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Relocation of Space Shuttle Major Modification Work (02-DEC-02,  
GAO-03-294R).							 
                                                                 
We assessed the National Aeronautics and Space Administration's  
(NASA) rationale and documentation to support its decision to	 
relocate Space Shuttle Orbiter Major Modification (OMM) work from
Palmdale, California, to Kennedy Space Center, Florida. OMM work 
entails alterations to improve the Space Shuttle's Safety,	 
operational quality, and long-term support and to extend its	 
life.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-294R					        
    ACCNO:   A05643						        
  TITLE:     Relocation of Space Shuttle Major Modification Work      
     DATE:   12/02/2002 
  SUBJECT:   Cost analysis					 
	     Equipment maintenance				 
	     Facility transfer					 
	     Palmdale (CA)					 

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GAO-03-294R

Page 1 GAO- 03- 294R Relocating Space Shuttle Modification Work

December 2, 2002 The Honorable Barbara Boxer United States Senate

Subject: Relocation of Space Shuttle Major Modification Work

Dear Senator Boxer: At your request, we assessed the National Aeronautics
and Space Administration*s (NASA) rationale and documentation to support
its decision to relocate Space Shuttle Orbiter Major Modification (OMM)
work from Palmdale, California, to Kennedy Space Center, Florida. OMM work
entails alterations to improve the Space Shuttle*s safety, operational
quality, and long- term support and to extend its life. To make our
assessment, we reviewed NASA*s cost analysis and supporting documents and
held discussions about NASA*s analysis with agency officials in
Washington, D. C.; Johnson Space Center, Houston, Texas; and Kennedy Space
Center, Florida; as well as NASA*s prime contractor, subcontractor, and
union officials representing hourly workers at the maintenance facility in
Palmdale, California. At the conclusion of our work, we met with NASA
officials at NASA*s headquarters in Washington, D. C., to confirm the
accuracy of the information we collected.

Background

NASA maintains a fleet of four orbiters (Space Shuttles) in its space
transportation system. The vehicles are taken out of service for OMM about
every 3 years or after no more than eight flights. Structural inspections
and major modifications are performed during OMM. Boeing, a subcontractor
to United Space Alliance (USA), at U. S. Air Force Plant 42 in Palmdale,
California, has performed maintenance and modification on each of the four
orbiter vehicles. Vehicle processing* preparing the Shuttle for launch* is
currently performed at Kennedy Space Center, Florida. In May 2001, the
Associate Administrator for Space Flight and the Space Shuttle Program
Manager directed the Vehicle Engineering Office at Johnson Space Center,
Houston, Texas, to conduct a cost analysis to determine whether OMM could
be performed more cost effectively at Kennedy Space Center or Palmdale.

Results in Brief

NASA had a sound basis for its decision to relocate OMM work to Florida
based on our assessment of the strengths and weaknesses of NASA*s cost
analysis and potential savings. However, NASA needs to do a better job in
preparing and documenting the cost analysis and methodologies used in its
decision- making process so that it can further strengthen its basis for
making future decisions. The documentation provided by NASA was not of
sufficient

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 294R Relocating Space Shuttle Modification Work

detail to enable us to (1) verify the precise cost savings resulting from
relocating OMM from Palmdale, California, to Kennedy Space Center,
Florida, and (2) completely understand NASA*s rationale until we had
extensive discussions with agency officials. We also found that the
written responses to the questions you submitted to NASA related to the
relocation of OMM work need clarification.

Assessment of Cost Analysis

NASA decided to relocate OMM work to Florida because it believes that
location would be the most cost- effective location. NASA based its
decision on a comparative analysis of costs at the current site at
Palmdale, California, and Kennedy Space Center, Florida. After considering
the strengths and weaknesses of the cost analysis, and potential savings,
we found that NASA had a sound basis for its decision.

The cost analysis used by NASA analyzed key factors such as workforce and
infrastructure utilization, cost, schedule, and risks. The risks
considered included the availability of personnel, *stumble- on- work*
(work discovered during inspections), and competition for workers doing
vehicle processing. NASA*s cost analysis also incorporated numerous past
studies and analyses (such as two reports from NASA*s Inspector General)
that concluded that savings would be realized by relocating OMM from
Palmdale, California, to Kennedy Space Center, Florida. These reports also
concluded that relocation should not have taken place at the time these
reports were written because of the high- anticipated flight schedule of
about 12 flights a year. NASA currently has planned an average flight
schedule of four per year for the foreseeable future. The reports also
recommended that NASA reevaluate the location for OMM work when there is a
significant change in the planned flight schedule. A further strength of
the analysis was that it used the engineering approach, which sums the
costs of components at each location. Of all cost techniques, this one is
usually the most accurate if the data are reliable.

