United States Government Accountability Office

GAO Report to Congressional Committees 

DEFENSE 

ACQUISITIONS 

Missile Defense 

Acquisition Strategy 

Generates Results but 

Delivers Less at a 

Higher Cost 

March 2007 

 

GAO-07-387 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2007

DEFENSE ACQUISITIONS 

Missile Defense Acquisition Strategy 

Generates Results but Delivers Less at a 

Higher Cost 

Highlights of GAO-07-387, a report to 

congressional committees 

Over the next 5 years, the Missile

Defense Agency (MDA) expects to 

invest $49 billion in the BMD

system’s development and fielding.

MDA’s strategy is to field new 

capabilities in 2-year blocks. In 

January 2006, MDA initiated its 

second block—Block 2006—to

protect against attacks from North 

Korea and the Middle East. 

Congress requires GAO to assess

MDA’s progress annually. This 

year’s report addresses MDA’s 

progress during fiscal year 2006 

and follows up on program

oversight issues and the current

status of MDA’s quality assurance 

program. GAO assessed the 

progress of each element being

developed by MDA, examined 

acquisition laws applicable to 

major acquisition programs, and 

reviewed the impact of

implemented quality initiatives. 

What GAO Recommends

GAO continues to encourage DOD

to act on prior recommendations to 

implement a knowledge-based 

acquisition strategy for all BMDS

elements and to adopt more

transparent criteria for reporting 

each element’s quantities, cost, and 

performance. In this report, GAO 

recommends that DOD adopt firm 

baselines, use procurement funds 

for operational assets, and adopt

other measures to better track cost

and outcomes against goals. DOD

did not agree to an element-based 

reporting approach but is 

investigating other ways to provide

more program transparency. 

During fiscal year 2006, MDA fielded additional assets for the Ballistic 

Missile Defense System (BMDS), enhanced the capability of some assets, 

and realized several noteworthy testing achievements. For example, the

Ground-based Midcourse Defense (GMD) element successfully conducted its 

first end-to-end test of one engagement scenario, the element’s first 

successful intercept test since 2002. However, MDA will not meet its original

Block 2006 cost, fielding, or performance goals because the agency has 

revised those goals. In March 2006, MDA: 

• reduced its goal for fielded assets to provide funds for technical 

problems and new and increased operations and sustainment 

requirements; 

• increased its cost goal by about $1 billion—from $19.3 to 

$20.3 billion; and 

• reduced its performance goal commensurate with the reduction of

assets. 

MDA may also reduce the scope of the block further by deferring other work 

until a future block because four elements incurred about $478 million in 

fiscal year 2006 budget overruns. 

With the possible exception of GMD interceptors, MDA is generally on track

to meet its revised quantity goals. But the deferral of work, both into and out 

of Block 2006, and inconsistent reporting of costs by some BMDS elements, 

makes the actual cost of Block 2006 difficult to determine. In addition, GAO 

cannot assess whether the block will meet its revised performance goals 

until MDA’s models and simulations are anchored by sufficient flight tests to 

have confidence that predictions of performance are reliable. 

Because MDA has not entered the Department of Defense (DOD) acquisition 

cycle, it is not yet required to apply certain laws intended to hold major 

defense acquisition programs accountable for their planned outcomes and 

cost, give decision makers a means to conduct oversight, and ensure some 

level of independent program review. MDA is more agile in its decisionmaking because it does not have to wait for outside reviews or obtain higherlevel approvals of its goals or changes to those goals. Because MDA can 

revise its baseline, it has the ability to field fewer assets than planned, defer 

work to a future block, and increase planned cost. All of this makes it hard 

to reconcile cost and outcomes against original goals and to determine the 

value of the work accomplished. Also, using research and development 

funds to purchase operational assets allows costs to be spread over 2 or 

more years, which makes costs harder to track and commits future budgets. 

MDA continues to identify quality assurance weaknesses, but the agency’s 

corrective measures are beginning to produce results. Quality deficiencies 

are declining as MDA implements corrective actions, such as a teaming 

approach, designed to restore the reliability of key suppliers. 

www.gao.gov/cgi-bin/getrpt?GAO-07-387.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Paul Francis at 

(202) 512-4841 or francisp@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 6

BMDS Elements Made Progress, but It Was Less Than Expected 

and It Cost More than Planned 11 

MDA’S Flexibility Comes at the Cost of Program Transparency 26 

MDA Makes Significant Strides with Quality Improvement 

Processes 35

Conclusions 38

Recommendations for Executive Action 39 

Agency Comments and Our Evaluation 40 

Appendix I Comments from the Department of Defense 44 

Appendix II MDA Contracts 48 

Support Contractors Are Key to BMDS Development 48 

Most Prime Contractors Did Not Execute All Planned Work within 

Fiscal Year 2006 Cost and Schedule Budgets 50 

Appendix III Scope and Methodology 69 

Appendix IV GAO Contact and Staff Acknowledgments 71 

Tables 

Table 1: Description of BMDS Elements 9 

Table 2: Block 2006 Cost Goal, as of March 2005 13 

Table 3: Block 2006 Cost Goal, as of March 2006 14 

Table 4: Development Funding for Assets Fielded in Block 2006 15 

Table 5: Block 2006 Delivery Goals 17 

Table 6: Prime Contractor Fiscal Year 2006 and Cumulative Cost 

and Schedule Performance 19 

Table 7: MDA Support Contractor Job Functions 49 

Table 8: Program Office Staffing 50 

Table 9: BMDS Contractual Instruments 52 

Page i GAO-07-387 Defense Acquisitions
Figures 

Figure 1: Aegis BMD Weapon System Cost and Schedule 

Performance 55

Figure 2: Aegis BMD Standard Missile-3 Cost and Schedule 

Performance 57

Figure 3: ABL Cost and Schedule Performance 58 

Figure 4: GMD Cost and Schedule Performance 60 

Figure 5: KEI Cost and Schedule Performance 63 

Figure 6: BMDS Sensors Cost and Schedule Performance 64 

Figure 7: STSS Cost and Schedule Performance 66 

Figure 8: THAAD Cost and Schedule Performance 67 

Page ii GAO-07-387 Defense Acquisitions
Abbreviations 

ABL Airborne Laser 

Aegis BMD Aegis Ballistic Missile Defense 

BC/FC Beam Control/Fire Control 

BMDS Ballistic Missile Defense System 

C2BMC Command, Control, Battle Management, 

 and Communications 

CLS Contractor Logistics Support 

CPR Contract Performance Report 

DOD Department of Defense 

EKV Exoatmospheric Kill Vehicle 

EO/IR Electro-Optical/Infrared 

FBX-T Forward-Based X-Band--Transportable 

FFRDC Federally Funded Research and Development Centers 

GMD Ground-based Midcourse Defense 

ICBM Intercontinental Ballistic Missile 

JNIC Joint National Integration Center 

KEI Kinetic Energy Interceptor 

MAP MDA Assurance Provisions 

MDA Missile Defense Agency

MKV Multiple Kill Vehicle 

MRTF Mission Readiness Task Force 

PAC-3 Patriot Advanced Capability–3 

SM-3 Standard Missile–3 

STSS Space Tracking and Surveillance System 

THAAD Terminal High Altitude Area Defense 

U.S.C. United States Code 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

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other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-07-387 Defense Acquisitions
United States Government Accountability Office

Washington, DC 20548 

March 15, 2007 

Congressional Committees 

The concern that nuclear, biological, or chemical weapons are 

proliferating has heightened the sense of urgency for our country to 

develop a comprehensive missile defense system capable of defending the

United States and its allies against weapons of mass destruction and the 

ballistic missiles that could deliver them. The threat from ballistic missiles 

is growing with at least 25 countries now possessing or acquiring 

sophisticated missile technology. For nearly half a century, the 

Department of Defense (DOD) has been funding efforts to develop a 

system to detect, track, and defeat ballistic missiles deployed from enemy 

launch sites. The current system under development–the Ballistic Missile 

Defense System (BMDS)–includes a diverse collection of land-, air-, sea-, 

and space-based assets located around the globe and founded on cuttingedge technology. DOD plans to invest an additional $49 billion in this 

system, or about 13 percent of its research and development budget, over

the next 5 years. 

The Missile Defense Agency (MDA)—the agency charged with developing

an integrated BMDS—is currently developing nine BMDS elements. The 

elements are: Airborne Laser (ABL); Aegis Ballistic Missile Defense (Aegis 

BMD); BMDS Sensors; Command, Control, Battle Management, and 

Communications (C2BMC); Ground-based Midcourse Defense (GMD); 

Kinetic Energy Interceptors (KEI); Multiple Kill Vehicles (MKV); Space 

Tracking and Surveillance System (STSS); and Terminal High Altitude 

Area Defense (THAAD).1

 MDA has adopted an evolutionary acquisition 

approach in which the BMDS will be fielded in 2-year blocks. The first 

block, known as Block 2004, ended on December 31, 2005. The block 

fielded a limited capability that included initial versions of GMD; Aegis 

BMD; Patriot Advanced Capability-3; and C2BMC elements. This capability 

is designed to provide limited protection of the United States from 

intercontinental ballistic missile attacks out of North Korea and the Middle 

 1

The BMDS also includes a tenth element, Patriot Advanced Capability-3 (PAC-3), which 

has been transferred to the Army for production, operation, and sustainment. This report 

does not evaluate PAC-3 because its initial development is complete and it is now being 

managed by the Army. 

Page 1 GAO-07-387 Defense Acquisitions
East and protection of U.S. forces and critical assets from short- and 

medium-range ballistic missiles. 

The current block, Block 2006–which represents the period of 

development for calendar years 2006 and 2007—enhances existing 

capabilities, provides additional assets for operational use, and continues 

development of future capabilities. MDA submitted its goals for Block 

2006 to Congress shortly after its fiscal year 2006 budget request. The 

goals quantified the number of assets that MDA planned to field by the end

of the block, defined the performance that fielded assets were expected to

deliver, and identified the cost of all Block 2006 efforts, including the cost 

of assets being fielded and of developmental activities for three 

elements—ABL, STSS, and THAAD—that will not be operational until 

future blocks.2

 Fiscal year testing goals were also established by element 

program offices, but these goals were not formally reported to Congress. 

The National Defense Authorization Acts for fiscal years 2002 and 2005

mandated that we prepare annual assessments of MDA’s ongoing cost, 

schedule, testing, and performance progress through fiscal year 2006.3

 To 

date, we have delivered assessments covering fiscal years 2003, 2004, and 

2005 to Congress.4

 In this report, we assess the progress MDA made during 

fiscal year 2006 against the Block 2006 goals submitted to Congress in 

March 2005, as well as the testing goals established by the nine BMDS 

elements. We have also followed up on two previously reported issues: 

(1) whether the flexibility granted to MDA in acquiring the BMDS has 

reduced decision-makers’ knowledge of program outcomes, thereby 

limiting program oversight and MDA’s accountability for the investment

 2

MDA included THAAD as part of its initial Block 2006, but later moved its cost to Block 

2008. According to MDA officials, this action was taken to more accurately align resources

with the capability’s delivery time frame. The agency is also continuing the development of 

KEI and MKV, but these efforts are being financed through appropriations received for

other blocks. 

3

National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, § 232(g) 

(2001); Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. 

No. 108-375, § 233. Section 224 of the John Warner National Defense Authorization Act for 

2007, Pub. L. No. 109-364 (2006) recently extended the requirement for GAO assessment. 

4

GAO, Missile Defense: Actions Are Needed to Enhance Testing and Accountability, 

GAO-04-409 (Washington, D.C.: Apr. 23, 2004); Defense Acquisitions: Status of Ballistic

Missile Defense Program in 2004, GAO-05-243 (Washington, D.C.: Mar. 31, 2005); Defense

Acquisitions: Missile Defense Agency Fields Initial Capability but Falls Short of 

Original Goals, GAO-06-327 (Washington, D.C.: Mar. 15, 2006). 

Page 2 GAO-07-387 Defense Acquisitions
being made in missile defense; and (2) the current status of MDA’s quality 

assurance program. 

To address our objectives, we looked at the accomplishments of six BMDS 

elements—ABL, Aegis BMD, BMDS Sensors, C2BMC, GMD, and STSS. The 

report also includes information on the progress of three elements—KEI, 

MKV, and THAAD–being developed during fiscal year 2006 that MDA 

considers part of future blocks. Together, these nine elements collectively

account for about 72 percent of MDA’s fiscal year 2006 research and 

development budget. The remainder of MDA’s budget funds activities such 

as new technology and system concepts and common support for all 

elements. To determine the elements’ progress toward Block 2006 goals, 

we examined System Element Reviews, test plans and reports, production 

plans, and Contract Performance Reports. We also interviewed officials 

within each element program office and within MDA functional offices. In 

assessing whether a match exists between the missile defense program’s 

flexibility, and the program’s transparency, we examined documents such 

as those defining MDA’s changes to Block 2006 goals, acquisition laws for 

major DOD programs, and BMDS policy directives issued by the Secretary 

of Defense. We examined the current status of MDA’s quality assurance 

program by visiting various contractor facilities and holding discussions 

with MDA officials, such as officials in the Office of Quality, Safety, and 

Mission Assurance. We performed our work from June 2006 to March 2007 

in accordance with generally accepted government auditing standards. 

In the past year, MDA’s elements have done fairly well in meeting their test

objectives, but costs have increased and the scope of the block—in terms 

of assets to be fielded and tests to be conducted—have been reduced. Cost 

increases, caused by technical problems and greater than expected 

Ground-based Midcourse Defense element operation and sustainment 

costs led the agency to defer several assets planned for Block 2006 until 

future blocks. For example, MDA will field one less ground-based 

interceptor and four fewer missiles for the Aegis element during Block 

2006. Even though some work for Block 2006 has been deferred, the cost 

goal for all block efforts, including work on elements to be fielded in the 

future, increased about $1 billion—from $19.3 to $20.3 billion. In addition, 

the work of five of the six contractors responsible for Block 2006 elements 

cost more than expected in fiscal year 2006 as they resolved technical and 

integration problems, which will likely cause MDA to defer more activities 

until the next block. The full cost of Block 2006 cannot be determined 

because work is being deferred from block to block—for example, the 

cost of deferred work benefiting Block 2004 is included in Block 2006 

Results in Brief 

Page 3 GAO-07-387 Defense Acquisitions
cost—and the elements are inconsistently reporting block cost. In the area 

of testing, three of the Block 2006 elements and all elements considered 

part of future blocks met their primary test objectives for fiscal year 2006. 

ABL and STSS are the only elements that have both test delays and unmet

test objectives. A notable achievement for the Ballistic Missile Defense 

program was the Ground-based Midcourse Defense element’s first 

successful intercept since 2002. For one end-to-end scenario, the 

interceptor exceeded test objectives by destroying a target representative

of a real world threat. While this test was an important step in 

demonstrating the performance of the missile defense system, it is too 

early to assess whether MDA will achieve its overall performance goal for 

the Block 2006 fielded configuration. The goal itself has been lowered in 

the past year, and MDA’s models and simulations have not yet been 

anchored by sufficient flight tests to have confidence that predictions of 

performance are reliable. Several of the elements continue to experience

technical problems, which could affect the performance of the fielded

system and delay the capabilities anticipated for future blocks. 

Because the BMDS has not formally entered the system development and 

demonstration phase of the DOD acquisition cycle, it is not yet required to

apply certain acquisition laws triggered by this phase. This flexibility has 

several distinct advantages. MDA’s decision-making is agile because the 

agency is not required to obtain prior approval of the program’s cost, 

schedule, and performance baseline or of changes to that baseline. The 

agency is not required to have its cost estimates independently verified or 

to have the program independently assessed at certain points to see if its 

acquisition should move forward. Also, because MDA’s assets are 

considered developmental and are produced in limited quantities, MDA 

has not triggered a legal requirement for an operational test and evaluation 

prior to fielding. This allows the program to concurrently test and field 

assets, resulting in faster deployment. However, the program’s flexibility 

reduces MDA’s accountability for the resources the agency receives and 

the results it attains. Because MDA can field assets before all testing is 

completed, it has fielded some assets whose capability is uncertain. MDA 

can also decide to field fewer assets than planned and defer other work 

into a future block to accommodate cost growth, making it hard to 

reconcile a block’s cost and outcomes with original goals. Additionally, 

MDA’s development of the BMDS outside of DOD’s acquisition cycle 

makes it difficult to compare the actual cost of a delivered asset with its 

planned cost because there is no applicable unit cost reporting 

requirement. Further, research and development funds allow MDA to 

incrementally fund the manufacture of operational assets. To the extent 

MDA uses this flexibility to spread the funding of end items over 2 or more 

Page 4 GAO-07-387 Defense Acquisitions
years, it may “tie the hands” of future Congresses to finish funding end 

items started in previous years. 

