 
operational test plans but is prohibited from approving plans for 
developmental testing. However, our recommendation is based on our view 
that the block configurations being fielded should be operationally 
tested. These tests would not be the developmental tests for which 
DOT&E is prohibited from approving. Because of its independence from 
the program, we believe DOT&E is in the best position to approve the 
plans for, and evaluate the results of, operational tests that are not 
required by statute-tests of block configurations being fielded that do 
not involve a full-rate production decision.

DOD also did not concur with our third recommendation that DOT&E report 
the results of operational tests to the Secretary of Defense and to 
Congress. In responding to this recommendation, DOD cited the existing 
statutory reporting requirements for DOT&E, under which it has assessed 
the MDA test program. However, for the reasons cited above, we continue 
to believe that operational tests of the BMDS configurations being 
fielded are needed. The statutory requirement for operational testing 
and for DOT&E's reporting responsibilities is not clearly triggered by 
the fielding of block configurations that do not involve a full-rate 
production decision. Also, although we recognize that DOT&E is 
providing an annual assessment of the BMDS to defense committees each 
year, we believe this assessment is limited. It is based on 
developmental tests that, because of their scripted nature, do not 
provide optimal conditions for assessing the system's readiness for 
operational use.

DOD also provided technical comments to this report, which we 
considered and implemented, as appropriate.

We are sending copies of this report to the Secretary of Defense and to 
the Director, Missile Defense Agency. We will make copies available to 
others upon request. In addition, the report will be available at no 
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4841. The major contributors to this report are 
listed in appendix X.

Signed by: 

Robert E. Levin, Director, Acquisition and Sourcing Management:

List of Congressional Committees:

The Honorable John W. Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate:

The Honorable Ted Stevens Chairman: 
The Honorable Daniel K. Inouye: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate:

The Honorable Duncan Hunter Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives:

The Honorable Jerry Lewis Chairman: 
The Honorable John P. Murtha: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives:

[End of section]

Appendixes:

Appendix I: Comments from the Department of Defense:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:

3000 DEFENSE PENTAGON 
WASHINGTON, DC 20301-3000:

ACQUISITION, TECHNOLOGY AND LOGISTICS:

Mr. Robert E. Levin:

Director, Acquisition and Sourcing Management 
U. S. General Accounting Office:
441 G. Street, N.W. 
Washington, DC 20548:

9 APR 2004:

Dear Mr Levin:

This is the Department of Defense's (DoD's) response to the GAO Draft 
Report, "MISSILE DEFENSE: Actions Are Needed to Enhance Testing and 
Accountability," dated March 9, 2004 (GAO Code 120252/GAO-04-409).

The DoD has reviewed the draft report. We do not concur with 
recommendations 1, 2, and 3, and concur with recommendations 4 and 5. 
Specific comments on each recommendation are enclosed. We also 
recommend some factual corrections. My action officers for this effort 
are COL Enrique Ramos, (703) 695-2680, enrique.ramos@osd.mil, and Lt 
Col Mark Arbogast, (703) 695-7328, mark.arbogast@osd.mil.

We appreciate the opportunity to comment on the draft report.

Sincerely,

Signed for: 

Glenn F. Lamartin, Director:

Strategic and Tactical Systems:

Attachment:

GAO DRAFT REPORT - DATED MARCH 9, 2004 GAO CODE 120252/GAO-04-409:

"MISSILE DEFENSE Actions Are Needed to Enhance Testing and 
Accountability":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct Director, MDA, to prepare for independent, operationally 
realistic testing and evaluation for each BMDS block configuration 
being fielded and appoint an independent operational test agent to plan 
and manage those tests. (p. 28/GAO Draft Report):

DOD RESPONSE: Non-Concur - Contingent upon the receipt of legislative 
authority to acquire developmental items for fielding, the Missile 
Defense Agency (MDA) will begin to field developmental blocks of the 
Ballistic Missile Defense System (BMDS) as soon as technologically 
possible, based on evidence of capabilities established through 
developmental testing. Although there is no statutory requirement to 
conduct operational testing with respect to developmental items, the 
Director, Operational Test and Evaluation (DOT&E), and the Service 
Operational Test Agencies' combined test teams are working with MDA and 
the prime contractors to combine operational testing objectives in test 
planning as systems mature. In accordance with section 2399 of title 
10, United States Code, formal operational test and evaluation will be 
executed by a Service when an element of BMDS matures and transitions 
from MDA to the Service, and prior to entry into full-rate production.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
assign DOT&E responsibility for approving such test plans. (p. 28/Draft 
Report):

DOD RESPONSE: Non-Concur - Pursuant to section 139 of title 10, United 
States Code, DOT&E already has the statutory responsibility to review 
and approve operational test plans, but is prohibited from approving 
plans for developmental testing. DOT&E currently reviews the 
operational objectives for combined developmental testing / operational 
testing events and approves operational aspects of these test plans.

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
direct DOT&E to report its evaluation of the results of such tests to 
the Secretary and the Congressional defense committees. (p. 28/Draft 
Report):

DOD RESPONSE: Non-Concur - DOT&E's reporting responsibilities are 
already established in statute. Section 139 of title 10, United States 
Code, requires that DOT&E submit an annual report, to the Secretary of 
Defense, Under Secretary of Defense (Acquisition, Technology and 
Logistics) and the Congress, on the adequacy of the Department's 
operational test and evaluation activities during the previous fiscal 
year. Section 2399 of title 10 requires that DOT&E submit a report, to 
the Secretary of Defense and the congressional defense committees prior 
to a decision to proceed beyond low-rate initial production, as to 
whether items or components tested during operational testing for a 
major defense acquisition program are effective and suitable for 
combat. Section 2366 of title 10 requires that the Secretary of Defense 
report, to the congressional defense committees prior to the decision 
to proceed beyond low-rate initial production, regarding the results of 
realistic survivability testing with respect to a major defense 
acquisition program. Section 232 of the National Defense Authorization 
Act for Fiscal Year 2002 imposes additional reporting requirements 
unique to ballistic missile defense. Specifically, section 232 requires 
that the Secretary of Defense submit an annual program plan, including 
a schedule of testing activities, to the congressional defense 
committees, and that DOT&E provide an annual assessment of MDA's test 
program during the preceding fiscal year, also to the congressional 
defense committees. As discussed above in the DOD Response to 
Recommendation 1, contingent upon receipt of legislative authority, MDA 
will begin to field blocks of the BMDS based on developmental testing, 
and formal operational test and evaluation will be executed by a 
Service when an element of BMDS transitions from MDA to the Service.

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Director, MDA to establish cost, schedule, and performance 
baselines (including full lifecycle costs) for each block configuration 
of the BMDS being fielded. (p. 29/Draft Report):

DOD RESPONSE: Concur - The Department agrees with this recommendation 
regarding establishing cost, schedule, and performance baselines for 
each block configuration of the BMDS being fielded. Each year, in fact, 
MDA reviews and revises its goals based on the progress of development, 
in consultation with the missile defense oversight structure currently 
in place.

RECOMMENDATION 5: The GAO recommended that the Secretary of Defense 
direct the Director, MDA to explain year-to-year variations from the 
baselines in the Selected Acquisition Report to Congress. (p. 29/Draft 
Report):

DOD RESPONSE: Concur - The Department agrees with this recommendation.

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix II Summary:

Aegis Ballistic Missile Defense:

Program Description: 

The Aegis Ballistic Missile Defense (Aegis BMD) element is designed to 
protect U.S. deployed forces and critical assets from short-and medium-
range ballistic missile attacks. It will be fielded as part of the 
Block 2004 Ballistic Missile Defense System to engage enemy missiles in 
the midcourse phase of flight. Additionally, it will act as a forward-
deployed sensor for surveillance and early tracking of long-range 
ballistic missiles. To provide these capabilities, the Missile Defense 
Agency (MDA) is adding new features to existing functionality offered 
by Navy ships.

The Department of Defense (DOD) budgeted about $4.8 billion for Aegis 
BMD development and fielding during fiscal years 2004 through 2009. 
Earlier, DOD expended approximately $2.9 billion between fiscal years 
1996 and 2003 for related developmental efforts.

Fiscal Year 2003 Progress Assessment: 

The Aegis BMD element generally completed work planned for fiscal year 
2003 on schedule. However, the program faces risks that include the 
uncertainty of software performance for the initial surveillance and 
tracking capability, questions about the contractor's readiness to 
produce interceptors, and concerns about the interceptor's divert 
system.

Schedule: In fiscal year 2003, the program office initiated software 
upgrades to enable Aegis ships to perform the ballistic missile defense 
mission, began a series of activities related to producing and 
delivering the Aegis BMD interceptor, and conducted ground and flight 
tests to verify Aegis BMD performance. Although the program suffered 
its first failed intercept attempt in June 2003, overall, four of five 
intercept attempts conducted by the Aegis BMD program have been 
successful.

Performance: The Aegis BMD element demonstrated the capability to 
intercept a non-separating target, that is, a target whose warhead has 
not separated from the booster. However, we were unable to fully assess 
progress in achieving performance goals during fiscal year 2003, 
because the program office began reporting performance indicators in 
calendar year 2004.

Cost: Our analysis of prime contractor cost performance reports shows 
that the interceptor contractor completed fiscal year 2003 work at 
slightly less cost than budgeted. However, we were unable to determine 
how work progressed on the interceptor's high-risk divert system--the 
component causing the greatest performance risk to the program--because 
that work was not reported in cost performance reports. Additionally, 
we could not readily assess cost and schedule performance of other 
Aegis BMD components associated with missile defense, because cost 
performance reports were not in a form we could use for our analysis, 
and these efforts did not undergo an integrated baseline review.

Risks: Program officials are working under a tight schedule to complete 
the development and testing of software intended to enhance 
surveillance and tracking functions. Officials said there is inadequate 
time to flight test these new functions before September 2004. 
Moreover, they share our assessment that the greatest performance risk 
to the Aegis BMD program pertains to development of the interceptor's 
divert system that steers the interceptor into the target. During a 
flight test in June 2003, subassemblies of the divert system failed, 
and the target was not intercepted. Program officials do not expect to 
implement any design changes to the divert system for the first set of 
five missiles being procured. Even with a reduced divert capability, 
program officials affirm that the missile's performance is adequate for 
Block 2004 threats. Finally, program officials share our concern that 
missile production and delivery is a program risk.

Appendix II: Aegis Ballistic Missile Defense:

Background: Element Description:

The Aegis Ballistic Missile Defense (Aegis BMD) element is a sea-based 
missile defense system that builds on the existing capabilities of 
Aegis-equipped Navy cruisers and destroyers. Aegis BMD is being 
designed to protect deployed U.S. armed forces and critical assets from 
short-and medium-range ballistic missile attacks. Key capabilities 
include the shipboard AN/SPY-1 radar, hit-to-kill 
interceptors,[Footnote 1] and command and control systems to detect, 
track, and destroy enemy warheads in the midcourse phase of flight. 
Aegis BMD is also expected to be used as a forward-deployed sensor that 
provides surveillance and early tracking of long-range ballistic 
missiles to support the Ground-based Midcourse Defense (GMD) mission.

The program office is enhancing the existing Aegis Weapon System and 
Standard Missile (SM) currently installed on Navy cruisers and 
destroyers. The Aegis Weapon System was originally developed to protect 
U.S. Navy ships from air, surface, and subsurface threats. Planned 
hardware and software upgrades to the Aegis Weapon System will provide 
for enhanced tracking and target discrimination, which are functions 
needed to carry out the missile defense mission. The Aegis BMD 
interceptor, referred to as SM-3, is a solid propellant, four-stage, 
hit-to-kill missile designed to intercept ballistic missiles above the 
atmosphere. SM-3 makes use of the existing SM-2 propulsion stack 
(booster and dual thrust rocket motor) for the first and second stages. 
A third-stage rocket motor and a kinetic warhead (a hit-to-kill warhead 
known as the "kill vehicle") complete SM-3.

The first increment of the Aegis BMD element is expected to deliver an 
operational capability in the 2004-2005 time frame as an interoperable 
element of the Ballistic Missile Defense System (BMDS). Known as Block 
2004, this increment will inaugurate Aegis BMD's dual role for the 
missile defense mission. First, the element will be used as a forward-
deployed sensor for the surveillance and tracking of long-range 
ballistic missiles, and second, it will be used to engage and intercept 
short-and medium-range ballistic missiles. According to program 
officials, Block 2004 is being rolled out in three phases:

* Initial fielding of the surveillance and tracking capability. By 
September 2004, the Missile Defense Agency (MDA) aims to upgrade three 
destroyers to be capable of performing the surveillance and tracking 
function in support of the GMD mission.

* Initial fielding of an intercept capability. By April 2005, two 
upgraded cruisers with an inventory of five interceptors are expected 
to be available for engaging short-and medium-range ballistic missiles.

* Completion of Block 2004 upgrades of 13 Aegis-equipped ships. By the 
end of December 2005, MDA aims to have a total of 10 Aegis destroyers 
available for performing the long-range surveillance and tracking 
function.[Footnote 2] In addition, MDA is planning to place up to 10 
interceptors on three upgraded cruisers for the engagement role.

Background: History:

The Aegis BMD program evolved from efforts in the 1990s to demonstrate 
the feasibility of a missile defense capability from a ship-based 
platform. The first demonstration of that concept was the Navy's 
Lightweight Exoatmospheric Projectile (LEAP) program, which consisted 
of four flight tests conducted from 1993 through 1995. The LEAP program 
successfully married a lightweight exoatmospheric projectile--the kill 
vehicle--to an existing surface-to-air missile to show that the 
resulting interceptor could be launched from a ship.

Subsequent to this demonstration, in fiscal year 1996, the Navy and the 
Ballistic Missile Defense Organization[Footnote 3] initiated the Navy 
Theater Wide missile defense program, the predecessor to Aegis BMD. 
Plans called for deploying the first increment of the Navy Theater Wide 
program--essentially the current Aegis BMD program--in 2010 and a final 
increment with an upgraded missile at a later, undefined date.

The Navy Theater Wide program included an associated effort, the Aegis 
LEAP Intercept (ALI) program, as a follow-on flight demonstration 
effort to the earlier LEAP project. The ALI program consisted of a 
series of flight tests that culminated in 2002 with two successful 
intercepts using an early version of the SM-3 missile. The ALI program 
is the basis for the Aegis BMD Block 2004 program.

Background: Developmental Phases:

Aegis BMD development and fielding is proceeding in a series of planned 
2-year blocks known as Blocks 2004, 2006, and 2008. Furthermore, 
funding has been planned for Block 2010, but the configuration of this 
block has not been defined by MDA.

Block 2004. Block 2004 is the first fielded increment to protect 
deployed U.S. forces and other assets from short-and medium-range 
ballistic missile attacks. Aegis BMD will also be used as a forward-
deployed sensor to provide surveillance and early tracking of long-
range ballistic missiles to support the GMD mission.

Block 2006. The Aegis BMD Block 2006 configuration builds on the Block 
2004 capability. MDA plans to add the capability to defeat long-range 
ballistic missiles with limited countermeasures, to increase Aegis 
BMD's role as a remote sensor, and to assess emerging technologies for 
the element's missile.

Block 2008. The Aegis BMD Block 2008 configuration will incorporate 
enhancements to the AN/SPY-1 radar that are expected to improve the 
radar's discrimination and command and control functionality so that 
the element can engage multiple threats simultaneously.

Progress Assessment: Schedule:

The Aegis BMD element generally completed work planned for fiscal year 
2003 on schedule. Achievements included initiating Aegis Weapon System 
upgrades on existing ships, beginning activities for the production and 
delivery of SM-3 missiles, and accomplishing test events. However, 
problems that arose with the divert system onboard the interceptor's 
kill vehicle during flight-testing have affected future test events 
causing delays and the modification of test plans.

Aegis Weapon System Software Upgrades:

Fiscal Year 2003 Activities Completed on Schedule:

Aegis BMD program officials told us that they expect to eventually 
modify 18 Aegis ships with enhanced surveillance, tracking, and 
intercept functions to make them capable of performing the BMD mission. 
These upgrades will improve the capability of the element's AN/SPY-1 
radar to identify the true target (discriminate), enable accurate 
tracking of long-range ballistic missiles in support of GMD operations, 
plan engagements, and launch an SM-3 missile to engage a ballistic 
missile threat. To achieve this enhanced functionality, the Aegis BMD 
program office is upgrading the Aegis Weapon System of designated ships 
through a series of software builds or computer programs referred to as 
CP3.0E, CP3.0, and CP3.1.

Aegis BMD program officials stated that they originally planned two 
software builds--CP3.0 and CP3.1--as incremental increases to the Block 
2004 capability through the end of 2005. The program expected that the 
CP3.1 software build, once developed and installed on Aegis ships, 
would enhance the existing combat system so that upgraded ships could 
perform the BMD mission. However, in response to the Presidential 
Directive to begin fielding a set of missile defensive capabilities in 
2004, the Aegis BMD element began the development of an early, interim 
build referred to as "CP3.0E." Several software development activities 
completed in fiscal year 2003 pertain to this build. CP3.0E is to be 
installed in one or more destroyers by September 2004, but it will 
enable these destroyers only to surveil and track enemy ballistic 
missiles. The ships will not be capable of launching interceptors to 
engage those missiles. According to program documentation, when CP3.0E 
is installed on ships at sea by September 2004, the program office will 
have achieved initial defensive operations for the Aegis BMD Block 2004 
surveillance and tracking mission.

MDA expects CP3.0, the next software build, to augment the surveillance 
and tracking capability of CP3.0E with an initial engagement capability 
for Aegis cruisers. The availability of CP3.0 on ships at sea by April 
2005[Footnote 4] enables initial defensive operations for the Aegis BMD 
Block 2004 engagement mission. Although CP3.0 allows ships to launch 
SM-3 missiles, this capability applies only to Aegis cruisers and not 
to Aegis destroyers. The capability to intercept short-or medium-range 
ballistic missiles is limited to the single cruiser that will be 
available in April 2005. The third version of the computer program--
CP3.1--adds ship defense and planning support for cruisers. MDA intends 
for CP3.1 to be installed by December 2005, and it is the last software 
upgrade planned for the Block 2004 time frame.

In fiscal year 2003, the program office conducted activities related to 
the development of the CP3.0E and CP3.0 software builds. All activities 
occurred within the expected schedule. The major event for CP3.0E was 
the July 2003 In Process Review. This review ensured that CP3.0E 
development and installation were on track to occur as planned. The 
CP3.0 System Design Disclosure, which occurred in March 2003, defined 
the design of CP3.0 and allowed the program office to proceed with the 
development of this software build. The program expects to continue 
developing CP3.0 and CP3.1 in fiscal year 2004 and to install CP3.0E on 
designated ships.

As software builds are completed and installed, Navy cruisers and 
destroyers will become available to perform their expected missions. As 
indicated by program officials, Table 9 summarizes the availability of 
Aegis ships for the BMD mission in the Block 2004 time frame.

Table 9: Planned Aegis Ship Availability for the BMD Mission (Block 
2004):

Ship Function: Destroyers; Capable only of surveillance and tracking 
(no engagement capability); 
September 2004: 3[B]; 
December 2004: 5; 
April 2005: 9; 
December 2005: 10[C]; 

Ship Function: Cruisers[A]
Capable of surveillance, tracking, and engagement; 
September 2004: 0;
December 2004: 1;
April 2005: 2;
December 2005: 3;

Total destroyers and cruisers available for BMD mission: 	
September 2004: 3;
December 2004: 6;
April 2005: 11;
December 2005: 13;

Source: Missile Defense Agency.

[A] Total number of Aegis cruisers includes one being used as a test 
ship.

[B] One of the three surveillance and tracking ships will be delivered 
in October 2004.

[C] 15 long-range surveillance and tracking "equipment sets" will be 
available at this time, but installations may not be completed owing to 
the ships' operational schedules. The remaining 5 upgrades are planned 
for the Block 2006 time frame.

[End of table]

SM-3 Missile Development and Delivery:

Progress Being Made but Challenges Remain:

In fiscal year 2003, the Aegis BMD program office undertook a series of 
missile-related activities to begin procuring missiles for delivery in 
fiscal year 2004. The Aegis BMD element is developing evolving 
configurations of the SM-3 missile. The SM-3 "Block 0" configuration, 
which is used in Block 2004 flight-testing, is capable of intercepting 
simple non-separating targets. The "Block I" SM-3 configuration will be 
fielded as part of the BMDS Block 2004 defensive capability and 
provides a rudimentary target discrimination capability. Subsequent SM-
3 configurations beyond Block I will not be available until calendar 
year 2006. Table 10 lists those activities and their respective 
completion dates.

Table 10: Missile-Related Activities (Fiscal Year 2003):

Activity; Purpose; Date Completed.

Activity: SM-3 Block I Critical Design Review; 
Purpose: Assess maturity of Block I; 
Date completed: May 2003.

Activity: SM-3 Block I Design Verification Tests; 
Purpose: Verify design of Block I missiles; 
Date completed: Ongoing.

Activity: SM-3 Block I Production In Process Review; 
Purpose: Assess Block I production readiness; 
Date completed: Sept. 2003.

Activity: SM-3 Nosecone Critical Design Review; 
Purpose: Assess maturity of missile nosecone; 
Date completed: Oct. 2003.

Source: Missile Defense Agency.

[End of table]

The missile-related activities shown in Table 10 occurred as planned, 
with the exception of the missile nosecone critical design review. 
Program officials stated that a delay of less than 3 months occurred 
because the testing facility was not available as originally planned. 
Table 11 summarizes the delivery of SM-3 missiles in the Block 2004 
time frame.

Table 11: SM-3 Missiles Delivered, Expended, and in Inventory:

Missile delivery: Block 0 missile: Delivered; 
Up to Sept. 2004: 3; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 0; 
Apr. 2005 - Dec. 2005: 0; 
Total missiles (Block 2004): 3

Missile delivery: Block 0 missile: Expended; 
Up to Sept. 2004: 3; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 0; 
Apr. 2005 - Dec. 2005: 0; 
Total missiles (Block 2004): 3

Missile delivery: Block 0 missile: Inventory; 
Up to Sept. 2004: 0; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 0; 
Apr. 2005 - Dec. 2005: 0; 
Total missiles (Block 2004): 0

Missile delivery: Block I missile: Delivered; 
Up to Sept. 2004: 5; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 2; 
Apr. 2005 - Dec. 2005: 4-7; 
Total missiles (Block 2004): 11-14.

Missile delivery: Block I missile: Expended; 
Up to Sept. 2004: 0; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 2; 
Apr. 2005 - Dec. 2005: 1; 
Total missiles (Block 2004): 3

Missile delivery: Block I missile: Inventory; 
Up to Sept. 2004: 5; 
Sept. 2004 - Dec. 2004: 0; 
Dec. 2004 - Apr. 2005: 0; 
Apr. 2005 - Dec. 2005: 3-6; 
Total missiles (Block 2004): 8-11.

Source: Missile Defense Agency.

Note: Inventory is delivered minus expended.

