Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management
Published: 2013-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2002 MDA has spent approximately $90 billion to provide protection from enemy ballistic missiles by developing battle management systems, sensors that identify incoming threats, and missiles to intercept them. MDA plans to spend about $8 billion per year through 2017. For nearly a decade, we have reported on MDA's progress and challenges in developing and fielding the Ballistic Missile Defense System.
GAO is mandated by law to assess the extent to which MDA has achieved its acquisition goals and objectives, as reported through acquisition baselines. This report examines the agency's progress and remaining challenges in (1) selecting new programs in which to invest; (2) putting programs on a sound development path; (3) establishing baselines that support oversight; and (4) developing and deploying U.S. missile defense in Europe for defense of Europe and the United States. To do this, GAO examined MDA's acquisition reports, analyzed baselines reported over several years to discern progress, and interviewed a wide range of DOD and MDA officials.
section_title: What GAO Found
paragraphs: Although the Missile Defense Agency (MDA) has made some progress, the new MDA Director faces challenges developing and deploying new systems to achieve increasingly integrated capabilities as well as supporting and upgrading deployed systems while providing decision makers in the Department of Defense (DOD) and Congress with key oversight information in an era of fiscal constraints.
Challenge: Improve Investment Decisions
Determining the most promising and cost effective new missile defense systems to buy--considering technical feasibility and cost--remains a challenge for MDA. While MDA has conducted some analyses that consider alternatives in selecting which acquisitions to pursue, it has not conducted robust analyses of alternatives for two of its new programs. Because of its acquisition flexibilities, MDA is not required to do so. Robust analyses, however, could be particularly useful to DOD and congressional decision makers as they decide how to manage the portfolio of missile defense acquisitions. GAO has reported in the past that without analyses of alternatives, programs may not select the best solution for the warfighter, are at risk for cost increases, and can face schedule delays.
Challenge: Expand on Steps Taken to Place Investments on a Sound Footing
In the past year, MDA gained important knowledge by successfully conducting several important tests, including a test to show how well its systems will operate together. MDA has also taken steps to lower the acquisition risks of two newer programs by adding more development time. However, development issues discovered after three programs prematurely committed to production continue to disrupt both interceptor production and flight test schedules. In addition, two other programs plan to make premature commitments to production before testing confirms their designs work as intended. MDA is planning to fly targets for the first time in its first operational test using several systems, adding risk that key information may not be obtained in this major test.
Challenge: Ensure Program Baselines Support Oversight
While MDA has made substantial improvements to the clarity of its cost and schedule baselines since first reporting them in 2010, they are still not useful for decision makers to gauge progress. For example, the information they include is not sufficiently comprehensive because they do not include operation and support costs from the military services. By not including these costs, the life cycle costs for some MDA programs could be significantly understated.
Challenge: Developing and Deploying U.S. Missile Defense in Europe
DOD declared the first major deployment of U.S. missile defense in Europe operational in December 2011, but MDA is faced with resolving some issues to provide the full capability and is facing delays to some systems planned in each of the next three major deployments. MDA has also struggled for years to develop the tools--the models and simulations--to credibly assess operational performance of systems before they are deployed. It recently committed to a new approach to resolve this problem.
section_title: What GAO Recommends
paragraphs: GAO makes four recommendations to DOD to ensure MDA (1) fully assesses alternatives before selecting investments, (2) takes steps to reduce the risk that unproven target missiles can disrupt key tests, (3) reports full program costs, and (4) stabilizes acquisition baselines. DOD concurred with two recommendations and partially concurred with two, stating the decision to perform target risk reduction flight tests should be weighed against other programmatic factors and that its current forum for reporting MDA program costs should not include non-MDA funding. GAO continues to believe the recommendations are valid as discussed in this report.

section_title: Letter
paragraphs: Since 2002, the Missile Defense Agency (MDA) has been developing and  deploying the Ballistic Missile Defense System (BMDS) to defend the  United States, our deployed forces, allies, and friends by destroying  missiles in flight. MDA has spent approximately $90 billion and plans to  continue spending around $8 billion per year through 2017 to develop a  highly complex group of systems comprised of land-, sea-, and space- based sensors to track missiles, as well as ballistic missile interceptors  and a battle management system. These systems can be integrated in  different ways to provide protection in various regions of the world. For  nearly a decade, we have reported on MDA’s progress and challenges in  developing and fielding BMDS capabilities as well as other transparency,  accountability, and oversight issues. Going forward, MDA and the  Department of Defense (DOD) could continue to face important  challenges in acquiring the BMDS as they decide how to strengthen their  investment decisions, improve acquisition management of the BMDS  effort and U.S. missile defense in Europe, and increase the transparency  they provide to congressional decision makers.
Since the 2002 National Defense Authorization Act, we have been  mandated to prepare annual assessments of MDA’s progress toward its  acquisition goals. To date, we have delivered assessments of MDA’s  progress covering fiscal years 2003 through 2011 and are currently  mandated to continue through fiscal year 2016. The National Defense  Authorization Act for Fiscal Year 2012 requires us to report on our  assessment of the extent to which MDA has achieved its stated  acquisition goals and objectives, as reported through their acquisition  baselines, and also to include any other findings and recommendations  on MDA acquisition programs and accountability as appropriate.
With the appointment of a new Director of MDA and the growing scrutiny  of defense budgets by Congress, our report examines MDA’s investment  strategy challenges as well as MDA’s challenges in developing and  fielding the U.S. portions of missile defense in Europe. Specifically, this  report highlights the agency’s progress as well as any remaining  challenges that face the new Director, including (1) selecting new  programs in which to invest; (2) putting programs on a sound  development path; (3) establishing baselines needed to support  oversight; and (4) developing and deploying U.S. missile defense in  Europe for defense of Europe and the United States. In addition, we  provide detailed information on MDA’s progress acquiring individual  systems, which MDA refers to as elements of the BMDS, in the individual  appendices.
To assess MDA’s progress and related challenges, we examined the  acquisition accomplishments of individual missile defense programs and  supporting efforts that MDA is currently developing and fielding. For  programs in the early acquisition stages, we reviewed documentation of  MDA and DOD reviews that program management officials considered  similar to an analysis of alternatives, and compared this documentation to  acquisition best practices for analysis of alternatives and DOD acquisition  guidance. We examined the agency’s Integrated Master Test Plan and  discussed the element- and BMDS-level test programs and test results  with the BMDS Operational Test Agency and the Department of  Defense’s Office of the Director of Operational Test and Evaluation as  well as with element program offices and MDA functional directorates,  such as the Directorates for Engineering and Testing. We also reviewed  MDA element acquisition strategies and compared them to our best  practice criteria. We interviewed individual element program offices and  reviewed management briefings and responses to GAO data collection  instruments which detailed key accomplishments for fiscal year 2012. To  gauge MDA element cost and schedule progress, we compared the  resource and schedule baselines as presented in the 2012 BMDS  Accountability Report (BAR) to the 2010 baselines presented in the June  2010 BAR. We also met with officials in MDA’s Acquisition Directorate  and Operations Directorate to discuss how the agency is establishing and  managing its internal baselines. We met with officials in MDA’s systems  engineering directorate, independent assessors, and the Northern and  Strategic Combatant Commands to discuss the progress of the BMDS for  homeland and regional defense in Europe. In addition, we reviewed  MDA’s modeling and simulation master plan as well as system-level  verification and validation plans. We also met with MDA officials at the  Missile Defense Integration and Operations Center as well as officials  with the BMDS Operational Test Agency to understand the status of  MDA’s modeling and simulation program, progress in resolving past  issues, and future plans. The results of these reviews are presented in  detail in the appendixes to this report, and are also integrated as  appropriate in our findings.
Towards the end of our audit work, in March 2013, the Secretary of  Defense announced a significant adjustment to existing plans for  developing and deploying missile defense systems in Europe and the  United States for the protection of the United States. In addition, DOD  proposed canceling two MDA programs in April 2013, as reflected in the  Fiscal Year 2014 President’s Budget Submission. Because the proposed  cancellations occurred in the last few weeks of our audit, we were not  able to assess the effects and incorporate this information into our report.  For more details on our scope and methodology, see appendix I.
We conducted this performance audit from March 2012 to April 2013 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: The BMDS is designed to counter ballistic missiles of all ranges—short,  medium, intermediate, and intercontinental. Short-range ballistic missiles  have a range of less than 621 miles; medium-range ballistic missiles have  a range from 621 to1,864 miles; intermediate-range ballistic missiles have  a range from 1,864 to 3,418 miles; and intercontinental ballistic missiles  have a range greater than 3,418 miles. Since ballistic missiles have  different ranges, speeds, sizes, and performance characteristics, MDA is  developing a variety of systems that, when integrated, provide multiple  opportunities to destroy ballistic missiles in flight. The BMDS includes  space-based sensors, ground- and sea-based radars, ground- and sea- based interceptor missiles, and a command and control system that  provides communication links to the sensors and interceptor missiles.  Once a ballistic missile has been launched, these sensors and  interceptors are coordinated to track or engage the threat missile during  its flight.
subsections: section_title: MDA’s Flexible Acquisition Approach and Past Steps Taken to Address Transparency
paragraphs: DOD develops its major defense acquisition systems through an  acquisition process in which programs move through significant phases in  their life-cycle. DOD programs have a materiel solution analysis phase during which DOD analyzes and  recommends materiel solutions for the identified need; a technology development phase, during which DOD reduces  technology risk and determines the appropriate set of technologies to  be integrated into the full system; a product development phase, formally known as engineering and  manufacturing development, which represents program initiation, and  during which the program focuses on integrating the system design,  developing system capability, and demonstrating the manufacturing  processes; a production and deployment phase for the purpose of achieving an  operational capability that satisfies the mission need; and an operations and support phase, where DOD works to sustain the  system in the most cost-effective manner.
When MDA was established in 2002, the Secretary of Defense granted it  exceptional flexibility to set requirements and manage the acquisition of  the BMDS in order to meet a presidential directive to deliver an initial  defensive capability against ballistic missiles in 2004. This decision  postponed application of DOD acquisition policy for BMDS elements until  they were mature enough to begin production and deployment. Because  BMDS’s entrance into DOD’s acquisition cycle is deferred, MDA is  exempt from certain laws and policies triggered by the phases of the  acquisition life-cycle that generally require major defense acquisition  programs to take steps such as the following:
Prior to beginning the technology development phase and product  development phase, conduct an analysis of alternatives to compare  potential solutions and determine the most cost-effective weapon  system to acquire.
Before the program begins the product development phase, document  key program performance, cost, and schedule goals in a baseline that  has been approved by a higher-level DOD official. The baseline is  considered the program’s initial business case—evidence that the  concept of the program can be developed and produced within  existing resources. The baseline provides decision makers with the  program’s total cost for an increment of work, average unit costs for  systems to be delivered, key dates associated with a capability, and  the weapon’s intended performance parameters.
Once a baseline has been approved, measure the program against  the approved baseline or obtain the approval of a higher-level  acquisition executive before making changes.
Once a baseline has been approved, report certain increases in unit  cost measured from the original and the current program baseline.  Unit cost is the cost divided by the quantity produced.
Prior to beginning the product development and/or production and  deployment phases of the DOD acquisition cycle, obtain an  independent life-cycle cost estimate.
While these flexibilities give MDA latitude to manage the BMDS and  enable it to rapidly develop and field new systems, we have previously  reported that the agency has used these flexibilities to employ acquisition  strategies with high levels of concurrency (that is, overlapping activities  such as testing and production) and they have also hampered oversight  and accountability.
Congress and DOD have taken steps to address concerns over MDA’s  acquisition management strategy, accountability, and oversight. Although  MDA is not yet required to establish an acquisition program baseline  pursuant to 10 U.S.C. § 2435 and related DOD policy because of the  acquisition flexibilities it has been granted, Congress has enacted  legislation requiring MDA to establish some baselines. MDA reported  baselines for several BMDS programs to Congress for the first time in its  June 2010 BMDS Accountability Report to respond to statutory  requirements in the National Defense Authorization Act for Fiscal Year  2008. Most recently, the National Defense Authorization Act for Fiscal  Year 2012 required MDA to establish and maintain baselines for program  elements or major portions of such program elements. The act specified  information to be included in the baselines such as total quantities and  quantities by fiscal year, and required an annual report of these baselines  to Congress.
In 2010, MDA created a new review process in which the agency  identified five phases of acquisition as seen in table 1.
The agency has documented the key knowledge that is needed prior to  the technology development, product development, initial production, and  production phases. For example, as part of the process, MDA requires a  program to identify alternatives to meet the mission’s needs before it can  proceed to MDA’s technology development phase. MDA officials have  stated in the past that they expect that aligning the development efforts  with the phases will help to ensure that they obtain the appropriate level  of knowledge before allowing the acquisitions to move from one phase to  the next.
section_title: U.S. Missile Defense in Europe
paragraphs: One of the most significant new thrusts in BMDS acquisitions is the  development and deployment of systems to aid in the defense of Europe  and to augment the current protection of the United States. In September  2009, the president announced a new approach called the European  Phased Adaptive Approach, which is structured around Aegis ship and  Aegis Ashore systems in addition to other various BMDS sensors. The  BMDS in Europe is planned to be deployed over time as the systems  become more mature. The final phase of U.S. missile defense in Europe  is planned to enhance the limited defense of the United States against  intercontinental ballistic missiles currently provided by the U.S. based  Ground-based Midcourse Defense (GMD) system. Towards the end of  our audit work, in March 2013, the Secretary of Defense made an  announcement that canceled the final phase of U.S. missile defense in  Europe that had planned to use Aegis BMD SM-3 Block IIB interceptors,  and announced several other plans including deploying additional ground  based interceptors in Fort Greely, Alaska, and deploying a second  AN/TPY-2 radar in Japan. Because this announcement occurred late in  our audit, we were not able to assess the effects and incorporate this  information into our report.
The DOD 2010 Ballistic Missile Defense Review stated that other regional  missile defenses are to be developed, each tailored to a specific region of  the world and its particular threats and circumstances. The BMDS in  Europe is the first such approach to missile defense to be developed. We  reported in January 2011 that DOD was planning for additional regional  defenses in East Asia and the Middle East.
section_title: Description of BMDS Elements
paragraphs: Table 2 describes BMDS elements discussed in this report, the defensive  capabilities each currently provides or plans to provide for a particular  mission, and their current MDA acquisition phase.
Figure 1 depicts the BMDS elements that could be used to engage a  threat missile during the course of its flight.
An engagement scenario using the Aegis BMD element, for example,  could occur as follows:
After the launch of a threat missile, the Space Based Infrared System,  an Air Force system of satellites that detect ballistic missile launches,  detects the launch and sends a cue to the Command, Control, Battle  Management, and Communications system.
The Command, Control, Battle Management, and Communications  system tells one or more Army Navy/Transportable Radar  Surveillance and Control Model 2 radars to track the threat missile.
The radars provide track information to the Command, Control, Battle  Management, and Communications system which develops system  track data to support Aegis BMD engagements.
Relying on data provided by the Army Navy/Transportable Radar  Surveillance and Control Model 2 radars and its own SPY-1 radar, the  Aegis BMD ship uses SM-3 missiles to intercept and attempt to  destroy the threat.
section_title: Challenge: Improve Investment Decisions
paragraphs: A key challenge DOD and MDA’s new Director face is ensuring that the  Department is getting the best value for its missile defense investments,  particularly as MDA faces growing fiscal pressure as it develops new  programs while supporting and upgrading its existing systems. We have  frequently reported on the importance of establishing a sound basis  before committing resources to developing a new product. We have also  reported that part of a sound basis is a full analysis of alternatives  (AOA). An AOA also helps ensure that key DOD and congressional  decision makers understand why the chosen system was selected in  order to prioritize limited investment dollars to achieve a balanced BMDS  portfolio. Because of MDA’s acquisition flexibilities, its programs are not  required to complete an AOA. While MDA has performed some limited  analyses that consider alternatives, it has not conducted a robust AOA for  its new programs. We have reported that without AOAs, programs may  not select the best solution for the warfighter, are at risk for cost  increases, and can face schedule delays. However, some progress was  made in January 2013 when Congress directed DOD to conduct a  comprehensive assessment of PTSS alternatives.
subsections: section_title: Limited Analyses of Alternatives Put BMDS Programs at Risk
paragraphs: An AOA can help establish a sound basis for an acquisition by comparing  potential solutions and determining the most promising and cost-effective  weapon system to acquire. As such, major defense acquisition programs  are generally required by law and DOD’s acquisition policy to conduct an  AOA before they are approved to enter the technology development  phase. A robust AOA can provide decision makers with the information  they need by helping establish a sound basis that is used to assess  whether a concept can be developed and produced within existing  resources and if it is the best solution to meet the warfighter’s needs. It  accomplishes this by providing a foundation for developing and refining  the program’s requirements, and giving insight into the technical feasibility  and costs of alternatives. Specifically, an AOA should address key  questions, such as the following:
Did an AOA occur at the appropriate time?
What alternatives meet the warfighter’s needs?
Are the alternatives operationally suitable and effective?
Can the alternatives be supported?
What are the programmatic (e.g., cost or schedule), technical, and  operational risks for each alternative?
What are the development, production, deployment, and support  costs for each alternative?
How do the alternatives compare to one another?
In addition, as we reported in September 2009 and again in September  2012, AOAs should be completed early enough in the acquisition cycle,  prior to the start of technology development, to provide time for  adjustments to requirements before those requirements are finalized.
Because of the flexibilities that have been granted to MDA, its programs  are not required to complete an AOA before starting technology  development. Nevertheless, MDA’s acquisition directive requires  programs to show they have identified competitive alternative materiel  solutions before they can proceed to MDA’s technology development  phase. However, this directive provides no specific guidance on how this  alternatives analysis should be conducted or what criteria should be used  to identify and assess alternatives, such as risks and costs. According to  DOD, the office of the Director for Cost Assessment and Program  Evaluation develops and approves study guidance for AOAs for other  major defense acquisition programs. MDA could look to that office for  support should it decide to undertake more robust analyses of  alternatives.
While MDA has conducted some analyses that consider alternatives, it  has not conducted robust AOAs for its new programs—the Aegis BMD  SM-3 Block IIB and PTSS programs.
We recently reported the SM-3 Block IIB program did not conduct an  AOA prior to beginning technology development. While the program  assessed some alternatives that could potentially achieve early  intercept, it did not include other key aspects of an AOA, such as  considering a broad range of alternatives and performing a cost- effectiveness assessment of the concepts considered. Recent MDA  technical analysis has led to changes in the initial program  assumptions about how to use the SM-3 Block IIB and suggests  additional development and investment by the program will be needed  to defend the United States. Further, potential missile configurations  that are under consideration may provide increased capability for the  SM-3 Block IIB but also pose significant cost and safety risks. To  some extent, these program issues may have been driven by the  early decision to narrow solutions without the benefit of an AOA.
Although the PTSS program has conducted a number of studies in the  past, none can be considered a robust AOA because they either  assessed too narrow a range of alternatives or did not fully assess  program and technical risks. Congress included a requirement in the  National Defense Authorization Act for Fiscal Year 2013 for DOD to  evaluate PTSS alternatives partially in response to concerns raised by  the National Academy of Sciences last year about the costs and  benefits of the PTSS program. DOD’s Cost Assessment and  Program Evaluation office is currently in the process of conducting a  comprehensive review of PTSS that may include many aspects of an  AOA, but it is unclear at this point if it will be thorough enough to  determine the best concept.
