IG-01-027

AUDIT

REPORT ACQUISITION OF THE SPACE STATION

PROPULSION MODULE

May 21, 2001

National Aeronautics and

Space Administration

OFFICE OF INSPECTOR

GENERAL
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Acronyms

ATV Autonomous Transfer Vehicle

FAR Federal Acquisition Regulation

FGB Functional Energy Block

GAO General Accounting Office

ICM Interim Control Module

ISS International Space Station

NPD NASA Policy Directive

NPG NASA Procedures and Guidelines

OIG Office of Inspector General

OMB Office of Management and Budget

OPTS Orbiter Propellant Transfer System

SRR Systems Requirements Review

USPM United States Propulsion Module

USPS United States Propulsion System
W May 21, 2001

TO: A/Administrator

FROM: W/Inspector General

SUBJECT: INFORMATION: Audit of Acquisition of the Space Station Propulsion Module

Report Number IG-01-027

The NASA Office of Inspector General (OIG) has completed an Audit of Acquisition of the Space

Station Propulsion Module. We found that, with a life-cycle cost of $1,558 million and a diminished

need for long-term U.S. propulsion capability, the Propulsion Module was not cost-effective. In March

2001, NASA cancelled the Project after recognizing that the estimated $675 million cost to complete

the Project was not affordable. NASA implemented the United States Propulsion Module (USPM)

design before properly accomplishing acquisition planning and preparing project documentation. For

example, NASA did not validate requirements from the system requirements review1 (SRR) before

beginning a preliminary design review of the USPM. As a result, the Agency spent $97 million2 and 19

months of effort before it determined that the design was unacceptable. For the follow-on design, the

United States Propulsion System (USPS), NASA appropriately analyzed alternatives, developed an

acquisition strategy, and defined requirements. However, the Agency pursued implementation of the

USPS without an approved project plan or risk management plan. Also, NASA selected The Boeing

Company (Boeing) as the sole-source contractor without properly documenting the justification for the

noncompetitive selection. As a result, NASA had not shown that the selection was in the best interest

of the Government.

Background

The purpose of the Propulsion Module Project was to provide a U.S. capability for long-term

propulsion on the International Space Station (ISS). In October 1998, the Agency began the Project

with the USPM design, which included a requirement for on-orbit refueling of the Propulsion Module by

the Space Shuttle. The propellant transfer requirement involved another element of the USPM, called

the Orbiter Propellant Transfer System (OPTS). The USPM encompassed two major programs at the

Lyndon B. Johnson Space Center (Johnson), the

 

1

 A systems requirements review is the process to define and baseline a complete set of requirements for a project.

2

 NASA estimated expenditures of $125 million for the USPM, of which $28 million can be used on the International

Space Station.
2

ISS Program and the Space Shuttle Program; and at the George C. Marshall Space Flight Center

(Marshall), the Propulsion Module Project Office. In May 2000, the Agency cancelled the OPTS

because of unacceptable risks. In July 2000, NASA suspended development of the Propulsion

Module.

In September 2000, after extensive analysis of propulsion alternatives, NASA selected the USPS

design.3 The USPS consisted of a redesigned Propulsion Module that would attach to a node to be

added to the forward end of the ISS. Boeing had already built the node as the Node 1 Structural Test

Article and planned to modify it to provide an attachment point for the Propulsion Module and a

docking port for the Space Shuttle. The USPS would not have been refueled on-orbit but would have

returned to earth for maintenance and refueling.

Recommendations

Because NASA took action to cancel the Project, we are not making recommendations on the Project.

However, we recommended that for future ISS projects, NASA establish an approved project plan,

acquisition plan, and risk management plan; resolve all discrepancies from an SRR before beginning a

preliminary design review; and establish synchronized milestones for all related program and project

elements. These actions would provide a more stable baseline for project implementation, help ensure

that risks are identified early, and help facilitate better coordination between project elements. We also

recommended that NASA obtain an approved justification, as prescribed by the Federal Acquisition

Regulation (FAR), before initiating future sole-source procurements on the ISS contract. This action

would help ensure that NASA considers competitive procurement for new work and properly

documents justification for exceptions to show that its decisions are in the best interest of the

Government.

Management Response and OIG Evaluation

NASA concurred with the recommendation to establish an approved project plan, acquisition plan, and

risk management plan. Management stated that it would manage all ISS Projects consistent with

NASA policy. The Agency also provided general comments in which it disagreed with our finding that

the USPM design was selected without fully considering alternatives and without developing an

adequate acquisition strategy. The complete text of management's response is in Appendix E.

NASA's comments are responsive to the recommendation. Management's commitment to manage all

ISS Projects consistent with NASA policy is sufficient to close the recommendation for reporting

purposes. Our additional comments on management's response are in Appendix F.

NASA partially concurred with the recommendation to resolve all SRR discrepancies prior to beginning

a preliminary design review. Management stated that resolving all SRR discrepancies

 

3

 Compared to the USPM, the USPS was designed to use a safer fuel (a monopropellant), did not require a complex

and heavy system of lines and valves for transferring the more volatile bipropellant fuel, and did not involve the

safety risks of transferring fuel in orbit.
3

prior to a preliminary design review is the goal for all projects and that processes are in place that fully

support NASA guidance. However, management disagreed that it should have closed all discrepancies

from the SRR before beginning a preliminary design review for the USPM (see Appendix E).

Management's comments are generally responsive to the recommendation. Although we maintain that

NASA should have closed all discrepancies from the SRR before beginning a preliminary design review

for the USPM, we acknowledge that the Project Office and the ISS Program Office appropriately

defined requirements for the USPS (see Appendix F). Therefore, we consider management's action

taken on the USPS and comments regarding future projects, in particular, the goal of resolving SRR

discrepancies prior to preliminary design review, sufficient to close the recommendation for reporting

purposes.

NASA concurred with the intent of the recommendation on sole-source procurements, recognizing that

all procurements must follow the appropriate regulations. However, the Agency maintained that the

Propulsion Module Project was within the scope of the contract and, therefore, was not subject to

requirements for competitive procurements (see Appendix E).

We maintain that the Project constituted new work that required properly documented justification for

the noncompetitive selection of Boeing. In fact, the Associate Administrator for Space Flight

acknowledged that the obligation for a Propulsion Module was not included in the ISS contract.

Further, it is in NASA's best interest to promote competition to the extent practical rather than pursue

regulatory exceptions that permit noncompetitive awards (see Appendix F). Nevertheless, we consider

management's statements regarding future projects sufficient to close the recommendation for reporting

purposes and will continue to monitor NASA's noncompetitive awards as part of other reviews.

Details on the status of the recommendations are in the recommendations section of the report.

[original signed by]

Roberta L. Gross

Enclosure

Final Report on Acquisition of the Space Station Propulsion Module
FINAL REPORT ON

ACQUISITION OF THE SPACE STATION PROPULSION

MODULE
W May 21, 2001

TO: AA/Acting Director, Lyndon B. Johnson Space Center

FROM: W/Assistant Inspector General for Auditing

SUBJECT: Final Report on Audit of Acquisition of the Space Station Propulsion Module

Assignment Number A0004300

Report Number IG-01-027

The subject final report is provided for your information and use. Please refer to the Executive

Summary for the overall audit results. Our evaluation of your response is incorporated into the

body of the report. Management's comments were generally responsive to the

recommendations and are sufficient to close the recommendations for reporting purposes.

If you have questions concerning the report, please contact Mr. Dennis Coldren, Program

Director, Space Flight Audits, at (281) 483-4773, or Mr. Jimmie Griggs, Auditor-in-Charge, at

(281) 483-9965. We appreciate the courtesies extended to the audit staff. The final report

distribution is in Appendix G.

[original signed by]

Russell A. Rau

Enclosure

cc:

B/Acting Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

JM/Director, Management Assessment Division

M/Associate Administrator for Space Flight

DA01/Director, George C. Marshall Space Flight Center
Contents

Executive Summary, i

Introduction, 1

Findings and Recommendations, 2

Finding A. Cost-Effectiveness of the Propulsion Module, 2

Finding B. Acquisition Planning and Implementation, 6

Finding C. Contractor Selection and Justification, 13

Appendix A - Objectives, Scope, and Methodology, 17

Appendix B - Chronology of Events for the Propulsion Module, 20

Appendix C - Analysis of Alternatives for the Propulsion Module, 23

Appendix D - Criteria for Project Management and Sole-Source

Procurement, 26

Appendix E - Management's Response, 28

Appendix F - OIG Comments on Management's Response, 35

Appendix G - Report Distribution, 39
NASA Office of Inspector General

IG-01-027 May 21, 2001

A0004300

Audit of Acquisition of the Space

Station Propulsion Module

Executive Summary

Background. The Propulsion Module Project was part of the ISS Program, for which Boeing

is the prime contractor. The purpose of the Project was to develop a U.S. propulsion capability

to mitigate the risk of a Russian failure to deliver critical elements or provide support to the ISS.

NASA began the Project in October 1998 and selected a design called the USPM in February

1999. The USPM consisted of two elements, the Propulsion Module and the OPTS. The

Project Office managed the Propulsion Module, the Space Shuttle Program Office managed the

OPTS and its integration with the ISS,4 and the ISS Program Office managed the integration of

the Propulsion Module with the ISS. In May 2000, NASA cancelled the OPTS because of

unacceptable safety, technical, and cost risks.5 In July 2000, the Agency suspended

development of the Propulsion Module. In September 2000, NASA selected a new design

called the USPS, which also consisted of two elements, the Propulsion Module and Node 4,6

and did not involve orbital transfer of propellant. NASA's estimate at completion for the

Project was $724 million. In March 2001, NASA cancelled the USPS because of budget

concerns. Appendix B contains a chronology of events for the USPM and USPS.

