Defense Acquisitions: Actions Needed to Ensure Adequate Funding for Operation and Sustainment of the Ballistic Missile Defense System
Published: 2005-09-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2002, the Department of Defense (DOD) implemented a new acquisition model to develop a Ballistic Missile Defense System (BMDS) that included all major missile defense acquisitions, some of which were being developed by the military services. The model called for the management and funding responsibility for production, operation, and sustainment of a capability to be transferred to a military service when a BMDS element or major component is technically mature and plans for production are well developed. The Missile Defense Agency (MDA) was given responsibility for developing the BMDS and recommending the transfer of management and funding responsibilities to the services. In 2004, MDA emplaced an initial missile defense capability, but DOD did not transfer management and funding responsibility for that capability. Because a formal transfer did not occur, GAO was asked to (1) identify DOD's criteria for deciding when a missile defense capability should be transferred to a service and (2) determine how DOD is managing the costs of fielding a BMDS capability.
section_title: What GAO Found
paragraphs: There is currently uncertainty as to which assets may eventually be transferred to each military service and under what conditions those transfers should occur. This uncertainty makes it difficult for the services to plan to address the requirements of DOD acquisition regulations and realign their budgets to support the missile defense mission. According to MDA and other DOD officials, when transfer criteria were established in 2002, the Department did not fully understand the complexity of the BMDS and how it could affect transfer decisions. For example, it has been difficult to determine whether MDA or a military service will be responsible for managing and funding some assets, such as stand-alone missile defense radars, because these assets are not integrated on service platforms or do not perform core service missions. MDA officials suggested that these components could be operated by either contractors or military personnel and MDA might fund their operation and sustainment. A team that includes representatives from the military services, the combatant commands, MDA, and other DOD offices was established early this year to address transfer issues. However, because MDA and the services have been unable to reach agreement on the transfer of some missile defense assets, a unit under the Joint Chiefs of Staff was tasked in July 2005 with recommending revisions to the existing transfer criteria. MDA budgeted $1.5 billion of its fiscal year 2005 research and development funds to acquire interceptors and radars and upgrade various BMDS components. It expects to continue to acquire and upgrade BMDS assets through 2011 and beyond. However, MDA and the services disagree as to who should pay for operating and sustaining the initial defensive capability after fiscal year 2005. Additionally, although DOD has budgeted $68.5 billion to develop, procure, operate, and sustain a missile defense capability between 2005 and 2011, it has not completely determined whether additional operation and sustainment funds will be needed, and it has not included all known operation and sustainment costs in its budget. Until DOD decides who will fund these costs, the services will likely continue to provide only the funding that they have been directed to provide. As a result, some needs--for which neither MDA nor the services have planned--will go unfunded. Additionally, if the funds budgeted for some purposes, such as logistical support for the BMDS, turn out to be insufficient, DOD will either have to take funds from other programs or spend less on missile defense.

section_title: Letter
paragraphs: In 2002, the Secretary of Defense directed the Department of Defense  (DOD) to adopt a new acquisition model for acquiring a missile defense  capability. This model, which is intended to more quickly place a  capability in the hands of the warfighter, gives the Missile Defense Agency  (MDA) responsibility for developing the Ballistic Missile Defense System  (BMDS), a system that includes all major missile defense acquisitions,  some of which were being developed by the military services. Once  capabilities useful to the warfighter are developed, the management and  funding responsibility for production, operation, and sustainment of the  capability is to be transferred to a military service.
In 2004, MDA emplaced an initial missile defense capability, but it did not  transfer management and funding responsibility for that capability, or any  element or major component of that capability, to a military service.  Because a formal transfer did not occur, you asked that we determine   (1) the criteria that DOD is using to decide when a missile defense  capability should be transferred to a military service and (2) how DOD is  allocating the cost of fielding a BMDS capability in fiscal years 2005  through 2011, if fielding costs have been fully identified, and if all costs  expected to be incurred between 2006 and 2011 are included in DOD’s  budget.
To conduct our work, we examined relevant documents, such as  directives issued by the Secretary of Defense and the Under Secretary of  Defense for Acquisition, Technology and Logistics; installation support  and services agreements between MDA and the Army and the Air Force;  Integrated Product Team briefing charts and minutes; and fiscal year 2006  budget documents. We also held discussions with the Office of the Under  Secretary of Defense for Acquisition, Technology and Logistics; Office of  the Under Secretary of Defense for Policy; Office of the Under Secretary of  Defense (Comptroller); the Joint Theater Air and Missile Defense  Organization; the Missile Defense Agency; and the Departments of the  Army, Air Force, and Navy. We conducted our review from October 2004  to August 2005 in accordance with generally accepted government  auditing standards.
subsections: section_title: Background
paragraphs: In 2001, DOD conducted missile defense reviews to determine how best to  fulfill the nation’s need to defend the United States, deployed forces, allies,  and friends from ballistic missile attacks. The findings of these reviews led  the Secretary of Defense to declare the need for a new strategy to acquire  and deploy missile defenses and to issue direction in January 2002 to  improve the leadership, management, and organization of missile defense  activities.
