Missile Defense: Actions Are Needed to Enhance Testing and Accountability
Published: 2004-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) has treated ballistic missile defense as a priority since the mid-1980s and has invested tens of billions of dollars to research and develop such capabilities. In 2002 two key events transformed DOD's approach in this area: (1) the Secretary of Defense consolidated existing missile defense elements into a single acquisition program and placed them under the management of the Missile Defense Agency (MDA) and (2) the President directed MDA to begin fielding an initial configuration, or block, of missile defense capabilities in 2004. MDA estimates it will need $53 billion between fiscal years 2004 and 2009 to continue the development, fielding, and evolution of ballistic missile defenses. To fulfill a congressional mandate, GAO assessed the extent to which MDA achieved program goals in fiscal year 2003. While conducting this review, GAO also observed shortcomings in how MDA defines its goals.
section_title: What GAO Found
paragraphs: MDA accomplished many activities in fiscal year 2003--such as software development, ground and flight testing, and the construction of facilities at Fort Greely, Alaska--leading up to the fielding of the initial block of the Ballistic Missile Defense System. During this time, however, MDA experienced schedule delays and testing setbacks, resulting in the fielding of fewer components than planned in the 2004-2005 time frame. For example, delays in interceptor development and delivery have caused flight tests (intercept attempts) of the Ground-based Midcourse Defense (GMD) element to slip over 10 months. In flight tests conducted during fiscal year 2003, MDA achieved a 50 percent success rate in intercepting target missiles. While MDA is increasing the operational realism of its developmental flight tests--e.g., employing an operational crew during its late 2003 ship-based intercept attempt--the GMD element has not been tested under unscripted, operationally realistic conditions. Therefore, MDA faces the challenge of demonstrating whether the capabilities being fielded, consisting primarily of the GMD element, will perform as intended when the system becomes operational in 2004. Finally, MDA's cost performance during fiscal year 2003 was mixed. The prime contractors of four system elements completed work at or near budgeted costs during this time, but prime contractors for two system elements overran budgeted costs by a total of about $380 million. GAO found that program goals do not serve as a reliable and complete baseline for accountability purposes and investment decision making because they can vary year to year, do not include all costs, and are based on assumptions about performance not explicitly stated. For example, between its budget requests for fiscal years 2004 and 2005, MDA revised its estimated cost for the first fielded block of missile defense capability. This first block is costing $1.12 billion more and consists of fewer fielded components than that planned a year earlier. In addition, MDA's acquisition reports for Congress do not include life-cycle costs, which normally provide explicit estimates for inventory procurement, military construction, operations, and maintenance. Finally, MDA does not explain some critical assumptions-- such as an enemy's type and number of decoys--underlying its performance goals. As a result, decision makers in DOD and Congress do not have a full understanding of the overall cost of developing and fielding the Ballistic Missile Defense System and what the system's true capabilities will be.

section_title: Letter
paragraphs: The Department of Defense (DOD) has been making significant  investments in the development of ballistic missile defenses for decades.  From 1985, when the Strategic Defense Initiative was launched, through  2003, DOD spent tens of billions of dollars to research and develop these  capabilities. It estimates that it will need $53 billion between fiscal years  2004 and 2009 to continue the development, fielding, and evolution of  ballistic missile defenses.
During the past 2 years, DOD significantly transformed the approach it  takes in acquiring ballistic missile defenses. In January 2002, the Secretary  of Defense refocused the ballistic missile defense program into a broad- based research and development effort managed by the Missile Defense  Agency (MDA). The Secretary granted MDA flexibility to employ a  “capability-based,” evolutionary approach for the development of these  defenses. Under this new approach, MDA defines, develops, and fields  operational capabilities—in 2-year blocks—of a single, multilayered,  overarching system referred to as the Ballistic Missile Defense System  (BMDS). The system has no fixed design or final architecture. The  Secretary of Defense also gave MDA management responsibility over the  existing ballistic missile defense programs already under development by  the military services. These programs, which were previously recognized  by DOD as major defense acquisition programs, are now considered  “elements” of the BMDS. (See table 1 for a description of BMDS elements  under development.)
In December 2002, the President directed DOD to begin fielding an initial  set of missile defense capabilities in 2004. In accordance with the  President’s direction, MDA is readying a defensive capability for operation,  called Initial Defensive Operations (IDO), by September 30, 2004. IDO is  expected to provide the United States protection against limited long-range  ballistic missile attacks from Northeast Asia. MDA will enhance this  capability to complete the first increment of the BMDS—known as the  Block 2004 defensive capability—by the end of December 2005. This  capability is expected to provide additional protection from ballistic  missiles launched from the Middle East.
The National Defense Authorization Act for Fiscal Year 2002 directed  DOD to establish schedule, testing, performance, and cost goals for its  ballistic missile defense programs for the years covered by the Future  Years Defense Plan. The act also directed us to assess, at the conclusion of  each of fiscal years 2002 and 2003, the extent to which MDA achieved the  goals it established. Because the agency had not established goals in fiscal  year 2002, we were unable to assess its progress for that year. However,  MDA did establish schedule, testing, performance, and cost goals for its  Block 2004 program and submitted them to Congress in February 2003 with  its fiscal year 2004 budget and in April 2003 with its Selected Acquisition  Report for the BMDS. The goals describe the composition of the block  configuration under development; provide the costs and schedule  associated with developing, testing, and fielding the Block 2004 BMDS; and  summarize the performance capabilities that MDA expects to achieve with  the Block 2004 defensive capability.
To fulfill the congressional mandate in the Authorization Act, we addressed  the following question in this report: To what extent has MDA and its  elements progressed in achieving stated goals through their fiscal year 2003  activities? While conducting this review, we observed shortcomings in how  MDA defines its Block 2004 program goals. Our report includes these  observations and our recommendations for improvement.
subsections: section_title: Scope and Methodology
paragraphs: We assessed MDA’s progress made during fiscal year 2003 toward its Block  2004 program goals by reviewing the progress of individual BMDS  elements, because MDA program goals are ultimately derived from  element-level efforts. We selected seven elements for our review on the  basis of congressional interest and because they account for about 70 to 75  percent of the cumulative research and development funds MDA budgeted  for fiscal years 2002 through 2009. We compared each element’s actual cost,  completed activities, demonstrated performance, and test results with their  internal fiscal year 2003 cost, schedule, performance, and testing goals.
To assess progress toward program schedule goals, we examined, for each  element, prime contractor Cost Performance Reports, the Defense  Contract Management Agency’s analyses of these reports, System Element  Reviews, and other agency documents to determine whether key activities  scheduled for the fiscal year were accomplished as planned. We also  developed a data collection instrument to gather additional, detailed  information on completed program activities, including tests, design  reviews, prime contracts, and estimates of element performance.
Because MDA allocates a large percentage of its budget to fund prime  contractors that develop system elements, and because MDA’s cost goal did  not apply to fiscal year 2003 expenditures, we limited our review of cost- related matters to assessments of prime contractor cost performance. To  make these assessments, we applied earned value analysis techniques to  data captured in contractor Cost Performance Reports. We compared the  cost of work completed with the budgeted costs for scheduled work for the  fiscal year 2003 period. Results were presented in graphical form to  determine fiscal year 2003 trends. We also used data from the reports to  project the likely costs at the completion of prime contracts through  established earned value formulas.
We also analyzed data related to system effectiveness provided by MDA,  focusing on the Ground-based Midcourse Defense and Aegis Ballistic  Missile Defense elements—the weapon components of the Block 2004  defensive capability. We supplemented this information by holding  discussions with, and attending overview briefings presented by, various  program office officials. Furthermore, we interviewed officials within  DOD’s office of the Director, Operational Test and Evaluation, to learn  more about the adequacy of element test programs and the operational  capability demonstrated by them to date.
As we reviewed documents and held discussions with agency officials, we  looked for evidence of key cost, schedule, and technical risks. We  identified key risks as those for which we found evidence of problems or  significant uncertainties that could negatively affect MDA’s ability to  develop, demonstrate, and field a militarily useful capability within  schedule and cost estimates.
During our review, we observed shortcomings in how MDA defines its goals  that could make oversight by external decision makers more difficult. To  pursue this matter, we examined how MDA reported its goals by reviewing  MDA budget submission statements that were submitted for fiscal years  2004 and 2005. In addition, to gain insight into the formulation of the goals,  we held numerous discussions with MDA officials and reviewed acquisition  documents such as MDA’s Integrated Master Plan, Integrated Program Plan,  and System Integration Strategy.
Our work was primarily performed at MDA headquarters, Arlington,  Virginia; Aegis Ballistic Missile Defense Program Office, Arlington, Virginia;  Airborne Laser Program Office, Albuquerque, New Mexico; Command,  Control, Battle Management, and Communications Program Office,  Arlington, Virginia; Ground-based Midcourse Defense Program Office,  Arlington, Virginia; Kinetic Energy Interceptors Program Office, Arlington,  Virginia; Space Tracking and Surveillance System Program Office, Los  Angeles, California; and the Theater High Altitude Area Defense Project  Office, Huntsville, Alabama. We also visited the office of the Director,  Operational Test and Evaluation, Arlington, Virginia.
We conducted our review from June 2003 through April 2004 in accordance  with generally accepted government auditing standards.
section_title: Background
paragraphs: MDA has the mission to develop and field a Ballistic Missile Defense  System capable of defeating ballistic missiles of all ranges in all phases of  flight. In particular, the system is intended to defend the U.S. homeland  against intercontinental ballistic missile (ICBM) attacks and to protect  deployed U.S. armed forces, which are operating in or near hostile  territories, against short- and medium-range ballistic missiles. Additionally,  the BMDS is to evolve into a system that is capable of defending friends and  allies of the United States. Figure 1 depicts the three phases of a missile’s  flight during which the BMDS is designed to engage it.
Much of the operational capability of the Block 2004 BMDS results from  capabilities developed in legacy programs. These include the GMD, Aegis  BMD, and Patriot elements. Existing space-based sensors would also be  available, including Defense Support Program satellites, for the early  warning of missile launches. The Block 2004 BMDS can be viewed as a  collection of semi-autonomous missile defense systems interconnected and  coordinated through the Command, Control, Battle Management, and  Communications (C2BMC) element. Functional pieces of system elements,  such as radars or interceptors, are referred to as “components.”
Block 2004 program goals involve developmental activities of five MDA  elements: Aegis BMD, ABL, C2BMC, GMD, and Theater High Altitude Area  Defense (THAAD). As indicated above, three of these five elements— GMD, Aegis BMD, and C2BMC—comprise the Block 2004 defensive  capability that is currently being fielded. MDA is also funding the  development of two other elements—Space Tracking and Surveillance  System (STSS) and Kinetic Energy Interceptors (KEI)—but these elements  are part of future blocks of the MDA missile defense program.
Table 1 provides a brief description of these seven elements. More  complete descriptions of these elements are provided in the appendixes of  this report.
During Block 2006, MDA will focus on fielding additional hardware and  enhancing the performance of the BMDS. For example, MDA plans to field  additional GMD interceptors at Fort Greely, add new radars that can be  deployed overseas, and incorporate enhanced battle management  capabilities into the C2BMC element.
For Blocks 2008 and 2010, MDA plans to augment the Block 2006 capability  with boost phase capabilities being developed in the ABL and KEI  programs. Additionally, MDA plans to field the THAAD element for  protecting deployed U.S. forces against short- and medium-range ballistic  missiles.
According to MDA officials, the integrated BMDS offers more than simply  the deployment of individual, autonomous elements. A synergy results  from information sharing and enhanced command and control, yielding a  layered defense with multiple shot opportunities. This preserves  interceptor inventory and increases the opportunities to engage ballistic  missiles.
subsections: section_title: MDA Block 2004 Program Goals
paragraphs: MDA developed overarching goals for the development and fielding of the  Block 2004 BMDS. The goals describe the composition of Block 2004;  provide the costs and schedule associated with its development, testing,  and fielding; and summarize its performance capabilities. As part of MDA’s  Statement of Goals, MDA also identified and scheduled a number of events  that must be completed by individual program elements in 2004 and 2005 if  the goals are to be achieved.
At the core of MDA’s Block 2004 program goals is the continued  development and testing of ABL, Aegis BMD, C2BMC, GMD, and THAAD.  These goals are referred to as “Block 2004 Development Goals” and identify  the developmental areas MDA is funding during the Block 2004 time frame,  that is, during calendar years 2004 and 2005. MDA also established a  complementary set of goals—referred to as Block 2004 “Operational Alert  Configuration” Goals—in response to the President’s December 2002  direction to begin fielding a ballistic missile defense capability. These  fielding goals build directly upon the development goals and identify the  operational missile defense capability that MDA expects to deliver by the  end of December 2005.
The Block 2004 cost goal covers budgeted costs for development and  fielding during calendar years 2004-2005. When MDA submitted its fiscal  year 2004 budget in February 2003, MDA declared that its Block 2004 cost  goal was $6.24 billion. However, MDA recently revised its Block 2004 cost  goal with the submission of its fiscal year 2005 budget in February 2004.  The revision reflects updated developmental costs and an update to the  additional costs associated with the initial fielding. MDA’s Block 2004 cost  goal is now $7.36 billion.
The missile defense capability of Block 2004 is primarily one for defending  the United States against long-range ballistic missile attacks. As  summarized in table 2, it is built around the GMD element, augmented by  Aegis BMD radars, and integrated by the C2BMC element. The Block 2004  BMDS also contains the Patriot PAC-3 element for point defense of  deployed U.S. armed forces against short- and medium-range ballistic  missiles. Because MDA no longer has funding or management  responsibility over Patriot, an assessment of progress made by the Army in  fiscal year 2003 toward delivering the listed capability was not addressed in  this review. Patriot-specific goals are, therefore, not listed in the table.
section_title: Assessment of Progress and Key Risks
paragraphs: In this section, we summarize our assessment of MDA’s progress in fiscal  year 2003 toward achieving Block 2004 program goals. Key risks associated  with developing and fielding system elements are summarized, as well.  Detailed evaluations of element progress and risks are given in the  appendixes of this report.
subsections: section_title: Schedule and Testing Assessment: Many Activities Completed, but Slips Have Occurred
paragraphs: MDA identified a number of events that must be completed to meet Block  2004 program goals. These activities, which are part of MDA’s program  goals, are ultimately derived from element-level efforts and, in general,  have completion dates in calendar years 2004 or 2005 to coincide with the  start of defensive operations. Progress made toward achieving Block 2004  goals, relative to these defining events, is summarized in tables 3 through 6.
section_title: Performance Assessment: Effectiveness of System’s Operational Capability Remains Largely Unproven
paragraphs: MDA reports that performance indicators associated with Block 2004  elements are generally on track for meeting expectations. This  methodology leads MDA to predict with confidence that the September  2004 defensive capability will provide full coverage of the United States  against limited attacks from Northeast Asia.
However, testing in 2003 did little to demonstrate the predicted  effectiveness of the system’s capability, as an integrated system, to defeat  ballistic missiles. Without sufficient test data to anchor MDA’s analyses,  models, and simulations, the predicted effectiveness of the system will  remain largely unproven when IDO is available in September 2004. As  discussed below, the uncertainty stems from a lack of system-level  testing—using production-representative hardware under operationally  realistic conditions—of the Aegis BMD and GMD elements and the highly  scripted nature of developmental tests to date.
The GMD program, which comprises the largest portion of the Block 2004  defensive capability, has demonstrated the capability to intercept target  warheads in flight tests over the past 5 years. In fact, the program has  achieved five successful intercepts out of eight attempts. However, because  of range limitations, these flight tests were developmental in nature and,  accordingly, engagement conditions were repetitive and scripted.  Furthermore, as noted in our recent reports on missile defense, none of  GMD’s components of the defensive capability have been flight tested in  their fielded configuration (i.e., with production-representative  hardware). For example, the GMD interceptor—booster and kill vehicle— will not be tested in its Block 2004 configuration until the next intercept  attempt, which the GMD program office plans to conduct in the fourth  quarter of fiscal year 2004. This intercept attempt will also test, for the first  time, battle management software that will be part of the September 2004  defensive capability. Finally, MDA does not plan to demonstrate the  operation of the critical GMD radar, called Cobra Dane, in flight tests  before fielding IDO.
Similarly, the Aegis BMD program has demonstrated the capability to  intercept a non-separating target through its successes in four out of five  attempts. These successes are noteworthy, given the difficulty of achieving  hit-to-kill intercepts. In his fiscal year 2002 report, DOD’s Director,  Operational Test and Evaluation (DOT&E) noted the successes but  pointed out that the flight tests were developmental in nature and neither  operationally realistic nor intended to be so. Test scenarios and target  “presentation” were simple compared with those expected to be  encountered during an operational engagement. While MDA is increasing  the operational realism of its developmental flight tests—e.g., the Aegis  Ballistic Missile Defense element employed an operational crew during its  December 2003 intercept attempt—tests completed to date are highly  scripted.
section_title: Cost Assessment: Prime Contractor Fiscal Year 2003 Performance Mixed
paragraphs: We used contractor Cost Performance Reports to assess the prime  contractors’ progress toward MDA’s cost and schedule goals during fiscal  year 2003. The government routinely uses such reports to independently  evaluate these aspects of the prime contractors’ performance. Generally,  the reports detail deviations in cost and schedule relative to expectations  established under the contract. Contractors refer to deviations as  “variances.” Positive variances—activities costing less or completed ahead  of schedule—are generally considered as good news and negative  variances—activities costing more or falling behind schedule—as bad  news. We addressed cost performance at the element level because the  agency does not generate a single, overarching cost performance report for  its contracts. Our detailed findings are presented in the element  appendixes of the report.
As shown in table 7, the Aegis BMD, C2BMC, STSS, and THAAD prime  contractors performed work in fiscal year 2003 at or near budgeted costs.  However, work completed in the ABL and GMD programs cost more than  budgeted. The ABL prime contractor overran its budgeted cost by  approximately $242 million, and the GMD prime contractor’s work cost  about $138 million more than expected.
section_title: MDA Faces Many Key Risks in Developing and Fielding BMDS Elements
paragraphs: Our analysis of fiscal year 2003 activities indicates that there are key risks  associated with developing and fielding BMDS elements. Key risks are  those for which we found evidence of problems or significant uncertainties  that could negatively affect MDA’s ability to develop, demonstrate, and field  a militarily useful capability within schedule and cost estimates. Key risks  associated with BMDS elements expected to be fielded during Block  2004—Aegis BMD, GMD, and C2BMC—are exacerbated by the tight  schedule to meet the September 2004 date for IDO.
Element-specific risks are summarized below. A more complete discussion  of these risks can be found in the appendixes of this report.
ABL. The complexity and magnitude of integration activities to deliver a  working system for the shoot-down demonstration have been substantially  underestimated. Accordingly, the program continues to be at risk for  additional cost growth and schedule slips. We also found that the  uncertainty regarding the element’s ability to control environmental  vibration on the laser beam—jitter—is a serious performance risk for the  Block 2004 aircraft. Furthermore, we note that weight distribution across  the airplane may be a key risk for future blocks.