[End of table]

Testing:

Ground and Flight Testing Conducted with Mixed Results:

The Aegis BMD program conducts both ground-and flight-testing to 
validate Aegis BMD's performance. The program office expects flight-
testing to progressively demonstrate the element's capability to engage 
ballistic missile targets under increasingly complex conditions. Since 
1999, the program conducted three flight tests (non-intercept attempts) 
to demonstrate basic missile functionality, such as booster performance 
and stage separation. During this same time frame, there have also been 
five intercept flight tests using the SM-3 missile. Of the five 
attempts, four were successful intercepts.

Ground Testing:

Ground testing provides the opportunity to validate the flight-
worthiness of Aegis BMD subcomponents on the ground before they are 
used in flight tests. In fiscal year 2003, ground-testing activities 
focused on the SM-3 missile and a redesigned subcomponent of the 
missile's divert system--the Solid Divert and Attitude Control System 
(SDACS). This subcomponent is a collection of solid-fuel thrusters used 
to steer the kill vehicle into its designated target. Ground tests of 
the SDACS were conducted to verify its readiness for flight-testing. 
When the SDACS ground test program demonstrated good performance with 
the simpler, more producible SDACS design, the Aegis BMD program office 
gave approval for its use in flight mission 5 (FM-5). Despite of 
successful ground testing, the SDACS subcomponent did not perform as 
desired in flight. The program office is investigating the cause of the 
failure, but a resolution is not expected until sometime in early 2004. 
As indicated by program officials, Table 12 shows key ground tests 
planned for fiscal year 2003.

Table 12: Aegis BMD Ground Tests:

Test event: SDACS Monolithic Developmental Unit 1; 
Scheduled date: Feb. 2003; 
Objectives: Validate design of new SDACS; 
Outcome: Objectives achieved. 

Test event: SDACS Monolithic Developmental Unit 2; 
Scheduled date: May 2003; 
Objectives: Validate design of new SDACS; 
Outcome: Objectives achieved. 

Test event: SDACS qualification; 
Scheduled date: June 2003; 
Objectives: Confirm readiness of new SDACS for use in FM-5; 
Outcome: Objectives achieved. 

Test event: Third stage rocket motor qualification; 
Scheduled date: Sept. 2003; 
Objectives: Validate material replacements and design changes in the 
rocket motor; 
Outcome: Not performed owing to safety shutdown of test lab.

Source: Missile Defense Agency.

[End of table]

Program officials stated that the only ground test that was scheduled 
to occur in fiscal year 2003, but did not, was the qualification 
testing of the third-stage rocket motor. The officials told us that the 
test could not be performed as scheduled, because a safety shutdown at 
the test facility occurred because of an explosion in another test area 
at that facility. They noted that modifications are being made to 
prevent similar incidents. Repairs are expected to continue well into 
the second quarter of fiscal year 2004, after which rocket motor 
testing can be resumed.

Flight Testing:

The program office conducted three flight missions--FM-4, FM-5, and FM-
6--in fiscal year and calendar year 2003. With the exception of FM-5, 
these tests proceeded as planned. FM-4, which occurred in November 
2002, marked the start of the Aegis BMD Block 2004 flight test phase. 
FM-4's primary test objective was to verify an ascent phase intercept 
against a non-separating ballistic missile target using the Block 0 SM-
3 missile, and the objective was achieved. FM-5 had objectives similar 
to those of FM-4, viz., to intercept an ascending non-separating 
target. The test also was to demonstrate the operation of the 
redesigned SDACS in flight. In the end, FM-5 did not achieve an 
intercept because the SDACS did not perform as expected.[Footnote 5] 
FM-6, a third test with objectives similar to those of FM-5, occurred 
later in calendar year 2003. Because of technical issues that arose in 
FM-5, the program office delayed FM-6 from September 2003 to December 
2003 and modified the test plan. In particular, the program omitted its 
plan to exercise the full functionality of the newly designed SDACS, 
which failed during FM-5. Table 13 provides a summary of the flight 
tests.

Table 13: Aegis BMD Flight Tests:

Test event: FM-4; 
Completed date: Nov. 2002; 
Objectives: Ascent-phase intercept; 
Outcome: Intercept achieved.

Test event: FM-5; 
Completed date: June 2003; 
Objectives: Ascent-phase intercept; demonstration of new SDACS; 
Outcome: Intercept not achieved.

Test event: FM-6; 
Completed date: Dec. 2003; 
Objectives: Ascent-phase intercept; demonstration of connectivity 
with BMDS; 
Outcome: Intercept achieved; FM-6 originally scheduled for Sept. 2003.

Sources: MDA (data); GAO (analysis).

[End of table]

Progress Assessment: Performance:

Operational Performance of Aegis BMD Remains Uncertain:

The Aegis BMD program has demonstrated the capability to intercept a 
non-separating target through its successes in FM-2, FM-3, FM-4, and 
FM-6. These successes are noteworthy, given the difficulty of "hit-to-
kill" intercepts. DOT&E's fiscal year 2002 Report to Congress noted the 
successes but pointed out that the flight tests were developmental in 
nature and neither operationally realistic nor intended to be so. Test 
scenarios and target "presentation"[Footnote 6] were simple compared 
with those expected to be encountered during an operational engagement. 
Furthermore, separating targets,[Footnote 7] which pose a particular 
challenge to the Aegis BMD element, will not be assessed until FM-8 is 
conducted in 2005. While MDA is increasing the operational realism of 
its developmental flight tests--e.g., the Aegis Ballistic Missile 
Defense program employed an operational crew in FM-6--tests completed 
to date are highly scripted.

The Aegis BMD program developed a set of performance indicators that 
provides a top-level characterization of element effectiveness. We were 
unable to fully assess progress in achieving performance goals during 
fiscal year 2003, because the program office began reporting 
performance indicators in calendar year 2004.

Progress Assessment: Cost:

DOD expects to invest about $4.8 billion in Aegis BMD research and 
development from fiscal year 2004 through 2009. This is in addition to 
the $2.9 billion invested from fiscal year 1996 through 2003.

The program uses most of the funds it receives to fund the element's 
prime contract. In fiscal year 2003, the contractor completed all 
development work slightly under cost and ahead of schedule. However, 
because of early development problems with the SM-3 missile, the 
contractor incurred a cumulative cost overrun of about $39 million at 
the contract's completion in August 2003.

Program Cost:

Aegis BMD Program Costing Approximately $800 Million per Year:

Aegis BMD costs for the next 6 fiscal years are expected to be around 
$4.8 billion. This includes funds for Blocks 2004, 2006, and 2008 as 
well as portions of Block 2010. Also included is cooperative work 
between the United States and Japan on SM-3 component development. 
Table 14 shows the expected costs of the program by fiscal year through 
2009, the last year for which MDA published its funding plans.

Table 14: Aegis BMD Planned Cost:

Dollars in millions of then-year dollars:

Block: Block 2004;
Fiscal Year 2004: $641;
Fiscal Year 2005: $966;
Fiscal Year 2006: $178;
Fiscal Year 2007: $0;
Fiscal Year 2008: $0;
Fiscal Year 2009: $0;
Total: $1,785.00

Block: Block 2006;
Fiscal Year 2004: 24;
Fiscal Year 2005: 106;
Fiscal Year 2006: 675;
Fiscal Year 2007: 776;
Fiscal Year 2008: 50;
Fiscal Year 2009: 0;
Total: 1,631.00

Block: Block 2008;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 20;
Fiscal Year 2007: 145;
Fiscal Year 2008: 534;
Fiscal Year 2009: 435;
Total: 1,134.00

Block: Block 2010;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 0;
Fiscal Year 2007: 8;
Fiscal Year 2008: 30;
Fiscal Year 2009: 94;
Total: 132

Block: Cooperative;
Fiscal Year 2004: 53;
Fiscal Year 2005: 72;
Fiscal Year 2006: 25;
Fiscal Year 2007: 0;
Fiscal Year 2008: 0;
Fiscal Year 2009: 0;
Total: 150

Total;
Fiscal Year 2004: $718;
Fiscal Year 2005: $1,144;
Fiscal Year 2006: $898;
Fiscal Year 2007: $929;
Fiscal Year 2008: $614;
Fiscal Year 2009: $529;
Total: $4,832.00

Source: Missile Defense Agency.

[End of table]

In fiscal years 2002 and 2003, MDA expended $446.5 million and $384.3 
million, respectively, to develop the Aegis BMD element. Including 
these funds, the Navy and MDA have expended approximately $2.9 billion 
to develop a sea-based missile defense capability since the Navy 
Theater Wide program began.

Prime Contractor Fiscal Year 2003 Cost and Schedule Performance:

Performance Improved, but Cost Overruns on the Missile Remain:

The prime contract consumes the bulk of the program's budget: about 84 
percent of the Block 2004 budget supports the prime contractor team and 
16 percent supports government efforts. Up until 2003, seven separate 
contracts covered the development of element components--the Aegis 
Weapon System, the Vertical Launch System, and the SM-3 missile. Late 
in the fiscal year, MDA awarded new contracts and reduced the number of 
contracts to two, an Aegis Weapon System contract and an SM-3 contract. 
The Aegis Weapon System contract covers all Block 2004 activities. It 
also provides for initial future block definition activities for Blocks 
2006, 2008, and 2010. The SM-3 contract is similarly structured.

We used contractor Cost Performance Reports to evaluate the cost and 
schedule performance of the SM-3 contractor. The government routinely 
uses these reports to independently evaluate prime contractor 
performance relative to cost and schedule. Generally, the reports 
detail deviations in cost and schedule relative to expectations 
established under the contract. Contractors refer to deviations as 
"variances." Positive variances--activities costing less or completed 
ahead of schedule--are generally considered as good news and negative 
variances--activities costing more or falling behind schedule--as bad 
news. According to the Aegis BMD program office, contractors produce 
Cost Performance Reports for the various components of the Aegis BMD 
element, such as the Aegis Weapon System and the SM-3 missile. However, 
we were able to assess cost and schedule performance only for the SM-3 
missile. Cost Performance Reports associated with missile-defense 
activities for the other components were not in a form we could use for 
our analysis, and these efforts did not undergo an integrated baseline 
review. In the future, the new contracts will provide Cost Performance 
Reports for both the Aegis Weapon System and SM-3 missile.

The SM-3 development contract accounts for approximately 50 percent of 
Aegis BMD Block 2004 development costs. Our analysis of SM-3 missile 
Cost Performance Reports shows that the contractor generally improved 
its cost and schedule performance throughout fiscal year 2003. During 
this time, the SM-3 missile contractor spent $7.4 million less than 
originally budgeted and completed planned work slightly ahead of 
schedule. In addition, in fiscal year 2003, work efforts on major 
components of the SM-3 were completed generally within their estimated 
budget and slightly ahead of schedule. The contractor's improved 
performance in fiscal year 2003 resulted, in part, because in March 
2003 the program removed the majority of the SDACS work from the SM-3 
contract. As a result, the contractor was no longer required to 
incorporate SDACS activities, which had been the primary cause of prior 
cost and schedule growth, when providing Cost Performance Reports.

Despite improved performance in fiscal year 2003, the contractor 
continued to carry a negative cost and schedule variance from problems 
that occurred in prior years. As Figures 2 and 3 illustrate, the SM-3 
contractor entered fiscal year 2003 with cost overruns of approximately 
$46 million and with uncompleted work valued at $4.6 million. By August 
2003, however, the contractor reduced its cost overrun and improved its 
schedule performance. At its completion, the SM-3 contract exceeded its 
budget by $39 million. According to the contractor, technical problems 
with the development of the SDACS, kill vehicle, rocket motor, and 
guidance section, as well as failures during flight and ground tests, 
were responsible for the majority of the cost overrun on the SM-3 
contract.

Figure 2: Fiscal Year 2003 Cost Performance (SM-3 Contract Only):

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

Note: Contract ended in August 2003; therefore, there is no reported 
September 2003 cost variance.

[End of figure]

Figure 3: Fiscal Year 2003 Schedule Performance (SM-3 Contract Only):

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

Note: Contract ended in August 2003; therefore, there is no reported 
September 2003 schedule variance.

[End of figure]

Program officials told us that the majority of the technical problems 
associated with SM-3's development, with the exception of the SDACS, 
have been resolved. The officials said that they do not expect these 
issues to cause negative variances on the new missile contract. 
However, technical problems associated with the SDACS could continue to 
affect cost and schedule performance on the new missile contract.

Program Risks:

Based on our assessment of fiscal year 2003 activities, we found that 
the Aegis BMD program faces key risks in fielding the planned initial 
capability by September 2004 and the Block 2004 defensive capability by 
December 2005. These risks include the uncertainty of CP3.0E software 
performance at the time of initial fielding, questions about the 
contractor's readiness to produce interceptors, and concerns about 
SDACS development.

Uncertainty of CP3.0E Software Performance:

Program officials are concerned with the inability to test the CP3.0E 
software in an operational environment (e.g., during a flight test) 
before September 30, 2004, when the element is fielded for its 
surveillance and tracking role. Officials told us that there is not 
adequate time to test the new surveillance and tracking functionality 
before initial defensive operations are declared, but risk reduction 
efforts (such as testing earlier builds of the software) are in place 
to minimize potential problems. Although the risk reduction efforts 
under way would not validate the full functionality of CP3.0E, the 
officials expect that these efforts will provide increased confidence 
that the CP3.0E software will perform as desired at the time of initial 
defensive operations.

They noted that the need to deliver and install CP3.0E before September 
30, 2004, was driving much of the schedule risk. Should the CP3.0E 
effort fall behind schedule, the program would need to compress its 
schedule to meet the deadline for initial defensive operations (IDO). 
Research pertaining to estimating the level of effort in developing 
software, however, has shown that when schedules are compressed, the 
quality of the software effort can be compromised.

Contractor's Readiness to Produce Interceptors:

We found that missile production and delivery is a key program risk; 
program officials concurred with our assessment. They indicated that 
current MDA plans call for the delivery of 11 to 14 SM-3 missiles by 
the end of 2005.[Footnote 8] Program officials also stated that the 
first five missiles are being produced at the contractor's research and 
development facility. Highly trained technical engineers, with 
manufacturing observers, are building these developmental missiles. 
Future production missiles will be built by manufacturing labor with 
engineering oversight as needed. A transition to this production is 
planned but will not occur until production begins on the next set of 
12 missiles.

Concerns about SDACS Development:

We found that the greatest performance risk to the Aegis BMD program 
pertains to the development of the SDACS, the subsystem that generates 
divert pulses to control the orientation and heading of the 
interceptor's kill vehicle; program officials agreed with our 
assessment. Ground tests conducted in 2002 revealed problems with the 
initial SDACS design, specifically with the subassemblies supporting 
the operation of the divert pulses. To find a solution to these 
problems, MDA in 2002 pursued multiple designs for the SDACS 
subassemblies of the kill vehicle, intending to use the most promising 
for the program. On the basis of ground test results, MDA selected a 
single-piece variation of the original design (referred to as the 
"Monolithic Design"). This design employs a multi-pulse concept whereby 
(1) a sustain-mode is used to provide low-energy divert and attitude 
control of the kill vehicle and (2) an energetic pulse-mode is 
available for maximum divert capability.

When the Monolithic SDACS design with its sustain-and pulse-mode divert 
capability proved successful in ground testing, the program planned to 
flight-test it during FM-5. However, during FM-5, the subassemblies 
supporting the energetic pulse-mode failed, causing the kill vehicle to 
be less maneuverable. Program officials stated that they are 
investigating the failure and believe that the "diverter ball," which 
acts as a valve to control the pulse, caused it. Incorporating the 
high-energy pulse into the SDACS increased internal operating 
pressures, and under the thermal stress, the protective coating of the 
diverter ball cracked, disabling normal SDACS operation.

Aegis BMD program officials stated that they do not expect to implement 
any design changes related to pulse-mode divert capability in 2004. 
Nonetheless, MDA is moving ahead with the procurement of 5 of the 20 
Block 2004 missiles utilizing the Monolithic SDACS with reduced divert 
capability. According to program officials, these less-capable missiles 
provide a credible defense against a large population of the threat and 
can be retrofitted to support pulse-mode operations upon the completion 
of design updates and testing.

Without the energetic pulse-mode, performance against certain threats 
is limited, because the kill vehicle has less divert capability to 
compensate for initial targeting errors. This degradation is threat-
dependent, that is, not significant for non-separating targets because 
the kill vehicle typically does not have to radically change course to 
engage a warhead attached to the booster tank. However, separating 
threats under specific scenarios may be problematic. The kill vehicle 
may need to expend additional energy to change course and engage a 
warhead that is physically separated from its booster tank.

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix III Summary:

Airborne Laser:

Program Description: 

The Airborne Laser (ABL) is being developed to shoot down enemy 
missiles during the boost phase of flight. Installed onboard a Boeing 
747 aircraft, ABL is designed to use a high-energy chemical laser to 
rupture the enemy missile's motor casing, causing the missile to lose 
thrust or flight control. As part of its Block 2004 effort, the Missile 
Defense Agency (MDA) plans to demonstrate the feasibility of using the 
prototype ABL aircraft to shoot down a short-range ballistic missile. 
This event is referred to as the lethal demonstration.

The Department of Defense (DOD) budgeted about $3.1 billion for ABL 
development during fiscal years 2004 through 2009. Earlier, the Air 
Force invested approximately $1 billion from 1996 through 2001, and MDA 
expended about $1 billion in 2002 and 2003 for related developmental 
efforts.

Fiscal Year 2003 Progress Assessment: 

Activities in fiscal year 2003 progressed much more slowly and were 
more costly than anticipated. Nearly all hardware deliveries, 
integration activities, and test events slipped. The program's 
underestimation of the complexity of integrating ABL subcomponents into 
a working system, in particular, resulted in significant cost growth 
and delays during fiscal year 2003.

Schedule: The ABL program continued with the development of the 
prototype aircraft, but as noted above, fiscal year 2003 activities 
progressed more slowly than anticipated. For example, four of six key 
test events were either deferred indefinitely or delayed over a year. 
Furthermore, quality issues and difficulty with integration activities 
resulted in the slip of a critical test milestone--the demonstration of 
individual laser modules linked together to form a single laser beam, 
known as "First Light." At the end of fiscal year 2003, the expected 
date for this demonstration was March 2004, but the event continues to 
slip. As a consequence of the test delays, the lethal demonstration 
continues to be pushed back. 

Performance: At this stage of ABL development--before the laser has 
been operated at full power or critical technologies have been 
demonstrated in flight tests--any assessment of effectiveness is 
questionable. However, performance indicators used by the program 
office to monitor performance indicate that 9 of 12 of the indicators 
are at risk in achieving Block 2004 goals.

Cost: Our analysis of prime contractor cost performance reports 
indicates that ABL cost performance deteriorated throughout fiscal year 
2003. The contractor overran budgeted costs by $242 million and could 
not finish $28 million worth of work as planned. The underestimated 
complexity of integrating ABL subcomponents into a working system was 
the primary driver for the cost growth.

Risks: Our analysis indicates that the complexity and magnitude of 
integration activities--delivering a working system for the lethal 
demonstration--have been substantially underestimated. Accordingly, 
the program continues to be at risk for cost growth and schedule slips. 
In addition, a major performance risk for ABL Block 2004 involves 
controlling and stabilizing the high-energy laser beam so that 
vibration does not degrade the beam's aimpoint. Program officials 
stated that they are working to resolve this issue but cannot 
demonstrate final resolution before flight testing in 2005. 

Appendix III: Airborne Laser:

Background: Element Description:

The Airborne Laser (ABL) element is a missile defense system designed 
to shoot down enemy missiles during the boost phase of flight, the 
period after launch when the missile is powered by its boosters. As an 
element of the Missile Defense Agency's (MDA's) Boost Defense 
Segment,[Footnote 9] ABL is expected to engage enemy ballistic missiles 
early in their trajectory before warheads and countermeasures can be 
released. ABL plans to use a high-energy chemical laser to defeat enemy 
missiles by rupturing a missile's motor casing, causing the missile to 
lose thrust or flight control. ABL's goal is to prevent the delivery of 
the missile's warhead to its intended target.

ABL was initially conceived as a theater system to defeat short-and 
medium-range ballistic missiles. However, its role has been expanded to 
include the full range of ballistic missile threats, including 
intercontinental ballistic missiles (ICBMs).[Footnote 10] In addition, 
ABL could be used as a forward-deployed sensor to provide accurate 
launch point, impact point, and trajectory data of enemy missiles to 
the overarching Ballistic Missile Defense System (BMDS) in support of 
engagements by other MDA elements.

The ABL element consists of the following three major components 
integrated onboard a highly modified Boeing 747 aircraft.[Footnote 11] 
In addition, ground support infrastructure for chemical storage, 
mixing, and handling is a necessary component of the element.

* High-energy chemical oxygen-iodine laser (COIL). The laser, which 
generates energy through chemical reactions, consists of six laser 
modules linked together to produce megawatt levels of power. By using a 
defensive weapon that incorporates the speed of light, ABL can destroy 
missiles more quickly, giving it a significant advantage over 
conventional boost-phase interceptors.

* Beam control/fire control (BC/FC). The BC/FC component's primary 
mission is to maintain the beam's quality as it travels through the 
aircraft and atmosphere. Through tracking and stabilization, the BC/FC 
ensures that the laser's energy is focused on a targeted spot of the 
enemy missile.

* Battle management/command and control (BMC2). The BMC2 component is 
expected to plan and execute the element's defensive engagements. It is 
being designed to work autonomously using its own sensors for launch 
detection, but it could also receive early warning data from other 
external sensors.

Background: History:

ABL's current development is based on more than 25 years of scientific 
research in the Departments of Defense and Energy. The program evolved 
primarily from airborne laser laboratory research, which developed 
applications for high-energy lasers. The laboratory's research 
culminated in a demonstration showing that a low-power, short-range 
laser was capable of destroying a short-range, air-to-air missile.

In 1996, the Air Force initiated the Airborne Laser program to develop 
a defensive system that could destroy enemy missiles from a distance of 
several hundred kilometers. Developmental testing for the program was 
expected to conclude in 2003 with an attempt to shoot down a short-
range ballistic missile target. However, in 2002, management authority 
and funding responsibility transferred from the Air Force to MDA. In 
accordance with MDA planning, the Airborne Laser program restructured 
its acquisition strategy to conform to a capability-based approach.

Background: Developmental Phases:

ABL development is proceeding in a series of planned 2-year blocks. The 
near-term blocks are known as Blocks 2004, 2006, and 2008. Other blocks 
may follow, but on the basis of recent budget documentation, MDA has 
not yet defined their content. [Footnote 12]

Block 2004. The overall Block 2004 goal is to demonstrate the 
feasibility of the prototype ABL aircraft to defeat--via directed laser 
energy--a short-range, threat-representative ballistic missile. This 
concluding test event generally is referred to as the lethal shoot-down 
demonstration. MDA has no plans to deliver an ABL contingency 
capability in the Block 2004 time frame.

Block 2006. The Block 2006 ABL program makes use of the Block 2004 
aircraft, but the block's focus is on testing, interoperability with 
the BMDS, and increased supportability for an emergency operational 
capability.

Block 2008. The program expects to procure a second, upgraded ABL 
aircraft in the Block 2008 time frame. It will incorporate upgrades for 
enhanced lethality and increased operational suitability. Block 2008 
will also focus on making ABL more affordable.