MDA continues to address quality assurance problems that officials in 

MDA’s Office of Safety and Quality Assurance told us came about when 

the government relinquished much of its oversight role during the 

acquisition streamlining effort of the 1990s and as the agency rushed to 

field an initial missile defense capability in Block 2004. The agency 

initiated several mechanisms to improve overall quality control processes 

and is progressing well with their implementation. The mechanisms being 

used to improve quality assurance processes include the development of a

teaming approach to restore reliability in key suppliers, quality audits, 

adjusting award fee plans to encourage contractors to maintain a good 

quality assurance program and implement industry best practices, and 

continuing to incorporate the agency’s key quality provisions into its prime 

contracts. Agency officials told us that contractors have responded to the 

agency’s efforts and are implementing improvements. For example, the 

contractor developing the GMD element’s exoatmospheric kill vehicle

incorporated equipment into the production process that handles critical 

components, reducing the possibility that the components will be dropped 

or mishandled by production personnel. MDA’s efforts have started to 

produce results as test failures have declined and on time deliveries have

increased. 

We are recommending that MDA establish firm baselines for those 

elements considered far enough along to be in system development and 

demonstration, and report against those baselines; propose an approach 

for those same elements that provides information consistent with the 

acquisition laws that govern baselines and unit cost reporting, 

independent cost estimates, and operational test and evaluation; include in

blocks only those elements that will field capabilities during the block 

period and develop a firm block baseline that includes the unit cost of its 

assets; request and use procurement funds, rather than research, 

development, test, and evaluation funds, to acquire fielded assets; and 

conduct an independent evaluation of the ABL and KEI elements prior to 

making a decision on the future of the programs. 

DOD partially concurred with our first three recommendations, but did not 

agree to use procurement funds to acquire fielded assets or to conduct an

independent evaluation of the ABL and KEI elements. In partially 

agreeing, DOD recognized the need to provide greater program 

transparency and committed to providing information consistent with 

acquisition laws that govern baselines and unit cost reporting. However,

Page 5 GAO-07-387 Defense Acquisitions
DOD objected to the element-centric approach recommended, believing 

that this would detract from managing the BMDS as a single, integrated 

system. DOD also stated that reporting at the BMDS-level in accordance 

with our third recommendation would appear to be inconsistent with 

reporting at the element level. We continue to believe that all 

recommended changes are needed to provide a better balance between 

MDA’s flexibility and BMDS program transparency. Because DOD awards 

contracts and requests funding by individual elements that compose the 

BMDS, we believe that the element approach is the best way to achieve 

increased program transparency. However, a BMDS-level baseline derived

from the capabilities that individual elements yield is needed to describe 

and manage a BMDS-wide capability. We also believe that the use of 

procurement funds contributes to program transparency by making clear 

at the outset the size of the investment being requested in fielded assets. 

Finally, we continue to believe that an independent assessment of the ABL 

and KEI capabilities can provide a transparent basis for making decisions

on the future of the programs, but we did revise the recommendation to 

specify that the assessment should follow key demonstrations in 2009. 

MDA’s mission is to develop and field an integrated and layered Ballistic 

Missile Defense System to defend the United States, its deployed forces, 

allies, and friends against all ranges of enemy ballistic missiles in all 

phases of flight. This is challenging, requiring a complex combination of 

defensive components—space-based sensors, surveillance and tracking 

radars, advanced interceptors, command and control, and reliable 

communications—that work together as an integrated system. 

Background 

A typical hit-to-kill engagement scenario for an intercontinental ballistic 

missile (ICBM) would unfold as follows: 

• Infrared sensors aboard early-warning satellites detect the hot plume of 

a missile launch and alert the command authority of a possible attack. 

• Upon receiving the alert, land- or sea-based radars are directed to track 

the various objects released from the missile and, if so designed, to 

identify the warhead from among spent rocket motors, decoys, and 

debris. 

• When the trajectory of the missile’s warhead has been adequately 

established, an interceptor—consisting of a “kill vehicle” mounted atop 

a booster—is launched to engage the threat. The interceptor boosts 

itself toward a predicted intercept point and releases the kill vehicle. 

• The kill vehicle uses its onboard sensors and divert thrusters to detect,

identify, and steer itself into the warhead. With a combined closing 

Page 6 GAO-07-387 Defense Acquisitions
speed on the order of 10 kilometers per second (22,000 miles per hour), 

the warhead is destroyed through a “hit-to-kill” collision with the kill 

vehicle above the atmosphere. 

To develop a system capable of carrying out such an engagement, MDA is 

executing an evolutionary acquisition strategy in which the fielding of 

missile defense capabilities is organized in 2-year increments known as 

blocks. Each block is intended to provide the Ballistic Missile Defense 

System with capabilities that will enhance the development and overall 

performance of the system. The first block—Block 2004—ended on 

December 31, 2005, and fielded a limited initial capability that included 

early versions of the Ground-based Midcourse Defense; Aegis Ballistic 

Missile Defense; Patriot Advanced Capability-3; and the Command, 

Control, Battle Management, and Communications element. 

During calendar year 2006 and 2007, MDA is focusing its program of work 

on the enhancement of four fielded BMDS elements—GMD, Aegis BMD, 

Sensors, and C2BMC. The primary contribution of Block 2006 is that it 

fields additional assets and continues the evolution of Block 2004 by 

providing improved GMD interceptors, enhanced Aegis BMD missiles, 

upgraded Aegis BMD ships, a Forward-Based X-Band—Transportable 

radar, and enhancements to the C2BMC software. 

MDA divides each year’s budget request into a request for the current 

block and requests for future blocks that have not yet formally begun. For 

example, in fiscal year 2006, MDA requested funds for Block 2006 and for 

blocks that begin in 2008, 2010, 2012, and 2014. When MDA submitted its 

Block 2006 budget to Congress in February 2005, the agency requested 

funding for not only the four elements fielding assets during Block 2006, 

but also for the continued development of three elements—ABL, STSS, 

and THAAD—that will not field assets for operational use until future 

blocks. 5

 According to MDA officials, these elements—which are primarily 

developmental elements—were included in the block because the agency

believed that during the block time frame the elements offered some 

emergency capability. MDA also requested fiscal year 2006 funds for two 

other developmental elements, MKV and KEI. However, MDA did not 

include funding for these elements in its Block 2006 budget request 

because they provided no capability during the block. Instead, MDA 

 5

 Although MDA included THAAD in its Block 2006 program of work when it submitted its 

original Block 2006 goals to Congress, it removed THAAD from the block in March 2006, 

when it revised its goals. THAAD is now considered part of Block 2008. 

Page 7 GAO-07-387 Defense Acquisitions
requested funding for MKV in its fiscal year 2006 request for Advanced 

Component Development and Prototypes—a program element that is not

tied to any block—and for KEI in the agency’s fiscal year 2006 request for 

Block 2014. Table 1 provides a brief description of all elements being 

developed by MDA. 

Page 8 GAO-07-387 Defense Acquisitions
Table 1: Description of BMDS Elements 

Element Missile defense role 

Ground-based Midcourse Defense GMD is a ground-based missile defense system designed to destroy ICBMs during the 

midcourse phase of their flight. Its mission is to protect the U.S. homeland against ballistic 

missile attacks from North Korea and the Middle East. GMD is part of the initial capability fielded 

in 2004-2005 with an inventory of 14 emplaced interceptors. MDA plans to field about 

28 additional interceptors in Alaska and California through 2010. 

Aegis Ballistic Missile Defense Aegis BMD is a ship-based missile defense system designed to destroy short to intermediate 

range ballistic missiles during the midcourse phase of their flight. Its mission is twofold: to protect 

deployed U.S. forces, allies, and friends against ballistic missile attacks and to serve as a

forward-deployed BMDS sensor, especially in support of the GMD mission. MDA is planning to 

procure 147 Aegis BMD missiles—the Standard Missile-3—from calendar year 2006 through 

2012 and to upgrade 18 ships for the BMD mission by the end of 2009. MDA also requested 

funding in its fiscal year 2008 budget request to make Aegis BMD capable of defeating targets 

during the terminal phase of their flight. 

Command, Control, Battle 

Management, and Communications 

C2BMC is the integrating and controlling element of the BMDS. C2BMC’s role is to provide 

deliberate planning, situational awareness, sensor management and control of the ForwardBased X-Band-Transportable (FBX-T) radar, and network support for fire control and situational 

awareness. 

BMDS Sensors MDA is developing various stand-alone radars for fielding. In particular, MDA leveraged the 

hardware design for the THAAD radar and modified existing software to develop the FBX-T.

MDA placed the first FBX-T in Japan to augment existing BMD surveillance and tracking

capabilities. The program expects to produce 3 more FBX-T radars by the end of Block 2008. 

Airborne Laser ABL is an air-based missile defense system designed to destroy all classes of ballistic missiles 

during their boost phase of flight. ABL employs a high-energy chemical laser to rupture a

missile’s motor casing, causing the missile to lose thrust or flight control. MDA plans to 

demonstrate proof of concept in a system demonstration in 2009. An operational ABL capability 

may be demonstrated in Block 2016. 

Kinetic Energy Interceptors KEI is a land-mobile missile defense system designed to destroy medium, intermediate, and 

intercontinental ballistic missiles during the boost phase and all parts of the midcourse phase of 

their flight. The agency expects to demonstrate defensive capability through flight testing during 

2012-2015. This capability could be expanded to sea-basing in subsequent blocks. 

Space Tracking and Surveillance 

System 

The Block 2006 STSS consists of a constellation of two demonstration satellites. MDA intends to 

use these satellites for testing missile warning and tracking capabilities in the 2007-2009 time 

frame. Based on demonstration satellite ground test results and analysis, MDA has already 

determined that it will request funding for a follow-on STSS constellation. 

Terminal High Altitude Area

Defense 

THAAD is a ground-based missile defense system 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. MDA plans to field a fire unit, including 24 missiles, 

in 2009 and a second unit in 2010. 

Multiple Kill Vehicle The MKV is being designed as an optional payload for midcourse defense systems for all 

midcourse interceptor elements. The concept mitigates the need to pinpoint the single lethal 

object in a threat cluster by using numerous kill vehicles rather than a single kill vehicle. The 

current concept consists of a number of smaller kill vehicles; but, MDA is developing an 

alternative payload concept on a parallel acquisition path to mitigate risk. The MDA expects 

initial capabilities to be available by Block 2014 or 2016. 

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

Note: The Patriot Advanced Capability-3 system is also part of the BMDS, but it is not included in the 

table because management responsibility for this element has been transferred to the Army. 

Page 9 GAO-07-387 Defense Acquisitions
As part of MDA’s planning process, the agency defines overarching goals 

for the development and fielding of the current BMDS block. These goals 

identify the composition of the block (the elements in development and 

those planned for fielding), the type and quantity of assets to be fielded,

the cost associated with element development and fielding (including 

operation and sustainment activites), and the performance expected of 

fielded assets.

6

 For example, in March 2005, MDA told Congress that its 

Block 2006 program of work would include seven elements—ABL, Aegis 

BMD, C2BMC, GMD, Sensors, STSS, and THAAD.7

 Further, MDA identified 

the cumulative number of assets that Aegis BMD, C2BMC, GMD, and the 

Sensors elements would field by the end of the block, and the performance 

that those assets would deliver in terms of probability of engagement 

success, the land area from which a ballistic missile launch could be 

denied, and the land area that could be protected from a ballistic missile 

launch. Finally, MDA told Congress that it would try to complete all Block 

2006 work for $20.458 billion. 

To enable MDA to meet its overarching goals, each element’s program 

office establishes its own plan for fielding and/or developmental activities. 

For example, each program office develops a delivery plan and a test 

schedule that contributes to MDA’s performance and fielding goals. The 

programs also work with their prime contractor to plan the block of work 

so that it can be completed within the program’s share of MDA’s budget. 

Since 2002, missile defense has been seen as a national priority and has 

been funded at nearly requested levels. However, DOD’s Program Budget 

Decision in December 2004 called for MDA to plan for a $5 billion 

reduction in funding over fiscal years 2006-2011. Future MDA budgets 

could be affected by cost growth in federal entitlement programs that are 

likely to decrease discretionary spending and by increased DOD 

expenditures, such as expenses created by the Iraq conflict. 

Last year we reported that MDA strayed from the knowledge-based 

acquisition strategy that allows successful developers to deliver, within 

 6

MDA goals are formally detailed in the agency’s budget estimates and in the MDA 

documents, BMDS Block Statement of Goals and Baselines, March 2005; and BMDS Block 

Baselines and Goals, March 2006. 

7

In March 2006, MDA removed its developmental efforts for the THAAD element, along 

with THAAD’s budget for fiscal year 2006-2011, from the agency’s Block 2006 goals. THAAD 

is now considered part of Block 2008 and its funding is requested as part of each fiscal 

year’s budget request for Block 2008 efforts. 

Page 10 GAO-07-387 Defense Acquisitions
budget, a product whose performance has been demonstrated.8

 In doing 

so, MDA fielded assets before their capability was known and the full cost

of the capability was not transparent to decision makers. We noted that it

was possible for MDA to return to a knowledge-based approach to 

development while still fielding capability in blocks, but that corrective 

action was needed to put all BMDS elements on a knowledge-based 

approach. That is, instead of concurrently developing, testing and fielding

the BMDS, MDA would need to adopt knowledge points at which the 

program would determine if it was ready to begin new acquisition 

activities. These knowledge points would be consistent with those called

out in DOD’s acquisition system policy. To provide a basis for holding 

MDA accountable for delivering within estimated resources and to ensure 

the success of future MDA development efforts, we recommended that the 

Secretary of Defense implement a knowledge-based acquisition strategy 

for all the BMDS elements, assess whether the current 2-year block 

strategy was compatible with the knowledge-based development strategy,

and adopt more transparent criteria for reporting each element’s 

quantities, cost, and performance. DOD has not taken any action on the 

first two recommendations because it considers MDA’s acquisition 

strategy as knowledge-based and because MDA’s block strategy is 

compatible with the strategy MDA is implementing. Neither did DOD agree 

to take action on our third recommendation to adopt more transparent 

criteria for identifying and reporting program changes. In its comments, 

DOD responded that MDA is required by statute to report significant 

variances in each block’s baseline and that these reports along with 

quarterly DOD reviews provide an adequate level of program oversight. 

MDA made progress during fiscal year 2006 in carrying out planned 

accomplishments for the block elements, but it will not deliver the value 

originally planned for Block 2006. Costs have increased, while the scope of 

work has decreased. It is also likely that in addition to fielding fewer 

assets other Block 2006 work will be deferred to offset growing contractor 

costs. Actual costs cannot be reconciled with original goals because the 

goals have been changed, work travels to and from other blocks, and 

individual program elements do not account for costs consistently. In 

addition, although element program offices achieved most of their 2006 

test objectives, the performance of the BMDS cannot yet be fully assessed 

BMDS Elements Made 

Progress, but It Was 

Less Than Expected 

and It Cost More than 

Planned 

 8

 GAO, Defense Acquisitions: Missile Defense Agency Fields Initial Capability but Falls 

Short of Original Goals, GAO-06-327 (Washington, D.C.: Mar. 15, 2006). 

Page 11 GAO-07-387 Defense Acquisitions
because there have been too few flight tests conducted to anchor the 

models and simulations that predict overall system performance. Several 

elements continue to experience technical problems which pose questions 

about the performance of the fielded system and could delay the 

enhancement of future blocks. 

Block 2006 Costs Have 

Increased, but a Full 

Accounting Is Not Possible 

Block 2006 costs have increased because of technical problems and 

greater than expected GMD operations and sustainment costs. In March 

2006, shortly after the formal initiation of Block 2006, increasing costs and

other events prompted MDA to reduce the quantity of assets it intended to

field during the block. Although the agency reduced the scope of Block 

2006, most of the elements’ prime contractors reported that work 

completed during fiscal year 2006 cost more than planned. Consequently, 

MDA officials told us it is likely that other work planned for Block 2006 

will be deferred until Block 2008 to cover fiscal year 2006 overruns. 

Furthermore, changing goals, inconsistent reporting of costs by the 

individual elements, and MDA’s past practice of accounting for the cost of 

deferred work prevents a determination of the actual cost of Block 2006.

MDA’s cost goal for Block 2006 has increased by approximately $1 billion. 

In March 2005, MDA established a goal of $20.458 billion for the 

development, fielding, and sustainment of all Block 2006 components. 

