United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Military Research and Development

Committee on National Security, House

of Representatives

June 1998 DEFENSE

ACQUISITION

Decision Nears on

Medium Extended Air

Defense System

GAO/NSIAD-98-145

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-278253 

June 9, 1998

The Honorable Curt Weldon

Chairman, Subcommittee on Military

 Research and Development

Committee on National Security

House of Representatives

Dear Mr. Chairman:

The Department of Defense (DOD) entered into an international agreement

with Germany and Italy to acquire the Medium Extended Air Defense

System (MEADS), a system that would defend maneuver force assets from

theater ballistic and cruise missiles and various manned and unmanned

aircraft. As you requested, we reviewed the MEADS program. Specifically,

this report (1) discusses the unique capabilities that MEADS will add to U.S.

air and missile defense, (2) evaluates the development cost of MEADS and

its affordability within the expected ballistic missile defense budget, and

(3) assesses the impact that international development will have on MEADS

cost and capability.

Background In 1989, the Army recognized that it needed to replace some of its aging air

defense systems, including the Homing All-the-Way to Kill (HAWK) missile.

The Army wanted the HAWK’s replacement to be rapidly deployable,

capable against weapons of mass destruction, and able to defeat a wide

range of targets. The Under Secretary of Defense for Acquisition and

Technology approved concept exploration for a new surface-to-air missile

but stated that the Army needed a draft agreement for allied participation

before system development would be approved.

The Army was successful in finding U.S. allies that were interested in

jointly acquiring a new air and missile defense system. In February 1994,

the United States officially invited Germany to participate in the system’s

development and production. Because of Germany’s desire to make the

program a U.S.-European cooperative initiative, the program was

subsequently expanded to include France and then Italy. Representatives

of the four countries signed a multilateral statement of intent in

February 1995 to collaborate in the development of a system capable of

meeting the requirements of all four countries. The effort became known

as the MEADS program.

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Before DOD allows a military service to negotiate for the acquisition of a

weapon system in cooperation with another country, DOD generally

requires the program’s sponsor to assess the likely impact of the proposed

program by developing a summary statement of intent. The statement

should include information on the benefits of an international program to

the United States, potential industrial base impacts, funding availability

and requirements, information security issues, and the technologies that

will likely be involved in the program. Various officials within the Office of

the Secretary of Defense are responsible for reviewing the statement of

intent and recommending whether an international agreement should be

negotiated.

Because of budget problems, France dropped out of the MEADS program

before the memorandum of understanding was signed in May 1996. The

other nations proceeded with the project definition and validation phase.

The countries agreed that, during this phase, the U.S. cost share would be

60 percent; Germany, 25 percent; and Italy, 15 percent. According to the

memorandum of understanding, new agreements would be negotiated

before initiating other phases of the program, cost share percentages

could change, and any of the countries could drop out of the program at

the start of any new program phase.

MEADS, as envisioned by the Army, is part of the lower tier of a two-tier

umbrella of air and missile defense. The Theater High Altitude Area

Defense (THAAD) and Navy Theater Wide systems are upper tier systems

that provide protection primarily against theater ballistic missiles. Existing

and planned lower tier systems, such as the Patriot Advanced Capability 3

(PAC-3) and Navy Area systems, will engage shorter range theater ballistic

missiles, fixed- and rotary wing aircraft, unmanned aerial vehicles, and

cruise missiles. The Ballistic Missile Defense Organization (BMDO) has

responsibility for the MEADS program.

DOD believes the MEADS program represents a new and innovative approach

to the acquisition process. If the program is successful, DOD expects that

MEADS will be a model for future collaborative efforts because it addresses

problem areas associated with past transatlantic cooperative endeavors.

The program reflects the mission needs of all countries, involves

technologies from all participants, and requires competition between two

transatlantic contractor teams.1

1

Two transatlantic contractor teams are competing during project definition and validation to develop

a MEADS concept. In December 1998, DOD will choose one contractor’s concept for design and

development.

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Results in Brief If the Army is successful in meeting established requirements, MEADS will

have capabilities that no other planned theater missile defense system will

possess. The system should defeat a wide range of threats arriving from

any direction, be transportable within theater by small transport aircraft,

be mobile enough to travel cross country or over unimproved roads with

the maneuver force, and be sufficiently lethal to negate weapons of mass

destruction.