Specifically, the Secretary delegated to MDA the authority to manage all  ballistic missile defense systems under development and shifted programs  being executed or developed by the military services to MDA. Figure 1  below describes some of the missile defense programs whose execution or  development was transferred from the military services into MDA.
The Secretary also instructed MDA to develop a single integrated system,  to be called the Ballistic Missile Defense System, capable of intercepting  enemy missiles launched from all ranges and in all phases of their flight.  The systems transferred from or executed by the services and new  systems whose development MDA initiates are considered to be elements  of the BMDS and are managed by MDA. In 2002, drawing on research and  development efforts that were ongoing for years, MDA established the  Command, Control, Battle Management, and Communications system as  an element to provide connectivity between other BMDS elements and to  manage their operation as an integrated, layered missile defense system.
In his direction to MDA and the military services, the Secretary called for a  capabilities-based requirements process and an evolutionary development  program. In a capabilities-based program, the system developer—MDA— designs a system based on the technology available, rather than designing  a system to meet requirements established by those that will use the  system. Additionally, in an evolutionary program, a baseline capability is  developed that is improved over time. Therefore, the BMDS has no fixed  design or final architecture. Each evolution, or block, as MDA calls such  increments, is meant to take advantage of advancing technology so that  over time the BMDS is enhanced. MDA’s capabilities-based evolutionary  approach to development is meant to provide a capability to the users as  quickly as possible while also maintaining flexibility. MDA is in the  process of developing the first BMDS block, which is known as Block  2004. This block consists of the Ground-Based Midcourse Defense, Aegis  Ballistic Missile Defense, Patriot Advanced Capability–3, and Command,  Control, Battle Management, and Communications elements, as well as the  Forward-Based X-Band Radar.
The Secretary also established a procedure for making developmental  assets available for operational use. On the basis of assessments of the  BMDS’s military utility, progress in development, and a recommendation  by the Director, MDA, and the military services, the Secretary, with input  from the DOD Senior Executive Council, decides whether assets whose  development is ongoing should be fielded. When such a decision is made,  the Secretary directed that the military departments provide forces to  support the early fielding and budget resources to procure and operate the  planned force structure. In December 2002, the President directed DOD to  begin fielding an initial set of missile defense capabilities to meet the near- term ballistic missile threat to our nation. MDA responded by emplacing  Block 2004 developmental assets for use against limited attacks. However,  the Secretary has not yet activated this capability by placing it on alert.
The Secretary’s 2002 direction intended that acquisition of missile defense  elements and components be completed in three phases. In the first phase,  MDA develops ballistic missile defense elements and components using  research, development, test, and evaluation funds. When appropriate, the  MDA Director recommends and the Senior Executive Council approves  the entry of an element or major component into the second phase, known  as the transition phase. This phase allows the military services to prepare  for the element’s or component’s transfer. During the third phase, a  military service—using procurement, operation and maintenance, and  personnel funds—procures, operates, and sustains the element or  component. Figure 2 includes some of the activities, such as those carried  out by the Joint Air and Missile Defense Organization (JTAMDO) that  DOD envisioned taking place during each of the three phases.
Military services begin full-scale   production.
Military services formalize  capability-based Operational  Requirements Document for  element/component being  transferred.
Military services operate and  maintain element or major  component.
Military services lead effort to  assess element's operational  suitability.
Combatant Commanders   conduct and assess  BMDS  exercises.
MDA and user  community  address logistics and   maintenance support.
Military services support  operational test and evaluation.
Combatant Commanders and  military services identify desired  operational capabilities for future  increments.
Finally, the Secretary’s 2002 direction effectively allowed MDA to defer  application of many of the requirements that are generally applied to the  development of major systems under DOD’s traditional acquisition system  regulations. For example, the requirements for acquisition program  baselines and independent cost estimates, generally applicable by statute  to major defense acquisition programs and implemented by the DOD  regulations, will not be applied until a BMDS element or component is  transferred to a military service concurrent with Milestone C. Milestone C,  the point at which a decision is made to begin initial production, is the  point at which the service is to assume management and funding  responsibility for an element or component of the BMDS.
Once elements or components are transferred, the Secretary directed MDA  to continue to fund modifications to fielded systems and to manage  development activities for new missile defense capabilities. The Secretary  also gave MDA approval authority over any engineering changes that the  military services might want to make to transferred BMDS elements. This  process, known as configuration control, is meant to ensure that changes  do not degrade the interoperability of the BMDS.
MDA has recommended and DOD approved the transfer of one missile  defense element to a military service since 2002. DOD transferred the  Patriot Advanced Capability–3 program to the Army in 2003. MDA  continues to exercise configuration control and provide funding for the  development of Patriot Advanced Capability-3 missile defense-related  upgrades.
section_title: DOD Established Transfer Criteria But Changes Are Being Considered
paragraphs: In December 2002, the Under Secretary of Defense for Acquisition,  Technology and Logistics established criteria for deciding when to transfer  acquisition responsibility from MDA to the military services. The specified  criteria are (1) testing demonstrates that an element or component is  mature, (2) plans and resources are in place to ensure that facilities are  available to support production, and (3) funds are programmed in DOD’s  Future Years Defense Program to carry out production plans. After the  Under Secretary established these criteria, one BMDS element—the  Patriot Advanced Capability-3—was transferred to a military service.
