Testimony before the Subcommittee on 

Air and Land Forces, Committee on 

Armed Services, House of Representatives

United States Government Accountability Office

GAO 

DEFENSE ACQUISITIONS

Future Combat System 

Risks Underscore the 

Importance of Oversight 

Statement of Paul L. Francis, Director

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Tuesday, March 27, 2007

 

GAO-07-672T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2007

DEFENSE ACQUISITIONS 

Future Combat System Risks Underscore 

Highlights of GAO-07-672T, a testimony the Importance of Oversight 

before the Subcommittee on Air and Land 

Forces, Committee on Armed Services, 

House of Representatives

The Army’s Future Combat System 

(FCS) is a program characterized 

by bold goals and innovative 

concepts—transformational

capabilities, system-of-systems 

approach, new technologies, a firstof-a-kind information network, and 

a total investment cost of more

than $200 billion. As such, the FCS 

program is considered high risk 

and in need of special oversight 

and review. 

Today’s testimony is based on

work conducted over the past year 

in response to (1) the National 

Defense Authorization Act for 

Fiscal Year 2006, which requires

GAO to report annually on the FCS 

acquisition; and (2) the John 

Warner National Defense 

Authorization Act for Fiscal Year

2007, which requires GAO to report

on the role of the lead systems 

integrator in the Army’s FCS 

program. Accordingly, this 

statement discusses (1) the 

business case for FCS to be

successful and (2) the business 

arrangements for the FCS program. 

What GAO Recommends

GAO has recently recommended 

that the Secretary of Defense 

(1) establish specific criteria for 

evaluating the FCS program at a

key 2009 decision and (2) analyze 

alternative courses of action in the

event FCS is unlikely to deliver

needed capabilities. DOD

concurred with GAO’s 

recommendations. 

The Army has far less knowledge about FCS and its potential for success 

than is needed to fulfill the basic elements of a business case. Those 

elements are not new to the Army, nor to the Department of Defense (DOD), 

which addresses such criteria in its weapon system acquisition policy. The 

Army has made improvements to the program, such as lengthening time

frames for demonstrating capabilities and for providing capabilities to 

current forces. While the Army has also made progress, what it still lacks in 

knowledge raises doubts about the soundness of the FCS business case. The 

Army has yet to fully define FCS requirements; FCS technologies that should 

have been matured in 2003, when the program started, are still immature; 

key testing to demonstrate FCS performance will not be completed and 

maturity of design and product will not be demonstrated until after 

production starts in 2013; and an independent cost estimate from the Office 

of the Secretary of Defense is between $203 billion and $234 billion, a far 

higher figure than the Army’s cost estimate. 

To achieve its goals for the FCS program, the Army decided to employ a lead 

systems integrator (LSI) to assist in defining, developing, and integrating the 

FCS. This decision reflected the fact that not only were FCS goals ambitious, 

but also that the Army had limited capacity to manage the undertaking. 

Boeing Corporation is the LSI. Its relationship with the Army on FCS breaks 

new ground for collaboration between the government and a contractor. The 

close working relationship has advantages and disadvantages. An advantage 

is that such a relationship allows flexibility in responding to shifting 

priorities. A disadvantage is an increase in risks to the Army’s ability to 

provide oversight over the long term. The contract itself is structured in such 

a way as to enable the LSI to be paid over 80 percent of its costs and fees by

completion of the critical design review in 2011—a point after which 

programs typically experience most of their cost growth. This is consistent 

with the Army’s desire to provide incentives for the development effort. On 

the other hand, this contract, as with many cost-reimbursable research and 

development contracts, makes the contractor responsible for providing its 

best efforts, but does not assure a successful FCS. 

The foregoing underscores the important role of the Office of the Secretary 

of Defense in providing oversight on the FCS program. To date, the Office of 

the Secretary of Defense has largely accepted the Army’s approach to FCS, 

even though it runs counter to DOD’s policy for weapon system acquisition. 

