GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Defense, Committee on 

Appropriations, House of 

Representatives

June 2000 MISSILE DEFENSE

Cost Increases Call for 

Analysis of How Many 

New Patriot Missiles 

to Buy

GAO/NSIAD-00-153

Page 1 GAO/NSIAD-00-153 Missile Defense

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-282712 Letr

June 29, 2000

The Honorable Jerry Lewis, Chairman

Subcommittee on Defense

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

The Patriot Advanced Capability-3 program upgrades the existing Patriot 

air defense system, which is designed to defend ground combat forces and 

other assets against an enemy’s tactical ballistic missiles,1

 cruise missiles,2

and other threats such as airplanes and helicopters. Because of the 

Committee’s concerns about cost increases in the Patriot Advanced 

Capability-3 program, you asked us to address the following questions: 

(1) How much have costs increased and what are the reasons for those 

increases? (2) Are additional cost increases expected? (3) What is being 

done to control costs? and (4) Will the Army’s requirements be met by 

planned missile procurements?

The Patriot system has four basic components: (1) a ground-based radar to 

detect and track targets and to communicate with the interceptor missile; 

(2) an engagement control station to provide command, control, and 

communications; (3) a launcher; and (4) interceptor missiles. (See fig.1.) 

1

 Tactical ballistic missiles have ranges varying from 6 to 1,240 miles. 

2

 A cruise missile is an unmanned, armed aircraft that can be launched from another aircraft, 

ship, submarine, or ground-based launcher to attack ships or ground-based targets. 
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Figure 1: Patriot Missile System

Source: Department of Defense.

The Patriot Advanced Capability-3 program is designed to enhance the 

Patriot radar’s ability to detect and identify targets and improve its 

performance against low-altitude targets; increase system computer 

capabilities; improve communications; increase the number of missiles in 

each launcher; and incorporate a new hit-to-kill missile designed to 

physically collide with and destroy the target.3

 These improvements are 

expected to increase the area a Patriot system can defend; improve the 

potential for destroying higher performance targets; and enhance 

Launcher

Engagement Control

Station

Radar

Missile 

3

 This hit-to-kill method of destroying targets is considered more effective than previous 

methods. The earlier versions of the Patriot missile destroyed their targets by detonating 

near the target and propelling metal fragments toward it. 
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performance against targets carrying nuclear, biological, or chemical 

warheads. 

The President’s budget submission for fiscal year 2001 contains a 

$446-million request for the Patriot Advanced Capability-3 program. Of this 

amount, $81 million is for research, development, test, and evaluation, and 

$365 million is for procurement.

Results in Brief Estimated costs of the Patriot Advanced Capability-3 program increased 

from about $3.9 billion in 1994 (at the beginning of engineering and 

manufacturing development)4

 to about $6.9 billion in March 2000—a 

77-percent cost increase. At the same time, the number of missiles to be 

procured decreased from 1,200 to 1,012. Missile development costs 

accounted for about $775 million of the cost increase, and missile 

procurement costs accounted for about $2.2 billion. A major reason for the 

development cost increase was that the original cost estimate did not 

recognize the level of effort and difficulty associated with developing and 

producing a hit-to-kill missile compared with those of previous missiles. 

Missile procurement costs increased primarily because the procurement 

period was extended by 7 years. Missile procurement was originally 

scheduled for the 6-year period from 1997 through 2002; the current 

procurement schedule covers the 13-year period from 1998 through 2010.

Costs are likely to increase further for several reasons. First, the 

Department of Defense has already recognized that contractor costs for 

missile development could exceed the contractor’s estimate by $26 million. 

Second, because the Department’s Director for Operational Test and 

Evaluation was concerned about the adequacy of the testing, the 

Department is considering additional tests. Costs for the additional test 

program, which may involve as many as 12 to 15 tests, have not been 

estimated, but the Patriot Project Office roughly estimated four tests could 

cost an additional $88 million. Third, Department officials estimate that 

costs could increase between $72 million and $100 million because of risks 

and potential schedule delays associated with completing missile 

development. 