However by March 2006, it had grown by about $1 billion. Cost increases 

were caused by the: 

Cost Increases Lead to Revised 

Block 2006 Cost Goal 

• addition of previously unknown operations and sustainment 

requirements, 

• realignment of the GMD program to support a successful return to 

flight, 

• realignment of the Aegis BMD program to address technical 

challenges and invest in upgrades to keep pace with the near term 

threat, and 

• preparations for round-the-clock operation of the BMDS when the 

system was put on alert. 

In an effort to keep costs within the goal, MDA shifted THAAD’s future 

development costs of $1.13 billion to another block. That is, the agency 

moved the cost associated with THAAD’s development in fiscal years 2006 

through 2011—which in March 2005 was considered a Block 2006 cost—to 

Block 2008. This accounting change accommodated the cost increase. 

According to MDA’s November 2006 Report to Congress, THAAD costs 

will be reported as part of Block 2008 costs to better align the agency’s 

Page 12 GAO-07-387 Defense Acquisitions
resources with the planned delivery of THAAD fire units in 2008. Tables 2 

and 3 compare the Block 2006 cost goal established for the BMDS in 

March 2005 and March 2006. 

Table 2: Block 2006 Cost Goal, as of March 2005 

Cost Goal, March 2005 

(Dollars in millions) 

Element 

FY02-FY11

Development Costs

FY02-FY11 

Fielding Costs

FY02-FY11 

Operations and

Sustainment Costs 

Total Block

Cost Goal

C2BMC $386 $24 $33 $443

Hercules 72 — — 72

Joint Warfighter Support 113 — 10 123

Test & Evaluation 336 — — 336

Targets & Countermeasures 548 — — 548

THAAD 1,172a— — 1,172

GMD 10,847 1,469 565 12,881

Aegis BMD 1,087 235 30 1,352

ABL 1,095 — — 1,095

BMDS Radars 704 174 248 1,126

STSS 1,310 — — 1,310

Total $17,670 $1,902 $886 $20,458

Less THAAD funding for fiscal years 2006-2011 $1,134

Total Block cost after removal of THAAD’s future cost $19,324

Source: BMDS Block Statement of Goals and Baselines, March 2005; GAO (analysis). 

a

The development cost of THAAD in fiscal years 2006 through 2011—$1,134—was moved to Block 

2008. 

Page 13 GAO-07-387 Defense Acquisitions
Table 3: Block 2006 Cost Goal, as of March 2006 

Revised Goal, March 2006 

(Dollars in millions) 

Element 

FY02 - FY11

Development Costs

FY02-FY11

Fielding Costs

FY02-FY11 

Operations and

Sustainment Costs Total Block Cost Goal

C2BMC $434 $38 $111 $583

Hercules 50 — — 50

Joint Warfighter Support 71 — 31 102

Test & Evaluation 219 — — 219

Targets & Countermeasures 654 — — 654

PAC-3 3 — — 3

THAAD 39a— — 39

GMD 10,825 1,413 1,574 13,812

Aegis BMD 890 300 51 1,241

ABL 1,050 — — 1,050

BMDS Radars 602 209 272 1,083

STSS 1,494 — — 1,494

EO/IR 10b— — 10

Total $16,341 $1,960 $2,039 $20,340

Cost Goal Established in 2005 $19,324

Difference in 2005 and 2006 Cost Goals $1,016

Source: BMDS Block Statement of Goals and Baselines, March 2006; GAO (analysis). 

a

This amount of funds was requested for THAAD as part of MDA’s request for Block 2006 funding in 

fiscal years 2003 and 2004. 

b

Development costs for PAC-3 and Electro-Optical/Infrared (EO/IR) totaling $13 million were added 

when MDA revised its Block 2006 cost goal in March 2006. The EO/IR Active Sensors is advanced 

laser radar technology being developed for insertion in future kinetic kill vehicles and surveillance 

systems. This technology, coupled with passive sensors, is expected to provide improved 

discrimination performance. 

For the purposes of this report, we have adjusted the March 2005 cost goal 

to reflect the deletion of future THAAD cost from Block 2006. This enables 

the revised cost goal that excludes THAAD to be compared with the 

original cost goal. Had THAAD’s cost been removed from MDA’s March 

2005 cost goal, Block 2006 would have actually totaled about 

$19.3 billion. Comparing this with the March 2006 revised goal of 

approximately $20.3 billion reveals the $1 billion increase in estimated 

Block 2006 costs. 

Page 14 GAO-07-387 Defense Acquisitions
The 2-year block structure established by MDA has proven to be a 

complicated concept for its BMDS elements to implement. According to 

officials, MDA defines its block structure in two types of capabilities: 

Individual Elements Account 

for Block 2006 Costs 

Differently

• Early Capability–A capability that has completed sufficient testing 

to provide confidence that the capability will perform as designed. 

In addition, operator training is complete and logistical support is 

ready. So far, Aegis BMD, C2BMC, and GMD are the only elements 

that have met these criteria. 

• Full Capability–These capabilities have completed all system-level 

testing and have shown that they meet expectations. At this stage, 

all doctrine, organization, training, material, leadership, personnel, 

and facilities are in place. 

According to MDA officials, the early capability is typically fielded during 

one block and the full capability is usually attained during the next or a 

subsequent block. However, not all elements account for Block 2006 costs 

in the same manner. For example, table 4 below shows that some elements 

included costs that will be incurred to reach full capability—costs that will 

be recognized in fiscal year 2009 through 2011—while other elements have 

not. 

Table 4: Development Funding for Assets Fielded in Block 2006 

(Dollars in millions) 

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

C2BMC $3.7 $26.5 $52.5 $26.8 $133.5 $148.8 $39.4 $2.3 $0.2

GMD 2,460.1 2,063.0 1,607.1 1,886.8 1,444.3 1,363.7

Aegis BMD 24.4 83.6 271.1 343.6 82.0 57.1 24.8 3.5

BMDS Radars 31.5 145.3 207.8 137.2 79.7 0.7 

Joint Warfighter

Support 22.5 48.7

Hercules 27.0 22.7

Test & Evaluation 0.7 0.8 2.1 9.8 101.4 103.8

Targets & 

Countermeasures 0.5 3.7 24.8 294.6 325.4 5.3

EO/IR 9.6

Total $2,465.0 $2,125.5 $1,858.4 $2,271.9 $2,404.6 $2,413.7 $127.4 $59.4 $25.0 $3.5

Source: MDA. 

Note: All MDA resources are Research, Development, Test, and Evaluation funds. 

Page 15 GAO-07-387 Defense Acquisitions
According to agency officials, the cost of all activities needed to validate 

the performance of Block 2006 Fielded Configuration elements should be 

included as part of the BMDS Block 2006 costs even though these 

activities may occur during future blocks. According to officials from 

MDA’s Systems Engineering and Integration Directorate, the C2BMC and 

Aegis BMD programs’ cost accounting for Block 2006 are the most 

accurate because the programs included the costs to conduct follow-on 

testing in subsequent years. Additionally, the officials said that other 

elements of the BMDS will conduct similar tests in the years following the 

actual delivery of their Block 2006 capabilities; however, the costs were 

not included as Block 2006 costs. If each BMDS element were to 

consistently report block costs, the planned costs for Block 2006 would be 

higher than MDA’s current reported costs of $20.34 billion. 

MDA is making some progress toward achieving its revised Block 2006 

goals, but the number of fielded assets and their overall performance will 

be less than planned when MDA submitted its Block 2006 goals to 

Congress in March 2005. MDA notified Congress that it was revising its 

Block 2006 Fielded Configuration Baseline in March 2006, shortly after 

submitting its fiscal year 2007 budget.

Increasing Costs Are Causing 

MDA to Reduce Scope of Block 

2006 

When MDA provided Congress with its quantity goals in March 2005, it 

stated those goals cumulatively. That is, MDA added the number of Block 

2004 assets that it planned to field by December 31, 2005, to the number of 

assets planned for Block 2006. However, in the case of GMD interceptors, 

MDA was unable to meet its Block 2004 quantity goals, which, in effect, 

caused MDA’s Block 2006 goal for interceptors to increase. For example, 

MDA planned to field 18 GMD interceptors by December 31, 2005, and to 

field an additional 7 interceptors during Block 2006, for a total of 25 

interceptors by the end of Block 2006. But, because it did not meet its 

Block 2004 fielding goal—fielding only 10 of the 18 planned interceptors—

MDA could not meet its Block 2006 cumulative goal of 25 without 

increasing its Block 2006 deliveries. For purposes of this report, we 

determined the number of assets that MDA would have to produce to meet 

its Block 2006 cumulative quantity goal. Table 5 depicts only those 

quantities and shows how they have changed over time. 

Page 16 GAO-07-387 Defense Acquisitions
Table 5: Block 2006 Delivery Goals 

BMDS element Original Goal as of March 2005 Goal as of March 2006 

GMD • Up to 15 interceptors 

• Thule Interim Upgrade Early 

Warning Radar

• Up to 12 interceptors 

• Deferred to Block 2008 

Sensors • 1 additional Forward-Based 

X-Band-Transportable Radar 

(FBX-T) 

• 1 additional Forward-Based 

X-Band- Transportable Radar

(FBX-T) 

Aegis BMD SM-3 • 19 missiles • 15 missiles 

Aegis BMD • 4 new destroyers; long-range 

surveillance and tracking only

• 8 upgraded destroyers for the 

engagement mission 

• 1 new cruiser 

• 4 new destroyers; long-range 

surveillance and tracking only

• 7 upgraded destroyers for the 

engagement mission 

• 1 new cruiser 

C2BMC • 3 suites • Suites deferred

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

According to MDA, it reduced the number of GMD interceptors in March 

2006 for four primary reasons: 

• delays in interceptor deliveries caused by an explosion at a 

chemical plant, 

• a halt in production after several flight test failures and pending 

Mission Readiness Task Force (MRTF) reviews, 

• a MRTF review that redirected some interceptors from fielding to 

testing, and

• the temporary suspension of fielding interceptors due to 

manufacturing and quality issues associated with the 

exoatomospheric kill vehicle (EKV). 

MDA also delayed a partial upgrade to the Thule early warning radar until

a full upgrade can be accomplished. According to a July 11, 2005, DOD 

memorandum, the full upgrade of Thule is the most economical option and 

it meets DOD’s desire to retain a single configuration of upgraded early 

warning radars. 

Additionally, the delivery of Aegis BMD Standard Missile -3 (SM-3) was 

reduced as technical challenges associated with the Divert Attitude 

Control System were addressed and as investments in upgrades were 

made to keep pace with emerging ballistic missile threats. According to 

Aegis BMD officials, the program also revised the upgrade schedule for 

Page 17 GAO-07-387 Defense Acquisitions
engagement destroyers because other priorities prevent the Navy from 

making one ship available before the end of the block. 

Budget cuts to the C2BMC program also caused MDA to defer the 

installation of C2BMC suites at three sites. MDA had planned to install the 

suites at U.S. Central Command, European Command, and another site 

that was to be determined before the end of the block. However, MDA 

now plans to place less expensive Web browsers at these sites. 

MDA made progress in fielding additional BMDS assets in 2006 and is 

generally on track to meet most of its revised block goals. MDA’s delivery 

schedules and System Element Review reports show that MDA planned to 

accomplish these goals by making the following progress by December 31, 

2006: adding 4 Aegis BMD missiles to inventory,9

 adding 2 new Aegis BMD 

destroyers for long-range surveillance and tracking, upgrading 2 Aegis 

BMD destroyers and 2 Aegis BMD cruisers to perform both engagement 

and long-range surveillance and tracking, adding 1 new Aegis BMD 

destroyer and 1 new cruiser with both engagement and long-range 

surveillance and tracking capability, completing a number of activities 

prior to delivering the FBX-T radar, delivering the hardware for the 3 Web

browsers, and emplacing 8 GMD interceptors. With the exception of the 

GMD interceptors, MDA completed all work as planned. The GMD 

program was only able to emplace four interceptors by December 2006, 

rather than the eight planned. However, program officials told us that the 

contractor has increased the number of shifts that it is working and the 

program believes that with this change the contractor can accelerate

deliveries and emplace as many as 24 interceptors by the end of the block.

However, to do so, the GMD program will have to more than double its 

2007 interceptor emplacement rate. 

Even though MDA reduced the quantity of assets it planned to deliver 

during Block 2006 to free up funds, most of the MDA’s prime contractors 

overran their fiscal year 2006 budgets. Collectively, the prime contractors 

developing elements included in Block 2006 exceeded their budgets by 

approximately $478 million, with GMD accounting for about 72 percent of 

the overrun. Table 6 contains our analysis of prime contractors’ cost and 

schedule performance in fiscal year 2006 and the potential overrun or 

MDA Likely to Defer Additional 

Work into Future Blocks to 

Offset Rising Costs 

 9

MDA also delivered two additional missiles for flight tests, bringing the total number of

missiles delivered during calendar year 2006 to six. Test missiles are identical to those 

delivered for operational use. 

Page 18 GAO-07-387 Defense Acquisitions
underrun of each contract at completion.10 All estimates of the contracts’ 

cost at completion are based on the contractors’ performance through 

fiscal year 2006. Appendix II provides further details regarding the cost 

and schedule performance of the prime contractors for the seven elements 

shown in table 6. 

Table 6: Prime Contractor Fiscal Year 2006 and Cumulative Cost and Schedule Performance 

(Dollars in millions) 

BMDS 

Element 

FY06 

Cost 

Variance 

FY06 

Schedule

Variancea

Cumulative 

Cost 

Variance 

Cumulative 

Schedule

Variance

Percent of

Contract 

Completed 

Estimated Contract 

Underrun/Overrunb

ABL ($54.8) ($26.4) ($77.9) ($50.0) 79% Overrun of $112.1 to $248.3 

Aegis BMD 

Weapon 

System (6.0) (0.8) 0.1 (0.8) 81% Overrun of $0.1 to $4.7 

Aegis BMD 

SM-3c

(7.8) 0.7 3.1 (8.9) 82%

Underrrun of $1.9 to 

overrun of $2.7

GMD (346.5) 90.2 (1,059.6) (137.8) 74% 

Overrun of $1,485.8 to 

$1,853.5 

Sensors 3.8 5.4 20.2 26.6 65% Underrun of $44.9 to $26.3 

STSS (66.8) (84.1) (163.7) (104.4) 42%

Overrun of $567.3 to 

$1,378.3 

Total for 

Block 2006 

Elements ($478.1) ( $15.0) ($1,277.8) ($275.3)

Total

Estimated 

Block 2006 

Overrun $2,118.5 to $3,461.2 

KEI 0.6 0.6 3.6 (5.3) 6% N/Ad

THAADe(87.9) (37.9) (104.2) (28.0) 81% Overrun of $134.7 to $320.2 

Total for 

Future Block 

Elements ($87.3) ($37.3) ($100.6) ($33.3)

Total for All 

Elements ($565.4) ($52.3) ($1,378.4) ($308.6)

Total

Estimated 

Overrun for All 

Elements 

Overrun of $2,253.2 

to $3,781.4 

Source: Contract Performance Reports (data); GAO (analysis). 

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

MDA directed that the contractors for the MKV and C2BMC elements suspend Earned Value 

reporting during the fiscal year and data for those contracts is not included above. 

 10Contractors for C2BMC and MKV were directed to suspend earned value reporting during 

fiscal year 2006; therefore, data for these contracts are not included in the table. See

appendix II for more information as to why reporting was suspended. 

Page 19 GAO-07-387 Defense Acquisitions
a

Schedule variance represents the value of planned work that the contractor has not performed as 

scheduled. 

b

Contracts may include some work that is not related to Block 2006. 

c

Contractor performance reporting data for the Aegis BMD SM-3 contract was not available prior to 

fiscal year 2005. Therefore, cumulative values are from fiscal year 2005 to the present. 

d

We could not estimate the likely outcome of the KEI contract at completion because a trend cannot

be predicted until 15 percent of the planned work is completed. 

e

Earned Value data for the THAAD contract is reported under two contract line item numbers, 1 and 

10. We report only the contractor’s cost and schedule performance for contract line item 1 because it 

represents the majority of the total work performed under the contract. 

As shown in table 6, the Sensors element is the only Block 2006 element 

that according to our analysis performed within its fiscal year 2006 budget. 

The ABL, Aegis BMD, GMD, and STSS programs overran their fiscal year 

budgets as a result of technical problems and integration issues 

encountered during the year. We could not assess the C2BMC contractor’s 

cost and schedule performance because MDA suspended Earned Value 

reporting during the year as the contractor replanned its Block 2006 

program of work. 