By not conducting robust AOAs, these programs are at risk for developing  weapon systems that may not be the best solution to meet the  warfighter’s needs and having cost, schedule, and technical problems. It  also means that key DOD and congressional decision makers may have  a limited understanding of the reason these systems were selected.
section_title: AOAs Could Help MDA Balance and Prioritize Its Portfolio of Investments
paragraphs: In the past few years, MDA has had declining budgets, some program  cancellations, and curtailment of other programs partially because of  affordability concerns. Looking forward, MDA faces important decisions  about how it will balance and prioritize its portfolio of BMDS investments  as it increasingly develops new programs while supporting and upgrading  existing deployed systems. We have previously reported that successful  organizations follow a disciplined process to assess alternatives to help  them achieve a balanced portfolio that spreads risk across products,  aligns with strategic goals and objectives, and maximizes return on  investment. To this end, AOAs help decision-makers prioritize limited  investment dollars by assessing operational benefits against technical  and affordability challenges of individual systems before committing  resources in order to achieve a balanced portfolio that meets strategic  goals within available resources. AOAs are therefore a key first step in  establishing a sound basis for acquisitions.
MDA’s annual budget peaked in fiscal year 2007 at $9.4 billion but has  since trended downwards to a requested $7.8 billion in fiscal year 2013.  Since fiscal year 2009, DOD canceled three programs because of  technical issues, schedule delays, and concerns about the cost- effectiveness or operational role of the programs. In fiscal year 2009,  DOD terminated the Kinetic Energy Interceptors program, which was  developing a high velocity booster rocket designed to intercept missiles in  the boost and middle phases of flight, and the Multiple Kill Vehicle  program, which was developing a way to place multiple kill vehicles on an  interceptor. DOD terminated these programs after spending  approximately $2.5 billion on their development. In addition, in fiscal year  2012, DOD canceled the Airborne Laser program, which placed a high- energy chemical laser onboard an airplane designed to intercept missiles,  after spending over $5 billion on its development.
To improve acquisition outcomes and achieve strategic goals for the  United States and regional missile defense, MDA faces continuing  portfolio challenges during this period of continuing fiscal pressure. DOD  already curtailed several existing BMDS programs in fiscal year 2012  because of affordability concerns. For example, after approximately $2  billion had been spent in several years of development, the SBX sea- based radar was downgraded from operational status to a limited test  status because of funding limitations. Despite demand for THAAD  batteries from military commands, MDA reduced the number of such  purchases from nine to six to meet budget constraints. Partially as a  result, procurement of the AN/TPY-2, a ground-based radar component of  the THAAD battery as well as a stand-alone forward-based sensor, was  also reduced from 18 to 11.
Balancing its portfolio of investments going forward will be a challenge as  MDA plans to develop a number of new systems, such as PTSS and  multiple versions of advanced interceptors for the Aegis BMD program,  during the next few years while at the same time beginning full production  for several new weapon systems, such as Aegis Ashore and the Aegis  BMD SM-3 Block IB missile. In addition, it will continue to fund full  operation and support costs for the GMD element. MDA also plans to  share some of those costs with the services for other elements that are  already being produced, such as the AN/TPY-2 radar and THAAD. AOAs  could play a constructive role as MDA manages its portfolio of  acquisitions.
section_title: Challenge: Expand on Steps Already Taken to Place Investments on a Sound Footing
paragraphs: MDA gained important knowledge through its test program and took some  positive steps to reduce acquisition risks for two of its programs. MDA  increased its understanding of BMDS performance after successfully  conducting its most complex integrated air and missile defense flight test  to date as well as other important tests for the THAAD and Aegis BMD  SM-3 Block IB programs. MDA also reduced the acquisition risk for two  programs by delaying commitments to development until after the  programs could demonstrate that the technologies and resources  available are aligned with requirements. However, the Director of MDA  faces continuing challenges addressing issues that stem from previous  premature production commitments and minimizing further use of high  risk acquisition strategies. We reported in March 2009 that MDA was  pursuing a concurrent development, manufacturing, and fielding strategy  in which assets are produced and fielded before they are fully  demonstrated through testing and modeling. We have previously  reported that committing to production and fielding before development is  complete is a high risk strategy that often results in performance  shortfalls, unexpected cost increases, schedule delays, and test  problems. Moreover, best practices of successful organizations include  a knowledge-based process in which each successive knowledge point  builds on the preceding one, giving decision makers the knowledge they  need, when they need it, to make decisions about whether to invest  significant funds to move forward. High levels of acquisition risk  continue to be present in many of the elements’ acquisition strategies. For  example, as we reported last year, MDA’s production problems were  magnified by high levels of overlap—or concurrency—between product  development and production. Although the stated rationale for this  overlap is to introduce systems in a timelier manner and to maintain an  efficient industrial development and production workforce, MDA’s Aegis  BMD, GMD, and THAAD interceptor production have been significantly  disrupted during the past few years due to this concurrency, delaying  planned deliveries to the warfighter, raising costs, and disrupting the  industrial base. Program plans for the Aegis Ashore and PTSS also  include high acquisition risks due to planned premature commitments to  production. In addition, we reported in April 2012 that risk reduction flight  tests are conducted the first time a system is tested in order to confirm  that it works before adding other test objectives and that MDA’s flight test  program had been disrupted by the lack of those risk reduction flight  tests. Looking forward, the risks for an upcoming complex test involving  multiple MDA systems are elevated because MDA is planning to use a  new type of target for the first time in this critical operational test.
subsections: section_title: MDA Increased Its Understanding of BMDS Performance by Successfully Conducting Several Key Flight Tests
paragraphs: MDA conducted the largest integrated air and missile defense flight test to  date, achieving near simultaneous intercepts of multiple targets by  various BMDS interceptors. Flight Test Integrated-01, conducted October  2012, was a combined developmental and operational flight test that for  the first time utilized warfighters from multiple combatant commands and  employed multiple missile defense systems including THAAD, Aegis  BMD, and the Patriot Advanced Capability-3. All five targets, three of  which were ballistic missiles and two of which were cruise missiles, were  launched and performed as expected during this test. This is a significant  achievement because, as we have reported in the past, troubles with  target performance in prior years have hindered MDA’s ability to conduct  flight testing and achieve planned objectives. In addition, during this test,  THAAD achieved its objectives by intercepting a medium-range target for  the first time and an Aegis ship conducted another successful standard  missile-2 engagement against a cruise missile. The SM-3 Block IA failed  to intercept its target during the BMD portion of the event. This test also  provided valuable data to evaluate interoperability and integration  between THAAD, Aegis BMD, Patriot Advanced Capability-3, C2BMC,  and various sensors during a live engagement.
In May and June 2012, the Aegis BMD program successfully completed  intercepts using the new SM-3 Block IB missile which demonstrated  increased capability for some of the system’s components. In May 2012,  the program intercepted a short-range target with its Block IB missile for  the first time. The test demonstrated, among other things, the missile’s  improved capability to track and identify objects in space. In June 2012,  the Aegis BMD SM-3 Block IB program completed another successful  intercept test. During this test the missile intercepted a separating target  and provided more insight into the missile’s enhanced ability to  discriminate the target from other objects during an engagement.
THAAD successfully conducted its first operational flight test in October  2011 before entering full-rate production. This was also the first time  Army and DOD test and evaluation organizations were involved to  confirm that the test and the test results were representative of the fielded  system. During the test, the THAAD system fired two interceptors and  successfully—and nearly simultaneously—intercepted two short-range  targets. The test demonstrated THAAD’s ability to perform under  operationally realistic conditions (within the constraints of test range  safety), from initial stages of mission planning through the completion of  the engagement. Additionally, this test incorporated fixes to a required  safety device and supported the resumption of interceptor manufacturing.  The Army also used this test as support for accepting the first two THAAD  batteries for use by the warfighter.
section_title: MDA Reduced the Acquisition Risk in the Aegis BMD SM-3 Block IIA and Block IIB Programs
paragraphs: MDA has taken steps to reduce acquisition risk by decreasing the overlap  between technology development and product development for two of its  programs—the Aegis BMD SM-3 Block IIA and the SM-3 Block IIB  programs. Reconciling gaps between requirements and available  resources before product development begins makes it more likely that a  program will meet cost, schedule, and performance targets.
The Aegis BMD SM-3 Block IIA program added time and money to  the program to extend development. Following significant technology  development problems with four components, MDA delayed the  system preliminary design review—during which a program  demonstrates that the technologies and resources available are  aligned with requirements—for more than 1 year, thereby reducing its  acquisition risk. As a result, in March 2012, following additional  development of the four components, the program was able to  successfully complete the review.
The Aegis BMD SM-3 Block IIB program responded to our April 2012  recommendation to reduce acquisition concurrency by delaying the  start of product development until after its preliminary design review  was complete. By delaying the start of product development, the  program increased the amount of technical knowledge it plans to  achieve prior to committing to development. Additionally, the program  is leveraging competition among contractors during the technology  development phase, which we reported in April 2012 increases  technical innovation. Program management officials stated they  have already seen benefits from this competition. For example, they  stated they have a better understanding of the program’s progress,  performance possibilities for the missile, and risks associated with  those possibilities.
section_title: MDA Continues Risky Acquisition Strategies for Six Other Programs, Some Already Resulting in Cost and Schedule Disruptions
paragraphs: Despite significant cost and schedule disruptions resulting from elevated  acquisition risks in the Aegis BMD SM-3 Block IB, GMD, and THAAD  programs, MDA continues to follow high risk acquisition strategies for its  Aegis Ashore, PTSS, and Targets and Countermeasures programs. We  reported in April 2012 that the Aegis BMD SM-3 Block IB, GMD, and  THAAD programs discovered problems during developmental testing— and after production had begun—which delayed planned deliveries to the  warfighter, increased costs, and affected MDA’s supplier base. In  addition, for the Aegis BMD SM-3 Block IB and GMD programs, these  issues also affected the performance of delivered missiles and created  pressure to keep producing to avoid work stoppages even when problems  were discovered in testing. In fiscal year 2012, the SM-3 Block IB and  GMD programs continued to work on the issues that disrupted their  production, but the THAAD program was able to overcome most of its  issues. The Aegis Ashore and PTSS programs are also undertaking high  risk acquisition strategies that include premature commitments to  production that could result in schedule delays, cost increases, and  performance shortfalls. Additionally, the Targets and Countermeasures  acquisition strategy is adding risk to an upcoming major operational flight  test because it is planning to use undemonstrated targets in this complex  and costly test involving multiple MDA systems.
In 2012, the Aegis BMD SM-3 Block IB was able to partially overcome the  production and testing issues exacerbated by its concurrent development  and production strategy. MDA prematurely began purchasing SM-3 Block  IB missiles beyond the number needed for developmental testing in 2010.  In 2011, developmental issues arose when the program experienced a  failure in its first developmental flight test and an anomaly in a separate  SM-3 Block IA flight test, in a component common with the SM-3 Block  IB. As a result, production was disrupted when MDA slowed production of  the SM-3 Block IB interceptors and reduced planned quantities from 46 to  14. In 2012, the program was able to successfully conduct two flight tests  which allowed the program to address some of the production issues by  demonstrating a fix made to address one of the 2011 flight test issues.  However, development issues continue to delay the program’s fiscal year  2012 schedule and production. For example, MDA experienced further  difficulties completing testing of a new maneuvering component— contributing to delays for a third flight test needed to validate the SM-3  Block IB capability and also subsequently delaying a production decision  for certain components from December 2012 to February 2013.
In order to avoid further disruptions to the production line, the program  plans to award the next production contract for some missile components  needed for the next order of 29 SM-3 Block IB missiles in February  2013—before the third flight test can verify the most recent software  modifications. The program then plans to award the contract to complete  this order upon conducting a successful flight test planned for the third  quarter of fiscal year 2013.The program is at risk for costly retrofits,  additional delays and further production disruptions if issues are  discovered during this flight test.
The GMD program continues to have production delays and cost  increases intensified by its concurrent development and production  strategy. In order to meet a presidential directive to field a limited  capability to defend the United States, MDA simultaneously developed,  produced and fielded the GMD system. In 2004, the agency fielded five  GMD interceptors configured with the program’s initial kill vehicle design  referred to as the Capability Enhancement-I (CE-I) prior to completing  development and testing. Although MDA had not yet fully completed  development or demonstrated the full capability of these initial  interceptors, in 2004 it committed to another highly concurrent acquisition  strategy to develop, produce, and field additional interceptors with an  upgraded kill vehicle known as the Capability Enhancement-II (CE-II).  MDA proceeded to concurrently develop, manufacture and deliver 12 of  these interceptors before halting manufacturing and delivery of  interceptors due to a second flight test failure in December 2010. To  address the causes of the failure, the program redesigned a component  in the kill vehicle’s guidance system and is also planning to implement  some changes to the firmware associated with it. MDA planned to  conduct two flight tests in 2012 to demonstrate the new design and  resume manufacturing the interceptors. While the program was unable to  conduct either test as planned, MDA conducted the first resolution test in  January 2013, a non-intercept test, known as Control Test Vehicle-01.
While initial indications are that all components worked as intended, at  the time of this review, analysis was ongoing.
We reported in April 2012 that the discovery of the design problem while  production was already under way increased MDA costs to demonstrate  and fix CE-II capability from approximately $236 million to over $1.2  billion. This cost increase was due to the added costs of additional flight  tests including the costs of the target and test-range, investigating the  failure, developing failure resolutions, and fixing the already delivered CE- II missiles. Costs continue to grow because MDA has had to further delay  the next CE-II intercept test originally planned for fiscal year 2012.  Moreover, at the time of this review, the next CE-II intercept test date is  yet to be determined as MDA is considering various options, including  adding another flight test.
As we reported in April 2012, problems encountered while THAAD was  concurrently designing and producing interceptors led to slower delivery  rates of interceptors for the first and second THAAD batteries. During  fiscal year 2011 after several years’ delay, 11 of the expected 50  operational interceptors were delivered. In fiscal year 2012, after a 15- month delay and increased costs, the program was able to deliver the  remainder of the interceptors needed for the first two batteries after  completing necessary testing of a safety device.
The Aegis Ashore program, as we reported in April 2012, initiated product  development and established cost, schedule, and performance baselines  prior to completing the preliminary design review. Further, we reported  that this sequencing increased technical risks and the possibility of cost  growth by committing to product development with less technical  knowledge than recommended by acquisition best practices and without  ensuring that requirements were defined, feasible, and achievable within  cost and schedule constraints. In addition, the program committed to buy  components necessary for manufacturing prior to conducting flight tests  to confirm the system worked as intended. As a result, any design  modifications identified through testing would need to be retrofitted to  produced items at additional cost. However, the MDA Director stated in  March 2012 that the Aegis Ashore development is low risk because of its  similarity to the sea-based Aegis BMD. Nonetheless, this concurrent  acquisition plan means that knowledge gained from flight tests cannot be  used to guide the construction of Aegis Ashore installations or the  procurement of components for operational use.
The PTSS program approved its third acquisition strategy in October  2012, and continues to include several important aspects of sound  acquisition practices, such as competition and short development time  frames. However, it also contains overlap between development and  production. The PTSS program plans to finalize the satellite design,  select a manufacturer, and commit to producing components for the next  two operational satellites—all while a laboratory team develops and  manufactures the first two satellites. This approach will not enable  decision makers to fully benefit from the knowledge about the design to  be gained from on-orbit testing of the laboratory-built satellites before  committing to the next industry-built satellites. Also, these first four  satellites will be operational satellites, forming part of the operational nine  satellite constellation until they are replaced between 2025 and 2027. As  a result, if on-orbit testing reveals the need for hardware changes, the  program may face cost increases to implement changes, and the  operational constellation may face performance shortfalls as it will not  fully benefit from those changes until the initial four satellites are  replaced.
MDA’s first use of a new target in its upcoming major operational flight  test is adding risk to that test. This flight test, called Flight Test  Operational-01, is planned to be one of the most complex tests MDA has  attempted. This test will demonstrate the ability of multiple BMDS  elements to defeat a raid of up to five near-simultaneous regional threats  including two new air-launched extended medium-range ballistic missile  targets, a short-range ballistic missile target, and two cruise missiles. The  risk of this test is higher than it would otherwise be because MDA is using  newly designed medium-range targets for the first time instead of first  demonstrating them in a less complex and expensive scenario. Using  these new targets puts this major test at risk of not being able to obtain  key information should the targets not perform as expected.  Developmental issues with this new medium-range target as well as  identification of new software requirements have already contributed to  delaying the test, which was originally planned for the fourth quarter of  fiscal year 2012 and is now planned for the fourth quarter of fiscal year  2013.
section_title: Challenge: Ensure Program Baselines Support Oversight
paragraphs: While MDA made substantial improvements to the clarity of its reported  cost and schedule baselines in fiscal year 2012, the information  underlying these baselines is not yet sufficiently reliable. In addition,  MDA’s estimates are not comprehensive because they do not include  costs from military services in reported life cycle costs for its programs.  Instability in the form of MDA’s frequent adjustments to its acquisition  baselines makes assessing progress over time extremely difficult and, in  many cases, impossible. Since we began annual reporting on missile  defense in 2004, we have made a number of recommendations—and  Congress has passed a number of laws—directing MDA to establish  baselines for the expected cost, schedule, and performance of the BMDS  and report deviations from the baseline as the programs progress. These  recommendations and laws have offered a number of approaches to  provide necessary information while preserving the MDA Director’s  acquisition flexibility. However, despite some positive steps forward since  2004, issues remain that limit the ability to meaningfully assess BMDS  cost and schedule progress.
subsections: section_title: Although MDA Improved the Clarity of Its Reported Baselines, They Are Not Sufficiently Reliable or Comprehensive to Support Oversight
paragraphs: Most major defense acquisition programs are required to establish  baselines prior to beginning product development. These baselines, as  implemented by DOD, include key performance, cost, and schedule  goals. Decision makers can compare the current estimates for  performance, cost, and schedule goals against a baseline in order to  measure and monitor progress. Identifying and reporting deviations from  the baseline in cost, schedule, or performance as a program proceeds  provides valuable information for oversight by identifying areas of  program risk and its causes to decision makers. Baselines also help  ensure that the full financial commitment is considered before embarking  on major development efforts.
MDA, in response to statutory requirements, reported detailed baselines  for several BMDS program elements, or portions of those program  elements, for the first time in its June 2010 BMDS Accountability Report  (BAR). These baselines are not like the baselines reported for other  major defense acquisition programs. MDA established resource,  schedule, test, operational capacity, technical, and contract baselines.  They were established for BMDS elements that, according to MDA, have  entered product development but are not yet mature enough to enter the  formal DOD acquisition cycle for full-rate production and deployment.  MDA’s baselines reported in the BAR are updated annually. Only the  resource and schedule baselines have measureable goals and separately  report and explain when the current program cost and schedule estimates  have deviated to a certain extent from the baseline set in the prior year’s  BAR. For that reason, we focus our assessment on these two baselines.
The baselines reported in the 2012 BAR are for BMDS elements or major  portions of those elements. For example, a major portion of an element  may include an individual software version of the C2BMC element or an  initial capability for GMD homeland defense. The 2012 BAR resource and  schedule baselines we reviewed are
Aegis BMD SM-3 Block IB with second generation weapon system
Aegis BMD modernized weapon system software;
Aegis Ashore;
AN/TPY-2 increment 1—enables multiple radars to be managed and  provides improved track accuracy, among other improvements;
GMD initial homeland defense for a fundamental capability against  intermediate- and long-range ballistic missile threats;
THAAD 1.0 for a fundamental capability against short- and medium- range ballistic missiles; and
Targets and Countermeasures intermediate-, medium-, and short- range ballistic missiles.