GAO believes the Office of the Secretary of Defense needs to hold the FCS 

program accountable to high standards at the congressionally directed 

decision in 2009 on whether to proceed with FCS. Financial commitments to 

production will grow rapidly after that point. The Office of the Secretary of 

Defense should also be mindful of the department-wide implications of the 

future use of LSIs as well as the system-of-systems approach to developing 

weapon acquisitions. 

www.gao.gov/cgi-bin/getrpt?GAO-07-672T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Paul L. Francis 

at (202) 512-4841 or francisp@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Department of the Army’s 

Future Combat System (FCS), a networked family of weapons and other

integrated systems. FCS is in the forefront of efforts to help the Army 

transform itself into a lighter, more agile, and more capable combat force 

by using a new concept of operations, new technologies, and a new 

information network linking whole brigades together. This is an 

extraordinary undertaking that will involve a total investment cost on the 

order of $200 billion over the next few decades. 

My statement today is based on the work that we have conducted over the 

past year in response to (1) the National Defense Authorization Act for 

Fiscal Year 2006, which requires GAO to report annually on the product 

development phase of the FCS acquisition;1

 and (2) the John Warner 

National Defense Authorization Act for Fiscal Year 2007, which requires 

GAO to report on the role of the lead systems integrator in the Army’s FCS 

program.2

 Accordingly, I will focus my statement on the business case and 

the business arrangements for the FCS program. 

We look at a business case as comprising those elements that are key to

making an acquisition likely to result in a product that performs as 

required for the time and money promised. A sound business case includes 

firm requirements; mature technologies; an acquisition strategy that 

demonstrates design and production maturity; and adequate funding to 

cover a realistic cost estimate. When FCS was approved to begin in May 

2003, it was far from having a sound business case, especially given its 

unprecedented size and complexity. Specifically, requirements were not 

well defined; technologies were very immature; the acquisition strategy 

was aggressive and did not allow for demonstrating design and production

maturity until after the production decision; and despite the insufficient 

basis for good cost estimates, providing the resources at the estimated 

costs was a great challenge. Since then, there have been a number of 

improvements in the program. The schedule was doubled to allow for 

more demonstrations and to spin capabilities out to the current forces; 

requirements are better understood, even to the system level; technologies 

have gotten more mature; cost estimates have grown substantially, making

Summary 

 1

 Pub. L. No. 109-163 §211 

2

 Pub. L. No. 109-163 §115 

Page 1 GAO-07-672T
them more realistic. Still, it is 4 years later, and progress should be 

expected. The Army, doing well by its own measures, is well behind 

business case measures. Requirements are still being defined; technologies 

are years away from needed maturity levels; key demonstrations of design 

and production will still come after the production decision; and 

independent cost estimates are significantly higher than the Army’s. 

To achieve its goals for the FCS program, in 2003 the Army decided to 

employ a lead systems integrator (LSI) to assist in defining, developing, 

and integrating the FCS. The Army’s decision to employ a lead systems 

integrator for the FCS program was framed by two factors: (1) the 

ambitious goals of the FCS program and (2) the Army’s limited capacity to

manage it. In the case of the FCS, the Army has structured a contract with 

Boeing as the LSI to define a partner-like relationship and provide 

incentives for performance. Evaluating the use of an LSI on FCS involves 

consideration of several interwined factors, such as the system-of-systems 

scope and the technical challenges. Our concerns about the executability 

of the program aside, the contract provisions and relationship with the LSI 

are both consistent with the Army’s vision for FCS and candid with 

respect to its workforce limitations. On the other hand, the limits and risks 

of the contractual arrangements must also be recognized. The Army has 

forged a partner-like relationship with the LSI which at the same time 

involves the Army more with decisions the LSI makes and involves the LSI 

more with decisions the Army makes. When coupled with the scope and 

significance of the program, this situation poses risks for the Army’s ability 

to provide oversight over the long term. The current FCS contract 

provides for a relatively high level of compensation for the LSI, over 80

percent of which can be earned by completion of the critical design 

review. This is significant because most key demonstrations occur after 

this review and, historically, most cost growth also occurs after the 

review. Because of the technical and other uncertainties, as a research and 

development contract, it is possible for the LSI to perform satisfactorily 

and earn its fees even if the FCS is unable to deliver the required 

performance. 