However, officials across DOD now recognize that the transfer criteria are  neither complete nor clear and believe that revised criteria are needed for  deciding to move an element or component into the transition phase.   These officials told us that when the Under Secretary established transfer  criteria in 2002, DOD did not fully understand the complexity of the BMDS  and how it could affect transfer decisions.
MDA’s Director testified earlier this year that MDA will use several models  to transfer system elements to the military services and that it may not be  appropriate to transfer some elements or components. In such cases, he  envisions the services and MDA sharing responsibilities for the assets.  Further, he said that MDA will continue to work with the Secretary of  Defense, the military services, and the Combatant Commanders to arrange  appropriate transfers on a case-by-case basis.
subsections: section_title: MDA Contemplates a Revised Acquisition Model
paragraphs: There is currently uncertainty as to when and under what conditions DOD  will transfer management and funding responsibility for elements and  major components from MDA to the military services. The acquisition  model directed by the Secretary in 2002 is now viewed by many in DOD as  needing modifications to meet the evolving needs of a complex ballistic  missile defense system.
Although MDA began to emplace Block 2004 developmental assets for the  warfighters’ potential use, it is not ready to transfer management  responsibility for some of these assets to the military services. According  to officials in MDA’s Business Management Office, continued management  of some system elements and components by MDA may be necessary to  fully develop the overall effectiveness of the BMDS. For example, if the  missile-tracking capability of the Space Tracking and Surveillance System  is going to be added to the BMDS, MDA will need to test it with other  BMDS elements to determine how to make all elements work together  most effectively. To do this, MDA believes it must have the authority to  pull back elements or components that are fielded so that the elements  and components can be utilized in developmental efforts.
The MDA officials also indicated that full transfer of elements and  components could threaten the priority that the President and DOD have  given to missile defense. The officials told us that the military services  could subordinate missile defense missions to service missions, funding  service programs at the expense of the missile defense program. Service  acquisition officials and officials in the Office of the Secretary of Defense  agreed that the military services have many competing priorities and that  should missile defense programs be transferred to a service, those  programs would likely have to compete with service programs for  procurement, operations, and sustainment funds.
Officials in MDA’s transition office offered examples of how management  and funding responsibility of elements and components currently in  development might be handled.
Management responsibility for some elements and components might  never be transferred to a military service because these assets are not  integrated on service platforms or do not perform core service missions.   Examples include the Cobra Dane radar, the Forward-Based X-Band  radars, and the Sea-Based X-Band radar.  MDA officials suggested that  these components could be operated by either contractors or military  personnel, and MDA might fund their operation and sustainment.
However, discussions are still ongoing as to whether these components  will eventually be transferred to the military services.
MDA and a military service might be collaboratively involved in the  management of other assets, such as the Airborne Laser, the Kinetic  Energy Interceptor, the Space Tracking and Surveillance System, and  Terminal High Altitude Area Defense because these elements are not yet  technically mature and MDA needs to manage their development. The  services will remain closely involved to provide feedback on the  development process. As the capability of these elements is ready to be  demonstrated, MDA will acquire them in limited quantities. For example,  MDA plans to acquire two Terminal High Altitude Area Defense fire units,  which include 48 missiles. If early tests are successful, MDA will turn the  first fire unit over to the Army in 2009.  The Army will operate it and  provide feedback on its performance. Once any of these assets are  available for operational use, MDA believes that the services should accept  some responsibility for funding their operation and sustainment costs.
Officials in MDA’s transition office told us that management responsibility  for assets in this group may eventually be handed over to a military  service. The officials said that the transition status of an element is a  function of technical maturity, programmatic achievement, time, and  relative stakeholder involvement.
Management and funding responsibility for other systems already have or  likely will be transitioned to a military service because they have reached  or are nearing technical maturity. As mentioned above, MDA transferred  responsibility for the Patriot Advanced Capability-3 to the Army in 2003,  and it is likely that in the future MDA will transfer responsibility for Aegis  Ballistic Missile Defense to the Navy. Officials in MDA’s transition office  told us that Aegis Ballistic Missile Defense is reaching technical maturity,  as demonstrated by its being fielded operationally on Navy ships.  The  Navy is almost certain to accept responsibility for the Aegis missile  defense capability because it is mounted on the Aegis ships.
section_title: Service Officials Emphasize Need for Sufficient Advance Notice of Transfers
paragraphs: Service acquisition officials told us that they need sufficient notice to  prepare for a transfer and enough time to ensure that funds are available  to produce, operate, and sustain the system. Several things have to be  done for a service to operate and maintain a system. For example,  personnel have to be assigned and trained, a command structure has to be  organized, and facilities may have to be provided for the system and its  operators. Also, because transferred elements of the BMDS will enter  DOD’s acquisition cycle at Milestone C, other activities have to be  completed in advance of the milestone to ensure compliance with DOD  acquisition regulations. For example, the documentation required by the  Chairman of the Joint Chiefs of Staff Capabilities Integration and  Development System must be completed and an independent cost  estimate must be obtained. Service officials estimated that it takes at least  a year and a half to complete all of the tasks needed to meet Milestone C  requirements of the DOD acquisition regulations.