Objectives. Our overall audit objective was to determine whether NASA developed a costeffective acquisition strategy for a long-term propulsion capability for the ISS. Specifically, we

determined whether NASA identified and adopted the most feasible means of providing a longterm propulsion capability and developed an acquisition strategy to limit the cost of the

Propulsion Module. Appendix A contains further details on our objectives, scope, and

methodology.

 

4

 The OPTS required major modifications to the Space Shuttle Orbiters to allow the transfer of propellant.

5

 The unacceptable risks related to the use of a volatile bipropellant fuel, a complex system of lines, valves,

and tanks for transferring the fuel, a permanent weight increase of about 1,500 pounds to the Orbiters, and

cost growth from $479 million to $744 million.

6

 Node 4 was the Node 1 Structural Test Article, which Boeing had already built but which needed to be

modified to provide an attachment point for the Propulsion Module and a docking port for the Space

Shuttle. Also, NASA redesigned the Propulsion Module for the USPS.
ii

Results of Audit. The USPS represented a simpler and safer design than the USPM.

However, at a life-cycle cost of $1,558 million, the USPS was not a cost-effective strategy

because Russia's delivery and refueling of the Service Module7 eliminated a major risk and

diminished the need for long-term U.S. propulsion capability (Finding A).

The Agency attempted to implement the USPM before completing acquisition planning and

project documentation and spent $97 million and 19 months in project development before

determining that the design was unacceptable. For example, weaknesses in the requirement

review process contributed to a failed preliminary design review. Also, although the Agency

analyzed alternatives and developed an acquisition strategy for the USPS, NASA pursued

implementation of the USPS (like the USPM) without an approved project plan or risk

management plan and could have experienced similar negative cost and schedule impacts had

the Project not been cancelled (Finding B).

NASA selected Boeing as the sole-source contractor for the Project without determining

whether a sole-source procurement was appropriate and without properly documenting its

justification for the noncompetitive selection. As a result, NASA had not shown that the solesource procurement was in the best interest of the Government (Finding C).

Recommendations. Because NASA took action to cancel the USPS, we are not making

recommendations on the Project. However, for future projects, we recommend that NASA

complete acquisition planning and documentation, validate requirements, synchronize milestones,

and obtain an approved justification for sole-source selections.

Management Response. NASA either concurred or partially concurred with all the

recommendations. NASA also agreed that by canceling the Project, it could put $675 million

to better use.

Management stated that all of NASA's programs and projects would be planned and

documented consistent with NASA policy. In addition, resolving all requirement review

discrepancies is the goal for all projects. Program and project management will assure risks of

proceeding to the next milestone are identified and controlled including resolving requirement

review issues. The Agency established formal controls for defining, approving, and controlling

the interfaces between elements.

NASA also stated that all of its procurements follow the appropriate sole-source selection

regulations. However, NASA disagreed that the Propulsion Module Project was required to

follow the Federal Acquisition Regulation and Agency regulations on source selection because

NASA considered the Project to be a simple change that was within the general scope of the

contract.

 

7

 The Service Module, which Russia successfully delivered to the ISS in July 2000, provides attitude and

reboost control, communications, electrical power generation, life support, supplies and storage, crew

systems, and mechanism control. The Service Module is refueled through the Functional Energy Block (see

footnote 8).
iii

The complete text of the response is in Appendix E. Management also provided general

comments on our findings (see Appendix F).

Evaluation of Management's Response. We consider management's comments generally

responsive to the recommendations. However, we maintain that the Propulsion Module Project

was outside the scope of the ISS contract and was subject to Federal Acquisition Regulation

requirements for sole-source selection. Our response to management's general comments is in

Appendix F.
Introduction

The ISS is a cooperative international program. Russia's contribution to the ISS includes

propulsion services, which Russia has provided through the Functional Energy Block (FGB),8

the Service Module, and a series of unpiloted Progress vehicles.9

The Propulsion Module is part of the ISS Contingency Plan,10 which calls for near-term reliance

on Russian contributions while accelerating U.S. capabilities for long-term self-reliance. The

Project is required for the potential loss of Russian participation and is designed to provide

altitude reboost, debris avoidance maneuvers, and attitude control to augment Russian

propulsion capability for the life of the ISS.

In May 2000, the ISS Program tasked a special team, called the Alternative Propulsion Module

Assessment Team, to conduct a trade study to evaluate options and recommend a design for

the Project. Based on the team's study and a September 2000 ISS Program Integration

Study,11 the ISS Program Manager directed the Project Office to implement the USPS design.12

In November 2000, Marshall's Procurement Office issued a modification to the ISS contract

that authorized Boeing to support the USPS Project with a limited statement of work. As part

of the limited statement of work, Boeing gave NASA a preliminary make-or-buy decision

briefing13 in December 2000 that recommended Boeing make Node 4 and buy (subcontract)

the Propulsion Module through competitive procurement actions. NASA planned to evaluate

and approve Boeing's final make-or-buy decision before awarding the contract. In

January 2001, the Project Office requested that Boeing submit a firm proposal on its make-orbuy decision by April 30, 2001.

 

8

 The Functional Energy Block is a self-sufficient orbital transfer vehicle that contains propulsion, guidance,

navigation and control, communications, electrical power, thermal control systems, and stowage capacity.

The FGB also serves as the primary fuel tank for the Service Module. Russia delivered the vehicle in

November 1998 as the first element of the ISS. The Functional Energy Block is also called the Functional

Control Block, the Control Module, the FGB, and Zarya (Sunrise).

9

Progress vehicles supply dry cargo and propellant. After the vehicles deliver propellant and cargo to the

ISS, they are undocked and de-orbited; they then burn up in the Earth's atmosphere.

10NASA now calls this plan the ISS Off-Nominal Situation Plan.

11 Boeing performed the ISS Program Integration Study and coordinated it with the ISS Program Office,

Johnson Space Center, and the Propulsion Module Project Office.

12 The direction to implement the design did not constitute authority to contract for the acquisition of the

USPS.

13 The preliminary make-or-buy decision briefing gave NASA advance notice of Boeing's plans regarding

the contractor's recommended procurement approach for the USPS.
2

Findings and Recommendations

Finding A. Cost-Effectiveness of the Propulsion Module

NASA did not have a cost-effective strategy for a long-term propulsion capability. Before

NASA cancelled the Project, the Project Office's estimate at completion was $724 million, an

increase of $182 million (34 percent) over the Agency's budget of $542 million. While

acquisition costs had more than doubled, life-cycle costs also rose almost 50 percent. Other

key factors in assessing the cost-effectiveness of the Propulsion Module are its decreased

capability (from the USPM to the USPS), the reduction of major risks through the successful

integration of the Service Module into the ISS, the demonstrated refueling of the Service

Module by a Progress vehicle, and the de-orbiting of the Mir.

14 The major remaining risk is the

potential shortage of Progress vehicles to refuel the Service Module, for which a long-term

U.S. propulsion capability is not needed. If the Project had continued, NASA could have paid

as much as $1,558 million to mitigate a risk that may never materialize and that could be

covered at a lower cost.

Increased Cost of the Propulsion Module

In October 1998, Boeing proposed a not-to-exceed amount for the Propulsion Module of

$331 million. In February 1999, Boeing increased its estimate by $148 million (45 percent) to

$479 million. The $148 million increase resulted from additional work including developing the

OPTS. Boeing maintained the $479 million cost until April 2000, when it again increased its

estimate by $265 million to $744 million, an increase of 125 percent in 18 months. The

$265 million increase was caused by additional requirements15 and schedule slips.

In September 2000, the Project Office estimated that the cost to complete the USPS would be

$675 million, including $63 million for a Space Shuttle flight to deliver the Propulsion Module to

the ISS. Including expenditures on the USPM Project, NASA's estimate for the entire

Propulsion Module Project was $724 million.

Life-cycle costs had also risen $511 million (49 percent) from $1,047 million for the USPM to

$1,558 million for the USPS, largely because of the expected need to refurbish the Propulsion

Module on the ground and transport it to and from the ISS about once a year with a Space

Shuttle Orbiter. The total life-cycle costs for the USPS included $660 million for initial

operational capability and $898 million for seven round-trip Space Shuttle flights16 and ground

servicing. The total life-cycle costs of $1,047 million for the USPM included $835 million for

initial operational capability and $212 million for operations costs for 12 years.

Although the costs increased, the budget stayed the same. As of February 2001, NASA's

budget of $542 million had not changed since the Project began with the USPM. The Agency

 

14 Mir was the space station that Russia launched in February 1986.

15 The additional requirements were for thermal, acoustic, and reboost tests; tunnel size increase; and helium

resupply.

16 The seven flights were based on an initial delivery flight and annual replenishment flights for 6 years.
3

planned to increase the budget after reviewing the Boeing proposal that was due in April 2000.

However, a blueprint of the President's budget for fiscal year 2002 indicates that funding will be

redirected from high-risk elements like the Propulsion Module to help offset ISS cost growth.

Decreased Capability of the Propulsion Module

Although the life-cycle cost of the USPS would have been significantly more than for the

USPM, the capability of the USPS would have been less in the following ways:

• The requirement for the USPS was 6 years on-orbit compared to 12 years for the

USPM.