On the other hand, we observed several areas of the cost analysis that
could be improved. First, the cost analysis did not provide sufficient
detailed documentation to determine the precise amount of savings to be
realized by relocating OMM. Expected savings ranged from $16 million to
$70 million annually, and several of those estimates were about $30
million. The amount of savings was imprecise because the estimates
sometimes included professional judgment. For example, estimates were made
on the amount of savings that may or may not be realized by integrating
OMM work with normal vehicle- processing activities.

Second, although data provided by NASA*s contractor were reviewed and
considered to be reasonable by NASA officials, there was no formal,
documented, and independent verification of contractor- provided data upon
which NASA based its relocation decision.

Third, the security implications of collocating maintenance and launch
capability, although considered, were not formally documented in the cost
analysis. NASA Security Officials and Program Managers said that owing to
the high level of current security at Kennedy Space Center in Florida,
collocating OMM at the launch site was not a significant risk factor.

Page 3 GAO- 03- 294R Relocating Space Shuttle Modification Work

Finally, NASA*s Policies and Procedures Manual for conducting a program or
project evaluation does not contain specific guidelines for performing a
cost analysis (including identifying what documentation would be necessary
to support the analysis). We identified this weakness to NASA officials
during the course of our work. They said that they did not currently have
specific guidelines to conduct a cost analysis but said they plan to
improve their cost analysis procedures, including documentation
requirements, with the next revision of NASA*s Policy and Procedures
Manual 7120. 5A. They are currently working on the revision.

Clarification Needed in Prior Responses to Senator Boxer

Following extensive discussions with NASA officials, it became clear that
three of NASA*s written responses to your prior questions needed
clarification.

First, you asked if NASA did a labor market survey of skilled workers in
Florida. NASA replied that United Space Alliance, the prime contractor for
Orbiter maintenance, did an annual labor market survey. We found that USA
relied on data published by the U. S. Department of Labor, Division of
Wage Determinations, rather than conducting its own labor market survey.
The Department*s data are published by metropolitan service area (e. g.,
by Florida counties) and includes wages and benefits by occupation.

Second, you asked what number of new workers would be hired at Kennedy to
perform OMM work. NASA replied that USA planned for 235 workers to perform
OMM at Kennedy Space Center without making it clear whether these workers
would be new hires or current employees. We found that the 235 workers
will be drawn from the total of about 1,900 that work directly on Shuttle
Processing. These workers* experience averaged 13. 5 years. USA will hire
176 new workers who will not necessarily work directly on OMM but will be
assimilated throughout the entire workforce.

Third, you asked for the number of employees at the Palmdale facility that
received offers to relocate to Florida. NASA responded that USA had
extended 25 offers to workers in California to relocate to Kennedy Space
Center, Florida. We found that 33 offers were extended and that 3 other
offers to workers were planned but could not be made because the workers
could not be contacted.

Agency Comments

In written comments on a draft of this report, NASA*s Deputy Administrator
said that the agency concurs with our audit findings, adding that NASA is
working to improve its cost analysis techniques.

Scope and Methodology

To assess the reasonableness of the assumptions used to establish
workforce and infrastructure needs, we obtained NASA*s rationale for
including/ excluding factors in the analysis, obtained NASA*s support for
the conclusions reached, and discussed our observations with responsible
officials. To assess the cost of relocating the OMM work, we

Page 4 GAO- 03- 294R Relocating Space Shuttle Modification Work

obtained NASA*s analyses comparing the alternatives and discussed and
verified our assessment with responsible NASA officials. We determined,
through an analysis of NASA*s documentation and discussions with NASA
staff, the extent to which NASA assessed increased security risks. We also
assessed the extent to which all available analysis supported the
relocation decision, which was included in the available documentation
that NASA believed supported its decision.

We performed our review from June through October 2002 in accordance with
generally accepted government auditing standards.

_ _ _ _ _ Unless you publicly announce its contents earlier, we plan no
further distribution of this report until 30 days from its issue date. At
that time, we will send copies of this report to the NASA Administrator;
the Director Office of Management and Budget; and other interested
parties. We will also make copies available to others on request. In
addition, this report will be available at no charge on the GAO Web site
at http:// www. gao. gov.

Please contact me at (202) 512- 4841, if you or your staff have any
questions about this report. Major contributors to this report were Jerry
Herley, Thomas Hopp, William McNaught, and Sylvia Schatz.

Sincerely yours, Allen Li Director Acquisition and Sourcing Management

(120181)
*** End of document. ***
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