Sufficient advance notice is also needed for budgeting purposes. One DOD  official said that until responsibilities are established and transition plans  are in place, it is difficult for the services to plan their budgets. If transfers  take place with little advance notice, DOD will either have to provide the  services with additional funds for the production, operation, and  sustainment of BMDS elements or direct the services to support the BMDS  assets with funds reserved for service missions.  In written comments on a  draft of this report, DOD said that there is no basis to presume that  programs will transfer from MDA to the services with insufficient notice  because of the process established by the Secretary and described above.
section_title: Work Begun to Develop Transfer Plans and Revise Criteria
paragraphs: Early in 2005, an Integrated Product Team was established to develop  transition plans. The team’s mission is to    specify management and funding responsibilities for MDA and the military    work out a strategy for establishing doctrine, planning an organizational  structure and its leadership, developing training and materiel, and  providing personnel and facilities;   provide appropriate notification for service budget requirements;    establish configuration control procedures; and    ensure mission success.
The team has conducted three meetings to date at the colonel and captain  level and two at the general officer level. The inaugural meeting of  colonels and captains was held on January 21, 2005. It was attended by  almost 80 people who represented MDA, the Office of the Secretary of  Defense, the military services, the U.S. Strategic Command, and the U.S.  Northern Command. An MDA executive official chairs the team. Two more  meetings (one at each level) are planned, along with numerous meetings  of support working groups.
Officials in MDA’s transition office told us that the team will draw up a  broad plan, but it will include annexes tailored for each individual element  or component. These annexes will specify the likely date that the element  or component under consideration will be transferred; identify how MDA,  the affected military service, and the combatant commander will share  responsibilities; provide the status of existing contracts; identify funding  requirements; and lay out tasks and milestones in the transfer process.  MDA transition office officials also told us that the annexes may propose  handovers from MDA to the services that are not as formal as the transfers  originally envisioned by the Secretary of Defense.
Each individual transition plan will be cosigned by MDA’s Director and a  military service representative. However, DOD officials noted that the  team will likely have disputes that can only be decided by officials in the  Office of the Secretary of Defense. DOD and service acquisition officials  expressed concern that although the Integrated Product Team members  may be able to plan transition details, they likely will not be empowered to  make major decisions or resolve major impasses. However, MDA  transition office officials told us that the team’s objective is to secure  agreement of transition and transfer plans at the lowest level possible.
The Deputy for Ballistic Missile Defense, Missile Warfare Division, within  the Office of the Under Secretary of Defense for Acquisition, Technology  and Logistics, said that the current plan is to have the Missile Defense  Support Group recommend solutions for impasses to the Under Secretary  of Defense for Acquisition, Technology and Logistics. The Under  Secretary would then consider the support group’s recommendations,  make any needed changes, and forward all transition/transfer plans to the  Secretary of Defense for approval. According to the Deputy, the goal is to  have DOD approve all transfer plans by December 31, 2005, so that  direction is available to the appropriate DOD components as they begin  preparing their 2008-2013 budgets.
In July 2005, the Director, Joint Staff, directed the Joint Staff’s Deputy for  Force Protection to establish a team to recommend revised criteria for  making transfer decisions.  The team members told us that the impetus for  their study was the Integrated Product Team’s difficulties in determining  when and under what conditions military services should take  responsibility for some BMDS components. They said that the military  services are not eager to receive components, such as the Sea-Based X- Band Radar, Forward-Based X-Band Radar, and the Cobra Dane Radar,  that do not provide a capability that furthers the military services’ core  missions. The team, which expects to complete its work by December 31,  2005, expects to work with the Integrated Product Team and the Missile  Defense Support Group.
section_title: MDA and the Military Services Disagree on Funding Responsibilities
paragraphs: In 2002, the Secretary of Defense directed the military services to budget  the resources to procure and operate the planned force structure for an  early missile defense capability. However, MDA and the military services  continue to disagree as to which organization should pay, after 2005, for  operating and sustaining developmental assets even though the assets may  be available for operational use. Additionally, DOD has not yet determined  the full cost of procuring, operating, and sustaining the BMDS from 2006  through 2011, and it has not included all known costs in its budget. Until  DOD decides which organization will fund these costs, the services will  likely continue to provide only the funding that they are directed to make  available, and some needs, which neither MDA nor the services have  planned for, will probably go unfunded. Additionally, if the funds budgeted  for some purposes, such as logistical support for the BMDS, turn out to be  insufficient, DOD will either have to take funds from other programs or  spend less on missile defense.
DOD reports that it will spend $68.5 billion between fiscal years 2005 and  2011 to develop, acquire, and support missile defense capabilities,  including an initial capability emplaced in 2004-2005 that can be used in  the event of an emergency. MDA has been authorized by statute to use  research and development funds for this purpose. Table 1 identifies the  DOD components that have budgeted funds for missile defense activities  through 2011.
subsections: section_title: MDA Is Using RDT&E Funds to Acquire BMDS Components
paragraphs: In fiscal year 2005, MDA budgeted $1.5 billion of its research and  development funds to acquire interceptors and radars and to upgrade  various BMDS elements or components. It expects to continue to acquire  and upgrade BMDS assets through 2011. Table 2 shows planned funding by  fiscal year.
