Space Acquisitions: Uncertainties in the Evolved Expendable Launch Vehicle Program Pose Management and Oversight Challenges
Published: 2008-09-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) plans to spend over $27 billion acquiring launch services through the Evolved Expendable Launch Vehicle (EELV) program over the next 12 years. The EELV program uses two families of commercially owned and operated vehicles to launch satellites. Partly because the commercial space market did not develop as expected, the EELV program has undergone significant changes. These include: adoption of a new acquisition strategy in 2005 that sought to ensure the viability of the two EELV launch vehicle providers, Boeing and Lockheed Martin; the subsequent decision by those two companies to form a joint venture called the United Launch Alliance (ULA); and a 10-year increase in the life of the program. In light of these changes, GAO was asked to (1) determine what uncertainties DOD faces in the EELV program and in the transition to ULA, and (2) assess how DOD is positioned to manage and oversee the effort. To accomplish this, GAO reviewed a wide variety of DOD documents and interviewed DOD and program officials.
section_title: What GAO Found
paragraphs: The EELV program currently faces uncertainties in the reliability of the vehicles used to launch military and other government spacecraft as well as its budget for future years and in the merger of its two principal suppliers. Taken together, these unknowns require careful monitoring and oversight to ensure a fairly long track record of launch successes can continue. Though the program has had 21 successful operational launches, no single configuration from either family of launch vehicles has been launched enough times to demonstrate production process reliability. The ULA transition may also influence the demonstration of vehicle reliability because ULA plans to relocate production activities and may alter manufacturing processes. The consolidation of Boeing and Lockheed into ULA--a massive undertaking that seeks to combine two distinct corporate cultures, and consolidate launch infrastructure and business operations from five locations across the country to two--poses a variety of other cost, schedule, and performance uncertainties and risks. DOD does not know whether its EELV program budget is sufficient to manage the program in the short term because the Air Force reduced the EELV program budget to incorporate anticipated savings from the ULA transition, even though savings estimates were based on preliminary data. DOD has taken steps to position itself to effectively oversee and manage the ULA transition and EELV program but still faces significant challenges in these areas. More specifically, DOD has established a well-defined process for how the ULA transition will be overseen and established mechanisms that allow the diverse agencies involved to coordinate the analysis and raise critical issues to senior leaders. However, when DOD moved the EELV program from the research and development phases in 2007 to the sustainment phase, DOD eliminated requirements on the program to produce data that would illuminate what impacts the transition is having on the program, what cost increases are occurring and why, and what other programmatic and technical vulnerabilities exist and how they are being addressed. Furthermore, a new independent life-cycle cost estimate was not required for the program when it moved to the sustainment phase; as a result, DOD will not be able to rely on this estimate for making long-term investment planning decisions. According to DOD officials, the latest life-cycle cost estimate for the program is not realistic. In addition, as part of its effort to increase its oversight and gain program knowledge, in 2005 the Under Secretary of the Air Force expanded the program office's management responsibilities when he approved a new acquisition strategy for the EELV program. At the same time, program officials stated that they do not have the government staff necessary to perform what they consider to be inherently governmental functions related to the expansion of oversight.

section_title: Letter
paragraphs: The Department of Defense (DOD) plans to spend over $27 billion  The Department of Defense (DOD) plans to spend over $27 billion  acquiring launch services through the Evolved Expendable Launch Vehicle  acquiring launch services through the Evolved Expendable Launch Vehicle  (EELV) program over the next 12 years. DOD’s investment in the EELV  (EELV) program over the next 12 years. DOD’s investment in the EELV  program, which uses two families of commercially owned and operated  program, which uses two families of commercially owned and operated  vehicles to launch satellites, is intended to reduce the overall cost of space  vehicles to launch satellites, is intended to reduce the overall cost of space  launches, assure access to space, and preserve the space launch industrial  launches, assure access to space, and preserve the space launch industrial  base.  base.
The EELV program has undergone significant changes since its inception.  The EELV program has undergone significant changes since its inception.  DOD’s initial acquisition strategy was to have multiple companies develop  DOD’s initial acquisition strategy was to have multiple companies develop  launch vehicles and then pick one launch vehicle provider in 1998.  launch vehicles and then pick one launch vehicle provider in 1998.  However, in November 1997 DOD decided to keep the two contractors  However, in November 1997 DOD decided to keep the two contractors  then competing, Boeing and Lockheed Martin, as EELV providers, and  then competing, Boeing and Lockheed Martin, as EELV providers, and  later awarded contracts to both companies. DOD officials had expected  later awarded contracts to both companies. DOD officials had expected  the emergence of a healthy commercial launch market that would support  the emergence of a healthy commercial launch market that would support  two families of launch vehicles and ultimately mean lower costs to the  two families of launch vehicles and ultimately mean lower costs to the  government. DOD determined launch service prices in the contracts based  government. DOD determined launch service prices in the contracts based  on an assumption that a robust commercial market would help pay for the  on an assumption that a robust commercial market would help pay for the  launch providers’ infrastructure costs. However, in the late 1990s the  launch providers’ infrastructure costs. However, in the late 1990s the  commercial launch market collapsed, and in late 2003 DOD estimated that  commercial launch market collapsed, and in late 2003 DOD estimated that  average launch cost would increase significantly. DOD responded to these  average launch cost would increase significantly. DOD responded to these  developments with a new acquisition strategy in March 2005 that  developments with a new acquisition strategy in March 2005 that  recognized the government as the primary customer of EELV services and  recognized the government as the primary customer of EELV services and  sought to ensure the viability of the two EELV launch vehicle providers.  sought to ensure the viability of the two EELV launch vehicle providers.