MDA’s 2012 resource baselines report costs for all the categories of the  life-cycle—research and development, procurement, military construction,  operations and support, and disposal costs. The 2012 BAR also reports  unit costs, which are usually reported in two ways:  (1)  average procurement unit cost—the average cost to produce one  (2)  program acquisition unit cost—the average cost to develop and  produce one unit.
According to the 2012 BAR, MDA separately reported and explained unit  costs that increased by more than 5 percent from the prior year’s  baseline.
The schedule baseline includes key milestones and tasks, such as  important decision points, significant increases in performance  knowledge, modeling and simulation events, and development efforts.  Some schedule baselines also show time frames for flight and ground  tests, as well as for fielding and events to support fielding. According to  the 2012 BAR, MDA also separately reported and explained events  delayed three months or more from the prior year baseline.
In its 2012 BAR, MDA made several useful changes to its reported  resource and schedule baselines in response to our concerns and  congressional direction. We reported in March 2011 that MDA’s schedule  and resource baselines had several issues with clarity that limited their  usefulness for oversight such as only reporting portions of life cycle  costs. In that report, we recommended that MDA provide more detailed  explanations and definitions of information included in the resource  baselines, label cost estimates to reflect the content reported and explain  any exclusions, and include all sunk costs in all of its cost estimates and  baselines. MDA concurred with two of these recommendations but stated  that it did not intend to include sunk costs into its unit costs for Targets  and Countermeasures because, based on the extensive reuse of  previous missile components in the targets program, including all sunk  costs would not reflect MDA program costs accurately. Congress, in the  National Defense Authorization Act for Fiscal Year 2012, added more  detailed requirements for the contents of MDA’s acquisition baselines.
MDA addressed many issues affecting the clarity, consistency, and  completeness of information reported in its BAR baselines by  reporting the full range of life cycle costs borne by MDA in the 2012  BAR resource baselines; defining more clearly what costs are presented in the resource  baselines and also noting and explaining when costs were excluded  from the estimates; and  including costs already incurred in the unit cost for Targets and  Countermeasures so they were more complete.
In its 2012 BAR, MDA also addressed issues with its schedule baseline  identified in our March 2011 report. For example, we found the BAR  lacked a comprehensive list of planned deliveries and did not report major  changes in planned dates for deliveries. Further, we recommended that  the Secretary of Defense should ensure that MDA, as part of its  acquisition baseline, include (1) a comprehensive list of actual versus  planned quantities of assets that are or were to be delivered each fiscal  year and (2) a report on variances of these quantities by fiscal year and  the reasons for these differences. As a new addition to its 2012 BAR,  MDA addressed this first recommendation by adding a separate delivery  table that provides more detailed information on deliveries and  inventories. However, we are not yet able to assess significant changes  to all of the planned delivery dates reported in the 2012 BAR because this  was the first year that the information was reported in this format.
To provide further insight into its reported baselines, MDA also added a  list of significant decisions made or events that occurred in the past  year—either internal or external to the program—that affected program  progress or baseline reporting. The agency also explained how these  decisions or events affected each program. For example, DOD reduced  AN/TPY-2 radar quantities which shortened the time to complete radar  deliveries. These changes are reflected in the schedule baseline and the  increase in unit costs. Understanding the effect of these decisions and  events provides a valuable source of information for understanding why  current estimates for unit costs or scheduled activities may differ from  those reported either in the original or prior year’s baseline.
While MDA has made some progress improving the clarity of its baseline  reports, the agency has not yet addressed the underlying reliability issues  with the cost estimates and schedules used to develop these baselines.  One of the issues with the reliability of these estimates is that they are not  comprehensive because they do not include costs from military services  in reported life cycle costs for its programs. Until MDA’s baselines are  based on reliable information and are comprehensive, they will not be  useful for decision makers to understand progress.
Although MDA has plans in place, it has made little progress improving  the quality of its cost estimates that support its resource baseline since  we made a recommendation to improve these estimates in our March  2011 report. In that report, we assessed MDA’s life cycle cost estimates  using the GAO Cost Estimating and Assessment Guide. This guide is  based on best practices in cost estimating and identifies key criteria for  establishing high quality cost estimates. Our review found that the  estimates we assessed were not comprehensive, lacked documentation,  were not completely accurate, or were not sufficiently credible. For  example, the MDA documentation lacked sufficient evidence to be  considered a high-quality cost estimate.
In June 2012, MDA completed an internal Cost Estimating Handbook,  largely based on our guide, which, if implemented, could help address  nearly all the shortfalls we identified in 2011. According to MDA’s Director  of Operations, the agency is also assembling an independent cost group  to carry out the processes outlined in its handbook. Because the  handbook was only recently completed, it is too early to assess whether  the quality of MDA’s cost estimates has improved.
According to our guide, completing and documenting an independent cost  assessment is a key criteria for establishing reliable cost estimates. While  DOD major defense acquisition programs must obtain an independent  cost estimate before advancing through certain major milestones, MDA  has been exempted from these requirements. Nevertheless, DOD has  conducted independent cost estimates for early versions of the Aegis  BMD program, and for portions of the Space Tracking and Surveillance  System, GMD, and THAAD programs. In addition, the Office of the  Director for Cost Assessment and Program Evaluation is currently  completing an independent cost estimate for PTSS that is planned to be  released in the spring of 2013. According to officials from the Office of the  Director for Cost Assessment and Program Evaluation, assessments  have also been completed for the Aegis BMD program elements as part  of a cost estimate for U.S. missile defense in Europe that has not yet  been released. Once these estimates are released, we will review the  Cost Assessment and Program Evaluation Office’s findings related to  them. Independent cost estimates for additional MDA elements will further  improve the credibility of MDA’s estimates.
In addition, according to our guide, the cost estimate should be  comprehensive. Comprehensive estimates include both government and  contractor costs of the program over its full life cycle, from inception of the  program through design, development, deployment, and operation and  support to retirement. The agency made improvements to its resource  baselines to include all of the life cycle costs funded by MDA from  development through retirement of the program. However, the baselines  do not include the operation and support costs funded by the individual  military services. MDA officials told us in 2011 that they do not consider  military service operation and sustainment funds to be part of a baseline  because the services—not MDA—execute the funds. We recognize that  the services execute these funds; however, they are part of the program’s  life cycle costs. It is unclear what percentage these costs are in the case  of MDA elements because these estimates have not been reported,  however for other programs outside of MDA they can be significant. By  not including military service costs, the life cycle costs for some MDA  programs could be significantly understated.
Similarly, in our July 2012 report, we used our Schedule Assessment  Guide to assess five MDA program element schedules that support the  baselines. We reported that none fully met the best practices identified in  the guide. Some schedules had major deficiencies. While our analysis  of these five programs cannot be generalized to apply to all MDA  programs, these results are nevertheless significant because a reliable  schedule is one key factor that indicates a program is likely to achieve its  planned outcomes. The Department of Defense concurred with our  recommendations and MDA programs have taken some actions to  improve their schedules. However, MDA has not yet had time to fully  address our recommendations. We plan to continue to monitor their  progress because establishing sound and reliable schedules is  fundamental to creating realistic schedule and cost baselines.
section_title: Instability in the Content of Reported Baselines Makes Assessing Progress Difficult or Impossible
paragraphs: In order for baselines to be useful for managing and overseeing a  program, they need to be stable over time so progress can be measured  and so that decision makers can determine how best to allocate limited  resources. However, MDA only reports annual progress by comparing  its current estimates for unit cost and scheduled activities against the  prior year’s estimates. As a result, MDA’s baseline reports are not useful  for tracking longer term progress. In contrast, DOD reports longer term  progress for its other major defense acquisition programs. When we  sought to make a longer-term comparison of the latest 2012 unit cost and  schedule estimates against the original baselines set in 2010, we found  that such a calculation could not be made in many instances because the  content of the baselines had been adjusted from year to year in such a  way that the baselines were no longer comparable. For example, a  substantial amount of new program activities and costs were added to the  reported baseline or work activities and costs were moved out of the cost  or schedule baseline and placed into other baselines. In addition, there  were instances where calculating a one-year change provided no insight  into program progress because of these baseline adjustments. Specifics  follow on Aegis Ashore, GMD, and Targets and Countermeasures.
As we reported in April 2012, the instability of content in the Aegis Ashore  program’s resource baseline obscures our assessment of the program’s  progress. MDA prematurely set the baseline before program  requirements were understood and before the acquisition strategy was  firm. The program established its baseline for product development for  the Romania and Hawaii facilities in June 2010 with a total cost estimate  of $813 million. However 3 days later, when the program submitted this  baseline to Congress in the 2010 BAR, it increased the total cost estimate  by 19 percent, to $966 million. Since that time, the program has added a  significant amount of content to the resource baseline to respond to  acquisition strategy changes and requirements that were added after the  baseline was set. Because of these adjustments, from the time the total  estimated cost for Aegis Ashore in Romania and Hawaii was first  approved in June 2010 at $813 million, it has nearly doubled to its  estimate of $1.6 billion reported in the February 2012 BAR. These major  adjustments in program content made it impossible to understand annual  or longer-term program progress.
These adjustments also affected the schedule baseline for Aegis Ashore.  For example, many new activities were added to the baseline in 2012. In  addition, comparing the estimated dates for scheduled activities listed in  the 2012 BAR to the dates baselined in the 2010 BAR is impossible in  some cases because activities from the 2010 BAR were split into multiple  events, renamed, or eliminated all together in the 2012 BAR. MDA also  redistributed planned activities from the Aegis Ashore schedule baselines  into several other Aegis BMD schedule baselines. For example, activities  related to software for Aegis Ashore were moved from the Aegis Ashore  baseline and were split up and added to two other baselines for the  second generation and modernized Aegis weapon systems software.  Rearranging content made tracking the progress of these activities  against the prior year and original baseline very difficult and in some  cases impossible. As a result, appendix III contains a limited schedule  assessment of near-term and long-term progress based on activities we  were able to track in the BAR.
GMD is moving activities and costs from a currently reported baseline to  one that will be reported in the future, thereby obscuring cost growth. The  GMD program’s current baseline represents activities and associated  costs needed to achieve an initial defense of the United States. Although  the program planned to report a new baseline in the 2013 BAR for its next  set of capabilities, it has delayed reporting this baseline by at least one  year.
Despite significant technical problems, production disruptions and the  addition of previously unplanned and costly work in its current efforts, the  GMD total cost estimate as reported in the resource baseline has  decreased from 2010 to 2012. We reported last year that GMD had a  flight test failure in 2010 which revealed design problems, halted  production, and increased costs to demonstrate the CE-II from $236  million to about $1.2 billion. This cost increase includes retrofit costs to  already-delivered CE-II interceptors. Instead of increasing, the total costs  reported in the BAR resource baseline have decreased because the  program moved activities from out of its reported baseline. By moving  these activities, MDA used the funds that were freed up for failure  resolution efforts instead. In addition, because the baseline for its next  set of capabilities will be defined after these activities have already been  added to it, the additional cost for these activities will not be identifiable.  The full extent of actual cost growth may never be determined or visible  for decision makers for either baseline because of this adjustment.
MDA removed activities and costs from its Targets and Countermeasures  resource baselines, making it impossible to assess longer term progress.
For example, costs for common target components, such as re-entry  vehicles and associated objects, which were previously included in the  baselines for medium-range and intermediate-range targets, were  removed and redirected into a separate, newly created baseline for  common components. In addition, the agency also changed the way it  calculated its targets baselines by removing support costs and adding  costs incurred in previous years. While the agency adjusted the  accounting rules retroactively for the 2011 BAR to enable direct cost  comparisons with the 2012 BAR, it is not possible to compare the 2012  BAR baselines with the original baselines set in the 2010 BAR for any of  the targets.
section_title: Challenge: Developing and Deploying U.S. Missile Defense in Europe
paragraphs: Developing and deploying new missile defense systems in Europe to aid  in defense of Europe and the United States is a highly complex effort. We  reported last year that several of the individual systems that comprise the  current U.S. approach to missile defense in Europe—called the European  Phased Adaptive Approach—have schedules that are highly concurrent.  Concurrency entails proceeding into product development before  technologies are mature or into production before a significant amount of  independent testing has confirmed that the product works as intended.  Such schedules can lead to premature purchases of systems that impair  operational readiness and may result in problems that require extensive  retrofits, redesigns, and cost increases. A key challenge, therefore, facing  DOD is managing individual system acquisitions to keep them  synchronized with the planned time frames of the overall U.S. missile  defense capability planned in Europe. MDA still needs to deliver some of  the capability planned for the first phase of the U.S. missile defense in  Europe and is grappling with delays to some systems and/or capabilities  planned in each of the next three major deployments. MDA also is  challenged by the need to develop the tools, the models and simulations,  to understand the capabilities and limitations of the individual systems  before they are deployed. Because of technical limitations in the current  approach to modeling missile defense performance, MDA recently chose  to undertake a major new effort that it expects will overcome these  limitations. However, MDA and the warfighters will not benefit from this  new approach until at least half of the four planned phases have  deployed.
Towards the end of our audit work, in March 2013, the Secretary of  Defense altered the plans for developing and deploying missile defense  systems in Europe and the United States for the protection of the United  States. Specifically, the announcement canceled Phase 4 which planned  to use Aegis BMD SM-3 Block IIB interceptors, and announced several  other plans, including deploying additional ground based interceptors in  Fort Greely, Alaska, and deploying a second AN/TPY-2 radar in Japan. In  April 2013, DOD proposed canceling the PTSS and Aegis BMD SM-3  Block IIB programs in the Fiscal Year 2014 President’s Budget  Submission. Because the proposed cancellations occurred in the last few  weeks of our audit, we were not able to assess the effects and  incorporate this information into our report.
U.S. missile defense in Europe is a four-phase effort that relies on  increasingly capable missiles, sensors, and command and control  systems to defend Europe and the United States. The presidential  announcement in September 2009 associated each phase with a specific  time frame as shown in figure 2.
The first phase became operational in December 2011 and provides  defense of Europe against short- and some medium-range ballistic  missiles. MDA identified both the systems and the capabilities that the  systems should have to enable defense of Europe against these threats.  For example, C2BMC is needed and should be able to transmit data at a  certain rate to an Aegis BMD ship during an engagement. The second  phase plans a more robust defense against short- and medium-range  ballistic missiles with the development of SM-3 Block IB missiles, and  upgraded Aegis Weapons System software both at sea on Aegis BMD  ships and on land at an Aegis Ashore site in Romania. The third phase is  intended to add defense against intermediate -range ballistic missiles  using the SM-3 Block IIA and an Aegis Ashore site in Poland. The fourth  phase is expected to add an additional layer for defense of the United  States against some intercontinental ballistic missiles using the SM-3  Block IIB as well as expand regional defense.
As we reported in December 2010, the U.S. missile defense approach in  Europe commits MDA to delivering systems and associated capabilities  on a schedule that requires concurrency among technology, design,  testing, and other development activities. We reported in April 2012 that  deployment dates were a key factor in the elevated levels of schedule  concurrency for several programs. We also reported at that time that  concurrent acquisition strategies can affect the operational readiness of  our forces and risk delays and cost increases.
DOD declared Phase 1 operational in December 2011, but the systems  delivered do not yet provide the full capability planned for the phase. MDA  deployed, and the warfighter accepted, Phase 1 with the delivery of an  AN/TPY-2 radar, an Aegis BMD ship with SM-3 Block IA missiles, an  upgrade to C2BMC, and the existing space-based sensors. Given the  limited time between the September 2009 announcement of the U.S.  missile defense in Europe and the planned deployment of the first phase  in 2011, that first phase was largely defined by existing systems that  could be quickly deployed. MDA planned to deploy the first phase in two  stages—the systems described above by December 2011 and upgrades  to those systems in 2014. Although the agency originally planned to  deliver the remaining capabilities of the first phase in 2014, an MDA  official told us that MDA now considers these capabilities to be part of the  second phase and these capabilities may not be available until 2015.
In addition, independent organizations determined that some of the  capabilities that were delivered did not work as intended. For example,  the Director, Operational Test and Evaluation reported that there were  some interoperability and command and control deficiencies. This  organization also reported that MDA is currently investigating these  deficiencies.
According to MDA documentation, systems and associated capabilities  for the next phases are facing delays, either in development or in  integration and testing.
For Phase 2, some capabilities, such as an Aegis weapon system  software upgrade, may not be available. MDA officials stated they are  working to resolve this issue.
For Phase 3, some battle management and Aegis capabilities are  currently projected to be delayed and the initial launch of a planned  satellite sensor system—PTSS—is delayed.
For Phase 4, deployment of the SM-3 Block IIB missile is delayed  from 2020 to 2022, and full operational capability of PTSS is delayed  to no sooner than 2023.
A key challenge for both the Director of MDA and the warfighter is  understanding the capabilities and the limitations of the systems MDA is  deploying before they are deployed, particularly given the rapid pace of  development. A critical step in this effort is to have the tools—which are  the models and simulations—to perform these integrated and complex  assessments. According to MDA’s Fiscal Year 2012 President’s Budget  Submission, models and simulations are critical to understanding BMDS  operational performance because assessing performance through flight  tests alone is prohibitively expensive and can be affected by safety and  test range constraints. Models and simulations, on the other hand, can be  much less costly and are inherently not subject to the same safety and  test range constraints. However, we have previously reported that MDA  has struggled to develop these tools.
In August 2009, U.S. Strategic Command and the BMDS Operational  Test Agency jointly informed MDA of a number of system-level limitations  in MDA’s modeling and simulation program that adversely affected their  ability to assess BMDS performance. Since that time, we have reported  that MDA has had difficulty developing its models and simulations to the  point where it can assess operational performance. Over the past few  years, the agency adopted different approaches to try to resolve issues  with its modeling and simulation.
MDA continues to have difficulty credibly assessing operational  performance using models and simulations. MDA declared the first phase  of U.S. missile defense in Europe operational in December 2011, but did  so without the benefit of all planned supporting data because of problems  with a key modeling and simulation event. MDA officials and officials from  the Operational Test Agency determined that there were too many issues  with the models and simulations in the event for it to be useful for  determining operational effectiveness for the planned configuration.
More broadly, in their independent 2012 assessments, both the Director,  Operational Test and Evaluation and the BMDS Operational Test Agency  reported a lack of confidence in MDA’s ability to completely and credibly  model BMDS performance using existing models. Once a model or  simulation is deemed credible, it can be used to explore the various  operational conditions and reveal both the capabilities and limitations of  the actual system. Without a full understanding of the capabilities and  limitations of the first phase of U.S. missile defense in Europe, it is difficult  for the warfighter and MDA to understand how the system will work in a  real event or to develop solutions to problems that may arise with the  systems and capabilities that have been delivered.
MDA recently committed to a new approach in its modeling and  simulation program that officials stated could put them on a path to  credibly model individual programs and system-level BMDS performance  by 2017. To accomplish this, MDA is replacing the two existing simulation  frameworks used for ground testing and performance assessments with  one framework. By using one framework, the agency anticipates data  quality improvements through consistent representations of the threat, the  environment, and communications at the system level. Without  implementing these changes, MDA officials told us their ability to credibly  model BMDS performance by the 2017 time frame, in time to assess the  third phase of U.S. missile defense in Europe, is not possible.
