United States General Accounting Office

GAO Testimony

Before the Subcommittee on Science, Technology, and

Space, Committee on Commerce, Science, and

Transportation, U.S. Senate

For Release on Delivery

Expected at

2:00 p.m., EDT

Thursday,

September 18, 1997

SPACE STATION

Deteriorating Cost and

Schedule Performance

Under the Prime Contract

Statement of Allen Li, Associate Director, Defense

Acquisitions Issues, National Security and International

Affairs Division

GAO/T-NSIAD-97-262

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to provide you with an updated status of

the prime contractor’s cost and schedule performance on the International

Space Station (ISS). Just 3 months ago, we testified before this

Subcommittee on the continuing cost control difficulties in the ISS

program.1 That testimony was based on ongoing work being done for

Senator Bumpers and Representative Dingell. Early this week, we issued

our final report to those requesters.2

 At the request of the Subcommittee,

our testimony today draws from that report and focuses on the cost and

schedule status of the ISS prime contract.

In our June testimony, we noted that the cost and schedule performance

under the prime contract had been consistently worsening for some time.

We pointed out that between January 1995 and April 1997, the costs

associated with the schedule slippage; that is, the estimated cost of work

to get back on schedule, had increased from a value of $43 million to

$129 million. During that same period, the variance between the actual

cost to complete specific work and the budget for that work had gone

from a cost underrun of $27 million to a cost overrun of $291 million. The

situation has continued to worsen since April 1997. Figure 1 shows that as

of July 1997, the costs associated with the schedule slippage had increased

further to $135 million and the cost overrun had increased to $355 million.

1

Space Station: Cost Control Problems Continue to Worsen (GAO/T-NSIAD-97-177, June 18, 1997).

2

Space Station: Cost Control Problems Are Worsening (GAO/NSIAD-97-213, Sept. 16, 1997).

Page 1 GAO/T-NSIAD-97-262
Figure 1: Cost and Schedule Variances

on the Space Station Prime Contract

(Jan. 1995 to July 1997)

-400

-300

-200

-100

0

100

Cost

Schedule

1/95 4/95 7/95 10/95 1/96 4/96 7/96 10/96 1/97 4/97 7/97

27 -16 -19 -48 -62 -89 -123 -163 -223 -291 -355

-43 -45 -46 -55 -77 -88 -105 -107 -118 -129 -135

Dollars in millions

Note: The zero line represents meeting planned cost and schedule. Negative schedule variances

are the estimated cost of work to get back on schedule.

Figure 2 shows the cumulative cost and schedule variances from January

through July of this year. The figure shows the relatively consistent

downward slope of the cost line and highlights the fact that the current

situation is considerably more serious for cost than for schedule. The rate

of decline for the cost variance is especially worrisome because it has

shown no particular inclination to lessen. On the other hand, the schedule

deterioration has been much less severe, with minor “upticks” in the

variance in April and July. The relative difference is at least partly

explained by NASA’s statement that much of the cost growth is due to

overtime and additional staff being used in an effort to maintain schedule.

Page 2 GAO/T-NSIAD-97-262
Figure 2: Cumulative Monthly Cost and

Schedule Variances on the Space

Station Prime Contract (Jan. 1997 to

July 1997)

-400

-350

-300

-250

-200

-150

-100

Cost

Schedule

1/97 2/97 3/97 4/97 5/97 6/97 7/97

-223 -241 -263 -291 -310 -327 -355

-118 -128 -132 -129 -131 -136 -135

Dollars in millions

Principally because the difference between the actual and budgeted cost

of work has been increasing steadily, estimates of the total cost overrun at

contract completion have also been increasing. For example, last year’s

estimates of the contract overrun at completion ranged from $240 million

to $372 million. They currently range from $514 million to $610 million.

The prime contractor’s estimate of the cost overrun at completion was

recently increased from $278 million to $600 million.

NASA’s concern about the prime contractor’s performance is evident in its

award fee decision for the 6-month period that ended March 1997. The

prime contractor was eligible for nearly $34 million in award fee. Citing

significant problems in program planning, cost estimating, and hardware

manufacturing, NASA concluded that the contractor’s performance did not

warrant any award fee.3

 The recent increase in the estimated cost overrun

3

The prime contractor may eventually receive some or all of this award fee because, under the terms of

the contract, the prime contractor could receive a previously denied award fee after NASA’s final

assessment at the end of the contract.

Page 3 GAO/T-NSIAD-97-262
at completion has also potentially reduced the prime contractor’s

incentive award by $48 million over the remainder of the contract.

In response, the prime contractor is implementing a corrective action plan

that it believes will improve the performance of the entire contractor team.

The announced strategy includes changes in personnel, hiring additional

software engineers and managers, and committing funds for a software

integration test facility. The prime contractor has also presented a cost

control strategy to NASA. According to NASA, the strategy includes

organizational streamlining and transferring some roles to NASA.

In summary, ISS cost and schedule problems have worsened. Currently,

NASA and the prime contractor agree that costs are going to continue to

increase beyond the current variance. Their challenge is to at least slow

the rate of growth so that their current estimates of the total cost overrun

will not be exceeded. The extent to which the current efforts will enable

them to do so remains to be seen.

Mr. Chairman, this concludes my statement. We will be happy to answer

any questions you or the members of the Subcommittee may have.

(707304) Page 4 GAO/T-NSIAD-97-262
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100