Space Acquisitions: Acquisition Management Continues to Improve but Challenges Persist for Current and Future Programs
Published: 2014-03-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Each year, DOD spends billions of dollars to acquire space-based capabilities that support military and other government operations. The majority of DOD's space programs were beset by significant cost and schedule growth problems during their development. Most programs are now in production, however, and acquisition problems are not as widespread and significant as they were several years ago. In prior years, GAO has identified a number of actions DOD is taking to improve management and oversight of space program acquisitions. Facing constrained budgets and concerns about the resiliency of its satellites, DOD is considering potential changes to how it acquires space systems.
This testimony focuses on (1) the current status and cost of major DOD space systems acquisitions, (2) recent actions taken to further improve space systems acquisitions, and (3) potential impacts of the direction DOD is taking on upcoming changes to the acquisition of DOD space systems. This testimony is based on previously issued GAO products, ongoing GAO work on disaggregated architectures, interviews with DOD officials, and an analysis of DOD funding estimates from fiscal years 2013 through 2018.
section_title: What GAO Found
paragraphs: Most of the Department of Defense's (DOD) major satellite acquisition programs are in later stages of acquisition, with the initial satellites having been designed, produced, and launched into orbit while additional satellites of the same design are being produced. A few other major space programs, however, have recently experienced setbacks. For example: the Missile Defense Agency's Precision Tracking Space System, which was intended to be a satellite system to track ballistic missiles, has been cancelled due to technical, programmatic and affordability concerns; the Air Force's Space Fence program, which is developing a ground-based radar to track Earth-orbiting objects, continues to experience delays in entering development; and the first launch of the new Global Positioning System satellites has been delayed by 21 months.
Congress and DOD continue to take steps they believe will improve oversight and management of space systems acquisitions. In the past year, for example, DOD has updated its major acquisition policy with the goal of improving efficiency and productivity in defense spending. Among other things, the policy change adds a requirement for independent development testing for DOD acquisition programs, which officials believe will provide an independent voice on programs' development. However, DOD still faces significant oversight and management challenges, including (1) leadership of a space community that is comprised of a wide variety of users and stakeholders with diverse interests and (2) alignment of the delivery of satellites with corresponding ground systems and user terminals. For instance, in some cases, gaps in delivery can add up to years, meaning that a satellite is launched but not effectively used for years until ground systems become available. One reason DOD has been unable to align the delivery of space system components is because budgeting authority for the components is spread across the military services.
While most DOD major space system acquisitions have overcome development challenges and are currently being produced and launched, past problems involving large, complicated systems, coupled with the recent fiscal climate of reduced funds, has led DOD to consider efforts that could signal significant changes to the way it acquires and conducts space activities. DOD is considering moving away from its current approach in satellite development—building small numbers of large satellites over a decade or more that meet the needs of many missions and users—toward a more disaggregated architecture involving less complex, smaller, and more numerous satellites. GAO has found that DOD does not yet have sufficient information to make decisions on whether to disaggregate, but it is in the process of gathering that information. In addition, in response to predictions of dramatic increases to the price of launching its satellites, coupled with restrained budgets, DOD has made changes to the way it procures launch vehicles, and is moving forward with plans to allow competition for launch services—a significant shift from past ways of doing business. According to the Air Force, other recent steps in launch acquisitions, including gaining significant insight into launch services cost drivers, have enabled it to achieve significant savings.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this testimony. However, in previous reports, GAO has generally recommended that DOD adopt best practices for developing space systems. DOD has agreed and is in the process of implementing such practices.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of Defense’s  (DOD) space systems acquisitions. DOD spends billions of dollars each  year to develop, produce and launch space systems. These systems  provide the government with critical intelligence information,  communication methods, and navigation information, which are vital to  many military and other government programs. Because these systems  can be highly complex, they require large investments of both money and  time to develop, produce and launch. Given the expensive nature of  space systems in today’s constrained government budget environment, it  is essential that DOD manage the acquisition of these systems carefully  and continue to address problems that have plagued space systems  acquisitions in the past decade.