Aegis BMD. The program office is under a tight deadline to complete the  development and testing of long-range surveillance and tracking software  by the September 2004 date for IDO. By September, this software will not  have been field-tested, and hence, its performance will be uncertain.  However, program officials acknowledged that the greatest performance  risk to the Aegis BMD program pertains to its interceptor’s divert system,  the subsystem that generates “divert pulses” to control the orientation and  direction of the interceptor’s kill vehicle. Program officials do not expect to  implement any design changes to the divert system for the first set of five  missiles being procured. Even with a reduced divert capability, program  officials affirm that the missile’s performance is adequate for Block 2004  threats. Finally, there are also questions about the contractor’s readiness to  produce interceptors.
C2BMC. The C2BMC is tracking and mitigating key BMDS-specific risks  pertaining to the fielding of the initial capability by September 2004 and the  Block 2004 defensive capability by December 2005. Notably, development  of the C2BMC element is proceeding concurrently with the development of  other BMDS elements, and changes in one element’s design—especially in  how that element interfaces with the C2BMC element—could cause  temporary incompatibilities during Block 2004 integration that could delay  fielding. In addition, the BMDS concept of operations continues to evolve,  leading to uncertainties about how the C2BMC element will be operated.  Finally, uncertainty regarding the reliability of communications links with  the Aegis BMD element threatens to degrade overall system performance.
GMD. The GMD program faces significant testing and performance risks  that are magnified by the tight schedule to meet the September 2004 date  for IDO. Specifically, delays in flight testing—caused by delays in GMD  interceptor development and delivery—have left the program with only  limited opportunities before IDO to demonstrate the performance of  fielded components and to resolve any problems uncovered during flight  testing. In addition, uncertainty with the readiness of interceptor  production could prevent MDA from meeting its program goal of fielding  20 interceptors by December 2005. Finally, an unresolved technical issue  with the kill vehicle adds uncertainty to element performance.
KEI. From discussions with program officials, we found that KEI software  costs could be underestimated, putting the program at risk for cost growth.  The program office also acknowledges that it faces challenges in  developing the first operational boost phase intercept capability that  employs hit-to-kill concepts.
STSS. The STSS program is on track for completing activities leading to  the launch of the two demonstration satellites in 2007, provided that  unforeseen problems do not arise during the process of (1) testing,  assembling, and integrating hardware components of the satellites, which  have been in storage for 4 years, and (2) developing software and  integrating software and hardware—areas that historically have been  responsible for negatively affecting a program’s schedule.
THAAD. The THAAD program office is on track to develop, demonstrate,  and field the Block 2008 THAAD element within schedule and cost  estimates, provided that the contractor performs as efficiently as it has in  the past.
One risk area that covers the entire BMDS for Block 2004 (and future  blocks) is whether the capabilities being developed and fielded will work  as intended. As discussed above, testing to date has done little to  demonstrate system effectiveness, because production-representative  hardware is still being developed and has yet to be flight tested.  Furthermore, tests to date have been developmental in nature and,  accordingly, engagement conditions were repetitive and scripted. In the  future, MDA is taking a number of actions to increase testing complexity  and realism. However, it has no plans to conduct operational testing on the  IDO or Block 2004 configurations being fielded.
An operational test assesses the effectiveness of the system against the  known threat and its suitability in an environment that mimics expected  use. U.S. law requires that such tests be carried out on major defense  acquisition programs under the oversight and with the approval of  DOT&E. The law requires that DOT&E report test results to the Secretary  of Defense and congressional defense committees before a full-rate  production decision is made. As the principal operational test and  evaluation official within DOD, DOT&E is independent of program offices  and reports directly to the Secretary.
In establishing MDA, the Secretary of Defense specified that when a  decision is made to transition a block configuration to a military service for  procurement and operations, an operational test agent would be  designated. The Secretary specified further that an operational test and  evaluation would be conducted at the end of the transition stage. In fielding  IDO and the Block 2004 configuration, no decision is being made to  transition the block configuration to a service. Thus, no operational test  agent is being designated and no operational test and evaluation is planned.  Furthermore, the fielding of IDO and the Block 2004 configuration is not  connected to a full-rate production decision that would clearly trigger  statutory operational testing requirements.
MDA plans to incorporate both developmental and operational test  requirements in integrated flight tests. It will also conduct operational  assessments that involve the warfighter. Nonetheless, because these tests  are scripted by MDA, they do not provide the opportunity for an  independent assessment of how the equipment and its operators will  function under unscripted, unforeseen conditions. An independent and  objective assessment would, instead, involve having an independent  operational test agent plan and manage tests that demonstrate operational  effectiveness and suitability and having DOT&E approve the test plans and  report its assessment of the test results to the Secretary and Congress.  Such independent, operationally realistic testing of a missile defense  capability being fielded for operational purposes, which meets the  statutory definition of “operational test and evaluation,” would not be  considered a developmental test and evaluation for which DOT&E is  precluded from being assigned responsibility.
section_title: Observations on the Usefulness of MDA Program Goals for Conducting Oversight
paragraphs: MDA revised its program goals in February 2004 to reflect that the first  BMDS block—Block 2004—will cost $1.12 billion more but consist of fewer  fielded components than originally planned. Despite these revisions, we  observed shortcomings in how MDA defines its goals. Specifically, the  goals do not provide a reliable and complete baseline for accountability  purposes and investment decision making because they can vary year to  year, do not include life-cycle costs, and are based on assumptions about  performance not explicitly stated.
subsections: section_title: Program Cost and Content Goals Vary Year-to-Year
paragraphs: MDA’s program goals can vary from year to year. The Block 2004 cost goal  of $7.36 billion is actually a budget allocation for program activities  associated with the block's development and fielding. The flexibility  available in its acquisition strategy allows MDA to request additional  funding for the second year of a block or defer or cancel program activities  if the budget allocation is not sufficient to deliver the BMDS as planned.  Because the budget (i.e., the cost goal) and program content are subject to  change over the 2-year block period, the goal cannot serve as a reliable  baseline for measuring cost, schedule, and performance status over time.
A comparison of MDA’s fiscal year 2004 and 2005 budget submissions  illustrates how the cost goal and the program content can vary from year to  year. In fiscal year 2004, MDA’s cost goal for Block 2004 was $6.24 billion.  When MDA submitted its fiscal year 2005 budget, the Block 2004 cost goal  had increased to $7.36 billion. Additionally, Aegis BMD interceptor  inventory decreased from 20 to 9, the number of Aegis BMD destroyers  upgraded for the long-range surveillance and tracking mission decreased  from 15 to 10, and the potential operational use of ABL and the sea-based  X-band radar as sensors is no longer part of Block 2004.
The 2004 and 2005 budget submissions also presented changes in cost  estimates for Blocks 2006, 2008, and 2010. Estimated costs for Block 2006  increased by $4.73 billion, which is largely attributed to an increase in  planned GMD funding by $2.23 billion for fiscal years 2005 through 2007.  Estimated costs for Block 2008 decreased by $8.33 billion, from $16.27  billion to $7.93 billion. The decrease results largely from MDA’s deferring  KEI development to future blocks, which alone reduces estimated KEI  costs for Block 2008 by $7.23 billion. Finally, estimated costs for Block 2010  increased by approximately $3.42 billion, of which $2.89 billion for the KEI  program contributes to the increase.
MDA program officials acknowledged the increase in the Block 2004 cost  goal but indicated that it should be seen as an adjustment resulting from  internal realignments of funds over the fiscal years 2004-2009 Future Years  Defense Plan. For example, as noted above, a significant portion of funds  originally allocated to Block 2008 was redistributed to Blocks 2004, 2006,  and 2010. Overall, between its 2004 and 2005 budget submissions, MDA’s  fiscal years 2004-2009 budget increased by about $3.23 billion, an increase  of 6.5 percent. Program officials also noted that MDA’s budget increase is  the direct result of additional funds being planned for fielding, as opposed  to an increase in funding for research and development.
While such flexibility is commonly seen with concept and technology  development efforts, the Secretary of a military department is required by  law to establish cost, schedule, and performance baselines for major  defense acquisition programs entering the System Development and  Demonstration (SDD) phase of the acquisition cycle. The program  manager is required to report deviations from established baselines to  senior DOD management. The baseline description also forms the basis of  regular reporting to Congress on the status of the program through the  Selected Acquisition Reports, including significant cost overruns.
In establishing MDA in January 2002, the Secretary of Defense directed that  BMDS elements enter the standard acquisition process at the Production  and Deployment phase, which follows SDD. MDA has not addressed when,  how, and if the BMDS, its block configurations, or its program elements  will enter SDD—the typical initiation of an acquisition program.  Accordingly, the agency has not established baseline descriptions for its  block configurations that can be used to reliably measure the progress of  the BMDS during development and for consistently reporting to Congress  and senior DOD management on the cost, schedule, and performance  status of the program.
section_title: Limited Reporting to Congress on Life-Cycle Costs
paragraphs: Congressional decision makers have traditionally used Selected  Acquisition Reports to oversee the acquisition of weapon systems  programs. Accordingly, MDA produces a Selected Acquisition Report  annually, but because the missile defense program is not treated as being in  the SDD phase of acquisition, reporting is limited. Programs that have not  begun the SDD phase are not required to report life-cycle cost estimates,  including all costs for procurement, military construction, and operations  and maintenance, in the Selected Acquisition Report.
Life-cycle cost estimates are important because an investment in a weapon  system has ramifications beyond developing and procuring an inventory.  Once operational, the system requires resources to ensure its continued  operation, maintenance, and sustainment. For example, operators and  maintenance personnel must be available to keep the system on alert and  ready to perform its mission. Such costs—which MDA refers to as  “operations and sustainment” costs—have been under review by MDA  since 2003.
Original MDA estimates for operations and sustainment costs across the  Future Years Defense Plan (fiscal years 2004-2009) ranged from $1.9 billion  to $3.5 billion. However, during the fall of 2003, MDA worked with the  military services to better define requirements, which lowered the  estimates while still maintaining acceptable levels of readiness and alert.  Since there is no precedent for estimating what the actual contractor  logistical services costs might be, MDA agreed to fund the GMD contractor  for these costs for fiscal years 2005 and 2006 and begin aggregating actual  costs. MDA estimates that contractor logistical services will cost  approximately $105 million in fiscal year 2005.
We note, in addition, that Congress expressed specific interest in obtaining  life-cycle cost information for missile defense programs entering  Engineering and Manufacturing Development (EMD), otherwise known as  SDD. Specifically, Congress required MDA, with its statement of goals, to  provide an annual program plan for each missile defense program that enters EMD. Section 232(b) of the act further specified that each program  plan is to include a funding profile (estimating significant research and  development, procurement, and construction), together with the estimated  total life-cycle costs of the program. During the period covered by our  review, MDA did not provide any program plans detailing life-cycle costs.
MDA officials told us that the agency is working to better define its  operations and sustainment costs and include total life-cycle costs in future  Selected Acquisition Reports to Congress. They recognized that an  understanding of total life-cycle costs for elements being fielded would  help the military services plan their future budgets for procurement and  operations and sustainment. However, MDA has not committed to when  those reports would include total life-cycle costs.
section_title: Some Assumptions about Performance in Block 2004 Goals Are Unstated
paragraphs: BMDS performance goals are based on assumptions regarding the system’s  capability against threats under a variety of engagement conditions.  However, critical assumptions used in establishing these goals—such as  the type and number of decoys—are not clearly explained. Without  knowing these implicit assumptions, an understanding of the operational  capability of the fielded system is incomplete.
As defined in table 8, MDA utilizes three performance metrics—probability  of engagement success, defended area, and launch area denied—for  measuring the capability of the Block 2004 BMDS to engage and negate  ballistic missile attacks.
MDA assigned values to its performance metrics to communicate the  defensive capability of the Block 2004 system against ballistic missile  attacks but did not explain the assumptions underlying those values. For  example, although the probability of engagement success is affected by  adversary parameters—trajectory, decoys, and warhead type—as well as  the performance and orchestration of the defense elements, we found that  these factors are not explicitly defined and provided in MDA’s Statement of  Goals. Because threat characteristics such as countermeasure  sophistication and warhead dynamics all factor into the determination of  the performance metrics, knowledge of these assumptions is vital to  understanding the true capability of the system.
section_title: Conclusions
paragraphs: MDA’s new acquisition strategy for acquiring ballistic missile defenses is  designed to give MDA greater flexibility so it can, for example, more easily  develop and introduce new technologies to address evolving threats.  However, having such flexibility does not diminish the importance of  ensuring accountability over the substantial investments in missile defense.  In exercising their oversight and funding responsibilities, decision makers  in Congress and DOD would benefit from having more information about  the expected performance and costs of the BMDS.
Although MDA is executing a test program that aims, over time, to make its  tests more complex and realistic, the agency has no plans to incorporate  unscripted conditions found in operational testing. If independent,  operationally realistic testing of block configurations being fielded were  conducted and DOT&E approved, assessed, and reported on this testing,  decision makers in Congress and DOD would have greater assurance that  the fielded BMDS is an effective system when considering further  investments in the system. With its statutorily based independence, DOT&E  is in the best position to determine whether a weapon system can be  trusted to work as intended when placed in the hands of the warfighter and  to report operational test results objectively. We recognize that MDA may  not have time before fielding IDO or Block 2004 to plan and carry out such  testing. However, the agency should have the opportunity to conduct  operational realistic testing of the Block 2004 configuration, once it is  fielded.
Notwithstanding that interceptor inventory is being procured, operations  and sustainment costs are being funded, and the IDO system is nearing the  time when it will be fielded, MDA has not treated the development and  deployment of this capability as an acquisition program (i.e., one that has  entered the SDD phase) subject to reporting program status (from the  baseline) and life-cycle cost information that Congress traditionally  receives for its oversight responsibilities. Accordingly, accountability  would be strengthened if MDA provided Congress with the program status  and life-cycle cost information that is typically associated with SDD status.  Such actions would also help the military services with their future  budgeting for procurement and operations and sustainment costs. MDA  officials told us that the agency is working toward including life-cycle cost  information in these reports. Follow-through is needed.
Another means for MDA to strengthen accountability is through an  improved definition of BMDS program goals and explanation of changes  using the current reporting mechanisms. The Selected Acquisition Reports  and MDA budget submissions would be much more useful for oversight  and investment decision making if program goals for block configurations  being fielded reflect program baselines that do not vary year-to-year; year- to-year changes in estimates are fully explained; full life-cycle costs for  block configurations being fielded are presented; and assumptions behind  performance goals are explicitly stated.
section_title: Recommendations for Executive Action
paragraphs: To provide increased confidence that a fielded block of the BMDS will  perform as intended when placed in the hands of the warfighter and that  further investments to improve the BMDS through block upgrades are  warranted, we recommend that the Secretary of Defense take the following  three actions:  direct the Director, MDA, to prepare for independent, operationally  realistic testing and evaluation for each BMDS block configuration  being fielded and appoint an independent operational test agent to plan  and conduct those tests;  assign DOT&E responsibility for approving such test plans; and  direct DOT&E to report its evaluation of the results of such tests to the  Secretary and the congressional defense committees.
To provide decision makers in DOD and Congress with a reliable and  complete basis for carrying out oversight of the BMDS program, we  recommend that the Secretary of Defense take the following two actions:  direct the Director, MDA, to establish cost, schedule, and performance  baselines (including full life-cycle costs) for each block configuration of  the BMDS being fielded and  direct the Director, MDA, to explain year-to-year variations from the  baselines in the Selected Acquisition Report to Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD’s comments on our draft report are reprinted in appendix I. DOD did  not concur with our three recommendations on operational testing and  evaluation but concurred with our two recommendations regarding cost,  schedule, and performance baselines.
In not concurring with our first recommendation, DOD stated that there is  no statutory requirement for it to operationally test developmental items.  That is, DOD is required only to operationally test a major defense  acquisition program such as the ballistic missile defense system to assist in  the decision as to whether to enter full-rate production. However, because  of the capability-based structure under which MDA is operating, the  decision to enter full-rate production will not be made in the foreseeable  future and, in fact, may never occur. Given that significant resources have  already been expended to procure inventory and field the system, and  given that decision makers are continually being asked to invest further in  the system, we believe DOD should provide evidence from independent,  objective testing that the system will protect the United States as intended  in an operationally representative environment.
In not concurring with our first recommendation, DOD also stated that  MDA is attempting to incorporate operational test objectives into  developmental tests. For example, MDA conducted an Aegis BMD intercept  test in December 2003 that included some conditions likely to be  encountered during an armed conflict. However, as noted in our recent  report on missile defense testing, MDA has not yet begun to incorporate  operational realism on tests of the GMD element, which provides the bulk  of the initial BMDS capability. GMD flight tests leading up to IDO are  constrained by range limitations, are developmental in nature and,  accordingly, are executed with engagement conditions that are repetitive  and scripted. It is unlikely that MDA will be able to make developmental  tests completely operationally realistic. Developmental tests are, by  definition, conducted under controlled conditions so that the cause of  design problems can be more easily identified and fixed and the  achievement of technical performance specifications can be verified.  Additionally, because operational test conditions are more stressing,  operational testing provides an opportunity to identify problems or  deficiencies that might not be revealed in developmental tests but need to  be addressed in subsequent BMDS blocks.
In not concurring with our second recommendation, DOD stated that  DOT&E already has statutory responsibility for reviewing and approving  operational test plans but is prohibited from approving plans for  developmental testing. However, our recommendation is based on our view  that the block configurations being fielded should be operationally tested.  These tests would not be the developmental tests for which DOT&E is  prohibited from approving. Because of its independence from the program,  we believe DOT&E is in the best position to approve the plans for, and  evaluate the results of, operational tests that are not required by statute- tests of block configurations being fielded that do not involve a full-rate  production decision.
DOD also did not concur with our third recommendation that DOT&E  report the results of operational tests to the Secretary of Defense and to  Congress. In responding to this recommendation, DOD cited the existing  statutory reporting requirements for DOT&E, under which it has assessed  the MDA test program. However, for the reasons cited above, we continue  to believe that operational tests of the BMDS configurations being fielded  are needed. The statutory requirement for operational testing and for  DOT&E’s reporting responsibilities is not clearly triggered by the fielding of  block configurations that do not involve a full-rate production decision.  Also, although we recognize that DOT&E is providing an annual  assessment of the BMDS to defense committees each year, we believe this  assessment is limited. It is based on developmental tests that, because of  their scripted nature, do not provide optimal conditions for assessing the  system's readiness for operational use.
DOD also provided technical comments to this report, which we  considered and implemented, as appropriate.