4

 Engineering and manufacturing development is the phase before production and is 

intended to translate the system concept into a producible system that meets requirements. 
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The Department has begun to implement a number of program changes to 

control costs, and other changes are being studied. Initial efforts involving 

six missile hardware changes have been implemented or planned. 

Independent cost estimators have projected savings of $140 million to

$216 million from these changes and have already factored them into the 

current procurement cost estimate. Other measures being studied include 

additional hardware changes and new contracting strategies. As of March 

2000, the Department had not made a final decision on additional cost 

control measures. 

There is a gap between the Army’s stated requirements and the 

Department’s planned missile procurements. The Army states that 2,200 

Patriot Advanced Capability-3 missiles are required to comply with the 

national security strategy of winning two nearly simultaneous major wars. 

Because of its concerns about program affordability, the Department never 

planned to buy all 2,200 missiles; it originally planned to buy 1,200 missiles, 

and in light of cost increases, it now plans to procure 1,012. Army officials 

told us that having fewer than 2,200 missiles would force the Army to 

defend forces and critical assets with less capable missiles. The 

Department could choose to buy more missiles to close the gap. If further 

cost increases occur, it could also decide to buy fewer missiles (thereby 

widening the gap), extend the procurement period, or spend more to 

maintain the current plan. No detailed analyses have been made of the 

costs, benefits for defending U.S. forces and assets, or implications of any 

of these alternatives. Without such analyses, decisionmakers in the 

Department and the Congress are not in the best position to decide how 

many missiles to buy.

This report contains a recommendation that the Secretary of Defense 

perform detailed analyses and report to the Congress on the costs, benefits, 

and implications of procuring alternative quantities of upgraded Patriot 

missiles. The Department generally agreed with our recommendation to 

provide needed information to the Congress but did not agree that it is 

necessary to do so in a separate report. 
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Background The Patriot and the Navy Area ballistic missile defense systems are 

expected to provide the lower tier of defense in an overall missile defense 

strategy, which includes the Army’s Theater High Altitude Area Defense 

and Navy Theater Wide systems.5

 These latter systems are designed to 

intercept targets at much higher altitudes (above the atmosphere) than the 

Patriot missile.

Engineering and manufacturing development of the Patriot Advanced 

Capability-3 (PAC-3) missile was approved in May 1994. The original 

schedule called for initial fielding of the missile in 1998 and missile 

procurement through 2002. Several delays have occurred since that time. 

As of March 2000, initial fielding of the PAC-3 missile was planned for 2001, 

and missile procurement was planned through 2010.

With the exception of the missile, all PAC-3 components are upgrades to 

existing Patriot components. The PAC-3 missile is based on the Extended 

Range Interceptor Technology program, in which the Department of 

Defense (DOD) explored the feasibility of developing a hit-to-kill missile. 

Under this program, the extended range missile was developed in a 

laboratory environment, prototype missiles were fabricated, and the 

missiles successfully intercepted three of four test targets. 

The Ballistic Missile Defense Organization, a DOD agency responsible for 

missile defense programs, provides overall management of the PAC-3 

program, including its funding. The Army’s Program Executive Office for 

Air and Missile Defense and the Patriot Project Office provide day-to-day 

management of the program.

PAC-3 Missile Program 

Costs Increased 

Significantly

Estimated costs of the PAC-3 program increased from about $3.9 billion in 

1994, at the beginning of engineering and manufacturing development, to 

$6.9 billion as of March 2000—a 77-percent increase.6

 At the same time, the 

5 Ballistic Missile Defense: Improvements Needed in Navy Area Acquisition Planning

(GAO/NSIAD-98-34, Nov. 14, 1997).

6

 The estimate excludes the costs for Extended Range Interceptor Technology efforts and 

for operating the system after deployment. Costs in this report are expressed in then-year 

dollars (adjusted for expected inflation).
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number of missiles to be procured decreased from 1,200 to 1,012.7 About 

$775 million of the cost increase was for missile development, and about 

$2.2 billion was for missile procurement. These increases resulted from a 

significant cost underestimation, development problems, test program 

delays, and an extended missile procurement period. 