• The monopropellant fuel that was to be used by the USPS, although safer, is about 33-

percent less efficient than the bipropellant fuel designed for the USPM.

• A 6-month gap in coverage to the ISS would have existed each time the Propulsion

Module was refurbished, compared to full-time coverage with the USPM because it

would not have needed refurbishing.

Reduction of Risks

When the Project began, the ISS Contingency Plan included several high-risk Russian

scenarios, especially the risks that the Service Module would not be delivered (or not function)

and Russia would not provide the Progress vehicles transporting the fuel and supplies needed

for the Service Module. The successful integration of the Service Module in July 2000 and its

refueling by a Progress vehicle 2 weeks later greatly reduced those risks. The major remaining

risk to the ISS is the shortage of Progress vehicles. The most likely cause of such a shortage

would be insufficient funding by the Russian government.17

Potential Alternatives for Risk Mitigation

The Propulsion Module would not have sustained the ISS against a complete loss of Service

Module functionality because of its limited capabilities (discussed above) and because NASA

did not design the ISS for full redundancy of the Service Module. For example, the planned

location of the Propulsion Module, the front of the ISS, was not ideal for reboost because the

Service Module, located at the back of the ISS, occupies the best site for that purpose.

Consequently, the ISS would have to be rotated 180 degrees before the Propulsion Module

could be used effectively. Executing this maneuver would have required more time and fuel

(about 10 percent more fuel).

The Propulsion Module was designed to supplement rather than replace the propulsion

provided by the Service Module in the event of propellant shortages caused by an interruption

in the flow of Progress vehicles. Over its operational life, the ISS will need an average of 7

 

17 An additional risk regarding Progress vehicles was that Russia would divert the vehicles to maintain the

Mir instead of the ISS. However, Russia de-orbited Mir in March 2001, thus eliminating that risk.
4

metric tons18 of propellant per year, with a range of 1 to 12 metric tons needed per year, the

equivalent of one to six Progress vehicles.19 The Service Module currently has a 1-year supply

of propellant.20 A combination of shorter-term alternatives, as described below, can provide a

more cost-effective solution to fill potential gaps in Russian resupply of propellant by Progress

vehicles.

Interim Control Module. The Interim Control Module (ICM)21 offers a low-cost and lowrisk concept that uses off-the-shelf hardware components and would ensure ISS guidance and

navigation control, attitude control, and reboost for at least a year. The ICM holds about

5 metric tons of propellant, the equivalent capacity of two and one-half Progress vehicles. A

Space Shuttle Orbiter could deliver the ICM to the ISS.

NASA originally planned to use the ICM to bridge a potential gap between the FGB and

Service Module if the Service Module was delivered late.22 After the Service Module became

operational, NASA viewed the ICM as a short-term solution to a delay or shortage of

Progress vehicles. Therefore, the Agency directed the Naval Research Laboratory to proceed

with modifications that would make the ICM better suited to help maintain ISS altitude without

a steady supply of Progress vehicles.

In October 2000, NASA cancelled further ICM development because of the decreased risk of

loss of Russian propulsion capability to the ISS and because $100 million could be saved by

storing it before completion. NASA placed the partially completed ICM in storage and stated

that it could be completed and readied for launch in about 24 months, if it is needed.23

Progress Vehicles. NASA can purchase Progress vehicles from Russia to mitigate the risk of

insufficient Russian funding.24 A Progress can deliver 2 metric tons of propellant to the Service

Module. The ISS Program Manager estimated that it costs the Russians less than $10 million to

build a Progress and that the cost, including launch, might be $20 to $30 million. While

potentially the most cost-effective alternative, this option is dependent on Russia's ability and

willingness to provide the vehicles and on approval by the Congress.

FGB-2. In July 2000, Boeing and Khrunichev25 partnered to launch and operate a second

FGB (called the FGB-2), which Khrunichev built as a backup to the FGB that was delivered to

the ISS in November 1998. The FGB-2 holds 4 metric tons of propellant, the equivalent of

 

18 A metric ton is 1,000 kilograms (or 2,200 pounds).

19 The wide range of needed propellant is caused by changes in solar activity, termed the solar cycle.

20 The 1-year supply of propellant is stored in the Service Module, FGB, and Progress vehicle.

21 The Naval Research Laboratory built the ICM for another agency and was modifying it for ISS. Rockwell

Aerospace presented the ICM concept to NASA in March 1996.

22 The FGB had a design life of 16-1/2 months as an independent spacecraft but had been functioning (see

footnote 7) for 20 months before the Service Module was delivered.

23 The Naval Research Laboratory disagrees that the ICM could be completed in 24 months because

laboratory representatives believe it would take longer to reassemble the team needed to finish the ICM.

24In October 1998, NASA modified the ISS contract to pay the Russian Space Agency $60 million to fund

continued work on the Service Module. As consideration, NASA received 4,000 hours in future crew time

and 2 cubic meters of stowage space originally allocated to Russia.

25 Khrunichev is the Russian aerospace firm that built the FGB and the Service Module.
5

two Progress vehicles, and could be used to refuel the Service Module and provide additional

storage space for the ISS. The ISS Program Manager estimated that it would cost $200 million

to launch the FGB-2 but stated that it would not be a good business arrangement because it

would be costly and could be used only once. Nevertheless, the FGB-2 is an option.

Space Shuttle Orbiters. As part of each Space Shuttle mission to the ISS, an Orbiter

reboosts the ISS to a higher orbit. However, the effectiveness of this measure diminishes as

ISS assembly continues and its mass grows. On a recent mission (5A), an Orbiter reboosted

the ISS 14 miles. However, when ISS assembly is complete, an Orbiter will be able to reboost

the ISS only 2 miles. NASA can improve this reboost capability by modifying its Orbiter fleet

to allow aft fuel tanks to be used in addition to forward tanks. We reported earlier that the cost

of the modification was $90 million (see Appendix A).26

Autonomous Transfer Vehicles. NASA can arrange with the European Space Agency to

use Autonomous Transfer Vehicles (ATV's) to refuel the Service Module. An ATV can carry 5

metric tons of propellant, more than twice the amount of a Progress, and would be launched

aboard an Ariane rocket. The European Space Agency is procuring nine Ariane rockets and

ATV's and would obtain the propellant for the ATV's from Energia, a major Russian aerospace

firm. The nine ATV's are part of the current ISS assembly and operations baseline; therefore,

NASA would need to procure additional ATV's to replace Progress vehicles. The ISS

Program Office provided us a rough cost estimate of $50 to $60 million for an ATV and

$110 million for an Ariane rocket.27

Cancellation of the USPS

As a result of our audit findings, we would have recommended canceling the USPS. On

February 12, 2001, we discussed this potential recommendation with the ISS Program

Manager. The ISS Program Manager was receptive to the recommendation and responded

that the ISS Program Office had begun reconsidering more cost-effective alternatives, such as

the ATV. Because the ISS Program Manager subsequently took action to cancel the USPS,

we are not making a related recommendation. Canceling the USPS allows NASA to put

$675 million to better use, which represents the cost to complete the USPS including $63

million for Space Shuttle launch support. These savings do not include reductions in operations

costs.

 

26 We reported on the modification in report number IG-99-009, “Space Station Contingency Planning for

International Partners,” March 9, 1999.

27 The rough cost estimate applies to the European Space Agency. The cost to NASA is currently

unknown.
6

Finding B. Acquisition Planning and Implementation

NASA attempted to implement the USPM before completing required acquisition planning and

project documentation. Specifically, NASA selected the USPM design without analyzing

alternatives and did not establish a project plan, develop an adequate acquisition strategy, or

prepare a risk management plan. Further, NASA did not validate requirements before

beginning a preliminary design review of the USPM and did not synchronize the milestones for

the two elements of the USPM. For the USPS, NASA had analyzed alternatives (see

Appendix C), developed an acquisition strategy, and defined requirements but, similar to its

approach for the USPM, the Agency did not have an approved project plan or risk

management plan. Implementation was premature because the Agency attempted to meet an

ambitious schedule for delivering a Propulsion Module to the ISS by fiscal year 2002. As a

result, the Propulsion Module failed its preliminary design review, NASA spent $97 million and

19 months developing the USPM before realizing that the OPTS design was unacceptable, and

the schedule to deliver a Propulsion Module to the ISS slipped by 3 years to fiscal year 2005.

Similar results could have occurred with the USPS if the Project had not been cancelled.

Acquisition Guidance

NASA Procedures and Guidelines (NPG) 7120.5A, "NASA Program and Project

Management Processes and Requirements," April 3, 1998, requires that all NASA projects

establish a plan to provide assurance that a project is ready to proceed with the implementation

phase. NPG 7120.5A also requires a risk management plan. Risk management begins with an

initial risk identification and development of a risk management plan and continues throughout

the project. NPG 7120.5A further requires that risk management planning be included in the

project plan. In addition, the NPG requires that project implementation be executed in

accordance with the controlling documents (in particular, the project plan and the risk

management plan) developed during the formulation and approval phase.

NASA FAR Supplement 1807.1, "Acquisition Plans," requires that acquisition plans be

approved before soliciting proposals. The NASA FAR Supplement also requires that the

written acquisition plan address each topic listed in FAR 7.105. Some examples of those topics

are provided below:

FAR 7.105, "Contents of Written Acquisition Plans," requires the plan to identify those

milestones at which decisions should be made. The plan should address all the technical,

business management, and other significant considerations that will control the acquisition. The

plan should also include a summary of the technical and contractual history of the acquisition,

feasible acquisition alternatives, effect of prior acquisitions on those alternatives, and any related

in-house effort.