The foregoing underscores the important role the Office of the Secretary 

of Defense (OSD) can play in providing oversight on the FCS program. 

While the Army works to manage the program, OSD must work to oversee

the program. To date, OSD has largely accepted the Army’s proposals for 

approving, planning, and restructuring FCS, even when they run counter to

OSD’s own policies and independent assessments. For a program with the

unique arrangements, risks, and significance of the FCS, OSD’s role in 

overseeing FCS requires more than milestone decisions at the beginning 

Page 2 GAO-07-672T
and end of development, with annual reviews in between. OSD needs to 

hold the FCS program accountable to high standards, which are not 

necessarily the standards the Army adheres to. The go/no-go decision OSD 

will hold in 2009 will be important to defining its role in the program. We 

believe the use of an LSI on FCS is more significant than a contracting 

arrangement for a single program. It breaks new ground in collaborative 

relationships and increasing contractor responsibilities. Accordingly, we 

also believe OSD should put itself not only in a position to oversee the 

progress of the FCS program, but to evaluate the DOD-wide implications 

of the LSI and system-of-systems approach to developing weapons. 

The FCS concept is designed to be part of the Army’s Future Force, which 

is intended to transform the Army into a more rapidly deployable and 

responsive force—one that differs substantially from the large divisioncentric structure of the past. The Army is reorganizing its current forces 

into modular brigade combat teams, each of which is expected to be 

highly survivable and the most lethal brigade-sized unit the Army has ever 

fielded. The Army expects FCS-equipped brigade combat teams to provide 

significant warfighting capabilities to DOD’s overall joint military 

operations. 

Background 

Fundamentally, the FCS concept is to replace mass with superior 

information—that is, to see and hit the enemy first rather than to rely on 

heavy armor to withstand a hit. This solution attempts to address a 

mismatch that has posed a dilemma to the Army for decades: the Army’s 

heavy forces had the necessary firepower needed to win but required 

extensive support and too much time to deploy while its light forces could

deploy rapidly but lacked firepower. If the Future Force becomes a reality, 

then the Army would be better organized, staffed, equipped, and trained 

for prompt and sustained land combat, qualities intended to ensure that 

the Army would dominate over evolving, sophisticated threats. The Future 

Force is to be offensively oriented and will employ revolutionary concepts

of operations, enabled by new technology. The Army envisions a new way 

of fighting that depends on networking the force, which involves linking 

people, platforms, weapons, and sensors seamlessly together in a systemof-systems. 

In 2006, Congress mandated that the Secretary of Defense conduct a 

milestone review for the FCS program, following the preliminary design 

Page 3 GAO-07-672T
review scheduled for early 2009.3

 Congress stated that the review should 

include an assessment of (1) whether the requirements are valid and can 

be best met with the FCS program, (2) whether the FCS program can be 

developed and produced within existing resources, and (3) whether the 

program should continue as currently structured, be restructured, or be 

terminated. The Congress required the Secretary of Defense to review 

specific aspects of the program, including the maturity of critical 

technologies, program risks, demonstrations of the FCS concept and 

software, and a new cost estimate and affordability assessment and to 

submit a report of the findings and conclusions of the review to Congress. 

Congressional defense committees have asked GAO on numerous 

occasions to report and testify on FCS activities. This statement is based 

on work which was conducted between March 2006 and March 2007 and 

in accordance with generally accepted government auditing standards. 

In our March 2007 report,4

 we found that despite the investment of $8 

billion already made in the FCS program, it still has significantly less 

knowledge—and less assurance of success—than required by best 

practices or DOD policy. By early 2009, enough knowledge should be 

available about the key elements of the FCS business case to make a wellinformed decision on whether and how to proceed with the program. If 

significant doubts remain regarding the program’s executability, DOD will 

have to consider alternatives to proceeding with the program as planned.