Acquiring MEADS will affect higher priority missile programs or the

infrastructure that supports those programs unless DOD increases BMDO’s

budget allocation. BMDO forecasted in March 1998 that it needed about

$1.8 billion for fiscal years 1999 through 2007 to pay its portion of MEADS’

estimated $3.6 billion design and development cost. In addition, BMDO will

need another $10.1 billion for fiscal years 2005 through 2016 to acquire

eight battalions of equipment. The European partners are expected to

contribute about one-half of the design and development funds. Thus, for

fiscal years 2000 through 2005—the years for which BMDO is now

budgeting—the U.S. cost could be reduced to about $1.4 billion. BMDO has

no funds budgeted for MEADS after fiscal 

year 1999 and has been reviewing various program options to find a less

expensive acquisition strategy.

DOD officials believe that a joint cooperative effort with U.S. allies is the

best means of acquiring MEADS because it reduces cost, improves political

ties, and builds a more effective coalition force. However, DOD did not fully

assess funding and technology transfer issues before initiating the

international program and may not be able to achieve these benefits. U.S.

and European program participants said that the United States may be

viewed as an unreliable partner if it cannot fund its portion of the

program, which could threaten the U.S.’ ability to participate in future

collaborative efforts. Even if the United States remains in the program, it

may have difficulty developing a truly interoperable weapon without

sharing valuable technology. The international structure may also prevent

contractors from pursuing the most cost-effective system solution.

Contractors are finding it difficult to use existing technology developed for

other systems because the process for transferring U.S. information to

foreign countries is slow and the United States is reluctant to transfer

some critical technology. In addition, the execution of the MEADS program

is more difficult because it does not have secure communication systems

or program-specific security instructions. These difficulties might have

been avoided if security experts had been included in negotiations of the

international agreement.

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MEADS Will Add

Expanded Capabilities

for Air and Missile

Defenses

MEADS is being designed to add capabilities to the battlefield that currently

fielded and planned air and missile defense systems do not provide. It will

be more mobile than current systems, counter a wider range of targets,

and intercept incoming missiles from any direction. Because of its unique

capabilities, warfighting commands with theater ballistic missile defense

missions support MEADS.

The Army plans to use MEADS to protect important access points on the

battlefield, troop forward area assembly points, and maneuver force assets

(such as refueling points and stores of ammunition) that must travel with

troops as they move toward the enemy. To move with the maneuver force,

MEADS must transition from defensive operations to a traveling

configuration and return to defensive operations quickly. Similar to the

maneuver force, MEADS must also be able to travel over unimproved roads

and cross country. In addition, the Army wants to be able to move MEADS

within theater aboard small transport aircraft, such as the C-130.

Combatant commanders control the use of C-130s and can use them to

move MEADS as necessary.

MEADS must be able to defend against a wide range of targets. It must

counter short-range, high-velocity theater ballistic missiles carrying

conventional explosives or weapons of mass destruction. The system is

also required to detect and destroy low- and high-altitude cruise missiles

launched from land, sea, or air platforms and carrying various types of

offensive weapons. MEADS is required to counter remotely piloted vehicles

and unmanned aerial vehicles carrying observation equipment or weapons

and defend against slow, low-flying rotary wing aircraft and maneuvering

fixed-wing aircraft employed in a variety of missions.

MEADS is expected to be the only land-based theater missile defense system

designed to defend against targets approaching from any direction. The

system will counter slow and low-flying cruise missiles that take

advantage of terrain features to mask their approach and attack from

virtually any direction.

Existing and Planned

Systems Do Not Meet

MEADS Requirements

No other existing or planned air and missile defense system meets all of

the MEADS requirements. The Patriot system cannot keep pace with the

maneuver force because it takes too long to assemble and disassemble for

movement, and it cannot travel cross country. Also, Patriot was not

designed to provide protection from all directions, and will require more

aircraft to reach a theater of operation because of the system’s size. Even

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though the Army plans to use large transport aircraft, such as the C-141,

C-17, or C-5, to transport both Patriot and MEADS to a conflict, MEADS

requires fewer aircraft. For example, the Army will need 77 C-5 aircraft

sorties to transport 1 Patriot battalion but only 36 sorties to transport 1

MEADS battalion. In addition, Patriot can only be transported within

theaters of operation aboard the larger transport aircraft.