Acquisition Planning

The ISS Program Office and the Propulsion Module Project Office were aware that the Project

was being implemented prematurely. However, the importance that NASA placed on an
7

accelerated schedule precluded appropriate project formulation and planning before project

implementation.

The ISS Program Office started implementation of the USPM before establishing a Project

Office and assigning a Project Manager. Boeing submitted a proposal in August 1998. In

October 1998, the ISS Program Office manifested the Propulsion Module as Mission 10A.1.

Also in October, Boeing proposed an updated not-to-exceed cost estimate. Later that month,

the ISS Program Office assigned a Project Manager.

In December 1999, the ISS Program Office, Space Shuttle Program Office, and the Project

Office signed an "Agreement and Direction for Propulsion Module Roles and Responsibilities,"

which identified the responsibilities of each office. NASA had conducted a separate systems

requirements review (SRR) for the Propulsion Module and the OPTS and was beginning a

preliminary design review on the Propulsion Module before the Agency established roles and

responsibilities for the program offices and the Project Office.

Project Plan. The Project Office had not prepared a project plan prior to proceeding with

implementation of the USPM. NPG 7120.5A requires a documented project plan to provide

assurance that a project is ready to begin implementation of approved project requirements and

plans. The Project Office had a draft project plan. However, the Marshall Center Director,

ISS Program Manager, Space Shuttle Program Manager, and the Project Manager had not

approved or implemented the plan.

The Project Office was developing a project plan for the USPS. However, the plan was still in

draft form and had not been approved or implemented by the appropriate managers. The

project plan should discuss and document all elements required by NPG 7120.5A. Specifically,

the plan should include:

• A comprehensive definition of the project concept.

• Agreements, approaches, and plans for meeting the technical, budget, schedule, risk

management, commercialization, acquisition, and related project requirements and

performance objectives.

• Concepts, mission development strategies, acquisition strategies, implementation plans,

launch service agreements, and management plans.

Acquisition Strategy. NASA did not develop an adequate acquisition strategy or acquisition

plan prior to proceeding with the USPM Project. NPG 7120.5A requires that an acquisition

strategy be developed and managed for executing the project plan. The Project Office did not

have an approved project plan documenting the acquisition strategy or a documented

acquisition plan. NASA FAR Supplement 1807 requires the Agency to approve acquisition

plans prior to solicitations and to address each topic listed in FAR 7.105. To meet acquisition

objectives, FAR 7.105 requires that the plan identify those milestones at which decisions should

be made, address all significant considerations that will control the acquisition, and discuss

feasible acquisition alternatives and any other related in-house effort. Also, the acquisition plan
8

should discuss the impact of prior acquisitions on alternatives and indicate prospective sources

of supplies or services that can meet the need.

NASA did have better planning for the USPS. The Project Office gave a presentation to the

ISS Program on a procurement approach for the USPS. The approach was to issue a limited

statement of work to Boeing for engineering activities associated with a requirements review, to

identify new long-lead items,28 prepare a make-or-buy plan,29 and prepare a proposal for the

USPS. The Project Office planned to review Boeing's make-or-buy plan for adequacy and

approve the plan prior to contract award. Also, the Project Office would have determined the

acceptability of Boeing's selection of subcontractors and the process for key subsystems. The

ISS Program Manager approved the procurement approach in September 2000. Although the

Agency showed improvements in the procurement approach and planned activities, it should

have had an approved acquisition plan that documented the strategy and that was incorporated

into the project plan.

Risk Management Plan. NASA did not have an approved risk management plan prior to

initiating the USPM Project. The risk management plan was approved in April 2000, long after

the Project had been initiated. The risk management plan identified all required elements, but it

did not describe the Project methodology the Agency would use to determine when the Project

would no longer be viable.

NPG 7120.5A requires that the risk management plan be developed during project formulation

and be included in the project plan. The Deputy Project Manager stated that the plan was in

process and should be completed before the USPS was fully implemented and a contract

awarded. However, the plan should be approved and implemented before NASA gives

authority to proceed and before it awards a contract to assure that risks are managed and

controlled by both the Agency and the contractor.

A NASA Independent Assessment Team also identified some of the same conditions regarding

acquisition planning for the USPM. The team found that critical project management processes

were not in place. Specifically, the assessment noted that the project plan was still a draft and

that the risk management process was not well

developed. The report recommended that NASA delay the delta preliminary design review

until the design was ready and the Agency had a signed project plan and mature risk

management process in place.30

 

28 Long-lead items are materials that will need to be ordered promptly in order to stay on schedule.

29 A make-or-buy plan supports the determination on whether an item will be made in-house or purchased

from another source.

30 The Independent Assessment team presented its results to the Office of Space Flight on March 13, 2000.

The Office decided not to request approval from the Program Management Council to implement the Project

until the major problems were solved. Consequently, the Independent Assessment team did not present the

report to the Council. Therefore, NASA considered the results preliminary.
9

Requirements Validation

The Project Office's "United States Propulsion Module Systems Requirements Review Plan,"

March 3, 1999, requires that NASA resolve discrepancies (known as review item

discrepancies) found during the SRR before conducting a preliminary design review. The

purpose of the SRR was to establish that the Propulsion Module development, test, and

integration processes and documentation were consistent with and responsive to requirements

of the ISS Program and the Space Shuttle Program. Also, the SRR's objective was to baseline

a complete set of requirements for the Project as a prerequisite for a preliminary design review.

The purpose of the preliminary design review was to confirm that the initial design satisfied the

baseline requirements of the Propulsion Module. In December 1999, NASA began the

preliminary design review for the Propulsion Module of the USPM although there were 26 open

discrepancies from the SRR, which had been held in March and April 1999. To resolve the

open discrepancies, the preliminary design review plan stated that all open SRR discrepancies

would be converted to preliminary design review discrepancies. By converting the

discrepancies, the Project Office bypassed a major control -- the requirement in the SRR plan

to resolve discrepancies and validate requirements before starting the preliminary design review.

Also, because the SRR discrepancies were not resolved, the baseline requirements were not

fully known. As a result, the unresolved discrepancies contributed to the failed preliminary

design review for the Propulsion Module in December 1999.

The Project Office and the ISS Program Office had defined requirements for the USPS. As

part of the limited statement of work, Boeing and the Project Office defined requirements in

order to include them as part of the request for proposal. Although the Project Office had not

prepared the SRR plan for the USPS, the plan should have contained the same objectives and

requirements as for the USPM. Also, the Project Office should have ensured that all SRR

required elements were completed and approved before starting a preliminary design review.

The Independent Assessment Report also found that the USPM was not ready for a preliminary

design review because firm requirements were not in place. The team recommended that

NASA delay the delta preliminary design review until all requirement issues were resolved and a

stable baseline could be developed.

The Space Shuttle Program Office prepared a "lessons learned" report on the cancellation of the

OPTS. The report states that NASA allowed Boeing to baseline a cost and design solution

before NASA defined requirements and developed a conceptual design based on requirements.

Milestone Synchronization

The ISS Program Office did not synchronize the SRR and preliminary design review milestones

for the Propulsion Module and the OPTS. The Project Office held an SRR during March and

April 1999 for the Propulsion Module. The Space Shuttle Program Office held an SRR for the

OPTS in June 1999. The Propulsion Module preliminary design review failed in
10

December 1999, and a delta preliminary design review was held in April 2000. There was no

preliminary design review for the OPTS because the ISS Program Manger cancelled the OPTS

before it was ready for a preliminary design review.

The Project Office attempted to conduct the preliminary design review and then the delta

preliminary design review for the Propulsion Module before the OPTS was ready for its

preliminary design review. One of the main reasons the Propulsion Module could not resolve

the discrepancies identified in the SRR was because the requirements definition and validation

for the OPTS lagged behind the Propulsion Module. Specifically, the Space Shuttle Program

Office held the SRR for the OPTS 3 months after the Propulsion Module SRR, and the OPTS

never did catch up.

NASA did not know that the need for safer and more robust lines and valves for the OPTS

modifications in the Orbiters would add unacceptable weight to each Orbiter until after the

preliminary design review for the Propulsion Module. In effect, the modifications caused the

cost of the Propulsion Module to increase significantly and the weight of the Orbiter to increase

beyond the ISS Program's acceptable limit. The Project Office and Space Shuttle Program

Office should have waited and had only one SRR and one preliminary design review for both

elements together.

The Independent Assessment Report stated that, since the preliminary design review for the

OPTS was scheduled after the Propulsion Module delta preliminary design review, late OPTS

development could have affected the Project's ability to meet Propulsion Module requirements.

The report recommended that NASA perform an integrated preliminary design review of the

Propulsion Module and OPTS after requirements and the preliminary design were finalized.

The Agency never acted on the recommendation because 2 months later, it cancelled the

OPTS.

The "lessons learned" report by the Space Shuttle Program Office also noted that milestones for

the OPTS and Propulsion Module were not synchronized. The report states that the Boeing

Propulsion Module team was more focused on developing the Propulsion Module rather than

integrating it with the OPTS. The report characterized the team as having "a compartmentalized

perspective" and "resistance to developing an integrated verification/validation plan."