Central to the go/no-go decision will be demonstrable soundness of the 

FCS business case in the areas of requirements, technology, acquisition 

strategy, and finances. Our specific findings in the areas of requirements, 

technologies, acquisition strategy, and finances are summarized below. 

Status of FCS 

Business Case 

Requirements Definition The Army has made considerable progress in defining system-of-systems 

level requirements and allocating those requirements to the individual FCS 

systems. This progress has necessitated significant trade-offs to reconcile

requirements and technical feasibility. A key example of this has been the 

decision to allow a significant increase in manned ground vehicle weight 

 3

John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364 

§214 (2006). 

4

GAO, Defense Acquisitions: Key Decisions to be Made on Future Combat System, 

GAO-07-376 (Washington, D.C.: Mar. 15, 2007). 

Page 4 GAO-07-672T
to meet survivability requirements that in turn has forced trade-offs in 

transportability requirements. The feasibility of FCS requirements still 

depends on key assumptions about immature technologies, costs, and 

other performance characteristics like the reliability of the network and 

other systems. As current assumptions in these areas are replaced with 

demonstrated performance, more trade-offs are likely. At this point, the 

Army has identified about 70 high-level risks to be resolved to assure the 

technical feasibility of requirements. A challenge for the Army in making 

these trades—which are practical necessities—is determining the 

cumulative effect of an individual decision on overall requirements. For 

example, a decision to discontinue a munition technology could result in 

less lethality, possibly less survivability if our vehicles have to shoot more 

than once to defeat an enemy, and less responsiveness due to the weight 

added by carrying more ammunition and fuel. 

As it proceeds to the preliminary design review and the subsequent go/nogo milestone, the Army faces considerable challenges in completing the

definition of technically achievable and affordable system-level 

requirements, an essential element of a sound business case. The Army 

will have to complete definition of all system-level requirements and the 

network as well as the preliminary designs for all systems and subsystems. 

By the time of the review, it should be able to demonstrate that the FCS 

will satisfy key performance parameters and the Army’s user community 

with a program that is as good as or better than what is available with 

current forces. To do this, the Army will have to mitigate FCS technical 

risks to significantly lower levels and make demonstrable progress toward 

meeting key FCS goals including weight reduction, reliability 

improvement, and average unit production cost reduction. 

Maturity of Technology The Army has made progress in the areas of critical technologies, 

complementary programs, and software development, but it will take 

several more years to reach the level of maturity needed in 2003. Program 

officials report that the number of critical technologies they consider as 

mature has doubled in the past year. While this is good progress by any 

measure, FCS technologies are far less mature at this point in the program 

than they should be, and they still have a long way to go to reach full 

maturity. The Army only sees the need to reach a technology readiness 

Page 5 GAO-07-672T
level that requires demonstration of capabilities in a relevant environment5

by 2011. This does not assure that these capabilities will actually perform 

as needed in a realistic environment, as required by best practices for a 

sound business case. We also note that last year, technology maturity 

levels had been the result of an independent assessment, while the current 

levels have been determined by the FCS program office. The Army has 

made some difficult decisions to improve the acquisition strategies for 

some key complementary programs, such as Joint Tactical Radio System 

and Warfighter Information Network-Tactical, but they still face significant 

technological and funding hurdles. Finally, the Army and the LSI are 

attempting to utilize many software-development best practices and have 

delivered the initial increments of software on schedule. On the other 

hand, most of the software development effort lies ahead, and the amount 

of software code to be written—already an unprecedented undertaking—

continues to grow as the demands of the FCS design becomes better 

understood. The Army and the LSI have recognized several high-risk 

aspects of that effort and mitigation efforts are underway. 

As it approaches the preliminary design review and the subsequent go/nogo milestone review, the Army should have made additional progress in 

developing technologies and software as well as aligning the development 

of complementary programs with the FCS. The Army faces many 

challenges, such as demonstrating that critical technologies are mature 

and having this maturity independently validated. The Army will need to 

mitigate the recognized technical risks and integrate the technologies with 

other systems. It will also need to address cost, schedule, and performance 

risks related to software and mitigate those risks to acceptable levels. 