Progress Assessment: Schedule:

During fiscal year 2003, the ABL program planned to complete a series 
of activities in preparation for Block 2004. Although the program made 
some progress, planned activities progressed much more slowly than 
anticipated. These activities included the following:

* designing, fabricating, and delivering subcomponent hardware critical 
to the operation of the ABL element (hardware delivery);

* integrating and testing subcomponents as functioning components; and:

* completing a test milestone referred to as "First Light," the first 
demonstration--in a ground-test facility--of the integration of six 
individual laser modules to produce a single beam of laser energy.

Hardware Delivery:

Delays Affect Entire Program:

ABL contractors delivered critical ABL element hardware during fiscal 
year 2003, including subcomponents of the BC/FC component. However, in 
each case, hardware delivery was originally scheduled for the end of 
fiscal year 2002. (See table 15.) Because these hardware deliveries 
were delayed, the schedule for subsequent integration and demonstration 
activities was also affected.

Table 15: ABL Program Hardware Deliveries (Fiscal Year 2003):

Hardware delivery: Delivery of Active Ranger System (ARS)[A];
Scheduled date: Sept. 2002;
Completion date: Feb. 2003.

Hardware delivery: Delivery of Target Illuminator Laser (TILL)[B];
Scheduled date: Aug. 2002;
Completion date: Nov. 2002.

Hardware delivery: Delivery of Beacon Illuminator Laser (BILL)[C];
Scheduled date: Aug. 2002;
Completion date: Nov. 2002.

Hardware delivery: Final Delivery of High-Energy Laser Modules;
Scheduled date: Sept. 2002;
Completion date: Apr. 2003.

Source: Missile Defense Agency.

[A] The Active Ranger System is the laser that sits atop the aircraft 
and provides preliminary range and tracking data of a target missile.

[B] The Target Illuminator Laser is the laser that sweeps, locks, and 
determines the aimpoint on the target.

[C] The Beacon Illuminator Laser is the laser that bounces a beam off 
the target missile back to the aircraft and thus measures the amount of 
atmospheric disturbance between the aircraft and the target.

[End of table]

Integration and Testing:

Key Test Events Delayed More Than a Year:

Table 16 summarizes the status of major Block 2004 ABL test events, 
scheduled sometime during fiscal year 2003. As illustrated, four of the 
six test events were either deferred or delayed over a year due to late 
hardware and software availability, subcomponent test failures, and 
numerous design flaws. Consequently, the lethal demonstration--the 
focus of Block 2004 development--has been delayed until February 2005 
at the earliest. Other than the surveillance and tracking tests, which 
were conducted in flight and have been completed, all scheduled testing 
listed in table 16 will be performed in ground facilities, such as the 
System Integration Laboratory (SIL) at Edwards Air Force Base, 
California.

Table 16: ABL Program Test Events (Fiscal Year 2003):

Test event: Surveillance flight tests;
(6 tests total);
Scheduled date: N/A;
Completion date: July 2002 -;
Event description: Jan. 2003;
Track of fighter aircraft and Lance missile using infrared sensors.

Test event: Participation in GMD flight test (IFT-10);
Scheduled date: Dec. 2002;
Completion date: Dec. 2002;
Event description: Tracked boosting target, which was launched from 
Vandenberg AFB, using onboard infrared sensors.

Test event: ARS ground and flight test;
Scheduled date: Dec. 2002;
Completion date: Deferred to;
Event description: 3Q FY 2005;
Tests of ABL tracking and ranging capabilities.

Test event: BC/FC End-to-End Demonstration;
Scheduled date: Feb. 2003;
Completion date: Mar. 2004;
Event description: First test of the fully integrated BC/FC component.

Test event: First Light;
Scheduled date: Feb. 2003;
Completion date: As of Mar. 2004, new test date has not been 
established;
Event description: First demonstration of 6-module laser operation at 
SIL.

Test event: Full-duration laser operation;
Scheduled date: Mar. 2003;
Completion date: (After First Light);
Event description: Demonstration of 6-module laser operation at SIL 
under conditions (time and power) required for shoot-down.

Source: Missile Defense Agency.

Note: Test dates current as of December 2003.

[End of table]

Completion of Test Milestone:

Demonstration of "First Light" Continues to Slip:

The Director, MDA, has made the achievement of Block 2004's "First 
Light"--to prove that individual laser modules can be successfully 
integrated and operated to generate a single laser beam--a decisive 
event for the ABL program. In April 2003 testimony before the Senate 
Appropriations Committee, Subcommittee on Defense, the Director stated 
that his confidence in meeting the schedule goal for the lethality 
demonstration would increase tremendously if "First Light" occurred in 
2003. "First Light" did not occur in February 2003 as scheduled and 
slipped throughout the fiscal year. As of March 2004, the test event 
had not been rescheduled. Numerous and continuing issues have caused 
the event to slip, including supply, quality, and technical problems. 
For example, specialized valves have been recalled twice, laser fluid 
management software has been delayed due to inadequate definition of 
requirements, and improperly cleaned plumbing and material issues have 
required over 3,000 hours of unplanned work. In addition, delays in 
hardware delivery occurred in almost every month of fiscal year 2003.

As a result of the slip in "First Light," the program office did not 
exercise a contract option to acquire the Block 2008 aircraft. The 
office expected to exercise the option and make the first payment to 
the contractor, $30 million of the $170 million total, during the 
fourth quarter of fiscal year 2003. The remaining payments of $40 
million and $100 million were scheduled for fiscal years 2004 and 2005, 
respectively. Because this test event continues to slip, program 
officials do not know when they will initiate the acquisition of the 
second aircraft.

Progress Assessment: Performance:

Quantitative assessments of ABL effectiveness for boost-phase defense 
are necessarily based on end-to-end simulations of ABL operation, 
because the element has yet to be demonstrated in flight. At this stage 
of development--before the laser has been operated at full power or 
flown to examine the jitter issue--any assessment of element 
effectiveness is necessarily questionable. Nonetheless, the program 
office monitors performance indicators to determine whether the element 
is on track in meeting operational performance goals. Based on data 
provided to us by MDA, 9 of 12 performance indicators point to some 
risk in achieving Block 2004 goals. One indicator in particular, 
pertaining to the technology of managing "jitter," was identified as a 
risk item by the program office early on and continues to be monitored. 
This issue is discussed in more detail later in this appendix.

Progress Assessment: Cost:

The cost of the ABL program continues to grow. MDA expects to invest 
about $3.1 billion from fiscal year 2004 through 2009 in the element's 
development. This is in addition to the approximately $2 billion 
invested from the program's initiation in 1996 through fiscal year 
2003.

The program uses most of the funds it receives to fund the element's 
prime contract. However, in fiscal year 2003, the contractor overran 
its budgeted costs by $242 million.

Total Program Cost:

ABL Program Costing Approximately $510 Million per Year:

ABL program costs for the next 6 fiscal years are expected to be around 
$3.1 billion. This covers research and development efforts for Blocks 
2004, 2006, and 2008. Table 17 shows the expected costs of the program 
by fiscal year through 2009, the last year for which MDA published its 
funding plans.

Table 17: ABL Planned Cost:

Dollars in millions of then-year dollars: 

Block: Block 2004;
Fiscal Year 2004: $603;
Fiscal Year 2005: $474;
Fiscal Year 2006: $0;
Fiscal Year 2007: $0;
Fiscal Year 2008: $0;
Fiscal Year 2009: $0;
Total: $1,077.00

Block: Block 2006;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 533;
Fiscal Year 2007: 587;
Fiscal Year 2008: 0;
Fiscal Year 2009: 0;
Total: 1,120.00

Block: Block 2008;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 0;
Fiscal Year 2007: 0;
Fiscal Year 2008: 445;
Fiscal Year 2009: 425;
Total: 870

Total;
Fiscal Year 2004: $603;
Fiscal Year 2005: $474;
Fiscal Year 2006: $533;
Fiscal Year 2007: $587;
Fiscal Year 2008: $445;
Fiscal Year 2009: $425;
Total: $3,067.00

Source: Missile Defense Agency.

[End of table]

ABL costs from 1996 through fiscal year 2001 were Air Force costs that 
were not broken out by block but totaled a little over $1 billion. 
During that time, the greatest amount expended on the program in a 
given fiscal year was $311.4 million in fiscal year 2000.

When the ABL program transitioned to MDA in fiscal year 2002, the 
conversion to a more robust development program increased projected 
costs. The planned budget increased to approximately $465 million and 
$585 million in fiscal years 2002 and 2003, respectively. Program 
officials stated that they have also implemented a more robust 
developmental staff in response to numerous test failures, quality 
problems and complex engineering issues, all of which caused annual 
costs to increase after ABL's transition to MDA.

Prime Contractor Fiscal Year 2003 Cost and Schedule Performance:

Significant Cost Growth and Schedule Slips:

The government routinely uses contractor Cost Performance Reports to 
independently evaluate prime contractor performance relative to cost 
and schedule. Generally, the reports detail deviations in cost and 
schedule relative to expectations established under the contract. 
Contractors refer to deviations as "variances." Positive variances--
activities costing less or completed ahead of schedule--are generally 
considered as good news and negative variances--activities costing more 
or falling behind schedule--as bad news.

Our analysis of contractor Cost Performance Reports indicates that ABL 
cost and schedule performance deteriorated throughout fiscal year 2003. 
In fiscal year 2003 alone, the ABL program incurred cost overruns of 
$242 million, which resulted primarily from integration and testing 
issues. Program officials indicated that it has taken longer to 
fabricate plumbing, install hardware, and conduct system checkouts. 
Furthermore, hardware that did not perform as expected and safety 
preparedness tended to slow down the program. In short, initial 
estimates of integration-related activities were substantially 
underestimated. Our analysis shows that these problems contributed to 
more than 80 percent of the overall cost overrun. The same analysis 
indicates that the contractor could not finish $28 million of work as 
planned during the same period of time.

Finally, based on the contractor's cost and schedule performance in 
fiscal year 2003, we estimate that the current ABL contract will 
overrun its budget by between $431 million and $942 million.

Figures 4 and 5 show the contractor's performance in fiscal year 2003. 
The negative variances indicate that the ABL program is exceeding its 
budgeted costs and is not completing scheduled work as planned.

Figure 4: Fiscal Year 2003 Cost Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

Figure 5: Fiscal Year 2003 Schedule Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

The element's largest contract, known as the Block 2004 prime contract, 
covered a period of performance from November 1996 until about 6 months 
after the lethal demonstration when it was awarded. However, the 
program office recently announced that it will close-out this contract, 
valued at approximately $2.2 billion, and award, in increments, follow-
on contracts for the remaining Block 2004 work. The program manager 
told us that by awarding the remaining work in about one-year 
increments, the contractor should be able to establish more accurate 
cost and schedule estimates. In addition, the new contract structure is 
expected to encourage the contractor to gain knowledge from near-term 
tests, rather than concentrating on the longer-term goal of conducting 
the lethal demonstration.

Program Risks:

Based on our assessment of fiscal year 2003 activities, we found that 
the complexity and magnitude of integration activities--to deliver a 
working system for the lethal shoot-down demonstration--has been 
substantially underestimated. Accordingly, the program continues to be 
at risk for cost growth and schedule slips. We also found that the 
uncertainty regarding the element's ability to control environmental 
vibration on the laser beam--jitter--is a serious performance risk for 
the Block 2004 program. Finally, we found that weight distribution 
across the airplane may be a key risk for future blocks.

Jitter as Major Performance Risk:

The major performance risk for Block 2004 involves controlling and 
stabilizing the high-energy laser beam so that vibration unique to the 
aircraft environment does not degrade beam aimpoint. Reducing this so-
called jitter is crucial if the laser beam is to impart enough energy 
on a fixed spot of the target to rupture the missile's motor casing. 
Currently, jitter control is developed and tested in a laboratory 
environment and is the least mature of ABL's critical technologies. 
Program officials told us that they are improving jitter analysis tools 
and even considering potential hardware design changes to reduce the 
level of vibration. They also noted that final tuning and resolution of 
the jitter issue would not be demonstrated before flight testing is 
conducted in 2005.

Weight Distribution:

If future blocks require additional laser modules to increase ABL's 
military utility, weight distribution across the aircraft's frame may 
become a key issue. The program office recognizes this problem and has 
initiated a weight-reduction and weight-redistribution effort that 
includes component redesign and composite materials. The program office 
is also studying a possible redesign of the aircraft frame that would 
allow laser modules to be moved forward to relieve stress on the 
airframe.

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix IV Summary:

Command, Control, Battle Management, and Communications:

Program Description: 

The Command, Control, Battle Management, and Communications (C2BMC) 
element is the integrating and controlling element of the Ballistic 
Missile Defense System (BMDS). It is designed to link all system 
elements, manage real-time battle information for the warfighter, and 
coordinate element operation to counter ballistic missile attacks in 
all phases of flight.

Fiscal Year 2003 Progress Assessment: 

The C2BMC program is working toward the delivery of a limited 
capability by September 2004 followed by an upgrade in defensive 
capabilities by the end of 2005.

The Department of Defense (DOD) budgeted about $1.3 billion for C2BMC 
development during fiscal years 2004 through 2009. Earlier, MDA 
expended $165 million in fiscal years 2002 and 2003 for element 
development.

The C2BMC team executed the program within budget but slightly behind 
schedule in fiscal year 2003. Important activities, such as the 
completion of software testing and operator training, are continuing in 
fiscal year 2004 to ready the element for initial defensive operations 
(IDO) by September 2004.

Schedule: The C2BMC program is on track to deliver the software needed 
for the September 2004 defensive capability. However, the program faces 
a tight schedule to complete software development and testing. Other 
activities, such as training, also are being completed to make the 
system operational. The program office indicated that all such 
activities are on track for timely completion.

Performance: The program office predicts that key indicators of C2BMC 
operational performance will meet established requirements when the 
element comes online in September 2004. Tests, which began in September 
2003, will determine if C2BMC's technical objectives are being 
achieved. Test results beyond fiscal year 2003 have been positive thus 
far.

Cost: Our analysis of the prime contractor's cost performance reports 
shows that the contractor completed planned work under budget but 
slightly behind schedule. Specifically, the contractor under-ran 
budgeted costs by $5.3 million in fiscal year 2003 because of a slower 
than anticipated increase in staffing needed for the new IDO 
requirements.

Key risks: The C2BMC is tracking and mitigating key BMDS-specific risks 
pertaining to the fielding of the initial capability by September 2004 
and the Block 2004 defensive capability by December 2005. Notably, 
development of the C2BMC element is proceeding concurrently with the 
development of other elements in the BMDS. Changes in one element's 
design--especially in how that element interfaces with the C2BMC 
element--could delay C2BMC development and fielding. In addition, the 
BMDS concept of operations continues to evolve, leading to 
uncertainties about how the C2BMC element will be operated. Finally, 
the uncertainty regarding the reliability of communications links with 
the Aegis BMD element threatens to degrade overall system performance. 
In spite of these communications problems, the existing capability is 
sufficient to support IDO performance goals.

[End of section]

Appendix IV: Command, Control, Battle Management, and Communications:

Background: Element Description:

The Command, Control, Battle Management, and Communications (C2BMC) 
element is being developed as the overall integrator of the Ballistic 
Missile Defense System (BMDS). Its objective is to tie together all 
system elements--such as GMD and Aegis BMD--so that system 
effectiveness is enhanced beyond that achieved by stand-alone systems. 
Unlike other system elements, C2BMC has neither a sensor nor weapon. 
Rather, it is primarily a software system housed in command centers or 
suites.[Footnote 13]

The C2BMC program is working to deliver a limited operational 
capability in the 2004-2005 time frame. The principal function of the 
first increment, Block 2004, is to provide situational awareness to 
certain combatant commanders and others--through the dissemination of, 
for example, early warning data--enabling them to monitor a missile 
defense battle as it unfolds. It also will provide certain combatant 
commanders with the ability to perform missile defense planning. 
However, battle management functions like centralized weapons 
allocation--such as determining the number and timing of interceptor 
launches--will not be part of the Block 2004 capability but is expected 
to be part of future C2BMC blocks.

Over time, the C2BMC element will be enhanced to provide overarching 
control and execution of missile defense engagements with the aim of 
implementing "layered defense" through the collective use of individual 
BMDS elements. As the name indicates, C2BMC is comprised of three major 
components:

* Command and control. The command and control component is designed to 
plan, control, and monitor missile defense activities. When fielded, 
the command and control component provides warfighting aids needed by 
the command structure to formulate and implement informed decisions. In 
particular, the component is meant to quickly re-plan and adapt the 
element to changing mission requirements.

* Battle management. The role of the battle management component is to 
formulate and coordinate the various missile defense functions--
surveillance, detection, tracking, classification, engagement, and 
kill assessment--needed to execute the ballistic mission defense 
mission. The planned battle management will direct the operation of 
various BMDS elements and components, consistent with pre-established 
rules of engagement,[Footnote 14] based upon data received from system 
sensors.

* Communications. Communication is a key enabler for the integration of 
the BMDS. The objective of systems communications is to manage and 
achieve the dissemination of information necessary to perform the 
battle management and command and control objectives.

The C2BMC program is following the MDA capability-based acquisition 
approach that emphasizes testing, spiral development, and evolutionary 
acquisition through the use of 2-year capability blocks. Within these 
blocks, MDA expects to evolve the C2BMC element through a series of 
software upgrades known as "spirals," each of which increases the 
element's capability to perform the ballistic missile defense mission.

Background: History:

MDA initiated the C2BMC program in 2002 as a new element of the BMDS. 
Program officials indicated that Block 2004 C2BMC software is based on 
the Air Force's Combatant Commander's Integrated Command and Control 
System, the Air Force's Joint Defensive Planner software, and GMD-
developed fire control (battle management) software.

Background: Developmental Phases:

C2BMC development efforts are aligned according to Block 2004, Block 
2006, and beyond.

Block 2004. The Block 2004 defensive capability is being rolled out in 
two phases: initial defensive operations (IDO) and the Block 2004 
defensive capability. By September 2004 when IDO is available, C2BMC 
will provide situational awareness, planning capabilities, and 
communications "backbone" to allow warfighters to monitor the ballistic 
missile defense battle. The software build associated with IDO's 
defensive capability is referred to as "Spiral 4.3." MDA is working 
with combatant commanders to define the capabilities of "Spiral 4.5"--
the final version of the Block 2004 defensive capability that is 
expected to be fielded by December 2005--which will be an enhancement 
of the IDO C2BMC capability defined by Spiral 4.3. MDA is also 
activating C2BMC suites at U.S. Strategic Command (USSTRATCOM), U.S. 
Northern Command (USNORTHCOM),[Footnote 15] U.S. Pacific Command 
(USPACOM), and other locations including the National Capital Region.

Block 2006. The incorporation of battle management capabilities in the 
C2BMC element begins with Block 2006. The element will provide real-
time battle management to fuse available sensor information, track the 
threat throughout its entire trajectory, and select the appropriate 
elements to engage the threat. For example, the C2BMC battle manager 
may use radars across multiple elements to generate a single track of 
the threat and direct GMD to launch interceptors. Additional C2BMC 
sites will also be activated during this time frame.

C2BMC's long-term objective is to tie all BMDS elements and sensors 
into a distributed, worldwide, integrated, and layered missile defense 
system.

Progress Assessment: Schedule:

The C2BMC program deputy director indicated that the program is on 
schedule to meet IDO and Block 2004 expectations, that is, to have the 
BMDS on alert by the end of September 2004 for IDO and upgraded by the 
end of December 2005. To achieve this goal, the C2BMC element is:

* developing, testing, and verifying Block 2004 C2BMC software 
(Software delivery);

* integrating the C2BMC element into the BMDS and incorporating 
communications upgrades; and:

* making the BMDS operational, including warfighter Concept of 
Operations (CONOPS),[Footnote 16] warfighter training, and activating 
C2BMC sites.

C2BMC Software Delivery:

IDO Software Development Completed, but Testing and Verification 
Continues:

Table 18 summarizes the principal activities pertaining to the 
development and testing of the first three spirals of Block 2004 C2BMC 
element software. The development of Spiral 4.3 in nearly completed, 
and BMDS-level testing (Cycle-3 testing[Footnote 17] and Cycle-4 
testing[Footnote 18]) of this spiral will be conducted to some extent 
before IDO, e.g., during GMD integrated flight tests and war games.

Table 18: Block 2004 C2BMC Activities--Develop, Test, Verify Software:

Software build: Spiral 4.1;
Activity: Development;
Actual/Anticipated completion date: Mar. 2003;

Software build: Spiral 4.1;
Activity: Testing;
Actual/Anticipated completion date: Oct. 2003. 
Comments: Development and testing completed. Functional and performance 
testing successful. Spiral 4.1 will be used in Missile Defense 
Integration Exercise 03 for verification.[A].
Software build: Spiral 4.2;
Activity: Development;
Actual/Anticipated completion date: Sept. 2003;

Software build: Spiral 4.2;
Activity: Testing;
Actual/Anticipated completion date: Jan. 2004 (Cycle 3). 
Comments: Development of Spiral 4.2 completed and delivered for system 
testing. Spiral 4.2 expected to be used in Integrated Missile Defense 
War Game 03-2 and Missile Defense Integration Exercise 04a for 
verification.[B].
Software build: Spiral 4.3;
Activity: Development;
Actual/Anticipated completion date: May 2004;

Software build: Spiral 4.3;
Activity: Testing;
Actual/Anticipated completion date: July 2004 (Cycle 3);
Comments: Block 2004 (IDO Focus) Capability Specification delivered. 
"Build Plan" and "Spiral Content Agreement" completed.

Software build: Spiral 4.3;
Activity: Testing;
Actual/Anticipated completion date: Dec. 2004 (Cycle 4).

Source: Missile Defense Agency.

[A] Missile Defense Integration Exercise: Conducted to characterize 
the degree of integration and interoperability between BMDS elements 
to operate as a single system.

[B] Integrated Missile Defense War Game: Conducted to allow the User 
community to gain insight and provide feedback on operational issues. 

[End of table]

The program's Spiral Engineering Team has not fully defined the 
capabilities planned for Spirals 4.4 and 4.5, the software builds 
leading up to the Block 2004 defensive capability of December 2005. The 
team expects to complete the definitions of the Spirals 4.4 and 4.5 in 
March 2004 and July 2004, respectively.

Communications and Integration:

Activities Completed as Planned:

The C2BMC element is upgrading existing communications systems and 
developing capabilities to allow all BMDS components to exchange data, 
including command and control orders. Table 19 summarizes the principal 
activities completed in fiscal year 2003 pertaining to C2BMC's role in 
system integration and communications. These activities were generally 
completed on time.

Table 19: Block 2004 C2BMC Activities--Communications and Integration:

Activity: Approval of Block 2004 Network Design;
Date completed: Nov. 2002.

Activity: Completion of Block 2004 Communications Network baseline;
Date completed: June 2003.

Activity: Approval of all element Interface Control Specifications[A];
Date completed: June 2003.

Activity: Successful demonstration of initial Aegis-Regional Gateway-
C2BMC connectivity;
Date completed: July 2003.

Activity: Completion of draft C2BMC-GMD Element Interface Description 
Document[B];
Date completed: Aug. 2003.

Activity: Completion of draft C2BMC-Aegis BMD Element Interface 
Description Document;
Date completed: Feb. 2004.

Source: Missile Defense Agency.