The ability of other systems to meet MEADS requirements is also limited.

The Navy Area system may not be capable of protecting the maneuver

force because its defended area will be limited by the distance from which

it must stand off shore and the range of its interceptor. The THAAD and

Navy Theater Wide systems are being designed to engage primarily

medium-range ballistic missiles but cannot defend against theater ballistic

missiles launched from very short ranges, aircraft, or low-altitude cruise

missiles. Table 1 shows the capabilities of existing and planned air and

missile defense systems in meeting MEADS requirements.

Table 1: Capabilities of Other Air and Missile Defense Systems in Meeting MEADS Requirements

Transport into

theater

C-130

transportable

Move with

maneuver force

360-degree

protection Diverse target set

Patriot Somewhat capablea Not capable Not capable Not capable Very capable

Navy area Very capable Not capable Not capable Very capable Very capable

Navy theater Very capable Not capable Not capable Very capable Not capable

THAAD Somewhat capable a Not capable Not capable Not capable Not capable

aBoth Patriot and THAAD require significantly more aircraft than MEADS for transport into a

theater of operation.

Combatant commanders whose forces are most vulnerable to theater

ballistic missile attacks identify MEADS as a priority system. Each year the

Commander in Chief of each unified combatant command lists, in order of

importance, key program shortfalls that adversely affect the capability of

their forces to accomplish assigned duties. All commanders with a theater

missile defense mission—the U.S. Central, European, and Pacific

Command—believe that a shortfall exists in their ability to perform this

mission. Each of these commanders either lists MEADS as a system needed

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to correct the shortfall or, according to command officials, considers

MEADS a high priority.2

A U.S. Central Command official said that, although the Commander in

Chief considers MEADS a high priority, he does not want to acquire that

system at the expense of other theater missile systems. The official said

that PAC-3, THAAD, and Navy Area systems are expected to be fielded sooner

than MEADS and that the Commander does not want those systems delayed.

MEADS Presents

Funding Dilemma

BMDO will be unable to acquire MEADS without impacting higher priority

missile defense programs3

 unless DOD or the Army provide additional

funds. BMDO’s budget plan does not include funding for MEADS after fiscal

year 1999 because the organization’s budget is dedicated to missile

systems that will be available sooner. Over the next 6 years, for which

BMDO is currently budgeting, the organization needs $1.4 billion to execute

the planned MEADS program. Because it has had difficulty funding MEADS,

BMDO is considering various program options to find a less costly

acquisition program.

Estimate Forecasts 

$3.6 Billion Design and

Development Cost

In March 1998, BMDO developed, in cooperation with the Army, a cost

estimate for a MEADS system that would meet Army requirements.

According to this estimate, the United States expects MEADS total design

and development cost to be about $3.6 billion. The United States expects

to pay about one-half of this amount, or $1.8 billion. In addition, BMDO

estimates that the United States needs approximately $10.1 billion more to

procure eight battalions of system hardware.

BMDO is interested in the MEADS’ design and development cost because it is

developing budget plans for the years when many related activities are

scheduled. During design and development, engineers will work out the

details of MEADS’ design, perform engineering tasks that are necessary to

ensure the producibility of the developmental system components,

fabricate prototype equipment and software, and test and evaluate the

2

U.S. Pacific Command did not list MEADS as a system needed to overcome the command’s shortfall in

theater missile defense. However, a command official said MEADS was absent from the list because

the Pacific Command did not understand the importance of MEADS to U.S. Forces Korea, a

subordinate command in the area most threatened by theater missiles. The official said that the Pacific

Command’s next shortfall list would indicate that the command attaches a high priority to MEADS

acquisition.

3

BMDO’s funding strategy, as recommended by the Quadrennial Defense Review, places the highest

priority on lower tier missile defense systems—Patriot PAC-3 and Navy Area—followed by upper tier

systems—THAAD and Navy Theater Wide.

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system and the principal items necessary for its support. In addition, the

contractor will fabricate and install equipment needed to produce

hardware prototypes and develop training services and equipment.