We are sending copies of this report to the Secretary of Defense and to the  Director, Missile Defense Agency. We will make copies available to others  upon request. In addition, the report will be available at no charge on the  GAO Web site at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841. The major contributors to this report are  listed in appendix X.
section_title: Comments from the Department of Defense
subsections: section_title: The Aegis Ballistic Missile Defense (Aegis BMD) element is designed to protect U.S. deployed forces and critical assets from short- and medium-range ballistic missile attacks. It will be fielded as part of the Block 2004 Ballistic Missile Defense System to engage enemy missiles in the midcourse phase of flight. Additionally, it will act as a forward-deployed sensor for surveillance and early tracking of long-range ballistic missiles. To provide these capabilities, the Missile Defense Agency (MDA) is adding new features to existing functionality offered by Navy ships.
paragraphs: The Aegis BMD element generally completed work planned for fiscal year  2003 on schedule. However, the program faces risks that include the  uncertainty of software performance for the initial surveillance and tracking  capability, questions about the contractor’s readiness to produce  interceptors, and concerns about the interceptor’s divert system.
Schedule: In fiscal year 2003, the program office initiated software upgrades  to enable Aegis ships to perform the ballistic missile defense mission, began  a series of activities related to producing and delivering the Aegis BMD  interceptor, and conducted ground and flight tests to verify Aegis BMD  performance. Although the program suffered its first failed intercept attempt  in June 2003, overall, four of five intercept attempts conducted by the Aegis  BMD program have been successful.
The Department of Defense (DOD)  budgeted about $4.8 billion for  Aegis BMD development and  fielding during fiscal years 2004  through 2009. Earlier, DOD  expended approximately $2.9  billion between fiscal years 1996  and 2003 for related developmental  efforts.
Performance: The Aegis BMD element demonstrated the capability to  intercept a non-separating target, that is, a target whose warhead has not  separated from the booster. However, we were unable to fully assess  progress in achieving performance goals during fiscal year 2003, because  the program office began reporting performance indicators in calendar  year 2004.
Cost: Our analysis of prime contractor cost performance reports shows that  the interceptor contractor completed fiscal year 2003 work at slightly less  cost than budgeted. However, we were unable to determine how work  progressed on the interceptor’s high-risk divert system—the component  causing the greatest performance risk to the program—because that work  was not reported in cost performance reports. Additionally, we could not  readily assess cost and schedule performance of other Aegis BMD  components associated with missile defense, because cost performance  reports were not in a form we could use for our analysis, and these efforts  did not undergo an integrated baseline review.
Risks: Program officials are working under a tight schedule to complete the  development and testing of software intended to enhance surveillance and  tracking functions. Officials said there is inadequate time to flight test these  new functions before September 2004. Moreover, they share our assessment  that the greatest performance risk to the Aegis BMD program pertains to  development of the interceptor’s divert system that steers the interceptor  into the target. During a flight test in June 2003, subassemblies of the divert  system failed, and the target was not intercepted. Program officials do not  expect to implement any design changes to the divert system for the first set  of five missiles being procured. Even with a reduced divert capability,  program officials affirm that the missile’s performance is adequate for Block  2004 threats. Finally, program officials share our concern that missile  production and delivery is a program risk.
section_title: Aegis Ballistic Missile Defense
subsections: section_title: Background: Element Description
paragraphs: The Aegis Ballistic Missile Defense (Aegis BMD) element is a sea-based  missile defense system that builds on the existing capabilities of Aegis- equipped Navy cruisers and destroyers. Aegis BMD is being designed to  protect deployed U.S. armed forces and critical assets from short- and  medium-range ballistic missile attacks. Key capabilities include the  shipboard AN/SPY-1 radar, hit-to-kill interceptors, and command and  control systems to detect, track, and destroy enemy warheads in the  midcourse phase of flight. Aegis BMD is also expected to be used as a  forward-deployed sensor that provides surveillance and early tracking of  long-range ballistic missiles to support the Ground-based Midcourse  Defense (GMD) mission.
The program office is enhancing the existing Aegis Weapon System and  Standard Missile (SM) currently installed on Navy cruisers and destroyers.  The Aegis Weapon System was originally developed to protect U.S. Navy  ships from air, surface, and subsurface threats. Planned hardware and  software upgrades to the Aegis Weapon System will provide for enhanced  tracking and target discrimination, which are functions needed to carry out  the missile defense mission. The Aegis BMD interceptor, referred to as SM- 3, is a solid propellant, four-stage, hit-to-kill missile designed to intercept  ballistic missiles above the atmosphere. SM-3 makes use of the existing SM- 2 propulsion stack (booster and dual thrust rocket motor) for the first and  second stages. A third-stage rocket motor and a kinetic warhead (a hit-to- kill warhead known as the “kill vehicle”) complete SM-3.
The first increment of the Aegis BMD element is expected to deliver an  operational capability in the 2004-2005 time frame as an interoperable  element of the Ballistic Missile Defense System (BMDS). Known as Block  2004, this increment will inaugurate Aegis BMD’s dual role for the missile  defense mission. First, the element will be used as a forward-deployed  sensor for the surveillance and tracking of long-range ballistic missiles, and  second, it will be used to engage and intercept short- and medium-range  ballistic missiles. According to program officials, Block 2004 is being rolled  out in three phases:  Initial fielding of the surveillance and tracking capability. By  September 2004, the Missile Defense Agency (MDA) aims to upgrade  three destroyers to be capable of performing the surveillance and  tracking function in support of the GMD mission.
Initial fielding of an intercept capability. By April 2005, two  upgraded cruisers with an inventory of five interceptors are expected to  be available for engaging short- and medium-range ballistic missiles.
Completion of Block 2004 upgrades of 13 Aegis-equipped ships.
By the end of December 2005, MDA aims to have a total of 10 Aegis  destroyers available for performing the long-range surveillance and  tracking function. In addition, MDA is planning to place up to  10 interceptors on three upgraded cruisers for the engagement role.
section_title: Background: History
paragraphs: The Aegis BMD program evolved from efforts in the 1990s to demonstrate  the feasibility of a missile defense capability from a ship-based platform.  The first demonstration of that concept was the Navy’s Lightweight  Exoatmospheric Projectile (LEAP) program, which consisted of four flight  tests conducted from 1993 through 1995. The LEAP program successfully  married a lightweight exoatmospheric projectile—the kill vehicle—to an  existing surface-to-air missile to show that the resulting interceptor could  be launched from a ship.
Subsequent to this demonstration, in fiscal year 1996, the Navy and the  Ballistic Missile Defense Organization initiated the Navy Theater Wide  missile defense program, the predecessor to Aegis BMD. Plans called for  deploying the first increment of the Navy Theater Wide program— essentially the current Aegis BMD program—in 2010 and a final increment  with an upgraded missile at a later, undefined date.
The Navy Theater Wide program included an associated effort, the Aegis  LEAP Intercept (ALI) program, as a follow-on flight demonstration effort to  the earlier LEAP project. The ALI program consisted of a series of flight  tests that culminated in 2002 with two successful intercepts using an early  version of the SM-3 missile. The ALI program is the basis for the Aegis BMD  Block 2004 program.
section_title: Background: Developmental Phases
paragraphs: Aegis BMD development and fielding is proceeding in a series of planned  2-year blocks known as Blocks 2004, 2006, and 2008. Furthermore, funding  has been planned for Block 2010, but the configuration of this block has not  been defined by MDA.
Block 2004. Block 2004 is the first fielded increment to protect deployed  U.S. forces and other assets from short- and medium-range ballistic missile  attacks. Aegis BMD will also be used as a forward-deployed sensor to  provide surveillance and early tracking of long-range ballistic missiles to  support the GMD mission.
Block 2006. The Aegis BMD Block 2006 configuration builds on the  Block 2004 capability. MDA plans to add the capability to defeat long-range  ballistic missiles with limited countermeasures, to increase Aegis BMD’s  role as a remote sensor, and to assess emerging technologies for the  element’s missile.
Block 2008. The Aegis BMD Block 2008 configuration will incorporate  enhancements to the AN/SPY-1 radar that are expected to improve the  radar’s discrimination and command and control functionality so that the  element can engage multiple threats simultaneously.
section_title: Progress Assessment: Schedule
paragraphs: The Aegis BMD element generally completed work planned for fiscal year  2003 on schedule. Achievements included initiating Aegis Weapon System  upgrades on existing ships, beginning activities for the production and  delivery of SM-3 missiles, and accomplishing test events. However,  problems that arose with the divert system onboard the interceptor’s kill  vehicle during flight-testing have affected future test events causing delays  and the modification of test plans.
subsections: section_title: Aegis Weapon System Software Upgrades: Fiscal Year 2003 Activities Completed on Schedule
paragraphs: Aegis BMD program officials told us that they expect to eventually modify  18 Aegis ships with enhanced surveillance, tracking, and intercept  functions to make them capable of performing the BMD mission. These  upgrades will improve the capability of the element’s AN/SPY-1 radar to  identify the true target (discriminate), enable accurate tracking of  long-range ballistic missiles in support of GMD operations, plan  engagements, and launch an SM-3 missile to engage a ballistic missile  threat. To achieve this enhanced functionality, the Aegis BMD program  office is upgrading the Aegis Weapon System of designated ships through a  series of software builds or computer programs referred to as CP3.0E,  CP3.0, and CP3.1.
Aegis BMD program officials stated that they originally planned  two software builds—CP3.0 and CP3.1—as incremental increases to the  Block 2004 capability through the end of 2005. The program expected that  the CP3.1 software build, once developed and installed on Aegis ships,  would enhance the existing combat system so that upgraded ships could  perform the BMD mission. However, in response to the Presidential  Directive to begin fielding a set of missile defensive capabilities in 2004, the  Aegis BMD element began the development of an early, interim build  referred to as “CP3.0E.” Several software development activities completed  in fiscal year 2003 pertain to this build. CP3.0E is to be installed in one or  more destroyers by September 2004, but it will enable these destroyers  only to surveil and track enemy ballistic missiles. The ships will not be  capable of launching interceptors to engage those missiles. According to  program documentation, when CP3.0E is installed on ships at sea by  September 2004, the program office will have achieved initial defensive  operations for the Aegis BMD Block 2004 surveillance and tracking  mission.
MDA expects CP3.0, the next software build, to augment the surveillance  and tracking capability of CP3.0E with an initial engagement capability for  Aegis cruisers. The availability of CP3.0 on ships at sea by April 2005  enables initial defensive operations for the Aegis BMD Block 2004  engagement mission. Although CP3.0 allows ships to launch SM-3 missiles,  this capability applies only to Aegis cruisers and not to Aegis destroyers.  The capability to intercept short- or medium-range ballistic missiles is  limited to the single cruiser that will be available in April 2005. The third  version of the computer program—CP3.1—adds ship defense and planning  support for cruisers. MDA intends for CP3.1 to be installed by December  2005, and it is the last software upgrade planned for the Block 2004 time  frame.
In fiscal year 2003, the program office conducted activities related to the  development of the CP3.0E and CP3.0 software builds. All activities  occurred within the expected schedule. The major event for CP3.0E was  the July 2003 In Process Review. This review ensured that CP3.0E  development and installation were on track to occur as planned. The CP3.0  System Design Disclosure, which occurred in March 2003, defined the  design of CP3.0 and allowed the program office to proceed with the  development of this software build. The program expects to continue  developing CP3.0 and CP3.1 in fiscal year 2004 and to install CP3.0E on  designated ships.
As software builds are completed and installed, Navy cruisers and  destroyers will become available to perform their expected missions. As  indicated by program officials, table 9 summarizes the availability of Aegis  ships for the BMD mission in the Block 2004 time frame.
section_title: SM-3 Missile Development and Delivery: Progress Being Made but Challenges Remain
paragraphs: In fiscal year 2003, the Aegis BMD program office undertook a series of  missile-related activities to begin procuring missiles for delivery in fiscal  year 2004. The Aegis BMD element is developing evolving configurations of  the SM-3 missile. The SM-3 “Block 0” configuration, which is used in Block  2004 flight-testing, is capable of intercepting simple non-separating targets.  The “Block I” SM-3 configuration will be fielded as part of the BMDS Block  2004 defensive capability and provides a rudimentary target discrimination  capability. Subsequent SM-3 configurations beyond Block I will not be  available until calendar year 2006. Table 10 lists those activities and their  respective completion dates.
The missile-related activities shown in table 10 occurred as planned, with  the exception of the missile nosecone critical design review. Program  officials stated that a delay of less than 3 months occurred because the  testing facility was not available as originally planned. Table 11 summarizes  the delivery of SM-3 missiles in the Block 2004 time frame.
section_title: Testing: Ground and Flight Testing Conducted with Mixed Results
paragraphs: The Aegis BMD program conducts both ground- and flight-testing to  validate Aegis BMD’s performance. The program office expects  flight-testing to progressively demonstrate the element’s capability to  engage ballistic missile targets under increasingly complex conditions.  Since 1999, the program conducted three flight tests (non-intercept  attempts) to demonstrate basic missile functionality, such as booster  performance and stage separation. During this same time frame, there have  also been five intercept flight tests using the SM-3 missile. Of the five  attempts, four were successful intercepts.
subsections: section_title: Ground Testing
paragraphs: Ground testing provides the opportunity to validate the flight-worthiness of  Aegis BMD subcomponents on the ground before they are used in flight  tests. In fiscal year 2003, ground-testing activities focused on the SM-3  missile and a redesigned subcomponent of the missile’s divert system—the  Solid Divert and Attitude Control System (SDACS). This subcomponent is a  collection of solid-fuel thrusters used to steer the kill vehicle into its  designated target. Ground tests of the SDACS were conducted to verify its  readiness for flight-testing. When the SDACS ground test program  demonstrated good performance with the simpler, more producible SDACS  design, the Aegis BMD program office gave approval for its use in flight  mission 5 (FM-5). Despite of successful ground testing, the SDACS  subcomponent did not perform as desired in flight. The program office is  investigating the cause of the failure, but a resolution is not expected until  sometime in early 2004. As indicated by program officials, table 12 shows  key ground tests planned for fiscal year 2003.
Program officials stated that the only ground test that was scheduled to  occur in fiscal year 2003, but did not, was the qualification testing of the  third-stage rocket motor. The officials told us that the test could not be  performed as scheduled, because a safety shutdown at the test facility  occurred because of an explosion in another test area at that facility. They  noted that modifications are being made to prevent similar incidents.  Repairs are expected to continue well into the second quarter of fiscal year  2004, after which rocket motor testing can be resumed.
section_title: Flight Testing
paragraphs: The program office conducted three flight missions—FM-4, FM-5, and  FM-6—in fiscal year and calendar year 2003. With the exception of FM-5,  these tests proceeded as planned. FM-4, which occurred in November 2002,  marked the start of the Aegis BMD Block 2004 flight test phase. FM-4’s  primary test objective was to verify an ascent phase intercept against a  non-separating ballistic missile target using the Block 0 SM-3 missile, and  the objective was achieved. FM-5 had objectives similar to those of FM-4,  viz., to intercept an ascending non-separating target. The test also was to  demonstrate the operation of the redesigned SDACS in flight. In the end,  FM-5 did not achieve an intercept because the SDACS did not perform as  expected. FM-6, a third test with objectives similar to those of FM-5,  occurred later in calendar year 2003. Because of technical issues that arose  in FM-5, the program office delayed FM-6 from September 2003 to  December 2003 and modified the test plan. In particular, the program  omitted its plan to exercise the full functionality of the newly designed  SDACS, which failed during FM-5. Table 13 provides a summary of the  flight tests.
section_title: Progress Assessment: Performance
subsections: section_title: Operational Performance of Aegis BMD Remains Uncertain
paragraphs: The Aegis BMD program has demonstrated the capability to intercept a  non-separating target through its successes in FM-2, FM-3, FM-4, and FM-6.  These successes are noteworthy, given the difficulty of “hit-to-kill”  intercepts. DOT&E’s fiscal year 2002 Report to Congress noted the  successes but pointed out that the flight tests were developmental in nature  and neither operationally realistic nor intended to be so. Test scenarios and  target “presentation” were simple compared with those expected to be  encountered during an operational engagement. Furthermore, separating  targets, which pose a particular challenge to the Aegis BMD element,  will not be assessed until FM-8 is conducted in 2005. While MDA is  increasing the operational realism of its developmental flight tests—e.g.,  the Aegis Ballistic Missile Defense program employed an operational crew  in FM-6—tests completed to date are highly scripted.
The Aegis BMD program developed a set of performance indicators that  provides a top-level characterization of element effectiveness. We were  unable to fully assess progress in achieving performance goals during fiscal  year 2003, because the program office began reporting performance  indicators in calendar year 2004.
section_title: Progress Assessment: Cost
paragraphs: DOD expects to invest about $4.8 billion in Aegis BMD research and  development from fiscal year 2004 through 2009. This is in addition to the  $2.9 billion invested from fiscal year 1996 through 2003.
The program uses most of the funds it receives to fund the element’s prime  contract. In fiscal year 2003, the contractor completed all development  work slightly under cost and ahead of schedule. However, because of early  development problems with the SM-3 missile, the contractor incurred a  cumulative cost overrun of about $39 million at the contract’s completion  in August 2003.
subsections: section_title: Program Cost: Aegis BMD Program Costing Approximately $800 Million per Year
paragraphs: Aegis BMD costs for the next 6 fiscal years are expected to be around  $4.8 billion. This includes funds for Blocks 2004, 2006, and 2008 as well as  portions of Block 2010. Also included is cooperative work between the  United States and Japan on SM-3 component development. Table 14 shows  the expected costs of the program by fiscal year through 2009, the last year  for which MDA published its funding plans.
In fiscal years 2002 and 2003, MDA expended $446.5 million and  $384.3 million, respectively, to develop the Aegis BMD element. Including  these funds, the Navy and MDA have expended approximately $2.9 billion  to develop a sea-based missile defense capability since the Navy Theater  Wide program began.
section_title: Prime Contractor Fiscal Year 2003 Cost and Schedule Performance: Performance Improved, but Cost Overruns on the Missile Remain
paragraphs: The prime contract consumes the bulk of the program’s budget: about 84  percent of the Block 2004 budget supports the prime contractor team and  16 percent supports government efforts. Up until 2003, seven separate  contracts covered the development of element components—the Aegis  Weapon System, the Vertical Launch System, and the SM-3 missile. Late in  the fiscal year, MDA awarded new contracts and reduced the number of  contracts to two, an Aegis Weapon System contract and an SM-3 contract.  The Aegis Weapon System contract covers all Block 2004 activities. It also  provides for initial future block definition activities for Blocks 2006, 2008,  and 2010. The SM-3 contract is similarly structured.
We used contractor Cost Performance Reports to evaluate the cost and  schedule performance of the SM-3 contractor. The government routinely  uses these reports to independently evaluate prime contractor  performance relative to cost and schedule. Generally, the reports detail  deviations in cost and schedule relative to expectations established under  the contract. Contractors refer to deviations as “variances.” Positive  variances—activities costing less or completed ahead of schedule—are  generally considered as good news and negative variances—activities  costing more or falling behind schedule—as bad news. According to the  Aegis BMD program office, contractors produce Cost Performance Reports  for the various components of the Aegis BMD element, such as the Aegis  Weapon System and the SM-3 missile. However, we were able to assess cost  and schedule performance only for the SM-3 missile. Cost Performance  Reports associated with missile-defense activities for the other  components were not in a form we could use for our analysis, and these  efforts did not undergo an integrated baseline review. In the future, the new  contracts will provide Cost Performance Reports for both the Aegis  Weapon System and SM-3 missile.