[A] An element Interface Control Specification between the C2BMC suite 
and external elements defines the functional, informational, and 
physical requirements for the interfaces between the C2BMC suite and 
that part of the external element interface adapted to establish 
message passing and protocol compatibility between two elements.
[B] The Element Interface Description Document is developed to provide 
the detail needed to support implementation of the interface between 
the C2BMC and a given element:

[End of table]

Operational Capability:

Program Taking Steps to Make BMDS Operational:

A variety of activities needed if the C2BMC is to deliver an 
operational BMDS have been completed or are ongoing. These activities 
include site activation, which is required before the C2BMC suites are 
built; the warfighter developing a CONOPS; and training military 
operators for conducting ballistic missile defense missions.

* Site activation. Full site surveys have been conducted, site 
installation plans have been signed, and equipment has been ordered for 
USSTRATCOM, USNORTHCOM, and USPACOM. This also has been done for one 
National Capital Region site. Equipment installation will begin at the 
end of March 2004 and continue throughout the summer.

* CONOPS. A conference to write a CONOPS was held in November 2003.

* Training. Full operator training is scheduled to begin at USNORTHCOM 
in June 2004, USSTRATCOM in June 2004, and USPACOM in July 2004. 
Training for the National Capital Region site is also expected to begin 
in July 2004. Part of the system-level training is participation in 
Integrated Missile Defense War Games.

Progress Assessment: Performance:

Spiral tests for each software build will determine if C2BMC's 
technical objectives are being achieved. These tests are expected to 
indicate if the program needs to make adjustments, such as adding 
personnel to work on identified problems. The program office predicts, 
and planned fiscal year 2004 testing is expected to verify, that all 
top-level C2BMC performance indicators will meet operational 
performance goals when the IDO capability comes online in September 
2004.

Progress Assessment: Cost:

MDA expects to invest about $1.3 billion from fiscal year 2004 through 
2009 in the development and enhancement of the C2BMC element. This is 
in addition to the $165.4 million expended in fiscal years 2002 and 
2003.

The program uses most of the funds it receives to fund the element's 
prime contract. During fiscal year 2003, the contractor completed 
planned work slightly behind schedule, but the work cost less than 
projected.

Total Program Cost:

C2BMC Program Costing Approximately $220 Million per Year:

The C2BMC program's planned costs for the next 6 fiscal years are 
expected to be around $1.3 billion. This includes costs for Blocks 
2004, 2006, and Block 2008. In addition, the program expended $68.0 
million and $97.4 million in fiscal years 2002 and 2003, respectively. 
Table 20 shows expected C2BMC program costs by fiscal year through 
2009, the last year for which MDA published its funding plans.

Table 20: C2BMC Planned Cost:

Dollars in Millions of then-year dollars: 

Block: Block 2004;
Fiscal Year 2004: $116.5;
Fiscal Year 2005: $154.0;
Fiscal Year 2006: $0;
Fiscal Year 2007: $0;
Fiscal Year 2008: $0;
Fiscal Year 2009: $0;
Total: $270.5.

Block: Block 2006;
Fiscal Year 2004: 26.7;
Fiscal Year 2005: 58.2;
Fiscal Year 2006: 186.4;
Fiscal Year 2007: 200.1;
Fiscal Year 2008: 0;
Fiscal Year 2009: 0;
Total: 471.4.

Block: Block 2008;
Fiscal Year 2004: 0.4;
Fiscal Year 2005: 10.8;
Fiscal Year 2006: 33.9;
Fiscal Year 2007: 40.4;
Fiscal Year 2008: 242.7;
Fiscal Year 2009: 246.3;
Total: 574.5.

Total;
Fiscal Year 2004: $143.6;
Fiscal Year 2005: $223.0;
Fiscal Year 2006: $220.3;
Fiscal Year 2007: $240.5;
Fiscal Year 2008: $242.7;
Fiscal Year 2009: $246.3;
Total: $1,316.4.

Source: Missile Defense Agency.

[End of table]

Prime Contractor Fiscal Year 2003 Cost and Schedule Performance:

Efficient:

The prime contract consumes the bulk of the program's budget: about 97 
percent of the Block 2004 budget supports the prime contractor team and 
3 percent supports government efforts. The prime contract is an Other 
Transaction Agreement (OTA),[Footnote 19] which functions much like a 
prime contract. Through an OTA, the C2BMC element is able to take 
advantage of more collaborative relationships between industry, the 
government, Federally Funded Research and Development Centers, and 
University Affiliated Research Centers. The C2BMC Missile Defense 
National Team (MDNT), for which Lockheed Martin Mission Systems serves 
as the industry lead, is developing and fielding the C2BMC element of 
the BMDS.

The government routinely uses contractor Cost Performance Reports to 
independently evaluate the prime contractor's performance relative to 
cost and schedule. Generally, the reports detail deviations in cost and 
schedule relative to expectations established under the contract. 
Contractors refer to deviations as "variances." Positive variances--
activities costing less or completed ahead of schedule--are generally 
considered as good news and negative variances--activities costing more 
or falling behind schedule--as bad news.

In fiscal year 2003, the program expended $97.4 million for all efforts 
associated with the development of the C2BMC element. Our analysis of 
contractor Cost Performance Reports indicates that C2BMC's efforts are 
being completed with "cost efficiency." That is, C2BMC work is costing 
slightly less than estimated. Specifically, there was a $5.3 million 
cost under-run incurred during fiscal year 2003. (See figure 6.) During 
this time, the contract also had an average cumulative Cost Performance 
Index of 1.04, meaning that for every budgeted dollar spent to 
accomplish scheduled work, the contractor actually completed $1.04 
worth of scheduled work.

Figure 6: Fiscal Year 2003 Cost and Schedule Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

However, contractor Cost Performance Reports showed that work is 
slightly behind schedule. According to program officials, understaffing 
is the primary reason for any schedule delays. The combination of a 
government-directed hiring slowdown and the limited numbers of highly 
qualified personnel in the areas of command, control, battle 
management, and communications available to work on the program 
resulted in a slower than anticipated increase in staffing.

To ensure that information reported in Cost Performance Reports can be 
relied upon, programs generally conduct Integrated Baseline Reviews of 
the prime contract. The review verifies that the contractor's 
performance measurement baseline,[Footnote 20] against which the 
contractor measures its cost and schedule performance, includes the 
work directed by the contract. It also verifies that the budget and 
schedule attached to each work task are accurate, that contractor 
personnel understand the work task and have been adequately trained to 
make performance measurements, and it ensures that risks have been 
properly identified. According to DOD guidance, a review should be 
conducted within 6 months of the award of a new contract or major 
change to an existing contract.

Although our analysis of C2BMC Cost Performance Reports has not shown 
any significant cost or schedule variances, an Integrated Baseline 
Review was not conducted for the Other Transaction Agreement on which 
we reported the contractor's cost and schedule performance. According 
to C2BMC contract officials, the technical baseline was re-established, 
and budgets and schedules were realigned to reflect changes in mission 
priorities, namely, to have the element ready and available for IDO. 
Integrated Baseline Reviews are planned for the future.

Program Risks:

The C2BMC is tracking and mitigating key BMDS-specific risks pertaining 
to the fielding of the initial capability by September 2004 and the 
Block 2004 defensive capability by December 2005. These risks pertain 
to the integration of C2BMC with other system elements, the continuing 
evolution of the BMDS CONOPS, and the unreliability of a communications 
link for the Aegis BMD element.

Integration:

Development of the C2BMC element is proceeding concurrently with the 
development of other system elements, such as GMD and Aegis BMD. 
Changes in one element's design, especially with how it interfaces with 
the C2BMC element, could result in temporary incompatibilities during 
Block 2004 integration. The potential consequences include delays in 
C2BMC development and fielding, increased costs, and reduced software 
quality. The program office is tracking this item as a key BMDS-level 
risk and devoting resources to prevent the realization of integration 
incompatibilities.

Evolving CONOPS:

Changes in the roles and responsibilities of combatant commanders for 
the missile defense mission are leading to uncertainties in the BMDS 
concept of operations. This affects how the warfighter prepares, 
through training and other procedures, to operate the C2BMC element 
once it becomes operational. The C2BMC program office acknowledges this 
risk and has efforts under way to address it. For example, the office 
is actively engaging military users in exercises and war games to 
provide the users with an opportunity to recognize their needs in an 
operational environment so that they may better define CONOPS 
requirements.

Communications:

Uncertainty regarding the reliability of communications links with the 
Aegis BMD element, a system-level risk tracked by the C2BMC program 
office, threatens to degrade overall system performance. Nonetheless, 
program officials told us that the existing capability is sufficient to 
support IDO performance goals and that MDA plans to enhance Block 
2004's performance by upgrading existing communication 
components.[Footnote 21]

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix V Summary:

Ground-based Midcourse Defense:

Program Description: 

The Ground-based Midcourse Defense (GMD) element is a missile defense 
system being developed to protect the United States against long-range 
ballistic missile attacks. During the 2004-2005 time frame, the GMD 
program office plans to deliver an operational capability that provides 
protection against limited ballistic missiles attacks from Northeast 
Asia and the Middle East.

The GMD program is expected to deliver an initial capability by the end 
of September 2004, which is known as Initial Defensive Operations 
(IDO). By the end of calendar year 2005, MDA plans to have augmented 
the IDO capability with additional interceptors and radars.

The Department of Defense (DOD) budgeted about $12.9 billion for GMD's 
development and fielding during fiscal years 2004 through 2009. 
Earlier, DOD expended about $12.4 billion between fiscal years 1996 and 
2003 for related research and development.

Fiscal Year 2003 Progress Assessment: 

The GMD program completed many planned activities that are expected to 
lead to the September 2004 initial capability known as IDO. The delay 
in the development and delivery of GMD interceptors, however, has 
caused flight tests (intercept attempts) leading to IDO to slip 10 
months. These problems also resulted in the growth of program costs. 

Schedule: Site preparation, including construction of missile silos and 
facilities at Fort Greely, Alaska, and Vandenberg Air Force Base, 
California, is on schedule. Activities to upgrade existing radars are 
also on track. However, the program has been challenged by 
developmental and production issues with the interceptor--comprising a 
booster and kill vehicle--and will not meet MDA's upper-end goal of 
delivering and fielding 10 interceptors by September 2004. 

Performance: GMD has demonstrated the ability to destroy target 
warheads through "hit-to-kill" intercepts in past flight tests. These 
flight tests, however, were developmental in nature--the element has 
yet to be tested under operationally realistic conditions. Moreover, as 
noted above, the flight test program leading up to IDO has been 
compressed. As a result, MDA has a limited opportunity to characterize 
GMD's performance before initial fielding. Nonetheless, the program 
office contends that GMD is on track to meet operational performance 
goals.

Cost: Our analysis of the prime contractor's cost performance reports 
shows that the contractor overran its budgeted costs in fiscal year 
2003 by $138 million and was unable to complete $51 million worth of 
scheduled work. Developmental issues with the interceptor's booster and 
kill vehicle have been the leading cause of cost overruns and schedule 
slips; for example, the interceptor's development cost $127 million 
more in fiscal year 2003 than the contractor budgeted.

Risks: GMD faces significant testing and performance risks, which are 
exacerbated by an optimistic schedule to meet the September 2004 
deadline for fielding the initial capability. Specifically, delays in 
flight testing have left the program with only limited opportunities to 
demonstrate the performance of fielded components and to resolve any 
problems uncovered during flight testing prior to September 2004. 
Uncertainty with the readiness of interceptor production could prevent 
MDA from meeting its program goal of fielding 20 interceptors by the 
end of 2005. Finally, an unresolved technical issue with the kill 
vehicle adds uncertainty to the element's performance.

Appendix V: Ground-based Midcourse Defense:

Background: Element Description:

The Ground-based Midcourse Defense (GMD) program expects to deliver an 
operational capability in the 2004-2005 time frame as an interoperable 
element of the Ballistic Missile Defense System (BMDS). The first 
increment of the GMD element, known as Block 2004, is being fielded in 
two major phases:

* Initial Defensive Operations (IDO). GMD is expected to deliver an 
initial capability by the end of September 2004. The principal 
components include a maximum of 10 interceptors (6 at Fort Greely, 
Alaska, and 4 at Vandenberg Air Force Base, California); GMD fire 
control nodes for battle management and execution at Fort Greely and 
Schriever Air Force Base, Colorado; an upgraded Cobra Dane radar at 
Eareckson Air Station, Alaska; and an upgraded early-warning radar at 
Beale Air Force Base, California. With this initial capability, MDA 
expects to provide the United States with protection against a limited 
ballistic missile attack launched from Northeast Asia.

* Block 2004 Defensive Capability. By the end of calendar year 2005, 
MDA plans to augment the IDO capability by installing additional 
interceptors at Fort Greely and Vandenberg Air Force Base (for a total 
of 20), deploying a sea-based X-band radar, and upgrading the early-
warning radar at Fylingdales, England. These enhancements are expected 
to provide additional protection from intercontinental ballistic 
missiles (ICBMs) launched from the Middle East.

Figure 7 illustrates the Block 2004 GMD components, which are situated 
at several locations within and outside of the United States.

Figure 7: GMD Element:

[See PDF for image]

Sources: MDA (data); GAO (presentation).

[End of figure]

Background: History:

The GMD element can be traced back to the mid-1980s, when the 
Department of Defense (DOD) conducted experiments designed to 
demonstrate the feasibility of employing hit-to-kill technology--the 
ability to destroy a missile through a direct collision--for missile 
defense. During the early 1990s, a technology readiness program 
continued the development of interceptor technology. These efforts 
culminated in the establishment of the National Missile Defense (NMD) 
program in 1996 to develop and field a national missile defense system 
as a major defense acquisition program.

The NMD program office's mission was to develop a system that could 
protect the United States from ICBM attacks and to be in a position to 
deploy the system by 2005,[Footnote 22] if the threat warranted. The 
system was to consist of space-and ground-based sensors, early-warning 
radars, hit-to-kill interceptors, and battle management components. The 
current GMD program is based directly on research and development 
conducted by the NMD program. GMD is now one "element" of the 
overarching BMDS, which is funded and managed by the Missile Defense 
Agency (MDA).

Background: Developmental Phases:

GMD's development and fielding are proceeding in a series of planned 2-
year blocks. The near-term blocks are known as Blocks 2004 and 2006. 
The developmental efforts of each block incrementally increase element 
capability by maturing the hardware's design and upgrading software.

Block 2004. During Block 2004, MDA expects to field a basic hit-to-kill 
capability that can be enhanced in later blocks. Originally, the 
program's Block 2004 focus was on development and testing. However, the 
December 2002 directive by the President to begin fielding a missile 
defense system in 2004 affected the program's Block 2004 direction. 
According to program office officials, this change resulted in GMD's 
shifting to a more production-oriented program, accelerating activities 
to make the element operational.

Block 2006. Block 2006 is focused on improving and enhancing the Block 
2004 GMD capability. The program expects to improve existing 
capabilities, field additional interceptors, and conduct tests to 
demonstrate performance against more complex missile threats and 
environments. It also expects to upgrade the early-warning radar 
located at Thule Airbase, Greenland, for expanded sensor coverage.

Progress Assessment: Schedule:

The GMD program completed many of the activities planned for fiscal 
year 2003. For example, the program accomplished non-technical 
activities such as site preparation and facility construction at many 
locations, especially at Fort Greely, on or ahead of schedule. 
Similarly, activities leading to the development and delivery of the 
element's battle management component and of radars that the element 
depends upon to detect and track targets were generally completed on 
schedule. However, delays in the development and delivery of the GMD 
interceptor--particularly due to one of its two boosters--caused 
intercept attempts leading up to IDO to slip 10 months or more.

Construction of GMD Element Facilities:

on Track to Support Initial Deployment:

Many of the GMD activities completed in fiscal year 2003 pertain to the 
construction of infrastructure--missile silos, buildings, and other 
facilities--at GMD's various sites. The largest construction effort is 
at Fort Greely, where missile silos and supporting facilities are being 
built. Additional construction activities are occurring at Eareckson 
Air Base and at Vandenberg Air Force Base (AFB), where four missile 
silos are being modified. According to MDA, all construction activities 
are on or ahead of schedule. Table 21 summarizes the major construction 
activities undertaken in fiscal year 2003 and their estimated 
completion dates.

Table 21: Progress of Major GMD Construction Projects:

Activity: Interceptor Silo Construction/Modification;
Location: Fort Greely;
Completion Date: Feb. 2004;
Status: Completed.

Activity: Interceptor Silo Construction/Modification;
Location: Vandenberg AFB;
Completion Date: Apr. 2004;
Status: On schedule.

Activity: Readiness and Control Building;
Location: Fort Greely;
Completion Date: Nov. 2003;
Status: Completed.

Activity: Mechanical Electrical Building;
Location: Fort Greely;
Completion Date: July 2003;
Status: Completed.

Activity: Power Plant Upgrade;
Location: Fort Greely;
Completion Date: Oct. 2003;
Status: Completed.

Activity: Entry Control Station;
Location: Fort Greely;
Completion Date: Nov. 2003;
Status: Completed.

Activity: Missile Assembly Building;
Location: Fort Greely;
Completion Date: Jan. 2004;
Status: Completed.

Activity: Perimeter Security;
Location: Fort Greely;
Completion Date: Mar. 2004;
Status: Completed.

Source: Missile Defense Agency.

[End of table]

GMD Component Development:

Progress Made, but Interceptor Development Is Problematic:

In fiscal year 2003, the GMD program focused on the development of its 
Block 2004 components: (1) GMD fire control nodes and communications 
network, (2) upgraded early-warning radars, (3) Cobra Dane radar, (4) 
sea-based X-band radar, and (5) ground-based interceptors. Many of the 
activities planned for fiscal year 2003, such as hardware delivery, did 
not culminate in 2003. Rather, the completion dates are scheduled in 
fiscal years 2004 or 2005 to coincide with the start of defensive 
operations.

GMD Fire Control Component:

Development on Track:

The fire control component[Footnote 23] integrates and controls the 
other components of the GMD element. With input from operators, the 
fire control software plans engagements and directs GMD components, 
such as its radars and interceptor, to carry out a mission to destroy 
enemy ballistic missiles. The in-flight interceptor communications 
system (IFICS), which is part of the fire control component, enables 
the fire control component to communicate with the kill vehicle while 
it is en route to engage a threat.

According to contractor reports, the GMD fire control component effort 
is proceeding on schedule and is expected to be ready for IDO. For 
example, the installation of equipment for the communication networks 
and the fire control nodes are on schedule. Additionally, the program 
completed the installation of a fiber optic ring--the so-called 
CONUS[Footnote 24] Ring--that connects all the command, control, and 
communication networks of the GMD element.

Upgraded Early Warning Radars:

Development on Track:

The early warning radar is an upgraded version of existing UHF-band 
surveillance radars used by the Air Force for strategic warning and 
attack assessment. For Block 2004, the GMD program is upgrading two 
early warning radars--one at Beale AFB and another at Fylingdales 
Airbase--to enable the radars to more accurately track enemy missiles. 
The upgrades include improvements to both the hardware and software.

Fiscal year 2003 activities related to upgrading the early warning 
radar at Beale AFB included:

* developing and testing software;

* acquiring radar hardware and data processors;

* completing the design of and constructing the Beale facility; and:

* supporting flight, ground, and radar certification tests.

According to program office documentation, the completion of the Beale 
upgrade is on track for meeting the September 2004 IDO date, even 
though software development fell behind schedule in fiscal year 2003. 
Program officials stated that they have not yet begun upgrading the 
early warning radar at Fylingdales, which they expect to complete by 
December 2005.

Cobra Dane Radar:

Development On Track:

The Cobra Dane radar, located at Eareckson Air Station on Shemya 
Island, Alaska, is currently being used to collect data on ICBM test 
launches out of Russia. Cobra Dane's surveillance mission does not 
require real-time communications and data-processing capabilities; 
therefore, it is being upgraded to be capable of performing the missile 
defense mission as part of the Block 2004 architecture. Once upgraded, 
Cobra Dane is expected to operate much like the upgraded early warning 
radar at Beale AFB. Although its hardware needs only minor improvement, 
Cobra Dane's mission software is being revised for its new application. 
The program plans to use existing software and develop new software to 
integrate Cobra Dane into the GMD architecture. It is also modifying 
the Cobra Dane facility to accommodate enhanced communication 
functions.

In fiscal year 2003, the GMD program:

* began hardware installation,

* completed software development--testing is continuing, and:

* finished the modification of the Cobra Dane facility.

In general, the program made significant progress in upgrading the 
Cobra Dane radar during fiscal year 2003. According to program office 
documentation and our analysis of GMD's master schedule, Cobra Dane is 
on track for meeting the September 2004 IDO date.

Sea-Based X-Band Radar:

Development on Track:

The GMD program office is managing the development of a sea-based X-
band radar (SBX) to be delivered and integrated into the BMDS by the 
end of Block 2004. SBX will consist of an X-band radar--much like the 
one located at Reagan Test Site that has been used in past flight 
tests--positioned on a sea-based platform, similar to those used for 
offshore oil drilling. The radar is designed to track enemy missiles 
with high accuracy; discriminate warheads from decoys and other 
objects; and if the intercept occurs within SBX coverage, assess 
whether it was successful.

In fiscal year 2003, MDA initiated the acquisition of various SBX 
components, including the sea platform, operations and support 
equipment for the platform, the radar structure, and electronic 
components. In addition, design and development have continued on the 
X-Band radar to be positioned on the platform. MDA program officials 
stated that the SBX will be fielded as a test asset by the end of Block 
2004 (December 2005), and MDA budget documentation indicates that it 
will be placed on alert as an operational asset during Block 2006. 
Modification of the platform and production of the SBX antenna is on 
schedule, and electronics production is ahead of schedule.

Ground-Based Interceptor:

Development and Production Issues Delay GMD Program:

The ground-based interceptor--the weapon component of the GMD element-
-consists of a kill vehicle[Footnote 25] mounted atop a three-stage 
booster. The booster, which is essentially an ICBM-class missile, 
delivers and deploys the kill vehicle into a trajectory to engage the 
threat. Once deployed, the kill vehicle uses its onboard guidance, 
navigation, and control subsystem to detect, track, and steer itself 
into the enemy warhead, destroying it above the atmosphere through a 
hit-to-kill collision.

In fiscal year 2003, the program focused on the development and testing 
of boosters that will be produced for flight tests, IDO, and the Block 
2004 inventory. Booster development actually began in 1998, but because 
of difficulty encountered by the prime contractor, MDA adopted a dual-
booster approach as part of a risk reduction strategy. The development 
of the booster was transferred to Lockheed Martin, which is developing 
a variant of the original booster. The variant is referred to as "BV+." 
MDA also authorized the GMD prime contractor to award Orbital Sciences 
Corporation (OSC) a contract to produce a second booster that is known 
as the "OSC booster.":

On the basis of our review of fiscal year 2003 activities, booster 
development and production represent major challenges for the GMD 
program in meeting its Block 2004 goals, as shown below:

* Technical. For the most part, the OSC booster has not experienced 
technical issues preventing it from being tested and produced. However, 
the BV+ booster has had problems with its first stage attitude control 
system. In addition, GMD program officials stated that the BV+ booster 
is experiencing quality-related problems with its flight computers.