Although the USPS did not involve a major program other than the ISS Program, integration

and software for the USPS were under the ISS Program, while the development of the Node 4

and the Propulsion Module was under the Project Office. Therefore, the milestones should

have been integrated and synchronized to assure that the all efforts were well coordinated.

Recommendations, Management's Response, and Evaluation of

Response
11

The Acting Director, Johnson Space Center, should, for future ISS projects:

1. Establish an approved project plan, acquisition plan, and risk management plan,

as required by NPG 7120.5A and NASA FAR Supplement 1807.

Management's Response. Concur. Management stated that it would manage all ISS

Projects consistent with NPG 7120.5A. Management also provided general comments in

which it disagreed with our finding that the USPM design was selected without fully considering

alternatives and without developing an adequate acquisition strategy. The complete text of

management's response is in Appendix E.

Evaluation of Response. Management's comments are responsive to the recommendation.

With regard to management's disagreement with the finding, in our opinion, there is a clear

relationship between deficiencies in project planning and the ultimate cancellation of the USPM.

The Agency's commitment to manage all ISS Projects consistent with NPG 7120.5A is

sufficient to close the recommendation for reporting purposes. Our additional comments in

response to management's position on the finding are in Appendix F.

2. Resolve all discrepancies from a systems requirements review before

beginning a preliminary design review.

Management's Response. Partially concur. Resolving all SRR discrepancies prior to the

preliminary design review is the Agency's goal for all projects. Processes are in place that fully

support the guidance in NPG 7120.5A, and project management reviews the process to

balance cost and schedule commitments against technical demands. In general comments on the

report, NASA disagreed that it should have closed all discrepancies from the SRR before

beginning a preliminary design review for the Propulsion Module Project (see Appendix E).

Evaluation of Response. Management's comments are generally responsive to the

recommendation. Although we maintain that NASA should have closed all discrepancies from

the SRR before beginning a preliminary design review for the USPM, we acknowledge that the

Project Office and the ISS Program Office ultimately defined requirements for the USPS before

the Project was cancelled (see Appendix F). Therefore, we consider management's action

taken on the USPS and comments regarding future projects sufficient to close the

recommendation for reporting purposes.

3. Establish synchronized milestones for all related program and project elements.

Management's Response. Partially concur. The ISS Program has formal controls for

defining, approving, and controlling the interfaces between elements of a project. Any joint

development, integration, or test activities that need to be performed for major milestone

reviews will be identified and included in the integrated project schedules. However, because

the recommendation provides the lowest risk posture for a project, the ISS Program would be

unexecutable with a strict application of the recommendation (see Appendix E).
12

Evaluation of Response. NASA's comments are generally responsive to the

recommendation. Although we maintain that synchronized milestones would have benefited the

Propulsion Module Project, we recognize that sometimes more risk must be assumed to achieve

program results when needed. We consider management's comments regarding future projects

sufficient to close the recommendation for reporting purposes.
13

Finding C. Contractor Selection and Justification

NASA did not determine whether a sole-source procurement selection was the appropriate

approach for the acquisition of a propulsion capability for the ISS. Further, the Agency did not

properly document its justification for the sole-source selection of Boeing as the contractor for

the Propulsion Module Project. These conditions occurred because NASA considered the

propulsion capability to be within the general scope of the ISS prime contract and, therefore,

not subject to requirements in the FAR for competitive procurements. However, the propulsion

capability represented new work (that is, work that was not within the scope of the contract) for

which NASA agreed to pay Boeing additional fee. Consequently, NASA cannot assure the

Congress or the public that the sole-source contract was in the best interest of the Government.

FAR Criteria for Competition

FAR 6.101(b), “Full and Open Competition,” requires that contracting officers provide for full

and open competition through use of competitive procedures that are best suited to the

circumstances of the contract action and consistent with the need to fulfill the Government’s

requirements efficiently.

FAR 6.302-7, “Public Interest,” states that full and open competition need not be provided for

when the agency head determines that it is not in the public interest in the particular acquisition

concerned. This authority may be used only when none of the other authorities for an award

without full and open competition apply.

FAR 6.303, “Justification,” states that in awarding a sole-source contract, the contracting

officer must prepare a written justification and have the justification approved by an agency

official designated by the statute. FAR 6.303-2 sets forth the content that each justification

must include (see Appendix D).

Doctrine of "Cardinal Change"

The Federal Court of Claims has enunciated a doctrine known as the “cardinal change” rule in

which a change in work beyond the contemplation of the parties at the time the contract was

negotiated constitutes a change in scope.31 Further, a material increase in the amount or

character of work requirements redefines the scope of the original contract so that the additional

work is outside the scope of the contract. Such material alteration to a contractual

understanding is a cardinal change and, when such a change occurs, rigid provisions of a

contract are waived to allow recovery of additional costs and fee. Although an increase in work

may result in a material change to a contract, the work may be considered within the scope of

the original contract if the changes do not result in increased costs and concomitant increased

fee to the contractor.

Scope of the ISS Prime Contract

 

31 For a discussion of the evolution of the cardinal change doctrine, see Public Contract Law Journal Volume

24, Number 3, Spring 1995, page 77, “The Cardinal Change Doctrine and its Application to Government

Construction Contracts,” George E. Powell, Jr.
14

In August 1993, following Presidential and congressional directives to redesign the ISS, NASA

determined that it was in the public interest to use other than full and open competition to make

Boeing the single prime contractor for the ISS. NASA assigned Boeing the responsibility to

manage and integrate all aspects of the Program. NASA also granted Boeing the authority to

novate32 existing prime contracts as subcontracts.

The broad scope of work in the ISS contract included the design, development, and

construction of a Propulsion Module, but the prime contract awarded to Boeing did not include

work on the Propulsion Module and, in fact, such work was tasked to Russia. Therefore,

NASA's subsequent decision to develop a Propulsion Module constituted new work.

ISS Program officials explained that because the propulsion capability is an inherent part of the

ISS vehicle and Boeing is the single ISS prime contractor for the U.S. portion of the vehicle, the

addition of a U.S. propulsion module was within the general scope of the contract awarded to

Boeing. When Boeing submitted a proposal to integrate the Propulsion Module into the ISS,

NASA accepted the proposal without pursuing a full and open competitive award and modified

Boeing’s original contract through change orders on a “not-to-exceed” cost basis that included

fee.

However, the inherent part of the ISS vehicle did not include two propulsion capabilities. The

one propulsion capability included in the ISS vehicle was assigned to Russia and was not

included in the Boeing prime contract. Therefore, the change to add a second propulsion

capability was, in fact, a cardinal change and should have been considered a new procurement

that should have been competed or justified for sole-source contracting in accordance with the

requirements of the FAR.

Explanation by Office of Space Flight

In November 2000, the General Accounting Office (GAO) asked NASA to explain why it

decided to procure the Propulsion Module under the existing prime contract.33 In response, the

Associate Administrator for Space Flight explained that contract modifications are within the

scope and under the terms of the Boeing contract and are allowable according to the FAR.

Specifically, Clause I.12, of the ISS Prime Contract, “Changes-Cost Reimbursement,” allows

the ISS Contracting Officer to make changes within the general scope of the contract in any

drawings, designs, or specifications. The Associate Administrator added that Boeing is

responsible for:

• managing and integrating the ISS, in addition to coordinating the design and

development of all necessary hardware;

 

32 A contract is novated by an agreement in which the transferor guarantees performance of the contract, the

transferee assumes all obligations under the contract, and the Government recognized the transfer of the

contract and related assets.

33 In June 2000, the Congress tasked the GAO to review the Propulsion Module Project.
15

• designing, developing, manufacturing, integrating, testing, verifying, and delivering the

on-orbit segment of the ISS to provide support for orbital operations; and

• ensuring total ISS system performance.

However, the Associate Administrator also acknowledged that because the Russian

contribution to the ISS included the Service Module, the obligation for a propulsion module was

not included in the ISS contract.

Proper Justification Was Needed

As discussed earlier, the ISS vehicle did not include two propulsion capabilities, and the ISS

prime contract did not include a Propulsion Module. The Propulsion Module modification

materially alters the express terms of the original contract between NASA and Boeing and

represents a requirement that is outside the scope of the original contractual agreement of the

parties. Therefore, NASA should have considered full and open competition for the acquisition.

The broad exemption in the public interest for the original award of the contract to Boeing does

not extend to work that was not originally part of the contract. Accordingly, a sole-source

procedure would have been appropriate only upon obtaining written justification and approval,

as required by the FAR.

Although we disagree that the Agency's 1993 determination allowed for less than full and open

competition to procure the Propulsion Module, we acknowledge that NASA has the authority

to justify the noncompetitive selection of Boeing. However, NASA should have justified the

selection in the manner prescribed in the FAR, which requires that the justification meet the

criteria for a sole-source contract and be written and approved.

Recommendation, Management's Response, and Evaluation of

Response

4. The Acting Director, Johnson Space Center, should, before initiating future

sole-source procurements for the ISS contract, obtain an approved justification

as prescribed in the FAR.

Management's Response. Concur with the intent of the recommendation. NASA stated

that it follows the FAR and NASA FAR Supplement for all new procurements. However,

NASA did not need to justify the sole-source procurement of the Propulsion Module because it

was within the general scope of the ISS Contract (see Appendix E).