Costs Were Underestimated DOD underestimated the costs of developing and producing the PAC-3 

missile. DOD had proven the technical feasibility of a hit-to-kill missile 

under the Extended Range Interceptor Technology program. However, 

converting the technology to a producible missile that met all tactical 

requirements and could be used with the Patriot system was a greater 

challenge than DOD, the Army, or the contractor anticipated. The costs 

were greatly underestimated because (1) DOD’s estimate did not account 

for the additional level of effort and difficulty in developing a hit-to-kill 

missile system; (2) the Army and the contractor, Lockheed Martin Missile 

and Fire Control, were overly optimistic about the development effort; and 

(3) Army and contractor officials greatly underestimated software 

requirements.

Underestimated Effort and 

Difficulty

Cost estimators in the Office of the Secretary of Defense told us that, 

because they had very little experience in estimating costs for hit-to-kill 

missile systems, they did not recognize the much greater level of effort and 

difficulty associated with developing, testing, and producing a hit-to-kill 

missile compared with those of previous missiles. DOD estimators said 

they used the best data available. They relied in part on the actual costs 

incurred by the Extended Range Interceptor Technology program as the 

basis for estimating the PAC-3 cost baseline. They verified the 

reasonableness of the estimate using standard cost estimating tools such as 

cost history and cost estimating relationships developed for missile 

systems other than the hit-to-kill. However, the Extended Range 

Interceptor Technology cost data did not consider (1) the cost and effort 

required to integrate the system with other Patriot components and (2) the 

cost of designing and producing a missile to meet tactical requirements

7

 Planned PAC-3 upgraded fire units also decreased from 54 to 36, making another

$172 million available for missile procurement. The PAC-3 fire unit has three main 

components: the ground radar set, the engagement control station, and eight missile 

launchers. 
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such as operating in adverse weather conditions, in the presence of enemy 

electronic countermeasures,8

 and in a nuclear environment. 

Overly Optimistic Estimates of 

the Development Effort

The Army and the contractor were overly optimistic about the effort, 

processes, and time required for an effective development program. Missile 

contractor officials said that they originally informed the Army that 

development would cost about $890 million, but after negotiations, they 

agreed to a cost-plus-incentive fee development contract of $515 million. 

According to contractor officials, their optimism that development could 

be done at the lower price was based on (1) projecting cost reductions and 

eliminating management reserves (contingency funds); (2) agreeing with 

the Army to eliminate selected tests, some reporting requirements, and 

many government standards and specifications; and (3) simplifying the 

method for managing the contract.9

 However, within about a year, both the 

Army and the contractor realized that they had eliminated needed tests and 

other risk-reduction measures. As a result, the Army added two additional 

flight tests, additional ground tests, and 10 additional months of 

development time to the program. Contractor officials estimate that more 

than $200 million in effort was added to the contract, an amount that had 

been included in their original estimate of $890 million but eliminated 

during contract negotiations.

Underestimated Software 

Development Effort

The cost of developing missile system software was significantly higher 

than estimated. DOD and contractor officials told us that they did not 

anticipate the amount of software required for the program or the difficulty 

of integrating the PAC-3 missile with the Patriot system. An Army official 

estimated that software development required twice as much effort as 

planned. In addition, DOD’s independent estimators noted that software 

maintenance activities are now more extensive than previously estimated.

8

 Countermeasures refer to the enemy’s use of devices and techniques to impair the ballistic 

missile defense system’s operational effectiveness.

9

 An integrated product team approach was used. It was expected to reduce costs by 

fostering more extensive government-contractor interaction on management issues rather 

than relying on governmental review after decisions had already been made.
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Unanticipated Development 

Problems 

The missile contractor attributed $101 million in cost increases to first-time 

manufacturing problems, difficulties in getting the guidance system to 

function with the rest of the missile, and seeker10 development problems. 