The SM-3 development contract accounts for approximately 50 percent of  Aegis BMD Block 2004 development costs. Our analysis of SM-3 missile  Cost Performance Reports shows that the contractor generally improved  its cost and schedule performance throughout fiscal year 2003. During this  time, the SM-3 missile contractor spent $7.4 million less than originally  budgeted and completed planned work slightly ahead of schedule. In  addition, in fiscal year 2003, work efforts on major components of the SM-3  were completed generally within their estimated budget and slightly ahead  of schedule. The contractor’s improved performance in fiscal year 2003  resulted, in part, because in March 2003 the program removed the majority  of the SDACS work from the SM-3 contract. As a result, the contractor was  no longer required to incorporate SDACS activities, which had been the  primary cause of prior cost and schedule growth, when providing Cost  Performance Reports.
Despite improved performance in fiscal year 2003, the contractor  continued to carry a negative cost and schedule variance from problems  that occurred in prior years. As figures 2 and 3 illustrate, the SM-3  contractor entered fiscal year 2003 with cost overruns of approximately  $46 million and with uncompleted work valued at $4.6 million. By August  2003, however, the contractor reduced its cost overrun and improved its  schedule performance. At its completion, the SM-3 contract exceeded its  budget by $39 million. According to the contractor, technical problems with  the development of the SDACS, kill vehicle, rocket motor, and guidance  section, as well as failures during flight and ground tests, were responsible  for the majority of the cost overrun on the SM-3 contract.
Program officials told us that the majority of the technical problems  associated with SM-3’s development, with the exception of the SDACS,  have been resolved. The officials said that they do not expect these issues  to cause negative variances on the new missile contract. However,  technical problems associated with the SDACS could continue to affect  cost and schedule performance on the new missile contract.
section_title: Program Risks
paragraphs: Based on our assessment of fiscal year 2003 activities, we found that the  Aegis BMD program faces key risks in fielding the planned initial capability  by September 2004 and the Block 2004 defensive capability by December  2005. These risks include the uncertainty of CP3.0E software performance  at the time of initial fielding, questions about the contractor’s readiness to  produce interceptors, and concerns about SDACS development.
subsections: section_title: Uncertainty of CP3.0E Software Performance
paragraphs: Program officials are concerned with the inability to test the CP3.0E  software in an operational environment (e.g., during a flight test) before  September 30, 2004, when the element is fielded for its surveillance and  tracking role. Officials told us that there is not adequate time to test the  new surveillance and tracking functionality before initial defensive  operations are declared, but risk reduction efforts (such as testing earlier  builds of the software) are in place to minimize potential problems.  Although the risk reduction efforts under way would not validate the full  functionality of CP3.0E, the officials expect that these efforts will provide  increased confidence that the CP3.0E software will perform as desired at  the time of initial defensive operations.
They noted that the need to deliver and install CP3.0E before  September 30, 2004, was driving much of the schedule risk. Should the  CP3.0E effort fall behind schedule, the program would need to compress its  schedule to meet the deadline for initial defensive operations (IDO).  Research pertaining to estimating the level of effort in developing software,  however, has shown that when schedules are compressed, the quality of  the software effort can be compromised.
section_title: Contractor’s Readiness to Produce Interceptors
paragraphs: We found that missile production and delivery is a key program risk;  program officials concurred with our assessment. They indicated that  current MDA plans call for the delivery of 11 to 14 SM-3 missiles by the end  of 2005. Program officials also stated that the first five missiles are being  produced at the contractor’s research and development facility. Highly  trained technical engineers, with manufacturing observers, are building  these developmental missiles. Future production missiles will be built by  manufacturing labor with engineering oversight as needed. A transition to  this production is planned but will not occur until production begins on the  next set of 12 missiles.
section_title: Concerns about SDACS Development
paragraphs: We found that the greatest performance risk to the Aegis BMD program  pertains to the development of the SDACS, the subsystem that generates  divert pulses to control the orientation and heading of the interceptor’s kill  vehicle; program officials agreed with our assessment. Ground tests  conducted in 2002 revealed problems with the initial SDACS design,  specifically with the subassemblies supporting the operation of the divert  pulses. To find a solution to these problems, MDA in 2002 pursued multiple  designs for the SDACS subassemblies of the kill vehicle, intending to use  the most promising for the program. On the basis of ground test results,  MDA selected a single-piece variation of the original design (referred to as  the “Monolithic Design”). This design employs a multi-pulse concept  whereby (1) a sustain-mode is used to provide low-energy divert and  attitude control of the kill vehicle and (2) an energetic pulse-mode is  available for maximum divert capability.
When the Monolithic SDACS design with its sustain- and pulse-mode divert  capability proved successful in ground testing, the program planned to  flight-test it during FM-5. However, during FM-5, the subassemblies  supporting the energetic pulse-mode failed, causing the kill vehicle to be  less maneuverable. Program officials stated that they are investigating the  failure and believe that the “diverter ball,” which acts as a valve to control  the pulse, caused it. Incorporating the high-energy pulse into the SDACS  increased internal operating pressures, and under the thermal stress, the  protective coating of the diverter ball cracked, disabling normal SDACS  operation.
Aegis BMD program officials stated that they do not expect to implement  any design changes related to pulse-mode divert capability in 2004.  Nonetheless, MDA is moving ahead with the procurement of 5 of the 20  Block 2004 missiles utilizing the Monolithic SDACS with reduced divert  capability. According to program officials, these less-capable missiles  provide a credible defense against a large population of the threat and can  be retrofitted to support pulse-mode operations upon the completion of  design updates and testing.
Without the energetic pulse-mode, performance against certain threats is  limited, because the kill vehicle has less divert capability to compensate for  initial targeting errors. This degradation is threat-dependent, that is, not  significant for non-separating targets because the kill vehicle typically does  not have to radically change course to engage a warhead attached to the  booster tank. However, separating threats under specific scenarios may be  problematic. The kill vehicle may need to expend additional energy to  change course and engage a warhead that is physically separated from its  booster tank.
subsections: section_title: The Airborne Laser (ABL) is being developed to shoot down enemy missiles during the boost phase of flight. Installed onboard a Boeing 747 aircraft, ABL is designed to use a high-energy chemical laser to rupture the enemy missile’s motor casing, causing the missile to lose thrust or flight control. As part of its Block 2004 effort, the Missile Defense Agency (MDA) plans to demonstrate the feasibility of using the prototype ABL aircraft to shoot down a short-range ballistic missile. This event is referred to as the lethal demonstration.
paragraphs: Activities in fiscal year 2003 progressed much more slowly and were more  costly than anticipated. Nearly all hardware deliveries, integration activities,  and test events slipped. The program’s underestimation of the complexity of  integrating ABL subcomponents into a working system, in particular,  resulted in significant cost growth and delays during fiscal year 2003.
Schedule: The ABL program continued with the development of the  prototype aircraft, but as noted above, fiscal year 2003 activities progressed  more slowly than anticipated. For example, four of six key test events were  either deferred indefinitely or delayed over a year. Furthermore, quality  issues and difficulty with integration activities resulted in the slip of a  critical test milestone—the demonstration of individual laser modules linked  together to form a single laser beam, known as “First Light.” At the end of  fiscal year 2003, the expected date for this demonstration was March 2004,  but the event continues to slip. As a consequence of the test delays, the  lethal demonstration continues to be pushed back.
The Department of Defense (DOD)  budgeted about $3.1 billion for ABL  development during fiscal years  2004 through 2009. Earlier, the Air  Force invested approximately  $1 billion from 1996 through 2001,  and MDA expended about $1 billion  in 2002 and 2003 for related  developmental efforts.
Performance: At this stage of ABL development—before the laser has been  operated at full power or critical technologies have been demonstrated in  flight tests—any assessment of effectiveness is questionable. However,  performance indicators used by the program office to monitor performance  indicate that 9 of 12 of the indicators are at risk in achieving Block 2004  goals.
Cost: Our analysis of prime contractor cost performance reports indicates  that ABL cost performance deteriorated throughout fiscal year 2003. The  contractor overran budgeted costs by $242 million and could not finish  $28 million worth of work as planned. The underestimated complexity of  integrating ABL subcomponents into a working system was the primary  driver for the cost growth.
Risks: Our analysis indicates that the complexity and magnitude of  integration activities—delivering a working system for the lethal  demonstration—have been substantially underestimated. Accordingly, the  program continues to be at risk for cost growth and schedule slips. In  addition, a major performance risk for ABL Block 2004 involves controlling  and stabilizing the high-energy laser beam so that vibration does not degrade  the beam’s aimpoint. Program officials stated that they are working to  resolve this issue but cannot demonstrate final resolution before flight  testing in 2005.
section_title: Airborne Laser
subsections: section_title: Background: Element Description
paragraphs: The Airborne Laser (ABL) element is a missile defense system designed to  shoot down enemy missiles during the boost phase of flight, the period  after launch when the missile is powered by its boosters. As an element of  the Missile Defense Agency’s (MDA’s) Boost Defense Segment, ABL is  expected to engage enemy ballistic missiles early in their trajectory before  warheads and countermeasures can be released. ABL plans to use a high- energy chemical laser to defeat enemy missiles by rupturing a missile’s  motor casing, causing the missile to lose thrust or flight control. ABL’s goal  is to prevent the delivery of the missile’s warhead to its intended target.
ABL was initially conceived as a theater system to defeat short- and  medium-range ballistic missiles. However, its role has been expanded to  include the full range of ballistic missile threats, including intercontinental  ballistic missiles (ICBMs). In addition, ABL could be used as a forward- deployed sensor to provide accurate launch point, impact point, and  trajectory data of enemy missiles to the overarching Ballistic Missile  Defense System (BMDS) in support of engagements by other MDA  elements.
The ABL element consists of the following three major components  integrated onboard a highly modified Boeing 747 aircraft. In addition,  ground support infrastructure for chemical storage, mixing, and handling is  a necessary component of the element.
High-energy chemical oxygen-iodine laser (COIL). The laser, which  generates energy through chemical reactions, consists of six laser  modules linked together to produce megawatt levels of power. By using  a defensive weapon that incorporates the speed of light, ABL can  destroy missiles more quickly, giving it a significant advantage over  conventional boost-phase interceptors.
Beam control/fire control (BC/FC). The BC/FC component’s primary  mission is to maintain the beam’s quality as it travels through the aircraft  and atmosphere. Through tracking and stabilization, the BC/FC ensures  that the laser’s energy is focused on a targeted spot of the enemy missile.
Battle management/command and control (BMC2). The BMC2  component is expected to plan and execute the element’s defensive  engagements. It is being designed to work autonomously using its own  sensors for launch detection, but it could also receive early warning data  from other external sensors.
section_title: Background: History
paragraphs: ABL’s current development is based on more than 25 years of scientific  research in the Departments of Defense and Energy. The program evolved  primarily from airborne laser laboratory research, which developed  applications for high-energy lasers. The laboratory’s research culminated in  a demonstration showing that a low-power, short-range laser was capable  of destroying a short-range, air-to-air missile.
In 1996, the Air Force initiated the Airborne Laser program to develop a  defensive system that could destroy enemy missiles from a distance of  several hundred kilometers. Developmental testing for the program was  expected to conclude in 2003 with an attempt to shoot down a short-range  ballistic missile target. However, in 2002, management authority and  funding responsibility transferred from the Air Force to MDA. In  accordance with MDA planning, the Airborne Laser program restructured  its acquisition strategy to conform to a capability-based approach.
section_title: Background: Developmental Phases
paragraphs: ABL development is proceeding in a series of planned 2-year blocks. The  near-term blocks are known as Blocks 2004, 2006, and 2008. Other blocks  may follow, but on the basis of recent budget documentation, MDA has not  yet defined their content.
Block 2004. The overall Block 2004 goal is to demonstrate the feasibility  of the prototype ABL aircraft to defeat—via directed laser energy—a  short-range, threat-representative ballistic missile. This concluding test  event generally is referred to as the lethal shoot-down demonstration. MDA  has no plans to deliver an ABL contingency capability in the Block 2004  time frame.
Block 2006. The Block 2006 ABL program makes use of the Block 2004  aircraft, but the block’s focus is on testing, interoperability with the BMDS,  and increased supportability for an emergency operational capability.
Block 2008. The program expects to procure a second, upgraded ABL  aircraft in the Block 2008 time frame. It will incorporate upgrades for  enhanced lethality and increased operational suitability. Block 2008 will  also focus on making ABL more affordable.
section_title: Progress Assessment: Schedule
paragraphs: During fiscal year 2003, the ABL program planned to complete a series of  activities in preparation for Block 2004. Although the program made some  progress, planned activities progressed much more slowly than anticipated.  These activities included the following:  designing, fabricating, and delivering subcomponent hardware critical  to the operation of the ABL element (hardware delivery);  integrating and testing subcomponents as functioning components; and  completing a test milestone referred to as “First Light,” the first  demonstration—in a ground-test facility—of the integration of six  individual laser modules to produce a single beam of laser energy.
subsections: section_title: Hardware Delivery: Delays Affect Entire Program
paragraphs: ABL contractors delivered critical ABL element hardware during fiscal year  2003, including subcomponents of the BC/FC component. However, in each  case, hardware delivery was originally scheduled for the end of fiscal year  2002. (See table 15.) Because these hardware deliveries were delayed, the  schedule for subsequent integration and demonstration activities was also  affected.
section_title: Integration and Testing: Key Test Events Delayed More Than a Year
paragraphs: Table 16 summarizes the status of major Block 2004 ABL test events,  scheduled sometime during fiscal year 2003. As illustrated, four of the  six test events were either deferred or delayed over a year due to late  hardware and software availability, subcomponent test failures, and  numerous design flaws. Consequently, the lethal demonstration—the focus  of Block 2004 development—has been delayed until February 2005 at the  earliest. Other than the surveillance and tracking tests, which were  conducted in flight and have been completed, all scheduled testing listed in  table 16 will be performed in ground facilities, such as the System  Integration Laboratory (SIL) at Edwards Air Force Base, California.
section_title: Completion of Test Milestone: Demonstration of “First Light” Continues to Slip
paragraphs: The Director, MDA, has made the achievement of Block 2004’s “First  Light”—to prove that individual laser modules can be successfully  integrated and operated to generate a single laser beam—a decisive event  for the ABL program. In April 2003 testimony before the Senate  Appropriations Committee, Subcommittee on Defense, the Director stated  that his confidence in meeting the schedule goal for the lethality  demonstration would increase tremendously if “First Light” occurred in  2003. “First Light” did not occur in February 2003 as scheduled and slipped  throughout the fiscal year. As of March 2004, the test event had not been  rescheduled. Numerous and continuing issues have caused the event to  slip, including supply, quality, and technical problems. For example,  specialized valves have been recalled twice, laser fluid management  software has been delayed due to inadequate definition of requirements,  and improperly cleaned plumbing and material issues have required over  3,000 hours of unplanned work. In addition, delays in hardware delivery  occurred in almost every month of fiscal year 2003.
As a result of the slip in “First Light,” the program office did not exercise a  contract option to acquire the Block 2008 aircraft. The office expected to  exercise the option and make the first payment to the contractor,  $30 million of the $170 million total, during the fourth quarter of fiscal year  2003. The remaining payments of $40 million and $100 million were  scheduled for fiscal years 2004 and 2005, respectively. Because this test  event continues to slip, program officials do not know when they will  initiate the acquisition of the second aircraft.
section_title: Progress Assessment: Performance
paragraphs: Quantitative assessments of ABL effectiveness for boost-phase defense  are necessarily based on end-to-end simulations of ABL operation,  because the element has yet to be demonstrated in flight. At this stage of  development—before the laser has been operated at full power or flown  to examine the jitter issue—any assessment of element effectiveness is  necessarily questionable. Nonetheless, the program office monitors  performance indicators to determine whether the element is on track in  meeting operational performance goals. Based on data provided to us by  MDA, 9 of 12 performance indicators point to some risk in achieving Block  2004 goals. One indicator in particular, pertaining to the technology of  managing “jitter,” was identified as a risk item by the program office early  on and continues to be monitored. This issue is discussed in more detail  later in this appendix.
section_title: Progress Assessment: Cost
paragraphs: The cost of the ABL program continues to grow. MDA expects to invest  about $3.1 billion from fiscal year 2004 through 2009 in the element’s  development. This is in addition to the approximately $2 billion invested  from the program’s initiation in 1996 through fiscal year 2003.
The program uses most of the funds it receives to fund the element’s prime  contract. However, in fiscal year 2003, the contractor overran its budgeted  costs by $242 million.
subsections: section_title: Total Program Cost: ABL Program Costing Approximately $510 Million per Year
paragraphs: ABL program costs for the next 6 fiscal years are expected to be around  $3.1 billion. This covers research and development efforts for Blocks 2004,  2006, and 2008. Table 17 shows the expected costs of the program by fiscal  year through 2009, the last year for which MDA published its funding plans.
ABL costs from 1996 through fiscal year 2001 were Air Force costs that  were not broken out by block but totaled a little over $1 billion. During that  time, the greatest amount expended on the program in a given fiscal year  was $311.4 million in fiscal year 2000.
When the ABL program transitioned to MDA in fiscal year 2002, the  conversion to a more robust development program increased projected  costs. The planned budget increased to approximately $465 million and  $585 million in fiscal years 2002 and 2003, respectively. Program officials  stated that they have also implemented a more robust developmental staff  in response to numerous test failures, quality problems and complex  engineering issues, all of which caused annual costs to increase after ABL’s  transition to MDA.
section_title: Prime Contractor Fiscal Year 2003 Cost and Schedule Performance: Significant Cost Growth and Schedule Slips
paragraphs: The government routinely uses contractor Cost Performance Reports to  independently evaluate prime contractor performance relative to cost and  schedule. Generally, the reports detail deviations in cost and schedule  relative to expectations established under the contract. Contractors refer  to deviations as “variances.” Positive variances—activities costing less or  completed ahead of schedule—are generally considered as good news and  negative variances—activities costing more or falling behind schedule—as  bad news.
Our analysis of contractor Cost Performance Reports indicates that ABL  cost and schedule performance deteriorated throughout fiscal year 2003.  In fiscal year 2003 alone, the ABL program incurred cost overruns of  $242 million, which resulted primarily from integration and testing issues.  Program officials indicated that it has taken longer to fabricate plumbing,  install hardware, and conduct system checkouts. Furthermore, hardware  that did not perform as expected and safety preparedness tended to slow  down the program. In short, initial estimates of integration-related  activities were substantially underestimated. Our analysis shows that these  problems contributed to more than 80 percent of the overall cost overrun.  The same analysis indicates that the contractor could not finish $28 million  of work as planned during the same period of time.