BMDO expects the system radars to be the most costly system components

to design and develop. Army engineers said that they believe two separate

radars—a surveillance and fire control radar—will be required and that

three prototypes of each radar are needed for adequate test and

evaluation. The fire control radar will be expensive because it contains

thousands of transmit and receive modules that send and receive

messages with the missile and simultaneously determine the target’s

location. Engineers believe the efficiency of existing transmit and receive

modules must be improved to meet the MEADS hit-to-kill requirement. The

surveillance radar is expensive because, to fulfil MEADS’ mission

requirements, it must accurately detect targets at long ranges. Figure 1

shows the percentage of design and development cost attributable to each

of the system’s components.

Figure 1: Estimated Cost to Design

and Develop System Components

Radar

Missile

Contractor SE/PM

Government

Risk

Battle management and launcher 18.4%

Missile 11.5%

Contractor engineering and management 14.2%

Government management 19.1%

Risk 2.1%

Radar 34.6%

Source: Based on BMDO data.

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Existing Technology

Expected to Reduce

MEADS Cost

A BMDO official said that the March 1998 cost estimate was reduced more

than $400 million4

 because Army engineers believed that MEADS could

benefit from some technology developed and paid for by other missile

programs. In a March 1997 cost estimate, BMDO recognized that existing

technology could benefit MEADS and this reduced MEADS cost by about

$200 million. However, contractor personnel believe that actual program

savings from technology leveraging could be more than $400 million.

The MEADS program would realize the largest cost reductions if existing

radars or missiles could meet MEADS requirements. The use of existing

components would eliminate design, prototype manufacturing, and

producibility engineering costs. Army engineers said that existing missiles,

such as PAC-3, might be capable against the theater ballistic missile threat

that MEADS is expected to counter. However, the Patriot Project Office has

not simulated PAC-3’s performance against MEADS entire ballistic missile

threat and cannot do so without additional funds. In addition, the Army

stated that PAC-3 may have limitations against the long-term cruise missile

threat.

Current existing radars do not meet MEADS requirements. For example,

Army engineers said that the THAAD system ground-based radar cannot

provide protection from all directions and is much too large and heavy for

a mobile system. The engineers also said that the Marine Corps TSP 59

radar, being used with the Marine Corps HAWK, takes too long to move and

is much too heavy to be mobile.

Funding MEADS Will

Affect Other Programs

BMDO’s cost estimate shows that, to acquire and field MEADS as planned, it

needs approximately $11.9 billion over the next 18 years. The funds are

expected to pay for the U.S. share of MEADS estimated research and

development cost and the procurement of eight battalions of equipment.

BMDO needs about $1.4 billion between fiscal years 2000 and 2005 to

develop a system that meets all of the Army’s requirements.

BMDO has spent the last year reviewing program options that could reduce

MEADS cost. However, as of April 1998, the agency had not changed its

acquisition strategy. BMDO considered reducing MEADS requirements so that

an existing missile could be used in the system. In addition, BMDO

considered extending MEADS development schedule, delaying initial

fielding of hardware, or relying on other radars to detect targets for MEADS.

4

BMDO was unable to provide precise computations regarding the deduction. However, officials said

they reduced MEADS design and development cost about 10 to 15 percent to arrive at their current

estimated cost.

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The organization also considered developing and fielding the system in

two stages or designing a system that relies on a currently undeveloped

tracking network to detect and engage targets. Finally, BMDO considered

tasking contractors to develop a system that meets critical requirements

for a limited amount of funds. The Army’s Deputy Program Executive

Officer for Air and Missile Defense said that, if contractor funds are

limited, some MEADS requirements might be eliminated to decrease the cost

of the new system. However, the official did not know which requirements

might be eligible for elimination. The official also said that, if BMDO cannot

fund the program as it is currently planned, the Army favors either fielding

MEADS in two stages or limiting development funds. MEADS partners are

aware that the United States is considering other options. According to

German and Italian government officials, they are willing to discuss

program changes. However, until the Army and BMDO agree on a specific

option, DOD cannot be sure its partners will find that option acceptable.