Evaluation of Response. NASA's comments are responsive to the recommendation to the

extent that the Agency indicated an intent to follow FAR and Agency guidance on all

procurements. However, we maintain that the procurement was not within the general scope of

the contract (see Appendix F).
16

Although NASA contends that the Propulsion Module was not outside the scope of work,

NASA recognizes that all procurements must follow the appropriate FAR and Agency

regulations. We, therefore, consider management's response sufficient to close the

recommendation for reporting purposes. However, we will continue to monitor noncompetitive

procurements on the ISS contract and the related issue on scope of work.
17

Appendix A. Objectives, Scope, and Methodology

Objectives

The overall objective of the audit was to determine whether NASA developed a cost-effective

acquisition strategy for long-term propulsion capability for the International Space Station (ISS).

Specifically, we determined whether NASA:

• identified and adopted the most feasible means for providing long-term propulsion

capability for the ISS, and

• developed an acquisition strategy to limit the cost of the propulsion modules.

Scope and Methodology

To accomplish our objectives, we obtained an overall understanding of the Propulsion Module

Project. We also reviewed and analyzed the Propulsion Module draft project plan, risk

management plan, system requirements review plan, independent cost estimates, Independent

Assessment Team briefing, budget submissions for Program Operating Plan 1999 and 2000,

trade study briefing, Alternative Propulsion Module Assessment Team (APMAT) Report, and

the International Space Station Schedule II.

Our audit included three visits to Marshall Space Flight Center. In addition, we interviewed

personnel at Lyndon B. Johnson Space Center (the ISS Program Office and the Space Shuttle

Program Office). We also interviewed personnel at Boeing, International Space Station in

Houston, Texas, and at Boeing, Reusable Space Systems, Huntington Beach, California.

We identified and reviewed the following relevant Federal and NASA regulations on program

management and procurement execution:

• NASA Policy Directive (NPD) 7120.4B, "Program and Project Management,"

December 1999

• NPG 7120.5A, "NASA Program and Project Management Processes and

Requirements," April 1998

• NASA FAR Supplement 1807.1, "Acquisition Plans," August 1997

• Office of Management and Budget (OMB) Circular A-109, "Major System

Acquisitions," April 1976

• FAR, Parts 6 and 7 (see Appendix D for complete listing)

Management Controls Reviewed

For this report, we reviewed the following management controls relative to NASA oversight of

the project management process function:
Appendix A

18

• NPD 7120.4B, "Program and Project Management," December 1999

• NPG 7120.5A, "NASA Program and Project Management Processes and

Requirements," April 1998

• NASA FAR Supplement 1807.1, "Acquisition Plans," August 1997

• OMB Circular A-109, "Major System Acquisitions," April 1976

We determined that implementation of management controls for acquisition planning (Finding B)

and noncompetitive procurements (Finding C) need to be strengthened.

Audit Field Work

We performed the audit field work from May 2000 through February 2001 at Johnson and

Marshall. We performed the audit in accordance with generally accepted government auditing

standards.

Prior Audit Coverage

GAO recently issued an audit report on the procurement process for the Propulsion module.

Also, the NASA Office of Inspector General and the GAO has each issued an audit report that

discusses ISS propulsion capability and contingency planning. 

IG-99-009, “Space Station Contingency Planning for International Partners,” March 9,

1999. The report states that NASA had not developed an integrated and comprehensive plan

to address risks to the assembly of the ISS caused by the possible delay or default by

international partners. The report also states that it would cost about $90 million to modify all

four Space Shuttle Orbiters to support ISS reboost missions if there were temporary shortfalls

in Progress vehicles. Without the modification, the reboost capability would be useful only

through flight 12A when the weight of the ISS would become too heavy. See

www.hq.nasa.gov/office/oig/hq/issueaudits.html for a copy of the report.

GAO-01-576R, "International Space Station Propulsion Module Procurement

Process,” April 26, 2001. The report states that the original 1984 U.S. design for a space

station included a propulsion module. In 1993, Russia joined the newly created ISS Program

and agreed to provide the propulsion capability. Because of concerns about Russian delays,

NASA later initiated a U.S.-funded propulsion module effort in December 1998. NASA did

not consider a competitive procurement for the Propulsion Module. Instead, the Agency

modified the existing ISS contract with Boeing. GAO concluded that the modification of

Boeing's contract was appropriate because the changes clause of the contract allowed NASA

to modify the contract provided the change was within the scope of the contract. Additionally,

the report states that NASA reasonably concluded that the Propulsion Module was within the

scope of Boeing's contract.
Appendix A

19

GAO/NSIAD-99-175, "Space Station: Russian Commitment and Cost Control

Problems,” August 17, 1999. The report states that the United States was capable of

providing permanent reboost to the ISS. The estimated cost would be $730 million, with the

Propulsion Module being the most expensive item. The report also states that NASA did not

develop cost estimates. NASA initially relied on a contractor quote to estimate the cost but

subsequently refined its requirement for a Propulsion Module, resulting in a much higher cost

estimate. The report notes that NASA had raised questions about Russia's ability to support

the ISS during and after assembly. NASA prepared a contingency plan in case the Service

Module experienced further delays and the Russians do not provide Progress vehicles for

reboosting the ISS.
20

Appendix B. Chronology of Events for the Propulsion Module

Date Event

Summer 1998 NASA undertakes initial efforts in the ISS Contingency Plan to provide for a U.S.

capability to mitigate the impact of further Russian delays caused by the uncertain fiscal

situation of the Russian government.

8/28/98 At NASA’s request, Boeing submits a technical proposal (which does not include

a cost estimate) to build two Propulsion Modules.

10/6/98 Boeing submits an updated proposal to build one Propulsion Module for $331 million.

10/14/98 ISS Program Office selects a Project Manager at Marshall Space Flight Center.

11/20/98 Russia launches the Functional Energy Block (FGB) as the first element

of the ISS.

12/23/98 Johnson Procurement Office issues a Long-Lead Hardware and System Definition

Change Request to the Boeing Contract. The rough cost of this change is $9.1 million.

1/29/99 NASA begins a review of Propulsion Module requirements. The Technical

Coordination Meeting includes the ISS Program Office, Propulsion Module

Project Office, and Boeing.

2/17/99 Associate Administrator for Space Flight orally approves funding of $479 million for the

Propulsion Module Project through preliminary design review.

3/99 Project Office develops a parametric cost estimate of $343 million for the United States

Propulsion Module (USPM).

3/99-4/99 Project Office conducts a systems requirements review (SRR) for the Propulsion

Module element of the USPM.

5/99 Project Office develops a parametric cost estimate of $362 million for the USPM.

6/99 Space Shuttle Program Office conducts an SRR for the Obiter Propellant Transfer

System (OPTS).
Appendix B

21

Date Event

10/18/99 ISS Program Operating Plan includes $479 million for a Propulsion Module.

11/5/99 Associate Administrator for Space Flight issues a Project formulation letter.

12/9/99 Propulsion Module (USPM) fails its preliminary design review.

3/20/00 ISS Program Office transfers the Design, Development, Test and Evaluation

(Schedule II of ISS Prime Contract) to the Project Office. Also, the ISS

Program Office issues a contract modification to establish Schedule II.

4/24/00

5/9/00

Budget Review Teams from the Project Office and the Johnson ISS Program

Office perform a review of Boeing’s cost growth of $479 million to $744 million

for the USPM.

Project Office begins the delta preliminary design review for the Propulsion

Module element of the USPM.

5/22/00 ISS Program Manager cancels the OPTS because of cost and weight growth

and safety concerns.

5/30/00 Project Office initiates a review of alternatives (called "trade studies") for the

Propulsion Module.

6/15/00 Project Office issues a request for information worldwide for an opportunity to

build a Propulsion Module for the ISS.

7/7/00 Alternative Propulsion Module Assessment Team briefs its results and

recommendations to the ISS Program Office.

7/14/00 Project Office asks Boeing to reassess and recommend solutions for identified

risks.

7/25/00 Service Module (“Zvezda”) successfully docks with the ISS.

7/27/00 Contracting Officer at Marshall issues a redirection of effort letter to Boeing that

all design, development, test and evaluation effort, exclusive of long-lead

procurement activities, contract closeout, and settlement activities are not

authorized after July 31, 2000.
Appendix B

22

Date Event

7/31/00 NASA directs Boeing to stop work on the USPM.

8/4/00 Space Shuttle Program Office issues “lessons learned” report on OPTS.

8/8/00 Progress vehicle successfully refuels Service Module for the first time.

9/00 Project Office develops a parametric cost estimate of $675 million for the

USPS.

9/7/00 ISS Program Office briefs its options assessment to the Office of Space Flight.

9/27/00 NASA selects the Node X design for the USPS.

10/9/00 Project Office issues to Boeing a request for a not-to-exceed proposal with a

limited statement of work.

10/31/00 Boeing submits a proposal for the limited statement of work.

10/31/00 ISS Program Manager decides to store the Interim Control Module because of

decreased risk of loss of Russian propulsion capability.

11/18/00 Progress vehicle delivers supplies and spare parts to ISS.

1/10/01 Project Office issues a request for proposal to Boeing, based on Boeing’s

decision to make Node 4 and buy the Propulsion Module for the USPS.

Boeing's proposal is due on April 30, 2001.

2/10/01 Orbiter Atlantis delivers U.S. Laboratory (“Destiny”) to the ISS. Destiny will

serve as the center for U.S. scientific experiments and will assume command and

control of the ISS from the Russians.

2/28/01 A blueprint of the President's Budget for fiscal year 2002 indicates that funding

will be redirected from high-risk elements like the Propulsion Module to help

offset ISS cost growth.