Finally, based on the contractor’s cost and schedule performance in fiscal  year 2003, we estimate that the current ABL contract will overrun its  budget by between $431 million and $942 million.
Figures 4 and 5 show the contractor’s performance in fiscal year 2003. The  negative variances indicate that the ABL program is exceeding its budgeted  costs and is not completing scheduled work as planned.
The element’s largest contract, known as the Block 2004 prime contract,  covered a period of performance from November 1996 until about 6 months  after the lethal demonstration when it was awarded. However, the program  office recently announced that it will close-out this contract, valued at  approximately $2.2 billion, and award, in increments, follow-on contracts  for the remaining Block 2004 work. The program manager told us that by  awarding the remaining work in about one-year increments, the contractor  should be able to establish more accurate cost and schedule estimates. In  addition, the new contract structure is expected to encourage the  contractor to gain knowledge from near-term tests, rather than  concentrating on the longer-term goal of conducting the lethal  demonstration.
section_title: Program Risks
paragraphs: Based on our assessment of fiscal year 2003 activities, we found that the  complexity and magnitude of integration activities—to deliver a working  system for the lethal shoot-down demonstration—has been substantially  underestimated. Accordingly, the program continues to be at risk for cost  growth and schedule slips. We also found that the uncertainty regarding the  element’s ability to control environmental vibration on the laser beam— jitter—is a serious performance risk for the Block 2004 program. Finally,  we found that weight distribution across the airplane may be a key risk for  future blocks.
subsections: section_title: Jitter as Major Performance Risk
paragraphs: The major performance risk for Block 2004 involves controlling and  stabilizing the high-energy laser beam so that vibration unique to the  aircraft environment does not degrade beam aimpoint. Reducing this  so-called jitter is crucial if the laser beam is to impart enough energy on a  fixed spot of the target to rupture the missile’s motor casing. Currently,  jitter control is developed and tested in a laboratory environment and is the  least mature of ABL’s critical technologies. Program officials told us that  they are improving jitter analysis tools and even considering potential  hardware design changes to reduce the level of vibration. They also noted  that final tuning and resolution of the jitter issue would not be  demonstrated before flight testing is conducted in 2005.
section_title: Weight Distribution
paragraphs: If future blocks require additional laser modules to increase ABL’s military  utility, weight distribution across the aircraft’s frame may become a key  issue. The program office recognizes this problem and has initiated a  weight-reduction and weight-redistribution effort that includes component  redesign and composite materials. The program office is also studying a  possible redesign of the aircraft frame that would allow laser modules to be  moved forward to relieve stress on the airframe.
The Command, Control, Battle  Management, and Communications  (C2BMC) element is the integrating  and controlling element of the  Ballistic Missile Defense System  (BMDS). It is designed to link all  system elements, manage real-time  battle information for the  warfighter, and coordinate element  operation to counter ballistic  missile attacks in all phases of  flight.
The C2BMC team executed the program within budget but slightly behind  schedule in fiscal year 2003. Important activities, such as the completion of  software testing and operator training, are continuing in fiscal year 2004 to  ready the element for initial defensive operations (IDO) by September 2004.
Schedule: The C2BMC program is on track to deliver the software needed  for the September 2004 defensive capability. However, the program faces a  tight schedule to complete software development and testing. Other  activities, such as training, also are being completed to make the system  operational. The program office indicated that all such activities are on track  for timely completion.
The C2BMC program is working  toward the delivery of a limited  capability by September 2004  followed by an upgrade in  defensive capabilities by the end of  2005.
Performance: The program office predicts that key indicators of C2BMC  operational performance will meet established requirements when the  element comes online in September 2004. Tests, which began in September  2003, will determine if C2BMC’s technical objectives are being achieved.  Test results beyond fiscal year 2003 have been positive thus far.
The Department of Defense (DOD)  budgeted about $1.3 billion for  C2BMC development during fiscal  years 2004 through 2009. Earlier,  MDA expended $165 million in  fiscal years 2002 and 2003 for  element development.
Cost: Our analysis of the prime contractor’s cost performance reports shows that the contractor completed planned work under budget but slightly  behind schedule. Specifically, the contractor under-ran budgeted costs by  $5.3 million in fiscal year 2003 because of a slower than anticipated increase  in staffing needed for the new IDO requirements.
Key risks: The C2BMC is tracking and mitigating key BMDS-specific risks  pertaining to the fielding of the initial capability by September 2004 and the  Block 2004 defensive capability by December 2005. Notably, development of  the C2BMC element is proceeding concurrently with the development of  other elements in the BMDS. Changes in one element’s design—especially in  how that element interfaces with the C2BMC element—could delay C2BMC  development and fielding. In addition, the BMDS concept of operations  continues to evolve, leading to uncertainties about how the C2BMC element  will be operated. Finally, the uncertainty regarding the reliability of  communications links with the Aegis BMD element threatens to degrade  overall system performance. In spite of these communications problems, the  existing capability is sufficient to support IDO performance goals.
section_title: Command, Control, Battle Management, and Communications
subsections: section_title: Background: Element Description
paragraphs: The Command, Control, Battle Management, and Communications  (C2BMC) element is being developed as the overall integrator of the  Ballistic Missile Defense System (BMDS). Its objective is to tie together all  system elements—such as GMD and Aegis BMD—so that system  effectiveness is enhanced beyond that achieved by stand-alone systems.  Unlike other system elements, C2BMC has neither a sensor nor weapon.  Rather, it is primarily a software system housed in command centers  or suites.
The C2BMC program is working to deliver a limited operational capability  in the 2004-2005 time frame. The principal function of the first increment,  Block 2004, is to provide situational awareness to certain combatant  commanders and others—through the dissemination of, for example, early  warning data—enabling them to monitor a missile defense battle as it  unfolds. It also will provide certain combatant commanders with the ability  to perform missile defense planning. However, battle management  functions like centralized weapons allocation—such as determining the  number and timing of interceptor launches—will not be part of the Block  2004 capability but is expected to be part of future C2BMC blocks.
Over time, the C2BMC element will be enhanced to provide overarching  control and execution of missile defense engagements with the aim of  implementing “layered defense” through the collective use of individual  BMDS elements. As the name indicates, C2BMC is comprised of three  major components:  Command and control. The command and control component is  designed to plan, control, and monitor missile defense activities. When  fielded, the command and control component provides warfighting aids  needed by the command structure to formulate and implement informed  decisions. In particular, the component is meant to quickly replan and  adapt the element to changing mission requirements.
Battle management. The role of the battle management component is  to formulate and coordinate the various missile defense functions— surveillance, detection, tracking, classification, engagement, and kill  assessment—needed to execute the ballistic mission defense mission.
The planned battle management will direct the operation of various  BMDS elements and components, consistent with pre-established rules  of engagement, based upon data received from system sensors.
Communications. Communication is a key enabler for the integration  of the BMDS. The objective of systems communications is to manage  and achieve the dissemination of information necessary to perform the  battle management and command and control objectives.
The C2BMC program is following the MDA capability-based acquisition  approach that emphasizes testing, spiral development, and evolutionary  acquisition through the use of 2-year capability blocks. Within these blocks,  MDA expects to evolve the C2BMC element through a series of software  upgrades known as “spirals,” each of which increases the element’s  capability to perform the ballistic missile defense mission.
section_title: Background: History
paragraphs: MDA initiated the C2BMC program in 2002 as a new element of the BMDS.  Program officials indicated that Block 2004 C2BMC software is based on  the Air Force’s Combatant Commander’s Integrated Command and Control  System, the Air Force’s Joint Defensive Planner software, and GMD- developed fire control (battle management) software.
section_title: Background: Developmental Phases
paragraphs: C2BMC development efforts are aligned according to Block 2004,  Block 2006, and beyond.
Block 2004. The Block 2004 defensive capability is being rolled out in two  phases: initial defensive operations (IDO) and the Block 2004 defensive  capability. By September 2004 when IDO is available, C2BMC will provide  situational awareness, planning capabilities, and communications  “backbone” to allow warfighters to monitor the ballistic missile defense  battle. The software build associated with IDO’s defensive capability is  referred to as “Spiral 4.3.” MDA is working with combatant commanders to define the capabilities of “Spiral 4.5”—the final version of the Block 2004  defensive capability that is expected to be fielded by December 2005— which will be an enhancement of the IDO C2BMC capability defined by  Spiral 4.3. MDA is also activating C2BMC suites at U.S. Strategic Command  (USSTRATCOM), U.S. Northern Command (USNORTHCOM), U.S. Pacific  Command (USPACOM), and other locations including the National Capital  Region.
Block 2006. The incorporation of battle management capabilities in the  C2BMC element begins with Block 2006. The element will provide real-time  battle management to fuse available sensor information, track the threat  throughout its entire trajectory, and select the appropriate elements to  engage the threat. For example, the C2BMC battle manager may use radars  across multiple elements to generate a single track of the threat and direct  GMD to launch interceptors. Additional C2BMC sites will also be activated  during this time frame.
C2BMC’s long-term objective is to tie all BMDS elements and sensors into a  distributed, worldwide, integrated, and layered missile defense system.
section_title: Progress Assessment: Schedule
paragraphs: The C2BMC program deputy director indicated that the program is on  schedule to meet IDO and Block 2004 expectations, that is, to have the  BMDS on alert by the end of September 2004 for IDO and upgraded by the  end of December 2005. To achieve this goal, the C2BMC element is  developing, testing, and verifying Block 2004 C2BMC software  (Software delivery);  integrating the C2BMC element into the BMDS and incorporating   making the BMDS operational, including warfighter Concept of  Operations (CONOPS), warfighter training, and activating C2BMC sites.
subsections: section_title: C2BMC Software Delivery: IDO Software Development Completed, but Testing and Verification Continues
paragraphs: Table 18 summarizes the principal activities pertaining to the development  and testing of the first three spirals of Block 2004 C2BMC element  software. The development of Spiral 4.3 in nearly completed, and BMDS- level testing (Cycle-3 testing and Cycle-4 testing) of this spiral will be  conducted to some extent before IDO, e.g., during GMD integrated flight  tests and war games.
The program’s Spiral Engineering Team has not fully defined the  capabilities planned for Spirals 4.4 and 4.5, the software builds leading up  to the Block 2004 defensive capability of December 2005. The team expects  to complete the definitions of the Spirals 4.4 and 4.5 in March 2004 and  July 2004, respectively.
section_title: Communications and Integration: Activities Completed as Planned
paragraphs: The C2BMC element is upgrading existing communications systems and  developing capabilities to allow all BMDS components to exchange data,  including command and control orders. Table 19 summarizes the principal  activities completed in fiscal year 2003 pertaining to C2BMC’s role in  system integration and communications. These activities were generally  completed on time.
section_title: Operational Capability: Program Taking Steps to Make BMDS Operational
paragraphs: A variety of activities needed if the C2BMC is to deliver an operational  BMDS have been completed or are ongoing. These activities include site  activation, which is required before the C2BMC suites are built; the  warfighter developing a CONOPS; and training military operators for  conducting ballistic missile defense missions.
Site activation. Full site surveys have been conducted, site installation  plans have been signed, and equipment has been ordered for  USSTRATCOM, USNORTHCOM, and USPACOM. This also has been  done for one National Capital Region site. Equipment installation will  begin at the end of March 2004 and continue throughout the summer.
CONOPS. A conference to write a CONOPS was held in  November 2003.
Training. Full operator training is scheduled to begin at  USNORTHCOM in June 2004, USSTRATCOM in June 2004, and  USPACOM in July 2004. Training for the National Capital Region site is  also expected to begin in July 2004. Part of the system-level training is  participation in Integrated Missile Defense War Games.
section_title: Progress Assessment: Performance
paragraphs: Spiral tests for each software build will determine if C2BMC’s technical  objectives are being achieved. These tests are expected to indicate if the  program needs to make adjustments, such as adding personnel to work on  identified problems. The program office predicts, and planned fiscal year  2004 testing is expected to verify, that all top-level C2BMC performance  indicators will meet operational performance goals when the IDO  capability comes online in September 2004.
section_title: Progress Assessment: Cost
paragraphs: MDA expects to invest about $1.3 billion from fiscal year 2004 through 2009  in the development and enhancement of the C2BMC element. This is in  addition to the $165.4 million expended in fiscal years 2002 and 2003.
The program uses most of the funds it receives to fund the element’s prime  contract. During fiscal year 2003, the contractor completed planned work  slightly behind schedule, but the work cost less than projected.
subsections: section_title: Total Program Cost: C2BMC Program Costing Approximately $220 Million per Year
paragraphs: The C2BMC program’s planned costs for the next 6 fiscal years are  expected to be around $1.3 billion. This includes costs for Blocks 2004,  2006, and Block 2008. In addition, the program expended $68.0 million and  $97.4 million in fiscal years 2002 and 2003, respectively. Table 20 shows  expected C2BMC program costs by fiscal year through 2009, the last year  for which MDA published its funding plans.
section_title: Prime Contractor Fiscal Year 2003 Cost and Schedule Performance: Efficient
paragraphs: The prime contract consumes the bulk of the program’s budget: about  97 percent of the Block 2004 budget supports the prime contractor team  and 3 percent supports government efforts. The prime contract is an Other  Transaction Agreement (OTA), which functions much like a prime  contract. Through an OTA, the C2BMC element is able to take advantage of  more collaborative relationships between industry, the government,  Federally Funded Research and Development Centers, and University  Affiliated Research Centers. The C2BMC Missile Defense National Team  (MDNT), for which Lockheed Martin Mission Systems serves as the  industry lead, is developing and fielding the C2BMC element of the BMDS.
The government routinely uses contractor Cost Performance Reports to  independently evaluate the prime contractor’s performance relative to cost  and schedule. Generally, the reports detail deviations in cost and schedule  relative to expectations established under the contract. Contractors refer  to deviations as “variances.” Positive variances—activities costing less or  completed ahead of schedule—are generally considered as good news and  negative variances—activities costing more or falling behind schedule—as  bad news.
In fiscal year 2003, the program expended $97.4 million for all efforts  associated with the development of the C2BMC element. Our analysis of  contractor Cost Performance Reports indicates that C2BMC’s efforts are  being completed with “cost efficiency.” That is, C2BMC work is costing  slightly less than estimated. Specifically, there was a $5.3 million cost  under-run incurred during fiscal year 2003. (See figure 6.) During this time,  the contract also had an average cumulative Cost Performance Index of  1.04, meaning that for every budgeted dollar spent to accomplish scheduled  work, the contractor actually completed $1.04 worth of scheduled work.
However, contractor Cost Performance Reports showed that work is  slightly behind schedule. According to program officials, understaffing is  the primary reason for any schedule delays. The combination of a  government-directed hiring slowdown and the limited numbers of highly  qualified personnel in the areas of command, control, battle management,  and communications available to work on the program resulted in a slower  than anticipated increase in staffing.
To ensure that information reported in Cost Performance Reports can be  relied upon, programs generally conduct Integrated Baseline Reviews of  the prime contract. The review verifies that the contractor’s performance  measurement baseline, against which the contractor measures its cost and  schedule performance, includes the work directed by the contract. It also  verifies that the budget and schedule attached to each work task are  accurate, that contractor personnel understand the work task and have  been adequately trained to make performance measurements, and it  ensures that risks have been properly identified. According to DOD  guidance, a review should be conducted within 6 months of the award of a  new contract or major change to an existing contract.
Although our analysis of C2BMC Cost Performance Reports has not shown  any significant cost or schedule variances, an Integrated Baseline Review  was not conducted for the Other Transaction Agreement on which we  reported the contractor’s cost and schedule performance. According to  C2BMC contract officials, the technical baseline was re-established, and  budgets and schedules were realigned to reflect changes in mission  priorities, namely, to have the element ready and available for IDO.  Integrated Baseline Reviews are planned for the future.
section_title: Program Risks
paragraphs: The C2BMC is tracking and mitigating key BMDS-specific risks pertaining  to the fielding of the initial capability by September 2004 and the Block  2004 defensive capability by December 2005. These risks pertain to the  integration of C2BMC with other system elements, the continuing evolution  of the BMDS CONOPS, and the unreliability of a communications link for  the Aegis BMD element.
subsections: section_title: Integration
paragraphs: Development of the C2BMC element is proceeding concurrently with the  development of other system elements, such as GMD and Aegis BMD.  Changes in one element’s design, especially with how it interfaces with the  C2BMC element, could result in temporary incompatibilities during Block  2004 integration. The potential consequences include delays in C2BMC  development and fielding, increased costs, and reduced software quality.  The program office is tracking this item as a key BMDS-level risk and  devoting resources to prevent the realization of integration  incompatibilities.
section_title: Evolving CONOPS
paragraphs: Changes in the roles and responsibilities of combatant commanders for the  missile defense mission are leading to uncertainties in the BMDS concept  of operations. This affects how the warfighter prepares, through training  and other procedures, to operate the C2BMC element once it becomes  operational. The C2BMC program office acknowledges this risk and has  efforts under way to address it. For example, the office is actively engaging  military users in exercises and war games to provide the users with an  opportunity to recognize their needs in an operational environment so that  they may better define CONOPS requirements.
section_title: Communications
paragraphs: Uncertainty regarding the reliability of communications links with the  Aegis BMD element, a system-level risk tracked by the C2BMC program  office, threatens to degrade overall system performance. Nonetheless,  program officials told us that the existing capability is sufficient to support  IDO performance goals and that MDA plans to enhance Block 2004’s  performance by upgrading existing communication components.
subsections: section_title: The Ground-based Midcourse Defense (GMD) element is a missile defense system being developed to protect the United States against long-range ballistic missile attacks. During the 2004- 2005 time frame, the GMD program office plans to deliver an operational capability that provides protection against limited ballistic missiles attacks from Northeast Asia and the Middle East.
paragraphs: The GMD program completed many planned activities that are expected to  lead to the September 2004 initial capability known as IDO. The delay in the  development and delivery of GMD interceptors, however, has caused flight  tests (intercept attempts) leading to IDO to slip 10 months. These problems  also resulted in the growth of program costs.
Schedule: Site preparation, including construction of missile silos and  facilities at Fort Greely, Alaska, and Vandenberg Air Force Base, California,  is on schedule. Activities to upgrade existing radars are also on track.  However, the program has been challenged by developmental and  production issues with the interceptor—comprising a booster and kill  vehicle—and will not meet MDA’s upper-end goal of delivering and fielding  10 interceptors by September 2004.
The GMD program is expected to  deliver an initial capability by the  end of September 2004, which is  known as Initial Defensive  Operations (IDO). By the end of  calendar year 2005, MDA plans to  have augmented the IDO capability  with additional interceptors and  radars.