BMDO cannot provide the $1.4 billion needed for fiscal years 2000 through

2005 unless DOD (1) increases BMDO’s total obligational authority;

(2) stretches out development and production of programs, such as PAC-3,

THAAD, and Navy Area systems; or (3) drastically reduces BMDO funding

earmarked for targets, systems integration and test, and management.

BMDO’s Deputy for Program Operations said that these program changes

are undesirable because they increase program cost and delay fielding of

important assets. Figure 2 shows that, if BMDO included MEADS research and

development funding in its planned budget for fiscal years 1999 to 2003,

the agency would exceed its budget authority.

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Figure 2: BMDO Fiscal Years 1999-2003 Research and Development Budget and Allocated Budget Authority

1999 2000 2001 2002 2003

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AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA AAAA

AAAAAAAAAAAAAA

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

Fiscal year

Dollars in millions

AAAA AAAA

AAAA

AAA AAA

AAA Other NMD PAC 3 THAAD Navy Area Navy Theater MEADS

Total obligational authority

Note: NMD is National Missile Defense. Other includes technology support, acquisition program

reserve, joint tactical missile defense, family of systems, and small business innovative research.

Source: Our analysis of BMDO data.

Joint Acquisition

Presents Program

Challenges

The United States, Germany, and Italy are collaborating in the

development and production of MEADS because each needs an improved air

and missile defense system but cannot afford to acquire a system by itself.

DOD also believes that international cooperation in weapon systems

acquisition can strengthen political ties, create a more effective coalition

force, and increase the self-sufficiency of allied nations. However, BMDO

did not fully address funding or technology transfer issues before initiating

the international program and may not be able to achieve these benefits. In

addition, security problems that might have been avoided if security

Page 10 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

specialists had been involved in negotiation of the international agreement

continue to hinder the program’s execution.

Officials in all three countries said that, given their current and expected

defense budgets, MEADS is affordable only if it is acquired jointly. Total

design and development and production cost reductions will depend on

the acquisition strategy that BMDO and its partners choose. In addition to

reducing the U.S.’ cost to develop MEADS, combining the production

quantities of the three countries will lower unit production costs and

reduce the total U.S. cost, according to BMDO documents.

DOD Did Not Fully Assess

All Funding Aspects of

International Program

DOD generally requires the approval of a summary statement of intent

before the negotiations to acquire a weapon system in cooperation with

another country. The DOD directive that established BMDO, however, gives

the organization the authority to negotiate agreements with foreign

governments and then obtain approval of those agreements. In

implementing this authority, BMDO did not finalize its summary statement

of intent until after negotiations to establish the international program had

begun. In addition, the assessment was not sent to reviewers at the Office

of the Secretary of Defense until all negotiations were complete and

agreement had been reached on the $108 million, 27-month project

definition and validation phase of the MEADS program.

The summary statement of intent that BMDO eventually prepared did not

fully address important issues that continue to plague the MEADS program.

For example, although the multilateral statement of intent shows that the

partners intended to develop and produce MEADS together, little attention

was given to MEADS funding needs subsequent to project definition and

design. The summary statement of intent did not address long-term

funding needs by fiscal year, instead, it indicated that funding beyond

fiscal year 1999 would be derived from funds budgeted to develop an

advanced theater missile defense capability. However, in

February 1996—about the same time that BMDO completed international

agreement negotiations—a DOD review of BMDO’s mission reduced the

organization’s budget and resulted in the deletion of advanced capability

funds earmarked for MEADS.

Because BMDO did not fully assess the availability of funding for MEADS

future program phases, the U.S. political ties with Germany and Italy could

be affected. Some U.S. and European officials suggest that the United

States may be viewed as an unreliable partner if it is unable to fund MEADS.

Page 11 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

The officials said that U.S. withdrawal from the development effort could

affect its ability to participate in future international programs.

U.S. Technology Transfer

Rules May Hamper Pursuit

of Most Cost-Effective

Solutions

BMDO’s summary statement of intent did not address technology transfer

issues that continue to trouble the MEADS program. Although the statement

recognized that classified information developed for other missile

programs would be transferred to the MEADS program, it did not address

whether the programs that owned that information had concerns about its

release. Also BMDO did not address the impact that a decision to withhold

critical information could have on the execution of the program.