Additionally, in December 2006 Boeing and Lockheed Martin formed a  Additionally, in December 2006 Boeing and Lockheed Martin formed a  joint venture called the United Launch Alliance (ULA) to provide EELV  joint venture called the United Launch Alliance (ULA) to provide EELV  launch services to the government. The ULA intends to maintain two  launch services to the government. The ULA intends to maintain two  separate launch vehicle families while consolidating business, engineering,  separate launch vehicle families while consolidating business, engineering,  and manufacturing activities to reduce costs. This consolidation entails  and manufacturing activities to reduce costs. This consolidation entails  moving launch vehicle production facilities and work forces to new  moving launch vehicle production facilities and work forces to new  locations. Finally, another significant change is a recent 10-year extension  to the life of the EELV program.
In light of the changes the EELV program has experienced, you asked us  to (1) determine what uncertainties DOD faces in the EELV program and  in the transition to the United Launch Alliance, and (2) assess how DOD is  positioned to manage and oversee the program.
To determine what uncertainties DOD faces in the EELV program and ULA  transition, we reviewed EELV budget and program status documents,  studies of EELV reliability and launch history, ULA joint venture transition  plans and status, and DOD risk tracking and mitigation documentation. To  assess how DOD is positioned to manage and oversee the EELV program,  we analyzed data on EELV program office authorized staffing levels and  compared them to filled positions. We also reviewed reporting  requirements under the new EELV acquisition strategy, contract data  requirements lists for both Atlas and Delta contracts, EELV program  oversight documentation, and DOD acquisition policies. We interviewed  officials from various DOD organizations as well as launch contractors.  We conducted this performance audit between June 2007 and September  2008 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: DOD initiated the EELV program in 1995 to develop a new generation of  launch vehicles. The EELV program— designed to provide assured,  affordable access to space for government satellites—consists of two  families of commercially owned and operated launch vehicles, the Atlas V  and Delta IV launch vehicles. It also includes manufacturing and launch  site facilities, and ground support systems. Each family of launch vehicles  consists of medium-, intermediate-, and heavy-lift vehicles. To simplify the  design and manufacture of the vehicles, common components (such as  booster engines) are being extensively used. See figures 1 and 2 for  depictions of the Atlas V and Delta IV launch vehicle families and major  components of the launch vehicles.
In 1995, the Air Force awarded $30 million firm fixed-price contracts to  four companies to define EELV system concepts and complete preliminary  system designs. In December 1996, two of those companies, McDonnell  Douglas (which became part of Boeing in 1997) and Lockheed Martin,  were each awarded an 18-month, $60 million cost-plus fixed-fee contract  to continue EELV design activities. At the end of their contracts, DOD  planned to down-select to one contractor with the most reliable and cost- effective launch vehicle design. However, in November 1997 the Office of  the Secretary of Defense (OSD) approved maintaining competition  between the two contractors. This decision was based on forecasts that  growth in the commercial space launch services market would support  more than one launch provider and translate into lower costs for the  government. More specifically, the strategy was designed to    promote competition for launch services over the life of the program;    encourage contractor investment and innovation for launch vehicle    procure launch services that include the vehicle, the lift-off, and flight to  orbit under one contract at a fixed price instead of procuring launch  vehicles and launch operations under two or more separate contracts; and  leverage the benefits of a robust commercial marketplace.
In October 1998, the Air Force competitively awarded two $500 million  “other transaction agreements” to McDonnell Douglas before it merged  with Boeing and Lockheed Martin for the development of EELV families of  launch vehicles and launch infrastructure. Other transaction agreements  are transactions that are other than contracts, grants, or cooperative  agreements that are subject to federal laws and regulations applicable to  contracts, grants, or cooperative agreements. The Air Force used other  transaction agreements to provide flexibility in accommodating the unique  needs of the EELV program and the government. Simultaneous with the  Air Force’s execution of the other transaction agreements, the Air Force  also competitively awarded firm fixed-price contracts, one each to  McDonnell Douglas (now Boeing) and Lockheed Martin, to procure 28  launches. At the time of award, the launch services contracts had a  combined value of $2.03 billion.
The robust commercial launch market upon which OSD based the EELV  acquisition strategy did not materialize. As a consequence, estimated  prices for future contracts for launch services increased, along with the  total cost of the program. DOD’s December 2003 cost estimate for the  program showed an average procurement unit cost for EELV launch  services that was 77 percent higher than its 2002 cost estimate. This  resulted in a Nunn-McCurdy unit cost breach, which occurs when a major  defense acquisition program experiences a unit cost increase of at least 15  or 25 percent. In April 2004, in response to the unit cost breach, the  Secretary of Defense sent Congress a certification that the program was  essential to national security and established a new cost estimate. The new  cost estimate increased the launch service’s average procurement unit  costs by an additional 29 percent, due primarily to a reduction in the  number of planned EELV launches.
In March 2005, DOD revised the EELV acquisition strategy to reflect  changes in the commercial market assumptions since 1998 and the role of  the government as the primary EELV customer. The revised approach  involved a new contracting strategy consisting of two negotiated  contracts—EELV Launch Capability and EELV Launch Services—for each  of the two launch service providers. The EELV Launch Capability cost-plus  award fee contract is primarily for launch infrastructure, while the EELV  Launch Services fixed-price incentive fee contract is for launch services.  Under this contract approach, the government purchases launch services  through competitive negotiated acquisitions that provide more  government insight into contractor costs than contracts awarded under  commercial item acquisition procedures. This enables the Air Force to  collect previously unavailable certified cost or pricing data. As with the  original acquisition strategy, there are no government ownership costs— the EELV program continues to provide launch services and ownership of  hardware and facilities is retained by the contractors.