* Testing. The OSC booster successfully demonstrated the performance 
needed for the GMD mission through a series of flight tests.[Footnote 
26] Beginning with integrated flight test 14, which is scheduled for 4Q 
FY 2004,[Footnote 27] the OSC booster will be used in all intercept 
attempts for the remainder of Block 2004. The Lockheed BV+ booster, 
however, was flight tested in its new configuration in January 2004 
after an 11-month slip. According to MDA officials, its use in flight 
testing and fielding has been deferred to the end of fiscal year 2005.

* Production. Because delayed test events are often indicative of 
development problems, these delays increase the uncertainty of whether 
the contractors will be able to meet their production goals for IDO and 
Block 2004. Additionally, accidents at a subcontractor's facility have 
jeopardized the delivery of Lockheed BV+ boosters for GMD's initial 
deployment. The production facility responsible for propellant mixing 
for the BV+ upper-stage motors was temporarily shut down following two 
separate explosions. As a result, MDA is accelerating the production of 
OSC boosters to compensate for the undelivered Lockheed BV+ boosters. 
It is unclear, however, whether OSC has the capacity to produce the 
additional boosters necessary for IDO.

Kill vehicle development is proceeding in parallel with development of 
the boosters. In fiscal year 2003, the program focused on developing 
and producing kill vehicles for flight tests scheduled in fiscal year 
2004. Similar production-representative articles will be deployed as 
part of the IDO and the Block 2004 defensive capability. Kill vehicle 
development and production, however, represent challenges for the GMD 
program in meeting its Block 2004 goals. For example, the contractor 
has yet to demonstrate that it can increase the production rate of kill 
vehicles by 50 percent.

As a result of developmental and production issues with the kill 
vehicle and boosters, the GMD program likely will not be able to meet 
its goal of delivering 20 interceptors required for the Block 2004 
inventory or its upper-end goal of delivering 10 interceptors for IDO. 
Program documentation indicates that 5, rather than 10, interceptors 
will be fielded when IDO is declared at the end of September 2004; MDA 
expects that it will not have 10 interceptors until February 2005. MDA 
officials did not provide us with a schedule of interceptor deliveries 
for the remaining 10 interceptors that are to be fielded by the end of 
Block 2004 (December 2005).

GMD Testing:

Flight Test Program Plagued with Schedule Slips:

The GMD program conducts a variety of tests, the most visible being 
flight test events. Flight tests may be conducted at the component 
level. For example, the program has planned and conducted booster 
validation (BV) flight tests to ensure proper operation of GMD's two 
booster designs. However, integrated flight tests[Footnote 28] (IFTs) 
are most reflective of the environment in which the various components 
will be required to operate as an integrated element.

During fiscal year 2003, the GMD program office conducted four flight 
test events: IFT-9, IFT-10, a demonstration flight of the OSC Taurus 
missile, and one of two booster validation tests (BV-6). A summary of 
information pertaining to these key flight test events is provided in 
table 22.

Table 22: GMD Flight and Booster Tests, Fiscal Year 2003:
Test event: IFT-9;
Date: Oct. 14, 2002;
Description: Intercept attempt as part of an integrated flight test;
Outcome: Successful intercept.

Test event: IFT-10;
Date: Dec. 15, 2002;
Description: Intercept attempt as part of an integrated flight test;
Outcome: Failed intercept attempt--kill vehicle did not separate from 
surrogate booster.

Test event: OSC demo;
Date: Feb. 6, 2003;
Description: Demonstration of OSC Taurus missile (precursor to OSC 
boost vehicle);
Outcome: Successful demonstration--all objectives achieved.

Test event: BV-6;
Date: Aug. 16, 2003;
Description: Demonstration of OSC boost vehicle of the configuration 
to be fielded;
Outcome: Successful demonstration--all objectives achieved.

Source: Missile Defense Agency.

[End of table]

Of the two intercept tests conducted (IFT-9 and IFT-10), IFT-9 
succeeded in intercepting the target while IFT-10 did not. 
Additionally, both OSC booster tests (OSC demo and BV-6) achieved their 
booster-related objectives. The table, however, does not reflect the 
extent of delays on the entire GMD flight test program caused by fiscal 
year 2003 developmental and delivery issues of the interceptor. As 
shown in table 23 below, the Block 2004 flight test program leading up 
to IDO (September 2004)--consisting of booster validation tests and 
integrated flight tests--has slipped throughout fiscal years 2003 and 
2004. As a result, the test schedule leading up to IDO has become 
compressed. Indeed, the last integrated flight test to be conducted 
before IDO is declared, IFT-14, is scheduled to occur 1-2 months before 
this date; originally, the program had scheduled IFT-14 to occur 12 
months before IDO and IFT-15 to occur 10 months before IDO. As a 
result, MDA has limited its opportunity to validate models and 
simulations of the interceptor's expected performance, which, in turn, 
reduces its ability to confidently characterize GMD's performance prior 
to the initial fielding.

Table 23: Block 2004 Flight Test Program Leading to IDO--Schedule 
Delays:

Test event;
Completed test events: IFT-9 (Intercept attempt);
Original date: Aug. 2002;
Actual/updated date: Oct. 14, 2002;
Delay (months): 2

Test event;
Completed test events: IFT-10 (Intercept attempt);
Original date: Dec. 15, 2002;
Actual/updated date: Dec. 11, 2002;
Delay (months): 0.

Test event;
Completed test events: OSC demo;
Original date: Jan. 31, 2003;
Actual/updated date: Feb. 6, 2003;
Delay (months): 0.

Test event;
Completed test events: BV-6 (OSC booster test);
Original date: Apr. 30, 2003;
Actual/updated date: Aug. 16, 2003;
Delay (months): 3.5.

Test event;
Completed test events: BV-5 (BV+ booster test);
Original date: Feb. 20, 2003;
Actual/updated date: Jan. 9, 2004;
Delay (months): 11.

Test event;
Completed test events: IFT-13B (OSC booster test);
Original date: July 15, 2003;
Actual/updated date: Jan. 26, 2004;
Delay (months): 6.

Test event;
Scheduled test events: IFT-13A (BV+ booster test);
Original date: May 2003;
Actual/updated date: 4Q FY 2005[A];
Delay (months): 26+.

Test event;
Scheduled test events: IFT-13C (Kill vehicle fly-by);
Original date: Mar. 2004
Actual/updated date: 3Q FY 2004;
Delay (months): 3.

Test event;
Scheduled test events: IFT-14 (intercept attempt);
Original date: Oct. 2003;
Actual/updated date: 4Q FY 2004;
Delay (months): 10.

Test event;
Scheduled test events: IFT-15 (intercept attempt);
Original date: Dec. 2003
Actual/updated date: FY 2005 (Schedule being reassessed);
Delay (months): 10+

Source: Missile Defense Agency.

Note: Test schedule as of April 2004.

[A] We use the notation "4Q FY 2005" to mean the fourth quarter of 
fiscal year 2005 and an identical format for other time periods.

[End of table]

Progress Assessment: Performance:

Operational Performance of GMD Remains Uncertain:

The GMD program, which is the primary portion of the Block 2004 
defensive capability, has demonstrated the capability to intercept 
target warheads in flight tests since 1999. In fact, the program has 
achieved five successful intercepts out of eight attempts. However, 
because of range limitations, these flight tests were developmental in 
nature, and engagement conditions were limited to those with low 
closing velocities and short interceptor fly-out ranges.

As noted in our recent report, none of the GMD components included in 
the initial defensive capability have been flight tested in their 
fielded configuration (i.e., with production-representative software 
and hardware).[Footnote 29] For example, the GMD interceptor--booster 
and kill vehicle--will not be tested in its Block 2004 configuration 
until the next intercept attempt, IFT-14, which the GMD program office 
plans to conduct in 4Q FY 2004. IFT-14 will also test, for the first 
time, battle management software that will be part of the September 
2004 defensive capability. Finally, MDA does not plan to demonstrate 
the operation of the critical GMD radar, called Cobra Dane, in flight 
tests before IDO. Therefore, as noted in the Director, Operational Test 
and Evaluation (DOT&E) Fiscal Year 2003 Annual Report to Congress, 
assessments of operational effectiveness will be based on theoretical 
performance characteristics. Nonetheless, the program office told us 
that performance indicators predict that GMD is on track to meet 
operational performance goals.

Progress Assessment: Cost:

DOD budgeted about $12.8 billion during fiscal years 2004 through 2009 
for research, development, and fielding of the GMD element. This is in 
addition to the $12.4 billion already expended between fiscal years 
1996 and 2003.

Most of the program's budget is allocated to fund the element's prime 
contract. In fiscal year 2003, the contractor overran its budgeted 
costs by $138 million and was unable to complete $51 million worth of 
work.

Total Program Cost:

GMD Program Costing Approximately $2 Billion per Year:

MDA estimates that the GMD program will need approximately $12.8 
billion over 6 fiscal years to continue developmental and fielding 
activities associated with Blocks 2004, 2006, and 2008. Table 24 shows 
the planned costs of the program by fiscal year through 2009, the last 
year for which MDA published its funding plans.

Table 24: GMD Planned Costs:

Dollars in billions of then-year costs: 

Block: Block 2004;
Fiscal Year 2004: $1.34;
Fiscal Year 2005: $0.86;
Fiscal Year 2006: $0;
Fiscal Year 2007: $0;
Fiscal Year 2008: $0;
Fiscal Year 2009: $0;
Total: $2.20.

Block: Block 2006;
Fiscal Year 2004: 1.59;
Fiscal Year 2005: 2.33;
Fiscal Year 2006: 2.13;
Fiscal Year 2007: 2.11;
Fiscal Year 2008: 0;
Fiscal Year 2009: 0;
Total: 8.16.

Block: Block 2008;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 0;
Fiscal Year 2007: 0;
Fiscal Year 2008: 1.24;
Fiscal Year 2009: 1.24;
Total: 2.47.

Total;
Fiscal Year 2004: $2.93;
Fiscal Year 2005: $3.19;
Fiscal Year 2006: $2.13;
Fiscal Year 2007: $2.11;
Fiscal Year 2008: $1.24;
Fiscal Year 2009: $1.24;
Total: $12.84.

Source: Missile Defense Agency.

Note: Numbers may not add exactly because of rounding.

[End of table]

The budget given in table 24 does not capture the full cost of the 
Block 2004 GMD capability, which we estimate is approximately $18.49 
billion.[Footnote 30] As shown in table 25, our estimate includes the 
following:

* Developmental costs of approximately $12.37 billion, which cover 
funding from 1996 through 2003. Between 1996 and 2001, DOD expended 
$6.81 billion to develop the National Missile Defense program. The 
knowledge, software, and hardware gained from this program directly 
contribute to the development of the Block 2004 GMD element. In 
addition, $5.56 billion was expended in fiscal years 2002 and 2003 for 
the Block 2004 development of the GMD element.

* Block 2004 activities, scheduled for fiscal years 2004 and 2005, 
which are budgeted at $2.20 billion.

* Block 2006 funds amounting to $3.92 billion that are supporting 
activities planned for fiscal years 2004 and 2005. When the GMD program 
allocated its expected budget to planned blocks, it allocated funds 
earmarked to support Block 2004 activities to the Block 2006 budget. 
For example, the cost of flight tests conducted during Block 2004 was 
accounted for in the Block 2006 budget.

Table 25: Cost of Block 2004 GMD Defensive Capability:

Dollars in billions of then-year dollars: 

Sunk costs;
Fiscal Year 1996-2001: $6.81;
Fiscal Year 2002: $0;
Fiscal Year 2003: $0;
Fiscal Year 2004: $0;
Fiscal Year 2005: $0;
Total: $6.81.

GMD Block 2004 Test Bed[A];
Fiscal Year 1996-2001: 0;
Fiscal Year 2002: 3.07;
Fiscal Year 2003: 2.49;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Total: 5.56.

GMD Block 2004 Test Bed/Initial Defensive Capability;
Fiscal Year 1996-2001: 0;
Fiscal Year 2002: 0;
Fiscal Year 2003: 0;
Fiscal Year 2004: 1.34;
Fiscal Year 2005: 0.86;
Total: 2.20.

GMD Block 2004/2006 development;
Fiscal Year 1996-2001: 0;
Fiscal Year 2002: 0;
Fiscal Year 2003: 0;
Fiscal Year 2004: 1.59;
Fiscal Year 2005: 2.33;
Total: 3.92.

Total;
Fiscal Year 1996-2001: $6.81;
Fiscal Year 2002: $3.07;
Fiscal Year 2003: $2.49;
Fiscal Year 2004: $2.93;
Fiscal Year 2005: $3.19;
Total: $18.49.

Source: Missile Defense Agency.

[A] This cost represents funding for both Program Elements 3011 and 
3012, "Block 2004 Test Bed" and "GMD Development and Test Bed 
Upgrades," respectively. Beginning in fiscal year 2004, these Program 
Elements were changed to "GMD Test Bed Block 2004" and "GMD Test Bed 
Block 2006.":

[End of table]

Prime Contractor Fiscal Year 2003 Cost and Schedule Performance:

Budgeted Costs Exceeded by $138 Million:

GMD's prime contract consumes the bulk of the program's budget. For 
example, about 80 percent of the fiscal year 2004-2009 budget is 
allocated to the prime contractor team and 20 percent to the 
government. The January 2001 GMD contract, which ends in fiscal year 
2007, covers activities performed in Block 2004 and Block 2006. It was 
awarded prior to major changes in the missile defense program and, 
accordingly, the block approach and the procurement of interceptors for 
a defensive capability were not part of the original contract.

We used Cost Performance Reports to assess the prime contractor's cost 
and schedule performance during fiscal year 2003. The government 
routinely uses such reports to independently evaluate these aspects of 
the prime contractor's performance. Generally, the reports detail 
deviations in cost and schedule relative to expectations established 
under contract. Contractors refer to deviations as "variances." 
Positive variances--activities costing less or completed ahead of 
schedule--are generally considered as good news and negative variances-
-activities costing more or falling behind schedule--as bad news.

According to our analysis, the contractor's cost performance in fiscal 
year 2003 has steadily declined but schedule performance has been 
mixed. As shown below in figure 8, the GMD contractor exceeded its 
budgeted costs by approximately $138 million, which equates to 7.1 
percent of the contract value over the fiscal year. The contractor also 
was unable to complete $51 million worth of scheduled work; most of the 
decline occurred during the second half of the fiscal year.

Figure 8. Fiscal Year 2003 Cost and Schedule Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

Developmental issues with the interceptor have been the leading 
contributor to fiscal year 2003 cost overruns and schedule slips. Our 
analysis shows that the development of the GMD interceptor cost $127.2 
million more in fiscal year 2003 than budgeted, and that the kill 
vehicle accounted for approximately 25 percent of this overrun. 
Moreover, booster development resulted in a $38 million cost overrun; 
the Lockheed BV+ booster was responsible for 52 percent of all of the 
interceptor's unfinished work.

Based on the contractor's cost and schedule performance in fiscal year 
2003, we estimate that the current GMD contract--which ends in 
September 2007--will overrun its budget by between $237 million to $467 
million, of which approximately 84 percent arising from the interceptor 
component. The contractor, in contrast, estimates no cost overrun at 
completion of the GMD contract. The contractor bases this assumption on 
the planned availability of $63 million in management reserve funds to 
offset cumulative cost overruns of approximately $128 million.[Footnote 
31] The intended purpose of management reserve funds, however, is not 
to offset cost overruns; rather, management reserves are a part of the 
total project budget that should be used to fund undefined, but 
anticipated, work. Although programs may use management reserves to 
offset cost variances, most programs wait until the work is almost 
completed prior to allocating these funds. The GMD contractor, in 
contrast, has completed only about 50 percent of the work directed by 
the program office. Program officials stated that the contractor is 
investigating sources of potential savings to offset interceptor cost 
overruns.

The cumulative schedule variance as of September 2003 was $128 million 
behind schedule. Therefore, to finish within budget and schedule, the 
contractor will have to improve its efficiency. According to our 
analysis, the GMD contractor has, effectively, been delivering $0.95 
worth of scheduled work for every budgeted dollar that was spent to 
accomplish that scheduled work during fiscal year 2003. In order to 
complete all scheduled work at the budgeted cost, the GMD contractor 
will have to complete $1.01 worth of scheduled work for every dollar 
that will be spent to accomplish that scheduled work.

Program Risks:

On the basis of our assessment of fiscal year 2003 activities, we found 
that the GMD program faces key risks in fielding the planned initial 
capability by September 2004 and the Block 2004 defensive capability by 
December 2005. These risks include readiness of interceptor production 
for the September 2004 IDO, limited testing before the system becomes 
operational, and a technical risk associated with the kill vehicle.

Contractor's Readiness to Produce Interceptors:

The principal components of the GMD interceptor--the booster and kill 
vehicle--are at risk for falling short of production goals. The GMD 
program office had intended to field both BV+ and OSC boosters as part 
of the September 2004 IDO. However, developmental setbacks and supplier 
issues associated with the Lockheed BV+ booster have forced MDA to rely 
solely on the OSC booster for IDO. OSC's readiness to produce the 
additional boosters in the time remaining for IDO has not been 
established. Kill vehicle production is uncertain, as well. The 
contractor has yet to demonstrate that it can increase the production 
rate of kill vehicles by 50 percent--from 8 to 12 kill vehicles per 
year.

GMD program officials characterized the schedule to meet the September 
2004 deadline for initial operations as extremely aggressive, with no 
margin for delay. Should interceptor production fall behind, the 
program will either have to field fewer interceptors than planned or 
delay planned fielding dates.

Limited Testing Before IDO:

The GMD test program has been in a state of flux. The test program 
under the National Missile Defense program scheduled 16 integrated 
flight tests (intercept attempts) to be carried out between fiscal 
years 1999 and 2004. The current GMD test program, however, consists of 
10 intercept attempts over the same time period. The change stems from 
the cancellation of IFT-11, IFT-12, and IFT-16; the conversion of IFT-
13 to boost validation tests (IFT-13A and IFT-13B); and the delay of 
IFT-17 and IFT-18 into fiscal year 2005.

MDA had scheduled two flight tests--IFT-14 and IFT-15--to be conducted 
before September 2004, but only IFT-14 is now planned before then. IFT-
14 is particularly relevant because it is planned to utilize 
production-representative hardware and operational software for the 
first time in an intercept attempt. The following firsts are expected 
to occur in IFT-14, which is scheduled for 4Q FY 2004:

* The new OSC booster will be used--all previous tests employed 
surrogate boosters.

* A production-representative kill vehicle, which incorporates new 
hardware and discrimination software, will be tested.

* A new, operational build of the fire control (battle management) 
software will be used to control the GMD engagement.

While MDA will gain some confidence from the successful execution of 
IFT-14, this test provides only a single opportunity to demonstrate the 
components to be fielded as part of IDO and to resolve any problems 
uncovered during flight testing.

The previous test program for the NMD system, the predecessor to GMD, 
also called for operational testing by the military services, a 
statutory requirement to characterize operational effectiveness and 
suitability of a deployed system for use by the warfighter. MDA does 
not plan to operationally test the GMD element before it is available 
for IDO or Block 2004. The fielding is not connected with a full-rate 
production decision that would clearly trigger statutory operational 
testing requirements. The Combined Test Force, a group of users and 
developers, plans tests to incorporate both developmental and 
operational test requirements in the test program. In addition, MDA is 
introducing some elements of operational testing into developmental 
tests, such as soldier participation during some developmental tests. 
However, GMD's current test program does not include flight tests 
conducted under the unrehearsed and unscripted conditions 
characteristic of operational testing.

Technical Risk of the Kill Vehicle:

A technical problem in the kill vehicle observed in earlier flight 
tests could affect the operational effectiveness of the GMD element. 
Although the program office indicated that the so-called "track gate 
anomaly" issue has been resolved, theories of and solutions for the 
anomaly have not been verified in flight. The next attempt for 
verification will occur in integrated flight test 13C (IFT-13C), which 
is scheduled for 3Q FY 2004.[Footnote 32]

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix VI Summary:

Kinetic Energy Interceptors:

Program Description: 

The Kinetic Energy Interceptors (KEI) element is a new Missile Defense 
Agency (MDA) program in its early stage of development. The program is 
building on existing missile defense technology to develop an 
interceptor capable of destroying long-range ballistic missiles during 
the boost phase of flight--the period after launch when rocket motors 
are thrusting. KEI also provides the opportunity to engage an enemy 
missile in the early-ascent phase, the period after booster burnout 
before warheads are released. MDA expects to have an initial land-based 
capability in the 2010-11 time frame, followed by a sea-based 
capability during 2012-13.

The Department of Defense (DOD) budgeted about $7.9 billion for 
KEI development during fiscal years 2004 through 2009. About $91.5 
million was invested in KEI's immediate predecessor program in fiscal 
year 2003.

Fiscal Year 2003 Progress Assessment: 

KEI program activities in fiscal year 2003 primarily revolved around 
the selection of a prime contractor for KEI's development and testing. 
The program also continued with experimental work geared toward 
collecting the data of boosting missiles.

Schedule: In December 2003, MDA awarded Northrop Grumman a $4.6 billion 
prime contract to develop and test the KEI element over the next 8 
years. The award follows an 8-month concept design effort between 
competing contractor teams, each of which was awarded $10 million 
contracts to design concepts for KEI. In addition to contractual and 
source-selection activities completed in 2003, the KEI program office 
continued with activities designed to reduce technical risks in 
developing the KEI interceptor. In particular, the program office 
continued with technical work pertaining to an experiment for 
collecting data on boosting missiles, known as the Near Field Infrared 
Experiment. This work is expected to culminate with a satellite launch 
during the fall of 2005.

Performance: Because this element is still in its infancy, data are not 
yet available to make a performance assessment.

Cost: According to the KEI program manager, the prime contract 
incorporates various innovative acquisition initiatives, which are 
expected to encourage the contractor to develop a quality product on 
time and within the initially proposed price. Because the prime 
contract was awarded in December 2003 (fiscal year 2004), no fiscal 
year 2003 data existed for an assessment of the contractor's cost and 
schedule performance.

Key risks: The program office acknowledges that it faces general 
challenges in developing the first capability that uses a missile to 
destroy another missile in the boost phase of flight. From discussions 
with program officials, we also found that KEI software costs could be 
underestimated, putting the program at risk for cost growth and 
schedule delays.

Appendix VI: Kinetic Energy Interceptors:

Background: Element Description:

The Kinetic Energy Interceptors (KEI) element is a missile defense 
system designed to destroy ballistic missiles during the boost phase of 
flight, the period after launch when a missile's rocket motors are 
thrusting. KEI also provides the opportunity to engage enemy missiles 
in the early-ascent phase, the period after booster burnout before the 
missile can release warheads and countermeasures. Initially, the 
program is focused on developing a mobile, land-based system--to be 
available in the Block 2010 time frame--that counters long-range 
ballistic missile threats. Subsequent efforts will include sea-and 
space-based efforts that provide protection against all classes of 
ballistic missile threats.

The land-based system will be a deployable unit consisting of a command 
and control / battle management unit, mobile launchers, and 
interceptors. Program officials noted that because the KEI element has 
no sensor component such as radars, it would rely on Ballistic Missile 
Defense System (BMDS) sensors (space-based infrared sensors and 
forward-deployed radars) for detection and tracking functions. Like 
other existing hit-to-kill interceptors, the KEI interceptor is 
comprised of a booster and kill vehicle. The kill vehicle is expected 
to employ an infrared seeker derived from the Aegis BMD program and 
divert thrusters, which provide terminal guidance and control, derived 
from the Ground-based Midcourse Defense (GMD) program.