The United States has established procedures for releasing sensitive

national security-related information to foreign governments and

companies. These policies aim to preserve U.S. military technological

advantages. Control policies limit the transfer of advanced design and

manufacturing knowledge and information on system characteristics that

could contribute to the development of countermeasures.

Technology release policies present special challenges for the MEADS

program because it involves several sensitive technologies critical to

preserving the U.S. military advantage. For example, MEADS could employ

electronic counter countermeasures that offset jamming and intentional

interference, signal processing techniques to enhance accuracy, and

advanced surveillance techniques.

The United States has been reluctant to release information about these

critical technologies into the program and slow in responding to many

release requests. For example, release approvals have taken as long as 

259 days. Some requests made at the start of the program are still awaiting

a decision because program offices have been reluctant to release the

information. This reluctance, as well as the approval time, reflect the

rigorous release-consideration process. Program offices in each of the

services that own particular technologies perform a page-by-page review

of the requested data to identify releasable and nonreleasable data. In

some cases, the program controlling the data will not directly benefit from

its release and will risk giving up data that could expose system

vulnerabilities.

These policies may limit the ability of contractors to leverage the use of

existing missile system technology and pursue the cheapest technical

solution. MEADS contractors said that, when data is not released on a timely

Page 12 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

basis, they are forced to explore alternative technical approaches or

propose development of a component or subcomponent that may

duplicate existing systems.

In some cases, the United States has approved release of technology into

the program but restricted the information to U.S. access only. This

restriction has undermined the functioning of integrated teams and efforts

to strengthen ties among the participating countries. German and Italian

defense officials and the European contractors involved in the MEADS

program said that, unless they can assess the U.S. technology that U.S.

contractors are using, they cannot be sure that the technology is the best

or the cheapest available. The European contractors also said that, if this

technology must be improved or adapted for MEADS use, they are asked to

accept the U.S. estimate of the cost to perform these tasks.

The reluctance to share technology may also make it difficult to design

and build a MEADS system that can exchange engagement data with other

battlefield systems. For the international system to be truly interoperable,

DOD may have to provide information that it has been reluctant to share.5 If

DOD officials decide that this information is too sensitive to share with

MEADS partners, the United States may have to drop out of the program and

develop MEADS alone or modify its capability.

Other Security-Related

Problems Hinder Program

Implementation

The international MEADS program has been plagued by two issues that

Army security officials believe could have been avoided if security

specialists had been involved in negotiation of the international

agreement. First, the program does not have a secure communications

system. The absence of secure telephone and facsimile lines has hindered

the program’s execution. Army and contractor officials said that it takes

up to 6 weeks to get classified information to MEADS contractors in Europe.

Also, unsecured lines increase the possibility that unauthorized parties can

access classified information.

Second, the failure of the participants to agree to MEADS-specific security

instructions also increases the potential for unauthorized use of MEADS

data. Pursuant to 22 U.S.C. 2753(a), no defense article or service may be

sold or leased to another country unless the recipient agrees not to

transfer title to, or possession of, the goods or services to a third party.

However, Germany and the United States disagree on the definition of a

third party. One of the German contractors participating in the MEADS

5

The details of this information are classified and therefore cannot be provided in this report.

Page 13 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

program employs a British citizen and Germany wishes to give access to

MEADS classified data to this employee. DOD security officials told us that

they do not believe that the German government could penalize the British

employee if MEADS data was not safeguarded.

German and Italian contractor officials said that, with the formation of the

European Union, European citizens cross country boundaries just as U.S.

citizens cross state borders. The officials said that if a contractor’s ability

to hire personnel is limited by the U.S. interpretation of a third party, the

MEADS program may lose valuable expertise.

Conclusions If MEADS is designed to meet established requirements, it will give

warfighters capabilities that are not present in any existing or planned air

and missile defense systems. MEADS should be able to engage a wide range

of targets, be easily transported by small transport aircraft, be capable of

moving cross country and over unimproved roads, and be sufficiently

lethal to destroy both conventional warheads and weapons of mass

destruction. Because of these unique capabilities, war-fighting commands

place a high priority on the acquisition of MEADS.