MDA program officials told us that the next major assessment of U.S.  missile defense in Europe for the 2015 deployment will continue to have  many of the existing shortfalls. As a result, MDA is pursuing initiatives to  improve confidence in the realism of its models in the near term. One of  the agency’s new initiatives involves identifying more areas in the models  where credibility can be certified by the BMDS Operational Test Agency.  A second initiative is focused on resolving the limitations identified jointly  by the Operational Test Agency and U.S. Strategic Command. Lastly,  MDA officials told us they are refining the process used to digitally  recreate system-level flight tests in order to increase confidence in the  models.
section_title: Conclusions
paragraphs: The new MDA Director faces long-standing acquisition management  challenges that hamper the agency’s ability to make wise investment  choices, to develop and deliver cutting edge, integrated technologies  within budget and time constraints, and to meet the President’s goals for  U.S. missile defense in Europe. At the same time, for over a decade,  MDA has provided Congress with very limited insight into cost and  schedule growth for individual elements. While baseline reporting is more  complete and comprehensive, the fact remains there is no way to track  cost and schedule growth over time using those baselines. This makes it  difficult for Congress to hold MDA accountable and to consider the  wisdom of continuing high risk efforts. Since its inception, MDA has been  operating in an environment of working under tight time frames for  delivering capabilities—first with a presidential directive in 2002 and then  with a presidential announcement in 2009 on U.S. missile defense in  Europe. Although pressure remains to develop and field systems to meet  set time frames and increased threats, we have also reached a critical  juncture in our nation’s ability to afford spending limited funds to fix  problems created by a high risk acquisition strategy.
GAO has made recommendations over the years aimed at addressing  many of these challenges. We have noted several in this report that have  not yet been acted on. As the new MDA Director works to address the  challenges we have identified, fully implementing two prior  recommendations in particular could prove beneficial. First, our 2009  recommendation to reconsider the testing and validation schedules of  ballistic missile defense systems and ensure they are synchronized with  the development, manufacturing and fielding schedules so that items are  not manufactured for fielding before their performance has been validated  through testing could help reduce the risk of production disruptions.  Second, our 2012 recommendation to make adjustments to acquisition  schedules to reduce concurrency could help reduce the acquisition risks  in the U.S. missile defense in Europe.
Going forward, as Congress and DOD decide in which new missile  defense programs to invest, they may lack a full understanding of the  cost, technical feasibility, and operational requirements for those  proposed new programs. Performing a robust analysis of alternatives,  while not required of MDA, could be a proactive and beneficial step to  laying a sound basis for determining which systems to pursue. Similarly,  as MDA delivers increasingly complex missile defense systems, it is  critical that it successfully conduct upcoming complex operational flight  tests and gather necessary performance data. Reducing the risks tied to  the first use of new types of targets in less critical tests before they are  used in a major test could help put these programs on a better path to  succeed. Finally, until MDA’s baselines have comprehensive cost  information and are stabilized, the progress of MDA’s individual  acquisitions cannot be assessed.
section_title: Recommendations for Executive Action
paragraphs: In order to strengthen investment decisions, place the chosen  investments on a sound acquisition footing, provide a better means of  tracking investment progress, and improve the management and  transparency of the U.S. missile defense approach in Europe, we  recommend that the Secretary of Defense direct MDA’s new Director to  take the following four actions:  1.  Undertake robust alternatives analyses for new major missile defense  efforts currently underway, including the SM-3 Block IIB, and before  embarking on any other major new missile defense programs. In  particular, such analyses should consider a broad range of  alternatives.  2.  Add risk reduction non-intercept flight tests for each new type of target  missiles developed.  3.  Include in its resource baseline cost estimates all life cycle costs,  specifically the operations and support costs, from the military  services in order to provide decision makers with the full costs of  ballistic missile defense systems.  4.  Stabilize the acquisition baselines, so that meaningful comparisons  can be made over time that support oversight of those acquisitions.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report. These  comments are reprinted in appendix XI. DOD also provided technical  comments, which were incorporated as appropriate.
DOD concurred with two of our four recommendations and partially  concurred with the remaining two. DOD concurred with our first  recommendation to undertake robust alternatives analyses for new major  missile defense efforts currently underway and before embarking on any  other major new missile defense programs. However, in its response,  DOD stated that MDA currently performs studies and reviews that provide  outcomes similar to analyses of alternatives formally conducted by other  agencies. While we recognize in our report that MDA performed some  limited analyses that considered alternatives for its newer programs, we  also found that these reviews cannot be considered robust analyses of  alternatives, in part, because the range of alternatives considered were  too narrow. Without a sufficient comparison of alternatives and focus on  technical and other risks, alternatives analyses may identify solutions that  are not feasible and decision makers may approve programs based on  limited knowledge. While many factors can affect cost and schedule  outcomes, we reported in September 2009 that programs that had a  limited assessment of alternatives tended to have poorer outcomes than  those that had more robust analyses of alternatives. A robust analysis of  alternatives can also help ensure that key DOD and congressional  decision makers understand why the chosen system was selected in  order to prioritize limited investment dollars to achieve a balanced BMDS  portfolio. As MDA conducts additional alternatives analyses for new  programs, it is important that they be robust, comparing the costs,  performance, effectiveness, and risks of a broad range of alternatives.
DOD partially concurred with our second recommendation to conduct risk  reduction non-intercept flight tests for each new type of target missile  developed. In its response, DOD agreed that non-intercept flight tests  may be conducted for each new type of target--but not necessarily on  each individual target developed. DOD stated that the decision to perform  a non-intercept target test must be balanced against cost, schedule, and  programmatic impacts. In addition, DOD stated that MDA’s qualification  tests for key target components and proven quality control processes  gave the confidence necessary for the agency to plan for and launch  targets for the first time as part of a system-level flight test. However,  while there may be exceptions that would need to occur when there is a  critical warfighter need, in general, we remain concerned about the use of  undemonstrated targets during complex, expensive tests. These tests  remain critical to both MDA’s development efforts and to independent  assessors of missile defense performance because they are needed to  demonstrate critical BMDS functions. Whenever possible, we believe  MDA should avoid using undemonstrated targets, particularly for costly  and complex major operational tests, because they add significant risks to  those tests.
DOD partially concurred with our third recommendation for MDA to  include in its BMDS Accountability Report baselines the full program life  cycle costs, including operations and support costs from military services.  While DOD agreed that decision makers should have insight into the full  life cycle costs of DOD programs, it did not identify how the full life-cycle  costs could be reported to decision makers. DOD further stated that the  BMDS Accountability Report should only include content for which MDA  is responsible and that it did not consider the BMDS Accountability Report  an appropriate forum for including military services operation and support  costs for BMDS elements. However, good budgeting requires that the full  costs of a project be considered when making decisions to provide  resources and, therefore, both DOD and Congress would benefit from a  comprehensive understanding of the full costs of MDA’s acquisition  programs. DOD has reported full operation and support costs to  Congress for major defense acquisition programs where one military  service is leading the development of an acquisition planned to be  operated by many military services. Limiting the baseline reporting for  MDA acquisition programs to only MDA reported costs therefore  precludes a full understanding of DOD’s acquisition commitments,  particularly the resource demands on the military services that will  operate and maintain the planned missile defense weapon systems.  Because MDA already reports the estimated acquisition costs and some  of the operation and support costs for the acquisitions in the annual  BMDS Accountability Report, we believe that annual document to be the  most appropriate way to report the full costs to Congress. We also  continue to believe that including these costs in that report will aid both  departmental and congressional decision makers as they make difficult  choices of where to invest limited resources.
DOD also concurred with our fourth recommendation to stabilize MDA’s  acquisition baselines so that meaningful comparisons can be made over  time. DOD stated in its response that MDA’s 2013 BMDS Accountability  Report would contain both a one-year comparison between the current  program baselines and the previously reported baselines as well as  provide a longer-term comparison to the initial program baselines, when  appropriate. DOD further stated that it is necessary to recognize that  BMDS baselines change to respond to evolving requirements provided by  other organizations and leaders, from the warfighters to the President, to  counter changing threats. Finally, DOD stated that the MDA Director has  authority to make these adjustments, within departmental guidelines. Our  recommendation is not designed to limit the authority of the MDA Director  to adjust baselines or prevent adjusting baselines when appropriate. As  we reported in March 2005, a new baseline serves an important  management control purpose when program goals are no longer  achievable, because it presents an important perspective on the  programs current status and acquisition strategy. Our recommendation  to stabilize acquisition baselines is designed to address the issues we  found that are within MDA’s control, such as prematurely setting  baselines and decisions to move reported content between various  program baselines. In order for MDA to effectively report longer-term  progress of its acquisitions and provide necessary transparency to  Congress, it will be critical for MDA to address these issues.
We are sending copies of this report to the Secretary of Defense and to  the Director of MDA. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about 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. GAO staff who made key contributions to this  report are listed in appendix XII.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess any progress and any remaining challenges of selecting new  Ballistic Missile Defense System (BMDS) programs in which to invest, we  identified two Missile defense Agency (MDA) programs that were in the  initial acquisition stages, the Precision Tracking and Space System  (PTSS) and the SM-3 Block IIB. For these programs, we reviewed  documentation of Missile Defense Agency (MDA) and Department of  Defense (DOD) reviews that program management officials considered  similar to an analysis of alternatives, and compared this documentation to  acquisition best practices for analysis of alternatives and DOD acquisition  guidance. In addition, we examined recent legislation about a statutorily  directed assessment of the PTSS and compared criteria written in the  legislation to acquisition best practices for an analysis of alternatives.  Finally, we interviewed MDA and DOD officials about any reviews  conducted that were relevant to an analysis of alternatives.
To assess any progress and any remaining challenges MDA faces in  putting missile defense acquisitions on a sound development path, we  reviewed MDA element acquisition strategies and compared them to our  best practice criteria. To assess the extent to which MDA achieved  stated acquisition goals and objectives, we reviewed the  accomplishments for several Ballistic Missile Defense System elements  and supporting efforts that MDA is currently developing and fielding: the  Aegis Ballistic Missile Defense (Aegis BMD) with Standard Missile-3 (SM- 3) Block IB; Aegis Ashore; Aegis BMD SM-3 Block IIA; Aegis BMD SM-3  Block IIB; BMDS Sensors; Ground-based Midcourse Defense (GMD);  PTSS; Targets and Countermeasures; and Terminal High Altitude Area  Defense (THAAD). We reviewed data collection instruments that we  submitted to several elements’ program offices. These instruments  collected detailed information on schedule, cost, contracts, testing and  performance, and noteworthy progress during the fiscal year. In addition,  we examined Baseline and Program Execution Reviews, test schedules  and reports, and production plans, where appropriate. We also discussed  element- and BMDS-level testing plans and progress by meeting with  officials within element program offices and MDA functional directorates,  such as the Directorates for Engineering and Testing. We also examined  the agency’s Integrated Master Test Plan and discussed the elements’  test programs and test results with the BMDS Operational Test Agency  and DOD’s Office of the Director of Operational Test and Evaluation.
To assess the progress made as well as any remaining challenges MDA  faces in establishing program baselines that support oversight, we  examined MDA’s reported baselines in the 2010, 2011, and 2012 BMDS  Accountability Reports (BAR). We interviewed officials in MDA’s  Acquisitions Directorate about how the agency is establishing and  managing its internal baselines. We also met with MDA officials in the  Operations Directorate to discuss their progress in adopting cost  estimating best practices based on our Cost Guide. We reviewed  findings from our July 2012 report, which compared MDA program  schedules to best practices in schedule development. In addition, we  examined DOD acquisition policy to discern how other major defense  acquisition programs are required to report baselines and measure  program progress. To gauge MDA element cost and schedule progress,  we compared the resource and schedule baselines as presented in the  2012 BAR to the 2010 baselines presented in the June 2010 BAR. In  order to present consistent cost comparisons for unit costs calculated in  different years, there were instances where it was necessary to convert  unit costs from base year 2010 dollars to base year 2011 dollars. We  performed these conversions using indexes published by the Office of the  Secretary of Defense (Comptroller) in the National Defense Budget  Estimates for Fiscal Year 2011, commonly referred to as the “Green  Book.” The results of our reviews are presented in detail in the element  appendixes of this report and are also integrated into our findings, as  appropriate. We did not present BAR schedule and cost analysis for the  Aegis BMD SM-3 Block IIA, Aegis BMD SM-3 Block IIB, or PTSS  programs because these programs have not yet begun MDA’s product  development phase and, subsequently, do not yet present baselines in  the BAR. In addition, we narrowed our assessment of the Targets and  Countermeasures baselines down to two medium-range targets, the  extended medium-range ballistic missile and the extended long-range air- launched target because they were originally planned to be launched for  the first time in 2012.
To assess any acquisition progress and any remaining challenges  developing and deploying ballistic missile defense systems for the  European Phased Adaptive Approach, we reviewed relevant policy and  acquisition documents. In addition, we examined MDA’s Integrated  Master Assessment Plan; Integrated Master Test Plan; and Master  Integration Plan to determine how MDA intended to test and assess its  progress in developing and fielding BMDS capabilities. We also  interviewed officials within MDA’s System Assessment Office to discuss  how the agency planned to assess BMDS capabilities once they had  completed development. We reviewed ground and flight test reports to  determine the extent to which those capabilities were meeting  performance expectations. Additionally, we examined Combatant  Command, BMDS Operational Test Agency, and Office of the Director,  Operational Test and Evaluation assessments of the first phase of U.S.  missile defense in Europe. We also interviewed officials with U.S.  Strategic Command’s Joint Functional Component Command for  Integrated Missile Defense and U.S. Northern Command as well as MDA  program offices and MDA functional directorates about MDA’s progress in  developing and deploying ballistic missile defense systems needed for  the defense of Europe and the United States. We also discussed BMDS  capabilities demonstrated through testing with officials in the BMDS  Operational Test Agency and Office of the Director, Operational Test and  Evaluation.
To assess any progress and any remaining challenges in developing its  models and simulations, we reviewed MDA’s Modeling and Simulation  Master Plan as well as system-level verification and validation plan. We  also met with MDA officials at the Missile Defense Integration and  Operations Center as well as officials with the BMDS Operational Test  Agency to understand the status of MDA’s modeling and simulation  program, progress in resolving past issues, and future plans.
Towards the end of our audit work, in March 2013, the Secretary of  Defense altered the existing plans for developing and deploying missile  defense systems in Europe and the United States for the protection of the  United States. Specifically, the announcement canceled Phase 4 which  planned to use Aegis BMD SM-3 Block IIB interceptors, and announced  several other plans, including deploying additional ground based  interceptors in Fort Greely, Alaska, and deploying a second AN/TPY-2  radar in Japan. In April 2013, DOD proposed canceling the PTSS and  Aegis BMD SM-3 Block IIB programs in the Fiscal Year 2014 President’s  Budget Submission. Because the proposed cancellations and the release  of the president’s budget occurred in the last few weeks of our audit, we  were not able to assess and incorporate either the proposed cancellations  or the latest budget information into our report.
Our work was performed at MDA locations including their headquarters in  Fort Belvoir, Virginia; various program offices in Dahlgren, Virginia, Falls  Church, Virginia, and Huntsville, Alabama; the GMD element in Ft.  Greely, Alaska; and MDA’s Integration and Operations center in Colorado  Springs, Colorado. In Fort Belvoir, Virginia, we met with officials from  MDA’s System Engineering Assessment Directorate. In Dahlgren,  Virginia, we spoke with officials from the Aegis BMD program office, the  Aegis Ashore program office, and the Aegis SM-3 Block IIA program  office. In Falls Church, Virginia, we met with officials from the PTSS  program office. In Huntsville, we interviewed program officials for the  BMDS Sensors, GMD; Global Deployment, THAAD; and the Targets and  Countermeasures program office. At that location, we also met with  officials in MDA’s Acquisition, Engineering, Test, and Cost Directorates as  well as with officials in MDA’s Advanced Technology Directorate who  manage the Aegis BMD SM-3 Block IIB program.
We visited contractor facilities that we determined, based on MDA  acquisition documentation, were working to address technical issues.  These facilities are located in Huntsville, Alabama; Tucson, Arizona;  Moorestown, New Jersey; and Salt Lake City, Utah. We discussed the  latest GMD program test plans following flight test failures with Boeing  officials in Huntsville. In addition, we met with Raytheon and Defense  Contract Management Agency officials in Tucson to discuss the  manufacturing of the Exoatmospheric Kill Vehicle and schedule issues for  GMD, respectively. We also interviewed Raytheon officials in Tucson  about various topics concerning the SM-3 Block IA, Block IB, and Block  IIA programs. In Moorestown, we met with officials from Lockheed Martin  to discuss the Aegis Ashore element with its SPY-1 radar. In Salt Lake  City, we met with officials from Northrop Grumman to discuss their  progress in addressing GMD flight test failures and their development of  the new guidance system design.
We also met with Combatant Commands and independent testing  agencies in Colorado Springs, Colorado; Huntsville, Alabama; and  Alexandria, Virginia. In Colorado Springs, we spoke with officials from  U.S. Northern Command and the U.S. Strategic Command’s Joint  Functional Component Command for Integrated Missile Defense. We  interviewed officials from the BMDS Operational Test Agency in  Huntsville to discuss MDA’s performance assessment, as well as its  models and simulations. In Alexandria, Virginia, we met with the Director,  Operational Test and Evaluation to discuss MDA’s test plans and results  from recent testing.
We conducted this performance audit from March 2012 to April 2013 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.
section_title: Appendix II: Aegis Ballistic Missile Defense (BMD) with Standard Missile-3 (SM-3) Block IB and Second Generation Weapon System Software
subsections: section_title: MDA Rectified Many Issues Discovered During 2011 Flight Tests
paragraphs: MDA slowed production of its SM-3 Block IA and Block IB in order to  redesign components and incorporate fixes to address both a failure in  the program’s first developmental flight test in September 2011 and a  separate flight test anomaly in April 2011. In June 2012, the program  executed the second of three intercept flight tests planned for fiscal your  2012, that are needed to validate SM-3 Block IB capability. In October  2012, the program was able to resume accepting deliveries. Some of the  fixes to the issues from the September 2011 failed test are planned to be  demonstrated in the next flight test planned during fiscal year 2013.
In the past year, the program identified the root cause of the September  2011 flight test failure and incorporated fixes. The failure review team  traced the cause of the failure to an abnormal performance of the third  stage rocket motor during thrust pulses, which control the final maneuvers  of the missile. To address this issue, the program developed a new  version of the second generation Aegis weapons system to control the  amount of time between the pulses. According to the Aegis program  office, these changes will have minimal consequences on missile  performance and ship operations. Although the program successfully re- conducted the failed flight test in May 2012, it did so prior to implementing  the software modifications and altered the scenario to avoid the  malfunction. The program tested the modification in a February 2013  flight test. While the intercept was successful, a thorough assessment of  the test has not yet been issued.
The program also determined the root cause of the anomaly in the April  2011 SM-3 Block IA flight test. MDA determined that it was caused by a  component of the third stage rocket motor that is common to both the SM- 3 Block IA and SM-3 Block IB missiles. After performing a redesign of the  component that caused the anomaly, the program was able to  successfully flight test this new design in June 2012.