3/2/01 ISS Program Manager cancels the USPS because of budget concerns.
23

Appendix C. Analysis of Alternatives for the Propulsion Module

NASA performed an analysis of alternatives for the USPS before selecting that design.

However, NASA did not evaluate alternatives for its selection of the USPM because it viewed

the concept of using existing Space Shuttle hardware and unused reserve fuel from Orbiters as

the best solution.

Guidance on Alternative Evaluations

NPG 7120.5A, "NASA Program and Project Management Processes and Requirements,"

April 3, 1998, requires that systems analysis be accomplished by performing trade studies (a

review of alternatives) among candidate project concepts that consider affordability, technology,

content, risk, and potential acquisition strategies.

OMB Circular No. A-109, "Major System Acquisitions," April 5, 1976, was designed to

assure the effectiveness and efficiency of acquiring major systems. The Circular requires

Federal agencies to place emphasis on the initial activities of the system acquisition process to

allow competitive exploration of alternative system design concepts in response to mission

needs. One objective of the Circular is that each agency should depend on, whenever

economically beneficial, competition between similar or different system design concepts

throughout the entire acquisition process.

USPM Concept and Selection

Boeing presented the USPM concept to NASA in March 1997, stating that the USPM could

make use of existing hardware and technology and off-the-shelf engines and be refueled using

excess fuel carried by the Orbiters. The design concept was based on the premise that it was a

cost-effective solution for the Propulsion Module with proven components and operations.

Boeing identified existing Space Shuttle hardware, such as certified components available at the

White Sands Test Facility, that was a Space Shuttle test article. Also, Boeing planned to use

existing logistics spares and off-the-shelf engines. Another concept was that the Orbiter carries

extra fuel on each flight for contingency purposes and could transfer the extra fuel during each

mission to the ISS. Boeing's package also indicated that an Orbiter could return the Propulsion

Module if it needed repair or maintenance. In response to Boeing's presentation package, in

February 1999, the Associate Administrator for Space Flight authorized the Director, Johnson

Space Center, to proceed with the formulation and limited implementation of the USPM.34

USPM Alternatives

Since 1996, the Agency considered various other alternatives for propulsion capabilities but

usually in the form of a presentation by a contractor and usually without a documented analysis

or decision. The only documented analysis was the Mission Integration Office's May 1999

comparison between the Functional Energy Block-2 (FGB-2) and the USPM. The alternatives

 

34 The Associate Administrator for Space Flight documented the direction in a November 1999 memorandum.
Appendix C

24

may not have provided a long-term propulsion capability (see Finding A). Some alternatives

that contractors briefed to NASA officials included the following:

FGB-2. Russia built the FGB-2 as a backup to the FGB that was delivered in

November 1998 as the first element of the ISS.35 Both vehicles are self-sufficient orbital

transfer vehicles that contain propulsion; guidance, navigation, and control;

communications; electrical power; thermal control systems; and stowage capacity.

NASA performed an assessment of modifying the FGB-2 and using it instead of a

U.S.-built Propulsion Module. NASA also evaluated options to add an Orbiterrefueling capability. In May 1999, the Mission Integration Office provided the

assessment and estimated the FGB-2 could be ready to launch in about 12 to

18 months. The USPM was selected over the FGB-2 because the latter design

required full Russian participation and did not remove the ISS from critical long-term

dependency on Russia. In summer 2000, Boeing purchased the FGB-2 to serve as a

commercial space station in partnership with Khrunichev.

Space Shuttle Options for Service Module Delay. A NASA team performed a

study to determine a way to utilize the Orbiter to provide Service Module functions for

up to 1 year. The Agency included the results in a Special Team Report dated

September 13, 1996. The report recommended that NASA seek alternative sources.

USPS Selection and Alternative Evaluations

After the cancellation of the USPM, NASA performed extensive alternative evaluations before

selecting the USPS. The objective of the Alternative Propulsion Module Assessment Team

(APMAT) was to assess the Propulsion Module design concepts and the potential capability to

meet the ISS Program's requirements. The APMAT evaluated five options for a new

propulsion system using weighted assessments of 33 criteria within 3 categories. The categories

were programmatic; design, development, test, and evaluation; and integration. The team

provided its results to the ISS Program Office in July 2000.

Based on the results, the ISS Program Office tasked Boeing to perform an additional detailed

integration assessment on the two top-rated options. Boeing established an Integration

Evaluation Team for the assessment with close coordination from the ISS Program Office,

Johnson Space Center Directorates, and the Propulsion Module Project Office.

 

35 Although Russia built the FGB, the United States funded it through the ISS prime contract. Boeing

subcontracted the work to the Russian firm Khrunichev.
Appendix C

25

The integration assessment evaluated integration risks and uncertainties behind the APMAT

recommendation. After the assessment results, the Project Office reassessed the options using

the APMAT criteria and evaluation methodology. The five evaluated options were the following

monopropellant concepts:

Node X Option. NASA selected this option and later renamed it the USPS. The

design concept uses the Node 4 installed on the forward end of the ISS. Node 4

would include a radial (side) port to install the Propulsion Module and an Orbiter

docking port.

Z-1 Truss Option. The Propulsion Module would have attached to a platform

mounted behind the Z-1 segment of the ISS.36 This option was APMAT's top-rated

choice. However, after the detailed integration assessment performed by the Integrated

Evaluation Team and reassessment based on the APMAT criteria and evaluation

method, NASA chose the Node X option.

Split Element Option. This option was similar to the Node X option in that both

options contained two elements, one of which was the same Propulsion Module.

However, the split element option did not use the Node 4 but instead required the

construction of a separate element with a tunnel for access to and from the ISS. Also,

using this option, the module would have been docked with a forward docking port.

Modified Baseline Option 2. This option included the Propulsion Module from the

USPM but excluded the OPTS. The baseline option would have been modified to use

monopropellant and have one set of fuel tanks. The OPTS was a bi-propellant system.

Modified Baseline Option 2A. This option is the same as the Modified Baseline

Option 2 except that it has a removable modular unit and an additional set of permanent

tanks.

 

36 The Z-1 Truss is an early exterior framework that allows first U.S. solar arrays to be temporarily installed

on U.S. Node 1 ("Unity") for early power.
26

Appendix D. Criteria for Project Management

and Sole-Source Procurement

OMB Circular A-109, "Major System Acquisitions," April 5, 1976, sets forth policies that

apply to the acquisition of major systems by an agency of the Federal Government. The

Circular applies to management of the acquisition of major systems including engineering,

development, and testing and evaluation to achieve program objectives. The Circular directs

agencies to determine mission needs through an analysis of mission requirements and a

comparison of alternative system design concepts. Additionally, each agency should depend

on, whenever economically beneficial, competition between similar or differing system design

concepts throughout the entire acquisition process.

NPG 7120.5A, "NASA Program and Project Management Processes and

Requirements," April 3, 1998, requires a documented project plan that includes a

comprehensive definition of the project concept and agreements, approaches, and plans for

meeting the technical, budget, schedule, risk management, commercialization, acquisition, and

related project requirements and performance objectives. All NASA projects shall implement

the formulation process to provide assurance that the project is ready to proceed into

implementation. Project implementation initiates the approved project requirements and plans.

The requirements and plans include risk management. Risk management begins with an initial

risk identification and development of a risk management plan and continues throughout the

project. Risk management planning shall be developed and included in the project plan.

Project implementation shall be executed in accordance with the controlling documents

developed during the formulation and approval subprocesses.

FAR 6.303, “Justification,” requires a contracting officer to provide written justification for

the award and certification of a sole-source contract and to secure approval for it before (1)

commencing negotiations for a sole-source contract, (2) commencing negotiations for a contract

resulting from an unsolicited proposal, or (3) awarding any other contract without providing for

full and open competition. FAR 6.303-2 sets forth the content that each justification must

include:

• A document that identifies the agency and contracting activity and identifies itself as

a “Justification for other than full and open competition.”

• Nature and description of the action being approved.

• Description of the services or supplies.

• An identification of the statutory authority permitting other than full and open

competition.

• A demonstration that the proposed contractor’s unique qualifications or the nature

of the acquisition requires the authorization.
Appendix D

27

• A description of efforts made to ensure that offers are solicited from potential

sources as is practicable.

• A determination that the anticipated cost to the Government will be fair and

reasonable.

• A description of the market research and result or a statement of the reason such

research was not conducted.

• Any other facts supporting the use of other than full and open competition.

• A list of sources that expressed an interest in the acquisition.

• A statement of the actions the agency may take to overcome barriers to

competition.

• Contracting officer certification that the justification is accurate and complete.

FAR 7.105, "Contents of Written Acquisition Plans," requires the acquisition plan to

identify those milestones at which decisions should be made. The plan shall address all the

technical, business management, and other significant considerations that will control the

acquisition. Included in the plan will be a summarization of the technical and contractual history

of the acquisition, feasible acquisition alternatives, impact of prior acquisitions on those

alternatives, and any related in-house effort. The plan will discuss technical, cost, and schedule

risks and describe the efforts planned or under way to reduce risk and the consequences of

failure to achieve goals. If concurrency of development and production is planned, the plan will

discuss its effects on cost and schedule risks.
28

Appendix E. Management's Response
Appendix E

29
Appendix E

30

See Appendix F,

OIG Comment 1
Appendix E

31

See Appendix F,

OIG Comment 2
Appendix E

32

See Appendix F,

OIG Comment 3

See Appendix F,

OIG Comment 4
Appendix E

33
Appendix E

34

See Appendix F,

OIG Comment 5
35

Appendix F. OIG Comments on Management's Response

The Johnson Space Center (Johnson) provided the following comments in its response to our

draft report. Our responses to the comments are also presented.