Background: History:

In the summer of 2002, the Defense Science Board recommended that the 
Missile Defense Agency (MDA) initiate a program to develop a boost/
ascent-phase interceptor capable of countering intermediate-and long-
range ballistic missile threats. Work in this area was initiated in 
fiscal year 2003 under the Kinetic Energy Boost program as part of 
MDA's Boost Defense Segment. Beginning with fiscal year 2004, this 
program has been budgeted under a new MDA area known as BMDS 
Interceptors, which includes the KEI element.

Background: Developmental Phases:

KEI's development is proceeding in a series of planned two-year blocks 
known as Blocks 2010, 2012, and 2014. Concurrently, the KEI program is 
conducting risk mitigation projects to determine whether a space-based 
platform, from which interceptors could be launched, is feasible and 
affordable. Other blocks may follow, but on the basis of recent budget 
documentation, MDA has not yet defined their content.

Block 2010: The KEI program entered the Development and Test Phase in 
December 2003, after MDA selected Northrop Grumman as the prime 
contractor. The contractor has begun development activities leading to 
a Block 2010 capability, the first increment of land-based interceptors 
capable of destroying ballistic missiles during the boost or early-
ascent phases of flight. MDA envisions that these first-generation 
interceptors will be built and launched from trucks that can be driven 
up close to the border of the threatening nation.

Block 2012: This block increment expands KEI's Block 2010 capabilities 
to include the capability to launch interceptors from sea-based 
platforms such as Aegis cruisers or submarines. A study is under way to 
select the platforms. The Block 2012 sea-based capability will use the 
interceptor developed for Block 2010.

Block 2014: During this block, the interceptor is expected to evolve 
into a new, multiuse interceptor capable of performing boost, early-
ascent, and midcourse-phase intercepts from platforms on land or sea.

Progress Assessment: Schedule:

The KEI program office's activities in fiscal year 2003 primarily 
revolved around the selection of a prime contractor for KEI development 
and testing. Activities involving the Near Field Infrared Experiment 
(NFIRE), which focus on reducing technical risk through experiments 
that collect data on the plume of boosting missiles, were also carried 
out in fiscal year 2003.

Prime Contract Awarded to Northrop Grumman:

In March 2003, two KEI concept design contracts worth $10 million each 
were awarded to competing teams headed by Northrop Grumman and Lockheed 
Martin. These contracts preceded MDA's selection of Northrop Grumman in 
December 2003 as the element's prime contractor.

The Northrop Grumman $4.6 billion cost plus award fee contract employs 
a unique acquisition strategy that places mission assurance--the 
successful operation of the element to perform its mission--as a 
program priority. To implement this strategy, MDA based its source 
selection decision on the extent to which the contractor's past 
performance produced successful results on programs of similar 
complexity, as well as on the performance of the proposed design. MDA 
also built incentives into the contract that require the prime 
contractor to achieve mission assurance through a disciplined execution 
of quality processes. For example, the contractor earns an award fee 
only if flight-tests are successful and the percentage of the award fee 
earned is determined by whether the tests are conducted on schedule.

Experimental Activities Under Way:

NFIRE, scheduled for a fall 2005 launch, is being funded under the KEI 
program as a risk-reduction activity to collect phenomenology data on 
boosting missiles. The experiment consists of launching an experimental 
satellite that is designed to record infrared imagery of a ballistic 
missile's plume and the body of the missile itself. Data from NFIRE 
will help MDA develop algorithms and assess its kill vehicle design for 
boost-phase missile defenses.

In addition to NFIRE, the KEI program is working on a variety of risk 
reduction activities. For example, work is being done in support of 
space-based KEI development, including miniaturization, weight 
reduction, and producibility of satellite and interceptor 
subcomponents.

Program Assessment: Performance:

At this early stage of element development, data are not available to 
make a performance assessment.

Program Assessment: Cost:

MDA expects to invest about $7.9 billion from fiscal year 2004 through 
2009 to develop the KEI element. This is in addition to the 
approximately $91.5 million invested in the program's immediate 
predecessor, the Kinetic Energy Boost program.

According to the KEI Program Manager, the program is incorporating 
various innovative acquisition initiatives into the KEI development and 
testing contract. He told us that these initiatives are expected to 
encourage the contractor to develop a quality product on time and 
within the initially proposed price.

Because the prime contract was awarded in December 2003 (fiscal year 
2004), no fiscal year 2003 data existed for an assessment of the 
contractor's cost and schedule performance.

Total Program Cost:

KEI Program Costing Approximately $1.3 Billion per Year:

The KEI program's planned costs for the next 6 fiscal years are 
expected to be around $7.9 billion. This covers land-and sea-based KEI 
development, ground-based risk mitigation projects to determine the 
feasibility of a space-based platform, and international cooperation 
projects. Of the $7.9 billion, approximately $4.8 billion is allocated 
to the land-based capability. Table 26 shows the expected costs of the 
program by fiscal year through 2009, the last year for which MDA 
published its funding plans.

Table 26: KEI Planned Cost: 

Dollars in Millions of then-year dollars: 

Block: Block 2010;
Fiscal Year 2004: $112;
Fiscal Year 2005: $451;
Fiscal Year 2006: $971;
Fiscal Year 2007: $1,275;
Fiscal Year 2008: $1,215;
Fiscal Year 2009: $670;
Total: $4,583.00

Block: Block 2012;
Fiscal Year 2004: 0;
Fiscal Year 2005: 47;
Fiscal Year 2006: 131;
Fiscal Year 2007: 422;
Fiscal Year 2008: 947;
Fiscal Year 2009: 1,739;
Total: 3,286.00

Total;
Fiscal Year 2004: $112;
Fiscal Year 2005: $498;
Fiscal Year 2006: $1,102;
Fiscal Year 2007: $1,697;
Fiscal Year 2008: $2,162;
Fiscal Year 2009: $2,409;
Total: $7,869.00

Source: Missile Defense Agency.

[End of table]

The immediate predecessor of the KEI element, Kinetic Energy Boost, was 
funded in fiscal year 2003 under the Boost Defense Segment[Footnote 33] 
and had a budget of $91.5 million.

Program Acquisition Initiatives:

The prime contract awarded in December 2003 was based on a number of 
innovative acquisition strategies. First, the program gave competing 
contractors flexibility to design a system that met only one broad 
requirement--that the KEI element be capable of reliably intercepting 
missiles in their boost/ascent phase. MDA did not set cost or schedule 
requirements or specify how the contractors should design the system. 
Second, upon award of the development contract, the program locked the 
winning contractor into firm, fixed-price commitments for the 
production of a limited number of interceptor, launcher, and battle-
management components. Third, the program office included an option in 
the contract for a commercial type "bumper-to-bumper warranty." 
Finally, the contract stipulates that the contractor earns an award fee 
only if flight tests are successful. Additionally, the fee is reduced 
if the tests are not conducted on schedule. The Program Manager told us 
that the program's goal was to provide the contractor with incentives 
to develop a quality product on schedule and at the originally proposed 
price.

Additionally, consistent with the MDA acquisition approach, the KEI 
program plans to conduct annual continuation reviews to determine if 
the KEI program and its prime contract should continue. These reviews 
focus on contractor performance and external conditions, such as 
potential threats or MDA's funding priorities.

One initiative of the program's acquisition strategy is the inclusion 
in Northrop Grumman's development contract of a firm, fixed unit 
production price for all of the element's components--launcher, 
interceptor, and battle management. This initiative is unique because 
the production price was agreed upon before the contractor developed 
the component's design and because the price was a factor in MDA's 
choice of Northrop Grumman as the KEI prime contractor. Program 
officials believe that the government benefited from this strategy, 
because competition encouraged Northrop Grumman and Lockheed Martin, 
which were competing for the contract, to offer MDA their best 
production price.

According to program officials, Northrop Grumman could ask for a price 
increase, should it find, when production begins, that it cannot 
produce the components at the agreed-upon price. However, the price 
increase would come with a cost to the contractor. Northrop Grumman 
would have to provide data to support the new price, which would be 
time-consuming, and therefore, costly.

Although this initiative appears to be beneficial to MDA, the agency 
could find when it reaches the production phase that it has not 
budgeted sufficient funds to support the production program. According 
to a study conducted by the Institute for Defense Analyses, requiring a 
binding price commitment during the development phase of an acquisition 
program provides the contractor with a significant incentive to 
underestimate production costs. The study goes on to explain that 
because of a similar initiative in the 1960s, a statistically 
significant number of contractors experienced production costs much 
greater than the firm fixed price agreed upon. Furthermore, the former 
head of the Defense Department's independent cost estimating office 
stated that the only time it makes sense to request a fixed production 
unit price at this point in a weapon system's development is when the 
weapon is a low-technology project whose requirements and funding are 
stable. These criteria do not apply to KEI. Rather, the KEI contractor 
is being asked to develop a technologically advanced system associated 
with the challenging mission of boost phase intercepts.

Program Risks:

The program office acknowledges that it faces challenges in developing 
the first operational boost phase intercept capability that employs 
hit-to-kill concepts. In addition, from discussions with program 
officials, we found that KEI's software costs could be underestimated, 
putting the program at risk for cost growth and schedule delays.

Technical Challenges:

The scientific and missile defense communities recognize that the boost 
phase intercept mission is technically and operationally challenging, 
particularly because of the short timeline involved with engaging a 
boosting missile. For example, in its July 2003 report on boost phase 
intercept systems,[Footnote 34] the American Physical Society concluded 
that boost-phase defense of the entire United States against solid-
propellant ICBMs is unlikely to be practical when all factors are 
considered, no matter where or how interceptors are based. According to 
the report, even with optimistic assumptions, a terrestrial-based 
system would require very large interceptors with extremely high speeds 
and accelerations to defeat a solid-propellant ICBM launched from even 
a small country such as North Korea.

Furthermore, a scientific study on boost-phase defense commissioned by 
MDA[Footnote 35] focused on selected issues of high risk, including 
methods for early launch detection of missile launches, interceptor 
divert requirements, and discrimination of the missile's body from its 
luminous exhaust plume.[Footnote 36] The study concluded that there are 
no fundamental reasons why an interceptor cannot hit a boosting target 
with sufficient accuracy to kill the warhead. However, the study 
identified several challenges, including understanding the plume 
phenomenology well enough to have confidence in the appropriate sensor 
combination chosen for the interceptor. Both studies highlighted the 
short timeline that the boost-phase system will have to detect and hit 
an enemy missile as a key area of concern.

Software Costs:

The KEI Program Office is uncertain of whether the negotiated cost of 
the prime contract includes sufficient funds to complete software 
development for the various KEI components, including the battle-
management, interceptor, and launcher components. Northrop Grumman 
based its estimates of software development on comparisons with similar 
systems--such as GMD and Aegis BMD--and on a projection that existing 
software could be reused. MDA officials from the program office told us 
that they were somewhat concerned that Northrop Grumman underestimated 
the amount of software it could reuse from the GMD program for the KEI 
program.

Software growth in weapon systems programs has traditionally been 
problematic. Historically, a contractor must develop twice as many 
lines of software code for the weapon system as it initially estimated. 
This growth has occurred when contractors underestimate the effort, 
make invalid assumptions regarding the extent to which existing 
software code can be reused, and make unrealistic assumptions about how 
quickly software can be produced. If software growth in the KEI program 
increases at the historical rate, the amount of software needed by the 
element will likely exceed the contractor's initial estimate of 1 
million lines of code, causing cost increases and schedule delays.

According to program officials, MDA discussions with Northrop Grumman 
resulted in a reduction of its estimate of the amount of existing 
software code that could be reused in the KEI element. However, the 
officials told us that the program is still concerned that the 
contractor's estimate is optimistic.

Software estimates typically include an analysis of uncertainty, which 
indicate the reliability of the contractor's estimates for the software 
development effort. KEI program officials noted that the contractor 
performed an uncertainty analysis for the interceptor component but not 
for the battle management component that includes the bulk of the KEI 
software code.

Conclusion:

If the KEI contractor cannot develop the software within the negotiated 
cost of the KEI contract, MDA could find itself in the position of 
having to locate funds to cover cost overruns. MDA would benefit from 
quickly recognizing this funding shortfall because, with time, it might 
be able to locate funding without causing significant perturbations in 
the KEI or other element's programs. Also, if additional funding were 
needed, making the funds available to the contractor early in the 
development effort would allow the contractor to increase personnel so 
that the effort would not fall behind schedule. Completing uncertainty 
analyses for all components of the KEI element is the best means of 
determining if such a funding shortfall is likely.

Recommendation for Executive Action:

We recommend that MDA analyze the degree of risk associated with the 
KEI software components by performing an uncertainty analysis that 
quantifies the reliability of the proposed estimates.

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix VII Summary:

Space Tracking and Surveillance System:

Program Description: 

The Space Tracking and Surveillance System (STSS) will eventually 
comprise a constellation of low-orbiting satellites used to detect and 
track enemy missiles throughout all phases of flight. The Missile 
Defense Agency (MDA) manages STSS, which replaces the Air Force's 
Space-Based Infrared System-Low (SBIRS-Low) program. The STSS program 
office is preparing to launch in 2007 two demonstration satellites that 
were built under the SBIRS-Low program. After launch, MDA plans to 
assess how well these demonstration satellites perform missile defense 
surveillance functions. On the basis of this assessment, the agency 
will determine capabilities and goals for next-generation STSS 
satellites.

The Department of Defense (DOD) budgeted about $4.15 billion for STSS's 
development during fiscal years 2004 through 2009. Earlier, MDA 
expended about $540 million in fiscal years 2002 and 2003. In addition, 
from program initiation through 1999, the SBIRS-Low program invested 
$686 million to develop the demonstration satellites that are now part 
of the STSS program.

Fiscal Year 2003 Progress Assessment: 

The STSS program office completed most activities on time and slightly 
over budget during fiscal year 2003. However, cost and schedule 
performance could potentially slip because of unforeseen problems 
arising during the process of preparing the satellites for launch.

Schedule: Program activities completed in fiscal year 2003 were focused 
on the ground testing of existing hardware rather than on the design 
and development of future STSS satellites. Equipment built for the 
SBIRS-Low program was retrieved from storage and tested to determine 
whether individual components were still in good working order. Testing 
of the first demonstration satellite's hardware--the spacecraft itself 
and infrared sensors--was completed on time, and testing of the second 
satellite is to be completed by August 2004, slightly behind schedule. 
Software development activities also have been completed. However, STSS 
program officials are closely monitoring the development of software 
for the satellites' sensors because software requirements have not been 
finalized.

Performance: STSS's indicators show that the program is on track for 
meeting performance requirements.

Cost: Our analysis of prime contractor cost performance reports shows 
that the contractor completed work in fiscal year 2003 at slightly more 
cost than budgeted. Specifically, the contractor overran budgeted costs 
by less than $1 million and could not complete about $6.4 million worth 
of work. Because of changes made to the contract during this time, more 
data are needed to determine whether the entire contract will exceed 
its projected cost and schedule. The contractor reported that sensor-
related issues are among the problems that contributed to the cost 
overrun and schedule delays. These problems, the contractor said, could 
jeopardize the overall delivery of the satellites.

Risks: On the basis of our assessment of fiscal year 2003 activities, 
we did not identify any evidence that the STSS program will be unable 
to launch the two demonstration satellites in 2007. However, MDA 
identified a number of risk areas that have the potential to increase 
the program's cost and delay the 2007 launch of these satellites. 
Unforeseen problems could arise during the testing, assembling, and 
integration of hardware components of the satellites, which had been in 
storage for 4 years. Officials cannot predict which components will be 
found in nonworking order or the costs associated with fixing them. 
Also, software development and software and hardware integration are 
areas that historically have been responsible for affecting a program's 
schedule.

Appendix VII: Space Tracking and Surveillance System:

Background: Element Description:

The Space Tracking and Surveillance System (STSS) is being developed as 
an integrated element of the Ballistic Missile Defense System (BMDS). 
The Missile Defense Agency (MDA) envisions that the STSS element will 
be comprised of a constellation of low-orbiting satellites to detect 
and track enemy missiles throughout all phases of flight--from launch 
through midcourse and into reentry. Any real operational capability, 
however, would not be realized until the next decade.

The STSS program is currently working on the first increment of the 
STSS element, known as Block 2006. Schedule and technical performance 
objectives for the Block 2006 element are detailed in the MDA 
Director's Guidance, which directs the STSS program office to prepare 
and launch two demonstration satellites that were partially built under 
the Air Force's Space-Based Infrared System-Low (SBIRS-Low) program. 
The two satellites each contain two infrared sensors, one that would 
acquire targets by watching for bright missile plumes during the boost 
phase (an acquisition sensor), and one that would track the missile 
through midcourse and reentry (a tracking sensor). MDA plans to launch 
these satellites in 2007, in tandem, in an effort to assess how well 
they perform the missile defense surveillance and detection functions. 
Using data collected by the satellites, MDA will determine what 
capabilities are needed, and what goals should be set, for the next-
generation of STSS satellites.

Background: History:

Over the past two decades, the Department of Defense (DOD) initiated a 
number of programs and spent several billion dollars trying to develop 
a system for tracking missiles from space. Owing partially to the 
technical challenges associated with building such a system, DOD did 
not successfully launch any satellites or demonstrate any space-based 
midcourse tracking capabilities. Program managers did not fully 
understand the challenges in developing these systems and, accordingly, 
schedules were overly optimistic and program funding was set too low. 
For example, sensors aboard the satellites must be able to track 
deployed warheads in the midcourse phase of flight in contrast to the 
bright plume of boosting missiles. To perform this mission, onboard 
sensors must be cooled to low temperatures for long periods of time and 
be able to withstand the harsh environmental conditions of space.

The last program under development for detecting and tracking missiles 
from low-earth orbits in space[Footnote 37] was SBIRS-Low, which DOD 
established in 1996 to support national and theater missile defense. 
Its mission was to track missile complexes over their entire flights 
and to discriminate warheads from decoys. The SBIRS-Low program 
experienced cost, schedule, and performance shortfalls. As a result, 
DOD cancelled the accompanying technology program in 1999--the two-
satellite Flight Demonstration System--and put the partially 
constructed equipment into storage.

In October 2000, Congress directed the Air Force to transfer the SBIRS-
Low program to the Ballistic Missile Defense Organization (now MDA). 
When MDA inherited SBIRS-Low, the agency decided to make use of the 
equipment that was partially built under the SBIRS-Low technology 
program by completing the assembly of the equipment and launching the 
two satellites in 2007 to coincide with broader missile defense tests. 
At the end of 2002, the SBIRS-Low program became STSS.

Background: Developmental Phases:

STSS's development is proceeding in a series of planned 2-year blocks. 
Near-term blocks are known as Blocks 2006, 2008, and 2010. Other blocks 
may follow, but on the basis of recent budget documentation, MDA has 
not yet defined their content.

Block 2006. Block 2006 involves the assembly, integration, testing, and 
launch of two demonstration satellites in 2007, as described above.

Block 2008. Block 2008 is primarily an upgrade of Block 2006 ground 
stations, which are used to collect and analyze data from Block 2006 
satellites. The software upgrades will benefit both the demonstration 
satellites as well as future satellites.

Block 2010. The Block 2010 program is essentially a new phase of STSS 
development. Building upon lessons learned from the previous 
development efforts and blocks, Block 2010 involves the design and 
development of new-generation satellites, which are expected to include 
more robust technologies. MDA plans to launch the first of these in 
2011.

Progress Assessment: Schedule:

The STSS program office has completed most activities planned for 
fiscal year 2003. According to the program office, the contractor has 
been performing to an accelerated delivery schedule, and activities 
associated with testing and completing the two satellites have 
proceeded with fewer problems than anticipated. About 30 percent of 
Block 2006 activities have been completed, but the fiscal year 2003 
activities were generally simple. For example, they involved taking the 
equipment out of storage and performing individual component testing to 
determine whether any degradation in the equipment had occurred over 
time. The program still has many more tasks before the satellites will 
be ready for launch, such as completing software development and 
integration activities.

Block 2006 activities achieved during fiscal year 2003 can be divided 
into three categories. Specifically, the STSS program office worked to:

* test hardware components of existing satellites;

* develop satellite software, as needed, not developed under the 
previous program; and:

* prepare for a design review to be held in early fiscal year 2004 to 
ensure the design's adequacy to support its BMDS mission.

Testing of Existing Hardware:

Most Activities Proceeding as Planned:

At the beginning of the STSS program in 2002, MDA retrieved from 
storage the satellite components that were partially constructed under 
the SBIRS-Low program. STSS contractors retrieved these legacy 
components and are in the process of testing the satellite spacecraft 
(the space platform) and its payload (infrared sensors and supporting 
subsystems) to ensure that this hardware is still in working order. 
Testing of the first satellite's components is complete: sensor 
hardware testing began in November 2002 and was completed in October 
2003; the spacecraft's hardware testing began in May 2003 and was 
completed in September 2003.

Part of the testing of the component hardware of the second satellite 
is proceeding as planned. Although there was a delay in the start of 
the spacecraft testing, the second satellite's component testing 
remained on schedule. For example, STSS contractors have visually 
inspected the satellite's spacecraft hardware. Spacecraft hardware 
testing was originally scheduled to begin in September 2003 and be 
completed in November 2003. However, it did not begin until November 
2003 and is now scheduled to be completed in May 2004. Payload hardware 
testing began in December 2003 but will not be finished until August 
2004. Table 27 summarizes the activities and completion dates 
associated with hardware testing.

Table 27: Block 2006 STSS Activities--Testing Hardware Components:

Test activity: Payload Flight 1 hardware testing;
Actual/planned completion date: Oct. 2003;
Comments: Completed on schedule.

Test activity: Spacecraft Flight 1 hardware testing;
Actual/planned completion date: Sept. 2003;
Comments: Completed on schedule.

Test activity: Payload Flight 2 hardware testing;
Actual/planned completion date: Aug. 2004;
Comments: Ongoing.

Test activity: Spacecraft Flight 2 hardware testing;
Actual/planned completion date: May 2004;
Comments: Ongoing.

Source: Missile Defense Agency.

[End of table]

Software Development Slightly Behind Schedule And More Challenging 
Efforts Remain:

Table 28 summarizes the principal software development activities 
completed in fiscal year 2003 pertaining to software development for 
the spacecraft and for the ground segments.

Table 28: Block 2006 STSS Activities--Software Development:

Activity: Ground Segment Requirements Definition;
Date completed: Dec. 2002;
Comments: Completed ahead of schedule.

Activity: Spacecraft Flight Software (Build 3);
Date completed: Jan. 2003;
Comments: Completed on schedule.

Activity: Spacecraft Flight Software Integration and Test (Build 3);
Date completed: Mar. 2003;
Comments: Completed on schedule.

Activity: Ground Design (Build 1);
Date completed: Mar. 2003;
Comments: Completed 2 weeks late.

Activity: Spacecraft Flight Software (Build 4);
Date completed: Dec. 2003;
Comments: Completed 4 months late.

Source: Missile Defense Agency.