In May 2005, Boeing and Lockheed Martin announced plans to create a  joint venture that would combine the production, engineering, test, and  launch operations associated with U.S. government launches of Boeing’s  Delta and Lockheed Martin’s Atlas rockets. According to both contractors,  the joint venture, named the United Launch Alliance, would reduce the  cost of meeting critical national security and National Aeronautics and  Space Administration (NASA) expendable launch vehicle needs. By joining  together, the companies stated they could provide the government with  assured access to space at the lowest possible cost.
The ULA was structured as a 50-50 joint venture between Boeing and  Lockheed Martin—combining services provided separately by Boeing  Integrated Defense Systems’ Expendable Launch Systems division and by  Lockheed Martin’s Space Systems Company—for launches of each  company’s respective rockets. Based upon initial contractor estimates,  annual savings to the government resulting from the joint venture were  expected to be approximately $100 million to $150 million.
The ULA joint venture—which was subject to government and regulatory  approval in the United States and internationally—drew initial criticism  from various organizations. The Federal Trade Commission (FTC) was  initially opposed to the ULA joint venture because of the potential to limit  competition in the launch industry—an industry with already high barriers  to entry. Other companies in the launch industry also submitted formal  concerns citing unfair competition. In response, DOD stated that having  two launch vehicle families would present unique national security  benefits that would outweigh the loss of competition. FTC agreed to allow  the joint venture to move forward under the conditions of a consent order,  which requires ULA to be nondiscriminatory to other companies seeking  launch services. FTC provided preliminary approval of the consent order  in October 2006, and the joint venture officially began operations in  December 2006. To ensure that ULA follows the provisions of the consent  order, the order requires the Secretary of Defense to appoint a compliance  officer, currently the Director of the National Security Space Office  (NSSO), to have broad investigative and remedial powers to ensure  compliance. In addition, the consent order requires ULA to establish—no  later than 24 months after the formation of ULA, or December 2008— separate communication networks and management information systems  from its parent companies, Boeing and Lockheed Martin.
The first Atlas V and Delta IV launches occurred in 2002. According to the  Air Force, all 21 Atlas V and Delta IV launches through June 2008 have  been successful. DOD estimates its investment in the EELV program  through fiscal year 2008 to be about $8.2 billion, and future investment to  be about $27.5 billion.
section_title: DOD Faces Numerous Uncertainties in the EELV Program and ULA Transition
paragraphs: DOD faces numerous uncertainties in the EELV program and ULA  transition related to the reliability of the launch vehicles, the amount of  work remaining in the ULA transition, and program budget decisions  based on premature data. First, DOD does not yet have enough launch  experience with EELVs to demonstrate their reliability, which may be  accomplished by carrying out a set number of successful launches. While  all Atlas V and Delta IV operational launches conducted thus far have been  successful, launch vehicle design and production reliability have yet be  demonstrated due to the limited number of launches. Additionally, DOD  may be even less certain of EELV reliability as the program progresses as  plans to relocate production activities under the ULA transition may undo  some of the progress made toward demonstrating EELV reliability.  Second, DOD faces uncertainties relating to the cost, schedule, and  performance risks of the ULA transition, mainly because the transition is  still in its initial stages, and numerous unknowns exist in areas such as  business and production processes, personnel management, and cost  savings. Third, DOD does not know whether its EELV program budget is  sufficient to manage the program over the next 5 years because the Air  Force accounted for anticipated savings from the ULA transition in the  program budget, even though savings estimates were based on  preliminary data.
subsections: section_title: DOD Does Not Yet Know if EELVs Are Reliable
paragraphs: DOD does not yet have enough launch experience with EELVs to  demonstrate their reliability. According to the Air Force, since the first  launches in 2002, all 21 Atlas V and Delta IV operational launches have  been successful. However, these launches represent experience with only  9 of 15 possible EELV configurations across both families of launch  vehicles. As depicted in table 1, only 1 EELV configuration has been  launched more than 3 times. This is significant because the number of  times a configuration has been successfully launched can be an indicator  of a configuration’s design and production process reliability, according to  an Aerospace Corporation study of EELV launch risk.
Through a study of the causes of worldwide launch vehicle success and  failures over a 13-year period, the Aerospace Corporation developed a  widely accepted measurement for demonstrating launch vehicle design  and production process reliability called the “3/7 Reliability Rule.”  According to this rule, if a failure occurs during a configuration’s first  three launches, the problem is most likely a design issue, and if a failure  occurs after the third successful launch but before the seventh, the  problem is most likely a production process issue. Once a launch vehicle  configuration is launched successfully three times, its design can be  considered to have demonstrated maturity; similarly, if a vehicle is  successfully launched seven times, both the design and production  process maturity of that launch vehicle configuration can be considered as  having been demonstrated. Until a launch vehicle configuration  demonstrates maturity, problems encountered during launches of these  configurations are more likely to uncover fleetwide design or production  process issues that could cause significant cost and schedule impacts to  the program.