Performance: GMD has demonstrated the ability to destroy target warheads  through “hit-to-kill” intercepts in past flight tests. These flight tests, however,  were developmental in nature—the element has yet to be tested under  operationally realistic conditions. Moreover, as noted above, the flight test  program leading up to IDO has been compressed. As a result, MDA has a  limited opportunity to characterize GMD’s performance before initial  fielding. Nonetheless, the program office contends that GMD is on track to  meet operational performance goals.
The Department of Defense (DOD)  budgeted about $12.9 billion for  GMD’s development and fielding  during fiscal years 2004 through  2009. Earlier, DOD expended about $12.4 billion between fiscal years  1996 and 2003 for related research  and development.
Cost: Our analysis of the prime contractor’s cost performance reports  shows that the contractor overran its budgeted costs in fiscal year 2003 by  $138 million and was unable to complete $51 million worth of scheduled  work. Developmental issues with the interceptor’s booster and kill vehicle  have been the leading cause of cost overruns and schedule slips; for  example, the interceptor’s development cost $127 million more in fiscal year  2003 than the contractor budgeted.
Risks: GMD faces significant testing and performance risks, which are  exacerbated by an optimistic schedule to meet the September 2004 deadline  for fielding the initial capability. Specifically, delays in flight testing have left  the program with only limited opportunities to demonstrate the performance  of fielded components and to resolve any problems uncovered during flight  testing prior to September 2004. Uncertainty with the readiness of  interceptor production could prevent MDA from meeting its program goal of  fielding 20 interceptors by the end of 2005. Finally, an unresolved technical  issue with the kill vehicle adds uncertainty to the element’s performance.
section_title: Ground-based Midcourse Defense
subsections: section_title: Background: Element Description
paragraphs: The Ground-based Midcourse Defense (GMD) program expects to deliver  an operational capability in the 2004-2005 time frame as an interoperable  element of the Ballistic Missile Defense System (BMDS). The first  increment of the GMD element, known as Block 2004, is being fielded in  two major phases:  Initial Defensive Operations (IDO). GMD is expected to deliver an  initial capability by the end of September 2004. The principal  components include a maximum of 10 interceptors (6 at Fort Greely,  Alaska, and 4 at Vandenberg Air Force Base, California); GMD fire  control nodes for battle management and execution at Fort Greely and  Schriever Air Force Base, Colorado; an upgraded Cobra Dane radar at  Eareckson Air Station, Alaska; and an upgraded early-warning radar at  Beale Air Force Base, California. With this initial capability, MDA  expects to provide the United States with protection against a limited  ballistic missile attack launched from Northeast Asia.
Block 2004 Defensive Capability. By the end of calendar year 2005,  MDA plans to augment the IDO capability by installing additional  interceptors at Fort Greely and Vandenberg Air Force Base (for a total  of 20), deploying a sea-based X-band radar, and upgrading the early- warning radar at Fylingdales, England. These enhancements are  expected to provide additional protection from intercontinental ballistic  missiles (ICBMs) launched from the Middle East.
Figure 7 illustrates the Block 2004 GMD components, which are situated at  several locations within and outside of the United States.
section_title: Background: History
paragraphs: The GMD element can be traced back to the mid-1980s, when the  Department of Defense (DOD) conducted experiments designed to  demonstrate the feasibility of employing hit-to-kill technology—the ability  to destroy a missile through a direct collision—for missile defense. During  the early 1990s, a technology readiness program continued the  development of interceptor technology. These efforts culminated in the  establishment of the National Missile Defense (NMD) program in 1996 to  develop and field a national missile defense system as a major defense  acquisition program.
The NMD program office’s mission was to develop a system that could  protect the United States from ICBM attacks and to be in a position to  deploy the system by 2005, if the threat warranted. The system was to  consist of space- and ground-based sensors, early-warning radars, hit-to-kill  interceptors, and battle management components. The current GMD  program is based directly on research and development conducted by the  NMD program. GMD is now one “element” of the overarching BMDS, which  is funded and managed by the Missile Defense Agency (MDA).
section_title: Background: Developmental Phases
paragraphs: GMD’s development and fielding are proceeding in a series of planned  2-year blocks. The near-term blocks are known as Blocks 2004 and 2006.  The developmental efforts of each block incrementally increase element  capability by maturing the hardware’s design and upgrading software.
Block 2004. During Block 2004, MDA expects to field a basic hit-to-kill  capability that can be enhanced in later blocks. Originally, the program’s  Block 2004 focus was on development and testing. However, the December  2002 directive by the President to begin fielding a missile defense system in  2004 affected the program’s Block 2004 direction. According to program  office officials, this change resulted in GMD’s shifting to a more  production-oriented program, accelerating activities to make the element  operational.
Block 2006. Block 2006 is focused on improving and enhancing the Block  2004 GMD capability. The program expects to improve existing capabilities,  field additional interceptors, and conduct tests to demonstrate  performance against more complex missile threats and environments. It  also expects to upgrade the early-warning radar located at Thule Airbase,  Greenland, for expanded sensor coverage.
section_title: Progress Assessment: Schedule
paragraphs: The GMD program completed many of the activities planned for fiscal year  2003. For example, the program accomplished non-technical activities such  as site preparation and facility construction at many locations, especially at  Fort Greely, on or ahead of schedule. Similarly, activities leading to the  development and delivery of the element’s battle management component  and of radars that the element depends upon to detect and track targets  were generally completed on schedule. However, delays in the  development and delivery of the GMD interceptor—particularly due to one  of its two boosters—caused intercept attempts leading up to IDO to slip 10  months or more.
subsections: section_title: Construction of GMD Element Facilities: on Track to Support Initial Deployment
paragraphs: Many of the GMD activities completed in fiscal year 2003 pertain to the  construction of infrastructure—missile silos, buildings, and other  facilities—at GMD’s various sites. The largest construction effort is at  Fort Greely, where missile silos and supporting facilities are being built.  Additional construction activities are occurring at Eareckson Air Base and  at Vandenberg Air Force Base (AFB), where four missile silos are being  modified. According to MDA, all construction activities are on or ahead of  schedule. Table 21 summarizes the major construction activities  undertaken in fiscal year 2003 and their estimated completion dates.
section_title: GMD Component Development: Progress Made, but Interceptor Development Is Problematic
paragraphs: In fiscal year 2003, the GMD program focused on the development of its  Block 2004 components: (1) GMD fire control nodes and communications  network, (2) upgraded early-warning radars, (3) Cobra Dane radar,  (4) sea-based X-band radar, and (5) ground-based interceptors. Many of the  activities planned for fiscal year 2003, such as hardware delivery, did not  culminate in 2003. Rather, the completion dates are scheduled in fiscal  years 2004 or 2005 to coincide with the start of defensive operations.
subsections: section_title: GMD Fire Control Component: Development on Track
paragraphs: The fire control component integrates and controls the other components  of the GMD element. With input from operators, the fire control software  plans engagements and directs GMD components, such as its radars and  interceptor, to carry out a mission to destroy enemy ballistic missiles. The  in-flight interceptor communications system (IFICS), which is part of the  fire control component, enables the fire control component to  communicate with the kill vehicle while it is en route to engage a threat.
According to contractor reports, the GMD fire control component effort is  proceeding on schedule and is expected to be ready for IDO. For example,  the installation of equipment for the communication networks and the fire  control nodes are on schedule. Additionally, the program completed the  installation of a fiber optic ring—the so-called CONUS Ring—that  connects all the command, control, and communication networks of the  GMD element.
section_title: Upgraded Early Warning Radars: Development on Track
paragraphs: The early warning radar is an upgraded version of existing UHF-band  surveillance radars used by the Air Force for strategic warning and attack  assessment. For Block 2004, the GMD program is upgrading two early  warning radars—one at Beale AFB and another at Fylingdales Airbase—to  enable the radars to more accurately track enemy missiles. The upgrades  include improvements to both the hardware and software.
Fiscal year 2003 activities related to upgrading the early warning radar at  Beale AFB included  developing and testing software;  acquiring radar hardware and data processors;  completing the design of and constructing the Beale facility; and  supporting flight, ground, and radar certification tests.
According to program office documentation, the completion of the Beale  upgrade is on track for meeting the September 2004 IDO date, even though  software development fell behind schedule in fiscal year 2003. Program  officials stated that they have not yet begun upgrading the early warning  radar at Fylingdales, which they expect to complete by December 2005.
section_title: Cobra Dane Radar: Development On Track
paragraphs: The Cobra Dane radar, located at Eareckson Air Station on Shemya Island,  Alaska, is currently being used to collect data on ICBM test launches out of  Russia. Cobra Dane’s surveillance mission does not require real-time  communications and data-processing capabilities; therefore, it is being  upgraded to be capable of performing the missile defense mission as part of  the Block 2004 architecture. Once upgraded, Cobra Dane is expected to  operate much like the upgraded early warning radar at Beale AFB.  Although its hardware needs only minor improvement, Cobra Dane’s  mission software is being revised for its new application. The program  plans to use existing software and develop new software to integrate Cobra  Dane into the GMD architecture. It is also modifying the Cobra Dane  facility to accommodate enhanced communication functions.
In fiscal year 2003, the GMD program  completed software development—testing is continuing, and  finished the modification of the Cobra Dane facility.
In general, the program made significant progress in upgrading the Cobra  Dane radar during fiscal year 2003. According to program office  documentation and our analysis of GMD’s master schedule, Cobra Dane is  on track for meeting the September 2004 IDO date.
section_title: Sea-Based X-Band Radar: Development on Track
paragraphs: The GMD program office is managing the development of a sea-based  X-band radar (SBX) to be delivered and first tested by the end of  Block 2004. SBX will consist of an X-band radar—much like the one  located at Reagan Test Site that has been used in past flight tests— positioned on a sea-based platform, similar to those used for offshore oil  drilling. The radar is designed to track enemy missiles with high accuracy;  discriminate warheads from decoys and other objects; and if the intercept  occurs within SBX coverage, assess whether it was successful.
In fiscal year 2003, MDA initiated the acquisition of various SBX  components, including the sea platform, operations and support equipment  for the platform, the radar structure, and electronic components. In  addition, design and development have continued on the X-Band radar to  be positioned on the platform. MDA program officials stated that the SBX  will be fielded as a test asset by the end of Block 2004 (December 2005),  and MDA budget documentation indicates that it will be placed on alert as  an operational asset during Block 2006. Modification of the platform and  production of the SBX antenna is on schedule, and electronics production  is ahead of schedule.
section_title: Ground-Based Interceptor: Development and Production Issues Delay GMD Program
paragraphs: The ground-based interceptor—the weapon component of the GMD  element—consists of a kill vehicle mounted atop a three-stage booster.  The booster, which is essentially an ICBM-class missile, delivers and  deploys the kill vehicle into a trajectory to engage the threat. Once  deployed, the kill vehicle uses its onboard guidance, navigation, and  control subsystem to detect, track, and steer itself into the enemy warhead,  destroying it above the atmosphere through a hit-to-kill collision.
In fiscal year 2003, the program focused on the development and testing of  boosters that will be produced for flight tests, IDO, and the Block 2004  inventory. Booster development actually began in 1998, but because of  difficulty encountered by the prime contractor, MDA adopted a dual- booster approach as part of a risk reduction strategy. The development of  the booster was transferred to Lockheed Martin, which is developing a  variant of the original booster. The variant is referred to as “BV+.” MDA  also authorized the GMD prime contractor to award Orbital Sciences  Corporation (OSC) a contract to produce a second booster that is known as  the “OSC booster.”
On the basis of our review of fiscal year 2003 activities, booster  development and production represent major challenges for the GMD  program in meeting its Block 2004 goals, as shown below:  Technical. For the most part, the OSC booster has not experienced  technical issues preventing it from being tested and produced. However,  the BV+ booster has had problems with its first stage attitude control  system. In addition, GMD program officials stated that the BV+ booster  is experiencing quality-related problems with its flight computers.
Testing. The OSC booster successfully demonstrated the performance  needed for the GMD mission through a series of flight tests. Beginning  with integrated flight test 14, which is scheduled for 4Q FY 2004, the  OSC booster will be used in all intercept attempts for the remainder of  Block 2004. The Lockheed BV+ booster, however, was flight tested in its  new configuration in January 2004 after an 11-month slip. According to  MDA officials, its use in flight testing and fielding has been deferred to  the end of fiscal year 2005.
Production. Because delayed test events are often indicative of  development problems, these delays increase the uncertainty of  whether the contractors will be able to meet their production goals for  IDO and Block 2004. Additionally, accidents at a subcontractor’s facility  have jeopardized the delivery of Lockheed BV+ boosters for GMD’s  initial deployment. The production facility responsible for propellant  mixing for the BV+ upper-stage motors was temporarily shut down  following two separate explosions. As a result, MDA is accelerating the  production of OSC boosters to compensate for the undelivered  Lockheed BV+ boosters. It is unclear, however, whether OSC has the  capacity to produce the additional boosters necessary for IDO.
Kill vehicle development is proceeding in parallel with development of the  boosters. In fiscal year 2003, the program focused on developing and  producing kill vehicles for flight tests scheduled in fiscal year 2004. Similar  production-representative articles will be deployed as part of the IDO and  the Block 2004 defensive capability. Kill vehicle development and  production, however, represent challenges for the GMD program in  meeting its Block 2004 goals. For example, the contractor has yet to  demonstrate that it can increase the production rate of kill vehicles by  50 percent.
As a result of developmental and production issues with the kill vehicle and  boosters, the GMD program likely will not be able to meet its goal of  delivering 20 interceptors required for the Block 2004 inventory or its  upper-end goal of delivering 10 interceptors for IDO. Program  documentation indicates that 5, rather than 10, interceptors will be fielded  when IDO is declared at the end of September 2004; MDA expects that it  will not have 10 interceptors until February 2005. MDA officials did not  provide us with a schedule of interceptor deliveries for the remaining 10  interceptors that are to be fielded by the end of Block 2004 (December  2005).
section_title: GMD Testing: Flight Test Program Plagued with Schedule Slips
paragraphs: The GMD program conducts a variety of tests, the most visible being flight  test events. Flight tests may be conducted at the component level. For  example, the program has planned and conducted booster validation (BV)  flight tests to ensure proper operation of GMD’s two booster designs.  However, integrated flight tests (IFTs) are most reflective of the  environment in which the various components will be required to operate  as an integrated element.
During fiscal year 2003, the GMD program office conducted four flight test  events: IFT-9, IFT-10, a demonstration flight of the OSC Taurus missile, and  one of two booster validation tests (BV-6). A summary of information  pertaining to these key flight test events is provided in table 22.
Of the two intercept tests conducted (IFT-9 and IFT-10), IFT-9 succeeded in  intercepting the target while IFT-10 did not. Additionally, both OSC booster  tests (OSC demo and BV-6) achieved their booster-related objectives. The  table, however, does not reflect the extent of delays on the entire GMD  flight test program caused by fiscal year 2003 developmental and delivery  issues of the interceptor. As shown in table 23 below, the Block 2004 flight  test program leading up to IDO (September 2004)—consisting of booster  validation tests and integrated flight tests—has slipped throughout fiscal  years 2003 and 2004. As a result, the test schedule leading up to IDO has  become compressed. Indeed, the last integrated flight test to be conducted  before IDO is declared, IFT-14, is scheduled to occur 1-2 months before this  date; originally, the program had scheduled IFT-14 to occur 12 months  before IDO and IFT-15 to occur 10 months before IDO. As a result, MDA has  limited its opportunity to validate models and simulations of the  interceptor’s expected performance, which, in turn, reduces its ability to  confidently characterize GMD’s performance prior to the initial fielding.
section_title: Progress Assessment: Performance
subsections: section_title: Operational Performance of GMD Remains Uncertain
paragraphs: The GMD program, which is the primary portion of the Block 2004  defensive capability, has demonstrated the capability to intercept target  warheads in flight tests since 1999. In fact, the program has achieved five  successful intercepts out of eight attempts. However, because of range  limitations, these flight tests were developmental in nature, and  engagement conditions were limited to those with low closing velocities  and short interceptor fly-out ranges.
As noted in our recent report, none of the GMD components included in the  initial defensive capability have been flight tested in their fielded  configuration (i.e., with production-representative software and  hardware). For example, the GMD interceptor—booster and kill vehicle— will not be tested in its Block 2004 configuration until the next intercept  attempt, IFT-14, which the GMD program office plans to conduct in 4Q FY  2004. IFT-14 will also test, for the first time, battle management software  that will be part of the September 2004 defensive capability. Finally, MDA  does not plan to demonstrate the operation of the critical GMD radar,  called Cobra Dane, in flight tests before IDO. Therefore, as noted in the  Director, Operational Test and Evaluation (DOT&E) Fiscal Year 2003  Annual Report to Congress, assessments of operational effectiveness will  be based on theoretical performance characteristics. Nonetheless, the  program office told us that performance indicators predict that GMD is on  track to meet operational performance goals.
section_title: Progress Assessment: Cost
paragraphs: DOD budgeted about $12.8 billion during fiscal years 2004 through 2009 for  research, development, and fielding of the GMD element. This is in addition  to the $12.4 billion already expended between fiscal years 1996 and 2003.
Most of the program’s budget is allocated to fund the element’s prime  contract. In fiscal year 2003, the contractor overran its budgeted costs by  $138 million and was unable to complete $51 million worth of work.
subsections: section_title: Total Program Cost: GMD Program Costing Approximately $2 Billion per Year
paragraphs: MDA estimates that the GMD program will need approximately  $12.8 billion over 6 fiscal years to continue developmental and fielding  activities associated with Blocks 2004, 2006, and 2008. Table 24 shows the  planned costs of the program by fiscal year through 2009, the last year for  which MDA published its funding plans.
The budget given in table 24 does not capture the full cost of the Block 2004  GMD capability, which we estimate is approximately $18.49 billion. As  shown in table 25, our estimate includes the following:
Developmental costs of approximately $12.37 billion, which cover  funding from 1996 through 2003. Between 1996 and 2001, DOD  expended $6.81 billion to develop the National Missile Defense program.  The knowledge, software, and hardware gained from this program  directly contribute to the development of the Block 2004 GMD element.  In addition, $5.56 billion was expended in fiscal years 2002 and 2003 for  the Block 2004 development of the GMD element.
Block 2004 activities, scheduled for fiscal years 2004 and 2005, which  are budgeted at $2.20 billion.
Block 2006 funds amounting to $3.92 billion that are supporting  activities planned for fiscal years 2004 and 2005. When the GMD  program allocated its expected budget to planned blocks, it allocated  funds earmarked to support Block 2004 activities to the Block 2006  budget. For example, the cost of flight tests conducted during Block  2004 was accounted for in the Block 2006 budget.
section_title: Prime Contractor Fiscal Year 2003 Cost and Schedule Performance: Budgeted Costs Exceeded by $138 Million
paragraphs: GMD’s prime contract consumes the bulk of the program’s budget. For  example, about 80 percent of the fiscal year 2004-2009 budget is allocated  to the prime contractor team and 20 percent to the government. The  January 2001 GMD contract, which ends in fiscal year 2007, covers  activities performed in Block 2004 and Block 2006. It was awarded prior to  major changes in the missile defense program and, accordingly, the block  approach and the procurement of interceptors for a defensive capability  were not part of the original contract.