Finally, the Army must settle on the set of complementary programs that 

are essential for FCS success, ensure adequate funding for these systems, 

and align their schedules with the FCS schedule. 

Knowledge-Based 

Acquisition Strategy 

The FCS acquisition strategy and testing schedule has become more 

complex as plans have been made to spin out capabilities to current Army 

forces. The strategy acquires knowledge later than called for by best 

practices and DOD policy, although the elongated schedule of about 

10 years provides a more realistic assessment of when capabilities can be

 5

Technology readiness levels (TRL) are measures pioneered by the National Aeronautics

and Space Administration and adopted by DOD to determine whether technologies were 

sufficiently mature to be incorporated into a weapon system. 

Page 6 GAO-07-672T
delivered. Knowledge deficits for requirements and technologies have 

created enormous challenges for devising an acquisition strategy that can

demonstrate the maturity of design and production processes. Even if 

setting requirements and maturing technologies proceed without incident,

FCS design and production maturity are not likely to be demonstrated 

until after the production decision is made. The critical design review will 

be held much later on FCS than other programs, and the Army will not be 

building production-representative prototypes to test before production. 

The first major test of the network and FCS together with a majority of 

prototypes will not take place until 2012. Much of the testing up to the 

2013 production decision will involve simulations, technology 

demonstrations, experiments, and single-system testing. Only after that 

point, however, will substantial testing of the complete brigade combat 

team and the FCS concept of operations occur. However, production is the 

most expensive phase in which to resolve design or other problems found 

during testing. Spin-outs, which are intended to accelerate delivery of FCS 

capabilities to the current force, also complicate the acquisition strategy 

by absorbing considerable testing resources. 

As the Army proceeds to the preliminary design review in 2009, it faces a 

number of key challenges in the remaining portions of the acquisition 

strategy. It must complete requirements definition and technology 

maturity. The spin-out capabilities must be demonstrated before 

committing to production. System integration must be completed and the 

Army should be preparing to have released at least 90 percent of the 

engineering drawings by the time of the critical design review, a best 

practice. Finally, the program schedule must allocate sufficient time, as 

needed, to test, fix and retest throughout the FCS test program. Each FCS 

system, the information network, and the FCS concept should be 

thoroughly tested and demonstrated before committing to low rate initial

production in 2013. 

Program Costs and 

Funding 

In 2006, we reported that FCS program acquisition costs had increased to 

$160.7 billion—76 percent—since the Army’s original estimate of 

$91.4 billion (figures adjusted for inflation). While the Army’s current 

estimate of $163.7 billion is essentially the same, an independent estimate 

from the Office of the Secretary of Defense puts the acquisition cost of 

FCS between $203 billion and $234 billion. The comparatively low level of

technology and design knowledge at this point in the program portends 

future cost increases. Our work on a broad base of DOD weapon system 

programs shows that most developmental cost increases occur after the 

critical design review, which will be in 2011 for the FCS. Yet, by that point 

Page 7 GAO-07-672T
in time, the Army will have spent about 80 percent of the FCS’s 

development funds. Further, the Army has not yet fully estimated the cost 

of essential complementary programs and the procurement of spin-out 

items to the current force. The Army is cognizant of these resource 

tensions and has adopted measures in an attempt to control FCS costs. 

However, some of these measures do involve reducing program scope in 

the form of lower requirements and capabilities, which will have to be

reassessed against the user’s demands. Symptomatic of the continuing 

resource tension, the Army recently announced that it was restructuring 

several aspects of the FCS program, including reducing the scope of the 

program and its planned annual production rates to lower annual funding

demands. 

I do want to point out the significance of the financial commitments the 

Army will make in the next few years. The fiscal year 2008 request 

includes $99.6 million in FCS procurement funds. Those funds are to 

procure long lead items for production of (1) non-line-of-sight cannon and 

other manned ground vehicles, and (2) the initial set of FCS spin-out kits. 