Table 1 shows that only 3 of the 15 EELV configurations have been  launched three or more times, and none has been launched seven times.  The EELV program office agrees that the 3/7 Reliability Rule is applicable  to EELV configurations, and program officials state that the program will  continue to apply the rule when assessing the requisite level of quality  assurance activities for each configuration. However, according to OSD  officials, the 3/7 Reliability Rule is only partially applicable to EELV  configurations because of the commonality among the vehicles. For  example, the same common core boosters are used on all Atlas vehicles;  therefore, according to these officials, reliability on the Atlas launch  vehicle line can be demonstrated through fewer launches of individual  configurations than the 3/7 Reliability Rule dictates. The same is true of  Delta launch vehicles. Nevertheless, these officials agreed that inherent  risk lies in the integration of launch vehicle configurations, which can be  lessened with each consecutive flight.
section_title: ULA Transition Activities May Undermine Progress Made in Demonstrating EELV Reliability
paragraphs: Transition activities under the ULA joint venture include moving  production equipment to different facilities and possibly changing  manufacturing processes, and could reverse some of the progress made  toward demonstrating production process maturity of those EELV  configurations launched previously. Specifically, part of the ULA transition  plan includes relocating production of the Atlas line of launch vehicles  from San Diego, California, and Denver, Colorado, to Decatur, Alabama.  According to Aerospace Corporation officials and a 2007 study by Booz  Allen Hamilton, relocating highly calibrated production equipment from  one facility to another and changing manufacturing processes increases  risk to launch vehicle quality and may detract from progress made toward  demonstrating production process maturity. This means that launch  vehicle configurations (shown in table 1) that have been successfully  launched, and have therefore begun the process of establishing production  process maturity, may lose some of their accumulated progress.
The ULA transition plan also allows for changing one of its key  manufacturing processes. While the process may be more effective, it has  not been used before in Atlas production, though it is currently used in the  production of Delta launch vehicles. According to ULA officials,  incorporating the new process on Atlas vehicles could potentially reduce  the need for some rework. Risk reduction testing through July 2008 has  shown the technical viability of the new process, according to the EELV  program office, and additional discussions with ULA will determine  whether ULA will pursue it on the Atlas line of vehicles.
Given the limited EELV launches to date, and the possibility that some  progress toward demonstrating maturity may be lost due to relocation of  production or changes to the process, DOD can not be fully confident in  the design and production process maturity of most of the EELV  configurations. According to program officials, although some EELV  configurations may never demonstrate design or production process  maturity throughout the life of the EELV program because of their limited  demand, using data from launches of other configurations provides insight  into the reliability estimates for those vehicles that have not yet flown.
section_title: DOD Faces Numerous Uncertainties about the Cost, Schedule, and Performance Risks of the ULA Transition
paragraphs: Any corporate consolidation on the scale of the ULA joint venture poses  challenges and a great deal of uncertainty. In addition to bringing together  diverse cultures and ways of doing business, such endeavors may involve  complicated personnel relocations, the closing and opening of facilities,  implementation of new information technology systems, and rethinking of  business processes, while at the same time maintaining high-quality  customer service. Because many ULA transition activities have only  recently begun or are still in the planning stages, numerous uncertainties  exist, many of which are inherent in the transition itself. They span  business and production operations, personnel management, and cost  savings, and have the potential to significantly affect the cost of the  transition, and ultimately, launch vehicle quality. Following are a few  examples of these uncertainties.
In addition to possibly introducing a new manufacturing process as stated  earlier, ULA will incorporate Atlas manufacturing equipment into the  Decatur facility. Current plans include a physical reconfiguration of the  facility to accommodate the influx of Atlas production, including the  movement of interior walls and a change in production flow for the Delta  production line, both of which could affect launch vehicle quality.
As Atlas production operations move to Decatur, ULA will try to relocate  as many Atlas staff as possible. ULA’s goal is to move roughly 30 percent  of staff from San Diego and Denver to Decatur, but Defense Contract  Management Agency (DCMA) officials state that they expect it will be a  challenge for ULA to retain even 10 percent of targeted Atlas staff. The  loss of manufacturing knowledge likely to result from the relocation of  Atlas production operations is regarded by DOD, Aerospace Corporation,  and ULA officials as one of the top risks of the transition because the loss  of critical manufacturing skills and process knowledge could ultimately  affect launch vehicle quality. The relocation of Delta engineering and  program operations from Huntington Beach, California, to Denver as part  of the ULA consolidation may also result in the loss of critical engineering  skills, according to Aerospace Corporation officials, as many experienced  staff will not remain under ULA employment. ULA offered positions in  Denver to all of its salaried employees in the Huntington Beach facility,  and 41 percent reportedly accepted the offer to relocate.
Efforts to separate information technology and management networks  from parent companies and to set up accounting practices are proving  more complex and time consuming than originally anticipated and a  recent 10-month extension to the goal date of separation is expected to  result in higher-than-anticipated costs. As it moves toward separation,  ULA is buying infrastructure support services from its parent companies,  through “transition service agreements,” and the additional costs  associated with prolonging the use of these agreements could ultimately  increase the cost of the separation effort. Furthermore, financial  repercussions are possible due to the large amount and complexity of the  work remaining to accomplish the FTC-mandated information systems  separation. The ULA recently requested a formal extension to the FTC’s  specified deadline of December 2008, which was granted by the NSSO  Compliance Officer. The revised deadline for separation is October 2009,  representing a 10-month delay.