For example, producing the initial missiles took longer than expected 

because some sub-systems did not fit together properly, some did not pass 

electrical tests the first time, and others did not pass missile environmental 

tests.11 In addition, the seeker manufacturer tried to cut costs by 

eliminating environmental tests of components and sub-assemblies and 

conducting the tests only at the assembly level. However, during early 

testing, 75 percent of the seekers failed, and the manufacturer incurred 

extra costs to disassemble the seekers, test components and subassemblies to identify faulty ones, and rebuild the seekers.

Intercept Flight Test 

Program Delays and 

Cancellation 

In addition to the delays caused by developmental problems, delays and a 

cancellation in the intercept flight test program extended the development 

program and thereby increased development costs. The cost impact of 

these delays and cancellation is included in the overall cost but has not 

been estimated for each test. However, DOD’s cost estimators believe that 

each month of development delay costs about $10 million. Details of the 

test delays and cancellation are in table 1.

10 A seeker is an on-board system that acquires the target and provides guidance accuracy.

11 Environmental tests subject components or sub-assemblies to temperature extremes, 

vibration, and shock.
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Table 1: Extent of and Reasons for PAC-3 Flight Test Delays and Cancellation

a

Missile flight tests were prohibited for a period due to potential fire hazards caused by drought 

conditions at the test range.

b

The test was initially delayed but later canceled with the intention of incorporating the objectives into 

other tests.

c

Current plans call for conducting development test 7 before development test 6 in July and September 

2000, respectively. The net slippage in the two tests is expected to be 2 months.

Source: Our analysis of DOD data.

Extension of Missile 

Procurement 

According to DOD and contractor officials, the extension of the missile 

procurement period by 7 years is the principal reason for the $2.2-billion 

increase in the procurement cost estimate. Extending the procurement 

schedule while buying the same number or fewer missiles increases 

program costs because the fixed costs of production are incurred over a 

longer period, missiles may not be produced at the most economical 

production rate, and inflation generally causes missile costs to increase in 

later years.

In 1994, at the beginning of engineering and manufacturing development, 

DOD planned to fund the procurement of 1,200 PAC-3 missiles during the

6-year period from 1997 through 2002—an average of 200 missiles per year. 

However, according to the fiscal year 2001 budget request, DOD plans to 

Type of test Months of delay Reasons for delay/cancellation

Seeker characterization 

flight test

3 Target failure and range safety 

concerns due to high winds at 

the test range.

Development test 3 4.5 Drought conditions at test range,a

target failure, and technical 

problems with missile seeker.

Development test 4 Canceledb To avoid a possible test failure 

because successfully 

intercepting the target may have 

required software not yet in the 

PAC-3 missile. 

Development test 5 3.5 Delays in earlier tests and range 

safety concerns due to high 

winds at the test range.

Development tests 6 and 7 2c Delays in software development.
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fund the procurement of 1,012 missiles over the 13-year period from 199812

through 2010—an average of about 37 missiles per year for the first 8 years 

and 144 missiles per year for the last 5 years. Table 2 shows the number of 

PAC-3 missiles to be procured each year as planned in the original 1994 

estimate and in the 2001 budget request.

Table 2: Planned Number of Missiles to Be Procured Annually

Source: DOD.

Missile Development 

Costs Are Likely to 

Increase Further 

Missile development costs are likely to increase further for several reasons. 

First, on the basis of contractor cost data, DOD budget documents estimate 

that the price for completing the missile development (cost-plus-incentivefee) contract could be about $26 million more than the current estimate.

12 Initial production was funded with the fiscal year 1998 appropriation, but actual 

production did not begin until fiscal year 2000.

Fiscal year Original program 1994

President’s budget request

for fiscal year 2001

1997 90

1998 215 20

1999 240 0

2000 250 32

2001 250 40

2002 155 28

2003 44

2004 76

2005 52

2006 144

2007 144

2008 144

2009 144

2010 144

Total 1,200 1,012
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Second, additional tests are being considered but have not yet been 

budgeted. DOD testing officials believe that as many as 12 to 15 additional 

tests may be required because, in light of missile changes and possible test 

deferments, current and planned tests would not be adequate to assess the 

system’s suitability and effectiveness—a requirement for beginning full-rate 

production. In response to this concern, Project Office and Ballistic Missile 

Defense Organization officials are considering adding four tests in 2002-

04—roughly estimated to cost $88 million. In addition, they said that up to 

seven additional tests are already planned for a later phase but that the 

costs of these tests are not included in the current estimate.