In the past, DOD has seen program after program experience significant  cost increases coupled with schedule delays. However, in recent years  these problems have largely been overcome for the programs currently in  production, and additional satellites of the same design are now being  launched. With the worst of their acquisition problems behind them, DOD  is beginning to look at potential new directions for the national security  space community, including options for meeting program requirements  through the disaggregation of large space missions into multiple smaller  satellites as a means to increase satellite resiliency and reduce  acquisition costs and development time. In addition, DOD has been  introducing significant changes to the way it acquires space launch  services, by transitioning to a new acquisition approach with a longer- term commitment, and by taking steps to introduce competition to its  Evolved Expendable Launch Vehicle program, a major change from the  last eight years of that program. These potential changes may provide  benefits to DOD, but there are challenges to their implementation.
My testimony today will focus on (1) the current status and cost of major  DOD space systems acquisitions, (2) recent actions taken to further  improve space systems acquisitions, and (3) potential impacts of the  direction DOD is taking on upcoming changes to the acquisition of DOD  space systems. This testimony is based on GAO reports issued over the  past 5 years on space programs and weapon system acquisition best  practices, and on DOD reports. In addition, it is based on ongoing work  conducted to address a mandate in the Senate Report accompanying the  National Defense Authorization Act for Fiscal Year 2014 for GAO to  review the potential benefits and limitations of disaggregating future  space systems. It is also based on work performed in support of our  annual weapon system assessments, as well as space-related work in  support of our reports on duplication, overlap, and fragmentation across  the federal government. Finally, this statement is based on updates on  cost increases and investment trends and improvement actions taken  since last year. To conduct these updates, we analyzed DOD funding  estimates for selected major space systems acquisition programs from  fiscal years 2013 through 2018. More information on our scope and  methodology is available in our related GAO products. The work that  supports this statement was performed 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. DOD provided technical comments which were incorporated  as appropriate.
subsections: section_title: Background
paragraphs: Over the last decade, DOD has been managing many challenging space  systems acquisitions. A long-standing problem for the department is that  program costs have tended to increase significantly from original cost  estimates. In recent years, DOD has overcome many of the problems that  had been hampering program development, and has begun to launch  many of these satellites. However, the large cost growth of these systems  continues to affect the department. Figure 1 compares the original cost  estimates with current cost estimates for some of the department’s major  space acquisition programs.
The gap between the estimates in figure 1 represents money that the  department was not planning to spend on these programs, and did not  have available to invest in other efforts. The gap in estimates is fairly  stable between fiscal years 2014-2018, a result of the fact that most  programs are mature and in a steady production phase. This figure does  not include programs that are still in the early stages of planning and  development.
In past reports, we have identified a number of causes of acquisition  problems. For example, in past years, DOD has tended to start more  weapon programs than is affordable, creating a competition for funding  that focuses on advocacy at the expense of realism and sound  management. DOD has also tended to start its space programs before it  has the assurance that the capabilities it is pursuing can be achieved  within available resources and time constraints. There is no way to  accurately estimate how long it would take to design, develop, and build a  satellite system when key technologies planned for that system are still in  relatively early stages of discovery and invention. Finally, programs have  historically attempted to satisfy all requirements in a single step,  regardless of the design challenges or the maturity of the technologies  necessary to achieve the full capability. DOD’s preference to make larger,  complex satellites that perform a multitude of missions has stretched  technology challenges beyond current capabilities in some cases.
Our work has recommended numerous actions that can be taken to  address the problems we identified. Generally, we have recommended  that DOD separate technology discovery from acquisition, follow an  incremental path toward meeting user needs, match resources and  requirements at program start, and use quantifiable data and  demonstrable knowledge to make decisions to move to next phases. We  have also identified practices related to cost estimating, program  manager tenure, quality assurance, technology transition, and an array of  other aspects of acquisition program management that could benefit  space programs. DOD has generally concurred with our  recommendations, and has undertaken a number of actions to establish a  better foundation for acquisition success. For example, we reported in the  past that, among other actions, DOD created a new office within the  Undersecretary of Defense for Acquisition, Technology and Logistics to  focus attention on oversight for space programs and it eliminated offices  considered to perform duplicative oversight functions. We have also  reported in the past that the Air Force took actions to strengthen cost  estimating and to reinstitute stricter standards for quality.
section_title: The Current Status and Cost of Space Systems Acquisitions
paragraphs: Most of DOD’s major satellite programs are in mature phases of  acquisition, and some of the significant problems of past years, such as  cost and schedule growth, are not currently as prevalent. Table 1  describes the status of the space programs we have been tracking in  detail.