DOD believes that jointly developing and producing MEADS with U.S. allies

will reduce the U.S. investment in the weapon system and strengthen

political ties, creating a more effective coalition force and increasing the

allies’ ability to defend themselves. However, DOD does not know whether

it is willing to share information to create a truly interoperable system,

whether an international program can utilize existing U.S. missile system

technology to its maximum advantage, how it will fund the U.S. share of

the international program, or how it can alter the MEADS system or

acquisition strategy to make the program affordable and acceptable to its

partners. In addition, potential security risks exist because security

specialists were not involved in negotiating the international agreement.

An international program impacts the political ties between the United

States and its allies, and its outcome impacts DOD’s ability to negotiate

future collaborative efforts.

Because DOD is considering other cooperative programs, the MEADS

experience could provide valuable lessons. These lessons include careful

consideration of all available program information before entering into an

agreement to jointly develop a weapon system and assurance that funds

will be available for program execution. In addition, areas that warrant

attention include the (1) technology that is likely to be released into the

Page 14 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

program, (2) effect that the technology’s release could have on U.S.

national security, and (3) impact of a determination to withhold

information on both the execution of the program and U.S. allies.

Recommendations We recommend that the Secretary of Defense take steps to ensure that, for

future international programs, the approval process includes careful

consideration of the availability of long-term program funding and an

in-depth assessment of technology transfer issues. In addition, we

recommend that the Secretary of Defense include security experts in all

phases of the negotiations of international programs.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, DOD generally concurred with our

recommendations (see app I). DOD said that it would take steps to ensure

that (1) the approval process for future international programs includes a

careful assessment of long-term funding needs and technology transfer

issues and that (2) security personnel are included in negotiations of

international agreements.

Regarding the MEADS program, DOD stated that all parties to the

memorandum of understanding understood that long-term funding would

be subject to later determination and availability and that technology

transfer issues were considered to the extent possible prior to entering

into the agreement. In addition, DOD said that Army security personnel

have been included in all MEADS negotiations.

We agree that the memorandum of understanding limits the U.S.

commitment for the MEADS program to funding the project definition and

validation phase of system development. However, the memorandum of

intent signed by the three countries clearly stated that the United States,

Germany, and Italy intended to continue the program through production.

DOD regulation 5000.1, dated March 1996, states that, once a military

component initiates an acquisition program, that component should make

the program’s stability a top priority. The regulation further states that to

maximize stability, the component should develop realistic long-range

investment plans and affordability assessments. However, DOD approved

the MEADS program without a full assessment of BMDO’s ability to fund the

system’s development beyond project definition and validation. With

future funding in doubt, BMDO has spent the last year reviewing program

options that could reduce MEADS cost and enhance the organization’s

ability to finance further development efforts. In a stable program, this

Page 15 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

time could have been used to further the program’s primary mission of

developing an effective weapon system.

DOD further commented that technology transfer issues could not be

resolved because of the lack of detailed information on the transfers that

would be requested. We believe a more detailed assessment, one that

involved key program offices that would be asked to approve the release

of information to the MEADS program, was feasible. In March 1995, the

Army developed a strawman concept of MEADS’ predecessor, the Corps

Surface-to-Air Missile (SAM) system. On the basis of this concept, the Army

said it could reduce Corps SAM’s cost by utilizing technology from existing

missile programs, such as PAC-3 and THAAD. The Army’s belief that Corps

SAM/MEADS would make extensive use of other systems’ technology

indicates that it could reasonably be expected to require information

about those systems. At the very least, project offices that were expected

to provide technology to the MEADS program should have been consulted to

determine what type of information the offices would be willing to release

to foreign governments. This knowledge would have allowed the United

States, during negotiations with its potential partners, to communicate the

type of information that could be transferred. On the basis of the

memorandum of understanding, which states that successful cooperation

depends on full and prompt exchange of information necessary for

carrying out the project, European officials said that they believed the

United States would freely share relevant technology.