In addition to analyzing the fiscal year 2006 cost and schedule 

performance of elements included in Block 2006, we also analyzed the 

performance of elements included in other blocks. Of the elements 

reporting Earned Value data, only KEI performed within its budget. 

THAAD’s integration problems once again caused it to exceed its budget.

We were unable to determine whether the work accomplished by the MKV 

contractor cost more than originally planned because Contract 

Performance Reports were suspended in February 2006 as the program 

transitioned from an advanced technology development program to a 

system development program. This transition prompted MKV to establish a 

new baseline for the program, which the contractor will not report against 

until early in fiscal year 2007. 

MDA officials told us that MDA is likely to defer some Block 2006 work 

activities (other than the delivery of assets) into future blocks in an effort 

to operate within the funds programmed for the block. If the agency

reports the cost of deferred work as it has in the past, the cost of Block 

2006 will not include all work that benefits the block and the cost of the 

future block will be overstated. 

The deferral of work, while necessary to offset increased costs, 

complicates making a comparison of a block’s actual costs with its original

estimate. According to the Statement of Federal Financial Accounting 

Page 20 GAO-07-387 Defense Acquisitions
Standards Number 4, a federal program should report the full cost of its 

outputs, which is defined as the total amount of resources used to produce 

the output. In March 2006, we reported that the cost of MDA’s Block 2004 

program of work was understated because the reported costs for the block 

did not include the cost of Block 2004 activities that were deferred until 

Block 2006. Conversely, the cost of Block 2006 is overstated because the 

deferred activities from Block 2004 do not directly contribute to the output 

of Block 2006. Similarly, if MDA decides to defer Block 2006 activities until

Block 2008 as officials in MDA’s Office of Agency Operations told us is 

likely, the cost of those activities will likely be captured as part of Block 

2008 costs. 

MDA Able to Achieve Most 

Test Objectives Despite 

Some Delays in Test 

Schedule 

Most BMDS elements achieved their primary calendar year 2006 test 

objectives and conducted test activities on schedule. By December 2006–

the midpoint of Block 2006–three of the six Block 2006 elements and all 

elements considered part of future blocks—met their 2006 primary test 

objectives. Only the ABL, Aegis BMD, and STSS elements were unable to

achieve these objectives.

Although the elements encountered test delays, some were able to achieve 

noteworthy accomplishments. For example, in its third flight test, the 

GMD program exceeded its test objectives by intercepting a target. This 

intercept was particularly noteworthy because it was the first successful 

intercept attempt for the program since 2002. Also, although the test was 

for only one engagement scenario, it was notable because it was GMD’s 

first end-to-end test. 

Progress Made on Block 2006 

Elements 

The GMD program originally planned to conduct four major flight tests, 

during fiscal year 2006, two using operational interceptors. However, the 

program was only able to conduct three flight tests during the fiscal year. 

In one, an operational interceptor was launched against a simulated target; 

in a second test, a simulated target was launched to demonstrate the 

ability of the Beale radar to provide a weapon system task plan; and in the 

other, an interceptor was launched against an actual target. It was in the 

third test that—for one end-to-end scenario—the program exceeded test

objectives by destroying a target representative of a real world threat. The 

objectives of the fourth test were to be similar to those of the third test—

an interceptor flying-by a target with no expectation of a hit. However, 

program officials told us that the success of the earlier tests caused them 

to accelerate the objectives of the fourth test by making it an intercept 

attempt. The fourth test has not yet taken place because a delay in the

third test caused a similar delay in the fourth test and because components 

Page 21 GAO-07-387 Defense Acquisitions
of the test interceptor are being changed to ensure that they will function 

reliably. This test is currently scheduled no earlier than the third quarter of

fiscal year 2007. 

Both the C2BMC and Sensors elements conducted all planned test 

activities on schedule and were able to meet their 2006 objectives. The 

C2BMC software, which enables the system to display real-time target 

information collected by BMDS sensors, was tested in several flight tests 

with the Aegis BMD and GMD programs and was generally successful. The 

Sensors element was also able to complete all tests planned to ensure that 

the Forward-Based X-Band— Transportable (FBX-T) radar will be ready 

for operations. The warfighter will determine when the FBX-T will become 

operational, but MDA officials told us that this may not occur until the 

United States is able to provide the radar’s data to Japan. 

MDA was unable to successfully execute the 2006 test objectives for the 

STSS program. Thermal vacuum testing that was to be conducted after the 

first payload was integrated with space vehicle 1 was delayed as a result of

integration problems. According to program officials, testing began in 

January 2007 and it was expected to be completed in late February 2007. 

Although the Aegis BMD program conducted its planned test activities on

schedule, it was unable to achieve all of its test objectives for 2006. Since 

the beginning of Block 2006, the program has conducted one successful 

intercept, which tested the new Standard Missile-3 design that is being 

fielded for the first time during Block 2006. This new missile design 

provides a capability against more difficult threats and has a longer service 

life than the missile produced in Block 2004. In December 2006, a second 

intercept attempt failed because the weapon system component was 

incorrectly configured and did not classify the target as a threat, which 

prevented the interceptor from launching. Had this test been successful, it 

would have been the first time that the pulse mode of the missile’s Solid 

Divert and Attitude Control System would have been partially flight tested. 

A sixth BMDS element–ABL–experienced delays in its testing schedule 

and was also unable to achieve its fiscal year 2006 test objectives. ABL is 

an important element because if it works as desired, it will defeat enemy 

missiles soon after launch, before decoys are released to confuse other 

BMDS elements. Development of the element began in 1996, but MDA has 

not yet demonstrated that all of ABL’s leading-edge technologies will 

work. The ABL program plans to prove critical technologies during a 

lethality demonstration. This demonstration is a key knowledge point for 

ABL because it is the point at which MDA will decide the program’s future. 

Page 22 GAO-07-387 Defense Acquisitions
However, technical problems encountered with the element’s Beam 

Control/Fire Control component caused the program to experience over a 

3-month delay in its ground test program, which has delayed the planned

lethality demonstration until 2009. In addition, all software problems have 

not been completely resolved and, according to ABL’s Program Manager, 

will have to be corrected before flight testing can begin, which could 

further delay the lethality demonstration. 

The KEI element also has a key decision point—a booster flight test—

within the next few years. In preparation for this test, the program 

successfully conducted static fire tests and wind tunnel tests in fiscal year 

2006 to better assess booster performance. Upon completion of KEI’s 2008 

flight test and ABL’s 2009 lethalithy demonstration, MDA will compare the 

progress of the two programs and decide their futures. 

Test Results for Future Block 

Elements Are Positive 

In January 2005, MDA established ABL as the primary boost phase defense 

element. At the same time, MDA restructured the KEI program to develop

an upgraded long-range midcourse interceptor and reduced KEI’s role in 

the boost phase to that of risk mitigation. A KEI official told us that a 

proposal is being developed that suggests MDA approach the 2009 

decision as a down select or source selection that would decide whether 

ABL or KEI would be the BMDS boost phase capability. 

The MKV program accomplished all of its planned activities as scheduled 

during fiscal year 2006, which included several successful propulsion tests. 

In November 2005, the program tested a preliminary design of MKV’s liquid 

propellant divert and attitude control system–the steering mechanism for 

the carrier and kill vehicles. This test was a precursor to a successful July 

2006 test of the liquid divert and attitude control system’s divert thruster, 

which was conducted under more realistic conditions. The program also 

executed a solid propellant divert and attitude control system test in 

December 2005. Results of the December test, combined with a technology 

assessment, led program officials to pursue a low-risk, high-performance 

liquid fueled divert and attitude control system. The MKV program will 

continue to explore other divert and attitude control system technologies 

for future use. 

The THAAD program achieved its primary fiscal year 2006 test objectives, 

although it did experience test delays. The program planned to conduct 

five flight tests during fiscal year 2006, but was only able to execute four. 

During the program’s first two flight tests, program officials demonstrated 

the missile’s performance, including the operation of the missile’s divert 

and attitude control system and the control of its kill vehicle. The third 

Page 23 GAO-07-387 Defense Acquisitions
flight test conducted in July 2006 demonstrated THAAD’s ability to 

successfully locate and intercept a target, a primary 2006 test objective. 

The fourth THAAD flight test was declared a “no-test” after the target 

malfunctioned shortly after its launch, forcing program officials to 

terminate the test. THAAD officials told us that the aborted test will be 

deleted from the test schedule and any objectives of the test that have not 

been satisfied will be rolled-up into future tests. The program planned to 

conduct its fifth (missile only) flight test–to demonstrate the missile’s 

performance in the low atmosphere–in December 2006. However, due to

reprioritization in test flights, the fifth flight test is now scheduled for the 

second quarter of fiscal year 2007. Flight test 6, the next scheduled flight 

test, was successfully conducted at the end of January 2007. It was the 

first flight test performed at the Pacific Missile Range. 

Overall BMDS 

Performance Remains 

Unverified 

In March 2005, MDA set performance goals for Block 2006 that included a 

numerical goal for the probability of a successful BMDS engagement, a 

defined area from which the BMDS would prevent an enemy from 

launching a ballistic missile, and a defined area that the BMDS would 

protect from ballistic missile attacks.11 In March 2006, MDA altered its 

Block 2006 performance goals commensurate with reductions in Block 

2006 fielded assets. Although MDA revised its goal downward, insufficient 

data exists to assess whether MDA is on track to meet its new goal. 

MDA uses the WILMA model to predict overall BMDS performance even 

though this model has not been validated or verified by DOD’s Operational 

Test Agency. According to Operational Test Agency officials, WILMA is a 

legacy model that does not have sufficient fidelity for BMDS performance 

analysis. MDA officials told us the agency is working to develop an 

improved model that can be matured as the system matures. 

In addition, the GMD program has not completed sufficient flight testing to 

provide a high level of confidence that the BMDS can reliably intercept 

ICBMs. In September 2006, the GMD program completed an end-to-end 

test of one engagement sequence that the GMD element might carry out. 

While this test provided some assurance that the element will work as 

intended, the program must test other engagement sequences, which 

would include other GMD assets that have not yet participated in an end-

 11Specifics of MDA’s performance goals are classified and cannot be presented in this

report. 

Page 24 GAO-07-387 Defense Acquisitions
to-end flight test. Additionally, independent test agencies told us that 

additional flight tests are needed to have a high level of confidence that 

GMD can repeatedly intercept incoming ICBMs. Additional tests are also 

needed to demonstrate that the GMD element can use long-range 

surveillance and tracking data developed by the Aegis BMD element. In 

March 2006, we reported that Aegis BMD was unable to participate in a

GMD flight test, which prevented MDA from exercising Aegis BMD’s longrange surveillance and tracking capability in a manner consistent with an 

actual defensive mission. The program office told us that the Aegis BMD is 

capable of performing this function and has demonstrated its ability to 

surveil and track ICBMs in several exercises. Additionally, Aegis BMD has 

shown that it can communicate this data to GMD in real time. However, 

because of other testing priorities, GMD has not used this data to prepare 

a weapon system task plan in real time. Rather GMD developed the plan in 

post-test activities. Officials in the Office of the Director for Operational 

Test and Evaluation told us that having GMD prepare the test plan in real 

time would provide the data needed to more accurately gauge BMDS 

performance. 

Delayed testing and technical problems may also impact the performance 

of the system and the timeliness of future enhancements to the fielded 

system. For example, the performance of the new configuration of the 

Aegis BMD SM-3 missile is unproven because design changes in the 

missile’s solid divert and attitude control system and one burn pattern of 

the third stage rocket motor, according to program officials, were not 

flight tested before they were cut into the production line. MDA is 

considering a full flight test of the pulsed solid divert and attitude control

system during the third quarter of fiscal year 2007. The solid divert and 

attitude control system is needed to increase the missile’s ability to divert 

into its designated target and counter more complex threats. The zero 

pulse-mode of the missile’s third stage rocket motor, which is expected to 

provide a capability against a limited set of threat scenarios, will not be 

fully tested until fiscal year 2009. 

Confidence in the performance of the BMDS is also reduced because the 

GMD element continues to struggle with technical issues affecting the 

reliability of some GMD interceptors. For example, GMD officials told us 

that the element has experienced one anomaly during each of its flight 

tests since its first flight test conducted in 1999. This anomaly has not yet 

prevented the program from achieving any of its primary test objectives; 

but, to date, neither its source nor solution has been clearly identified or 

defined. Program officials plan to continue their assessment of current and 

future test data to identify the root cause of the problem. 

Page 25 GAO-07-387 Defense Acquisitions
The reliability of emplaced GMD interceptors also remains uncertain 

because inadequate mission assurance/quality control procedures may 

have allowed less reliable or inappropriate parts to be incorporated into 

the manufacturing process. Program officials plan to replace these parts in 

the manufacturing process, but not until interceptor 18. The program plans 

to begin retrofitting the previous 17 interceptors in fiscal year 2009. 

According to GMD officials, the cost of retrofitting the interceptors will be 

at least $65.5 million and could be more if replacement of some parts 

proves more difficult than initially expected. 

The ABL program also experienced a number of technical problems during 

fiscal year 2006 that delayed future decisions for the BMDS program. As 

previously noted, the program’s 2008 lethality demonstration will be 

delayed until 2009. The delay is caused by Beam Control/Fire Control 

(BC/FC) software, integration, and testing difficulties and unexpected 

hardware failures. According to contractor reports, additional software 

tests were needed because changes were made to the tested versions, the 

software included basic logic errors, and unanticipated problems were 

caused by differences in the software development laboratory and ABL 

aircraft environments. 

MDA enjoys a significant amount of flexibility in developing the BMDS, 

but it comes at the cost of transparency and accountability. Because the 

BMDS program has not formally entered the system development and 

demonstration phase of the acquisition cycle, it is not yet required to apply 

several important oversight mechanisms contained in certain acquisition 

laws that, among other things, provide transparency into program progress 

and decisions. This has enabled MDA to be agile in decision making and to

field an initial BMDS capability quickly. On the other hand, MDA operates 

with considerable autonomy to change goals and plans, making it difficult

to reconcile outcomes with original expectations and to determine the 

actual cost of each block and of individual operational assets. 

Past Congresses have established a framework of laws that make major 

defense acquisition programs accountable for their planned outcomes and 

cost, give decision makers a means to conduct oversight, and ensure some 

MDA’S Flexibility 

Comes at the Cost of 

Program 

Transparency 

Acquisition Laws Promote 

Program Transparency 

Page 26 GAO-07-387 Defense Acquisitions
level of independent program review.12 The threshold application of these 

acquisition laws is typically triggered by a program’s entry into system 

development and demonstration—a phase during which the weapon 

system is designed and then demonstrated in tests. The BMDS has not 

entered into system development and demonstration because it is being 

developed outside DOD’s normal acquisition cycle. 

To provide accountability, major defense acquisition programs are 

required by statute to document program goals in an acquisition program 

baseline13 that, as implemented by DOD, has been approved by a higherlevel DOD official prior to the program’s initiation. The baseline, derived 

from the users’ best estimates of cost, schedule, and performance 

requirements, provides decision makers with the program’s total cost for 

an increment of work, average unit costs for assets to be delivered, the

date that an initial operational capability will be fielded, and the weapon’s

intended performance parameters. The baseline is considered the 

program’s initial business case–evidence that the concept of the program 

can be developed and produced within existing resources. Once approved, 

major acquisition programs are required to measure their program against 

the baseline or to obtain approval from a higher-level acquisition executive 

before making significant changes. Programs are also required to regularly 

provide detailed program status information to Congress, including 

information on program cost, in Selected Acquisition Reports.14 In 

addition, Congress has established a cost monitoring mechanism that 

 12The BMDS program meets the definition of a major defense acquisition program, which is

defined in 10 U.S.C. § 2430 and implemented by DOD in its 5000 series. A major defense 

acquisition program is an acquisition program that is not a highly sensitive classified 

program and is designated as a major defense acquisition program or is estimated to

require an eventual total expenditure for research, development, test, and evaluation of

more that $365 million in fiscal year 2000 constant dollars or, for procurement, of more 

than $2.190 billion in fiscal year 2000 constant dollars. 

1310 U.S.C. § 2435 requires an approved program baseline for major defense acquisition 

programs. Although this requirement is not triggered until entry into system development

and demonstration, MDA is subject to a requirement enacted in section 234(e) of the Fiscal 

Year 2005 National Defense Authorization Act (Pub. L. No. 108-375). The provision requires

the Director, MDA, to establish and report annually to Congress a cost, schedule, and

performance baseline for each block configuration being fielded. Modification to the

baseline and variations against the baseline must also be reported. In a February 2002

memorandum, the Under Secretary of Defense delegated to the Director, MDA, the full 

responsibility and authority for baselining each BMDS capability and configuration. 