A complete list of all assets that MDA is acquiring during Block 2004 and  plans to acquire or enhance from 2006-2011 is provided in table 3.
Although the elements or components shown in table 3 will be available to  provide an increased missile defense capability, officials within MDA’s  transition office told us that responsibility for acquiring them will not be  transferred to a military service. For example, MDA is acquiring two  Terminal High Altitude Area Defense fire units, including 48 missiles. The  fire units will be made available to the Army so that soldiers can operate  Terminal High Altitude Area Defense to provide feedback on its  development and to defend against short- and medium-range ballistic  missiles in the event of an emergency. Should the Army, or any other  military service that has received a developmental asset, need additional  units of an element or larger quantities of some components—for  example, should the Army need more Terminal High Altitude Area Defense  fire units or missiles—the officials suggested that the military service  should be responsible for acquiring them. In addition, MDA would expect  the services to budget funds for any common support equipment required  for the elements that MDA is acquiring. For example, according to MDA’s  Terminal High Altitude Area Defense Program Office, it expects the Army  to purchase trucks needed to move the two Terminal High Altitude Area  Defense fire units’ radar, launchers, and generators.
However, no military service has budgeted funds for procurement of  elements or components, and only the Air Force has included funds in its  budget for support equipment. An official in the Air Force’s Missile  Warning and Defense Office within the Office of the Deputy Chief of Staff  for Air and Space Operations told us that the Air Force included  approximately $59 million in its fiscal year 2006-2011 budgets to acquire  and sustain devices that detect incursions at Vandenberg Air Force Base  and to improve test equipment for upgraded early-warning radars located  at Beale (California) Air Force Base and at Fylingdales Air Force Station in  the United Kingdom. However, the official told us that the cost of  acquiring and sustaining the detection devices and the test equipment is  expected to exceed planned funding. Further information on Air Force  officials’ concerns with MDA’s plan for funding procurements is discussed  in appendix 1.
While the Army has not budgeted funds for support equipment, it has  provided equipment from inventory to support the Ground-based  Midcourse Defense element that MDA has emplaced at Fort Greely. An  official from the Army’s Air and Missile Defense/Space Division within the  Office of the Assistant Secretary for Acquisition, Logistics and Technology  told us that the Army, Army National Guard, and National Guard Bureau  provided equipment, such as trucks, radios, and machine guns, from  inventory to support the Ground-Based Midcourse Defense element.  Additionally, pending Terminal High Altitude Area Defense test results and  Senior Executive Council decisions, the official told us that the Army  expects to include funds in its fiscal year 2008-2013 budgets for Terminal  High Altitude Area Defense common support equipment.
section_title: Military Services Fund Costs for Most Personnel Operating BMDS Assets
paragraphs: The military services are currently paying for most of the personnel who  operate the missile defense assets. For example, an Army National Guard  unit operates Ground-Based Midcourse Defense components located at  Fort Greely, and Navy sailors operate the Aegis Ballistic Missile Defense  element. The cost to the military services of operating these missile  defense elements is not easily discernable because it is intermingled with  other operation and sustainment costs. However, Army officials told us  that the Army is providing about $2.4 million for missile defense  operations in fiscal year 2005 and expects to incur an additional cost of  $23.3 million for this purpose between fiscal years 2006 and 2011. Navy  officials told us that at this time the missile defense mission does not  create additional personnel cost because the same sailors who stand  watch in the combat information center to support conventional anti-air  warfare missions also support the ballistic missile defense mission.  Additionally, the Air Force has not identified any additional personnel cost  between 2006 and 2011 to operate upgraded early warning radar for the  missile defense mission.
Officials in MDA’s transition office told us that in the future MDA may use  some of its research and development funds to operate major components  that are bought in small quantities. The officials suggested that  components such as the Forward-Based X-Band and Sea-Based X-Band  radar, which may never be transferred to a military service, could be  operated by contractor personnel who, at least through 2011, would be  paid from funds set aside for contractor logistics support.
section_title: MDA and Military Services Are Presently Sharing Sustainment Costs
paragraphs: In fiscal year 2005, MDA and the military services shared sustainment  costs. These costs are incurred for (1) logistics support, which includes  the services and materiel needed to support the fielded BMDS;   (2) installation support and services costs, which are all of the additional  costs incurred by an installation (or base) to support a resident tenant; and  (3) other supplies, such as fuel and lubricants.
Sustainment costs are generally one of the largest contributors to a  weapon’s life-cycle cost because weapon systems are usually in the field  for years and require support during this time. Together, operation,  maintenance, and disposal costs typically account for about 72 percent of  the total cost of a weapon system. However, MDA does not believe that  this percentage can be used to estimate the sustainment cost of BMDS  elements or components because MDA Program Officials expect fielded  assets will be updated and improved more quickly than standard DOD  weapon systems. If this proves true, an element or component may be in  the field for only a few years before it is replaced with an enhanced  configuration. But regardless of the length of time each configuration is in  use, DOD will incur sustainment cost because each configuration must be  sustained.
subsections: section_title: Contractors to Provide Logistics Support
paragraphs: In December 2003, DOD’s Program Decision Memorandum III directed  MDA to assume all fiscal year 2005 and 2006 costs for materials and  services needed to support the operation of primary BMDS mission  equipment, critical spares, and standard military equipment. MDA is  paying prime contractors, who are developing the elements that will be  available for limited use, to provide this support in fiscal year 2005. For  example, MDA has contracted with the Boeing Company to provide  logistics support for the Ground-Based Midcourse Defense element.  Transition office officials told us that they plan to continue this  arrangement through 2011.