We used Cost Performance Reports to assess the prime contractor’s cost  and schedule performance during fiscal year 2003. The government  routinely uses such reports to independently evaluate these aspects of the  prime contractor’s performance. Generally, the reports detail deviations in  cost and schedule relative to expectations established under contract.  Contractors refer to deviations as “variances.” Positive variances— activities costing less or completed ahead of schedule—are generally  considered as good news and negative variances—activities costing more  or falling behind schedule—as bad news.
According to our analysis, the contractor’s cost performance in fiscal year  2003 has steadily declined but schedule performance has been mixed. As  shown below in figure 8, the GMD contractor exceeded its budgeted costs  by approximately $138 million, which equates to 7.1 percent of the contract  value over the fiscal year. The contractor also was unable to complete  $51 million worth of scheduled work; most of the decline occurred during  the second half of the fiscal year.
Developmental issues with the interceptor have been the leading  contributor to fiscal year 2003 cost overruns and schedule slips. Our  analysis shows that the development of the GMD interceptor cost  $127.2 million more in fiscal year 2003 than budgeted, and that the kill  vehicle accounted for approximately 25 percent of this overrun. Moreover,  booster development resulted in a $38 million cost overrun; the Lockheed  BV+ booster was responsible for 52 percent of all of the interceptor’s  unfinished work.
Based on the contractor’s cost and schedule performance in fiscal year  2003, we estimate that the current GMD contract—which ends in  September 2007—will overrun its budget by between $237 million to  $467 million, of which approximately 84 percent arising from the  interceptor component. The contractor, in contrast, estimates no cost  overrun at completion of the GMD contract. The contractor bases this  assumption on the planned availability of $63 million in management  reserve funds to offset cumulative cost overruns of approximately  $128 million. The intended purpose of management reserve funds,  however, is not to offset cost overruns; rather, management reserves are a  part of the total project budget that should be used to fund undefined, but  anticipated, work. Although programs may use management reserves to  offset cost variances, most programs wait until the work is almost  completed prior to allocating these funds. The GMD contractor, in contrast,  has completed only about 50 percent of the work directed by the program  office. Program officials stated that the contractor is investigating sources  of potential savings to offset interceptor cost overruns.
The cumulative schedule variance as of September 2003 was $128 million  behind schedule. Therefore, to finish within budget and schedule, the  contractor will have to improve its efficiency. According to our analysis,  the GMD contractor has, effectively, been delivering $0.95 worth of  scheduled work for every budgeted dollar that was spent to accomplish  that scheduled work during fiscal year 2003. In order to complete all  scheduled work at the budgeted cost, the GMD contractor will have to  complete $1.01 worth of scheduled work for every dollar that will be spent  to accomplish that scheduled work.
section_title: Program Risks
paragraphs: On the basis of our assessment of fiscal year 2003 activities, we found that  the GMD program faces key risks in fielding the planned initial capability  by September 2004 and the Block 2004 defensive capability by December  2005. These risks include readiness of interceptor production for the  September 2004 IDO, limited testing before the system becomes  operational, and a technical risk associated with the kill vehicle.
subsections: section_title: Contractor’s Readiness to Produce Interceptors
paragraphs: The principal components of the GMD interceptor—the booster and kill  vehicle—are at risk for falling short of production goals. The GMD program  office had intended to field both BV+ and OSC boosters as part of the  September 2004 IDO. However, developmental setbacks and supplier  issues associated with the Lockheed BV+ booster have forced MDA to rely  solely on the OSC booster for IDO. OSC’s readiness to produce the  additional boosters in the time remaining for IDO has not been established.  Kill vehicle production is uncertain, as well. The contractor has yet to  demonstrate that it can increase the production rate of kill vehicles by 50  percent—from 8 to 12 kill vehicles per year.
GMD program officials characterized the schedule to meet the September  2004 deadline for initial operations as extremely aggressive, with no margin  for delay. Should interceptor production fall behind, the program will either  have to field fewer interceptors than planned or delay planned fielding  dates.
Limited Testing Before IDO The GMD test program has been in a state of flux. The test program under  the National Missile Defense program scheduled 16 integrated flight tests  (intercept attempts) to be carried out between fiscal years 1999 and 2004.  The current GMD test program, however, consists of 10 intercept attempts  over the same time period. The change stems from the cancellation of  IFT-11, IFT-12, and IFT-16; the conversion of IFT-13 to boost validation  tests (IFT-13A and IFT-13B); and the delay of IFT-17 and IFT-18 into fiscal  year 2005.
MDA had scheduled two flight tests—IFT-14 and IFT-15—to be conducted  before September 2004, but only IFT-14 is now planned before then. IFT-14  is particularly relevant because it is planned to utilize production- representative hardware and operational software for the first time in an  intercept attempt. The following firsts are expected to occur in IFT-14,  which is scheduled for 4Q FY 2004:  The new OSC booster will be used—all previous tests employed  surrogate boosters.
A production-representative kill vehicle, which incorporates new  hardware and discrimination software, will be tested.
A new, operational build of the fire control (battle management)  software will be used to control the GMD engagement.
While MDA will gain some confidence from the successful execution of  IFT-14, this test provides only a single opportunity to demonstrate the  components to be fielded as part of IDO and to resolve any problems  uncovered during flight testing.
The previous test program for the NMD system, the predecessor to GMD,  also called for operational testing by the military services, a statutory  requirement to characterize operational effectiveness and suitability of a  deployed system for use by the warfighter. MDA does not plan to  operationally test the GMD element before it is available for IDO or Block  2004. The fielding is not connected with a full-rate production decision that  would clearly trigger statutory operational testing requirements. The  Combined Test Force, a group of users and developers, plans tests to  incorporate both developmental and operational test requirements in the  test program. In addition, MDA is introducing some elements of operational  testing into developmental tests, such as soldier participation during some  developmental tests. However, GMD’s current test program does not  include flight tests conducted under the unrehearsed and unscripted  conditions characteristic of operational testing.
section_title: Technical Risk of the Kill Vehicle
paragraphs: A technical problem in the kill vehicle observed in earlier flight tests could  affect the operational effectiveness of the GMD element. Although the  program office indicated that the issue has been resolved, theories of and  solutions for the anomaly have not been verified in flight. The next attempt  for verification will occur in integrated flight test 13C (IFT-13C), which is  scheduled for 3Q FY 2004.
subsections: section_title: The Kinetic Energy Interceptors (KEI) element is a new Missile Defense Agency (MDA) program in its early stage of development. The program is building on existing missile defense technology to develop an interceptor capable of destroying long-range ballistic missiles during the boost phase of flight—the period after launch when rocket motors are thrusting. KEI also provides the opportunity to engage an enemy missile in the early-ascent phase, the period after booster burnout before warheads are released. MDA expects to have an initial land-based capability in the 2010-11 time frame, followed by a sea-based capability during 2012-13.
paragraphs: KEI program activities in fiscal year 2003 primarily revolved around the  selection of a prime contractor for KEI’s development and testing. The  program also continued with experimental work geared toward collecting  the data of boosting missiles.
Schedule: In December 2003, MDA awarded Northrop Grumman a  $4.6 billion prime contract to develop and test the KEI element over the  next 8 years. The award follows an 8-month concept design effort between  competing contractor teams, each of which was awarded $10 million  contracts to design concepts for KEI. In addition to contractual and  source-selection activities completed in 2003, the KEI program office  continued with activities designed to reduce technical risks in developing  the KEI interceptor. In particular, the program office continued with  technical work pertaining to an experiment for collecting data on boosting  missiles, known as the Near Field Infrared Experiment. This work is  expected to culminate with a satellite launch during the fall of 2005.
Performance: Because this element is still in its infancy, data are not yet  available to make a performance assessment.
The Department of Defense (DOD)  budgeted about $7.9 billion for  KEI development during fiscal  years 2004 through 2009. About  $91.5 million was invested in KEI’s  immediate predecessor program in  fiscal year 2003.
Cost: According to the KEI program manager, the prime contract  incorporates various innovative acquisition initiatives, which are expected  to encourage the contractor to develop a quality product on time and within  the initially proposed price. Because the prime contract was awarded in  December 2003 (fiscal year 2004), no fiscal year 2003 data existed for an  assessment of the contractor’s cost and schedule performance.
Key risks: The program office acknowledges that it faces general challenges  in developing the first capability that uses a missile to destroy another  missile in the boost phase of flight. From discussions with program officials,  we also found that KEI software costs could be underestimated, putting the  program at risk for cost growth and schedule delays.
section_title: Kinetic Energy Interceptors
subsections: section_title: Background: Element Description
paragraphs: The Kinetic Energy Interceptors (KEI) element is a missile defense system  designed to destroy ballistic missiles during the boost phase of flight, the  period after launch when a missile’s rocket motors are thrusting. KEI also  provides the opportunity to engage enemy missiles in the early-ascent  phase, the period after booster burnout before the missile can release  warheads and countermeasures. Initially, the program is focused on  developing a mobile, land-based system—to be available in the Block 2010  time frame—that counters long-range ballistic missile threats. Subsequent  efforts will include sea- and space-based efforts that provide protection  against all classes of ballistic missile threats.
The land-based system will be a deployable unit consisting of a command  and control/battle management unit, mobile launchers, and interceptors.  Program officials noted that because the KEI element has no sensor  component such as radars, it would rely on Ballistic Missile Defense  System (BMDS) sensors (space-based infrared sensors and forward- deployed radars) for detection and tracking functions. Like other existing  hit-to-kill interceptors, the KEI interceptor is comprised of a booster and  kill vehicle. The kill vehicle is expected to employ an infrared seeker  derived from the Aegis BMD program and divert thrusters, which provide  terminal guidance and control, derived from the Ground-based Midcourse  Defense (GMD) program.
section_title: Background: History
paragraphs: In the summer of 2002, the Defense Science Board recommended that the  Missile Defense Agency (MDA) initiate a program to develop a  boost/ascent-phase interceptor capable of countering intermediate- and  long-range ballistic missile threats. Work in this area was initiated in fiscal  year 2003 under the Kinetic Energy Boost program as part of MDA’s Boost  Defense Segment. Beginning with fiscal year 2004, this program has been  budgeted under a new MDA area known as BMDS Interceptors, which  includes the KEI element.
section_title: Background: Developmental Phases
paragraphs: KEI’s development is proceeding in a series of planned two-year blocks  known as Blocks 2010, 2012, and 2014. Concurrently, the KEI program is  conducting risk mitigation projects to determine whether a space-based  platform, from which interceptors could be launched, is feasible and  affordable. Other blocks may follow, but on the basis of recent budget  documentation, MDA has not yet defined their content.
Block 2010: The KEI program entered the Development and Test Phase in  December 2003, after MDA selected Northrop Grumman as the prime  contractor. The contractor has begun development activities leading to a  Block 2010 capability, the first increment of land-based interceptors  capable of destroying ballistic missiles during the boost or early-ascent  phases of flight. MDA envisions that these first-generation interceptors will  be built and launched from trucks that can be driven up close to the border  of the threatening nation.
Block 2012: This block increment expands KEI’s Block 2010 capabilities  to include the capability to launch interceptors from sea-based platforms  such as Aegis cruisers or submarines. A study is under way to select the  platforms. The Block 2012 sea-based capability will use the interceptor  developed for Block 2010.
Block 2014: During this block, the interceptor is expected to evolve into a  new, multiuse interceptor capable of performing boost, early-ascent, and  midcourse-phase intercepts from platforms on land or sea.
section_title: Progress Assessment: Schedule
paragraphs: The KEI program office’s activities in fiscal year 2003 primarily revolved  around the selection of a prime contractor for KEI development and  testing. Activities involving the Near Field Infrared Experiment (NFIRE),  which focus on reducing technical risk through experiments that collect  data on the plume of boosting missiles, were also carried out in fiscal  year 2003.
subsections: section_title: Prime Contract Awarded to Northrop Grumman
paragraphs: In March 2003, two KEI concept design contracts worth $10 million each  were awarded to competing teams headed by Northrop Grumman and  Lockheed Martin. These contracts preceded MDA’s selection of Northrop  Grumman in December 2003 as the element’s prime contractor.
The Northrop Grumman $4.6 billion cost plus award fee contract employs a  unique acquisition strategy that places mission assurance—the successful  operation of the element to perform its mission—as a program priority. To  implement this strategy, MDA based its source selection decision on the  extent to which the contractor’s past performance produced successful  results on programs of similar complexity, as well as on the performance of  the proposed design. MDA also built incentives into the contract that  require the prime contractor to achieve mission assurance through a  disciplined execution of quality processes. For example, the contractor  earns an award fee only if flight-tests are successful and the percentage of  the award fee earned is determined by whether the tests are conducted on  schedule.
section_title: Experimental Activities Under Way
paragraphs: NFIRE, scheduled for a fall 2005 launch, is being funded under the KEI  program as a risk-reduction activity to collect phenomenology data on  boosting missiles. The experiment consists of launching an experimental  satellite that is designed to record infrared imagery of a ballistic missile’s  plume and the body of the missile itself. Data from NFIRE will help MDA  develop algorithms and assess its kill vehicle design for boost-phase missile  defenses.
In addition to NFIRE, the KEI program is working on a variety of risk  reduction activities. For example, work is being done in support of  space-based KEI development, including miniaturization, weight reduction,  and producibility of satellite and interceptor subcomponents.
section_title: Program Assessment: Performance
paragraphs: At this early stage of element development, data are not available to make a  performance assessment.
section_title: Program Assessment: Cost
paragraphs: MDA expects to invest about $7.9 billion from fiscal year 2004 through 2009  to develop the KEI element. This is in addition to the approximately  $91.5 million invested in the program’s immediate predecessor, the Kinetic  Energy Boost program.
According to the KEI Program Manager, the program is incorporating  various innovative acquisition initiatives into the KEI development and  testing contract. He told us that these initiatives are expected to encourage  the contractor to develop a quality product on time and within the initially  proposed price.
Because the prime contract was awarded in December 2003 (fiscal year  2004), no fiscal year 2003 data existed for an assessment of the contractor’s  cost and schedule performance.
subsections: section_title: Total Program Cost: KEI Program Costing Approximately $1.3 Billion per Year
paragraphs: The KEI program’s planned costs for the next 6 fiscal years are expected to  be around $7.9 billion. This covers land- and sea-based KEI development,  ground-based risk mitigation projects to determine the feasibility of a  space-based platform, and international cooperation projects. Of the  $7.9 billion, approximately $4.8 billion is allocated to the land-based  capability. Table 26 shows the expected costs of the program by fiscal year  through 2009, the last year for which MDA published its funding plans.
The immediate predecessor of the KEI element, Kinetic Energy Boost, was  funded in fiscal year 2003 under the Boost Defense Segment and had a  budget of $91.5 million.
section_title: Program Acquisition Initiatives
paragraphs: The prime contract awarded in December 2003 was based on a number of  innovative acquisition strategies. First, the program gave competing  contractors flexibility to design a system that met only one broad  requirement—that the KEI element be capable of reliably intercepting  missiles in their boost/ascent phase. MDA did not set cost or schedule  requirements or specify how the contractors should design the system.  Second, upon award of the development contract, the program locked the  winning contractor into firm, fixed-price commitments for the production  of a limited number of interceptor, launcher, and battle-management  components. Third, the program office included an option in the contract  for a commercial type “bumper-to-bumper warranty.” Finally, the contract  stipulates that the contractor earns an award fee only if flight tests are  successful. Additionally, the fee is reduced if the tests are not conducted on  schedule. The Program Manager told us that the program’s goal was to  provide the contractor with incentives to develop a quality product on  schedule and at the originally proposed price.
Additionally, consistent with the MDA acquisition approach, the KEI  program plans to conduct annual continuation reviews to determine if the  KEI program and its prime contract should continue. These reviews focus  on contractor performance and external conditions, such as potential  threats or MDA’s funding priorities.
One initiative of the program’s acquisition strategy is the inclusion in  Northrop Grumman’s development contract of a firm, fixed unit production  price for all of the element’s components—launcher, interceptor, and battle  management. This initiative is unique because the production price was  agreed upon before the contractor developed the component’s design and  because the price was a factor in MDA’s choice of Northrop Grumman as  the KEI prime contractor. Program officials believe that the government  benefited from this strategy, because competition encouraged Northrop  Grumman and Lockheed Martin, which were competing for the contract, to  offer MDA their best production price.
According to program officials, Northrop Grumman could ask for a price  increase, should it find, when production begins, that it cannot produce the  components at the agreed-upon price. However, the price increase would  come with a cost to the contractor. Northrop Grumman would have to  provide data to support the new price, which would be time-consuming,  and therefore, costly.
Although this initiative appears to be beneficial to MDA, the agency could  find when it reaches the production phase that it has not budgeted  sufficient funds to support the production program. According to a study  conducted by the Institute for Defense Analyses, requiring a binding price  commitment during the development phase of an acquisition program  provides the contractor with a significant incentive to underestimate  production costs. The study goes on to explain that because of a similar  initiative in the 1960s, a statistically significant number of contractors  experienced production costs much greater than the firm fixed price  agreed upon. Furthermore, the former head of the Defense Department’s  independent cost estimating office stated that the only time it makes sense  to request a fixed production unit price at this point in a weapon system’s  development is when the weapon is a low-technology project whose  requirements and funding are stable. These criteria do not apply to KEI.
Rather, the KEI contractor is being asked to develop a technologically  advanced system associated with the challenging mission of boost phase  intercepts.
section_title: Program Risks
paragraphs: The program office acknowledges that it faces challenges in developing the  first operational boost phase intercept capability that employs hit-to-kill  concepts. In addition, from discussions with program officials, we found  that KEI’s software costs could be underestimated, putting the program at  risk for cost growth and schedule delays.
subsections: section_title: Technical Challenges
paragraphs: The scientific and missile defense communities recognize that the boost  phase intercept mission is technically and operationally challenging,  particularly because of the short timeline involved with engaging a  boosting missile. For example, in its July 2003 report on boost phase  intercept systems, the American Physical Society concluded that  boost-phase defense of the entire United States against solid-propellant  ICBMs is unlikely to be practical when all factors are considered, no matter  where or how interceptors are based. According to the report, even with  optimistic assumptions, a terrestrial-based system would require very large  interceptors with extremely high speeds and accelerations to defeat a  solid-propellant ICBM launched from even a small country such as  North Korea.