The fiscal year 2008 request will also fund plant facilitization to support 

FCS production beginning in fiscal year 2009. Procurement funds rise 

quickly thereafter, growing from $328.6 million to $1.27 billion to 

$6.8 billion in fiscal years 2009, 2011, and 2013, respectively.

By the time of the preliminary design review and the congressionally 

mandated go/no-go milestone in 2009, the Army should have more of the 

knowledge needed to build a better cost estimate for the FCS program. 

The Army should also have more clarity about the level of funding that 

may be available to it within the long-term budget projections to fully 

develop and procure the FCS program of record. Also, by that time, the 

Army will need to have developed an official Army cost position that 

reconciles the gap between the Army’s estimates and the independent cost 

estimate. In the cost estimate, the Army should clearly establish if it 

includes the complete set and quantities of FCS equipment needed to meet 

established requirements. Based on this estimate, the Army must ensure 

that adequate funding exists in its current budget and future years to fully 

fund the FCS program of record including the development of the 

complementary systems deemed necessary for the FCS as well as to 

procure the FCS capabilities planned to be spun out to the current forces. 

Actions Recommended in 

Our March 2007 Report 

In our March 2007 report, we noted that it was important that specific 

criteria—as quantifiable as possible and consistent with best practices—

be established now to evaluate the sufficiency of program knowledge. We 

Page 8 GAO-07-672T
recommended specific criteria that should be included in the Secretary of 

Defense’s evaluation of the FCS program as part of the go/no-go decision 

following the preliminary design review in 2009. DOD agreed with this 

recommendation and noted that the decision will be informed by a number 

of critical assessments and analyses, but was unspecific as to criteria. We 

agree that while it is necessary that good information—such as that 

included in DOD’s response—be presented at the decision, it is also 

necessary that quantitative criteria that reflect best practices be used to 

evaluate the information. 

We also noted that in view of the great technical challenges facing the 

program, the possibility that FCS may not deliver the right capability must 

be acknowledged and anticipated. We therefore recommended that the 

Secretary of Defense analyze alternative courses of action DOD can take 

to provide the Army with sufficient capabilities, should the FCS be judged 

as unlikely to deliver needed capabilities in reasonable time frames and 

within expected funding levels. DOD agreed with this recommendation as 

well, citing it would rely on ongoing analyses of alternatives. We believe 

that it is important to keep in mind that it is not necessary to find a rival

solution to FCS, but rather the next best solution should the program be 

judged unable to deliver needed capabilities. 

FCS Program Recently 

Restructured 

The Army recently made a number of key changes to FCS to keep program 

costs within available funding levels. Core program development and 

production costs were reduced by deleting or deferring four of the original 

systems, but these savings were offset by adding funding for spin-outs and 

ammunition, which had previously not been funded. The program’s cost 

estimate reflecting the adjustment is now $161.2 billion, a slight decrease 

from $163.7 billion that we previously reported. Highlights include: 

• Four systems deleted or deferred: the Class II and III unmanned aerial

vehicles, the intelligent munitions system, and the armed robotic 

vehicle. The munitions system will continue outside of FCS, while the 

robotic vehicle will continue in the science and technology 

environment. 

• Quantity changes: Class I unmanned aerial vehicle quantities will be cut 

in half. Quantities of non-line-of-sight launch systems and precision 

attack missiles were also reduced. The Army will buy eight additional 

Class IV unmanned aerial vehicles for each brigade combat team. 

Page 9 GAO-07-672T
• Production rate reduction: Annual FCS production will be reduced 

from 1.5 to 1 brigade combat team. This change will extend FCS 

production by about 5 years to 2030.

• Consolidation of spin-outs: Spin-outs will be reduced from four to three 

and the content of the spin-outs have changed. The Army has now 

funded procurement of the spin-outs that had previously been

unfunded. 

• Schedule extension: Initial FCS production has been delayed 5 months 

to February 2013 and initial and full operational capabilities dates have 

been delayed 6 months to June 2015 and June 2017, respectively. 