However, MDA cannot be sure that the funds set aside for logistics  support will provide all of the material and services needed. Reliability and  maintainability are key factors in the design of affordable and supportable  systems. Generally reliability growth is the result of an iterative design,  build, test, analyze, and fix process. However, officials in MDA’s Business  Management Office told us that because they have limited experience with  the systems being fielded, they cannot estimate how often parts will break  or how much repairs will cost. Additionally, as noted in table 3, MDA plans  to add assets to its limited capability during this time frame, and as the  quantity of assets increases, the cost of logistics support can be expected  to grow.
By 2007, MDA hopes to better understand the cost of logistics support. To  gain this understanding, MDA has directed the contractors to collect and  report reliability data, including data on the frequency of breakdowns and  the cost of repairs.
section_title: MDA and the Services Are Jointly Funding Installation Support and Services Costs
paragraphs: In fiscal year 2005, MDA and the military services are sharing the  additional cost that the military services are incurring because BMDS  elements or components and the personnel who work with them have  been placed on military bases. Generally, a tenant on a military base is  expected to reimburse its host (the military service whose base the tenant  is occupying) for additional base support costs incurred because the  tenant is in residence. For example, the tenant is expected to reimburse  the host for the additional cost of communications services, lodging, and  utilities. However, DOD’s Program Decision Memorandum III directed the  Army and Air Force to assume some installation costs related to missile  defense. The Memorandum directed the Army to provide funds for Fort  Greely installation costs and training, and the Air Force to fund additional  security forces and infrastructure at Vandenberg Air Force Base.
To address the DOD memorandum’s directions, the Army is supporting  soldiers stationed at Fort Greely to operate deployed missile defense  assets. This support includes providing mail services, health and food  services, and chaplain services. The Army budgeted $42 million in fiscal  year 2005 for these purposes and estimates that it will need about   $402.7 million more between fiscal years 2006 and 2011.
According to an official in the Air Force Missile Warning and Defense  Office, the Air Force included some funds in its fiscal year 2006 budget to  procure and install detection devices at Vandenberg Air Force Base as  directed by the memorandum. The official said funds were also included in  the budgets for the following fiscal years (2007-2011) to sustain the  devices. However, the official told us that a new cost estimate shows that  it is likely to cost more to procure and install the devices than first  estimated. Without the detection devices, Air Force officials estimate that  additional security personnel will be needed, but funds for these personnel  are not included in the Air Force’s budget. Because the Air Force has not  added all security forces needed, the security at Vandenberg is not at the  level directed by U.S. Strategic Command. Additionally, because the Air  Force had no funds set aside in fiscal year 2005 for missile defense active  duty security personnel, the Air Force is mostly relying upon Air Reserve  volunteers to provide some additional security for missile defense assets  located at Vandenberg and Schriever Air Force Bases.
section_title: MDA Pays Most Installation Services and Support Costs in 2005
paragraphs: MDA is paying for other installation services and support costs that the  DOD memorandum did not direct the military services to fund.  Agreements have been finalized with the Army for installation services and  support at Fort Greely and with the Air Force for services and support at  Vandenberg and Schriever Air Force Bases and Eareckson Air Station.  Table 4 exhibits the costs MDA has agreed to pay at each of the bases in  fiscal year 2005.
The 2003 Program Decision Memorandum directed the military services,  combatant commands, and MDA to continue to refine fiscal years 2006- 2011 missile defense operation and support requirements and costs. The  memorandum also directed MDA and the military services to budget for  those costs, but it did not clarify which costs would be assumed by each  organization. An official in MDA’s transition office told us that MDA  included funds in its 2006-2011 budgets for costs similar to those paid in  fiscal year 2005. However, the official pointed out that the Military Service  Deputies for Operations are examining whether MDA should pay any  operations and sustainment costs, other than contractor logistics costs,  after fiscal year 2005. Additionally, MDA proposes that the military  services assume contractor logistics costs beginning in 2012.
However, in February 2005, the Deputies for Operations from the three  military services involved met to develop a coordinated position on the  services’ roles and missions for missile defense. The Deputies concluded  that the services should not incur operation and support costs for fielded  missile defense elements or components until a transition plan for those  elements or components is successfully executed.
We talked to acquisition officials in each of the three services involved in  operating the BMDS about their services’ views on paying future operation  and sustainment costs for assets that have not been transferred.