In addition to verifying these fixes, the program demonstrated important  new capabilities during its two successful fiscal year 2012 SM-3 Block IB  flight tests. Its May 2012 flight test was the first intercept of a short-range  ballistic missile target by the SM-3 Block IB with the second-generation  Aegis BMD weapon system software. The test successfully demonstrated  the capability to assess the success or failure of the intercept in real time,  and gave the program additional insight into the improved capability of the  missile to track and identify objects in space. During its June 2012 test,  the missile intercepted a separating target when surrounded by debris.  This test provided more insight into the missile’s enhanced ability to  distinguish the lethal object from other objects.
section_title: Concurrency Continues to Disrupt Production and Flight Tests
paragraphs: The program’s continuing concurrency has disrupted production and  testing over the past 3 years. The concurrency arose because MDA  prematurely ordered more SM-3 Block IB missiles than needed for  development before completing developmental qualification of a key  component and before confirming the missile worked as intended in flight  testing. Qualification is a step in development in which a component’s  performance is tested in a variety of expected conditions it may  operationally encounter. Qualification of components is normally  completed prior to conducting developmental flight tests and before  beginning production of missiles beyond the number needed for  developmental testing. We made a recommendation in our February 2010  report intended to address this concurrency risk.
Since that report, as developmental issues arose, MDA had to restructure  both its production and test plans. For example, MDA was forced to  reduce planned SM-3 Block IB quantities from 34 to 25 in fiscal year  2011, to free up funding needed to redesign the TDACS. Then, following  the failure of the first SM-3 Block IB flight test in 2011, MDA established a  new program baseline, and requested an additional $149 million, in part  to investigate the failure, and to implement and assess necessary  modifications. MDA also reduced the 2012 procurement from 46 to 14  missiles, delayed key production milestones by a year or more, and  slowed delivery of SM-3 Block IB missiles already in production,  accepting only missiles necessary for testing until modifications were  validated. While this decision reduced the effects of the ongoing  development issues, MDA’s premature commitment to quantities beyond  those needed for testing had other consequences. Slowing down the  acceptance of SM-3 Block IB deliveries and reducing near-term  production resulted in the need for additional investments to sustain  suppliers of various SM-3 Block IB components. Additionally, once again  the agency needed to extend the production of SM-3 Block IA missiles by  purchasing 14 additional SM-3 Block IAs (a missile that shares many  components with the SM-3 Block IB). MDA originally planned to end the  production of SM-3 Block IAs in 2009 as production of the SM-3 Block IB  began. However, it has needed to extend production three times in 2010,  2011 and 2012 in order to bridge the production gaps. To date, MDA has  contracted for 55 more SM-3 Block IA missiles than originally planned.
The TDACS qualification was completed in February 2013 after many  delays and additional cost. As we reported in April 2012, MDA only  partially completed qualification testing of this component before  conducting the first unsuccessful SM-3 Block IB developmental flight test  in September 2011. During 2012, the program experienced multiple  issues completing TDACS qualification tests, including a failure in  October. MDA is still determining the cause of the failure. According to  program documentation, this investigation is expected to cost $27.5  million. Although completion of qualification testing had previously been  delayed over a year to the fourth quarter of fiscal year 2012, the recent  issues further delayed the completion to February 2013.
These qualification issues are contributing to further cost growth, delays  to the third flight test and preventing completion of the manufacturing  readiness review. After the 2011 flight test failure occurred, MDA  originally committed to completing three flight tests and a manufacturing  readiness review prior to making a long lead production decision. The  long lead decision begins the purchase of materials and components that  must be procured earlier in order to maintain a planned production  schedule. While the agency successfully completed two of those flight  tests in 2012, it postponed the third, called FTM-19, to the third quarter of  fiscal year 2013. The program estimates that this delay will cost the  program an additional $16.7 million. MDA also held its manufacturing  readiness review for the next procurement request in May 2012. This  review demonstrated that the manufacturing processes were mature for  most of the SM-3 Block IB components and demonstrated readiness for a  manufacturing rate of two missiles per month. However, the program  could not complete the review due to delays with the TDACS qualification.  TDACS qualification issues have also contributed to delays for a long  lead materiel production decision from December 2012 to February 2013,  at an additional $19 million.
In order to avoid further disruptions to the production line, MDA plans to  award the next production contract for some components of 29 additional  missiles in February 2013—before the third flight test can verify the most  recent software modifications. According to program documentation,  delaying this decision further until after the next flight test—currently  slated for the third quarter of fiscal year 2013—could result in a  production gap, requiring additional funding to maintain the industrial line.  The program plans to award the contract for up to 29 whole missiles after  the successful performance in the third quarter of fiscal year 2013 flight  test. The program is at risk for costly retrofits, additional delays and  further production disruptions if issues are discovered during this flight  test.
section_title: The Program Is Planning Improvements to Software and Missiles to Counter More Advanced Threats
paragraphs: The Aegis program officials are planning to make further improvements to  the second generation Aegis weapon system software and to develop an  enhanced capability SM-3 Block IB (upgraded SM-3 Block IB) to counter  advanced threats expected after 2015. The program plans to complete  the necessary software and firmware upgrades in July 2014, flight test it  in fiscal year 2014, and field it by the 2015 time frame. Program officials  project the effort to cost an estimated $86.6 million over the course of five  years.
section_title: Changes in Funding, Quantities As Well As Test Issues Affected Cost and Schedule Baselines for the Missile
paragraphs: MDA’s Director approved a new baseline for the Aegis BMD SM-3 Block  IB program in June 2011 and reported it in the 2012 BMDS Accountability  Report (BAR). The new baseline addresses changes caused by the  design modification of the TDACS.
MDA reported that the average cost to produce one Aegis BMD SM-3  Block IB missile increased by 10 percent from the 2010 to the 2012 BAR  because the program changed the way it funded initial spares. The  program began funding initial spares and production engineering with  procurement funds instead of development money. Because procurement  funds are used for the production of operational assets, this accounting  change increased the reported unit cost. Although this change was above  the 5 percent reporting threshold that MDA established in its 2012 BAR,  the $1 million dollar change in the average cost to produce a missile was  not separately reported because the agency attributed this increase to an  accounting change and not to real cost growth.
The 2012 reported average cost to develop and produce one Aegis BMD  SM-3 Block IB missile decreased by approximately 30 percent from the  2010 baseline because the total number of missiles planned increased by  219 percent. The cost decreased because of efficiencies gained by  producing more each year. Figure 3 shows the unit costs as reported in  the 2010 and 2012 BMDS Accountability Reports.
The Aegis BMD SM-3 Block IB had a number of schedule delays caused  by issues discovered in 2011 flight tests and issues discovered during  qualification tests in 2012. The 2011 issues (1) contributed to delays to  the program’s manufacturing readiness review and (2) affected the flight  test schedule by adding one flight test in 2012 and delaying two others.  Additionally, the missile’s maneuvering component failed a qualification  test in 2012, which delayed the completion of its qualification program.  The qualification delays coupled with the 2011 flight test issues have  delayed the next flight test and the long lead production decision by over  a year and delayed the initial production by two years. Figure 4 shows  schedule changes made.
Unit costs increased for the Aegis BMD second generation weapon  system software because of decreased quantities and the inclusion of  costs previously excluded. According to program officials, unit costs to  upgrade to this new version of the software include installation of the  software as well as hardware, such as computers and displays, to Aegis  ships. The reported unit cost to upgrade to the Aegis BMD second  generation weapon system software increased by over 50 percent from  the originally anticipated unit cost reported in the 2010 BAR. In addition,  the unit cost to both develop and upgrade to the second generation  weapon system software increased by 10 percent from the reported 2010  BAR cost. The majority of these cost increases occurred between 2010  and 2011. MDA explained in 2011 that the increases to these unit costs  were due to government costs, which were erroneously excluded from the  2010 unit cost calculations but were included in the 2011 BAR unit costs.  In addition, the unit cost to both develop and upgrade to the second  generation software increased in part because of a decrease in the  number of ships receiving the installations. Figure 5 shows the unit costs  as reported in the 2010 and 2012 BMDS Accountability Reports.
MDA began installing the second generation Aegis Weapons System  software as planned for two ships in fiscal year 2012 with only a minor  schedule slip in the planned installation for a third Aegis BMD ship. After  installations are complete, there will be four second generation Aegis  capable ships in the fleet.
section_title: Appendix III: Aegis Ashore with Modernized Weapon System Software
subsections: section_title: Background and Overview
paragraphs: Aegis Ashore is planned to be a land-based, or ashore, version of the  ship-based Aegis BMD. Aegis Ashore is to track and intercept ballistic  missiles in the middle of their flight using SM-3 interceptors. Key  components include a vertical launching system with SM-3 missiles and  an enclosure, referred to as a deckhouse, that contains the SPY-1 radar  and command and control system. Aegis Ashore will share many  components with the sea-based Aegis BMD and will use future versions  of the Aegis weapon system that are still in development. MDA plans to  equip Aegis Ashore with a modified version of the Aegis weapon system  software developed jointly with the Navy as part of its modernization  program. The new software is to integrate Aegis ship anti-air defense with  ballistic missile defense, expanding the number of Aegis ships that are  capable of ballistic missile defense. The modified version of the Aegis  weapon system software that is planned for Aegis Ashore is to retain the  ballistic missile defense capabilities being developed and suppress or  otherwise disable the other capabilities. DOD plans to deploy Aegis  Ashore in Romania with the SM-3 Block IB in the 2015 time frame and in  Poland in the 2018 time frame.
A total of three Aegis Ashore facilities are planned. The program is  currently constructing two of these facilities—an operational facility  planned for Romania and a second facility for developmental testing in  Hawaii. The Romanian facility is to be constructed and undergo Aegis  radar testing in New Jersey before being shipped to Romania. The  Hawaiian test facility is to begin construction after the Romanian  operational deckhouse construction is underway. The construction plans  for the Poland Aegis Ashore site have not been finalized, but the  construction could potentially begin in fiscal year 2015.
Included in this appendix are analyses of the cost and schedule baselines  for the Aegis weapon system modernization effort, which, while it will be  used by Aegis Ashore, will also be used by Aegis BMD ships.
section_title: Aegis Ashore Made Design and Construction Progress in Fiscal Year 2012
paragraphs: Aegis Ashore completed key engineering design reviews in fiscal year  2012, determining that the design meets program requirements as well as  cost, schedule, and reliability targets. The program successfully  completed its system critical design review in December 2011. In  addition, the deckhouse design was 100 percent completed in February  2012 indicating that the design may be stable and could meet  requirements.
In fiscal year 2012, the program began construction in New Jersey for the  Romanian Aegis Ashore facility. The program had to design the facility so  that it could be reconstituted—or disassembled and ready for transport to  another location within 120 days. As a result, the program is using  skids—which are flat surfaces on which deckhouse equipment is secured  and slid into place. During fiscal year 2012, the program built the skids  and started loading the equipment. Officials for the contractor told us that  as of October 2012, the majority of the skids had been completed. In  addition, in early fiscal year 2013 the program received congressional  authorization to exchange equipment originally planned for one of the  Navy’s Aegis BMD destroyers with equipment planned for Romania.  Without this approval, the equipment needed for the Romanian facility  would not have been ready in time.
The program also awarded a contract for the Hawaiian test site in June  2012 and began site preparation and construction.
section_title: Aegis Ashore Schedule Remains Challenging
paragraphs: While the program made significant progress in fiscal year 2012, its  schedule is difficult because of extremely limited time between events.  Further, according to program documentation the greatest risk to the  program is meeting the established schedule particularly (1) integration  testing in Hawaii and New Jersey, (2) potential shipping or transportation  delays, and (3) construction delays for the operational and test facilities.
Program management officials stated they are confident that they will  meet the commitment to field the Romania facility by 2015. In addition,  officials for the contractor stated that while they previously had concerns  about the schedule, the progress made during fiscal year 2012 and the  current pace of the work underway had relieved these concerns.
However, there were delays in fiscal year 2012 that may affect the  schedule. There was a delay in the contract award for deckhouse  construction that postponed the first risk reduction flight test by one  quarter to the third quarter of fiscal year 2014. The Aegis Ashore  schedule contains more risk before this flight test and less risk between  that test and the planned fielding in Romania. Program management  officials told us they organized the schedule in this way to increase the  amount of time to resolve any issues that emerge from the flight test. With  the delay in the test flight, the time available to resolve issues, however,  has been reduced.
section_title: Concurrent Development and Production Has Increased
paragraphs: The Aegis Ashore program continues to follow a concurrent acquisition  strategy with elevated levels of acquisition risk. We reported in April 2012  that given the plan to field Aegis Ashore by the 2015 time frame, the  program’s schedule contains a high level of concurrency—buying weapon  systems before they demonstrate, through testing, that they perform as  required. Further, under such a strategy, problems are more likely to be  discovered in production, when it is too late or very costly to correct them.  The MDA Director stated in March 2012 that Aegis Ashore development  is low risk because of its similarity to the sea-based Aegis BMD.  However, we reported in April 2012 that the short amount of time for  integrating and fielding Aegis Ashore could magnify the effects of any  problems that arise.
MDA recently increased the concurrency for the remaining effort. We  reported in April 2012 that the first intercept test would not occur until the  second half of fiscal year 2014, at which point two of the three  deckhouses would already be completed, and Aegis Ashore site  construction and interceptor production well under way. MDA now plans  to order long-lead materials for the final Aegis Ashore site in Poland in  January 2014—prior to conducting any of the developmental flight tests.  Although the program is to procure materiel already used by the sea- based Aegis, committing to all three planned Aegis Ashore facilities prior  to demonstrating that the system works as intended puts the program at  risk for costly rework should issues be discovered during testing.
section_title: Aegis Ashore Faces Continued Challenges Related to Radio- Frequency Spectrum
paragraphs: Radio-frequency spectrum is used to operate both the SPY-1 radar used  by Aegis BMD, as well as provide an array of wireless communication  services to the civilian community, such as mobile voice and data  services, radio and television broadcasting, and satellite-based services.  According to guidance on spectrum management from the International  Telecommunication Union, because of the potential overlap and  interference between these different uses, radio-frequency is regulated by  countries. In particular, given that it is a shared resource, national  governments monitor and manage frequencies to prevent and eliminate  harmful interference. According to the guidance, in the European Union,  national standards reflect European standards and national policy is to  implement European policy. In March 2011 and April 2012, we raised that  Aegis Ashore faces two issues related to radio-frequency spectrum: (1)  the possibility that the SPY-1 radar might interfere with host nation  wireless usage; and (2) the program and the relevant host nation  authorities must work together to ensure that host nations approve use of  the operating frequency needed for the SPY-1 radar.
Program management officials told us that they are analyzing whether or  not the SPY-1 radar’s frequency usage would interfere with wireless  usage in Romania. They expect to conclude this analysis in 2013.  Although program management officials stated that the program could  address potential frequency interference, they also stated that some  potential adjustments could be costly and would have unknown effects on  the radar’s operational capability. In addition, a program management  official stated a preference to not make changes to Aegis Ashore or its  operating frequency, both because of the cost of such changes and a  desire to ensure limited differences between Aegis Ashore and Aegis  BMD ships.
The program has requested the use of the SPY-1 operating frequency in  Romania. The program has identified this request as a top issue for Aegis  Ashore.
section_title: Total Estimated Costs Have Increased from $813 million to $1.6 billion, but Progress Cannot Be Assessed Because of Baseline Instability
paragraphs: Instability in the Aegis Ashore program’s resource baseline makes it  impossible to understand annual or longer-term progress by comparing  the latest reported estimates to the prior year baseline or the original  baseline. In order for baselines to be useful for managing and overseeing  a program, they need to be stable over time so progress can be  measured and so that decision makers can determine how best to  allocate limited resources. The total estimated costs for an Aegis Ashore  in Romania and Hawaii have increased from $813 million to $1.6 billion  from the time the program first established baselines to the estimate  reported in the February 2012 BMDS Accountability Report (BAR).
As we reported in April 2012, MDA prematurely set the Aegis Ashore  baseline in 2010 before program requirements were understood and  before the acquisition strategy was firm. The program established its  baseline for product development in June 2010 with a total cost estimate  of $813 million. However 3 days later, when the program submitted this  baseline to Congress in the 2010 BAR, it increased the total cost estimate  by 19 percent to $966 million. The program attributed these changes to  refined program requirements and a review of earlier estimates.
Since that time, the program has repeatedly added and moved a  significant amount of content to both its resource and schedule baselines  to respond to acquisition strategy changes and requirements that were  added after the baseline was set. For example, in the 2012 BAR, the cost  to complete these efforts increased to $1.6 billion because the program  added costs that were previously accounted for under another program  and added costs that were a part of the program but had not been  included in prior BAR baselines. In addition, the program’s unit cost  baselines were significantly affected by new requirements for the program  to pay for its deckhouse construction costs with development money  instead of military construction funds. However, despite these changes,  the resource baseline still does not include all costs associated with Aegis  Ashore—such as for the Aegis Ashore adjustments needed to the Aegis  BMD modernized weapon system software.
The Aegis Ashore program rebaselined its estimates for the Romania and  Hawaii facilities in June 2012, which resulted in a minor increase to its  total cost estimate. A program management official stated that program  costs will continue to change as future contracts, most of which are Navy  contracts outside of the control of the program, are negotiated. However,  the official stated that the 2013 BAR should report more concrete costs as  more contracts will have been negotiated.
section_title: MDA Established New Baselines for Its Poland Site
paragraphs: In July 2012, MDA established a resource baseline for the Poland Aegis  Ashore facility. The Poland baseline, with a total estimated cost to  develop and procure the facility of $746 million, includes MDA operations  and support, disposal, global deployment, military construction, and  production and deployment costs. Based on these new baselines, the  MDA reported costs of all three Aegis Ashore facilities is $2.3 billion. It  remains unclear what if any costs would be borne by other DOD  organizations, such as the Navy, to operate and maintain these facilities  over time.
section_title: Large Adjustments to Schedule Baseline Limited Insight into Program Progress
paragraphs: MDA’s many adjustments to the Aegis Ashore schedule baseline content  affected our ability to assess progress. Many new activities were added in  2012. In addition, comparing the estimated dates for scheduled activities  listed in the 2012 BAR to the dates baselined in the 2010 BAR is  impossible in some cases because activities from the 2010 BAR were  split into multiple events, renamed, or eliminated all together in the 2012  BAR. MDA also redistributed planned activities from the Aegis Ashore  schedule baselines into several other Aegis BMD schedule baselines. For  example, activities related to software for Aegis Ashore were moved from  the Aegis Ashore baseline and were split up and added to two other  baselines for the Aegis second generation and modernized weapon  system software. Rearranging content made it impossible to track the  progress of some of these activities against the prior year and original  baselines. While we were not able to track all of the scheduled events  from prior years, there were a selected number of activities we were able  to track, for which we provide an assessment below.
Due to schedule pressures experienced in 2011, the program adopted a  new deckhouse acquisition strategy in fiscal year 2011, in which the test  deckhouse and first operational deckhouse are constructed concurrently,  that changed the previous schedule for many activities. While the  program was able to hold the system-level critical design review with only  a quarter slip, many of the key events that were planned in fiscal years  2012 and 2013 were delayed a year or more. For example, confirmation  of the deckhouse design was delayed by a year and a half to the third  quarter of fiscal year 2013, and demonstrating the Aegis Ashore  capability integrated in the deckhouse slipped one year to the fourth  quarter of fiscal year 2013. In addition, the planned date to demonstrate  Aegis Ashore’s ability to be moved to a new location and reconstituted  has been delayed approximately 2.5 years to the fourth quarter of fiscal  year 2015 as seen in figure 6.