1410 U.S.C. § 2432. 

Page 27 GAO-07-387 Defense Acquisitions
requires programs to report significant increases in unit cost measured 

from the program baseline.15

Other statutes ensure that DOD provides some independent program 

verification external to the program. Title 10, United States Code (U.S.C.), 

section 2434 prohibits the Secretary of Defense from approving system 

development and demonstration, or production and deployment, of a 

major defense acquisition program unless an independent estimate of the

program’s full life-cycle cost has been considered by the Secretary.16 The 

independent verification of a program’s cost estimate allows decision 

makers to gauge whether the program is executable given other budget 

demands and it increases the likelihood that a program can execute its 

plan within estimated costs.17 In addition, 10 U.S.C. § 2399 requires 

completion of initial operational test and evaluation of a weapon system 

before a program can begin full-rate production. The Director of 

Operational Test and Evaluation, a DOD office independent of the 

acquisition program, not only approves the adequacy of the test plan and 

its subsequent evaluation, but also reports to the Secretary of Defense 

whether the test and evaluation were adequate and whether the test’s 

results confirm that the items are effective and suitable for combat. 

By law, appropriations are to be applied only to the objects for which the 

appropriations were made except as otherwise provided by law.18

Research and development appropriations are typically specified by 

Congress to be used to pay the expenses of basic and applied scientific 

research, development, test, and evaluation. On the other hand, 

procurement appropriations are, in general, specified by Congress to be 

used for the purchase of weapon systems and equipment, that is, 

production or manufacturing. In the 1950s, Congress established a policy 

that items being purchased with procurement funds be fully funded in the 

year that the item is procured. This policy is meant to prevent a program 

from incrementally funding the purchase of operational systems. 

 1510 U.S.C. § 2433, known as “Nunn-McCurdy.”

16This statute also requires a manpower estimate, which is reviewed by the office of the

Under Secretary of Defense for Personnel and Readiness. 

17Section 234(e) of the Fiscal Year 2005 National Defense Authorization Act requires MDA

to consider life-cycle costs. However, MDA is not required to obtain an independent 

assessment of life-cycle cost. 

1831 U.S.C. § 1301(a). 

Page 28 GAO-07-387 Defense Acquisitions
According to the Congressional Research Service, “incremental funding 

fell out of favor because opponents believed it could make the total 

procurement costs of weapons and equipment more difficult for Congress 

to understand and track, create a potential for DOD to start procurement 

of an item without necessarily stating its total cost to Congress, permit one 

Congress to ‘tie the hands’ of future Congresses, and increase weapon 

procurement costs by exposing weapons under construction to 

uneconomic start-up and stop costs.”19

Congress continues to enact legislation that improves program 

transparency. In 2006, Congress added 10 U.S.C. § 2366a, which prohibits 

programs from entering system development and demonstration until 

certain certifications are made. For example, the decision authority for the 

program must certify that the program has a high likelihood of

accomplishing its intended mission and that the program is affordable 

considering unit cost, total acquisition cost, and the resources available 

during the year’s covered by DOD’s future years defense program.20

Similar to other government programs, one of the laws affecting MDA 

decisions is the Antideficiency Act.21 The fundamental concept of the 

Antideficiency Act is to ensure that spending does not exceed

appropriated funds. The act is one of the major laws in which Congress 

exercises its constitutional control of the public purse. The fiscal 

principles underlying the Antideficiency Act are quite simple. Government 

officials may not make payments, or commit the United States to make 

payments at some future time, for goods or services unless the available 

appropriation is sufficient to cover the cost in full. To ensure that it is 

always in compliance with this law, MDA adjusts its goals and defers work 

as needed to execute the BMDS within its available budget. 

Benefits of MDA’s 

Flexibility 

In 2001, DOD conducted extensive missile defense reviews to decide how 

best to defend the United States, deployed troops, friends, and allies from 

ballistic missile attacks. The studies determined that DOD needed to find 

new approaches to acquire and deploy missile defenses. Flexibility was 

 19Congressional Research Service, Defense Procurement: Full Funding Policy—

Background, Issues, and Options for Congress (Oct. 20, 2006). 

20DOD’s Future Years Defense Program is the official DOD document that summarizes 

forces and resources associated with programs approved by the Secretary of Defense. 

2131 U.S.C. § 1341. 

Page 29 GAO-07-387 Defense Acquisitions
one of the hallmarks of the new approach that DOD chose to implement. 

One flexibility accorded MDA was the authority to develop the BMDS 

outside of DOD’s normal acquisition cycle, by not formally entering the 

system development and demonstration phase. This effectively enabled 

MDA to defer application of certain acquisition laws until the agency

transfers a fully developed capability to a military service for production,

operation, and sustainment—the point at which DOD directed that the 

BMDS program reenter the acquisition cycle. At that point, basic 

development and initial fielding would generally be complete. 

Because MDA currently does not have to apply many of the oversight 

requirements for major defense acquisition programs directed by 

acquisition laws, the BMDS program operates with unusual autonomy. In 

2002, the Under Secretary of Defense for Acquisition, Technology, and 

Logistics delegated to MDA the authority to establish its own baseline and 

make changes to that baseline without approval outside of MDA. Because 

it has not formally entered system development and demonstration, MDA 

can also initiate a block of capability and move forward with its fielding 

without an independent cost estimate or an independent test of the 

effectiveness and suitability of assets intended for operational use. The 

ability to make decisions on its own and proceed without independent 

verifications reduces decision timelines, making the BMDS program more 

agile than other DOD programs. 

MDA’s ability to quickly field a missile defense capability is also enhanced 

by its ability to field the BMDS before all testing is complete. MDA 

considers the assets it has fielded to be developmental assets and not the 

result of the production phase of the acquisition cycle. Because MDA has 

not advanced the BMDS or its elements into the acquisition cycle, it is 

continuing to produce and field assets without completing the operational 

test and evaluation normally required by 10 U.S.C. § 2399 before full-rate 

production. For example, MDA has acquired and emplaced 14 groundbased interceptors for operational use before both developmental and

operational testing is completed. The agency’s strategy is to continue 

developmental testing while fielding assets and to also incorporate 

operational realism into these tests so that the Director of Operational 

Test and Evaluation can make an operational assessment of the fielded

assets’ capability. 

Because all of MDA’s funding comes from the Research, Development, 

Test, and Evaluation appropriation account, MDA enjoys greater flexibility 

in how it can use funds compared to a traditional DOD acquisition 

program where funding is typically divided into research, development, 

Page 30 GAO-07-387 Defense Acquisitions
and evaluation, procurement, and operations and maintenance.22 This is 

particularly true of an element. For example, a Block 2006 element like 

GMD covers a wide range of activities, from research and development on

future enhancements to the fabrication of interceptors for operations. If 

the GMD program runs into problems with one activity, it can defer work 

on another to cover the cost of the problems. MDA’s flexibility to change 

goals for each element complements the flexibility in how it uses its funds. 

Comparing Actual Work to 

Budgeted Work Is Difficult 

After a new block of the BMDS has been presented in the budget, MDA 

can change the outcomes–in terms of planned delivery of assets and other 

work activities–that are expected of the block. While this freedom enables 

MDA to operate within its budget, it decouples the activities actually 

completed from the activities that were budgeted, making it difficult to 

assess the value of what is actually accomplished. For example, between 

2003 and mid-2005, MDA changed its Block 2004 delivery goals three 

times, progressively decreasing the number of assets planned for the block 

when it was initially approved for funding. This trend has continued into 

Block 2006, with the agency changing its delivery plans once since it 

presented its initial Block 2006 goals to Congress. MDA is required to 

report such changes only if MDA’s Director considers the changes 

significant. 

In addition to deferring the delivery of assets from one block to another, 

MDA also has the flexibility to defer other work activities from a current 

to a future block. This creates a rolling scope, making it difficult to keep 

track of what an individual block is responsible for delivering. For 

example, during Block 2004, MDA deferred some planned development, 

deployment, characterization, and verification activities until Block 2006

so that it could cover contractor budget overruns. MDA is unable to 

determine exactly how much work was deferred. However, according to a 

November 2006 report to Congress, MDA found it necessary to defer the 

work until Block 2006 to make Block 2004 funding available to implement 

a new GMD test strategy following two GMD flight test failures, resolve 

quality issues associated with GMD interceptors and its exoatmospheric 

 22Congress has provided MDA authority to use its research, development, test, and 

evaluation appropriation for development and fielding of the BMDS. The most recent

authority applies to funds authorized to be appropriated for fiscal years 2007 and 2008 and 

appears in section 221 of the Fiscal Year 2007 National Defense Authorization Act. In 

expenditure of these funds, MDA can incrementally fund the BMDS components that it 

fields. 

Page 31 GAO-07-387 Defense Acquisitions
kill vehicle, and add an FBX-T radar to the initial deployed capability. 

Agency officials are already anticipating the deferral of work from Block 

2006 into Block 2008. In fiscal year 2006, the work of five of the six 

contractors responsible for elements included in Block 2006 cost more 

than expected. Given program funding limits, MDA officials told us that 

they will either have to defer work or request additional funds from 

Congress during the remaining years of the block. MDA did not increase 

its fiscal year 2007 budget request; therefore, it is likely that the agency 

will once again have to defer some planned work into the next block. 

Not only do changes in a block’s work plan make it difficult to know what 

outcomes the program expects to achieve, the changes also have the 

potential to impact the BMDS’ performance. For example, by decreasing 

the number of fielded interceptors, MDA decreases the likelihood that it 

can defeat enemy missiles if multiple threats are prevalent because the 

number of available interceptors will be limited. In addition, if activities, 

such as testing and validation, are not complete when assets are fielded,

the assets may not perform as expected and changes may be needed. This

effect of early fielding was seen in Block 2004 when GMD interceptors 

were fielded before testing was complete. Later tests showed that the 

interceptors may contain unreliable parts, some of which MDA now plans 

to replace. 

Although acquisition laws governing major defense acquisition programs 

as well as DOD acquisition policy recognize the need for independent 

program reviews, few such reviews are part of the BMDS program. This 

has contributed to the difficulty in assessing MDA’s progress toward 

expected outcomes. As described above, major programs are required by 

law to have an independent cost estimate (performed by the DOD Cost 

Analysis Improvement Group) for entry into system development and 

demonstration, as well as production and deployment. According to MDA 

officials, MDA has so far obtained an independent assessment of only one 

BMDS element’s life-cycle cost estimate—Aegis BMD’s estimate for Block 

2004.

23 In our opinion, without a full independent cost estimate, MDA has 

established optimistic block goals that could not be met. This is supported 

by an MDA spokesman’s statement that the agency’s optimism in 

establishing Block 2004 cost and quantity goals contributed to several goal 

Lack of Independent Reviews 

Contributes to Changing Goals 

 23In October 2004, MDA asked DOD’s Cost Analysis Improvement Group to assess GMD 

deployment costs included in Missile Defense Plan II. This was not an estimate of block 

cost. 

Page 32 GAO-07-387 Defense Acquisitions
changes. According to MDA officials, unlike its action on its Block 2004 

cost goal, MDA did not request an assessment of MDA’s Block 2006 goal.

Further, DOD policy calls for a milestone decision authority with overall 

responsibility for the program that is independent of the program.24

Although the Director reports to the Under Secretary of Defense for 

Acquisition, Technology, and Logistics and keeps the Under Secretary and

congressional defense committees informed of MDA decisions, MDA’s 

Director is authorized to make most program decisions without prior 

approval from a higher-level authority. The Under Secretary of Defense 

delegated this authority to the Director in a February 2002 memorandum. 

The Secretary of Defense also appointed MDA’s Director as both the 

BMDS Program Manager and its Acquisition Executive (including the 

authority to serve as milestone decision authority until an element is 

transferred out of MDA). As the Acquisition Executive, the Director was 

given responsibility for establishing programmatic policy and conducting 

all research and development of the BMDS. This delegation included 

responsibility for formulating BMDS acquisition strategy, making program 

commitments and terminations, deciding on affordability trade-offs, and 

baselining the capability and configuration of blocks and elements. 

Because MDA can redefine outcomes, the actual cost of a block cannot be

compared with the cost originally estimated. MDA considers the cost of 

deferred work—which may be the delayed delivery of assets or other work 

activities—as a cost of the block in which the work is performed, even 

though the work benefits and was planned for a prior block. Further, MDA 

does not track the cost of deferred work from one block to the next and,

therefore, cannot make adjustments that would match the cost with the 

block it benefits. For example, in March 2006, we reported that MDA 

deferred some Block 2004 work until Block 2006 so that it could use the 

funds appropriated for that work to cover unexpected cost increases 

caused by such problems as poor quality control procedures and technical 

problems during development, testing, and production. MDA officials told

us that additional funds have been, or will be, requested during Block 2006 

to carry out the work. However, the officials could not tell us how much of 

the Block 2006 budget is attributable to the deferred work. These actions 

Block Costs Cannot Be 

Tracked 

 24For major defense acquisition programs, the milestone decision authority is typically 

either the Under Secretary of Defense for Acquisition, Technology and Logistics, or the

component acquisition executive. The establishment of the milestone decision authority

and associated milestone decisions is recognized in laws applicable to DOD’s major 

acquisition programs. See, e.g. 10 U.S.C. § 2366a. 

Page 33 GAO-07-387 Defense Acquisitions
caused Block 2004 cost to be understated and Block 2006 cost to be 

overstated. In addition, if MDA delays some Block 2006 work until Block 

2008, as expected, Block 2006 cost will become more difficult to compare 

with its original estimate as the cost of the deferred work will no longer 

count against the block. The Director, MDA, determines whether he 

reports the cost of work being deferred to future blocks and, so far, has 

not done so.

The planned and actual unit costs of assets being acquired for operational 

use are equally hard to determine. Because the BMDS and its elements are

a single major defense acquisition program that has not officially entered 

into system development and demonstration, it is not required to provide 

the detailed reports to Congress directed by statute.25 While it is possible 

to reconstruct planned unit costs from budget documents, the planned 

unit cost of some assets—for example, GMD interceptors—is not easy to 

determine because the research and development funds used to buy the 

interceptors are spread across 3 to 5 budget years. Also, because MDA is 

not required to report significant increases in unit cost,26 it is not easy to 

determine whether an asset’s actual cost has increased significantly from 

its expected cost. For example, we were unable to compare the actual and 

planned cost of a GMD interceptor. By comparison, the Navy provides 

more transparency in reporting on the cost of ships, some of which are 

incrementally funded with procurement funds. When a Navy ship program 

overruns the cost estimate used to justify the budget, the Navy identifies 

the additional funding needed to cover the overruns separately from other 

shipbuilding programs. 

Using research and development funds to purchase fielded assets further 

reduces cost transparency because these dollars are not covered by the 

full-funding policy for procurement. Therefore, when the program for a 2-

year block is first presented in the budget, Congress is not necessarily fully

aware of the dimensions and cost of that block. Although a particular 

 2510 U.S.C. § 2432, Selected Acquisition Reports. MDA provides a limited report to Congress 

under the statute for the BMDS as a whole. 

26Because the BMDS or its major elements have not been designated by MDA as being in 

system development and demonstration, no acquisition program baseline is required to be 

established under 10 U.S.C. § 2435. Thus, there is no basis for determining unit cost under 

10 U.S.C. § 2433 (Nunn-McCurdy), which requires calculation of unit cost from the 

baseline. Further, for the same reason, only limited Selected Acquisition Reports to

Congress on program status are generated (10 U.S.C. § 2432(h)) that do not include unit 

costs.

Page 34 GAO-07-387 Defense Acquisitions
block may call for the delivery of a specific number of interceptors, the 

full cost of those interceptors may not be contained in that block. In 

addition, incremental funding has the potential to “tie the hands” of future 

Congresses to finish funding for assets started in prior years. Otherwise, 

Congress could run the risk of a production stoppage and the increased 

costs associated with restarting the production line. 

During Block 2004, poor quality control procedures that MDA officials 

attribute to acquisition streamlining and schedule pressures caused the 

missile defense program to experience test failures and slowed 

production. MDA has initiated a number of actions to correct its quality 

control weaknesses and those actions have been largely successful. 

Although MDA continues to identify quality control procedures that need

improvement, the number of deficiencies has declined and contractors are 

responding to MDA’s improvement efforts. These efforts include a teaming 

approach designed to restore the reliability of MDA’s suppliers, regular 

quality inspections to quickly identify and find resolutions for quality 

problems, and award fees with an increased emphasis on quality 

assurance. In addition, MDA’s attempts to improve quality assurance have 

attracted the interest of other government agencies and contractors. MDA 

is leading quality improvement conferences and co-sponsoring a Space 

Quality Improvement Council. 