Third, missile costs are likely to increase because of risks and potential 

schedule delays associated with completing missile development. 

Specifically: 

• Ιn February 1999, the contractor recommended establishing a 

$40-million management reserve—$30 million for the possibility of a 

flight test failure and $10 million for other risks.

• In May 1999, a DOD review team also recommended establishing a 

$40-million management reserve, noting that the development schedule 

makes no provision for a flight test failure, provides no margin for 

learning or mistakes, and does not consider test range availability. 

However, the reserve was not included in the current estimate. 

• DOD’s Cost Analysis Improvement Group informed DOD 

decisionmakers in October 1999 that schedule risk could easily add 

$62 million to the cost estimate because (1) significant first-time 

integration activities remain to be accomplished (for example, the final 

version of the software must be completed and integrated into the 

missile); (2) programs in the missile defense area have historically had 

difficulty in meeting ambitious flight test schedules; and (3) the 

schedule does not account for possible flight test failures. 

• Risk assessments performed by the Army and the Ballistic Missile 

Defense Organization in November 1999 disclosed that completing the 

missile development program could cost as much as $72 million to

$100 million more than estimated. The assessments included potential 

costs for the remaining technical risks, a flight test failure, multiple 

launch attempts, and software development and integration risk.

Fourth, the remaining flight tests will become progressively more 

challenging—increasing the possibility of further delays and cost increases. 

The first two flight intercept tests were conducted against low-flying, 

non-maneuvering, relatively slow targets. The target for the third intercept 
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made some maneuvers at a high altitude. However, future flight tests will 

add complexity, including cold- and hot-conditioned PAC-3 missiles,13

highly maneuvering and high-velocity targets, targets protected by 

electronic countermeasures, and targets designed to make detection 

difficult. Officials from DOD’s Cost Analysis Improvement Group, the 

Office of the Director of Operational Test and Evaluation, and the Ballistic 

Missile Defense Organization acknowledge that future flights are designed 

to demonstrate PAC-3’s capabilities under more challenging conditions 

than previously tested.

In response to our questions regarding potential cost increases, the Patriot 

project manager informed us that in the event of a flight test failure, the 

Army now has the missile hardware for an additional flight test because a 

previous test was canceled. However, he acknowledged that DOD has not 

budgeted for the cost of another flight test or for the potential 3- to 6-month 

delay that could be associated with a flight test failure.

Some Cost 

Containment Measures 

Are Being 

Implemented, Others 

Are Being Studied

To control development and procurement costs, DOD and contractor 

officials have begun to implement various program changes and are 

examining other cost-cutting measures. For example, in late 1998 and early 

1999, a study team appointed by the Director of the Ballistic Missile 

Defense Organization focused on the causes of cost growth and 

recommended improvements to control development costs. Among other 

things, the team recommended that (1) the PAC-3 program establish a 

realistic cost and schedule baseline and (2) the schedule take into 

consideration the possibility of a flight test failure. In response, new cost 

and schedule baselines were developed, but as discussed earlier, the 

schedule revisions did not provide for a flight test failure. At the same time, 

another study team appointed by the Director and the Army recommended 

that the Army seek multiyear procurement authority14 at full-rate

13 Missiles that are subjected to extremely cold temperatures (-25° F.) and extremely hot 

temperatures (131° F.) before firing. 

14 Multiyear procurement is a method for acquiring up to 5 years’ requirements with a single 

contract. This method usually provides cost savings through more efficient subcontracting 

and component and material purchases.
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production, pursue an innovative contracting strategy,15 and actively seek 

foreign military sales. All of these recommendations, which are designed to 

lower unit costs of producing the missiles, are still being considered. 