[End of table]

Most activities completed to date have finished at or slightly behind 
schedule. However, the STSS program office is closely tracking the 
development of payload software, because there is significant cost, 
schedule, and performance risk associated with the effort. In 
particular, the program office has not fully established software 
requirements. Studies have shown that when operational needs are not 
well defined, the associated software effort tends to grow, resulting 
in large cost overruns, schedule slips, and reduced functionality. 
These risks are compounded by the fact that software from the SBIRS-Low 
program was not completed or sufficiently documented. STSS program 
officials are concerned that the extent of software reuse might have 
been optimistic and, consequently, software development costs could be 
more than double the originally proposed cost.

Design Review Successfully Conducted:

The STSS program office conducted a single design review in fiscal year 
2003--the System Preliminary Design Review. According to the program 
office, although it was delayed by 1 month, the outcome was successful. 
During the latter part of fiscal year 2003, the program office began 
preparing for the System Critical Design Review, which was successfully 
completed early in fiscal year 2004.

Progress Assessment: Performance:

The Block 2006 STSS satellites are built from legacy hardware and will 
be used as technology demonstrators (rather than for operational 
missions). The program considers that demonstration of STSS 
functionality as more critical than the demonstration of STSS 
effectiveness in performing the functions. The rationale is to keep 
costs within budget, especially for satellites that have an in-orbit 
life of 18 to 24 months. Nonetheless, data provided to us by MDA 
indicate that all STSS performance indicators, with the exception of 
the one pertaining to the visible sensor, are on track for meeting 
their respective requirements.

Progress Assessment: Cost:

MDA expects to invest about $4.15 billion from fiscal year 2004 through 
2009 in the element's development. This is in addition to the 
approximately $1.2 billion invested in the SBIRS-Low program from the 
program's initiation in 1996 through fiscal year 1999 and in the STSS 
element from 2002 through 2003.

In fiscal year 2003, the contractor reported that its work cost 
slightly more than budgeted and that it was somewhat behind schedule. 
We were unable to make an independent assessment of the contractor's 
cost and schedule performance because of contract changes. The 
contractor was working toward a single-launch (tandem launch) strategy 
while measuring performance against a two-launch strategy. Also, the 
contractor was reporting against an accelerated schedule that was not 
required by the contract.

Total Program Cost:

STSS Program Costing Approximately $700 Million per Year:

STSS's costs for the next 6 fiscal years are expected to be 
approximately $4.15 billion. These funds will finance activities for 
Block 2006, Block 2008, and the development of new-generation 
satellites planned for Block 2010. Table 29 shows the expected costs of 
the program by fiscal year through 2009, the most recent year for which 
MDA published its funding plans.

Table 29: Planned Annual Cost in Millions (Then-Year):

Block: Block 2006;
Fiscal Year 2004: $267;
Fiscal Year 2005: $274;
Fiscal Year 2006: $260;
Fiscal Year 2007: $183;
Fiscal Year 2008: $47;
Fiscal Year 2009: $52;
Total: $1,082.00

Block: Block 2008;
Fiscal Year 2004: 0;
Fiscal Year 2005: 0;
Fiscal Year 2006: 0;
Fiscal Year 2007: 25;
Fiscal Year 2008: 30;
Fiscal Year 2009: 20;
Total: 74

Block: Block 2010;
Fiscal Year 2004: 22;
Fiscal Year 2005: 48;
Fiscal Year 2006: 254;
Fiscal Year 2007: 637;
Fiscal Year 2008: 920;
Fiscal Year 2009: 1,113;
Total: 2,994.00

Total;
Fiscal Year 2004: $289;
Fiscal Year 2005: $322;
Fiscal Year 2006: $513;
Fiscal Year 2007: $845;
Fiscal Year 2008: $997;
Fiscal Year 2009: $1,184;
Total: $4,150.00

Source: Missile Defense Agency.

Note: Numbers may not add exactly because of rounding.

[End of table]

Prior to fiscal year 2004, MDA spent approximately $250 million and 
$294 million in fiscal years 2002 and 2003, respectively, for this 
program. Furthermore, the SBIRS-Low program invested $686 million to 
develop the demonstration satellites that are now part of the STSS 
program.

Prime Contractor Cost and Schedule Performance:

Contractor Reports Declining Cost and Schedule Performance:

In fiscal year 2003, the contractor reported that its work cost 
slightly more than budgeted and that it was somewhat behind schedule. 
Although the contractor's cost performance was positive through the 
first half of fiscal year 2003, it began to decline in March 2003 and 
continues to do so. Schedule performance began to decline in December 
2002 and continued throughout fiscal year 2003.

The government routinely uses contractor Cost Performance Reports to 
independently evaluate prime contractor performance relative to cost 
and schedule. Generally, the reports detail deviations in cost and 
schedule relative to expectations established under the contract. 
Contractors refer to deviations as "variances." Positive variances--
activities costing less or completed ahead of schedule--are generally 
considered as good news and negative variances--activities costing more 
or falling behind schedule--as bad news.

Figures 9 and 10 show the STSS contractor's cost and schedule 
performance during fiscal year 2003. According to Cost Performance 
Reports, work completed during fiscal year 2003 cost about $1 million 
more than estimated--as indicated by the September 2003 data point--and 
the contractor could not complete about $6.1 million worth of the work 
scheduled for the same time period.

Figure 9: Fiscal Year 2003 Cost Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

Figure 10: Fiscal Year 2003 Schedule Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

Because of contract changes, we could not fully rely upon the data 
reported in the contractor's Cost Performance Reports to make our own 
analysis of the STSS contractor's cost and schedule performance. In 
April 2003, the STSS program office altered its launch strategy in 
response to funding cuts. Rather than carrying out two separate 
launches, the program decided to launch the two satellites in tandem, 
which means one launch vehicle will place both satellites into orbit. 
The STSS program office notified the contractor in April 2003 of the 
change, but the contractor did not formally adjust its performance 
measurement baseline[Footnote 38] to reflect the tandem launch until 
September 2003. According to the program office, the tandem launch 
resulted in minimal changes to the contract's overall cost and 
schedule. However, officials told us that it did result in changes in 
the content, budget, and schedule of individual work tasks. Therefore, 
throughout most of fiscal year 2003, the contractor was completing work 
tasks for the tandem launch. However, the contractor's cost and 
schedule performance was being measured against work tasks reflected in 
the two-launch strategy. Because the baseline that the contractor used 
to measure its performance during most of fiscal year 2003 did not 
always reflect the actual work being done, Cost Performance Reports for 
April through September may not provide a clear picture of the 
contractor's cost and schedule performance. In September 2003, the 
contractor adjusted the contract's work tasks, along with their budgets 
and schedules, to reflect the change to a tandem launch.

Another factor complicating our analysis is that the contractor 
established a performance measurement baseline on the basis of an 
accelerated schedule for completing the work. The contractor did this 
in response to a unique cost-control incentive in the STSS Award Fee 
plan. The plan allows the contractor to earn up to 50 percent of a 
potential cost under-run if it can deliver the two satellites (1) up to 
6 months early, (2) for less than the negotiated cost, and (3) meeting 
all orbit performance requirements. As a direct result of this 
incentive, the contractor elected to implement a performance 
measurement baseline that reflected a 6-month accelerated schedule. 
This means that the contractor might be performing work on a schedule 
that would allow it to complete all work by the end of the contract, 
but Cost Performance Reports could show that work was falling behind 
schedule.

All cost and schedule performance data for fiscal year 2003, as 
reported by the contractor, are illustrated in Figures 9 and 10. We 
adjusted schedule data to reflect the accelerated schedule, but we 
could not adjust cost or schedule data to account for the change to a 
tandem launch. Because we could not make these adjustments, we also 
included Cost Performance Report data for October 2003 in the figures. 
The October report is the first report the contractor issued after 
adjusting its performance measurement baseline to account for the 
tandem launch. In our opinion, the October report is a better indicator 
of the contractor's performance. However, we note that further data are 
needed before an estimate can be made of whether the cost and schedule 
of the entire contract are likely to be more than projected.

In October 2003, the STSS contractor reported a cumulative cost overrun 
of approximately $3 million. It attributed this overrun to sensor 
issues, sensor payload test plan inefficiencies, more costly custom 
interface assembly, and tasks being more complex than planned. Also in 
October, the contractor reported it was approximately $11 million 
behind schedule. In our opinion, this might have an unfavorable impact 
on the program, because additional funding may be needed to make up the 
lost schedule. The contractor reported that schedule delays were 
attributed to sensor-testing problems with flight hardware, payload 
test procedures taking longer than expected, rigorous Failure Review 
Board reviews, and problems with the sensor-and payload-tracking 
algorithms. The contractor reported that these problems could 
jeopardize the overall delivery of the satellites.

Program Risks:

On the basis of our assessment of fiscal year 2003 activities, we did 
not identify any evidence that the STSS program would be unable to 
launch the two demonstration satellites in 2007. However, MDA 
identified a number of areas that have the potential to increase the 
program's cost and delay the 2007 launch of these satellites. We 
recognize that unforeseen problems could be discovered through testing, 
assembling, and integrating the hardware and software components of the 
satellites. MDA cannot predict which components will be found in 
nonworking order or the costs associated with fixing them. A related 
issue is the availability of original suppliers. Because the equipment 
was in storage for several years, the original equipment manufacturers 
may not offer maintenance for some of the parts considered obsolete. If 
replacement parts are needed as a result of failures or redesigns, this 
could create schedule delays for the program. Finally, the STSS program 
has also identified a number of activities that have the potential to 
affect the program's schedule, including completing software 
development and related integration activities.

[End of section]

An Element of the Ballistic Missile Defense System:

Appendix VIII Summary:

Theater High Altitude Area Defense:

Program Description: 

The Theater High Altitude Area Defense (THAAD) element is a ground-
based missile defense system designed to protect deployed military 
forces and civilian population centers from short-and medium-range 
ballistic missile attacks. THAAD engages ballistic missiles during the 
late-midcourse and terminal phases of flight, that is, before or after 
the warhead reenters the atmosphere. The THAAD program expects to field 
an operational capability consisting of tens of missiles during the 
2008-09 time frame.

The Department of Defense (DOD) budgeted about $4.3 billion for THAAD's 
development during fiscal years 2004 through 2009. Earlier, DOD 
expended about $6.5 billion between the program's inception in 1992 and 
2003 for related developmental efforts.

Fiscal Year 2003 Progress Assessment: 

THAAD's prime contractor performed less efficiently in fiscal year 2003 
than in previous years. However, the contractor is, overall, under 
budget and ahead of schedule. Our analysis indicates that missile 
development was the principal cause of the decline in the contractor's 
cost and schedule performance during fiscal year 2003. 

Schedule: Because THAAD previously was under Army management, the 
current program office re-planned THAAD's primary research and 
development contract to accommodate the Missile Defense Agency's 
(MDA's) acquisition approach. The office also completed Block 2004 
design reviews largely on schedule. In addition, the program conducted 
ground tests in preparation for initial flight testing, which is 
scheduled to begin at the end of 2004. However, explosions that 
occurred in 2003 at a propellant mixing facility could jeopardize 
deliveries of THAAD boosters and already have delayed the first flight 
test--a non-intercept test scheduled for the first quarter of fiscal 
year 2005--up to 3 months. Nevertheless, the program office expects to 
maintain the schedule for the first intercept attempt, currently 
scheduled for the fourth quarter of fiscal year 2005.

Performance: The program office told us that key indicators show that 
THAAD is on track to meet operational performance goals. However, data 
from flight testing are necessary to anchor end-to-end simulations of 
THAAD operations to confidently predict the element's effectiveness.

Cost: Our analysis of prime contractor cost performance reports shows 
that the contractor's positive cost and schedule variance were somewhat 
eroded during fiscal year 2003, which was driven by the missile 
component but offset by other THAAD components. With 49 percent of the 
THAAD contract completed, the prime contractor is, overall, under 
budget and ahead of schedule.

Risks: On the basis of our assessment of fiscal year 2003 activities, 
we did not find evidence of key risks that could affect MDA's ability 
to develop, demonstrate, and field the THAAD element during the 2008-
2009 time frame within scheduled and cost estimates. However, it is too 
early to state with confidence whether the element will or will not be 
ready for integration into the Ballistic Missile Defense System during 
this time. 

Appendix VIII: Theater High Altitude Area Defense:

Background: Element Description:

The Theater High Altitude Area Defense (THAAD) element[Footnote 39] is 
a ground-based missile defense system being developed to protect 
forward-deployed military forces, population centers, and civilian 
assets from short-and medium-range ballistic missile attacks. As an 
element of the Missile Defense Agency's (MDA's) Terminal Defense 
Segment, THAAD would provide the opportunity to engage ballistic 
missiles--outside or inside the earth's atmosphere--that were not 
destroyed earlier in the boost or midcourse phases of flight by other 
planned Ballistic Missile Defense System (BMDS) elements, such as Aegis 
BMD.

A THAAD unit consists of a command and control / battle management 
component for controlling and executing a mission, truck-mounted 
launchers, interceptors,[Footnote 40] an X-band radar, and ground 
support equipment. The THAAD interceptor is comprised of a single-stage 
booster and kill vehicle, which destroys enemy warheads through hit-to-
kill collisions. The THAAD radar is a solid-state, phased-array, X-band 
radar that performs search, track, discrimination, and other fire-
control functions. The THAAD radar also sends updated target 
information to the kill vehicle while in-flight.

Background: History:

The THAAD demonstration program[Footnote 41] began in 1992 but was 
plagued by a string of flight-test failures from 1995 to 1999. As noted 
in an earlier report, THAAD's early failures were caused by a 
combination of a compressed test schedule and quality control 
problems.[Footnote 42] Also, as reported in the Director, Operational 
Test and Evaluation (DOT&E) Fiscal Year 1999 Annual Report to Congress, 
the sense of urgency to deploy a prototype system resulted in an overly 
optimistic development schedule. Rather than being event driven--
proceeding with development only after technical milestones were met--
the program tried to keep pace with the planned schedule. Schedule 
forces and budget cuts contributed to deficient manufacturing 
processes, quality control, product assurance, and ground-testing 
procedures, which in turn, resulted in poor design, lack of quality, 
and failed flight tests. The ultimate result was a schedule slip of 6 
years for the deployment of the objective THAAD system.

After devoting substantial time to pretest activities, the THAAD 
program conducted two successful flight tests in 1999. The program then 
transitioned to the product development phase[Footnote 43] of 
acquisition, in which developmental activities shifted from technology 
development and demonstration to missile redesign and engineering. The 
Department of Defense (DOD) transferred the THAAD program from the Army 
to the Ballistic Missile Defense Organization (now MDA) on October 1, 
2001.

Background: Developmental Phases:

The overarching goal of the THAAD program is to field an operational 
capability consisting of tens of missiles during the Block 2008 time 
frame. Although THAAD's development is broken out by block--2004, 2006, 
and 2008--each is a stepping-stone leading to the Block 2008 
capability. The development efforts of each block incrementally 
increase element capability by maturing the hardware's design and 
upgrading software.

Block 2004. Block 2004 activities are expected to focus on developing 
and ground testing THAAD components. These tests lead to the 
demonstration of a rudimentary capability--an intercept capability 
against a short-range, threat-representative target (Flight Test 5)--at 
the end of Block 2004. At the end of the block, the THAAD "missile 
inventory" will consist of one spare missile.

Blocks 2006. By the end of Block 2006, the THAAD program will have 
conducted six more flight tests, five of which are intercept attempts. 
The flight tests scenarios are expected to include intercepts inside 
and outside the Earth's atmosphere. One of the five intercept attempts 
will be conducted employing a salvo-firing doctrine, that is, two THAAD 
interceptors will be launched against a single target.

Blocks 2008. By the end of Block 2008, the THAAD program plans to 
demonstrate that the THAAD element is ready for fielding with tactical 
missiles, demonstrate that the element can intercept threat-
representative targets (short-range and medium-range ballistic 
missiles), and show that THAAD can interoperate with other elements as 
part of the BMDS.

Progress Assessment: Schedule:

The THAAD program completed most activities planned for fiscal year 
2003, which were focused on contractual activities, design reviews, and 
subcomponent-level development and testing, leading up to flight 
testing beginning in fiscal year 2005.

Align THAAD with MDA Acquisition Approach:

Completed Slightly Behind Schedule:

During 2003, the THAAD Project Office aligned its primary research and 
development contract with MDA's block acquisition approach. For 
example, officials re-planned the contract to accommodate MDA's block 
strategy for developing missile defense capabilities. Because of 
changes in the fiscal year 2003 budget, including a funding cut of $117 
million, THAAD completed its contract alignment activities slightly 
behind schedule. However, these activities were completed by the first 
quarter of fiscal year 2004. Table 30 summarizes the principal 
contractual activities planned for fiscal year 2003 and their actual 
completion date.

Table 30: Block 2004 THAAD Activities--Contract Alignment:

Activity: Contract re-planning;
Date completed: Nov. 2003;
Comments: Delayed from Aug. 2003.

Activity: Contract negotiations finalized;
Date completed: Dec. 2003;
Comments: Delayed from Oct. 2003.

Source: Missile Defense Agency.

[End of table]

Block 2004 Design Reviews:

Completed Largely on Schedule:

Since 1999, the program has conducted a number of reviews to evaluate 
the designs of THAAD's various components and of the element as a 
whole. Early reviews, known as Preliminary Design Reviews (PDRs), were 
conducted to evaluate the progress, technical adequacy, and risk 
resolution of the selected design approach; to determine their 
compatibility with the performance and engineering requirements of the 
development specification; and to establish the existence and 
compatibility of interfaces among other items of equipment facilities, 
computer programs, and personnel. Later reviews--Critical Design 
Reviews[Footnote 44] (CDRs)--determined that the designs satisfied the 
performance and engineering requirements of the development 
specification; established the design compatibility between the 
component and other items of equipment, facilities, computer programs, 
and personnel; assessed the component's producibility and areas of 
risk; and reviewed preliminary product specifications.

The program successfully completed two design reviews scheduled in 
fiscal year 2003; the THAAD missile was the subject of both of these 
reviews. Tables 31 and 32 summarize all principal activities related to 
the verification of THAAD's Block 2004 design.

Table 31: Block 2004 THAAD Activities--Component Design Reviews:

Activity;
Radar: PDR;
Date completed: Feb. 1999;
Comments: Completed on schedule.

Activity;
Radar: CDR;
Date completed: Sept. 2001;
Comments: Completed on schedule.

Activity;
C2/BM: PDR;
Date completed: June 2001;
Comments: Completed on schedule.

Activity;
C2/BM: CDR;
Date completed: Aug. 2002;
Comments: Completed on schedule.

Activity;
Launcher: PDR;
Date completed: June 2002;
Comments: Completed on schedule.

Activity;
Launcher: CDR;
Date completed: June 2003;
Comments: Completed on schedule.

Activity;
Missile: PDR;
Date completed: June 2002;
Comments: Delayed from May 2002.

Activity;
Missile: CDR;
Date completed: Sept. 2003;
Comments: Completed on schedule.

Source: Missile Defense Agency.

[End of table]

Table 32: Block 2004 THAAD Activities--Element Design Reviews:

Activity: Block 2004 Element PDR;
Date completed: July 2002;
Comments: Completed on schedule;

Activity: Block 2004 Element CDR (DRR);
Date completed: Dec. 2003;
Comments: Completed on schedule.

Source: Missile Defense Agency.

[End of table]

Ground Testing:

Key Tests Completed in Preparation for Future Flight Testing:

The THAAD program completed a number of ground tests in the fiscal year 
2003 time frame. These events are listed in table 33. The program 
office characterized these tests as key events in preparation for Block 
2004 flight testing.

Table 33: Block 2004 THAAD Activities--Ground Testing:

Major test event: Booster Motor Test;
Date: Sept. 2002;
Comments/Test objectives: Objectives achieved--Static fire of the 
THAAD solid propellant booster motor.

Major test event: Radar Transmit/Receive Module Test;
Date: Jan. 2003;
Comments/Test objectives: Objectives achieved-- T/R module 
qualification testing.

Major test event: Divert and Attitude Control System (DACS) Thruster 
Testing;
Date: Mar. 2003;
Comments/Test objectives: Objectives achieved--First hot fire test of 
a DACS thruster.

Major test event: Missile Separation Effects Tests;
Date: Aug. 2003 - Sept. 2003;
Comments/Test objectives: Objectives achieved--Verify structural 
integrity and stability of the missile with separation events (booster 
separation and shroud separation).

Major test event: Kill Vehicle Destruct Test;
Date: Oct. 2003;
Comments/Test objectives: Objectives achieved--Test of kill vehicle 
flight termination system.

Source: Missile Defense Agency.

[End of table]

THAAD Flight Test Program:

The THAAD flight test program consists of 16 flight test events divided 
among Blocks 2004, 2006, and 2008. The first two of the five planned 
Block 2004 flight tests are referred to as control test flights (CTF)-
-non-intercept tests that focus on how the missile operates under 
stressful environmental conditions. The third flight test is a seeker 
characterization flight (SCF), which ensures proper functioning of the 
seeker in a live intercept environment. This is a non-intercept test as 
well, but targets are involved. The fourth test, flight test 4 (FT-4), 
is the first intercept attempt at White Sands Missile Range 
(WSMR)[Footnote 45] with a configuration--target and engagement 
geometry--comparable to the flight tests during the Program Definition 
and Risk Reduction phase of development. Block 2004 flight test 
activities end with a second intercept attempt (FT-5), conducted at 
Pacific Missile Range Facility (PMRF),[Footnote 46] against a threat-
representative target. The program office plans to consume all procured 
missiles in flight tests. However, because there will be five flight 
tests in Block 2004 and THAAD has plans to procure six test missiles, 
one missile will be available as a spare. THAAD program office 
officials also noted that test missiles could be used for emergency 
operational use, rather than as test assets, if needed. Table 34 
summarizes Block 2004 flight test events, including dates and 
objectives.

Table 34: Block 2004 THAAD Activities--Flight Testing:

Flight test event: FT-1 (CTF) at WSMR;
Date: 1Q FY 2005;
Objectives: Validate missile performance in a high- endoatmospheric 
flight environment;
Objectives: Verify missile integration with WSMR.

Flight test event: FT-2 (CTF) at WSMR;
Date: 2Q FY 2005;
Objectives: Characterize missile performance in a low-endoatmospheric 
flight environment;
Objectives: Effects of heat on seeker window;
Objectives: High dynamic pressure fly-out.

Flight test event: FT-3 (SCF) at WSMR;
Date: 3Q FY 2005;
Objectives: Seeker characterization flight against a high-
endoatmospheric target;
Objectives: Verify element integration with WSMR.

Flight test event: FT-4 at WSMR;
Date: 4Q FY 2005;
Objectives: Demonstrate exoatmospheric discrimination and intercept of 
a separating target;
Objectives: Demonstrate lethality assessment of recovered debris.

Flight test event: FT-5 at PMRF (Now called FTT-04-01);
Date: 1Q FY 2006;
Objectives: Demonstrate exoatmospheric aimpoint selection and 
intercept against a non- separating liquid-fueled target;
Objectives: Demonstrate integration with PMRF. 

Source: Missile Defense Agency.