ULA has provided DOD with a restructure proposal which projects the  cost and savings of the transition. According to DCMA, as a result of  review, the proposal currently meets federal statutory requirements for the  reimbursement of restructuring expenses. An advance agreement that  accompanies the proposal specifies the maximum amount of  reimbursement ULA may recover from DOD for restructuring expenses.  DOD is currently reviewing the proposal and advance agreement, in part,  to determine if they are based on sound business judgment and are  equitable to all parties. However, much of the transition has yet to occur,  and some of the transition activities that have begun are proving more  complex than anticipated. ULA estimates that consolidation of launch  infrastructure and operations under the ULA joint venture from fiscal  years 2008 through 2012 will cost about $205 million, and it plans to  recover much of this expense from the government. According to federal  statute, the government may not reimburse a contractor—in this case  ULA—for the costs of the restructure, unless DOD determines in writing  that (1) the savings to DOD are at least twice the amount of the costs  allowed, or (2) the amount of projected savings to DOD will exceed the  amount of the costs allowed and that the business combination will result  in the preservation of a critical capability that otherwise might be lost to  the department. Should the cost of transition activities exceed ULA’s  estimate, then according to DCMA, ULA may face pressure to meet the  requirements for reimbursement of restructure costs. We agree with  DCMA that if this happens, ULA may be at risk of making decisions based  more on cost considerations than on assuring quality within the launch  vehicle manufacturing process.
Table 2 provides a more complete description of ULA transition  uncertainties.
section_title: DOD Adjusted the EELV Program Budget Using Premature Savings Estimates
paragraphs: As described in table 2, despite the magnitude of activities that have yet to  be completed under the ULA transition, DOD has accounted for over $100  million in savings in the EELV program budget, beginning in 2011. In 2005,  before the joint venture was finalized, a small contractor team that was  formed to review the proposed joint venture estimated the likely  implementation costs and projected the savings that would result.  Preliminary calculations showed that the consolidation of launch  infrastructure and operations would yield up to $150 million in savings per  year, beginning in 2011. The Air Force portion of these savings was  projected at $105 million per year. Program officials stated that while  formulating the program budget in 2006, prior even to final government  approval of the ULA joint venture, the Air Force was confident enough in  the estimates to subtract $105 million in savings per year from the EELV  program budget, to begin in 2011. Given the many activities remaining in  the transition, and the preliminary nature of the data used to calculate the  savings, it may have been premature for DOD to reflect the anticipated  savings in the EELV program budget. Furthermore, some transition  activities that have begun are expected to take longer than originally  planned, as discussed above. DOD officials stated that ULA’s current  proposed savings estimate undergoing DOD review shows greater annual  savings than originally estimated. However, if the cost or duration of the  ULA transition is different than anticipated, actual savings could differ  from the predicted $105 million per year beginning in 2011, leaving DOD at  risk of EELV program budget shortfalls.
section_title: DOD Has Made Strides to Effectively Oversee and Manage the EELV Program but Challenges Exist in These Areas
paragraphs: In recent years, DOD has taken steps to effectively oversee and manage  the EELV program by closely monitoring the ULA transition and changing  its strategy for acquiring launch services. However, OSD’s decision to  advance the program into the sustainment phase is limiting its ability to  provide effective oversight. In addition, the EELV program office believes  a shortage of staff with the right skills and experience is limiting its ability  to effectively manage the program. Air Force staffing initiatives have done  little to alleviate this shortage.
subsections: section_title: Multiple Offices within DOD Are Monitoring the ULA Transition
paragraphs: DOD has taken positive steps to oversee the ULA transition. Various  organizations are monitoring the transition efforts and providing input to  OSD, the Air Force, and ULA on ways to mitigate risk. These efforts range  from activities by high-level OSD offices such as the Under Secretary of  Defense for Acquisitions, Technology and Logistics, down to the day-to- day monitoring activities coordinated by the EELV program office. For  example, the Secretary of Defense assigned the Director of the National  Security Space Office as the FTC consent order compliance officer to meet  periodically with ULA to determine progress made and formally report to  FTC on an annual basis, while the EELV program office holds regular  meetings with ULA and provides progress updates to Air Force leadership.  DCMA conducts ongoing technical risk evaluations, and advises the  program office and ULA on a consistent basis of relevant risk reduction  measures. As table 3 shows, multiple organizations coordinate with each  other to monitor the transition.
DOD officials stated that frequent coordination and communication  between the contractor and the government and among the various offices  within DOD have ensured a good understanding of progress and issues to  date. For example, according to a DCMA senior official, DCMA—which is  responsible for many of the transition monitoring efforts—actively  participates in Executive Board meetings where all issues pertaining to the  transition are raised. The Executive Board consists of senior  representatives of several organizations and is chaired by the Air Force  Program Executive Officer for Space, who is responsible for all acquisition  programs at the Air Force Space Command’s Space and Missile Systems  Center. The EELV program office, DCMA, NASA, DCAA, National  Reconnaissance Office (NRO), and the consent order compliance team are  all members of the Executive Board, which convenes approximately  quarterly to discuss transition issues, discuss major obstacles, and  collectively resolve them. For example, at an Executive Board meeting  earlier this year, it was noted that the ULA transition efforts required a  detailed master schedule in order to review all schedules for each critical  work stream. Consequently, the transition plans now include a much more  detailed master schedule that has made it easier to track all critical work  activities.
section_title: OSD’s Capability to Provide Effective Oversight Hampered by Sustainment Decision
paragraphs: While DOD has taken positive steps to oversee and manage the ULA  transition, another action within DOD will make it more difficult to  monitor the ongoing progress of the EELV program. OSD’s decision to  advance the EELV program from the development and production phases,  which began in 1998, to the sustainment phase will significantly reduce  EELV’s reporting requirements to OSD, such as program cost and status  information, limiting its own ability to oversee the program. According to  OSD, the program was placed in sustainment in August 2007 because OSD  had determined EELV had completed its development and production  phases. However, according to OSD officials, the sustainment decision  may have been influenced by other factors such as avoiding imminent  Nunn-McCurdy unit cost breaches and possible subsequent certification  efforts that invariably would have led to decisions to continue DOD’s  investment in the EELV program. According to these officials, in 2006 the  program was facing one or more possible Nunn-McCurdy unit cost  breaches, as a result of unplanned cost increases resulting from the  change in the acquisition strategy and a decrease in the demand for EELV  launches (factors include satellite program development delays and  cancellations, and operational satellites lasting longer than anticipated).  These officials stated that even given the anticipated cost savings  associated with the ULA joint venture, the program would still have faced  a unit cost breach.