In addition, in 1998 and 1999, the Army and the missile contractor identified 

six hardware changes that could reduce procurement costs. The six 

changes, which are being implemented or planned, include design and 

manufacturing modifications such as reducing the number of component 

parts, making components easier to assemble, removing redundant parts, 

and making some components from less costly material. Independent cost 

estimators—the Army’s Cost and Economic Analysis Center and DOD’s 

Cost Analysis Improvement Group—estimated that the potential cost 

savings from these hardware changes would range between $140 million 

and $216 million. The estimators have already factored these savings into 

the current program production cost estimate.

Also, in early 2000 a cost review team appointed by the Director of the 

Ballistic Missile Defense Organization concluded that about 500 more 

missiles could be bought without an overall program cost increase by 

incorporating additional cost reduction actions. These actions include 

identifying alternative subcontractors for selected components, 

streamlining test processes, using more commercial parts, and selling 

PAC-3 missiles to foreign countries. Ballistic Missile Defense Organization 

officials informed us that the review results are not complete, are currently 

being evaluated for cost accuracy and risk, and are only proposals that do 

not represent an official position or a decision to implement. However, 

Patriot project officials are devising a plan to implement at least some of 

these initiatives. Providing an independent perspective on the cost review 

team’s findings, officials from the Cost Analysis Improvement Group and 

the Army’s Cost and Economic Analysis Center told us that savings of the 

projected magnitude are extremely doubtful because some savings have 

already been included in the current cost estimate and other savings may 

never be realized.

DOD officials are also examining several other cost containment measures, 

including deferral of the (1) demonstration of the PAC-3 missile’s capability 

to intercept airplanes and helicopters, (2) incorporation of the software 

15 The proposed contracting strategy—fixed-price incentive with successive targets—uses 

potential savings and an award fee to provide the contractor with incentives to reduce 

production costs.
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necessary to operate in the presence of electronic countermeasures, and 

(3) demonstration of the missile’s capability to operate against electronic 

countermeasures. Ballistic Missile Defense Organization and Army officials 

informed us that these tasks would be deferred only if necessary in order 

for the PAC-3 development effort to stay within approved funding levels. 

However, if these tasks are deferred, the PAC-3’s effectiveness would not 

be tested against all its requirements before September 2001, the scheduled 

date for a full-rate production decision.

The Army Says It 

Requires Twice as 

Many Missiles as DOD 

Plans to Procure

There is a gap between the Army’s stated requirements and DOD’s plans to 

procure the missiles. According to Army operations and plans officials, 

DOD’s planned missile procurement is less than half the number required 

to comply with the national military strategy of winning two nearly 

simultaneous major wars. No detailed analyses have been conducted, 

however, of the costs, benefits, and implications of procuring additional 

missiles to close this gap or, if additional cost increases occur, of buying 

fewer missiles, extending the procurement period, or spending more to 

maintain current procurement levels.

Gap Between Army 

Requirements and Planned 

Missile Procurements

The Army determined in 1993 that 2,200 PAC-3 missiles were required to 

support the national military strategy. More recent Army studies, 

conducted in 1997 and 1998, showed that 2,400 to 2,600 PAC-3 missiles 

were needed. Army operations and plans officials told us that the Army did 

not change the official requirement from 2,200 because it wanted to 

maintain a consistent requirement. To establish the required number of 

PAC-3 missiles, the Army considers (1) the operational objectives of the 

combatant commands,16 (2) logistics capabilities, and (3) the residual stock 

of missiles required at the conclusion of a war. 

Over time, planned procurement has reflected the estimated maximum 

number of missiles that could be afforded given PAC-3’s planned funding. 

In fiscal year 1994, when the system was approved for engineering and 

manufacturing development, DOD expressed the intention to buy 1,200 

missiles by 2002. However, as program costs increased, procurement 

quantities were reduced and the period of procurement was extended. In 

16 Combatant commands are responsible for operational control of military forces in specific 

regions of the world. 
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the fiscal year 2000 budget, DOD indicated the intention to buy 560 missiles 

by 2006; in the 2001 budget, it announced plans to buy 1,012 missiles by 

2010—of which 436 would be purchased by 2006. 