MDA Makes 

Significant Strides 

with Quality 

Improvement 

Processes 

Officials in MDA’s Office of Quality, Safety, and Mission Assurance and in

GMD’s Program Office attribute the weaknesses in MDA’s quality control 

processes to acquisition streamlining and schedule pressures. According 

to a former DOD Director of Operational Test and Evaluation, during the 

early 1990’s there was a common goal for DOD management to streamline 

the acquisition process to reduce burgeoning costs of new weapons. By 

streamlining the process, DOD commissions and task forces hoped to 

drastically cut system development and production time and reduce costs

by eliminating management layers, eliminating certain reporting 

requirements, using more commercial-off-the-shelf systems and 

subsystems, reducing oversight from within as well as from outside DOD, 

and by eliminating perceived duplication of testing. In addition to 

acquisition streamlining, schedule pressures caused MDA to be less 

attentive to quality assurance issues. This was particularly true for the 

GMD element that was tasked with completing development and 

producing assets for operational use within 2 years of a Presidential 

directive to begin fielding an initial missile defense capability. While the 

GMD program had realized for some time that its quality controls needed 

Page 35 GAO-07-387 Defense Acquisitions
to be strengthened, the program’s accelerated schedule left little time to 

address quality problems. 

MDA has initiated a number of mechanisms to rectify the quality control 

weaknesses identified in the BMDS program. For example, as early as 

2003, MDA, in concert with industry partners, Boeing, Lockheed Martin, 

Raytheon, and Orbital Sciences began a teaming approach to restore 

reliability in a key supplier. In exchange for allowing the supplier to report 

to a single customer—MDA—the supplier gave MDA’s Office of Quality, 

Safety, and Mission Assurance authority to make a critical assessment of 

the supplier’s processes. This assessment determined that the supplier’s 

manufacturing processes lacked discipline, its corrective action 

procedures were ineffective, its technical data package was inadequate, 

and personnel were not properly trained. The supplier responded by hiring 

a Quality Assurance Director, five quality assurance professionals, a 

training manager, and a scheduler. In addition, the supplier installed an

electronic problem reporting database, formed new boards—such as a 

failure review board—established a new configuration management 

system, and ensured that manufacturing activity was consistent with 

contract requirements. According to MDA, by 2005, these changes began 

to produce results. Between March 2004 and September 2005, test failures 

declined by 43 percent. In addition, open quality control issues decreased 

by 64 percent between September 2005 and August 2006 and on-time 

deliveries increased by 9 percent between March 2005 and August 2006. 

MDA’s teaming approach was expanded in 2006 to another problem 

supplier and many systemic solutions are already underway. 

MDA also continues to carry-out regular contractor quality inspections. 

For example, during fiscal year 2006, MDA completed quality audits of 

6 contractors and identified a total of 372 deficiencies and observations.27

As of December 2006, the contractors had closed 157 or 42 percent of all 

audit findings. These audits are also producing other signs of quality 

assurance improvements. For example, after an August 2006 review of 

Raytheon’s production of the last five GMD exoatmospheric kill vehicles,

MDA auditors reported less variability in Raytheon’s production 

processes, increasing stability in its statistical process control data, fewer 

test problem reports and product waivers, compliance with manufacturing 

 27A deficiency is recognized when the contractor fails to comply with a contractual or 

internal procedure requirement. On the other hand, observations are the failure to employ 

an MDA or industry best practice. 

Page 36 GAO-07-387 Defense Acquisitions
“clean room” requirements, and a sustained improvement in product 

quality. Because of the emphasis placed on the recognition of quality 

problems, Raytheon is conducting regular inspections independently of 

MDA to identify problems. 

Over the course of 2006, MDA also continued to incorporate MDA 

Assurance Provisions (MAP) into its prime contracts. The MAP provides 

MDA methods to measure, verify, and validate mission success through 

the collection of metrics, risk assessment, technical evaluations, 

independent assessments, and reviews. Four BMDS elements–BMDS 

Sensors, C2BMC,28 KEI, and THAAD–modified their contracts during 2006 

to incorporate the MAP.29 The remaining five BMDS elements have not yet 

included the plan on their contracts because the contract is mostly in 

compliance with the MAP or because of the timing and additional costs of

adding the requirements. 

MDA also encourages better quality assurance programs and contractors’ 

implementation of best practices through award fee plans. In 2003, three 

BMDS elements–BMDS Sensors, KEI, and THAAD–revised their contracts

to include 25 MAP criteria in their award fee plans.30 For example, the 

BMDS Sensors element included system quality, reliability, and 

configuration control of data products as part of its award fee criteria for

its FBX-T contract.31 Contractors are also bringing their best practices to 

the table. For example, in an effort to prevent foreign object debris in 

components under assembly, Raytheon and Orbital Sciences have placed

all tools in special tool boxes known as shadow boxes. Raytheon has also

incorporated equipment into the production process that handles critical 

components, removing the possibility that the components will be 

dropped or mishandled by production personnel. 

 28The C2BMC element modified its contract by adding a tailored version of the MAP called 

the MDA/C2BMC Mission Assurance Implementation Plan. The Mission Assurance

Implementation Plan contains those requirements that are specifically applicable to the

C2BMC element on contract. 

29The Joint National Integration Center (JNIC) included elements of MAP as part of its 

award fee criteria. However, this contract was not included in our review and is not

considered as a specific BMDS element. 

30The THAAD element modified its contract by adding a tailored version of the MAP called 

the Mission Assurance Implementation Plan. This plan contains those requirements that 

are specifically applicable to the THAAD element on contract. 

31The BMDS Sensors element also added MAP to its Contractor Logistics Support (CLS) 

prime contract and award fee plan in May 2006. 

Page 37 GAO-07-387 Defense Acquisitions
Because of its quality assurance efforts, contractors and other government 

agencies have called on MDA to lead quality conferences and sponsor an 

improvement council. MDA’s Office of Quality, Safety, and Mission 

Assurance was co-sponsor of a conference on quality in the space and

defense industry and the office’s Director has also served as panel 

discussion chair at numerous other conferences. The conferences focus 

on the safety, reliability, and quality aspects of all industries and agencies 

involved in defense and space exploration. MDA is also a co-sponsor of the 

Space Quality Improvement Council, a council established to 

cooperatively address critical issues in the development, acquisition, and 

deployment of national security space systems. Contractors are also 

adopting some MDA methods for improving quality assurance. For 

example, Raytheon Integrated Defense Systems has adopted the MAP as a 

performance standard for all of its defense programs. 

In a general sense, our assessment of MDA’s progress on missile defense is 

similar to that of previous years: accomplishments have been made and 

capability has been increased, but costs have grown and the scope of 

planned work has been reduced. The fielding of additional assets, the 

ability to put BMDS on alert status, and the first end-to-end test of GMD 

were notable accomplishments during fiscal year 2006. On the other hand, 

it is not easy to answer the question of how well BMDS is progressing 

relative to the funds it has received and goals it has set for those funds. 

Conclusions 

As with previous years, we have found it difficult to reconcile the progress 

made in Block 2006 with the original cost and scope of the program. The 

block concept, while a useful construct for harvesting and fielding 

capability incrementally, is a muddy construct for accountability. Although 

BMDS is managed within a relatively level budget of about $10 billion a 

year, the scope of planned work is altered several times each year. 

Consequently, work travels from one block to another, weakening the

connection between the actual cost and scope of work done and the 

estimated cost and scope of work used to justify budget requests. Block 

2006 is a case in point. Compared with its original budget justification, it 

now contains unanticipated work from Block 2004 but has deferred some 

of its own planned work to future blocks. Costs for the THAAD element 

are no longer being counted in Block 2006 although they were last year. 

Some developmental elements that will be fielded in later blocks, such as 

KEI and MKV, are not considered part of Block 2006, while ABL, which is 

also a developmental element to be fielded in later blocks, is considered 

part of Block 2006. Establishing planned and actual costs for individual 

assets is also elusive because MDA’s development of the BMDS outside of 

Page 38 GAO-07-387 Defense Acquisitions
DOD’s acquisition cycle blurs the audit trail. Using research and 

development funds—funds that are not covered by the full-funding 

policy—contributes to the difficulty in determining some assets’ cost. 

None of the foregoing is to suggest that MDA has acted inconsistently with 

the authorities it has been granted. Indeed, by virtue of its not having 

formally begun system development and demonstration, coupled with its 

authority to use research and development funds to manufacture and field 

assets, MDA has the sanctioned flexibility to manage exactly as it has. It 

could be argued that without this latitude, the initial capability fielded last 

year and put on alert this year would not have been possible. Yet, the 

question remains as to whether this degree of flexibility should be retained 

on a program that will spend about $10 billion a year for the foreseeable 

future. It does not seem unreasonable to expect a program of this 

magnitude to be held to a higher standard of accountability than delivering 

some capability within budgeted funds. In fact, the program is likely to 

undergo greater scrutiny as DOD faces increasing pressure to make 

funding trade-offs between its investment portfolios, ongoing military 

operations, and recapitalization of its current weapon systems. 

Within BMDS, key decisions lie ahead for DOD. Perhaps the most 

significant decision in the next 2 years will be to determine what 

investments should be made in the two boost phase elements—ABL and 

KEI—under development. This decision would benefit greatly from good 

data on actual versus expected performance, actual versus expected cost, 

and independent assessments of both cost and performance. 

The recommendations that follow build upon those we made in last year’s 

report on missile defense. In general, those recommendations called for 

the Secretary of Defense to align individual BMDS elements around a 

knowledge-based strategy and to determine whether a block approach to 

fielding was compatible with such a strategy. 

To increase transparency in the missile defense program, we recommend 

that the Secretary of Defense: 

• Develop a firm cost, schedule, and performance baseline for those 

elements considered far enough along to be in system development 

and demonstration, and report against that baseline. 

Recommendations for 

Executive Action 

• Propose an approach for those same elements that provides 

information consistent with the acquisition laws that govern 

baselines and unit cost reporting, independent cost estimates, and 

Page 39 GAO-07-387 Defense Acquisitions
operational test and evaluation for major DOD programs. Such an 

approach could provide necessary information while preserving the 

MDA Director’s flexibility to make decisions. 

• Include in blocks only those elements that will field capabilities 

during the block period and develop a firm cost, schedule, and

performance baseline for that block capability including the unit 

cost of its assets. 

• Request and use procurement funds, rather than research, 

development, test, and evaluation funds, to acquire fielded assets. 

• Conduct an independent evaluation of ABL and KEI after key 

demonstrations, now scheduled for 2008 and 2009, to inform

decisions on the future of the two programs. 

DOD’s comments on our draft report are reprinted in appendix I. DOD 

partially concurred with our first three recommendations and nonconcurred with the last two. 

Agency Comments 

and Our Evaluation 

In partially concurring with the first recommendation, DOD recognized the 

need for greater program transparency, but objected to implementing an

element-centric approach to reporting, believing that this would detract 

from managing the BMDS as a single integrated system. We agree that 

management of the BMDS as a single, integrated program should be 

preserved. However, since DOD already requests funding and awards 

contracts by the individual elements that compose the BMDS, we believe

that establishing a baseline for those elements far enough along to be 

considered in system development and demonstration provides the best 

basis for transparency of actual performance. This would not change

DOD’s approach to managing the BMDS, because merely reporting the 

cost and performance of individual elements would not cause each 

element to become a major defense acquisition program. DOD stated that 

MDA intends to modify its current biennial block approach that is used to 

define reporting baselines. In making this change, MDA states that it 

intends to work with both Congress and GAO to ensure that its new 

approach provides useful information for accountability purposes. At this 

point, we believe that the information needed to define a reporting 

baseline for a block would best be derived from individual elements. That 

having been said, a discourse can be had on whether elements are the only 

way to achieve the needed transparency and we welcome the opportunity 

to work toward constructive changes. 

DOD also partially concurred with our second recommendation that 

BMDS elements effectively in system development and demonstration 

Page 40 GAO-07-387 Defense Acquisitions
provide information consistent with the acquisition laws that govern 

baselines and unit cost reporting, independent cost estimates, and 

operational test and evaluation for major programs. DOD did commit to 

providing additional information to Congress to promote accountability, 

consistency, and transparency. Nonetheless, DOD remains concerned that 

having elements, rather than the BMD system, report according to these 

laws will have a fragmenting effect on the development of an integrated

system and put more emphasis on individual programs as though each is a 

major defense acquisition program. We believe that greater transparency

into the BMDS program depends on DOD reporting in the same manner 

that it requests program funding. This ensures that decision makers can 

reconcile the expected cost and performance of assets DOD plans to 

acquire with actual cost and performance. We recognize that MDA does 

provide Congress with information on cost and testing, but this 

information is not of the caliber or consistency called for by acquisition 

laws. 

DOD stated that our third recommendation on reporting at the BMDS-level 

appears to be inconsistent with our recommendations on reporting at the 

element level. The basis for our third recommendation is that a block, 

which is a construct to describe and manage a defined BMDS-wide 

capability, must be derived from the capabilities that individual elements 

can yield. Except for activities like integrated tests that involve multiple 

elements, the cost, schedule, and performance of the individual assets to 

be delivered in a block come from the elements. Further, those elements 

that are not far enough along to deliver assets or capabilities within a 

particular block should not be considered part of that block. We believe 

that as MDA works to modify its current biennial block approach, it needs

to be clearer and more consistent about what is and is not included in a 

block and that the cost, schedule, and performance of the specific assets 

in the block should be derived from the information already generated by

the elements. 

DOD did not concur with our recommendation that it request and use 

procurement funds to acquire fielded assets. It noted that the flexibility 

provided by Research, Development, Test, and Evaluation funding is 

necessary to develop and acquire new capabilities quickly that can 

respond to new and unexpected ballistic missile threats. We recognize the 

need to be able to respond to such threats. However, other DOD programs 

are also faced with unexpected threats that must be addressed quickly and 

have found ways to do so while acquiring operational assets with 

procurements funds. If MDA requires more flexibility than other programs, 

there should be a reasonable budgetary accommodation available other 

Page 41 GAO-07-387 Defense Acquisitions
than funding the entire budget with Research, Development, Test, and 

Evaluation funds. More needs to be done to get a better balance between

flexibility and transparency. Thus, we continue to believe that decision 

makers should be informed of the full cost of assets at the time DOD is 

asking for approval to acquire them and that procurement funds are the 

best way to provide that transparency. 

DOD also did not concur with our fifth recommendation to conduct an 

independent evaluation of ABL and KEI to inform the upcoming decisions 

on these programs. It believes that MDA’s current integrated development 

and decision-making approach should continue as planned. We continue 

to believe that MDA would benefit from an independent evaluation of both 

ABL and KEI. However, we do believe such an evaluation should be based

on the results of the key demonstrations planned for the elements in 2008 

and 2009. We have modified our recommendation accordingly. 

We are sending copies of this report to the Secretary of Defense and to the 

Director, MDA. 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 

http://www.gao.gov. 

If you, or your staff, have any questions concerning this report, please 

contact me at (202) 512-4841. Contact points for our offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. The major contributors are listed in appendix IV. 

Paul Francis

Director, Acquisition and Sourcing Management 

Page 42 GAO-07-387 Defense Acquisitions
List of Congressional Committees

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan L. Hunter 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C. W. Bill Young 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

Page 43 GAO-07-387 Defense Acquisitions
Appendix I: Comments from the Department of Defense Appendix I: Comments from the Department 

of Defense 

Page 44 GAO-07-387 Defense Acquisitions
Appendix I: Comments from the Department of Defense 

Page 45 GAO-07-387 Defense Acquisitions
Appendix I: Comments from the Department of Defense 

Page 46 GAO-07-387 Defense Acquisitions
Appendix I: Comments from the Department of Defense 

Page 47 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Page 48 GAO-07-387

Appendix II: MDA Contracts 

Like other government agencies, MDA acquires the supplies and services

needed to fulfill its mission by awarding contracts. Two types of contracts

are prevalent at MDA—contracts for support services and contracts for 

hardware. The contractors that support MDA’s mission are commonly 

known as support contractors, while the contractors that are responsible 

for developing elements of the Ballistic Missile Defense System (BMDS) 

are called prime contractors. 