When the program was placed into sustainment, however, certain program  cost and status information was no longer required because sustainment  programs, having completed their development and production phases,  generally do not generate the types and kinds of information traditionally  produced during development or production. Since this information is  generally not produced, program offices are not required to report it to  OSD or Congress. For example, the EELV program will no longer be  required to submit to OSD a quarterly cost and status report called the  Defense Acquisition Executive Summary (DAES). The DAES is a detailed,  multipart document that serves as an early-warning report to OSD by  describing actual program problems, or warning of potential program  problems, and describing mitigating actions taken or planned. According  to DOD guidance, the DAES report contains the minimum necessary  information for oversight purposes. (See app. II for a more extensive list of  what the DAES contains.) Table 4 lists other OSD oversight reporting  requirements that do not apply to sustainment programs. According to  officials in the program office and the office of the Assistant Secretary of  Defense for Networks and Information Integration, the EELV program is  still required to prepare and submit annual budget request documentation  and congressional program status briefings, and the program office still  reviews earned value management data and produces monthly program  cost and status reports for the Air Force Program Executive Officer for  Space. Additionally, the OSD officials stated that while at this time there  were no plans to continue performing oversight analysis of the data  required by the reports we cite, they agreed that finding a way to continue  reporting these data would be valuable.
In addition, a new independent life-cycle cost estimate was not required  for the program when it transitioned into the sustainment phase. As a  result, OSD will not be able to rely on an updated life-cycle cost estimate  for making long-term investment planning decisions. According to DOD  officials, the latest life-cycle cost estimate for the program is not realistic,  due in part to an optimistic launch vehicle production rate. Additionally,  Air Force Space Command recently extended the life of the program by 10  years to fiscal year 2030, making the current life-cycle cost estimate— which only includes costs up until 2020—even less realistic. An updated  independent life-cycle cost estimate for the program (developed once the  ULA joint venture transition is completed and periodically updated  thereafter to account for significant changes, such as fluctuations in  launch vehicle demand) could help DOD to establish relevant and reliable  baselines for the program as it moves forward and increase congressional  insight into program costs. As we reported in 2006, costs for DOD space  acquisitions over the past several decades have been consistently  underestimated—sometimes by billions of dollars—because DOD typically  does not update life-cycle cost estimates frequently enough to account for  significant events and changes. As we reported, at times the only  mechanism that forced an updated estimate was DOD policy that the OSD  Cost Analysis Improvement Group support the Nunn-McCurdy  certification process for programs breaching a certain unit cost threshold.  Prior to the August 2007 OSD decision to move EELV into the sustainment  phase, the Air Force revised its acquisition strategy in part to obtain  greater insight into contractor performance.
section_title: DOD Expanded Its Program Management Responsibilities
paragraphs: As part of its effort to increase its oversight and gain program knowledge,  in 2005 the Under Secretary of the Air Force expanded the program  office’s management responsibilities when he approved a new acquisition  strategy for the EELV program. Under the previous acquisition strategy,  the government had less insight into contractor performance because it  did not collect or have access to cost or pricing data and contractor  performance data, making program costs difficult to estimate and limiting  congressional insight into the program. Additionally, due to the size of the  program office, there were limited opportunities to review and provide  comments on launch vehicle technical design and production. The new  acquisition strategy, “Buy 3,” allows the government significantly more  insight into the contractor’s technical, cost, and schedule performance  information because of the change in contract type and contracting  strategy. For example, program officials told us that the launch  capabilities contract now requires full earned value management reviews  that assess cost, schedule, and performance. In addition, contractor  performance is more thoroughly evaluated and documented through  assessment reports. Table 5 summarizes some of the additional primary  program office responsibilities under the new acquisition strategy.
section_title: Staffing Shortage Impacts Program Office Ability to Manage the EELV Program
paragraphs: Although the increase in program management responsibilities has  positioned the program office to better manage the EELV program,  program officials told us that staffing in the EELV program office has not  grown commensurately. As a result, they said the program now faces a  shortage of government personnel with the right skills and experience to  fulfill these new responsibilities. Program officials told us the staff  shortage is a result of funding limitations, including the recent “force  shaping” initiative to reduce Air Force military positions, as well as overall  Air Force-wide recruiting challenges. According to program officials, this  shortage of staff has hampered the program office’s ability to complete the  current workload. Currently, the program office has approximately 211  military and civilian personnel, as well as over 290 contractor staff.  However, given the change to the acquisition strategy, the program office  has found it challenging to complete all tasks requiring a greater degree of  specialized skills.
According to program officials, personnel shortages have occurred  particularly in highly specialized areas such as avionics and launch vehicle  groups. For example, program officials stated that 7 of 12 positions in the  engineering branch for the Atlas group are now vacant. These engineers  work on issues such as reviewing components responsible for navigation  and control of the rocket. As table 6 shows, only half the government jobs  in some key areas were projected to be filled.