Army Says Lower 

Procurements Would 

Degrade Defensive 

Capability

In 1994, the Director of Requirements, Office of the Army Deputy Chief of 

Staff for Operations and Plans, stated that procurement of fewer than 2,200 

PAC-3 missiles would increase the operational risk to deployed forces. The 

Director also stated that the Army would not have an adequate number of 

missiles to fight two major theater wars if DOD could afford only 1,100 or 

fewer missiles. 

In March 2000, Army operations and plans officials told us that 

procurement of fewer than 2,200 missiles (1) would degrade the Army’s 

capability to defend U.S. forces and critical assets and (2) would make the 

Army rely more heavily on earlier versions of the Patriot missile that are 

less effective against nuclear, biological, or chemical warheads. They also 

stated that the extension of the production program forces the Army to rely 

on less capable Patriot missiles for longer than planned.

Detailed Analyses of 

Alternative Procurement 

Quantities Have Not Been 

Conducted 

Neither the Office of the Secretary of Defense nor the Army has done 

detailed analyses of the costs, the benefits to the Army’s capability to 

defend U.S. forces and critical assets, or the implications of alternative 

procurement quantities. For example, DOD could choose to buy more 

missiles to close the gap between the Army’s requirements for 2,200 

missiles and DOD’s plan to procure 1,012 missiles. On the other hand, if 

further cost increases occur, DOD could also decide to buy fewer missiles 

(thereby widening the gap), could extend the procurement period, or could 

spend more to maintain the current plan. Spending more on the PAC-3 

program, of course, could be done at the expense of other programs. 

Without such analyses, decisionmakers in the Department and the 

Congress are not in the best position to decide how many missiles to buy.

Conclusions Cost growth has been a continuing problem for the PAC-3 program since it 

entered engineering and manufacturing development in 1994. The cost 

growth has, in turn, raised program affordability concerns and has led DOD 

to reduce the number of missiles to be procured and extend the 

procurement period, despite the expected degradation of defense 

capability this would cause.
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We expect affordability concerns to become even more prominent for 

several reasons. First, the Army has a clear interest in closing the gap 

between its stated requirement for 2,200 missiles and DOD’s planned 

procurement of 1,012 missiles. Second, DOD has postponed difficult 

funding decisions in the short term by deferring most procurement until 

2006-10; as a result, the affordability of procuring larger quantities of PAC-3 

missiles is likely to become an even greater issue as 2006 approaches. 

Third, because additional cost increases are likely, higher funding levels 

would be needed just to maintain procurement at the planned level. 

Without detailed analyses of the costs, benefits, and implications of 

procuring alternative quantities of missiles, decisionmakers in DOD and 

the Congress do not have the necessary information to make a sound 

decision on how many PAC-3 missiles to buy.

Recommendations To help determine how many upgraded Patriot missiles to buy, we 

recommend that the Secretary of Defense perform detailed analyses and 

report to the Congress on the expected costs, benefits, and implications of 

the currently planned and alternative procurement levels. These analyses 

should, at a minimum, examine expected impacts of (1) buying more 

missiles, (2) buying fewer missiles to address increased costs, or (3) buying 

the same number of missiles but extending the procurement period or 

increasing funding to address increased costs. They should also examine 

the potential degradation in defense capability resulting from any gaps 

between alternative procurement levels and the Army’s stated 

requirements. 

Agency Comments and 

Our Evaluation

In its written comments on a draft of this report, DOD generally agreed that 

it should provide the Congress with the information necessary to determine 

the appropriate level of PAC-3 program funding. DOD did not agree that the 

Secretary should provide a separate report. 

DOD stated that the President’s budget request and its supporting materials 

represent the Department’s position regarding the most appropriate level of 

funding for the PAC-3 program; and that it provides supplemental program 

cost, schedule, and performance information to the Congress in a selected 

acquisition report at least once annually. DOD also said that it will provide 

supplemental information about various program alternatives as requested 

by the congressional defense committees. DOD stated its belief that with 
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these actions it already fulfills the spirit and substance of the 

recommendation.