DOD stated that security experts should support all phases of the

negotiation process, although they may not be able to participate in the

formal negotiations. In addition, DOD said that Army security personnel

were involved in the creation of the MEADS delegation of disclosure letter

and program security instruction. We agree that it may not be possible to

include security personnel in the primary negotiations and recognize that

the MEADS participants have established a tri-national security working

group to address specific security issues. However, Army security

personnel said the tri-national group’s primary function, thus far, has been

to resolve issues that prevent Germany from signing the MEADS program

security instruction. Army, DOD, and BMDO security specialists said that, so

far, they have not been asked to support the negotiations for the next

phase of MEADS development. In addition, Army security personnel said

that they were not involved in the creation of MEADS security documents,

such as the program security instruction and the delegation of disclosure

letter, until after the memorandum of agreement that initially established

the MEADS program was signed.

Page 16 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

Scope and

Methodology

To assess MEADS contribution to the battlefield and warfighter support for

the system, we compared MEADS requirements with those of other systems

designed to counter theater ballistic and cruise missile threats. We also

reviewed the integrated priorities lists of U.S. Central Command, MacDill

Air Force Base, Florida; U.S. European Command, Stuttgart, Germany; and

U.S. Forces Korea, Seoul, South Korea. When possible, we obtained the

Commander in Chief’s written position on theater missile defense in

general and MEADS specifically. We discussed MEADS required capabilities

with officials at the U.S. Army Air Defense Artillery School, Fort Bliss,

Texas; Patriot Project Office, Huntsville, Alabama; and Program Executive

Office for Air and Missile Defense, Huntsville, Alabama. In addition, we

discussed warfighter support for the acquisition of MEADS with officials of

the U.S. Central Command; U.S. European Command; U.S. Forces Korea;

and U.S. Pacific Command, Camp H.M. Smith, Hawaii.

We reviewed BMDO’s fiscal years 1999-2003 budget plan and other budget

documents to determine if the organization had identified funding for

MEADS. We also examined BMDO’s acquisition cost estimate to determine the

system’s cost, the effect on cost of using existing technology, and the cost

of design and development tasks. In addition, we discussed the budget

estimate and BMDO’s ability to fund another major acquisition program with

officials in BMDO and the Office of the Under Secretary of Defense for

Acquisition and Technology, Washington, D.C., and the U.S. MEADS

National Product Office, Huntsville, Alabama.

To determine the impact of an international program on MEADS

development, we examined work-sharing, cost-sharing, system

requirements, and technology transfer documents and held discussions

with Ministry of Defense officials in Rome, Italy, and Bonn, Germany;

Army officials in the U.S. MEADS National Product Office; and officials in

the State Department and various DOD offices, Washington, D.C. We also

examined documents and met with contractor officials in Bedford,

Massachusetts; Orlando, Florida; Rome; and Bonn. In addition, we

examined security documents and held discussions with officials of the

Office of the Under Secretary of Defense for Policy, Washington, D.C.;

Intelligence Office of the Assistant Chief of Staff of the Army, Washington,

D.C.; and the Army Aviation and Missile Command Intelligence and

Security Directorate, Redstone Arsenal, Alabama.

We performed our review between April 1997 and April 1998 in

accordance with generally accepted government auditing standards.

Page 17 GAO/NSIAD-98-145 Defense Acquisition
B-278253 

We are sending copies of this report to the Chairmen and Ranking

Minority Members of the Senate Committee on Armed Services, the Senate

Committee on Appropriations, Subcommittee on Defense, the House

Committee on National Security, and the House Committee on

Appropriations, Subcommittee on National Security; the Secretaries of

Defense and the Army; and the Director of the Ballistic Missile Defense

Organization. Copies will also be made available to others on request.

Please contact me at (202) 512-4841 if you or your staff have any questions

concerning this report. Major contributors to this report are Karen

Zuckerstein, Barbara Haynes, and Dayna Foster.

Sincerely yours,

Katherine V. Schinasi

Associate Director, Defense

 Acquisitions Issues

Page 18 GAO/NSIAD-98-145 Defense Acquisition
Page 19 GAO/NSIAD-98-145 Defense Acquisition
Appendix I 

Comments From the Department of Defense

Page 20 GAO/NSIAD-98-145 Defense Acquisition
Appendix I 

Comments From the Department of Defense

Now on p. 15.

Now on p. 15.

Page 21 GAO/NSIAD-98-145 Defense Acquisition
Appendix I 

Comments From the Department of Defense

(707241) Page 22 GAO/NSIAD-98-145 Defense Acquisition
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