In addition to the perceived shortage of skilled personnel, turnover in  leadership could also hamper the program office’s ability to effectively  manage the program. As GAO recently reported in congressional  testimony on accountability issues in the acquisition environment, lack of  program management tenure makes it difficult to hold program officials  accountable for the business cases they are entrusted to manage and  deliver. According to the program office, the EELV program has recently  experienced a loss in leadership, including the Wing Commander, or  program director, responsible for the program office; the Delta Group  Commander; the ULA Formation Program Manager; and the ULA  Formation Contract Manager. While the Wing Commander has been  replaced and the previously vacant Vice Commander position has been  filled, there remains the loss of some of the most experienced personnel  familiar with program execution and critical issues such as the ULA  transition and current contract negotiations, according to the program  office. Since the inception of the EELV program, the tenure for an EELV  program director has ranged from 8 months to 49 months (the current  program director has been with the program since June 2008), as shown in  figure 3. With the exception of the first program director, this tenure falls  short of DOD’s workforce policy, which provides that the tenure period  for program managers of major defense acquisition programs is the  program milestone closest to 4 years or as tailored by the acquisition  executive based on unique program requirements.
While program officials could not specifically quantify the amount of work  not being performed, they stated that the staffing shortage has affected the  program’s ability to complete programmatic and administrative tasks on  time. According to program officials, the EELV program is also  experiencing an increase in unplanned engineering work, which is  considered critical to launch success and therefore prioritized over other  tasks. These officials stated a portion of unplanned work has increased as  a result of the lack of DOD’s involvement in design engineering reviews  early in the EELV program (during the design phase of the program under  the previous acquisition strategy when DOD had limited oversight). For  example, the program office became aware that the design assumptions  for a Centaur inter-stage adapter were flawed because they were based  on old assumptions and no longer valid. As a result, the program office had  to redesign the adapter, which currently does not meet load-carrying  requirements. This redesign could have been averted had the Air Force  been involved sooner, according to Air Force officials. In essence, the  program has been trying to “catch up” by conducting engineering analyses  or reviews that would have typically been conducted much earlier during  the EELV design phase, which began in 1998 and ended in 2003.  Additionally, program officials stated that an increase in the number of  first-time integrations of new generations of satellites to EELVs adds to  the number of design issues the program needs to address. Usually, the  EELV program has been able to avoid delaying launches in order to  complete unplanned work because the schedules for the programs  developing the launch vehicle payloads have been delayed as a result of  development difficulties. However, a launch delay resulting from the need  to complete unplanned work has recently occurred. Specifically, an  anomaly experienced during a June 2007 Atlas V launch resulted in a 2- month delay to the subsequent launch of another DOD satellite. Without  enough personnel to complete the work, program officials are concerned  that the EELV program may soon face additional launch delays.
section_title: Air Force Initiatives Have Not Alleviated the EELV Program’s Staffing Shortages
paragraphs: Air Force officials reported that recent Air Force personnel reductions had  a disproportionate impact on the EELV program and its acquisition center.  Beginning in 2006, the Air Force cut over 40,000 positions across the board  in an effort to save money under Program Budget Decision (PBD) 720. In  addition, PBD 720 directed reductions to staffing levels of contractors that  provide assistance to acquisition programs, particularly federally funded  research and development centers (FFRDC) and systems engineering and  technical assistance (SETA) contractors. Senior officials at the Manpower  and Personnel Directorate at the Air Force Space and Missile Systems  Center (SMC)—where EELV is managed—told us that PBD 720 affected  SMC disproportionately because it relied heavily on FFRDC and SETA  contractors to provide an array of services. According to SMC officials,  PBD 720 may have further disproportionately affected the EELV program  because it relied more heavily on uniformed personnel and assistance  contractors than other space programs at SMC. EELV program officials  told us they are in the process of awarding an engineering contract for  technical assistance, but PBD 720 now limits the amount of contractor  technical assistance the program can obtain due to funding limitations.  Figure 4 shows how the program had increasingly relied on the Aerospace  Corporation—its largest support contractor—for EELV engineering work  over the past 10 years. This increase is largely due to efforts to prevent  launch failures of legacy vehicles which occurred shortly after the EELV  program was initiated. As figure 4 indicates, Aerospace Corporation’s  assistance to EELV, as shown by the number of personnel, increased  slightly after 2006 but leveled off by 2008 as funding became more  limited.
Program officials cautioned that although Aerospace Corporation  personnel have assisted with technical tasks the program office can not  complete due to the staff shortage, the program can not rely on  contractors to perform inherently governmental functions. As we  reported in September 2007, an increasing reliance on contractors to  perform services for core government activities challenges the capacity of  federal officials to supervise and evaluate the performance of these  activities. As one program official noted, mission assurance is an  inherently governmental function, accountability for which should fall  solely on the government.
Program officials stated that Air Force-wide efforts to address staffing  shortages have not alleviated the EELV program’s staffing shortages.  Among these efforts was an attempt to counter the impacts of PBD 720 by  converting some military positions to civilian positions—a move that  would allow some of the military personnel who accepted the Air Force  buy-out and left the service to return to the program as civilians. For  example, when the Air Force initiated voluntary reductions by offering  buy-outs to officers, 142 officers at SMC accepted. When SMC attempted  to refill these positions as civilian positions, only 15 percent of the officers  accepted the option to be rehired as civilians. In addition, the hiring  process often takes too long to process such conversions, according to the  program office. For example, when the EELV program was given eight  military positions to convert to civilian positions, the program office lost  all the candidates for these positions. In the time it took the program to  create the new civilian positions, the candidates had found jobs elsewhere.  (In a recent testimony, the Under Secretary of Defense for Acquisition,  Technology and Logistics acknowledged that the hiring process takes too  long and has contributed to the problem of retaining competent people in  the acquisition field.) In addition, program officials said it was difficult to  recruit and retain civilians in the Los Angeles, California, area given its  high cost of living and its many opportunities for government contractor  work for greater pay. Moreover, although manpower studies conducted by  various DOD organizations have shown Air Force-wide staffing shortfalls,  EELV program officials contend that these studies have not led to actions  directed towards alleviating these shortfalls.