Navy officials believe that ongoing transition discussions will determine  which Aegis Ballistic Missile Defense components are sufficiently mature  for the Navy to assume the cost of their operation and sustainment. The  officials pointed out that the Navy addressed the Program Decision  Memorandum III. However, it is the Navy’s position that a transfer  decision should precede the Navy’s assumption of future operation and  sustainment costs. The Navy expects MDA to maintain the Standard  Missile-3 until it is transferred to the Navy and to procure all Aegis  Ballistic Missile Defense equipment, including any support equipment,  through 2011. Additionally, the officials told us that the Navy does not  expect to incur any support costs for the Sea-Based X-Band radar that will  support the Ground-Based Midcourse Defense element when it is fielded.
Air Force officials told us that the Air Force should not incur any  operation and sustainment costs after 2005 unless a decision is made to  transfer an element or component to the Air Force. An official in the Air  Force’s Missile Warning and Defense Office said that only MDA, which is  developing and deploying the elements and components, can control or  plan for operations and sustainment costs. Furthermore, the official said  that transition plans can best be made after assets have been deployed,  costs are known, military utility is verified, and capabilities have been  evaluated. He told us that this approach would provide programming  structure and cost transparency.
The Army is willing to assume some costs associated with supporting the  initial missile defense capability. An official in the Army’s Air and Missile  Defense/Space Division told us that the Army is willing to continue to  budget for the cost of operating this capability, supporting soldiers that  perform a missile defense mission, and for common support equipment for  fielded assets. However, the official said that the Army would not want to  assume the maintenance costs of elements or major components until  those assets are transferred to the Army. The official said that the Army  usually maintains its own equipment and that as long as an asset is in  development the Army would not have an inventory of spare parts to make  repairs. Neither would it have engineers, or maintenance personnel with  an equivalent level of expertise, to make the repairs.
section_title: Conclusions
paragraphs: The military services are uncertain as to which missile defense assets may  eventually be transferred to them and under what conditions those  transfers may occur. This uncertainty makes it difficult for the services to  plan the activities that are necessary to apply the requirements of DOD  acquisition system regulations and to consider how to best realign their  budgets to support the missile defense mission. DOD needs to establish  clear and complete transfer criteria to better guide those making the  difficult decisions for allocating management and funding responsibilities  for missile defense assets.
DOD also needs to clarify whether MDA or the services will be responsible  for sustaining missile defense capabilities that have not been transferred  to the services. The Secretary’s direction did not clearly spell out whether  MDA or the military departments would be responsible for sustaining the  early capability, and it is this cost that has become most contentious. If  sustainment costs are much higher than expected and the number of  assets being made available to the warfighter grows, as MDA expects, the  use of research and development dollars to procure and sustain a missile  defense capability will begin to affect MDA’s primary mission of  developing new capabilities and enhancing existing ones. On the other  hand, the military services will not want to fund the operation and  sustainment of a missile defense capability if its cost cannot be accurately  estimated. Nor will they want to fund the capability if they are not given  the time to determine how to do so with the least impact on service  missions. While the team established by MDA to develop transition plans  includes working-level representatives from MDA, the military services,  and the combatant commands, it will be difficult to reach full agreement  as to who should pay sustainment costs for these assets because the  representatives do not have the authority to make binding financial  decisions for their organizations. MDA and the services may continue to  disagree as to which component will bear sustainment costs for the early  capability until DOD directs one or the other to do so. Because the  services and MDA will begin to plan their 2008-2013 budgets in 2006, a  decision as to who will fund these costs should be made in time for the  budget deliberations.
section_title: Recommendations
paragraphs: We recommend that the Under Secretary of Defense for Acquisition,  Technology and Logistics revise the criteria for deciding when  management and funding responsibility for missile defense assets should  be transferred from MDA to a military service so that those criteria are  clear and complete.
We also recommend that the Secretary of Defense ensure that a decision is  made as to which DOD organization will fund the operation and  sustainment of missile defense assets that are part of the initial defensive  capability but have not been transferred from MDA to a military service  and direct that organization, or those organizations, to budget for those  costs.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report (see app. III), DOD agreed  that the criteria for making decisions to transfer missile defense assets  from MDA to the services must be clear. Our draft report had  recommended that the Secretary of Defense direct the Under Secretary of  Defense for Acquisition, Technology, and Logistics to revise the criteria. In  its comments, DOD stated that the Secretary of Defense did not need to  provide additional direction to the Under Secretary. We accepted this view  and, accordingly, revised the recommendation’s wording in the final  report.
DOD also agreed with the need to settle, as soon as possible, the issue as  to which component will fund the operation and sustainment of missile  defense assets that are part of the initial defensive capability. DOD said  this issue would soon be resolved without the Secretary taking additional  action. We continued to address our final report’s recommendation to the  Secretary because if the services and MDA can not agree about which  organization(s) should pay for these costs, the decision may have to be  elevated to the Secretary’s level.