While many programs have overcome past problems, some of the major  space programs have encountered significant challenges in the last year  and some delays in development and production. For example:
The Air Force’s Space Fence program office is developing a large  ground-based radar that is expected to improve on the performance of  and replace the Air Force Space Surveillance System, which became  operational in 1961 and was recently shut down. The Space Fence  radar will emit radio frequencies upward to space, from ground-based  radar sites, to detect and track more and smaller Earth-orbiting  objects than is currently possible, and provide valuable space  situational awareness data to military and civilian users. The Air Force  had originally planned to award a contract for Space Fence systems  development in July 2012, but due to internal program reviews and  budget re-prioritizations, this date has been delayed to May 2014. In  addition, the number of radar sites planned has been reduced from  two to one, though DOD plans to have an option under the system  development contract to build a second site if needed.
In April 2013, DOD proposed canceling the Missile Defense Agency’s  Precision Tracking Space System (PTSS) because of concerns with  the program’s high-risk acquisition strategy and long-term  affordability. PTSS was intended to be a satellite system equipped  with infrared sensors that would track ballistic missiles through their  emitted heat. The planned satellite system would consist of a  constellation of nine satellites in orbit around the earth’s equator. We  reported in July 2013 that the decision to propose canceling the PTSS  program was based on an evaluation of the acquisition, technical, and  operational risks of the PTSS program. Specifically, DOD’s evaluation  assessed the PTSS cost, schedule, technical design, and acquisition  strategy to identify whether risks could challenge the program’s ability  to acquire, field, and sustain the system within planned cost and  schedule constraints. The evaluation also determined that the PTSS  program had significant technical, programmatic, and affordability  risks. The program officially ceased operations in October 2013.
The Air Force has nearly completed its analysis of alternatives to  determine the direction for space based environmental monitoring,  which will be a follow-on program for the Defense Meteorological  Satellite Program (DMSP). Through this analysis, the Air Force  analyzed various options that included, but were not limited to, a  traditional procurement of a weather satellite similar to the existing  DMSP satellites, or a disaggregated approach using small satellites  and hosted payload opportunities. According to the Air Force, the  study was completed in the fall of 2013 and is awaiting final approval.
The MUOS program plans to launch a third satellite in January 2015,  which represents a delay of 6 months due to a production issue on the  third satellite. Specifically, the third satellite failed system- and  subsequent unit-level testing after rework last year and the program  determined the root cause to be a manufacturing deficiency on a  component critical for the operation of the satellite’s ultra-high- frequency legacy communications payload. The program is replacing  the component. According to the MUOS program office, the program  is on track to meet the launch schedule of subsequent satellites,  which is important because most of the communications satellites that  MUOS is replacing are past their design lives. Synchronizing  deliveries of MUOS satellites with compatible Army Handheld,  Manpack, Small Form Fit (HMS) terminals remains a challenge.  Currently over 90 percent of the first satellite’s on-orbit capabilities are  being underutilized because of terminal program delays.  Consequently, military forces are relying on legacy communication  terminals and are not able to take advantage of the superior  capabilities offered by the MUOS satellites. Operational testing and  initial fielding of MUOS-capable HMS terminals is planned for fiscal  year 2014, with a production decision expected in September 2015.
section_title: Recent Actions DOD Believes Will Improve Space System Acquisition Processes, and Continuing Barriers to Program Oversight and Management
paragraphs: We have reported in the past that DOD and Congress are taking steps to  reform and improve the defense acquisition system, and in the past year  additional actions have been taken towards these goals.
subsections: section_title: DOD Continues to Take Actions it Believes Will Improve Acquisition Oversight
paragraphs: In November 2013, DOD published an update to its instruction 5000.02,  which provides acquisition guidance for DOD programs. With this  update, DOD hoped to create an acquisition policy environment that will  achieve greater efficiency and productivity in defense spending. Air Force  officials noted that, for satellite programs, there are two major changes  that they believe will improve the acquisition process. First, the instruction  was changed to formally allow satellite programs to combine two major  program milestones, B and C, which mark the beginning of the  development and production phases, respectively.Force, satellite programs have typically seen a great deal of overlap in the  development and production phases, mainly because they are buying  small quantities of items. They are often not able to produce a prototype  to be fully tested because of the high costs of each article, so the first  satellite in a production is often used both for testing and operations. Air  Force officials believe that this change to the acquisition guidance will  allow for streamlining of satellite development and production processes,  and provide more efficient oversight without sacrificing program  requirements. GAO has not assessed the potential effects of this change.  In the past, we have reported that committing a program to production   According to the Air  without a substantive development phase may increase program cost and  schedule risks, and we plan to look at the impacts of this change as it  begins to be implemented.
