GAO-01-1041R NASA Project Management

United States General Accounting Office

Washington, DC 20548

August 13, 2001

The Honorable Dana Rohrabacher

Chairman, Subcommittee on Space and Aeronautics

Committee on Science

House of Representatives

Subject: NASA’s X-33 and X-34 Programs

Dear Mr. Chairman:

On June 29, 2001, you asked me to provide additional comments on several issues

that I raised in my June 20, 2001, testimony before your Subcommittee on areas the

National Aeronautics and Space Administration (NASA) needs to address in

managing its Reusable Launch Vehicle Program. I am pleased to submit the following

comments for your consideration.

1. What are your conclusions regarding the usefulness of cooperative

 agreements as a NASA contractual mechanism and should they be

 terminated?

Cooperative agreements with commercial firms, such as the one used in the X-33

Program, can be useful in limiting the government’s investment in a research and

development project by providing for cost sharing with private industry. However,

such agreements can pose risks to the government when the extent of private

investment is based on assumptions about the potential commercial viability of a

project.

Under the Federal Grant and Cooperative Agreements Act of 1977,1

 a procurement

contract is used when an agency’s purpose is to acquire property or services for the

direct benefit to the government. When the agency is merely transferring money to a

commercial entity to carry out an activity with a public purpose, and there is

substantial government involvement, the act generally requires the use of a

cooperative agreement. This was the case for the X-33 Program. NASA’s specific

objective was to demonstrate the technical, operational, and business feasibility of a

single-stage-to-orbit commercial reusable launch vehicle, and it sought to work with

private industry in doing so. Given the purposes of the X-33 program, NASA’s use of

a cooperative agreement in this instance was in accordance with the act.

 1

 31 U.S.C. sec. 6301 et seq.,.
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The X-33 cooperative agreement was NASA’s first large-scale attempt to implement a

program using this method. Previously, NASA had used cooperative agreements to

implement relatively small programs, mostly science-related efforts at academic

institutions.

In terms of potential usefulness, the X-33 cooperative agreement limited NASA’s

exposure to cost growth and allowed industry to embark on such a program at

relatively modest investment. NASA’s industry partners assumed the risk of cost

growth in exchange for the prospect of a competitive edge and potential economic

benefits.

However, as we indicated at the hearing, the business-related assumptions initially

underlying industry’s willingness to assume the risk of cost growth did not remain

valid. The anticipated demand for commercial launch services did not materialize.

Eventually, program cost growth, difficulties developing the needed technologies,

and weakened launch market projections undermined the anticipated economic

benefits. Since NASA’s cooperative agreement policy limited its contribution to a

fixed amount, the X-33 Program, in effect, took on aspects of a fixed-price contract

for basically a research and development program.

2. What was the reason behind NASA’s aggressive and rapid-style

 management of the X-33 and X-34 programs?

The 1994 White House Space Policy established a goal to make a decision on the fullscale development of a single-stage-to-orbit reusable launch vehicle by the end of

calendar year 2000. To meet this goal, NASA implemented the Reusable Launch

Vehicle Program, incorporating a “fast-track” management approach and “new ways

of doing business.” A key element was the creation of industry-led partnerships.

NASA believed that private industry, with limited government involvement, would be

able to develop these vehicles, which incorporated new and unproven technologies,

more rapidly, cheaply, and quickly than could be done by NASA using its traditional

acquisition approach.

3. Your written testimony stated that NASA plans to generate adequate

 program cost estimates for gauging management reserves in the

 15 to 20 percent range as a way of avoiding problems encountered in the

 X-vehicle programs. You expressed concern as to NASA’s timeliness in

 preparing these cost estimates. Why?

In May 2001, NASA awarded the first contracts under the 2nd Generation Reusable

Launch Vehicle Program. At the time of our testimony, we reported that the program

manager planned to update the cost estimates this summer before NASA conducts a

separate, independent technical review and cost estimate in September 2001. We

believe that program cost estimates should have been completed and available prior

to the award of any contracts in order to adequately assess the reasonableness of

contractor proposals and the sufficiency of reserves set aside to meet the risk
Page 3 GAO-01-1041R NASA Project Management

inherent in these proposals. NASA’s own program guidance requires that such cost

estimates be prepared before proceeding into program implementation.

Other NASA programs, such as the International Space Station and the Propulsion

Module Project, have also experienced schedule delays and incurred additional costs

due to design changes and program management problems. Timely and realistic cost

estimates and budgets would help ensure potential risks are identified and the cost to

resolve such risks is included in the project plan. Further, adequate reserves help

protect the funding of other ongoing programs that otherwise might be used to cover

the cost growth.

4. How much did the lessons learned in the Young report influence NASA’s

 management style regarding the restructured X-34 Program?

The Young report2

 was a NASA-initiated study assessing the causes of the failure of

two missions to Mars--the Mars Climate Orbiter and the Mars Polar Lander--and other

deep space missions. It would be difficult to quantify the extent that the Young

report or any of NASA’s internal reports influenced a particular change to the X-34

Project. We did find that NASA restructured the plan for the X-34 Project in response

to both X-34 Project technical reviews and other internal assessments of NASA

programs, including reports of the failed Mars missions, the Shuttle wiring problems,

as well an assessment of NASA’s approach to executing its ”Faster, Better, Cheaper”

projects. X-34 Project management reviewed these reports and assessments,

identified common problems, and took corrective measures to prevent the same

problems from reoccurring with the X-34 Project. For example, NASA consolidated

the X-34 vehicle and engine projects under one NASA manager and relegated the

contractor to a more subordinate role. The restructured plan also added several risk

mitigation tasks.

- - - - -

If you have any questions about this letter or need additional information, please call

me on (202) 512-4841. Copies of this letter are also available on GAO’s homepage at

http://www.gao.gov. Key contributors to this letter included Jerry Herley, Noel

Lance, Carlos Garcia, Charles Malphurs, and Cristina Chaplain.

Sincerely yours,

Allen Li

Director, Acquisition and Sourcing Management

(120090)

 2

Mars Program Independent Assessment Team Summary Report, March 14, 2000.