section_title: Conclusions
paragraphs: Early in the EELV program, DOD was faced with two primary challenges:  (1) reducing technical, design, and production risk to a point where it  could avoid problems that caused previous, costly launch failures and   (2) adopting an appropriate acquisition and supplier strategy that would  help contain costs. By adding technical staff—primarily FFRDC—and  strengthening quality assurance practices, DOD largely met the first  challenge and has subsequently enjoyed a long string of successful  launches though more experience is needed to fully prove reliability. At  the same time, however, costs have increased significantly because  assumptions supporting the first acquisition strategy never materialized  and because DOD never pared down to one supplier as originally  envisioned.
With the transition to ULA and the new acquisition strategy, it is hoped  that cost savings can be achieved and the government can have more  insight into cost drivers as well as technical risks. DOD has recognized  that the transition itself presents enormous challenges and adds risk to the  program by coordinating oversight efforts and expanding the program  office’s role in oversight. At the same time, however, OSD has limited  these positive steps by designating EELV as being in sustainment, which  effectively stops the formal transmittal of research and development and  procurement data on program costs and vulnerabilities to entities involved  in overseeing the program, including Congress. The Air Force may have  also limited these steps by constraining program office staff. Given the  broad span of changes affecting the program, the high cost of launching  military and other government spacecraft, and assumptions that have been  made about cost savings that will result from the consolidation of  suppliers, DOD cannot afford to pare back acquisition and supplier  oversight on any front.
section_title: Recommendations for Executive Action
paragraphs: To improve DOD’s ability to effectively oversee and manage the EELV  program, we recommend that the Secretary of Defense direct the Under  Secretary of Defense for Acquisition, Technology and Logistics to  require the program to continue to provide OSD, and Congress as  appropriate, with updates of program cost and status information using  criteria that apply to major research and development and procurement  programs; and    direct the Director of the Cost Analysis Improvement Group to conduct an  independent life-cycle cost estimate of the EELV program once the ULA  joint venture transition is completed, and periodically update the estimate  to account for significant program changes.
Additionally, we recommend that the Secretary of Defense direct the  Secretary of the Air Force to assess the EELV program’s staffing needs,  including those that are inherently governmental, to confirm whether  shortages exist, and if they do, develop a plan for addressing them.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD for review and comments. DOD  concurred with our findings and recommendations.  DOD’s response can  be found in appendix I.
section_title: Scope and Methodology
paragraphs: To determine what uncertainties the Department of Defense (DOD) faces  in the Evolved Expendable Launch Vehicle (EELV) program and United  Launch Alliance (ULA) transition and to assess how DOD is positioned to  manage and oversee the EELV program, we reviewed and analyzed  documents from and interviewed officials in Washington, D.C., at the  Office of the Undersecretary of Defense for Acquisition, Technology and  Logistics; Office of the Director, Program Analysis and Evaluation; Office  of the Secretary of Defense, Cost Analysis Improvement Group;  Congressional Budget Office; and Federal Trade Commission. We also  reviewed and analyzed documents from and interviewed officials in  Virginia at the Office of the Assistant Secretary of Defense for Networks  and Information Integration; Office of the Under Secretary of the Air Force  for Space Acquisitions; Office of the Joint Chiefs of Staff; Office of the  Director, Operational Test and Evaluation; and Orbital Sciences  Corporation. In addition, we reviewed and analyzed documents from and  interviewed officials at Air Force Space Command and Booz Allen  Hamilton, Peterson Air Force Base, Colorado; the Launch and Range  Systems Wing, Air Force Space and Missile Systems Center, Los Angeles  Air Force Base, California; Defense Contract Audit Agency, Fort Belvoir,  Virginia, Huntington Beach, California, and Littleton, Colorado; Defense  Contract Management Agency, Springfield, Virginia, Lakewood and  Littleton, Colorado, and Decatur, Alabama; National Aeronautics and  Space Administration, Washington, D.C. and Cape Canaveral Air Force  Station, Florida; National Reconnaissance Office, Aerospace Corporation,  and Space Exploration Technologies, El Segundo, California; National  Security Space Office, Washington, D.C. and El Segundo, California; U.S.  Strategic Command, Offutt Air Force Base, Nebraska; Microcosm, Inc.,  Hawthorne, California; and United Launch Alliance, Littleton, Colorado  and Decatur, Alabama.
We will send copies of the letter to the Department of Defense and other  interested congressional committees. We will also 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.
Should you or your staff have any questions on matters discussed in this  report, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Principal contributors to this  report were Art Gallegos, Assistant Director, Greg Campbell, Jeremy  Cockrum, Claire Cyrnak, Tim DiNapoli, Gayle Fischer, Laura Hook, Rich  Horiuchi, Ken Patton, Sylvia Schatz, Josie Sigl, and Hai Tran.
section_title: Appendix I: Comments from the Department of Defense
section_title: Appendix II: Program Cost, Schedule, and Performance Status Information Included in Defense Acquisition Executive Summary
paragraphs: The Defense Acquisition Executive Summary (DAES) is a detailed,  multipart document which reports program information and assessments  and serves as an early-warning report to the Office of the Secretary of  Defense by describing actual program problems, or warning of potential  program problems, and describing mitigating actions taken or planned.  According to Department of Defense guidance, the DAES report contains  the minimum necessary information for oversight purposes. The DAES  consists of eight sections. Table 7 contains a description of each of the  sections.