A second change made this year, according to Air Force officials, is the  requirement that DOD programs, including space programs, undergo  independent development testing. While development testing for DOD  programs is not new to this policy revision, now the testing organization  will be an independent organization outside the program office. For space  programs, this organization will be under the Program Executive Officer  for Space, and will report their findings directly to that office, providing  what the Air Force believes will be an independent voice on a program’s  development status. The Air Force is confident that these changes will  provide benefits to program oversight, although because these are recent  changes, we have not yet assessed their potential for process  improvements.
In addition, DOD is adopting new practices to reduce fragmentation of its  satellite ground control systems, which adds oversight to a major  development decision. Last year we reported that DOD’s satellite ground  control systems were potentially fragmented, and that standalone  systems were being developed for new satellite programs without a  formal analysis of whether or not the satellite control needs could be met  with existing systems. In the National Defense Authorization Act for  Fiscal Year 2014, Congress placed more oversight onto this process by  requiring a cost-benefit analysis for all new or follow-on satellite systems  using a dedicated ground control system instead of a shared ground   This new requirement should improve oversight into  control system.these systems’ development, and may reduce some unnecessary  duplication of satellite control systems. According to Air Force officials,  the first program to go through this process was the Enhanced Polar  System, and all future satellite programs will include this cost-benefit  analysis in their ground system planning. In addition, the Act directed  DOD to develop a DOD-wide long-term plan for satellite ground control  systems.
Additionally, the Defense Space Council continues with its architecture  reviews in key space mission areas. According to Air Force officials, the  Council is the principal DOD forum for discussing space issues, and  brings together senior-level leaders to discuss these issues. These  architecture reviews are to inform DOD’s programming, budgeting, and  prioritization for the space mission area. The Council has five reviews  underway or completed in areas such as overhead persistent infrared,  satellite communications, space situational awareness, and national  security space launches. They are also initiating a study of how DOD can  assess the resilience of its space systems. DOD also recently held a  forum on resiliency that included participation from senior leaders from  several groups within DOD and the Intelligence Community to create a  work plan towards resolution of critical gaps in resiliency.
Many of the reforms that are being initiated may not be fully proven for  some years, because they apply mainly to programs in early acquisition  stages, and most DOD space systems are currently either in the  production phase or late in the development phase. We have not  assessed the impact of actions taken this year, but we have observed  that the totality of improvements made in recent years has contributed to  better foundations for program execution.
section_title: DOD Continues to Face Barriers to Program Oversight and Management
paragraphs: While DOD has taken steps to address acquisition problems of the past,  significant issues above the program level will still present challenges to  even the best run programs. One key oversight issue is fragmented  leadership of the space community. We have reported in the past that  fragmented leadership and lack of a single authority in overseeing the  acquisition of space programs have created challenges for optimally   Past studies  acquiring, developing, and deploying new space systems.and reviews have found that responsibilities for acquiring space systems  are diffused across various DOD organizations, even though many of the  larger programs, such as the Global Positioning System and those to  acquire imagery and environmental satellites, are integral to the execution  of multiple agencies’ missions. This fragmentation is problematic because  the lack of coordination has led to delays in fielding systems, and also  because no one person or organization is held accountable for balancing  governmentwide needs against wants, resolving conflicts and ensuring  coordination among the many organizations involved with space systems  acquisitions, and ensuring that resources are directed where they are  most needed. Though changes to organizations and the creation of the  Defense Space Council have helped to improve oversight, our work  continues to find that DOD would benefit from increased coordination and  a single authority overseeing these programs.