According to Army officials, the Army’s initial assessment found little 

difference between 14 and 18 systems on the capabilities of the FCS 

brigade combat team. When the program was approved in 2003, it also had

14 systems. In 2004, when it was restructured, 4 systems were added back 

in, bringing the total to 18, plus the network. It is not clear how the overall 

performance of the system can be insensitive to the changes in the 

composition of the FCS systems. Similarly, we do not yet have an 

understanding on why FCS production costs have not increased because 

of the lower production rates and consequent additional years of 

production. Generally, slowing down the production rate increases costs 

as the fixed costs of production facilities must be incurred for more years. 

To achieve the Army’s goals for the FCS program, in 2003 the Army 

decided to employ a lead systems integrator (LSI) to assist in defining, 

developing, and integrating FCS. In the past few years, DOD and other 

agencies have applied the LSI concept in a variety of ways. In the case of

the FCS program, the LSI shares program management responsibilities 

with the Army, including defining the FCS solution (refining 

requirements), selecting and managing subcontractors, and managing 

testing. Evaluating the use of the LSI on FCS involves consideration of 

several intertwined factors, which collectively make the LSI arrangement 

in the FCS context unique. Some, like the best efforts nature of a cost 

reimbursable research and development contract, are not unique to the 

LSI or to FCS. Other factors differ not so much in nature, but in degree 

from other programs. For example, FCS is not the first system-of-systems 

program DOD has proposed, but it is arguably the most complex. FCS is 

not the first program to proceed with immature technologies, but it has 

more immature technologies than other programs. FCS is not the first 

FCS Business 

Arrangements 

Page 10 GAO-07-672T
program to employ an LSI, but the extent of the partner-like relationship 

between the Army and the LSI breaks new ground. 

The Army’s decision to employ a lead systems integrator for the FCS 

program was framed by two factors: (1) the ambitious goals of the FCS 

program and (2) the Army’s capacity to manage it. As envisioned in 2003

when the program started, FCS presented a daunting technical and 

management challenge: the concurrent development of multiple weapon

systems whose capabilities would be dependent on an information 

network also to be developed. All of this was to take place in about 

51⁄2 years—much faster than a single weapon system typically takes. Army 

leaders believed the Army did not have the workforce or flexibility to 

manage development of FCS on its own within desired timelines. The 

Army saw its limitations in meeting this challenge as (1) cultural: difficulty 

in crossing traditional organizational lines; (2) capability: shortage of skills 

in key areas, such as managing the development of a large information 

network; and (3) capacity: insufficient resources to staff, manage, and 

synchronize several separate programs. In addition to the complexity and 

workforce implications of FCS, the Army saw an opportunity with an LSI 

to create more incentives for a contractor to give its best effort in 

development and to create more competition at lower supplier levels. 

Thus, they employed a contractor—a lead systems integrator–with 

significant program management responsibilities to help it define and 

develop FCS and reach across traditional Army mission areas. In May 

2003, the Army hired the Boeing Corporation to serve as the LSI for the 

FCS system development and demonstration phase. Boeing subcontracted

with Science Applications International Corporation, another defense 

contractor, to assist in performing the LSI functions. 

Army Use of an LSI 

Framed by Scope of 

Program and Workforce 

Limitations 

Close Working 

Relationship Increases the 

Burden of Oversight 

The relationship between the Army and the LSI is complicated. On the one 

hand, the LSI plays the traditional role of developing a product for its 

customer, the Army, and on the other hand the LSI acts like a partner to 

the Army in ensuring the design, development, and prototype 

implementation of the FCS network and family of systems. In forging a 

partner-like relationship with the LSI, the Army sought to gain managerial 

advantages such as maintaining flexibility to deal with shifting priorities. A 

partner-like relationship also poses long-term risks for the government. 