Note: Test schedule as of December 2003:

[End of table]

Flight-test conditions are grouped by block. For example, Block 2004 
tests focus on engagements outside the atmosphere (exoatmospheric), 
whereas the first intercept attempt inside the atmosphere 
(endoatmospheric) occurs in Block 2006. The level and sophistication of 
testing achieved to that point defines the capability of the THAAD 
element at a given time.

Finally, deliveries of THAAD boosters could be jeopardized by 
explosions at Pratt & Whitney's propellant mixing facility[Footnote 47] 
that occurred during the summer of 2003. According to updated test 
schedules, these incidents have already delayed the first non-intercept 
flight test, Control Test Flight 1, by 3 months. However, the program 
office expects to maintain the schedule for the first intercept 
attempt, FT-4, currently scheduled for the fourth quarter of fiscal 
year 2005. To mitigate schedule risk, the program office enlisted 
Aerojet as the replacement vendor for Pratt and Whitney's propellant 
mix and cast operations. We note that this Pratt & Whitney facility 
also provides rocket motors for the Aegis BMD and GMD programs.

Progress Assessment: Performance:

Data collected during element-level flight testing will be used to 
"anchor" end-to-end simulations of THAAD operation. Until these 
simulations are properly validated and verified, one cannot be 
confident of any quantitative assessment of the element's effectiveness 
for terminal defense. Nonetheless, the program office told us that all 
performance indicators predict that THAAD is on track to meet 
operational performance goals.

Program Assessment: Cost:

MDA expects to invest about $4.3 billion from fiscal year 2004 through 
2009 in the development and enhancement of the THAAD element. This is 
in addition to the $1.47 billion expended in fiscal years 2002 and 
2003.

Most of the THAAD budget goes to fund the element's prime contract. The 
contractor reported that its fiscal year 2003 work cost slightly more 
than budgeted and that it was somewhat behind schedule. Specifically, 
the work cost about $12 million more than expected, and the contractor 
could not complete approximately $12.2 million of the work scheduled 
for the fiscal year.

Program Cost:

THAAD Program Costing Approximately $710 Million per Year:

The program estimates that it will need about $4.3 billion over the 
next 6 years to continue THAAD's development. This includes funds for 
Blocks 2004, 2006, and Block 2008. Program costs prior to THAAD's 
transfer to MDA at the beginning of fiscal year 2002 amounted to 
approximately $4.9 billion. In fiscal years 2002 and 2003, the program 
expended an additional $1.6 billion, bringing the total investment in 
THAAD between the program's inception and 2003 to about $6.5 billion. 
Table 35 shows the expected THAAD program costs by fiscal year from 
2004 through 2009, the last year for which MDA published its funding 
plans.

Table 35: THAAD Planned Cost: 

Dollars in millions of then-year dollars: 

Block: Block 2004; 
Fiscal Year 2004: $687; 
Fiscal Year 2005: $593; 
Fiscal Year 2006: $154; 
Fiscal Year 2007: $0; 
Fiscal Year 2008: $0; 
Fiscal Year 2009: $0; 
Total: $1,434.00 

Block: Block 2006; 
Fiscal Year 2004: 29; 
Fiscal Year 2005: 239; 
Fiscal Year 2006: 535; 
Fiscal Year 2007: 791; 
Fiscal Year 2008: 91; 
Fiscal Year 2009: 0; 
Total: 1,685.00

Block: Block 2008; 
Fiscal Year 2004: 0; 
Fiscal Year 2005: 2; 
Fiscal Year 2006: 204; 
Fiscal Year 2007: 232; 
Fiscal Year 2008: 389; 
Fiscal Year 2009: 324; 
Total: 1,151.00

Total; 
Fiscal Year 2004: $716; 
Fiscal Year 2005: $834; 
Fiscal Year 2006: $893; 
Fiscal Year 2007: $1,023; 
Fiscal Year 2008: $480; 
Fiscal Year 2009: $324; 
Total: $4,270.00 

Source: Missile Defense Agency.

[End of table]

Prime Contractor Fiscal Year 2003 Cost and Schedule Performance:

Declining Performance Erodes Positive Variances:

The prime contract portion of the THAAD budget consumes the bulk of the 
program budget: an average of 70 percent is allocated to the prime 
contractor team and 30 percent is allocated to the government for Block 
2004 efforts. The contract has undergone re-planning to re-phase the 
work according to blocks. As indicated in table 30, the re-planning was 
completed in November 2003, and contract negotiations were finalized in 
December 2003. THAAD's prime contract is held by Lockheed Martin Space 
Systems in Sunnyvale, California; Lockheed also manages the missile's 
development.

The government routinely uses contractor Cost Performance Reports to 
independently evaluate prime contractor performance relative to cost 
and schedule. Generally, the reports detail deviations in cost and 
schedule relative to expectations established under the contract. 
Contractors refer to deviations as "variances." Positive variances--
activities costing less or completed ahead of schedule--are generally 
considered as good news and negative variances--activities costing more 
or falling behind schedule--as bad news.

The THAAD prime contract continued to carry a positive cost and 
schedule variance during fiscal year 2003. However, as figure 11 shows, 
the contractor's positive cost and schedule variance eroded somewhat 
during fiscal year 2003: the contractor's work cost about $12.0 million 
more than budgeted, and the contractor could not complete approximately 
$12.2 million worth of work scheduled during this time. The unfavorable 
cost variance was driven by the missile component but partially offset 
by other components. However, with 49% of the THAAD contract completed, 
the prime contractor is, overall, under budget and ahead of schedule.

Figure 11: Fiscal Year 2003 Cost and Schedule Performance:

[See PDF for image]

Sources: Contractor (data); GAO (analysis).

[End of figure]

The contractor experienced difficulties with missile development, which 
accounts for 35 percent of the contract's total cost. In fiscal year 
2003, work on missile development cost approximately $11 million more 
than budgeted. According to MDA's analysis, propulsion subsystem 
development, particularly problems with the development of the Divert 
and Attitude Control System, has been the driver for missile 
development cost overruns.

The prime contractor estimates that the entire contract will be 
completed slightly under budget.[Footnote 48] However, in order to 
finish the work effort within budget, the contractor needs to work as 
efficiently as it did in the previous fiscal years. In our opinion, the 
contractor's estimate is somewhat optimistic, considering the 
contractor's trend of declining performance and because approximately 5 
years of work remain on this contract. According to our analysis of the 
contractor's data, the contractor has been completing, on average, 
$0.97 worth of scheduled work for every budgeted dollar spent to 
accomplish that scheduled work during fiscal year 2003. On the basis of 
this efficiency rate, we estimate that the contract will overrun its 
budget at completion by between $23 million and $65 million.

Program Risks:

On the basis of our assessment of fiscal year 2003 activities, we did 
not find any evidence of key risks that could affect MDA's ability to 
develop, demonstrate, and field the THAAD element within schedule 
estimates. However, it is too early to state with confidence whether 
the element will or will not be ready for integration into the BMDS 
during the Block 2008 time frame, especially since flight testing has 
not yet begun. Unsuccessful intercept attempts could delay the program 
and increase its cost, as was the case during THAAD's Program 
Definition and Risk Reduction phase of the 1990s.

Fiscal Year 2002 Assessment:

Congress, in its fiscal year 2002 National Defense Authorization Act, 
directed the Department of Defense (DOD) to establish cost, schedule, 
testing, and performance goals for the years covered by the Future 
Years Defense Plan. In the act, Congress also directed us to assess the 
extent to which the Missile Defense Agency (MDA) achieved these goals 
each in fiscal years 2002 and 2003. We were unable to fulfill this 
mandate in fiscal year 2002 because MDA had not established such goals.

As an alternative, we began to assess the tools that MDA uses as part 
of the agency's management process to monitor cost, schedule, and 
performance progress. In February 2003, we briefed the staff of the 
Congressional addressees of this report on our initial findings. 
However, we were unable to complete this assessment, because some of 
the tools were evolving and others had been only partially implemented.

MDA identified four tools it uses to monitor progress: the Integrated 
Master Plan (IMP), the Integrated Master Schedule (IMS), the Earned 
Value Management System (EVMS), and Technical Performance Measures 
(TPM). The IMP[Footnote 49] identifies essential actions that must be 
completed to successfully deliver a block of BMDS capability. Between 
our review in September 2002 and June 2003, the document remained in 
draft form and evolved from a generic checklist of activities into a 
template focused on the specific activities needed to deliver a 
particular block. In June 2003, MDA amended the draft BMDS IMP to 
reflect the President's direction of December 2002 to begin fielding 
the Block 2004 system.

Similarly, the IMS was evolving. The purpose of the IMS is to plot the 
expected date of activities that must be completed to achieve a block 
of capability. MDA altered the IMS because the capability being 
developed in Block 2004 changed from the delivery of a test bed to the 
delivery of a fielded capability.

The EVMS, which tracks whether the contractor is performing work within 
budgeted cost and schedule, was only partially implemented at the time 
of our fiscal year 2002 review. Many of the element prime contracts 
were being modified to reflect MDA's new block strategy, and the 
contractors could not report progress toward Block 2004 until the 
contractor could develop a program performance baseline against which 
cost and schedule performance could be measured.

Finally, MDA had only partially implemented the tracking of TPMs--
parameters of system, element, and component effectiveness--as part of 
its program management process. Specific elements such as GMD had 
tracked TPMs, but as noted by program officials, MDA had just begun to 
develop system-level TPMs.

[End of section] 

Appendix IX: Fiscal Year 2002 Assessment:

The National Defense Authorization Act for Fiscal Year 2003 directed 
the Department of Defense (DOD) to establish cost, schedule, testing, 
and performance goals for its ballistic missile defense programs for 
the years covered by the Future Years Defense Plan. In the act, 
Congress also directed us to assess the extent to which the Missile 
Defense Agency (MDA) achieved these goals each in fiscal years 2002 and 
2003. We were unable to fulfill this mandate in fiscal year 2002 
because MDA had not established such goals.

As an alternative, we began to assess the tools that MDA uses as part 
of the agency's management process to monitor cost, schedule, and 
performance progress. In February 2003, we briefed the staff of the 
Congressional addressees of this report on our initial findings. 
However, we were unable to complete this assessment, because some of 
the tools were evolving and others had been only partially implemented.

MDA identified four tools it uses to monitor progress: the Integrated 
Master Plan (IMP), the Integrated Master Schedule (IMS), the Earned 
Value Management System (EVMS), and Technical Performance Measures 
(TPM). The IMP[Footnote 50] identifies essential actions that must be 
completed to successfully deliver a block of BMDS capability. Between 
our review in September 2002 and June 2003, the document remained in 
draft form and evolved from a generic checklist of activities into a 
template focused on the specific activities needed to deliver a 
particular block. In June 2003, MDA amended the draft BMDS IMP to 
reflect the President's direction of December 2002 to begin fielding 
the Block 2004 system.

Similarly, the IMS was evolving. The purpose of the IMS is to plot the 
expected date of activities that must be completed to achieve a block 
of capability. MDA altered the IMS because the capability being 
developed in Block 2004 changed from the delivery of a test bed to the 
delivery of a fielded capability.

The EVMS, which tracks whether the contractor is performing work within 
budgeted cost and schedule, was only partially implemented at the time 
of our fiscal year 2002 review. Many of the element prime contracts 
were being modified to reflect MDA's new block strategy, and the 
contractors could not report progress toward Block 2004 until the 
contractor could develop a program performance baseline against which 
cost and schedule performance could be measured.

Finally, MDA had only partially implemented the tracking of TPMs--
parameters of system, element, and component effectiveness--as part of 
its program management process. Specific elements such as GMD had 
tracked TPMs, but as noted by program officials, MDA had just begun to 
develop system-level TPMs.

[End of section]

Appendix X: GAO Contact and Staff Acknowledgments:

GAO Contact:

Barbara Haynes, (256) 922-7500:

Acknowledgments:

In addition to the individual named above, Lily Chin, Tana Davis, Diana 
Dinkelacker, David Hand, David Hubbell, Sigrid McGinty, Madhav Panwar, 
Karen Richey, Adam Vodraska, Carrie Wilson, and Randy Zounes (Analyst-
in-Charge) made key contributions to this report.

(120252):

FOOTNOTES FROM BODY OF REPORT: 

[1] Pub. L. No. 107-107,  232(c), 10 U.S.C.  2431 note (Supp. I 
2001).

[2] The Future Years Defense Plan is DOD's official document for 
summarizing the forces and resources (budget) associated with programs 
approved by the Secretary of Defense. The current Future Years Defense 
Plan covers fiscal years 2004-2009.

[3] Pub. L. No. 107-107,  232(g), 10 U.S.C.  2431 note (Supp. I 
2001).

[4] See appendix IX for a discussion of MDA's tools for monitoring 
cost, schedule, and performance progress in 2002.

[5] Required by 10 U.S.C.  2432 (2000 & Supp. I 2001), Selected 
Acquisition Reports are submitted regularly for updating the Congress 
on a weapon system's cost and developmental progress.

[6] An X-band radar emplaced on a sea-based, mobile platform in the 
Pacific will be used in flight testing or as an operational asset for 
tracking enemy warheads and discriminating warheads from decoys.

[7] The terms "intercontinental ballistic missile" and "long-range 
ballistic missile" are used interchangeably.

[8] MDA recently changed the name of the THAAD element to "Terminal 
High Altitude Area Defense."

[9] Our review focused on only those elements managed by MDA. Patriot 
PAC-3, which is funded and managed by the Army, is part of the BMDS for 
terminal (point) defense against short-and medium-range ballistic 
missile attacks.

[10] MDA goals are formally detailed in the agency's budget estimates 
and in the top-level MDA document, Block 2004 Statement of Goals.

[11] In budget documentation submitted in February 2003, MDA referred 
to these goals as Block 2004 "Initial Defensive Capability" Goals.

[12] U.S. General Accounting Office, Missile Defense: Actions Being 
Taken to Address Testing Recommendations but Updated Assessment Needed, 
GAO-04-254 (Washington, D.C.: Feb. 26, 2004); U.S. General Accounting 
Office, Missile Defense: Additional Knowledge Needed in Developing 
System for Intercepting Long-Range Missiles, GAO-03-600 (Washington, 
D.C.: Aug. 21, 2003).

[13] DOT&E is responsible for providing independent oversight of 
operational test and evaluation of major defense acquisition programs 
to verify their operational effectiveness and suitability for combat 
use. The Director is the principal operational test and evaluation 
official within DOD and advises the Secretary of Defense and Under 
Secretary of Defense for Acquisition, Technology and Logistics on 
operational test and evaluation. The Director also provides responsible 
officials with advice on developmental testing.

[14] The target flew a trajectory so that it presented a large cross 
section to the radar.

[15] 10 U.S.C.  2399 (2000).

[16] Specifically, the law prohibits a program from proceeding beyond 
low-rate initial production (LRIP) until initial operational test and 
evaluation is completed. LRIP begins the "Production and Deployment" 
phase of the acquisition cycle and concludes with a full-rate 
production decision review to authorize full-rate production and 
deployment.

[17] 10 U.S.C. 139 (2000 & Supp. I 2001).

[18] The Secretary did not specify the operational test agent. The 
Army, Navy, and Air Force each have their own operational test agents 
who are independent of their program offices.

[19] 10 U.S.C.  139(a)(2)(A) (2000).

[20] Id. 139(d).

[21] The SDD phase of acquisition was formerly known as Engineering and 
Manufacturing Development (EMD). Section 2435 of Title 10, U.S. Code, 
prohibits the obligation of funds for a major defense acquisition 
program after the program enters SDD without an approved baseline, 
unless the Under Secretary of Defense (Acquisition, Technology, and 
Logistics) specifically approves the funding.

[22] 10 U.S.C.  2435 (2000 & Supp. I 2001).

[23] 10 U.S.C.  2433 (2000).

[24] 10 U.S.C. 2432(c)(3)(A). See also 10 U.S.C.  2434 (2000 & Supp. 
I 2001), which establishes the requirement for independent cost 
estimates of the full life-cycle cost of a program.

[25] National Defense Authorization Act for Fiscal Year 2002, Pub. L. 
No. 107-107,  232(d), 10 U.S.C.  2431 note (Supp. I 2001). The act's 
definition of EMD has since been revised so that the criteria do not 
apply to the "development phase" of a missile program but to 
"an acquisition program." National Defense Authorization Act for Fiscal 
Year 2004, Pub. L. No. 108-136,  221(c)(1). 

[26] Section 223a(c) of Title 10, U.S. Code, as added by section 223(a) 
of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 
No. 108-136), requires MDA to include, with the performance criteria in 
its annual budget justification, a description of the intended 
effectiveness of each planned development phase of the BMDS against 
foreign adversary capabilities.

[27] The values assigned are not presented in this report because they 
are classified.

APPENDIX FOOTNOTES

[1] In this context, the missile defense community uses the terms 
"missile" and "interceptor" interchangeably.

[2] Five additional destroyers will be upgraded during Block 2006, 
bringing the total of upgraded destroyers to 15, which was MDA's 
original Block 2004 goal.

[3] The Ballistic Missile Defense Organization was officially renamed 
the Missile Defense Agency in 2002.

[4] CP3.0 will be available for installation on the Aegis cruiser in 
December 2004 for testing.

[5] The Aegis BMD program office believes that the root of the failure 
can be traced to a defective "diverter ball." This failure is discussed 
in more detail later in this appendix.

[6] The target flew a trajectory so that it presented a large cross 
section to the radar.

[7] A separating target is one where the warhead separates from the 
spent booster of the missile.

[8] Of the 14 missiles, MDA has plans to field 8 to 11.

[9] The Boost Defense Segment includes all elements of the BMDS that 
defeat ballistic missiles during the boost phase of flight.

[10] The terms "intercontinental ballistic missile" and "long-range 
ballistic missile" are used interchangeably.

[11] These modifications include: the installation of miles of wiring, 
grafting large sheets of titanium to the plane's underbelly, and adding 
a 12,000-pound turret to house the 1.5-meter telescope through which 
the laser beams are fired.

[12] MDA's fiscal year 2005 budget (submitted in February 2004) 
indicates that the ABL program is undergoing some form of 
restructuring. Also, the program manager stated that the content of 
Blocks 2004, 2006, and 2008 would be changing: less focus on an 
operational capability and more focus on technology demonstration. 
Accordingly, procurement of the second ABL aircraft for Block 2008 has 
been deferred indefinitely.

[13] The C2BMC element also consists of supporting hardware, such as 
workstations and communications equipment.

[14] Rules of engagements are directives that delineate the 
circumstances and limitations under which U.S. forces will initiate 
and/or continue combat engagement with other forces encountered.

[15] The USNORTHCOM suite is situated at the Joint National Integration 
Center (JNIC), located at Schriever Air Force Base, Colorado.

[16] CONOPS is a broad outline of the manner in which a commander 
operates a weapon system.

[17] Cycle-3 testing: Third of four cycles of testing to verify that 
C2BMC interfaces with each BMDS element individually.

[18] Cycle-4 testing: Fourth of four cycles of testing to verify 
system-level integration. During Cycle 4 testing, the C2BMC element 
participates in flight tests planned and conducted by MDA.

[19] An OTA refers to transactions other than contracts, grants, or 
cooperative agreements that are entered into under the authority of 10 
U.S.C.  2371 (2000 & Supp. I 2001) in carrying out basic, applied, and 
advanced research projects or under the authority of section 845 of the 
National Defense Authorization Act for Fiscal Year 1994 (10 U.S.C.  
2371 note) for carrying out prototype projects. OTAs generally are not 
subject to federal laws and regulations applicable to procurement 
contracts.

[20] A performance measurement baseline identifies and defines work 
tasks, designates and assigns organizational responsibilities for each 
task, schedules the work tasks in accordance with established targets, 
and allocates budget to the scheduled work.

[21] Additional details are provided in a classified annex to this 
report.

[22] An initial operational capability (IOC) was scheduled for the end 
of fiscal year 2005.

[23] The fire control component has historically been referred to as 
the command and control, battle management, and communications (BMC3) 
component of the GMD element.

[24] CONUS is the acronym for "Continental United States."

[25] The GMD program refers to its kill vehicle as the "exoatmospheric 
kill vehicle" (EKV).

[26] Booster performance was demonstrated in booster validation (BV) 
test "BV-6" and in integrated flight test "IFT-13B."

[27] We use the notation "3Q FY 2004" to mean the third quarter of 
fiscal year 2004 and an identical format for other time periods.

[28] Integrated flight tests are real-world demonstrations of the GMD 
element. During an intercept attempt, an interceptor is launched to 
engage and intercept a mock warhead above the atmosphere.

[29] U.S. General Accounting Office, Missile Defense: Actions Being 
Taken to Address Testing Recommendations, but Updated Assessment 
Needed, GAO-04-254 (Washington, D.C.: February 2004).

[30] This figure does not include additional costs needed to support 
the operation and sustainment of GMD.

[31] The $128 million overrun pertains to the cumulative cost overrun 
incurred from the contract's inception through the end of fiscal year 
2003 (September 2003). The $138 million overrun reported in this 
section is the overrun incurred during fiscal year 2003 only.

[32] Additional details are provided in a classified annex to this 
report.

[33] Program Element 0603883C, "BMD Boost Defense Segment."

[34] Report of the American Physical Society Study Group on Boost-Phase 
Intercept Systems for National Missile Defense (July 2003).

[35] Battleson, Kirk, et al., Phase One Engineering Team (POET), 
Parameters Affecting Boost Phase Intercept System (February 2002).

[36] Plume-to-hardbody handover.

[37] The satellites were to operate at about 1,350 kilometers above the 
earth. By comparison, satellites in geo-synchronous orbit operate at 
about 36,000 kilometers.

[38] A performance measurement baseline reflects all of the work tasks 
that must be performed to meet contract objectives and the schedule and 
budget for performing each task.

[39] MDA recently changed the name of the THAAD element to "Terminal 
High Altitude Area Defense."

[40] In this context, the BMD community uses the terms "missile" and 
"interceptor" interchangeably.

[41] The demonstration program is known formerly as the "Program 
Definition and Risk Reduction" (PD&RR) phase of acquisition.

[42] U.S. General Accounting Office, THAAD Restructure Addresses 
Problems But Limits Early Capability, GAO/NSIAD-99-142 (Washington, 
D.C.: June 30, 1999).

[43] "Product development" is referred to as the "System Development & 
Demonstration" (SDD) phase of acquisition and formerly as "Engineering 
& Manufacturing Development" (EMD).

[44] A CDR may also be known as a Design Readiness Review (DRR).

[45] White Sands Missile Range is a U.S. Army missile test range in New 
Mexico. 

[46] Pacific Missile Range Facility is a U.S. Navy missile test range 
in Kauai, Hawaii. 

[47] The program office refers to these incidents as "energetic release 
incidents." The incidents occurred at Chemical Systems Division (CSD), 
a subsidiary of Pratt and Whitney.

[48] In September 2003, the prime contractor estimated that the 
contract would be completed approximately $0.7 million below the 
budgeted cost.

[49] U.S. General Accounting Office, Knowledge-Based Practices Are 
Being Adopted, but Risks Remain, GAO-03-441 (Washington, D.C.: April 
30, 2003).

[50] U.S. General Accounting Office, Knowledge-Based Practices Are 
Being Adopted, but Risks Remain, GAO-03-441 (Washington, D.C.: April 
30, 2003).

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