The Navy and MDA are developing a modernized version of the Aegis  weapon system software for fleet wide use and use with Aegis Ashore.  The Aegis modernized weapon system software is being developed in  two versions: the first integrates the Aegis BMD second generation  weapon system software with Aegis ship anti-air defense capabilities,  while the second contains a Capability Upgrade to improve on the types  and the numbers of ballistic missiles this system can engage. The  Capability Upgrade version of the software was added to the baseline for  the first time in the February 2012 BAR. Aegis Ashore is planned to  initially be deployed with the Capability Upgrade version.
Between the 2010 and 2012 BAR, the reported unit costs for the  modernized weapon system software increased significantly, as seen in  figure 7, because the estimates now include additional funds for a new  software version and other efforts needed to adapt it for the Aegis  Ashore. For example, the unit cost to upgrade to the modernized software  increased by 29 percent and the unit cost to develop and upgrade to the  modernized software increased by 33 percent from the baselines  originally reported in the 2010 BAR. These unit costs increased because  the total estimated development costs for the Aegis BMD modernized  weapon system software increased by 30 percent to include costs for an  Aegis Ashore computer program as well as the new Capability Upgrade  version of the software. Although these unit cost changes were above the  5 percent reporting threshold that MDA established, they were not  separately reported because the agency attributed these increases to  expanded program content and not to real cost growth.
In 2012, MDA consolidated the existing baseline for modernized Aegis  software with activities required to adapt it to operate on land in Aegis  Ashore. In addition, the original baseline was expanded to include  activities for the development of the capability upgrade version of the  software. Because of these changes, it was impossible to track the  progress for all previously baselined activities. Selected activities we were  able to track are discussed below.
The modernized Aegis weapon system software program met many of its  schedule goals in fiscal year 2012 and early 2013, with only small delays.  For example, the program delivered the modernized weapon system  software for installation on a Navy destroyer in the third quarter of fiscal  year 2012, after a minor delay. The most significant delay was in the  demonstration of ballistic missile defense capabilities for the system  software which was delayed by almost two fiscal quarters. Specifically,  the program encountered challenges with integrating the multi-mission  signal processor—a key component responsible for integrating ballistic  missile defense and anti-air defense capabilities so they can be executed  simultaneously. The program demonstrated a full system integration of  anti-air defense and ballistic missile defense capability in the first quarter  of fiscal year 2013, as seen in figure 8.
section_title: Appendix IV: Aegis BMD SM-3 Block IIA with Third Generation Aegis Weapons System Software
subsections: section_title: Program Successfully Completed Its System Preliminary Design Review
paragraphs: In March 2012, the program held and successfully completed the system  preliminary design review, meaning the program was able to demonstrate  that the technologies and resources available for the SM-3 Block IIA  could result in a product that matched its requirements. The program  completed this review after delaying it for more than one year to address  technology development problems with four of its components. Although  adjustments made in 2011 to recover from issues with these components  increased estimated program development costs by $296 million, we  reported in April 2012 that these adjustments may reduce future cost  growth and reduce acquisition risk.
section_title: Program Faces Technology Development Challenges
paragraphs: Because the SM-3 Block IIA program is currently in MDA’s technology  development phase, its efforts are primarily focused on developing and  maturing its technology. During the program’s preliminary design review,  several important technical issues were identified that may affect program  progress and those issues increased in significance after the review.  These technology challenges could lead to delays to the program’s critical  design review schedule. They affect key components such as the  nosecone and second and third stage rocket motors. For these issues,  the program has either identified the cause, redesigned some  components which it will need to test to ensure they work as intended, or  determined the path to resolve the issue.
In addition, the program experienced some problems in fiscal year 2012  developing the new throttleable divert and attitude control system, which  has historically been a challenge for SM-3 development—particularly for  the SM-3 Block IB. During fiscal year 2012, the program experienced  delays obtaining a part needed for this system from one of its suppliers.  Because the part has no substitute or alternate supplier, concerns were  raised about the delays affecting the program schedule. However, the  contractor and program are working to ensure the throttleable divert and  attitude control system and its components do not affect the program  schedule. Program management officials told us they are applying SM-3  Block IB program lessons learned.
section_title: Program Faces Key Decisions on Plans for the SM-3 Block IIA Following the Completion of the Cooperative Development Program
paragraphs: SM-3 Block IIA program is preparing for key decisions on integration,  testing, and production after the initial cooperative development project is  completed, currently scheduled for fiscal year 2017. Any decisions it  makes will affect the overall program cost and timing. For example,  program officials have stated that the program has not yet determined the  number of development and production rounds to be produced after the  first 22 development and 12 initial production rounds have been  delivered. In addition, any decisions on future production plans will  require negotiations with Japan since many key components on the  missile are developed there.
section_title: Appendix V: Aegis BMD SM-3 Block IIB with Third Generation Aegis Weapons System Software
subsections: section_title: Background and Overview
paragraphs: The SM-3 Block IIB is a planned Aegis BMD interceptor intended to  contribute to the defense of the United States by providing the first tier of  a layered defense against some intercontinental ballistic missiles. It is  also expected to contribute to regional defense against medium- and  intermediate-range ballistic missiles. The SM-3 Block IIB program began  in June 2010 and entered the technology development phase in July  2011. Given its early stage of development, the SM-3 Block IIB does not  have cost, schedule or performance baselines and is not managed within  the Aegis BMD program office. Instead, this program has a tentative  schedule and is being managed within MDA’s Advanced Technology  office. It is gradually transitioning management to the Aegis BMD program  office, a transfer that is planned to be completed by fiscal year 2015. The  SM-3 Block IIB is planned to be fielded by 2022 at the earliest as part of  the fourth phase of U.S. missile defense in Europe.
The SM-3 Block IIB plans to use a third generation version of the Aegis  Weapon System software that is still in development.
Towards the end of our audit work, DOD proposed canceling of the Aegis  BMD SM-3 Block IIB program in April 2013, in the Fiscal Year 2014  President’s Budget Submission. Because the proposed cancellation  occurred in the last few weeks of our audit, we were not able to assess  the effects of the program’s proposed cancellation and incorporate this  information into our report.
section_title: MDA Revised the Schedule Due To Fiscal Year 2012 Budget Reductions
paragraphs: The fiscal year 2012 budget reduced SM-3 Block IIB funding by nearly 90  percent, from $123 million to $13 million. DOD reduced the budget in  response to congressional concerns about concurrency in the program’s  schedule and other concerns about the mission of the program. In order  to maintain some program activities, including the work of three  contractors that are developing possible concepts for the missile, the  agency redirected $15 million in funds originally intended for other  programs. However, to manage the program within the new budget, the  program revised its schedule to delay key events—most notably, the  planned initial capability of the SM-3 Block IIB, which slipped from 2020 to  2021. Program management officials stated that the initial capability has  been delayed further—to 2022—due to the continuing resolution enacted  in fiscal year 2012.
section_title: Program Plans to Reduce Concurrency and Is Benefitting from Competition
paragraphs: In fiscal year 2012, the program planned to reduce concurrency by  delaying product development until after a key design review is held. We  reported in April 2012 that the program planned to award the contract for  product development prior to holding its preliminary design review. This  sequence would have committed the program to developing a product  with less technical knowledge than our prior work on acquisition best  practices has shown is needed, and without fully ensuring that  requirements are defined, feasible, and achievable within cost, schedule,  and other system constraints. DOD concurred with a recommendation we  made in our April 2012 report to address this concurrency risk. The  program does not yet have a final acquisition strategy, but, based on its  current tentative plans, the concurrency in the program schedule has  decreased. MDA adjusted the program’s tentative schedule to delay the  start of product development until after the preliminary design review, a  sequencing that will increase technical knowledge prior to committing to  development. Further, the revised tentative schedule postpones the start  of product development until fiscal year 2017, which allows the program  additional time to mature key technologies.
In addition, the program continues risk reduction activities—although it  has had to limit its efforts to focus on key components because of fiscal  year 2012 funding limitations. We reported last year that the program was  using risk reduction contracts to develop technologies that could cut  across versions of the SM-3. During fiscal year 2012 the program  reported several significant developments related to risk reduction for the  focal plane array, which is a component that helps the missile identify  targets, as well as the divert and attitude control system, which  maneuvers the warhead toward the target. For example, the program  completed development, fabrication, and testing of the first focal plane  arrays. In addition, it completed a design prototype for a third stage rocket  motor that meets key SM-3 Block IIB requirements. We reported in April  2012 that these risk-reduction efforts may improve performance across  the SM-3 variants.
In fiscal year 2012, the program also reported benefits from competition  among contractors through a better understanding of the program’s  progress, possibilities for the missile, and risks associated with those  possibilities. The program continues to utilize three contractors to develop  concepts during the technology development phase. In April 2012, we  reported on the benefits of competition among contractors, particularly the  increase in technical innovation.
section_title: Navy Decision to Consider Liquid Propellants Enables MDA to Consider Missile Design Options with Varying Capabilities and Risks
paragraphs: The SM-3 Block IIB is being designed for deployment on both Aegis BMD  ships and on land. The SM-3 Block IIB program has been considering  missile concepts with two options for the diameter of the interceptors— either 27 or 22 inches—and two options for propellants for a maneuvering  component—either liquid or solid. To be ship compatible means that the  program must consider Navy needs and requirements when developing  the specifications of the SM-3 Block IIB. While recent Navy decisions  have allowed the program to consider a variety of options for the SM-3  Block IIB, there are associated cost and schedule risks associated with  each of these missile configurations.
In 2012, the Navy decided that the program could consider liquid  propellants. The Navy banned the use of liquid propellants on ships in  1988 due to the potential for substantial ship damage, crew injury and  loss of life from unintended explosive incidents with liquid propellants. In  the summer of 2012 the Navy reaffirmed this position in regards to the  SM-3 Block IIB. However, in October 2012 the Navy determined it would  allow the program to develop concepts for the SM-3 Block IIB that use  liquid propellants. While the Navy memo allowed these concepts to be  explored in the early stages of the program, the memo was not a final  decision to allow the use of liquid propellants on ships. Liquid propellants  can provide performance increases, more speed and range, compared to  solid propellants but at a greater safety risk. However, the Navy also  stated in its summer 2012 memo, that if the program decided to use liquid  propellants on a ship, an expensive and lengthy development effort would  be needed to reduce the safety risks of having liquid propellants on a ship  to an acceptable level. In addition, because of the technology issues  associated with undertaking this effort, there would be no assurance the  outcome would be successful. Further, many ship modifications will be  required across multiple ship classes.
In addition, the October memo stated that the Navy was open to  accepting modifications to its vertical launch system, which is a missile  launching system that is already installed on Aegis ships and will be used  at Aegis Ashore facilities. The 27-inch diameter missile would provide  more capabilities over the 22-inch diameter missile. However, it would  require at least some modifications to the vertical launch system, because  of its larger diameter than other missiles used by the system, which could  increase costs. A smaller, 22-inch diameter missile would not require  such modifications.
Concept and technology development are still ongoing, and the program  has not decided the diameter or type of propellant. Although the smaller  22-inch diameter missile with solid propellant would likely be a lower risk  and cost option, both the Navy and MDA have noted that the capability  limitations are significant. However, pursuing a larger, 27-inch diameter  missile with liquid propellant, while it could provide many of the needed  capabilities, might also introduce significant cost and schedule risks for  the program, in part due to the safety risks associated with liquid  propellants on ships. The program tentatively plans to select a  configuration for its SM-3 Block IIB in fiscal year 2015.
section_title: Program Did Not Conduct an Analysis of Alternatives—a Key Step to Ensuring a Sound Basis for a New Program
paragraphs: We have previously reported that the SM-3 Block IIB program did not  conduct a formal analysis of alternatives (AOA) prior to beginning  technology development. We were requested in 2012 to assess the  extent to which an AOA was conducted for the program. AOAs provide  insight into the technical feasibility and costs of alternatives by  determining if a concept can be developed and produced within existing  resources. Although MDA is not required to do an AOA for its programs  because of its acquisition flexibilities, we have previously reported that an  AOA can be a key step to ensure that new programs have a sound  acquisition basis.
While program management officials identified two reviews that they  consider similar to an AOA, the reviews were not intended to be AOAs,  and they did not address all of the key questions that would normally be  included as part of an AOA. For example, the reviews did not consider the  life-cycle costs for each alternative or the programmatic risks of the  alternatives. Further, while the reviews did consider alternatives that  could provide validated capabilities, the range of alternatives considered  did not include non-Aegis missile options that could provide an additional  layer defense of the United States. This narrow range of alternatives is  particularly problematic because it limits the quality of the answers that  can be provided for other key questions.
As the program has progressed, additional analysis has led to changes in  the initial program assumptions and results that suggest additional  development and investment will be needed by the program to defend the  U.S. homeland. MDA initially assumed that SM-3 Block IIB interceptors  would be based on land at host nation facilities in Romania and Poland.  However, subsequent MDA analyses demonstrated that  the Romania site was not a good location from a flight path standpoint  for defending the United States with the SM-3 Block IIB; and  the Poland site may require the development of the ability to launch  the interceptor earlier—during the boost phase of the threat missile— to be useful for defense of the United States.
MDA technical analysis in 2012 concluded that a ship-based SM-3 Block  IIB in the North Sea is a better location for U.S. homeland defense and it  does not require launch during boost capabilities. While MDA’s initial  assumption was the missile was to be land-based, the program is now  requiring the SM-3 Block IIB to be ship and land compatible.
To some extent, this progression has been driven by the early decision to  narrow solutions to an Aegis-based missile without the benefit of a robust  analysis of other alternatives. While this does not mean the SM-3 Block  IIB is not a viable choice, we have previously reported that without fully  exploring alternatives, programs may not achieve an optimal concept for  the war fighter, are at risk for cost increases, and can face schedule  delays or technology maturity challenges.
section_title: Appendix VI: BMDS Sensors
subsections: section_title: Background and Overview
paragraphs: The current generation of Ballistic Missile Defense System (BMDS)  sensors includes the following:  Sea Based X-Band (SBX) is a sea-based radar capable of  tracking, discriminating, and assessing the flight of ballistic  missiles. SBX primarily supports the Ground-based Midcourse  Defense (GMD) system for defense of the U.S. and is considered  a critical sensor for GMD, in part because it is able to provide  tracking information to the GMD interceptor as it targets an  incoming threat missile. SBX is docked near Hawaii when not in  testing or operational status.
Upgraded Early Warning Radars are U.S. Air Force early  warning radars that are upgraded and integrated into the BMDS to  provide sensor coverage for critical early warning, tracking, object  classification, and cueing data. Upgraded Early Warning Radars  are located in Beale, California; Fylingdales, United Kingdom; and  Thule, Greenland. MDA awarded a contract to upgrade the early  warning radars in Clear, Alaska and at Cape Cod, Massachusetts.  The upgrades to the Clear and Cape Cod Early Warning Radar  sites are joint MDA / Air Force projects. Both organizations are  contributing funding to these sites.
Cobra Dane radar is a U.S. Air Force radar located in Shemya,  Alaska that has been upgraded and integrated into the BMDS to  provide missile acquisition, tracking, object classification, and  cueing data. Cobra Dane supports GMD for homeland defense.
AN/TPY-2 is a transportable X-band high resolution radar that is  capable of tracking all classes of ballistic missiles. AN/TPY-2 in  the forward-based mode is capable of detecting and tracking  missiles in all stages of flight to support Aegis BMD and GMD  engagements and provides threat missile data to C2BMC.  AN/TPY-2 in the terminal mode can track missiles in the later  stages of flight to support THAAD engagements. Four AN/TPY-2  radars for use in forward-based mode are deployed to support  regional defense with two in U.S. European Command, one in  U.S. Pacific Command, and one in U.S. Central Command.
section_title: MDA Downgraded the SBX Radar to a Limited Test Support Status Primarily Due to Budget Concerns
paragraphs: MDA removed the SBX radar from operational status and placed it into a  limited test support status beginning in 2012 due to budget concerns.  Limited test support status means SBX will support BMDS flight and  ground tests as appropriate, but can be recalled to active, operational  status when warnings indicate a need to do so. MDA officials stated that  cuts by the Office of the Secretary of Defense to MDA’s fiscal year 2013  budget required the agency to find approximately $2 billion in overall  reductions. By transitioning SBX to a limited test support status, MDA  officials expect to save almost $670 million in operation and maintenance  costs for fiscal years 2013 through 2018.
Because SBX is primarily used to support GMD’s defense of the United  States, removing SBX from operational status also changes how the  BMDS operates. However, MDA officials told us that SBX was developed  to assist in countering a threat that has not yet manifested and therefore,  from an operational standpoint, the radar is not currently needed. An  official with U.S. Northern Command, which is concerned with defense of  the United States, told us that the command has developed alternatives  for conducting engagements without the SBX. However, U.S. Northern  Command’s 2011 assessment of the BMDS notes there is a difference in  how the BMDS operates without SBX, the details of which are classified.
section_title: DOD Faces Challenges Addressing Cobra Dane Sustainability Concerns, as well as Confirming New Capabilities
paragraphs: According to MDA officials, to continue operating Cobra Dane beyond  2015, when sustainment funding is schedule to end, the Air Force, with  input from MDA, will need to determine whether to proceed with a service  life extension plan to address sustainability concerns. Cobra Dane is a  vital sensor for GMD—especially with the limited availability of SBX. MDA  officials stated the Air Force and MDA would likely share the cost of this  extension. However, they told us that it is unclear how many years it  would extend the service life of Cobra Dane and that the agency is  exploring other long-term solutions. One option is to replace Cobra Dane  with a new radar although doing so is likely to be costly. One contractor- funded study estimated the life-cycle cost of a Cobra Dane replacement  at approximately $1 billion. MDA officials told us for BMDS purposes, their  preferred long-term solution is to replace the functions currently  performed by the Cobra Dane radar with the Precision Tracking Space  System (PTSS) which the agency currently expects to become fully  operational in 2023.
Although DOD has upgraded the Cobra Dane radar in the past, it has not  yet confirmed those upgrades work in an intercept flight test. The radar’s  capabilities were last demonstrated during a fly-by flight test in September  2005. The Director, Operational Test & Evaluation has reported that, due  to Cobra Dane’s location and field-of view, the upgrades have been  constrained to ground testing using models and simulations, and these  tests were limited by the continuing lack of credibility that the models  used accurately portray BMDS performance. The Director, Operational  Test and Evaluation further stated that MDA would conduct a flight test in  Cobra Dane’s field of view to confirm that the upgrades work as intended.  MDA had originally played to complete this flight test in late fiscal year  2010, but has delayed it until fiscal year 2015.
section_title: Despite High Demand for AN/TPY-2 Radars, MDA Is Buying Fewer than Previously Planned
paragraphs: MDA is planning to procure fewer AN/TPY-2 radars than previously  planned even though the recent increased focus on regional—in addition  to homeland—defense makes them in high demand from various  combatant commands. MDA reduced the number of AN/TPY-2 radars  from 18 planned in the fiscal year 2012 budget down to 11 in the fiscal  year 2013 budget. The agency decided to procure 7 fewer AN/TPY-2  radars because fewer THAAD batteries that utilize the radars are being  procured, and because of budget cuts in its fiscal year 2013 budget.