Depending on the closeness of the working relationship, the government’s 

ability to provide oversight can be reduced compared with an arms-length 

relationship; more specifically, the government can become increasingly 

vested in the results of shared decisions and runs the risk of being less 

Page 11 GAO-07-672T
able to provide oversight compared with an arms-length relationship, 

especially when the government is disadvantaged in terms of workforce 

and skills. In the case of FCS, these risks are present. The Army is more 

involved in the selection of subcontractors than we have seen on other 

programs, involvement that can, over time, make the Army somewhat 

responsible for the LSI’s subcontracting network. On the other hand, the 

LSI is more involved with influencing the requirements, defining the 

solution, and testing that solution than we have seen on other programs. 

This is not to say that the level of involvement or collaboration between 

the Army and the LSI is inherently improper, but that it may have 

unintended consequences over the long term. 

OSD is in a position to provide this oversight, but thus far has largely 

accepted the program and its changes as defined by the Army, even when 

they are at wide variance from the best practices embodied in OSD’s own 

acquisition policies. In 2003, OSD approved the FCS for system 

development and demonstration prematurely despite the program’s 

combination of immature technologies and short schedule and then 

declined to follow through on plans to make a better informed decision 

18 months later. OSD has allowed the Army to use its cost estimates rather 

than OSD’s own independent—and significantly higher—cost estimates 

and has agreed with the Army’s determination that the bulk of cost 

increases since 2003 are the result of scope changes and thus do not 

trigger congressional reporting requirements. In the fiscal year 2007 

National Defense Authorization Act, Congress mandated that DOD hold a 

formal go/no-go decision meeting on the FCS in 2009. DOD has since 

proposed a serious approach to making that decision, a step that is 

encouraging from an oversight perspective.

Contract Provides 

Incentives for Best Effort 

but Cannot Assure Success 

The Army has structured the FCS contract consistent with its desire to 

incentivize development efforts and make it financially rewarding for the

LSI to make such efforts. In that regard, the FCS contract pays well. 

According to an independent estimate from the Office of the Secretary of

Defense, the fee payable to the LSI is relatively high based on the value of 

work it actually performs, and its average employee assigned to the 

program costs more than a federal executive. The business arrangement 

between the Army and LSI has been converted from an other transaction 

agreement to a Federal Acquisition Regulation-based contract. Yet, there

remain substantive risks on whether the contract can result in a successful

program outcome. As with many cost-reimbursable research and 

development contracts, the contractor is responsible for putting forth its 

best effort to ensure a successful FCS. However, if that system fails to 

Page 12 GAO-07-672T
meet expectations or requirements despite that effort, the LSI is not 

responsible. 

The Army provides incentive payments through nine program events 

called out in the current contract, for which the LSI must demonstrate 

progress in setting up and implementing various program processes. By 

the time the FCS critical design review is completed in 2011, the Army will 

have paid out over 80 percent of the costs of the LSI contract and the LSI 

will have had the opportunity to earn more than 80 percent of its total fee. 

While the Army rationally notes that it is important to use fees to 

encourage good performance early, the experiences of previous weapon 

systems shows that most cost growth occurs after the critical design 

review. Key demonstrations of the actual capabilities of FCS systems will 

take place after this point. The Army shares responsibility with the LSI for

making key decisions and to some extent the Army’s performance affects 

the performance of the LSI. For example, some of the technologies critical 

to the FCS are being developed by the Army, not the LSI. If the 

technologies do not perform as planned, the LSI may not be responsible 

for the consequent trade-offs in performance. Furthermore, the Army is 

responsible for all program changes and therefore can adjust its 

expectations of the LSI according to those changes and the LSI may still 

earn its full fee. 

Mr. Chairman, this concludes my prepared statement. I would be happy to

answer any questions you or members of the subcommittee may have. 

Contacts & Staff 

Acknowledgments 

For future questions about this statement, please contact me at 

(202) 512-4841 or francisp@gao.gov. Individuals making key contributions 

to this statement include William R. Graveline, William C. Allbritton, Noah 

B. Bleicher, Lily J. Chin, Brendan S. Culley, Marcus C. Ferguson, Michael 

D. O’Neill, Kenneth E. Patton, Thomas P. Twambly, Adam Vodraska, and 

Carrie R. Wilson. 

(120632) Page 13 GAO-07-672T
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