We do not believe that the information DOD cited above would satisfy the 

intent of our recommendation. Past budget requests and selected 

acquisition reports do not provide needed information. For example, the 

fiscal year 2000 budget request and the December 1998 selected acquisition 

report showed a planned procurement of 560 PAC-3 missiles—a 53-percent 

reduction from the previous budget requests and selected acquisition 

reports. However, no information was provided in the documents to 

address the impact on military capabilities caused by the reduction in the 

number of missiles to be procured, the trade-offs made in arriving at the 

lower procurement level, or the benefits that could be derived from 

additional funding. Similarly, the fiscal year 2001 budget request and the 

1999 selected acquisition report again showed a change in planned 

procurement—this time an increase in the number of missiles to be 

procured to 1,012—but did not discuss the impacts of that change. 

Moreover, neither the budget requests nor the selected acquisition reports 

have addressed the impact on military capabilities caused by (1) procuring 

substantially fewer missiles than the Army says it requires to comply with 

the national security strategy and (2) procuring and fielding most of the 

missiles at a much later time than planned. The original schedule showed 

procuring 1,200 missiles by 2002 versus current plans to procure 1,012 

missiles by 2010, with only 120 missiles to be procured by 2002.

Although DOD could provide supplemental information as requested by the 

congressional defense committees, producing a separate report would give 

greater assurance that DOD would provide a timely, complete report to the 

Congress addressing the cost, benefits, and implications of procuring 

alternative quantities of PAC-3 missiles.

We have modified our recommendation to further explain the kind of 

detailed analyses and information that we feel would be useful to 

decisionmakers. DOD also provided technical comments that we 

incorporated where appropriate.

Scope and 

Methodology 

To address the Chairman’s questions, we reviewed DOD, Army, and 

Ballistic Missile Defense Organization cost estimates and independent, 

DOD, and contractor cost reviews and assessments. We also discussed 

cost, schedule, risk, and requirements issues with knowledgeable officials 

from the Patriot Project Office, the Army, the Ballistic Missile Defense 
B-282712

Page 18 GAO/NSIAD-00-153 Missile Defense

Organization, the Office of the Secretary of Defense, the contractor, and 

user and test communities. 

We obtained information on the extent of cost growth and assessed the 

underlying reasons by comparing the original cost estimate with the 

current estimate. We identified the reasons for cost growth by reviewing 

DOD and contractor cost estimates; reviewing independent cost group 

reports, contract files, and contractor reports; and obtaining the views of 

key officials from these organizations. 

To determine whether additional cost increases are expected and whether 

budgeted amounts are sufficient, we evaluated current cost estimates and 

compared them with current budget estimates. We analyzed the PAC-3 cost 

estimates prepared by contractor, Army, and independent estimators and 

obtained their views on the potential for additional cost growth. 

To evaluate the impact of actions taken or planned to reduce costs, we 

obtained detailed descriptions of planned cost reduction and cost 

containment measures. We also obtained DOD studies and evaluations of 

the proposed measures. We discussed these measures with DOD and 

contractor officials to determine the validity of the measures and the 

projected costs and savings from their implementation. 

We compared planned procurement quantities with the requirements 

defined by the Army by obtaining and analyzing the Army’s methodology 

for determining requirements and discussing it with pertinent officials. We 

also obtained and analyzed missile quantity studies prepared by DOD and 

discussed these studies with pertinent officials. We discussed quantity 

shortfalls with the Army user community to identify their impact. 

We conducted our work from May 1999 through April 2000 in accordance 

with generally accepted government auditing standards.

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

issue date. At that time, we will send copies to other interested 

congressional committees; the Honorable William Cohen, Secretary of 

Defense; the Honorable Louis Caldera, Secretary of the Army; and the 

Honorable Jacob Lew, Director, Office of Management and Budget. Copies 

will also be made to others on request.
B-282712

Page 19 GAO/NSIAD-00-153 Missile Defense

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

Major contributors to this report were Bob Levin, Wayne Gilliam, and

Terry Wyatt.

Sincerely yours,

Allen Li

Associate Director

Defense Acquisitions Issues 
Page 20 GAO/NSIAD-00-153 Missile Defense

Appendix I

Comments From the Department of Defense ApendxiI

(707422) Letr

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