Currently, the last AN/TPY-2 procurement is scheduled for fiscal year  2013 and production will end in fiscal year 2015. Officials told us,  however, that the agency may have some opportunities for the U.S. to  procure additional AN/TPY-2 radars if additional radars are produced for  sales to foreign governments in the interim.
section_title: AN/TPY-2 Cost Baselines Are Relatively Stable and Progress against Schedule Baselines Is Mixed
paragraphs: The only baselines reported for BMDS Sensors in the 2012 BMDS  Accountability Report (BAR) are for the AN/TPY-2.
Since the 2010 BAR baselines were established, the AN/TPY-2 program  entered the initial production phase for its ninth and tenth radars and  established a new baseline. However, the AN/TPY-2 reported unit costs  have increased by less than 5 percent from the 2010 BAR to the 2012  BAR. The reported average cost in the 2012 BAR for MDA to produce  one AN/TPY-2 is $187 million and the reported average cost to develop  and produce one AN/TPY-2 is $226 million. According to its 2012 BAR,  MDA did not separately report or explain cost increases that were less  than the agency’s established threshold of 5 percent since the prior year  reported unit cost.
The AN/TPY-2 radar had some success in meeting 2012 BAR schedule  goals, however, some milestones—including the assessment of a key  capability—were delayed. Specifically, confirming the radar’s advanced  capability to distinguish incoming threats while in terminal mode was  delayed until the fourth quarter of fiscal year 2015, about four years later  than originally planned. The delay was driven by revisions to MDA’s  ground and flight test program and a slip of a key THAAD test designed to  assess the capability in an operational environment. In addition, the  program delayed Production Readiness Risk Assessments—formal  assessments used to determine if production commitments can be made  without incurring unacceptable risks to schedule, performance, cost, or  other established criteria—for future deliveries of AN/TPY-2 radars by 2  years. The delay was due to an obsolete radar processor and difficulty in  establishing a replacement for it. During fiscal year 2012, the program  successfully deployed a radar to Turkey as part of the BMDS for regional  defense in Europe. Also during the fiscal year, MDA reduced the total  number of AN/TPY-2 radars being procured. In response to this  reduction, the program accelerated the delivery schedule for two of the  three AN/TPY-2 radars already in production. MDA delivered its eighth  radar after a short delay and projected the next three radars to be  delivered on time or ahead of schedule as seen in figure 9.
section_title: Appendix VII: Ground-based Midcourse Defense
subsections: section_title: GMD’s Failure Resolution Effort is Rigorous
paragraphs: The GMD program’s failure investigation and return to intercept effort has  been rigorous. MDA convened a failure review board composed of  independent experts to conduct an extensive investigation into the cause  of the failure and perform modeling and testing to confirm the failure  conditions. During the investigation, a series of ground tests were  conducted to recreate and confirm the cause of failure, characterize the  environment, and test materials, components and systems. According to  a GMD program official, the program conducted over 50 component and  subcomponent failure investigation and resolution tests. These tests  focused on two primary areas of the kill vehicle—the thrusters and the  guidance system. While initial ground testing could not replicate the  environment in which the kill vehicle operates, the program did develop  new test equipment that provided conditions similar to flight and recreated  and confirmed the failure. In August 2011, the investigation attributed the  failure to a guidance system fault that happened while in space that  caused the kill vehicle to fail in the final seconds of the test. The  investigation concluded that the guidance system required redesign and  further development.
section_title: Concurrency Disruptions to Interceptor Production Continued in 2012
paragraphs: The program’s continuing concurrent acquisition practices have disrupted  development, testing, and production since 2010, thus delaying deliveries  to the warfighter. Simultaneous with the failure investigation, MDA and its  contractors undertook an effort to develop hardware and firmware  solutions to return the program to intercept flight tests.  These solutions  were then planned to be assessed in two flight tests to determine whether  they successfully addressed the shocks and vibrations the kill vehicle  experiences during flight. Because the initial design solutions were  developed concurrently and prior to the full understanding of the cause of  failure, when developmental issues then arose, the flight tests had to be  delayed and their objectives modified. As originally planned, the first non- intercept flight test was designed to demonstrate the effectiveness of the  resolution efforts by testing both the new hardware and firmware in order  to support a decision to resume manufacturing of kill vehicles. The test  was originally scheduled for the fourth quarter of fiscal year 2011, but was  not conducted until January 2013. This delay was due to difficulties  developing the new firmware and concerns about the device that  detonates in order to release the kill vehicle from the booster. MDA chose  to modify the objectives of this test in order to prevent further delays. For  example, the kill vehicle tested the new guidance system, but did not  have the new firmware as originally planned. Additionally, the test was no  longer designed to demonstrate that the CE-II works as intended in order  to resume manufacturing. However, the test was a significant diagnostic  flight test to gather data on the operational environment not achievable in  ground tests. According to MDA officials, the test also included certain  other components that have undergone design changes to address  issues discovered in prior flight tests. MDA’s final evaluation of the  January 2013 test was not available in time for our review for this report.
The next planned CE-II intercept test, designed to demonstrate its  capability, has been delayed from the third quarter of fiscal year 2012 by  development issues. At the conclusion of our review, the exact timing and  sequence of further GMD flight tests is to be determined because the  flight test schedule continues to change.
The December 2010 failure also delayed MDA’s broader GMD  developmental flight testing. Because MDA inserted two flight tests to  show that the causes of failure had been resolved, MDA had to  reschedule its test plan, moving a flight test from fiscal year 2013 to 2016,  and delaying a planned operational test from fiscal year 2015 until 2016.  MDA also delayed completing developmental flight testing from 2021 to at  least the fourth quarter of fiscal year 2022, well after the scheduled  completion of CE-II manufacturing.
In continuing to follow a concurrent acquisition strategy, DOD is accepting  the risk that later flight tests may find issues requiring costly design  changes and retrofit programs to resolve. Prior to the December 2010  flight test failure, MDA planned to complete delivery of the CE-II  interceptors by the fourth quarter of fiscal year 2012. However, due to the  delay in conducting the intercept test necessary to resume deliveries, the  completion date has not yet been determined but, as of May 2012, they  had expected to complete deliveries by 2015. According to the GMD  program manager, the program will resume integration of certain kill  vehicle components they have determined are not related to the failure  prior to the next intercept test.
GMD’s recent program disruptions are tied to the initial adoption of  concurrent acquisition practices and the continuation of these practices  as developmental problems occurred. In 2004, MDA committed to a  highly concurrent development, production, and fielding strategy for the  new interceptor, approving production before completing development of  the prior version or completing development or flight testing of the new  components. MDA proceeded to concurrently develop, manufacture, and  deliver, starting in 2008, 12 of these interceptors even though they had  not yet been successfully tested, ultimately resulting in significant delays  and cost growth.
section_title: The Costs to Demonstrate and Fix the CE-II Continue to Increase
paragraphs: The cost to demonstrate the new CE-II kill vehicle through flight testing  and fix the CE-IIs already produced continues to increase. MDA planned  to demonstrate the CE-II capability in January 2010 for approximately  $236 million with one flight test. In April 2012 we reported that the cost  had increased to $1.2 billion According to MDA, the cost growth was, in  part, due to reconducting flight tests (which includes the cost of planning,  test execution and range support, the target, and post-test analysis), as  well as conducting failure investigations and fixing already delivered CE-II  interceptors as noted in table 3.
This estimate does not include the costs already expended during  development of the interceptor and the target. For example, the costs of  the flight tests do not include nonrecurring development costs, such as  those for systems engineering and test and evaluation, among others.  Often these costs were incurred many years before flight tests are  conducted. Consequently, including nonrecurring development costs for  both the CE-II and the targets would substantially increase the costs by  hundreds of millions of dollars for each flight test and increase the overall  cost outlined in table 3.
The cost to demonstrate the new CE-II kill vehicle continues to grow due  to the delays in conducting the next intercept test. According to the GMD  program manager, although the total cost is not determined, delays in  conducting the intercept test are estimated to cost about $3 million per  month.
According to the Department of Defense’s Report to Congress on  Ground-based Midcourse Defense December 2010 Flight Test Failure  and Correction Plan, MDA will fund the resolution efforts within the  existing budget appropriations. The significant costs of the flight tests  needed to demonstrate the failure resolution, according to this report, will  be offset in large part by realigning the resources already allocated to  planned testing that has not occurred. MDA will also delay new  interceptor manufacturing and interceptor upgrades that were dependent  on the redesigned CE-II kill vehicle.
section_title: Instability of GMD Resource Baseline Prevents Insight into Cost Progress
paragraphs: The GMD program’s reported baseline in the 2012 BMDS Accountability  Report (BAR) represents activities and associated costs needed to  achieve an initial defense of the United States. Although the program  planned to report a new baseline in the 2013 BAR for other activities and  associated costs needed for its next set of capabilities, it recently delayed  this effort.
Adjustments to the content of the GMD program’s resource baseline in  2012 have obscured cost progress to the extent that we are unable to  assess longer-term or near-term progress. Although we have reported  over the past few years that the program has experienced (1) significant  technical problems, (2) production disruptions and (3) the addition of  previously unplanned and costly work, the GMD total cost estimate as  reported in the resource baseline has decreased from 2010 to 2012. The  reported costs have decreased because the program moved activities  from its initial baseline to its next undefined effort to enhance defense of  the United States. By moving these activities, MDA used the funds that  were freed up for failure resolution efforts instead. In addition, because  the next baseline won’t be defined until after these activities have already  been added to it, the additional cost for conducting these activities in the  next baseline will not be identifiable. The full extent of actual cost growth  may never be determined or visible for decision makers for either  baseline because of these adjustments.
section_title: Return to Intercept Activities Are Causing Schedule Delays
paragraphs: While GMD has been able to complete some of it schedule and delivery  goals, the program continued to experience challenges with its return to  intercept activities, which delayed key developmental events and planned  interceptor deliveries. For example, in the first quarter of fiscal year 2013,  MDA completed the construction of a new power plant in Fort Greely,  Alaska as seen in figure 11. The delivery was completed following a  nearly two year schedule delay driven by failures identified during  contractor integration testing which necessitated corrective action and  additional testing. This power plant is important as it will provide an  independent power source to the GMD missile fields at Fort Greely.
section_title: Appendix VIII: Precision Tracking Space System (PTSS)
paragraphs: Appendix VIII: Precision Tracking Space  System (PTSS)
subsections: section_title: Background and Overview
paragraphs: PTSS is a space-based infrared sensor system designed to track ballistic  missiles after boost and through the middle part of their flight. The  operational satellite system will include a constellation of nine satellites in  orbit at the same time around the earth’s equator. These satellites  communicate with one another and a ground station to provide intercept- quality tracks of enemy missiles to other BMDS elements for  engagement. The system is expected to expand the BMDS’s ability to  track ballistic missiles by providing persistent coverage of approximately  70 percent of the earth’s surface while handling more advanced missiles  and larger raid sizes than current ground and sea-based radar sensors.  The PTSS program is preceded by a prior MDA demonstration effort for  space-based missile tracking, the Space Tracking and Surveillance  System, which continues to inform PTSS development. Since the PTSS  program is in the very early stages, it does not have cost, schedule or  performance baselines. The program will set baselines when it begins  product development, which is scheduled for fiscal year 2014.
The PTSS program is designing the acquisition to allow future  adjustments, such as an increase to constellation size or changes to how  the satellites communicate with the rest of the BMDS. This flexibility  would permit the system to adjust to changes in the threat. The program  also plans to upgrade its capabilities from tracking objects to  discriminating among the objects it tracks.
DOD proposed canceling the PTSS program in April 2013 in the Fiscal  Year 2014 President’s Budget Submission. Because the proposed  cancellation occurred in the last few weeks of our audit, we were not able  to assess the effects of the program’s proposed cancellation and  incorporate this information into our report.
section_title: In 2012, MDA Determined That PTSS Requires Nine Satellites on Orbit at the Same Time, Full Cost Has Not Been Determined
paragraphs: In August 2012, MDA formally defined the PTSS operational constellation  as 9 satellites in orbit at the same time and established the planned  launch schedule for the life of the program. The program plans to launch  two laboratory-built developmental satellites in March 2018, then four  industry-built satellites to achieve an initial operational capability of 6  satellites in December 2021, and finally achieve full operational capability  with a 9-satellite constellation in December 2023. As part of this plan, the  program expects the two laboratory-built developmental satellites to be  part of the operational constellation until December 2025 when it will  begin launching replacement satellites. From initial launch in 2018 to the  program’s projected completion in 2040, the program plans to procure a  total of 26 satellites.
A recent study by the National Academy of Sciences estimated the PTSS  life-cycle cost to range between $18.2 billion and $37 billion based on  configurations for a 9-satellite and 12-satellite constellation. DOD’s Cost  Assessment and Program Evaluation office is currently conducting an  independent cost estimate for PTSS and plans to finish the assessment in  April 2013. It is unclear if the independent cost estimate will include costs  for additional upgrades the program could add in the future, such as  improving the satellite’s discrimination capabilities or optimizing the  program for observation of space objects.
section_title: MDA Has Not Conducted a Robust Analysis of Alternatives; Congress Is Requiring DOD to Evaluate PTSS Alternatives
paragraphs: An Analysis of Alternatives (AOA) is an analytical study that compares the  operational effectiveness, cost and risks of alternative potential solutions  to address valid needs and shortfalls in operational capability. We  previously reported that a robust AOA addresses some key questions,  such as determining which alternatives provide validated capabilities,  assessing the technical, operational, and programmatic risks for each  alternative, determining the life-cycle cost for each alternative, and  comparing the alternatives to one another.
Although MDA is not required to complete an AOA for its programs  because of its acquisition flexibilities, it has conducted a number of  studies in the past related to PTSS to compare alternatives. None of  these studies can be considered robust AOAs primarily because the  studies considered too narrow a range of alternatives. For example, in  October 2011, the U.S. Strategic Command, at the direction of the Under  Secretary of Defense for Acquisition, Technology, and Logistics,  conducted an assessment that compared the expected operational  performance of PTSS against two other MDA sensors—the operational  AN/TPY-2 radar and the developmental Airborne Infrared. While this  review could be a useful source of information for a more robust AOA, the  study cannot be considered a robust AOA because it assessed too  narrow a range of alternatives and did not fully assess programmatic and  technical risks, both of which are important aspects of a robust AOA.  Although MDA has also conducted a number of studies in the past that  mostly focused on follow-on concepts for MDA’s Space Tracking and  Surveillance System demonstration program, none of the completed  studies considered a broad range of alternatives.
Partially in response to concerns raised by the National Academy of  Sciences last year about the costs and benefits of the PTSS program, in  January 2013, Congress required DOD to evaluate PTSS alternatives.  DOD’s Cost Assessment and Program Evaluation office is currently  conducting a comprehensive review of the PTSS program in response.
Because the study is ongoing at the time of this review, it was not  available for our review. DOD plans to complete the study in April 2013.
section_title: The Program Faces Technical and Operational Challenges, Primarily from High Radiation Environment
paragraphs: The PTSS program faces significant technical challenges to achieving a  fully operational constellation by 2023. Some of PTSS’s major  components require significant development to function in the high  radiation environment in which the satellites will operate. If that  development is not successful, the satellite performance could be less  than currently planned and the expected life of the satellites could be  reduced. In addition, the program expects some level of performance  reduction of the satellites on orbit because it plans to operate the  satellites past their planned mission life. Although the program is  developing the satellites to achieve a fully operational, nine-satellite  constellation no sooner than 2023, its strategy leaves little margin for  error. If these technical risks are realized, the operational performance of  the constellation could be reduced, development costs could grow, and  the cost to maintain the planned nine-satellite constellation could grow  significantly if more frequent replacement is required.
The high radiation environment in which the PTSS satellites plan to  operate in is more intense than that experienced by other satellite  systems and could result in reduced performance. The PTSS satellites  are designed to view ballistic missiles as they fly above the earth’s  horizon. To accomplish this, the satellites will orbit the earth at an altitude  of approximately 930 miles above the earth’s surface. Consequently, the  satellites will pass within the region of one of the earth’s radiation belts  where fast moving protons and electrons can penetrate and damage  sensitive satellite equipment. The Space Tracking and Surveillance  System demonstration satellites currently operate in a similarly high  radiation environment at an altitude of approximately 840 miles and, as  we have previously reported, have experienced multiple problems as a  result. Although program officials anticipate these problems to  occasionally occur and have successfully recovered from all prior  incidents, radiation events have affected the Space Tracking and  Surveillance System satellites’ availability and contributed to an 11-month  delay completing initial check-out for the satellites to reach full capability  after launch. Recently, the National Aeronautics and Space  Administration launched the Van Allen Probes, a space program led by  the same laboratory leading the PTSS design efforts, to explore the  Earth’s radiation belts. These probes may collect data that could help  design PTSS components to protect them against radiation damage. The  Van Allen Probes recently discovered a previously unknown, additional  radiation belt, indicating a more dynamic radiation environment than  previously thought.
Recognizing the high radiation challenge, the PTSS program is seeking to  develop ways to minimize the effects of radiation damage to components.  While most of PTSS’s technologies are mature, some of the technologies  with less maturity are major components of the satellite’s design. These  technologies have low levels of maturity, in part, because they require  radiation protection at levels that have not yet been demonstrated for  those specific technologies. The program has added the development of  these critical technologies to its high risk list, such as the star tracker, a  component of the guidance and control system that uses stars to track its  orientation, and the focal plane array, a component of the optical payload  that locates and tracks enemy missiles. While some of these technologies  are in early development, the program has undertaken risk reduction  plans to focus development of these technologies. Because these  technologies are critical, if they require additional development for  radiation protection beyond what is already planned, the program could  experience delays, a reduction in system performance, or a reduction in  the satellites’ planned mission life.
The program expects that over time, the satellites will have some  reduction to their initial performance because it plans to operate satellites  longer than their planned 5-year mission life. During the mission life, the  PTSS satellites are expected to perform the designed functions to  effectively meet the system’s performance requirements. After that 5-year  period, there will be a growing likelihood that operational performance will  be reduced. The program plans to launch the final satellites needed to  achieve an operational nine-satellite constellation in 2023. However, it  won’t launch replacement satellites for the first two satellites until 2025— nearly 8 years after they were put in orbit. In fact, all of the satellites in the  constellation will be operated beyond their planned mission life with an  average 8 years in orbit and in some cases, as long as 9.5 years.  Historically, several DOD space systems have continued to operate  several years beyond their planned mission life. For example, the Global  Positioning System Block IIA satellites were designed to last an average  7.5 years but have actually lasted about twice as long. This is largely  because satellites are typically designed with high levels of redundancy  and other reliability measures that ensure performance over a period of  time.