A program management challenge that GAO has identified, which stems  from a lack of oversight, is that DOD has not optimally aligned the  development of its satellites with associated components, including  ground control system and user terminal acquisitions. Satellites require  ground control systems to receive and process information from the  satellites, and user terminals to deliver that satellite’s information to users.  All three elements are important for utilizing space-based data, but  development of satellites often outpaces the ground control systems and  the user terminals. Delays in these ground control systems and user  terminals lead to underutilized on-orbit satellite resources, and thus  delays in getting the new capabilities to the warfighters or other end- users. In addition, there are limits to satellites’ operational life spans once  launched. When satellites are launched before their associated ground  and user segments are ready, they use up time in their operational lives  without their capabilities being utilized. Synchronization of space system  components will be an important issue for DOD in considering  disaggregating space architectures, as the potential for larger numbers  and novel configurations of satellites and ground systems will likely  require the components to be synchronized to allow them to work  together in the most effective way possible. As mentioned earlier, DOD is  taking steps in response to improvements mandated by the Congress.  But it will likely be difficult to better synchronize delivery of satellite  components without more focused leadership at a level above the  acquisitions’ program offices. For example, budget authority for user  terminals, ground systems, and satellites is spread throughout the military  services, and no one is in charge of synchronizing all of the system  components, making it difficult to optimally line up programs’ deliveries.
section_title: DOD Is Considering and Adopting Significant Changes to Space Systems Acquisitions
paragraphs: Fiscal pressures, past development problems, and concerns about the  resiliency of satellites have spurred DOD to consider significant changes  in the way it acquires and launches national security satellites.
subsections: section_title: Potential Changes to Acquiring New DOD Space Systems
paragraphs: Significant fiscal constraints, coupled with growing threats to DOD space  systems—including adversary attacks such as anti-satellite weapons and  communications jamming, and environmental hazards such as orbital  debris—have called into question whether the complex and expensive  satellites DOD is fielding and operating are affordable and will meet future  needs. For example, a single launch failure, on-orbit anomaly, or  adversary attack on a large multi-mission satellite could result in the loss  of billions of dollars of investment and a significant loss of capability.  Additionally, some satellites, which have taken more than a decade to  develop, contain technologies that are already considered obsolete by the  time they are launched.
To address these challenges, DOD is considering alternative approaches  to provide space-based capabilities, particularly for missile warning,  protected satellite communications, and environmental monitoring.  According to DOD, the primary considerations for studying these  approaches and making decisions on the best way forward relate to  finding the right balance of affordability, resiliency, and capability. These  decisions, to be made over the next 2 to 3 years, have the potential for  making sweeping changes to DOD’s space architectures of the future.  For example, DOD could decide to build more disaggregated  architectures, including dispersing sensors onto separate platforms; using  multiple domains, including space, air, and ground, to provide full mission  capabilities; hosting payloads on other government or commercial  spacecraft; or some combination of these.
Our past work has indicated that some of the approaches being  considered have the potential to reduce acquisition cost and time on a  single program. For instance, we have found that DOD’s initial preference  to make fewer large and complex satellites that perform a multitude of  missions has stretched technology challenges beyond existing  capabilities, and in some cases vastly increased the complexities of  related software. In addition, developing extensive new designs and  custom-made spacecraft and payloads to meet the needs of multiple  users limits DOD’s ability to provide capabilities sooner and contributes to  higher costs. Last year, we reported that one potential new approach,  hosted payload arrangements in which government instruments are  placed on commercial satellites, may provide opportunities for  government agencies to save money, especially in terms of launch and  operation costs, and gain access to space.
As new approaches, such as disaggregation, are considered, the existing  management environment could pose barriers to success, including  fragmented leadership for space programs, the culture of the DOD space  community, fragmentation in satellite control stations, and disconnects  between the delivery of satellites and their corresponding user terminals.  For instance, disaggregation may well require substantial changes to  acquisition processes and requirements setting. But without a central  authority to implement these changes, there is likely to be resistance to  adopting new ways of doing business, particularly since responsibilities  for space acquisitions stretch across the military services and other  government agencies. Moreover, under a disaggregated approach, DOD  may need to effectively network and integrate a larger collection of  satellites—some of which may even belong to commercial providers. We  have reported that ground systems generally only receive and process  data from the satellites for which they were developed. They generally do  not control and operate more than one type of satellite or share their data  with other ground systems. To date, however, DOD has had difficulty  adopting modern practices and technologies for controlling satellites as  well as difficulty in coordinating the delivery of satellites with the user  terminals that must be installed on thousands of ships, planes, and  ground-based assets. These are conditions that are difficult to change  without strong leadership to break down organizational stove-pipes and to  introduce technologies or techniques that could enable DOD to better  integrate and fuse data from a wider, potentially more disparate,  collection of satellites.