Management Comments. Johnson stated that the projected costs were increasing but had

not doubled as stated in the report. Johnson indicated that the original budget was $542 million

and at the time of suspension of the project, the estimated acquisition costs were from $700 to

$740 million.

1. OIG Comments. Our report states (in Finding A) that the acquisition costs more than

doubled in relation to the contractor's proposed estimate, not in relation to the budget. Boeing

proposed $331 million in October 1998. In April 2000, Boeing increased its estimate to $744

million. The report also states that the increase was affected by changes in requirements and

schedule delays.

Management Comments. Johnson stated that the report provided alternatives that are neither

cost-effective nor credible. Also, NASA is not free to purchase Progress vehicles as stated

because of the Iran Nonproliferation Act of 2000. The only exception to the Act is for crew

safety.

2. OIG Comments. Our intent is to show some possible alternatives to the Propulsion

Module. Because we realize that some alternatives may not be as cost-effective as others, we

attempted to outline the pros and cons of each one without endorsing any of them. For

example, the report states that the Interim Control Module could be a short-term solution for a

delay or shortage of Progress vehicles. Additionally, we reported that the ISS Program

Manager stated that the FGB-2 would not be a good deal for NASA. We also agree that the

Iran Nonproliferation Act restricts NASA's purchase of Progress vehicles. However, there is

an exception to the Act that allows NASA to make payments for the maintenance of the

Service Module, which would otherwise be prohibited.37 Therefore, a NASA purchase of

Progress vehicles is possible.

Management Comments. Johnson disagreed that alternatives were not considered and that

an adequate acquisition strategy was not developed on the USPM.

3. OIG Comments. Our report acknowledges that NASA considered alternatives for the

USPM. Specifically, we state in Appendix C that the Agency considered various alternatives

for propulsion capabilities. However, consideration of the alternatives was usually limited to

concept briefings by contractors without formal comparison to other

 

37 The Act defines maintenance as "activities, which cannot be performed by NASA, and which must be

performed in order for the Service Module to provide orbital maintenance functions, which cannot be

performed by an alternative means at time of payment."
Appendix F

36

alternatives and without a record of an Agency decision on the concepts. In contrast, for the

USPS, NASA performed thorough comparative analyses of alternatives and made a selection

based on the analyses.

We agree that NASA had an acquisition strategy but maintain that the strategy for the USPM

did not comply with the Federal Acquisition Regulation (FAR) regarding justification for a

noncompetitive procurement (see Finding C). However, our report acknowledges that NASA

showed better planning for the USPS through its planned review of Boeing's make-or-buy plan

for adequacy and approval prior to contract award. Also, the Project Office planned to

determine the acceptability of Boeing's selection of subcontractors and the process for key

subsystems.

Management Comments. Johnson responded that there is no process that guarantees that all

project objectives will be met. Deferring the preliminary design review for the USPM until all

system requirements review issues were eliminated would have caused schedule delays and cost

growth. Additionally, management placed all open requirement issues under formal

configuration control. Requirement issues were under sufficient control, and project personnel

could respond to any impacts.

4. OIG Comments. We maintain that existing processes and controls were not effectively

used on the USPM. Requirement issues were not resolved, and firm requirements were not in

place prior to the preliminary design review. We also maintain that these factors contributed to

the design review failing, the schedule eroding, and the cost increasing. This conclusion is

consistent with those of NASA's independent assessment team.

Management Comments. Johnson stated that it did not need to justify the sole-source

procurement of the Propulsion Module because propulsion capability was within the general

scope of the ISS Contract. The Propulsion Module was properly added to the existing contract

through the change order process, which does not require compliance with FAR Part 6 and 7.

Also, the Propulsion Module should not be considered a "cardinal change" in context of the ISS

prime contract. Additionally, FAR Part 1807 was not applicable for the same reasons.

Because the Propulsion Module was within the general scope of the ISS Contract, the

Propulsion Module was properly procured through modification to the ISS contract and was

exempt from new procurement regulations. A recent GAO report supports this position (GAO01-576R, see Prior Audit Coverage in Appendix A of this report). Further, a complete

discussion between cardinal and ordinal changes would show that the Propulsion Module was

within the scope of the contract.

5. OIG Comments. We maintain that the procurement was not within the general scope of

the contract. The Propulsion Module was not included in the ISS contract or as hardware for

the U.S. on-orbit segment. The ISS prime contract calls for the design, development,

manufacture, integration, test, verification, and delivery of the U.S. on-orbit segment of the ISS.

Additionally, the prime contractor is responsible for managing, integrating, and coordinating the
Appendix F

37

design and development of all hardware as well as ensuring total ISS system performance. We

agree that the prime contractor's responsibility to integrate and coordinate the design and

development of the Propulsion Module was within the scope of the ISS contract. However, we

maintain that the actual development and manufacture of the hardware was outside the scope.

As our report states, the contract did not assign Boeing the responsibility to build every

component of the ISS, and the contract did not specifically address the Propulsion Module.

The ISS contract, as consolidated in 1993, did not assign Boeing the responsibility to design

and build parts of the ISS that were specifically tasked to Russia. Additionally, there are parts

of the ISS U.S. on-orbit segment that NASA did not specifically contract with Boeing.

NASA's statement that a complete discussion on cardinal and ordinal changes would clearly

show that the Project was within the scope of the ISS Contract is not supported. Johnson's

response acknowledges that a cardinal change would constitute a new procurement. As a new

procurement, FAR Part 6 and Part 7 as well as NASA FAR Supplement Part 1807 would be

applicable. As discussed in the report, a cardinal change constitutes a change that is of such

material alteration to the contractual understanding that the new work is considered outside the

scope of the contract and should be treated as a new procurement. Even though we have

provided justification to support our conclusion that the Propulsion Module Project should be

considered outside the scope of the contract and is, therefore, a new procurement, we can also

support the conclusion that even if the Propulsion Module was considered within the contract

scope, the procurement would still be a cardinal change, and the Agency would need to follow

the FAR for new procurements. NASA's actions in the treatment of the Propulsion Module

Project support the consideration that the change be considered a material alteration and,

therefore, a cardinal change. Based on NASA's definition of a project38 and the fact that

NASA implemented the Propulsion Module as a project, NASA is supporting our position that

the Propulsion Module change is indeed a material change to the original scope of work as

contemplated when the ISS contract was negotiated.

As NASA indicates, GAO's recent report on the procurement process for the Propulsion

Module supports the Agency's position that the Propulsion Module was within the scope of the

contract. Although we disagree with that position, our report does not conclude that a solesource procurement was inappropriate, but merely that NASA did not adequately document its

reasons for that method of contracting, even though justification for sole-source procurements is

required by the FAR.

As our report acknowledges, NASA has the authority to justify the noncompetitive selection of

Boeing. Additionally, based on the Associate Administrator for Space Flight's explanation and

NASA's response to our draft report, we believe that the Agency can sufficiently justify the

sole-source selection. However, the justification needs to be

 

38NASA Policy Directive 7120.4B, "Program and Project Management," December 1999, defines a project as

a significant activity within a program.
Appendix F

38

documented in the manner prescribed by the FAR. Therefore, we maintain that the Propulsion

Module procurement should have complied with the FAR requirements for new work and not

just for an ordinary change order. 
39

Appendix G. Report Distribution

National Aeronautics and Space Administration (NASA) Headquarters

A/Administrator

AA/Chief of Staff

AI/Associate Deputy Administrator

B/Acting Chief Financial Officer

B/Comptroller

BF/Director, Financial Management Division

G/General Counsel

H/Associate Administrator for Procurement

HK/Director, Contract Management Division

HS/Director, Program Operations Division

J/Associate Administrator for Management Systems

JM/Director, Management Assessment Division

L/Acting Associate Administrator for Legislative Affairs

M/Associate Administrator for Space Flight

NASA Centers

Acting Director, Lyndon B. Johnson Space Center

Director, John F. Kennedy Space Center

 Chief Counsel, John F. Kennedy Space Center

Director, George C. Marshall Space Flight Center

Non-NASA Federal Organizations and Individuals

Assistant to the President for Science and Technology Policy

Deputy Associate Director, Energy and Science Division, Office of Management and

 Budget

Branch Chief, Science and Space Programs Branch, Energy and Science Division, Office

 of Management and Budget

Director, Acquisition and Sourcing Management Team, General Accounting Office

Professional Staff Member, Senate Subcommittee on Science, Technology, and Space
Appendix G

40

Chairman and Ranking Minority Member – Congressional Committees and

Subcommittees

Senate Committee on Appropriations

Senate Subcommittee on VA, HUD, and Independent Agencies

Senate Committee on Commerce, Science, and Transportation

Senate Subcommittee on Science, Technology, and Space

Senate Committee on Governmental Affairs

House Committee on Appropriations

House Subcommittee on VA, HUD, and Independent Agencies

House Committee on Government Reform and Oversight

House Subcommittee on Government Efficiency, Financial Management, and

 Intergovernmental Relations

House Subcommittee on National Security, Veterans Affairs, and International Relations

House Subcommittee on Technology and Procurement Policy

House Committee on Science

House Subcommittee on Space and Aeronautics, Committee on Science

Congressional Member

Honorable Pete Sessions, U.S. House of Representatives
NASA Assistant Inspector General for Auditing

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