According to MDA’s manpower database, about 8,186 personnel 

positions—not counting prime contractors—currently support the missile 

defense program. These positions are filled by government civilian and 

military employees, contract support employees, employees of federally 

funded research and development centers (FFRDC), researchers in 

university and affiliated research centers, and a small number of 

executives on loan from other organizations. At least 94 percent of the 

8,186 positions are paid by MDA through its research and development 

appropriation.1

 Of this 94 percent, only about 33 percent, or 

2,578 positions, are set aside for government civilian personnel. Another 

57 percent, or 4,368 positions,2

 are support contractors that are supplied 

by 44 different defense companies. The remaining 10 percent are positions

either being filled, or expected to be filled, by employees of FFRDCs and 

university and affiliated research centers that are on contract or under 

other types of agreements to perform missile defense tasks. Table 7 

illustrates the job functions that contract employees carry out. 

Support Contractors 

Are Key to BMDS 

Development 

 1

A mixture of other organizations pay MDA’s other employees. DOD military personnel 

accounts pay 260 military personnel assigned to MDA; other DOD components compensate 

182 detailees performing missile defense duties; and other organizations pay 11 executives 

on loan to MDA.

2

The number of support contract positions within MDA is current as of November 2006. 

Defense Acquisitions
Appendix II: MDA Contracts 

Table 7: MDA Support Contractor Job Functions

Illustrative Job Functions 

Acquisitions/Contracts 

Administrative/Clerical 

Business & Financial Management 

General Engineering (All other engineering) 

Human Resource Management 

Information Management & Information Technology 

Legislative/Public Affairs 

Logistics 

Quality Assurance 

Scientific (physics, mathematics, etc.) 

Security and Intelligence 

Systems Engineering 

Technical Analysis and Support 

Testing/Evaluation 

Source: MDA. 

MDA officials explained that the utilization of support contractors is key 

to its operation of the BMDS because it allows the agency to obtain 

necessary personnel and develop weapon systems more quickly. 

Additionally, the officials told us that its approach is consistent with 

federal government policy on the use of contractors. MDA officials 

estimate that while the average cost of the agency’s government employee

is about $140,000 per year, a contract employee costs about $175,000 per 

year. Table 8 highlights the staffing levels for each BMDS element. 

Page 49 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Table 8: Program Office Staffing

Element 

Government

employeesa

Support 

contractors 

FFRDC 

employees

University and

Affiliated 

Research

Center 

employees

Aegis BMD 415 367 29 124

Airborne Laser 110 81.7 6.5

C2BMC 61 91 36

GMD 316.5 505.5 34

KEI 11 26 0

MKV 15.5 29 11 15

Sensors 23 32 24.5 32.5

STSS 16 2 86.5

THAAD 263 210 9

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

Notes: The numbers in this chart do not account for all MDA personnel as the agency employs these 

same types of personnel in other areas of its organization. 

The table also identifies positions, some of which may be presently vacant. 

a

The numbers shown include both government civilian and military personnel combined. 

Prime contractors developing elements of the Ballistic Missile Defense 

System (BMDS) typically receive most of the funds MDA requests from 

Congress each fiscal year. The efforts of prime contractors may be 

obtained through a wide range of contract types. Because MDA is 

requiring its prime contractors to perform work that includes enough 

uncertainty that the cost of the work cannot be accurately estimated, all of

the agency’s prime contracts are cost reimbursement arrangements. Under 

a cost reimbursement contract, a contractor is paid for reasonable, 

allowable, and allocable costs incurred in performing the work directed by 

the government to the extent provided in the contract. The contract 

includes an estimate of the work’s total cost for the purpose of obligating

funds and establishes a ceiling cost that the contractor may not exceed 

without the approval of the contracting officer. 

Most Prime 

Contractors Did Not 

Execute All Planned 

Work within Fiscal 

Year 2006 Cost and 

Schedule Budgets 

Many of the cost reimbursement contracts awarded by MDA include an 

award fee. Cost plus award fee contracts provide for a fee consisting of a 

base amount, which may be zero, that is fixed at the inception of the 

contract and an award amount, based upon a subjective evaluation by the 

government, that is meant to encourage exceptional performance. The 

Page 50 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

amount of the award fee is determined by the government’s assessment of 

the contractor’s performance compared to criteria stated in the contract.

This evaluation is conducted at stated intervals during performance, so 

that the contractor can be periodically informed of the quality of its 

performance and, if necessary, areas in which improvement are required. 

Two of the cost reimbursement contracts shown in table 9—MKV and 

C2BMC—differ somewhat from other elements’ cost reimbursement 

contracts. The MKV prime contract is an indefinite delivery/indefinite 

quantity cost-reimbursement arrangement. This type of contract allows the 

government to direct work through a series of task orders. Such a contract 

does not procure or specify a firm quantity of services (other than a 

minimum or maximum quantity). This contracting approach permits MDA 

to order services as they are needed after requirements materialize and 

provides the government with flexibility because the tasks can be aligned 

commensurate with available funding. Since the MKV element is relatively 

new to the BMDS, its funding is less predictable than other elements’ and 

the ability to decrease or increase funding on the contract each year is 

important to effectively manage the program. 

The C2BMC element operates under an Other Transaction Agreement that 

is not subject to many procurement laws and regulations. However, even

though an Other Transaction Agreement is not required to include all of 

the standard terms and conditions meant to safeguard the government, the 

C2BMC agreement was written to include similar clauses and provisions. 

We found no evidence at this time that the C2BMC agreement does not 

adequately protect MDA’s interests. MDA chose the Other Transaction 

Agreement to facilitate a collaborative relationship between industry, 

government, federally funded research and development centers, and 

university research centers. Contract officials told us that a contract 

awarded under the Federal Acquisition Regulation is normally regarded as

an arms-length transaction in which the government gives the contractor a 

task that the contractor performs autonomously. While an important 

purpose of an Other Transaction Agreement is to broaden DOD’s 

technology and industrial base by allowing the development and use of 

instruments that reduce barriers to participation in defense research by 

commercial firms that traditionally have not done business with the 

government, the agreements’ value in encouraging more collaborative 

environments is also recognized. Table 9 outlines the contractual 

instruments that MDA uses to procure the services of its prime 

contractors. 

Page 51 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Table 9: BMDS Contractual Instruments 

(Dollars in millions) 

Prime contractor Subcontractors 

Element Contract type % work performeda

% work performed 

Period of 

performance 

Contract Budget 

Base as of

September 2006

Boeing Northrop Grummanb

Lockheed Martinb

 

Airborne Laser Cost Plus Award 

Fee/Incentive Fee 

35% 65%

Nov. 1996- 

Dec. 2008 

$3,369

Aegis BMD Lockheed Martin Computer Sciences 

Weapon 

System 

Cost Plus Award Fee 

82% 18%

Oct. 2003- 

Dec. 2006 

$699c

Raytheon Alliant Techsystems

Boeing 

Aerojet 

Aegis BMDSM-3 Cost Plus Award 

Fee/Incentive Fee 

58% 42%

Aug. 2003- 

Dec. 2007 

$413 

Raytheon Tec Masters, Inc. 

Hewlett-Packard Co. 

Burtek, Inc. 

Remmele Engineering, Inc. 

Gichner Systems Group, Inc. 

BMDS 

Sensors-FBX-T 

Cost Plus Award Fee 

65% 35%

Apr. 2003- 

Mar. 2009 

$822

Lockheed Martin Raytheon 

Boeing 

General Dynamics 

Northrop-Grumman 

Sparta 

C2BMC Other Transaction

Agreement (Part 4) 

35% 65%

Jan. 2005- 

Dec. 2007 

$311d

Boeing Raytheon

Lockheed Martin 

Orbital Sciences

Northrop Grumman 

Bechtel 

Teledyne Brown Engineering 

GMD Cost Plus Award Fee 

30% 70%

Jan. 2001- 

Dec. 2008 

$12,322

KEI Cost Plus Award Fee Northrop Grumman Raytheon 

41%e

59%e

Dec. 2003- 

Oct. 2014 

$4,081

Page 52 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

(Dollars in millions) 

Prime contractor Subcontractors 

Element Contract type % work performeda

% work performed 

Period of 

performance 

Contract Budget 

Base as of

September 2006

Lockheed Martin Space 

Systems Company 

BAE 

Pratt-Whitney Rocketdyne 

L-3 Communications/ 

Coleman Aerospace 

MKV Indefinite Delivery/

Indefinite Quantity 

62% 38%

Task Order 4- 

Oct. 2005- 

Jul. 2007 

Task Order 5- 

Jun. 2006- 

Sep. 2007 

$123f

Lockheed Martin Raytheon 

Boeing 

Rocketdyne 

BAE Systems 

Honeywell

Aerojet 

Hamilton Sundstrand 

THAAD Cost Plus Award Fee 

44% 56%

Aug. 2000- 

Sep. 2009 

$4,255g

Northrop Grumman Raytheon 

Spectrum Astro 

STSS Cost Plus Award Fee/ 

Fixed Fee 

50% 50%

Apr. 2002- 

Sep. 2008 

$1, 528

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

Note: The contract budget base column does not include any contract’s negotiated award fee. 

a

Percentages represent MDA’s best estimates of how work is split between the prime contractor and 

its subcontractors. 

b

Northrop Grumman and Lockheed Martin are part of a contractor team with Boeing.

c

$584 million of Aegis BMD Weapon System funding is provided by the United States, while $115 

million is provided by foreign military sales to Japan. 

d

The value shown is for Part IV only. 

e

The prime-subcontractor work split reflects 2006 work content, not total contract work content. 

f

The budget for the MKV contract represents the negotiated cost of the contract without fee. 

According to MDA officials, this is equivalent to the contract budget base as of September 30, 2006. 

g

The THAAD contract budget baseline includes contract line item 1 only. 

Page 53 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Excluding the C2BMC and MKV elements, MDA budgeted approximately 

$3 billion for its prime contractors to execute planned work during fiscal 

year 2006.3

 To determine if these contractors are executing the work 

planned within the funds and time budgeted, each BMDS program office 

requires its prime contractor to provide monthly reports detailing cost and 

schedule performance. In these reports, which are known as Contract 

Performance Reports, the prime contractor makes comparisons that 

inform the program as to whether the contractor is completing work at the 

cost budgeted and whether the work scheduled is being completed on 

time.4

 If the contractor does not use all funds budgeted or completes more 

work than planned, the report shows positive cost and/or schedule 

variances. Similarly, if the contractor uses more money than planned or 

cannot complete all of the work scheduled, the report shows negative cost 

and/or schedule variances. A contractor can also have mixed performance. 

That is, the contractor may spend more money than planned (a negative

cost variance) but complete more work than scheduled (a positive 

schedule variance). Using data from Contract Performance Reports, a 

program manager can assess trends in cost and schedule performance, 

information that is useful because trends tend to persist. Studies have 

shown that once a contract is 15 percent complete, performance metrics 

are indicative of the contract’s final outcome. 

We used contract performance report data to assess the fiscal year 2006

cost and schedule performance of prime contractors for seven of the nine

BMDS elements being developed by MDA. When possible, we also 

predicted the likely cost of each prime contract at completion. Our 

predictions of final contract cost are based on the assumption that the 

contractor will continue to perform in the future as it has in the past. An 

assessment of each element is provided below. 

The Aegis BMD program has awarded a prime contract for each of its two 

major components—the Aegis BMD Weapon System and the Standard 

Missile-3. During fiscal year 2006, the work of both prime contractors cost 

a little more than expected, but only the weapon system contractor was 

slightly behind schedule.

Most Prime Contractors 

Exceed Their Fiscal Year 

2006 Budgets 

Aegis BMD Contractors End 

Fiscal Year 2006 Mostly within 

Cost and on Schedule

 3

Contractors for C2BMC and MKV were directed to suspend earned value reporting during 

fiscal year 2006; therefore, data for these contracts are not included. 

4

In March 2005, DOD directed that CPRs be named Contract Performance Reports. 

Formerly, CPRs were known as Cost Performance Reports.

Page 54 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Even though the weapon system contractor was unable to perform fiscal 

year 2006 work at the planned cost, its cumulative cost performance 

remains positive because of good performance in prior years. At year’s 

end, the weapon system contract had a cumulative favorable cost variance 

of $0.1 million, but an unfavorable cumulative schedule variance of 

$0.8 million. As shown in figure 1, the contractor’s cost and schedule 

performance fluctuated significantly throughout the year. 

Figure 1: Aegis BMD Weapon System Cost and Schedule Performance

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

The decline in the Aegis BMD Weapon System contractor’s cost 

performance began shortly after the contractor adjusted its cost and 

schedule baseline in September 2005. At that time, the contractor 

corrected its baseline to account for a December 2004 DOD budget cut.5

 5

A performance measurement baseline identifies and defines 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. 

Page 55 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

However, it did not make adjustments to the baseline to incorporate new 

work that the government directed. This caused the contractor’s cost 

performance to decline significantly because although the cost of the new 

effort was being reported, the baseline included no budget for the work. 

Recognizing that the contract baseline still needed to be replanned, the 

Director issued approval to restructure the program and rebaseline the 

contract in December 2005. To accommodate the work added to the 

contract, MDA and the contractor realigned software deliveries for Block 

2006. The contractor completed the rebaselining effort in April 2006, and 

since then the contractor has performed within budgeted cost and 

schedule. Based on the contractor’s fiscal year 2006 cost performance, we 

estimate that at completion the contract may cost from $0.1 to $4.7 million 

more than anticipated. 

For fiscal year 2006, the Standard Missile-3 contractor incurred an 

unfavorable cost variance of $7.8 million and a favorable schedule 

variance of $0.7 million. Even though the contractor was unable to 

complete fiscal year 2006 work within the funds budgeted, it ended the 

year with a cumulative positive cost variance of $3.1 million. The 

cumulative positive cost variance was the result of the contractor 

performing 2005 work at $10.9 million less than budgeted. In addition, 

although the contractor performed work ahead of schedule in fiscal year 

2006, it was unable to overcome a negative schedule variance of 

$9.6 million created in 2005 caused by delayed hardware deliveries and 

delayed test events. The contractor ended fiscal year 2006 with a 

cumulative $8.9 million negative schedule variance. Figure 2 shows 

cumulative variances at the beginning of fiscal year 2006 year along with a

depiction of the contractor’s cost and schedule performance throughout 

the fiscal year. 

Aegis BMD SM-3 Contractor 

Overruns Cost Budget, but Is 

Ahead of Schedule 

Page 56 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Figure 2: Aegis BMD Standard Missile-3 Cost and Schedule Performance 

-20

-15

-10

-5

0

5

10

15

20

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

The unfavorable cost variance for fiscal year 2006 was caused by 

performance issues associated with the third stage rocket motor, the 

kinetic warhead and the missile’s guidance system. In addition, production

costs associated with the Solid Divert and Attitude Control System were 

higher than anticipated. If the contractor continues to perform as it did in 

fiscal year 2006, we estimate that at completion the contract could cost 

from $1.9 million less than expected to $2.7 million more than expected. 

Our analysis of ABL’s Contract Performance Reports indicates that the 

prime contractor’s cost and schedule performance continued to decline 

during fiscal year 2006. The contractor overran its fiscal year 2006 budget 

by $54.8 million and did not perform $26.4 million of work on schedule. By 

September 2006, this resulted in an unfavorable cumulative cost variance 

of $77.9 million and an unfavorable cumulative schedule variance of 

$50 million. Figure 3 shows the decline in cost and schedule performance 

for the ABL prime contractor throughout fiscal year 2006. 

ABL Continues to Experience 

Cost and Schedule Growth 

Page 57 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Figure 3: ABL Cost and Schedule Performance 

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

During the fiscal year, the ABL contractor needed additional time and 

money to solve technical challenges associated with the element’s Beam 

Control/Fire Control component. Software, integration, and testing 

difficulties caused significant delays with the component. Software 

problems were caused by the incorporation of numerous changes, basic 

logic errors, and differences between the environment of the software 

development laboratory and the environment aboard the aircraft. 

Integration and testing of the complex system and hardware failures also 

contributed to the delays. Together, according to ABL’s program manager, 

these problems caused the contractor to experience about a 3 1/2 month 

schedule delay that in turn delays the program’s lethality demonstration 

from 2008 to 2009. Also, if the contractor’s cost performance continues to 

decline as it did in fiscal year 2006, we estimate that at completion the 

contract could overrun its budget by about $112.1 million to $248.3 million. 

Page 58 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

We were unable to fully evaluate the contractor’s performance for the 

C2BMC program because the contractor did not report all data required to

conduct earned value analysis for 7 months of the fiscal year. During fiscal 

year 2006, the C2MBC contractor ended the Block 2004 increment or Part 

3 of its Other Transaction Agreement and began work on its Block 2006 

program of work, referred to as Part 4 of the agreement. The contractor 

completed its Block 2004 program of work (Part 3) in December 2005 and 

was awarded the Block 2006 increment (Part 4) on December 28, 2005.