In light of suggestions that disaggregation could potentially reduce cost  and increase survivability, the Senate Committee on Armed Services  mandated that we assess the potential benefits and limitations of  disaggregating key military space systems, including potential impacts on  total costs. To date, we have found that the potential effects of  disaggregation are conceptual and not yet quantified. DOD has taken  initial steps to assess alternative approaches, but it does not yet have the  knowledge it needs to quantify benefits and limitations and determine a  course of action. DOD officials we spoke with acknowledge the  department has not yet established sufficient knowledge on which to base  a decision. While DOD has conducted some studies that assessed  alternative approaches to the current programs of record, some within the  department do not consider these studies to be conclusive because they  were either not conducted with sufficient analytical rigor or did not  consider the capabilities, risks, and trades in a holistic manner. For  example, according to the Office of the Secretary of Defense’s Office of  Cost Assessment and Program Evaluation, a recent Air Force study that  assessed future satellite communications architectures contained  insufficient data to support the conclusion that one architectural approach  was more resilient than others, and the cost estimates it contained did not  consider important factors, such as ground control and terminal costs, in  calculating the implications of changing architectures.
To build consensus in the department, and to conduct a more rigorous  analysis of options, DOD is currently in the process of conducting  additional studies that will consider future architectures. Included in these  studies are Analyses of Alternatives for future missile warning, protected  satellite communications, and space based environmental monitoring  capabilities.considering are approaches that keep the current system, evolve the  current system, and disaggregate the current system into more  numerous, but smaller and less complex, satellites. DOD has nearly  finished the space-based environmental monitoring study and expects to  finish the other two in either this fiscal year or next.
Among the range of alternatives these analyses are  Moreover, as DOD continues to build knowledge about different  acquisition approaches, it will be essential to develop an understanding of  key factors for decisions on future approaches that could impact the  costs, schedules, and performance of providing mission capabilities.  Some considerations for moving to a new or evolved architecture may  include the following:
Common definitions of key terms, such as resiliency and  disaggregation, across all stakeholders, and a common measurement  of these terms in order to compare architectural alternatives.
The true costs of moving to a new architecture, including transition  costs for funding overlapping operations and compatibility between  new and legacy systems and non-recurring engineering costs for new- start programs, among others.
Potential technical and logistical challenges. For example, with hosted  payloads, our past work has found that ensuring compatibility  between sensors and host satellites may be difficult because of  variable interfaces on different companies’ satellites. In addition,  scheduling and funding hosted payload arrangements may be difficult  because the timeline for developing sensors may be much longer than  that of commercial satellites.
Impacts to supporting capabilities, such as ground control and  operations and launch availability, and long-standing challenges we  have identified regarding how these have been managed.
Readiness of the acquisition workforce and industrial base to support  a new architecture.
Given that DOD is in the early stages of assessing alternatives, our  ongoing work is continuing to identify potential benefits and limitations of  disaggregation and examine the extent to which these issues are being  factored into DOD’s ongoing studies. We look forward to reporting on the  results of this analysis this summer.
section_title: Recent and Upcoming Changes to the Evolved Expendable Launch Vehicle Program
paragraphs: DOD has made some changes to the way it buys launch services from its  sole-source provider, and plans to allow other companies to compete with  that provider for launch services in the near future. DOD’s Evolved  Expendable Launch Vehicle (EELV) program is the primary provider of  launch vehicles for U.S. military and intelligence satellites. Since 2006,  the United Launch Alliance (ULA) has been the sole-source launch  provider for this program, with a record of 50 successful consecutive  government missions. From 2006 through 2013, DOD had two types of  contracts with ULA through which ULA provided launch services for  national security space launches. DOD utilized this dual-contract  structure to achieve flexibility in launch schedules and to avoid additional  costs associated with frequent launch delays.