For PTSS, employing a strategy of leaving satellites in orbit for 8 years  rather than only 5 years will, in the long term, mean that MDA will  purchase, produce, and launch about 16 fewer satellites through 2040 at  a cost savings of several billion dollars. However, it also adds  performance risk for the warfighter. Although other DOD space programs  have planned for satellites to operate past their planned mission life, they  usually wait until they have some on-orbit performance data from  demonstration or similar previous satellites. The PTSS strategy, however,  is based solely on pre-launch engineering and design analysis with  assumptions that may or may not prove to be accurate. For example, the  program estimates satellite reliability to gradually decrease over time  assuming that random failures may occur, but components are not likely  to prematurely wear out. However, if radiation risks do materialize,  satellite components are much more likely to prematurely wear out. Also,  program officials stated they plan to include fewer redundant measures  than prior space systems to reduce cost, weight, power consumption, and  design complexity. However, this may increase the likelihood the  satellites will not effectively perform beyond their planned mission life.
section_title: PTSS Program Revised Its Acquisition Strategy but Elevated Acquisition Risks Remain
paragraphs: In April 2012, we reported the program’s acquisition strategy incorporated  several important aspects of sound acquisition practices, such as  competition and short development time frames. However, we also  found that there were elevated acquisition risks tied to the concurrency— the overlap—between the development of the laboratory-built satellites  and industry-built satellites. Under the previous strategy, the program  planned to select a manufacturer, conduct a major review to finalize the  satellite design, and authorize production of items that require a long lead  time (more than 2 years) for satellites 3 and 4—all while the laboratory  team develops and manufactures satellites 1 and 2. Because the  industry-built satellites will be under contract before on-orbit testing of the  lab-built satellites, we found that the strategy may not enable decision  makers to fully benefit from the knowledge about the design to be gained  from that on-orbit testing before making major commitments. In October  2012, the program approved its third acquisition strategy, revising it so  that two manufacturers are initially selected rather than one. After the  program has conducted the design review, the program will then select  one of the manufacturers to produce satellites 3 and 4 and authorize  production of long lead items.
Although the revised acquisition strategy may improve collaboration  between the laboratory team and industry, the concurrency risks remain  unchanged. The revised strategy may improve the opportunity for  collaboration between industry and the laboratory teams because the two  manufacturers will be able to coordinate with the laboratory team while  they are finalizing the design. However, the same concurrent activities in  the previous strategy—finalizing the design and committing to long lead  production for satellites 3 and 4 while developing satellites 1 and 2— continue. This approach will not enable decision makers to fully benefit  from the knowledge about the design to be gained from on-orbit testing of  the laboratory-built satellites before committing to the next industry-built  satellites. Also, these first four satellites will be operational satellites,  forming part of the operational nine satellite constellation until they are  replaced between 2025 and 2027. As a result, if on-orbit testing reveals  the need for hardware changes, the operational constellation will not fully  benefit from those changes until the initial four satellites are replaced.
section_title: Appendix IX: Targets and Countermeasures
subsections: section_title: MDA’s First Use of New Targets in Complex and Costly System-Level Tests Is Causing Delays and Unnecessary Risk
paragraphs: MDA has chosen to demonstrate new targets for the first time during  complex and costly system-level tests instead of first demonstrating them  in less complex and expensive scenarios. System-level flight tests can  involve multiple BMDS elements including land-, sea-, air-, and space- based sensors and one or more interceptors and can cost hundreds of  millions of dollars. MDA launched a new target, its E-LRALT, for the first  time as part of its first system-level integrated flight test, its most complex  test to-date, in the first quarter of fiscal year 2013. MDA plans to launch  two of its new eMRBMs for the first time during the agency’s first  operational system-level test in the fourth quarter of fiscal year 2013.
MDA’s first system-level integrated flight test, Flight Test Integrated-01,  was conducted in October 2012 and was the most complex test MDA has  conducted. It coordinated multiple combatant commands and missile  defense elements to intercept four of five targets launched. MDA added  this test as a risk reduction exercise for its planned operational test. While  the E-LRALT target performed successfully, the test experienced a minor  delay from September to October 2012 when the new target was unable  to meet the readiness reviews for the original test deadlines. This target  needed additional time to complete a series of tests of the target’s flight  termination system – a safety system that terminates the booster motor’s  thrust if unsafe conditions develop during flight. These tests were delayed  when workmanship and test set up issues required correction and further  retesting, which delayed the integration of these components into the  missile. Despite the additional risk, this target was successfully launched  for the first time and performed as expected during the integrated test in  October 2012.
MDA’s first operational system-level test, Flight Test Operational-01, is  currently planned for the fourth quarter of fiscal year 2013. During this  test, the agency plans to use a total of five targets, three ballistic missiles  and two cruise missiles, and a variety of coordinated missile defense  elements to conduct a highly complex scenario. This test is a very  important integrated flight test designed to demonstrate regional  capabilities of U.S. missile defense. MDA plans to use its new eMRBM  target for the first time for two of the five targets during this operational  test rather than using it first in a simpler and less costly risk reduction  flight test. Risk reduction flight tests are normally conducted the first time  a system, such as a new target, is tested in order to confirm that it works  before adding other test objectives. This operational flight test has  experienced between a six and nine month delay caused by weapon  system issues and developmental problems associated with the eMRBM  target. MDA was on a tight schedule to meet the original test date before  issues arose with the air-launched target’s restraint system, which holds  the target in cradles while it is launched from an aircraft cargo hold. The  entire target restraint system had to be redesigned and was not finalized  until August 2012. The delay in availability of this target contributed to  MDA’s decision to delay this test.
section_title: Competitive Contracts Could Offer Opportunity for Savings
paragraphs: MDA’s contracting strategy has evolved from a single prime contractor  strategy to more competitively awarded contracts for new target types. In  2003, MDA chose a single prime contractor, Lockheed Martin, to lead the  acquisition of targets with what it called the Flexible Target Family  approach, which used common components and shared inventory, and  promised reduced acquisition time, cost savings, and increased  capability. However, the approach soon proved more costly and more  time-consuming than expected. Responding to congressional concern  about these problems and our 2008 recommendations, MDA revised its  acquisition approach in 2009, seeking to increase competition by  returning to a multiple contract strategy with as many as four prime  contractors—one for each separate target class. Shortly after, attempts to  competitively award the first contract were canceled because the bids  received were more expensive than anticipated. MDA completed a  competitive award for an intermediate-range target in 2011 but otherwise  continued to rely heavily on Lockheed Martin for new target types. For  example, in 2011, MDA awarded three new task orders to its prime  contractor for eMRBM targets, a more specialized medium-range target  that will be procured in fewer quantities, and for re-entry vehicles that are  interchangeable among multiple targets.
MDA is now using parts of both approaches by using its prime contractor  to keep some commonality among new targets it develops, and by issuing  some competitive solicitations for other targets. It has recently begun to  see some cost savings from the intermediate-range competition, reporting  a cost of $103 million less than expected, compared to the independent  government estimate it developed for that competition. In addition, MDA  has continued to pursue additional competitive awards in fiscal years  2012 and 2013. MDA awarded a contract in October 2012 for the first two  intercontinental ballistic missiles needed for future flight tests, and,  according to a program official, also expects to award a contract for a new  medium-range target in April 2013. These competitive contract decisions  could offer more opportunities for cost efficiencies.
section_title: New Medium-Range Targets Cost Baseline Adjustments Prevent Insight into Long-Term Cost Progress; Schedule Baseline Reflects Delivery Delays
paragraphs: MDA’s BMDS Accountability Report (BAR) reports baselines for cost and  schedule. In the BAR, Targets and Countermeasures report detailed cost  and schedule information for individual targets under three baselines for  short-, medium-, and intermediate-range interceptors. In addition, MDA  added new baselines in the 2012 BAR for common components, such as  re-entry vehicles and associated objects. We focused our assessment on  the new medium-range targets—the eMRBM and E-LRALT targets  mentioned above.
In its 2012 BAR resource baselines for Targets and Countermeasures,  MDA reports an average unit cost and a non-recurring cost baseline.  Non-recurring costs include the cost to design and develop a target  configuration. Average unit cost is the sum of manufacturing costs for  targets using research, development, test, and evaluation funding divided  by the number of targets delivered. The agency reports that it uses these  nonstandard unit costs because targets are modified to meet specific  threat representations and are consumed in testing. In addition, no  procurements funds are used to acquire targets.
Although Targets and Countermeasures have reported baselines since  2010, it is no longer possible to compare the 2012 BAR reported average  unit cost or non-recurring cost baselines with the original baselines set in  the 2010 BAR for any of the Targets—including the eMRBM and E- LRALT targets. Unit cost baselines were affected when costs for common  target components, which were previously included in the target  baselines, were removed and redirected into a separate, newly created  baseline for common components. In addition, the agency also changed  the way it calculated its unit cost estimates for the eMRBM by adding  costs incurred in previous years. Non-recurring cost baselines were also  affected by removing costs for common target components, adding costs  incurred in previous years, and removing support costs.
The agency applied these new accounting rules retroactively to the 2011  BAR and reported the revisions in the 2012 BAR which enabled a one- year comparison. Between the retroactively adjusted 2011 BAR and the  2012 BAR, the average unit cost and non-recurring costs decreased for  the E-LRALT target by 6 and 12 percent, respectively, as seen in figure  12. According to program officials, this is because actual costs for quality  control and testing requirements for this missile were lower than originally  estimated.
The E-LRALT is manufactured by the same contractor that manufactured  the short-range air-launched target that failed during a THAAD flight test  in 2009. Program officials explained that the estimates reported in the  2011 BAR assumed that the extensive quality control measures and  testing requirements imposed by MDA would be more costly than they  ultimately were.
As seen in figure 13, non-recurring and average unit costs increased for  the eMRBM targets between the retroactively adjusted 2011 BAR and the  2012 BAR by 15 and 18 percent, respectively, because of increased  testing requirements and a reduction in the quantity. Non-recurring costs  increased because design issues with the air launch system and  additional testing requirements were added to the program after it  experienced development issues. The average unit cost increased solely  due to a reduction in the quantity which eliminated the opportunity to  purchase them more efficiently. The quantity decreased from 11 to 5  targets between the 2011 and 2012 BARs because the latest agency  testing plan increased the number of intermediate-range targets and  reduced the number of medium-range targets. Although the average unit  cost change was above the 5 percent reporting threshold that MDA  established in its 2012 BAR, the $6 million dollar change in the average  unit cost of the eMRBM target was not separately reported because the  agency attributed this increase solely to a quantity change and not to real  cost growth.
The Targets and Countermeasures program met the majority of its  schedule goals to support the test program in fiscal year 2012 by  successfully flying eight targets. However, the program experienced  delays in delivering an E-LRALT for Flight Test Integrated-01 and delays  delivering eMRBM targets as previously discussed.
section_title: Appendix X: Terminal High Altitude Area Defense (THAAD)
paragraphs: Appendix X: Terminal High Altitude Area  Defense (THAAD)
subsections: section_title: Background and Overview
paragraphs: THAAD is a rapidly deployable ground-based system designed to defend  against short- and medium-range ballistic missile attacks during the  middle and end of their flight. A THAAD battery currently consists of 24  interceptor missiles, three launchers, a radar, a fire control and  communications system, and other support equipment. Starting in fiscal  year 2013, the program plans to increase each battery to 48 interceptors  and six launchers. The first two batteries have been conditionally  released to the Army for initial operational use. The program plans to  continue production through fiscal year 2021, producing a total of 6  batteries, including 503 interceptors and 6 radars.
section_title: THAAD Overcame Past Production Issues Exacerbated by Concurrency and Has Plans to Recover from a 2012 Production Issue
paragraphs: Appendix X: Terminal High Altitude Area  Defense (THAAD) still had not completed testing of the safety device for the interceptor or  overcome its production issues, MDA continued its concurrent acquisition  strategy by signing a production contract in early 2011 for two additional  THAAD batteries.
In fiscal year 2012, after a 15-month delay, THAAD was able to overcome  its production issues and deliver the remainder of the interceptors needed  for the first two batteries. The program resumed production in the second  quarter of fiscal year 2011 after completing testing for its optical block.  MDA issued a contract in July 2012 for the continued production of  THAAD batteries including procurement of additional interceptors as well  as manufacturing and delivery of launchers and support equipment. The  program is planning to award another production contract in fourth quarter  fiscal year 2013 which will continue production for a total of 320  interceptors through fiscal year 2017.
After experiencing a minor delay to interceptor production during 2012,  the THAAD program plans to continue interceptor deliveries as planned.  The program was on track to meet the new interceptor production goals in  mid 2012 when faulty memory devices were discovered on the mission  computers of interceptors procured in 2010 and 2011. Though the  defective parts were discovered while most interceptors were still at the  contractor’s facility, the issue caused a production gap beginning in late  fourth quarter fiscal year 2012. This gap put the interceptor production  schedule four months behind. However, program officials have acquired  and completed initial testing of the new parts and expect to recover the  delays by increasing the average rate of production from three up to four  interceptors per month. By making this change, they expect to be able to  deliver the next set of 48 interceptors by December 2013 as scheduled.  However, six interceptors with the faulty parts had already been delivered  with the first two batteries and will have to be retrofitted.
section_title: First Two THAAD Batteries Conditionally Accepted by the Army with Full Acceptance Expected by 2017
paragraphs: The Army has declared the THAAD Weapon System as safe, suitable,  and supportable for Army soldiers to operate, with conditions. A list of  these conditions that must be satisfied before the Army approves full  materiel release has been defined. Examples of which include additional  flight testing, verification of safety systems, training, and reliability  improvements. Also defined are the resolution plan, funding, and  estimated schedules. The program expects the last conditions to be  resolved by the end of fourth quarter fiscal year 2017.
Appendix X: Terminal High Altitude Area  Defense (THAAD)
One of the conditions that must be met to achieve full materiel release of  THAAD to the Army is the incorporation of the required Thermally Initiated  Venting System. The venting system is a safety feature of the interceptor  that prevents the boost motor from starting or exploding in the event that  the canister holding the interceptor heats up beyond a certain  temperature. The program concurrently developed and tested this system  while producing the fielded interceptors. After a redesign in 2011, the  system is performing better in recent testing than it has in the past.  Program officials say that this safety system may not meet all of the Army  standards for full materiel release. However, military standards for the  venting requirement are written for smaller scale systems and have never  been incorporated into a system as large as THAAD. Although the  program does not expect to complete all required testing of the safety  system until late in the second quarter of fiscal year 2013, the program  has already inserted the latest version into the interceptor production line  for batteries three and four and plans to include it in all subsequent  interceptors.
section_title: THAAD Completes First Intercept of Medium- Range Ballistic Missile during a Complex System- Level Flight Test
paragraphs: THAAD successfully demonstrated its capability to intercept a medium- range ballistic missile for the first time during a complex, integrated test  (Flight Test Integrated-01) involving multiple BMDS elements and targets  in October 2012. This test provided key data to DOD test organizations to  demonstrate recent upgrades to THAAD hardware and software. The test  was also used to evaluate how well THAAD and other missile defense  elements such as Aegis Ballistic Missile Defense, Patriot, and Command,  Control, Battle Management and Communications elements work  together. THAAD was operated by Army soldiers during the test, even  though the overall event was considered a combined developmental and  operational test.
Although THAAD was able to achieve an important step by intercepting a  medium-range target during the test, other capabilities have still not been  demonstrated. One significant example is demonstrating the performance  of the system using the radar advanced software against a complex  target. The software has been implemented in the operational radar and  ground tested, but will not be demonstrated in a flight test until fiscal year  2015. The THAAD program expects to have three batteries delivered to  the Army before this test is complete. The program plans to deliver  additional batteries while it continues conducting flight tests to verify the  system’s capabilities. If the program discovers issues that need to be  corrected during these later tests, it could be very costly to resolve any  issues and retrofit existing inventory.
Appendix X: Terminal High Altitude Area  Defense (THAAD)
section_title: THAAD Was Declared Operationally Effective in 2012, but Test Officials Note Several Limitations
paragraphs: Testing officials declared THAAD operationally effective in 2012 after it  successfully conducted its first operational flight test in October 2011. We  reported in April 2012 that THAAD successfully conducted this flight test  and demonstrated its ability to perform, from planning through live  operations, under operationally realistic conditions (within the constraints  of test range safety). A February 2012 evaluation of this test and prior  flight test data by the Director, Operational Test and Evaluation,  concluded that the system is operationally effective, suitable, and  survivable against the threats and environments tested. However, the  evaluation also noted some suitability-related limitations and maintenance  shortfalls as well as the need for improvements in its ability to be  deployed, and its manpower and training, ease of using its software, and  ability to connect and function with other systems. Army and BMDS test  organizations provided data to the Army for evaluation of materiel  release. Additional testing will be needed to further verify that these  issues have been resolved.
While the system begins to release initial batteries to the Army, flight and  ground testing of THAAD continues in order to further verify system  performance and other ongoing modifications. For example, while all  THAAD components used in the operational test were the final major  hardware and software used in the first two batteries, additional software  and hardware modifications are planned for subsequent batteries. As  planned hardware and software modifications are made, additional testing  demonstrations are required to verify that the new software and hardware  work as intended.
section_title: THAAD Cost and Schedule Baselines Reflect Budget Cut and the Completion of Previously Scheduled Activities
paragraphs: Since the 2010 BAR baselines were reported, the THAAD program  entered initial production and established a new baseline. Its resource  baselines report separate unit costs for its interceptors, fire control  system, and launchers.
Appendix X: Terminal High Altitude Area  Defense (THAAD)
subsections: section_title: THAAD Unit Costs Have Grown Because of Quantity Reduction
paragraphs: During the fiscal year, MDA reduced the number of THAAD batteries to  be procured from nine down to six because of budget constraints. This  reduction in THAAD batteries subsequently caused an increase in the unit  cost to develop and produce launchers and fire controls. The cost for  each unit has increased between the 2010 and 2012 BARs primarily  because the development costs are shared by fewer numbers of  operational systems. Because of these reductions, the unit cost to  develop and produce the fire control and the launcher increased by 6  percent and 55 percent, respectively as seen in figure 15. MDA did not  separately report these increases, even though they are above the 5  percent threshold that MDA established in its 2012 BAR, because they  are solely attributed to the quantity change.
Appendix X: Terminal High Altitude Area  Defense (THAAD) these increases, even though they are above the 5 percent threshold that  MDA established in its 2012 BAR, because they are largely due to the  rate change.
Appendix X: Terminal High Altitude Area  Defense (THAAD) increased the unit cost to produce the interceptor—although some portion  of the interceptor cost increase is because of the slower production rate.
In fiscal year 2012 THAAD completed many of its previously delayed  schedule goals. Following successful performance in an early fiscal year  2012 flight test, the program obtained a conditional materiel release from  the Army in the second quarter of fiscal year 2012 after approximately a  one year delay. After addressing production issues with its interceptors,  the program was also able to deliver its first two THAAD batteries to the  Service for operational use during the fiscal year. Prior to BAR baseline  reporting, the first full battery was originally scheduled to be delivered in  the fourth quarter of fiscal year 2010. It was delivered in the second  quarter of fiscal year 2012 after approximately a year and a half delay.  The second THAAD battery was also delivered in the second quarter of  the fiscal year following a 6-month delay. THAAD is expecting delays to  deliveries of the third and fourth THAAD battery ground components, as  seen in figure 17, driven by a longer than expected time to negotiate and  issue production contracts needed for these batteries. Additionally, the  program successfully met its goal to intercept a Medium-Range Ballistic  Missile for the first time in the first quarter of fiscal year 2013, following a  6-month delay, primarily driven by delays with a target delivery.
Appendix X: Terminal High Altitude Area  Defense (THAAD)
section_title: Appendix XI: Comments from the Department of Defense
section_title: Appendix XII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, David Best, Assistant Director;  Brent Burris, Ivy Hübler; Meredith Allen Kimmett; Wiktor Niewiadomski;  Kenneth E. Patton; John H. Pendleton; Karen Richey; Ann F. Rivlin; Brian  T. Smith; Steven Stern; Robert Swierczek; Brian Tittle; Hai V. Tran; and  Alyssa Weir made key contributions to this report.