However, budget cuts prompted the program to reduce the C2BMC 

enhancements planned for Block 2006 and revise its agreement with the 

contractor. Shortly after, the program received additional funds which led 

to a re-negotiation of the Part 4 agreement. The new scope of work 

included enhancements that could not be completed within available 

funding. In March 2006, the program began to replan its Block 2006 

increment of work (Part 4) and suspended earned value management 

reporting. During the replan, which occurred throughout most of fiscal 

year 2006, the contractor reported only actual cost data in lieu of 

comparing actual costs to budgeted cost. The cost of the revised 

agreement on the Block 2006 increment of work was negotiated in 

October 2006. 

Limited Contractor Data 

Prevented Analysis of C2BMC 

Contractor Performance 

The GMD prime contractor’s cost performance continued to decline 

during fiscal year 2006, but its fiscal year schedule performance improved. 

By September 2006, the cumulative cost of all work completed was 

$1.06 billion more than expected and in fiscal year 2006 alone, work cost 

about $347 million more than budgeted. The contractor was able to 

complete $90.2 million of fiscal year 2006 work ahead of schedule; but the 

cumulative schedule variance continued to be negative at $137.8 million. 

Figure 4 depicts the cost and schedule performance for the GMD 

contractor during fiscal year 2006. Based on its fiscal year 2006 

performance, the GMD contractor could overrun the total budgeted cost of 

the contract by about $1.5 to $1.9 billion. 

GMD Contractor Continues to 

Spend More Money and Time 

than Budgeted 

Page 59 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Figure 4: GMD Cost and Schedule Performance

-1,200

-1,000

-800

-600

-400

-200

0

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Feb. Mar. Apr. May June July Au Jan. g. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

The GMD program recently finished rebaselining its contract to reflect a

significant program realignment to reduce program risk and to execute the 

program within available funding. While the new baseline was being 

implemented, earned value metrics, according to program officials, were 

significantly distorted because progress was measured against a plan of

work that the program was no longer following. The contractor is in the 

process of developing a new contract baseline that incorporates the 

program’s new scope, schedule, and budget. By the end of September 

2006, phase one of the new baseline covering fiscal year 2006-2007 efforts 

had been implemented and validated through Integrated Baseline Reviews 

Page 60 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

of the prime contractor and its major subcontractors.6 Implementation of 

the phase 2 baseline covering the remaining contract effort was completed 

in October 2006 with the final integrated baseline reviews of the prime and 

major subcontractors completed by mid-December 2006. 

Based on the data provided by the contractor during fiscal year 2006, 

technical and quality issues with the exoatmospheric kill vehicle (EKV) 

are the leading contributors to cost overruns and schedule slips for the 

GMD program. In fiscal year 2006, EKV related work cost $135.2 million 

more than budgeted. Quality problems identified after faulty parts had 

been incorporated into components required rework and forced the 

subcontractor to increase screening tests to identify defective parts. 

Development issues with two boosters being developed to carry the 

exoatmospheric kill vehicles into space also increased costs during fiscal 

year 2006.7

 The element’s Orbital Boost Vehicle experienced cost growth 

totaling $15.0 million while the Boost Vehicle+ booster experienced 

growth of $74.1 million. The Orbital Boost Vehicle’s cost grew as the need 

for more program management, systems engineering, and production 

support was required to work an extended delivery schedule. The Boost 

Vehicle+ contractor incurred additional costs as a result of its efforts to 

redesign the booster’s motors. For example, the contractor spent 

additional time preparing drawings and providing technical oversight of 

suppliers. 

The contractor also experienced cost growth as it readied the Sea-based

X-Band radar for deployment. Maintenance, repair, and certification 

problems cost more than expected. In addition to making changes that an

independent review team suggested were needed before the radar was 

made operational, the contractor had to repair an unexpected ballast leak

 6

An Integrated Baseline Review (IBR) is the program manager’s review of a contractor’s 

performance measurement baseline. The review is conducted by the program manager and

the manager’s technical staff. It verifies the technical content of the baseline and ensures 

that contractor personnel understand and have been adequately trained to collect earned 

value management data. The review also verifies the accuracy of the related budget and 

schedules, ensures that risks have been properly identified, assesses the contractor’s ability 

to implement earned value management properly, and determines if the work identified by

the contractor meets the program’s objectives. 

7

The GMD program has initiated two booster development efforts to mitigate development 

and production risks. The Orbital Sciences Corporation is developing and producing one 

booster design, while Lockheed Martin is developing and producing a booster with a

different design. 

Page 61 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

requiring the installation of hydraulic valves and other engineering 

changes. 

GMD’s cumulative negative schedule variance is primarily caused by a 

subcontractor needing more time than planned to manufacture 

exoatmospheric kill vehicles. In addition, the prime contractor delayed

planned tests because test interceptors were being produced at a slower 

rate. According to program officials, variances improved during fiscal year

2006 as the subcontractor delivered components on schedule.

In July 2005, the KEI program modified its prime contract to require that 

the KEI element be capable of intercepting enemy missiles in the 

midcourse of their flight. Consequently, the program is rebaselining its 

prime contract to better align its cost and schedule objectives with the 

new work content. During fiscal year 2006, the contractor’s work cost 

approximately $0.6 million less than expected and the contractor 

completed about $0.6 million of work ahead of schedule. Cumulatively, the 

contractor’s cost performance has been positive, with all work to date 

being performed for $3.6 million less than budgeted. However, by year’s 

end, the cumulative schedule variance was a negative $5.3 million. We 

cannot estimate whether the total contract can be completed within 

budgeted cost because the contract is only 6 percent complete and trends

cannot be developed until at least 15 percent of the contract is completed. 

Figure 5 highlights the contractor’s performance during fiscal year 2006.

KEI Contractor Makes Progress 

during Fiscal Year 2006 

Page 62 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Figure 5: KEI Cost and Schedule Performance 

-8

-6

-4

-2

0

2

4

6

8

10

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Sept. Nov. Dec. Jan. Feb. Mar. Apr. May June July Au Oct. g. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

The KEI prime contractor was able to perform within its budgeted costs 

during fiscal year 2006 as a result of its efficient use of test resources. 

Although the contractor improved its negative schedule variance over the 

course of the year, its cumulative schedule variance remains unfavorable 

because requirements changes have delayed the development of the 

element’s design and of manufacturing processes. Schedule delays caused 

the program to postpone its element-level System Design Review originally

scheduled for July 2007. However, the contractor asserts that there is no 

impact to the booster flight test currently scheduled for fiscal year 2008. 

Our analysis of the performance of the contractor developing the MKV 

element was limited because MDA suspended contract performance 

reporting in February 2006 as the program transitioned from an advanced

technology development program to a system development program. The 

transition prompted MKV to establish a new contract baseline. Although 

the contractor could begin reporting after the baseline is in place, it is not 

issuing Contract Performance Reports until an Integrated Baseline Review

Lack of Reporting Limits 

Knowledge of MKV 

Contractor’s Performance 

Page 63 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

is completed. Until that time, the contractor is measuring its progress 

against an integrated master schedule. 

As of September 2006, the Sensor’s contractor had underrun its fiscal year 

2006 budget by $3.8 million and it was ahead in completing $5.4 million of

scheduled work. Considering prior years performance, the contractor is 

performing under budget with a favorable cumulative cost variance of 

$20.2 million and ahead of schedule with a favorable cumulative schedule 

variance of $26.6 million. Judging from the contractor’s cost and schedule 

performance in fiscal year 2006, we estimate that at the contract’s 

completion, the contractor will underrun the budgeted cost of the contract 

by between $26.3 million and $44.9 million. Figure 6 shows the favorable 

trend in FBX-T 2006 performance. 

Sensors’ FBX-T Contractor 

Meets Fiscal Year Cost and 

Schedule Objectives 

Figure 6: BMDS Sensors Cost and Schedule Performance 

0

5

10

15

20

25

30

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

According to program officials, the cumulative favorable cost variance is 

driven by reduced cost in radar hardware and manufacturing created by

machine process improvements and staffing efficiencies. The favorable 

Page 64 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

cumulative schedule variance primarily results from a positive $17 million 

cumulative schedule variance brought forward from fiscal year 2005 that 

was created when the contractor began manufacturing radars 2 through 

4 ahead of schedule. 

The STSS contractor’s cost and schedule performance continued to 

degrade during fiscal year 2006. During the fiscal year, the contractor 

overran budgeted costs by about $66.8 million and was unable to complete

$84.1 million of work as scheduled. Combining the contractor’s 

performance during fiscal year 2006 with its performance in prior years, 

the contract has a cumulative unfavorable cost variance of approximately 

$163.7 million and a cumulative negative schedule variance of 

$104.4 million.8

 If the contractor’s performance continues to decline, the 

contract could exceed its budgeted cost at completion by $567.3 million to

$1.4 billion. Figure 7 depicts the cumulative cost and schedule 

performance of the STSS prime contractor. 

STSS Contractor Performance 

Declines during the Year 

 8

A portion of the unfavorable cost and schedule variance is related to work that does not

contribute to the Block 2006 effort. 

Page 65 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

Figure 7: STSS Cost and Schedule Performance 

-200

-180

-160

-140

-120

-100

-80

-60

-40

-20

0

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

Quality issues at the payload subcontractor and technical difficulties 

encountered by the prime contractor during payload integration and 

testing contributed to the STSS element’s cumulative unfavorable cost and 

schedule variances. The first satellite’s payload experienced hardware 

failures when tested in a vacuum and at cold temperatures, slowing 

integration with the first satellite. Integration issues were also discovered 

as the payload was tested at successively higher levels of integration. 

According to program officials, the prime contractor tightened its 

inspection and oversight of the subcontractor responsible for integrating 

and testing the satellite payloads. Also, a re-education effort was 

undertaken to ensure that all personnel on the program knew and 

understood program instructions. Although the prime contractor 

continued to experience negative variances during the fiscal year, it should 

be noted that the subcontractor’s performance with respect to the second 

payload improved as the result of these added steps. However, the 

degradation of the prime contractor’s performance offset the improved 

performance of the subcontractor. 

Page 66 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

During fiscal year 2006, the THAAD contractor expended more money and

time than budgeted to accomplish planned work. During fiscal year 2006, 

the contractor incurred a negative cost variance of $87.9 million, which 

boosted the cumulative negative cost variance to $104.2 million. Similarly, 

the contractor did not complete $37.9 million of work scheduled for fiscal 

year 2006 on time. However, because the contractor completed prior 

years’ work ahead of schedule, the cumulative negative schedule variance 

was $28 million. Based on fiscal year performance, we estimate that at 

completion the contract could exceed its budgeted cost by between 

$134.7 million and $320.2 million. 

THAAD Contractor’s 

Performance Erodes in Fiscal 

Year 2006 

Figure 8: THAAD Cost and Schedule Performance

-120

-100

-80

-60

-40

-20

0

20

(Dollars in millions)

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

2005 2006

Cumulative schedule variance

Cumulative cost variance

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.

Note: A cumulative variance reflects the additive effect of the contractor’s prior years’ cost and 

schedule performance and the current year’s performance. 

The THAAD prime contractor’s negative cost variance for the fiscal year 

can be attributed to the increased cost of missile manufacturing, redesigns, and rework, as well as launcher hardware design, integration 

difficulties, and software problems. However, the contractor is performing 

well in regard to the radar portion of the contract, which is offsetting a 

portion of the negative cost variance.

Page 67 GAO-07-387 Defense Acquisitions
Appendix II: MDA Contracts 

The program’s negative schedule variance is largely driven by the missile, 

the launcher, and systems tests. The negative missile variance is mainly 

caused by problems with the Divert Attitude Control System and delays in 

activation of a test facility. 

Page 68 GAO-07-387 Defense Acquisitions
Appendix III: Scope and Methodology Appendix III: Scope and Methodology 

To examine the progress MDA made in fiscal year 2006 toward its Block 

2006 goals, we examined the efforts of individual programs, such as the 

GMD program, that are developing BMDS elements under the management 

of MDA. The elements included in our review collectively accounted for 

72 percent of MDA’s fiscal year 2006 research and development budget

request. We evaluated each element’s progress in fiscal year 2006 toward 

Block 2006 schedule, testing, performance, and cost goals. In making this 

comparison, we examined System Element Reviews, test and production 

schedules, test reports, and MDA briefing charts. We developed data 

collection instruments, which were submitted to MDA and each element 

program office, to gather detailed information on completed program 

activities including tests, prime contracts, and estimates of element 

performance. In addition, we visited an operational site at Vandenberg Air 

Force Base, California; and we visited MDA contractor facilities including 

Orbital Sciences Corporation in Chandler, Arizona; Raytheon in Tucson,

Arizona; and Lockheed Martin in Sunnyvale, California. To understand 

performance issues, we talked with officials from MDA’s System’s 

Engineering and Integration Directorate. We also discussed fiscal year 

2006 progress and performance with officials in MDA’s Agency Operations 

Office, each element program office, as well as the office of DOD’s 

Director, Operational Test and Evaluation, DOD’s office of Program 

Analysis and Evaluation, and DOD’s Operational Test Agency. To assess 

each element’s progress toward its cost goals, we reviewed Contract 

Performance Reports and, when available, the Defense Contract 

Management Agency’s analyses of these reports. We also interviewed 

officials from the Defense Contract Management Agency. We applied

established earned value management techniques to data captured in 

Contract Performance Reports to determine trends and used established 

earned value management formulas to project the likely costs of prime 

contracts at completion. We reviewed each element’s prime contract and

also examined fiscal year 2006 award fee plans and award fee letters. 

In assessing MDA’s flexibility, transparency, and accountability, we 

interviewed officials from the Office of the Under Secretary of Defense’s 

Office for Acquisition, Technology, and Logistics. We also examined 

Government Auditing Standards, a Congressional Research Service report, 

U.S. Code Title 10, DOD acquisition system policy, and the Statement of 

Federal Financial Accounting Standards Number 4. 

To determine the progress MDA has made in ensuring quality, we talked 

with officials from MDA’s Office of Safety, Quality, and Mission Assurance. 

We also held discussions with MDA’s Office of Agency Operations, and 

discussed quality issues at contractor facilities including Orbital Sciences 

Page 69 GAO-07-387 Defense Acquisitions
Appendix III: Scope and Methodology

Corporation in Chandler, Arizona; Raytheon in Tucson, Arizona; and 

Lockheed Martin in Sunnyvale, California. 

To ensure that MDA-generated data used in our assessment are reliable,

we evaluated the agency’s management control processes. We discussed 

these processes with MDA senior management. In addition, we confirmed 

the accuracy of MDA-generated data with multiple sources within MDA 

and, when possible, with independent experts. To assess the validity and

reliability of prime contractors’ earned value management systems and 

reports, we interviewed officials and analyzed audit reports prepared by 

the Defense Contract Audit Agency. Finally, we assessed MDA’s internal 

accounting and administrative management controls by reviewing MDA’s 

Federal Manager’s Financial Integrity Report for Fiscal Years 2003, 2004, 

2005, and 2006. 

Our work was performed primarily at MDA headquarters in Arlington, 

Virginia. At this location, we met with officials from the Aegis Ballistic 

Missile Defense Program Office; Airborne Laser Program Office; 

Command, Control, Battle Management, and Communications Program 

Office; Multiple Kill Vehicle Program Office; MDA’s Agency Operations 

Office; MDA’s Office of Quality, Safety, and Mission Assurance; DOD’s 

office of the Director, Operational Test and Evaluation; DOD’s office of 

Program Analysis and Evaluation; and the Office of the Under Secretary of 

Defense for Acquisition, Technology and Logistics. We held a 

teleconference with officials from DOD’s Operational Test Agency, also in

Arlington, Virginia. In addition, we met with officials in Huntsville, 

Alabama, including officials from the Ground-based Midcourse Defense 

Program Office, the Terminal High Altitude Area Defense Project Office,

the Kinetic Energy Interceptors Program Office, and the Defense Contract 

Management Agency. 

We conducted our review from June 2006 through March 2007 in 

accordance with generally accepted government auditing standards. 

Page 70 GAO-07-387 Defense Acquisitions
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 71 GAO-07-387

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Paul Francis (202) 512-4841 or FrancisP@gao.gov

In addition to the individual named above, Barbara Haynes, Assistant 

Director; LaTonya Miller; Ivy Hubler; Steven Stern; Meredith Allen; 

Sigrid McGinty; Tony Beckham; and Adam Vodraska made key 

contributions to this report. 

Defense Acquisitions

GAO Contact 

Acknowledgments 

(120552) 
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