In the last few years, though the dual contract structure met DOD’s needs  for unprecedented mission success and flexible launch capability,  predicted costs continued to rise for launch services. In response to these  cost predictions, DOD revised its acquisition strategy to allow for a “block  buy” of launch vehicles, where DOD would commit to multiple years of  launch purchases from ULA, with the goal of stabilizing production and  decreasing prices. In addition, and partially in response to GAO  recommendations, DOD gathered large amounts of information on ULA’s  cost drivers to allow DOD to negotiate significantly lower prices under the  contracting structure. In December 2013, DOD signed a contract  modification with ULA to purchase 35 launch vehicle booster cores over a  5-year period, 2013-2017, and the associated capability to launch them.  According to the Air Force, this contracting strategy saved $4.4 billion  over the predicted program cost in the fiscal year 2012 budget. We  recently reported on some of the changes included in this new contract  from the prior contracts.
In addition to this change in the way DOD buys launch vehicles, DOD is  also in the process of introducing a method for other launch services  companies to compete with ULA for EELV launches. Since 2006, when  ULA began as a joint venture between then-competitors Boeing and  Lockheed Martin, the EELV program has been managed as a sole source  procurement, because there were no other domestic launch companies  that could meet the program’s requirements. With the recent development  of new domestic launch vehicles that can meet at least some EELV  mission requirements, DOD plans to make available for competition up to  14 launches in fiscal years 2015-2017. Any launch company that has  been certified by DOD to launch national security space payloads will be  able to compete with ULA to launch these missions. DOD is currently  finalizing their plan for this competition, including what requirements will  be placed on the contractors and how they will compare proposals from  the contractors.
Based on our discussions with DOD officials, they plan to use a best  value approach for this competition, in which price is not the only  consideration. DOD will likely consider several factors when comparing  proposals for launch services for the 14 booster core competition  between ULA and new entrants, including price, mission risk, and satellite  vehicle integration risks. DOD could require competitive proposals to be  structured in several ways. If DOD requires proposals to contain both  fixed-price and cost reimbursement features for launch services and  capability, respectively, similar to the way it currently contracts with ULA,  there could be benefits to DOD and ULA, but potential burdens to new  entrants. For example, DOD is familiar with this approach and has  experience negotiating under these terms, and ULA is familiar with DOD’s  requirements given ULA’s role as the EELV’s sole launch provider. But  use of a cost type contract may negate efficient contractor business  practices and cost savings due to government data requirements under  this type of approach, and it may give ULA a price advantage because  DOD already funds launch capability for ULA. Alternatively, if DOD  implements a fixed-price commercial approach to launch proposals with  fewer data reporting requirements, DOD could lose insight into contractor  cost or pricing, but may receive lower prices from new entrants due to  these fewer data reporting requirements. DOD could also require a  combination of elements from each of these approaches, or develop new  contract requirements for this competition. We examined some of the  benefits and challenges of the first two approaches, either of which can   DOD  facilitate competitive launch contract awards, in a recent report.expects to issue a draft request for proposal for the first of the competitive  missions, where the method for evaluating and comparing proposals will  be explained, in the spring of 2014.
The planned competition for launch services may have helped DOD  negotiate the lower prices it achieved in its December 2013 contract  modification, and DOD could see further savings if a robust domestic  launch market materializes. DOD noted in its 2014 President’s Budget  submission for EELV that after the current contract with ULA has ended, it  plans to have a full and open competition for national security space  launches. Cost savings on launches, as long as they do not come with a  reduction in mission successes, would greatly benefit DOD, and allow the  department to put funding previously needed for launches into programs  in the development phases to ensure they are adequately resourced.
In conclusion, DOD has made significant progress in solving past space  systems acquisition problems, and is seeing systems begin to launch  after years of development struggles. However, systemic problems  remain that need to be addressed as DOD considers changes to the way  it acquires new systems. This is particularly important if DOD decides to  pursue new approaches that could require changes in longstanding  processes, practices, and organizational structures. Even if DOD decides  not to pursue new approaches, these problems must still be tackled. In  addition, challenging budget situations will continue to require tradeoffs  and prioritization decisions across programs, though limited funds may  also provide the impetus for rethinking architectures. We look forward to  working with Congress and DOD in identifying the most effective and  efficient ways to sustain and develop space capabilities in this challenging  environment.
Chairman Udall, Ranking Member Sessions, this completes my prepared  statement. I would be happy to respond to any questions you and  Members of the Subcommittee may have at this time.
section_title: Contacts and Acknowledgements
paragraphs: For further information about this statement, please contact Cristina  Chaplain 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 statement. Individuals who made key contributions to  this statement and related work include Art Gallegos, Assistant Director;  Pete Anderson; Virginia Chanley; Erin Cohen; Desiree Cunningham;  Brenna Guarneros; Kristine Hassinger; Laura Hook; Rich Horiuchi; Jeff  Sanders; and Roxanna Sun.
section_title: Related GAO Products
paragraphs: Introducing Competition into National Security Space Launch  Acquisitions. GAO-14-259T. (Washington, D.C.: March 5, 2014).