We are sending copies of this report to the Chairmen and Ranking  Minority Members of the Senate Committee on Armed Services; the Senate  Committee on Appropriations, Subcommittee on Defense; the House  Committee on Armed Services; and the House Committee on  Appropriations, Subcommittee on Defense; the Secretary of Defense; and  the Director, Missile Defense Agency. We will make copies available to  others upon request. In addition, the report will be available at no charge  on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4841 or levinr@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Air Force Officials Concerned with Some MDA Funding Plans
paragraphs: Air Force Space Command officials are concerned that the Missile Defense  Agency (MDA) is not providing funds to purchase test equipment for  upgraded early-warning radars. According to the officials, without the test  equipment, the operation of upgraded early-warning radars could be  degraded.
subsections: section_title: Air Force Believes Radar Test Equipment Is Needed
paragraphs: Air Force Space Command officials told us that a system programming  agency is needed to support software and hardware changes to the Beale  and Fylingdales early-warning radars once they are upgraded. A system  programming agency consists of multiple strings of computers and  peripherals that can emulate the unique aspects of the radar’s operating  system and is used to maintain, modify, and test software and hardware  changes prior to those changes being made to the operational radar. The  Air Force currently has a system programming agency in place to support  hardware and software development for the early-warning radar.  However, neither MDA nor the Air Force has included funds in their  budgets to establish a system programming agency for the upgraded Beale  and Fylingdales radars.
Space Command officials told us that a system programming agency is of  particular importance because the upgraded early-warning radar is very  dependent on commercial off-the-shelf equipment that often has a short  life cycle. If a computer or radar replacement part is needed, there is no  certainty that the part available will be compatible with other parts  installed in the radar or its operating system. The officials said that if a  replacement part operates nanoseconds faster or slower than the old part,  the radar could fail or possibly generate false missile reports.
An official in the Air Force’s Missile Warning and Defense Office told us  that the Air Force included funds in its 2008-2011 budgets to upgrade the  system programming agency so that its hardware and software would  always be identical to the software and hardware in the operational radar.  However, the official said that the Air Force believed that MDA planned to  pay for the system programming agency’s development cost and that the  funds budgeted by the Air Force are not sufficient to both create and  sustain an upgraded early-warning radar system programming agency.  Space Command officials told us that the system programming agency  could cost as much as $88 million. Without the system programming  agency, the officials said changes will be made directly to the operational  radar, decreasing its operational availability and increasing operational  risks. In a written response to a draft of this report, MDA officials said that  MDA has not agreed to fund a system programming agency for upgraded  early-warning radar as the Air Force has requested.
section_title: Appendix II: MDA and the Air Force Disagree as to Which Should Pay Eareckson Support Costs
paragraphs: During much of fiscal year 2005, MDA and the Air Force disagreed as to  which organization should pay the additional costs being incurred at  Eareckson Air Station in support of the missile defense mission. While  MDA eventually agreed to pay all fiscal year 2005 costs, no agreement has  been reached for subsequent fiscal years. Both MDA and the Air Force  predict that costs at Eareckson will again be a contentious issue in fiscal  year 2006.
The Air Force maintains that Program Decision Memorandum III did not  direct the Air Force to provide security forces and infrastructure for the  missile defense mission at Eareckson. Therefore, the Air Force’s position  is that the additional costs being incurred at Eareckson should be paid by  MDA. Officials in the Air Force’s Missile Warning and Defense Office told  us that Eareckson is populated entirely with contractor personnel who  operate and maintain the Cobra Dane radar in its intelligence-gathering  role. The Air Force maintains a small diversionary air strip at the base, but  it does not have any military personnel located there. The officials said  that the Air Force is the administrator for the Eareckson Air Station  contract, but the intelligence community reimburses the Air Force for the  station’s operations costs. The officials said that MDA should pay the costs  incurred at Eareckson that are directly attributable to the missile defense  mission, just as the intelligence community pays all costs attributable to its  mission.
Conversely, MDA maintains that omitting Eareckson from the Program  Decision Memorandum was an oversight. However, an official in the  Department of Defense’s (DOD) Comptroller’s Office told us that DOD  always intended that MDA pay normal installation support and services  cost at Eareckson. DOD recognized that Eareckson is an unusual base  because the Air Force does not maintain a presence there. For the first  two quarters of fiscal year 2005, MDA paid the additional costs that the Air  Force incurred because missile defense contract personnel were located  on the base and because the number of security personnel was increased  to protect the missile defense mission. However, for the first 7 months of  fiscal year 2005, MDA and the Air Force continued to disagree as to which  party would pay installation support and services cost for the last two  quarters of fiscal year 2005. In May 2005, MDA agreed to assume these  costs. MDA transition office officials said that the issue of Eareckson  support costs would be raised again in fiscal year 2006.
MDA officials told us that Eareckson installation support and services cost  will continue to be an issue because MDA is being asked to pay costs that  are normally paid by the installation’s host and that MDA is not paying at  other bases with which it has agreements. For example, the host typically  provides fire protection for the base and the tenant would only pay the  additional cost created by the tenant’s residency. However, at Eareckson,  MDA is being asked to pay a portion of the cost that the Air Force is  incurring to provide a basic fire protection capability. The officials said  that they fear the Eareckson installation support and services agreement  could establish a precedent that the military services could insist on  following at other bases where missile defense assets are located. Should  this happen, MDA officials contend that MDA would, in effect, be  supplementing the military services’ operation and maintenance budget.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Barbara Haynes, Assistant  Director; David Hand; Mary Quinlan; Adam Vodraska, and Karen Sloan  made key contributions to this report.