The Air Force’s Evolved Expendable Launch Vehicle Competitive  Procurement. GAO-14-377R. (Washington, D.C.: March 4, 2014).
Global Positioning System: A Comprehensive Assessment of Potential  Options and Related Costs is Needed. GAO-13-729. (Washington, D.C.:  September 9, 2013).
Space: Defense and Civilian Agencies Request Significant Funding for  Launch-Related Activities. GAO-13-802R. (Washington, D.C.:   September 9, 2013).
Missile Defense: Precision Tracking Space System Evaluation of  Alternatives, GAO-13-747T. (Washington, D.C.: July 25, 2013).
Satellite Control: Long-Term Planning and Adoption of Commercial  Practices Could Improve DOD’s Operations. GAO-13-315. (Washington,  D.C.: April 18, 2013).
Space Acquisitions: DOD Is Overcoming Long-Standing Problems,   but Faces Challenges to Ensuring Its Investments Are Optimized.   GAO-13-508T. (Washington, D.C.: April 24, 2013).  2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap,  and Duplication and Achieve Other Financial Benefits. GAO-13-279SP.  (Washington, D.C.: April 9, 2013).
Defense Acquisitions: Assessments of Selected Weapon Programs.  GAO-13-294SP. (Washington, D.C.: March 28, 2013).
Launch Services New Entrant Certification Guide. GAO-13-317R.  (Washington, D.C.: February 7, 2013).
Space Acquisitions: DOD Faces Challenges in Fully Realizing Benefits of  Satellite Acquisition Improvements. GAO-12-563T. (Washington, D.C.:  March 21, 2012).
Evolved Expendable Launch Vehicle: DOD Is Addressing Knowledge  Gaps in Its New Acquisition Strategy. GAO-12-822. (Washington, D.C.:  July 26, 2012).  2012 Annual Report: Opportunities to Reduce Duplication, Overlap,   and Fragmentation, Achieve Savings, and Enhance Revenue.   GAO-12-342SP. (Washington, D.C.: February 28, 2012).
Space Research: Content and Coordination of Space Science and  Technology Strategy Need to Be More Robust. GAO-11-722.  (Washington, D.C.: July 1, 2011).
Space and Missile Defense Acquisitions: Periodic Assessment Needed to  Correct Parts Quality Problems in Major Programs. GAO-11-404.  (Washington, D.C.: June 24, 2011).
Space Acquisitions: Development and Oversight Challenges in Delivering  Improved Space Situational Awareness Capabilities. GAO-11-545.  (Washington, D.C.: May 27, 2011).
Space Acquisitions: DOD Delivering New Generations of Satellites, but  Space System Acquisition Challenges Remain. GAO-11-590T.  (Washington, D.C.: May 11, 2011).
Evolved Expendable Launch Vehicle: DOD Needs to Ensure New  Acquisition Strategy Is Based on Sufficient Information. GAO-11-641.  (Washington, D.C.: September 15, 2011).
Space Acquisitions: Challenges in Commercializing Technologies  Developed under the Small Business Innovation Research Program.  GAO-11-21. (Washington, D.C.: November 10, 2010).
Global Positioning System: Challenges in Sustaining and Upgrading  Capabilities Persist. GAO-10-636. (Washington, D.C.: September 15,  2010).
Briefing on Commercial and Department of Defense Space System  Requirements and Acquisition Practices. GAO-10-315R. (Washington,  D.C.: January 14, 2010).
Defense Acquisitions: Challenges in Aligning Space System  Components. GAO-10-55. (Washington, D.C.: October 29, 2009).
Space Acquisitions: Uncertainties in the Evolved Expendable Launch  Vehicle Program Pose Management and Oversight Challenges.   GAO-08-1039. (Washington, D.C.: September 26, 2008).
Space Acquisitions: DOD Needs to Take More Action to Address  Unrealistic Initial Cost Estimates of Space Systems. GAO-07-96.  (Washington, D.C.: November 17, 2006).
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