Furthermore, a scientific study on boost-phase defense commissioned by  MDA focused on selected issues of high risk, including methods for early  launch detection of missile launches, interceptor divert requirements, and  discrimination of the missile’s body from its luminous exhaust plume. The  study concluded that there are no fundamental reasons why an interceptor  cannot hit a boosting target with sufficient accuracy to kill the warhead.  However, the study identified several challenges, including understanding  the plume phenomenology well enough to have confidence in the  appropriate sensor combination chosen for the interceptor. Both studies  highlighted the short timeline that the boost-phase system will have to  detect and hit an enemy missile as a key area of concern.
section_title: Software Costs
paragraphs: The KEI Program Office is uncertain of whether the negotiated cost of the  prime contract includes sufficient funds to complete software development  for the various KEI components, including the battle-management,  interceptor, and launcher components. Northrop Grumman based its  estimates of software development on comparisons with similar systems— such as GMD and Aegis BMD—and on a projection that existing software  could be reused. MDA officials from the program office told us that they  were somewhat concerned that Northrop Grumman underestimated the  amount of software it could reuse from the GMD program for the  KEI program.
Software growth in weapon systems programs has traditionally been  problematic. Historically, a contractor must develop twice as many lines of  software code for the weapon system as it initially estimated. This growth  has occurred when contractors underestimate the effort, make invalid  assumptions regarding the extent to which existing software code can be  reused, and make unrealistic assumptions about how quickly software can  be produced. If software growth in the KEI program increases at the  historical rate, the amount of software needed by the element will likely  exceed the contractor’s initial estimate of 1 million lines of code, causing  cost increases and schedule delays.
According to program officials, MDA discussions with Northrop Grumman  resulted in a reduction of its estimate of the amount of existing software  code that could be reused in the KEI element. However, the officials told us  that the program is still concerned that the contractor’s estimate is  optimistic.
Software estimates typically include an analysis of uncertainty, which  indicate the reliability of the contractor’s estimates for the software  development effort. KEI program officials noted that the contractor  performed an uncertainty analysis for the interceptor component but not  for the battle management component that includes the bulk of the KEI  software code.
section_title: Conclusion
paragraphs: If the KEI contractor cannot develop the software within the negotiated  cost of the KEI contract, MDA could find itself in the position of having to  locate funds to cover cost overruns. MDA would benefit from quickly  recognizing this funding shortfall because, with time, it might be able to  locate funding without causing significant perturbations in the KEI or other  element’s programs. Also, if additional funding were needed, making the  funds available to the contractor early in the development effort would  allow the contractor to increase personnel so that the effort would not fall  behind schedule. Completing uncertainty analyses for all components of  the KEI element is the best means of determining if such a funding shortfall  is likely.
section_title: Recommendation for Executive Action
paragraphs: We recommend that MDA analyze the degree of risk associated with the  KEI software components by performing an uncertainty analysis that  quantifies the reliability of the proposed estimates.
The Space Tracking and  Surveillance System (STSS) will  eventually comprise a constellation  of low-orbiting satellites used to  detect and track enemy missiles  throughout all phases of flight. The  Missile Defense Agency (MDA)  manages STSS, which replaces the  Air Force’s Space-Based Infrared  System-Low (SBIRS-Low) program.  The STSS program office is  preparing to launch in 2007  two demonstration satellites that  were built under the SBIRS-Low  program. After launch, MDA plans  to assess how well these  demonstration satellites perform  missile defense surveillance  functions. On the basis of this  assessment, the agency will  determine capabilities and goals for  next-generation STSS satellites.
The STSS program office completed most activities on time and slightly over  budget during fiscal year 2003. However, cost and schedule performance  could potentially slip because of unforeseen problems arising during the  process of preparing the satellites for launch.
Schedule: Program activities completed in fiscal year 2003 were focused  on the ground testing of existing hardware rather than on the design and  development of future STSS satellites. Equipment built for the SBIRS-Low  program was retrieved from storage and tested to determine whether  individual components were still in good working order. Testing of the  first demonstration satellite’s hardware—the spacecraft itself and infrared  sensors—was completed on time, and testing of the second satellite is to be  completed by August 2004, slightly behind schedule. Software development  activities also have been completed. However, STSS program officials are  closely monitoring the development of software for the satellites’ sensors  because software requirements have not been finalized.
Performance: STSS’s indicators show that the program is on track for  meeting performance requirements.
The Department of Defense (DOD)  budgeted about $4.15 billion for  STSS’s development during fiscal  years 2004 through 2009. Earlier,  MDA expended about $540 million  in fiscal years 2002 and 2003. In  addition, from program initiation  through 1999, the SBIRS-Low  program invested $686 million to  develop the demonstration  satellites that are now part of the  STSS program.
Cost: Our analysis of prime contractor cost performance reports shows that  the contractor completed work in fiscal year 2003 at slightly more cost than  budgeted. Specifically, the contractor overran budgeted costs by less than  $1 million and could not complete about $6.4 million worth of work. Because  of changes made to the contract during this time, more data are needed to  determine whether the entire contract will exceed its projected cost and  schedule. The contractor reported that sensor-related issues are among the  problems that contributed to the cost overrun and schedule delays. These  problems, the contractor said, could jeopardize the overall delivery of the  satellites.
Risks: On the basis of our assessment of fiscal year 2003 activities, we did  not identify any evidence that the STSS program will be unable to launch the  two demonstration satellites in 2007. However, MDA identified a number of  risk areas that have the potential to increase the program’s cost and delay  the 2007 launch of these satellites. Unforeseen problems could arise during  the testing, assembling, and integration of hardware components of the  satellites, which had been in storage for 4 years. Officials cannot predict  which components will be found in nonworking order or the costs  associated with fixing them. Also, software development and software and  hardware integration are areas that historically have been responsible for  affecting a program’s schedule.
section_title: Space Tracking and Surveillance System
subsections: section_title: Background: Element Description
paragraphs: The Space Tracking and Surveillance System (STSS) is being developed as  an integrated element of the Ballistic Missile Defense System (BMDS). The  Missile Defense Agency (MDA) envisions that the STSS element will be  comprised of a constellation of low-orbiting satellites to detect and track  enemy missiles throughout all phases of flight—from launch through  midcourse and into reentry. Any real operational capability, however,  would not be realized until the next decade.
The STSS program is currently working on the first increment of the STSS  element, known as Block 2006. Schedule and technical performance  objectives for the Block 2006 element are detailed in the MDA Director’s  Guidance, which directs the STSS program office to prepare and launch  two demonstration satellites that were partially built under the Air Force’s  Space-Based Infrared System-Low (SBIRS-Low) program. The two  satellites each contain two infrared sensors, one that would acquire  targets by watching for bright missile plumes during the boost phase  (an acquisition sensor), and one that would track the missile through  midcourse and reentry (a tracking sensor). MDA plans to launch these  satellites in 2007, in tandem, in an effort to assess how well they perform  the missile defense surveillance and detection functions. Using data  collected by the satellites, MDA will determine what capabilities are  needed, and what goals should be set, for the next-generation of STSS  satellites.
section_title: Background: History
paragraphs: Over the past two decades, the Department of Defense (DOD) initiated a  number of programs and spent several billion dollars trying to develop a  system for tracking missiles from space. Owing partially to the technical  challenges associated with building such a system, DOD did not  successfully launch any satellites or demonstrate any space-based  midcourse tracking capabilities. Program managers did not fully  understand the challenges in developing these systems and, accordingly,  schedules were overly optimistic and program funding was set too low. For  example, sensors aboard the satellites must be able to track deployed  warheads in the midcourse phase of flight in contrast to the bright plume of  boosting missiles. To perform this mission, onboard sensors must be  cooled to low temperatures for long periods of time and be able to  withstand the harsh environmental conditions of space.
The last program under development for detecting and tracking missiles  from low-earth orbits in space was SBIRS-Low, which DOD established in  1996 to support national and theater missile defense. Its mission was to  track missile complexes over their entire flights and to discriminate  warheads from decoys. The SBIRS-Low program experienced cost,  schedule, and performance shortfalls. As a result, DOD cancelled the  accompanying technology program in 1999—the two-satellite Flight  Demonstration System—and put the partially constructed equipment into  storage.
In October 2000, Congress directed DOD to transfer the SBIRS-Low  program to the Ballistic Missile Defense Organization (now MDA). When  MDA inherited SBIRS-Low, the agency decided to make use of the  equipment that was partially built under the SBIRS-Low technology  program by completing the assembly of the equipment and launching the  two satellites in 2007 to coincide with broader missile defense tests. At the  end of 2002, the SBIRS-Low program became STSS.
section_title: Background: Developmental Phases
paragraphs: STSS’s development is proceeding in a series of planned 2-year blocks.  Near-term blocks are known as Blocks 2006, 2008, and 2010. Other blocks  may follow, but on the basis of recent budget documentation, MDA has not  yet defined their content.
Block 2006. Block 2006 involves the assembly, integration, testing, and  launch of two demonstration satellites in 2007, as described above.
Block 2008. Block 2008 is primarily an upgrade of Block 2006 ground  stations, which are used to collect and analyze data from Block 2006  satellites. The software upgrades will benefit both the demonstration  satellites as well as future satellites.
Block 2010. The Block 2010 program is essentially a new phase of STSS  development. Building upon lessons learned from the previous  development efforts and blocks, Block 2010 involves the design and  development of new-generation satellites, which are expected to include  more robust technologies. MDA plans to launch the first of these in 2011.
section_title: Progress Assessment: Schedule
paragraphs: The STSS program office has completed most activities planned for fiscal  year 2003. According to the program office, the contractor has been  performing to an accelerated delivery schedule, and activities associated  with testing and completing the two satellites have proceeded with fewer  problems than anticipated. About 30 percent of Block 2006 activities have  been completed, but the fiscal year 2003 activities were generally simple.  For example, they involved taking the equipment out of storage and  performing individual component testing to determine whether any  degradation in the equipment had occurred over time. The program still has  many more tasks before the satellites will be ready for launch, such as  completing software development and integration activities.
Block 2006 activities achieved during fiscal year 2003 can be divided into  three categories. Specifically, the STSS program office worked to  test hardware components of existing satellites;  develop satellite software, as needed, not developed under the previous   prepare for a design review to be held in early fiscal year 2004 to ensure  the design’s adequacy to support its BMDS mission.
subsections: section_title: Testing of Existing Hardware: Most Activities Proceeding as Planned
paragraphs: At the beginning of the STSS program in 2002, MDA retrieved from storage  the satellite components that were partially constructed under the  SBIRS-Low program. STSS contractors retrieved these legacy components  and are in the process of testing the satellite spacecraft (the space  platform) and its payload (infrared sensors and supporting subsystems) to  ensure that this hardware is still in working order. Testing of the first  satellite’s components is complete: sensor hardware testing began in  November 2002 and was completed in October 2003; the spacecraft’s  hardware testing began in May 2003 and was completed in September 2003.
Part of the testing of the component hardware of the second satellite is  proceeding as planned. Although there was a delay in the start of the  spacecraft testing, the second satellite’s component testing remained on  schedule. For example, STSS contractors have visually inspected the  satellite’s spacecraft hardware. Spacecraft hardware testing was originally  scheduled to begin in September 2003 and be completed in November 2003.  However, it did not begin until November 2003 and is now scheduled to be  completed in May 2004. Payload hardware testing began in December 2003  but will not be finished until August 2004. Table 27 summarizes the  activities and completion dates associated with hardware testing.
section_title: Software Development Slightly Behind Schedule and More Challenging Efforts Remain
paragraphs: Table 28 summarizes the principal software development activities  completed in fiscal year 2003 pertaining to software development for the  spacecraft and for the ground segments.
Most activities completed to date have finished at or slightly behind  schedule. However, the STSS program office is closely tracking the  development of payload software, because there is significant cost,  schedule, and performance risk associated with the effort. In particular, the  program office has not fully established software requirements. Studies  have shown that when operational needs are not well defined, the  associated software effort tends to grow, resulting in large cost overruns,  schedule slips, and reduced functionality. These risks are compounded by  the fact that software from the SBIRS-Low program was not completed or  sufficiently documented. STSS program officials are concerned that the  extent of software reuse might have been optimistic and, consequently,  software development costs could be more than double the originally  proposed cost.
section_title: Design Review Successfully Conducted
paragraphs: The STSS program office conducted a single design review in fiscal year  2003—the System Preliminary Design Review. According to the program  office, although it was delayed by 1 month, the outcome was successful.  During the latter part of fiscal year 2003, the program office began  preparing for the System Critical Design Review, which was successfully  completed early in fiscal year 2004.
section_title: Progress Assessment: Performance
paragraphs: The Block 2006 STSS satellites are built from legacy hardware and will be  used as technology demonstrators (rather than for operational missions).  The program considers that demonstration of STSS functionality as more  critical than the demonstration of STSS effectiveness in performing the  functions. The rationale is to keep costs within budget, especially for  satellites that have an in-orbit life of 18 to 24 months. Nonetheless, data  provided to us by MDA indicate that all STSS performance indicators, with  the exception of the one pertaining to the visible sensor, are on track for  meeting their respective requirements.
section_title: Progress Assessment: Cost
paragraphs: MDA expects to invest about $4.15 billion from fiscal year 2004 through  2009 in the element’s development. This is in addition to the approximately  $1.2 billion invested in the SBIRS-Low program from the program’s  initiation in 1996 through fiscal year 1999 and in the STSS element from  2002 through 2003.
In fiscal year 2003, the contractor reported that its work cost slightly more  than budgeted and that it was somewhat behind schedule. We were unable  to make an independent assessment of the contractor’s cost and schedule  performance because of contract changes. The contractor was working  toward a single-launch (tandem launch) strategy while measuring  performance against a two-launch strategy. Also, the contractor was  reporting against an accelerated schedule that was not required by the  contract.
subsections: section_title: Total Program Cost: STSS Program Costing Approximately $700 Million per Year
paragraphs: STSS’s costs for the next 6 fiscal years are expected to be approximately  $4.15 billion. These funds will finance activities for Block 2006, Block 2008,  and the development of new-generation satellites planned for Block 2010.  Table 29 shows the expected costs of the program by fiscal year through  2009, the most recent year for which MDA published its funding plans.
Prior to fiscal year 2004, MDA spent approximately $250 million and $294  million in fiscal years 2002 and 2003, respectively, for this program.  Furthermore, the SBIRS-Low program invested $686 million to develop the  demonstration satellites that are now part of the STSS program.
section_title: Prime Contractor Cost and Schedule Performance: Contractor Reports Declining Cost and Schedule Performance
paragraphs: In fiscal year 2003, the contractor reported that its work cost slightly more  than budgeted and that it was somewhat behind schedule. Although the  contractor’s cost performance was positive through the first half of fiscal  year 2003, it began to decline in March 2003 and continues to do so.  Schedule performance began to decline in December 2002 and continued  throughout fiscal year 2003.
The government routinely uses contractor Cost Performance Reports to  independently evaluate prime contractor performance relative to cost and  schedule. Generally, the reports detail deviations in cost and schedule  relative to expectations established under the contract. Contractors refer  to deviations as “variances.” Positive variances—activities costing less or  completed ahead of schedule—are generally considered as good news and  negative variances—activities costing more or falling behind schedule—as  bad news.
Figures 9 and 10 show the STSS contractor’s cost and schedule  performance during fiscal year 2003. According to Cost Performance  Reports, work completed during fiscal year 2003 cost about $1 million  more than estimated—as indicated by the September 2003 data point—and  the contractor could not complete about $6.1 million worth of the work  scheduled for the same time period.
Because of contract changes, we could not fully rely upon the data  reported in the contractor’s Cost Performance Reports to make our own  analysis of the STSS contractor’s cost and schedule performance. In April  2003, the STSS program office altered its launch strategy in response to  funding cuts. Rather than carrying out two separate launches, the program  decided to launch the two satellites in tandem, which means one launch  vehicle will place both satellites into orbit. The STSS program office  notified the contractor in April 2003 of the change, but the contractor did  not formally adjust its performance measurement baseline to reflect the  tandem launch until September 2003. According to the program office, the  tandem launch resulted in minimal changes to the contract’s overall cost  and schedule. However, officials told us that it did result in changes in the  content, budget, and schedule of individual work tasks. Therefore,  throughout most of fiscal year 2003, the contractor was completing work  tasks for the tandem launch. However, the contractor’s cost and schedule  performance was being measured against work tasks reflected in the two- launch strategy. Because the baseline that the contractor used to measure  its performance during most of fiscal year 2003 did not always reflect the  actual work being done, Cost Performance Reports for April through  September may not provide a clear picture of the contractor’s cost and  schedule performance. In September 2003, the contractor adjusted the  contract’s work tasks, along with their budgets and schedules, to reflect the  change to a tandem launch.
Another factor complicating our analysis is that the contractor established  a performance measurement baseline on the basis of an accelerated  schedule for completing the work. The contractor did this in response to a  unique cost-control incentive in the STSS Award Fee plan. The plan allows  the contractor to earn up to 50 percent of a potential cost under-run if it can  deliver the two satellites (1) up to 6 months early, (2) for less than the  negotiated cost, and (3) meeting all orbit performance requirements. As a  direct result of this incentive, the contractor elected to implement a  performance measurement baseline that reflected a 6-month accelerated  schedule. This means that the contractor might be performing work on a  schedule that would allow it to complete all work by the end of the  contract, but Cost Performance Reports could show that work was falling  behind schedule.
All cost and schedule performance data for fiscal year 2003, as reported by  the contractor, are illustrated in figures 9 and 10. We adjusted schedule data  to reflect the accelerated schedule, but we could not adjust cost or  schedule data to account for the change to a tandem launch. Because we  could not make these adjustments, we also included Cost Performance  Report data for October 2003 in the figures. The October report is the first  report the contractor issued after adjusting its performance measurement  baseline to account for the tandem launch. In our opinion, the October  report is a better indicator of the contractor’s performance. However, we  note that further data are needed before an estimate can be made of  whether the cost and schedule of the entire contract are likely to be more  than projected.
In October 2003, the STSS contractor reported a cumulative cost overrun of  approximately $3 million. It attributed this overrun to sensor issues, sensor  payload test plan inefficiencies, more costly custom interface assembly,  and tasks being more complex than planned. Also in October, the  contractor reported it was approximately $11 million behind schedule. In  our opinion, this might have an unfavorable impact on the program,  because additional funding may be needed to make up the lost schedule.  The contractor reported that schedule delays were attributed to sensor- testing problems with flight hardware, payload test procedures taking  longer than expected, rigorous Failure Review Board reviews, and  problems with the sensor- and payload-tracking algorithms. The contractor  reported that these problems could jeopardize the overall delivery of the  satellites.
section_title: Program Risks
paragraphs: On the basis of our assessment of fiscal year 2003 activities, we did not  identify any evidence that the STSS program would be unable to launch the  two demonstration satellites in 2007. However, MDA identified a number of  areas that have the potential to increase the program’s cost and delay the  2007 launch of these satellites. We recognize that unforeseen problems  could be discovered through testing, assembling, and integrating the  hardware and software components of the satellites. MDA cannot predict  which components will be found in nonworking order or the costs  associated with fixing them. A related issue is the availability of original  suppliers. Because the equipment was in storage for several years, the  original equipment manufacturers may not offer maintenance for some of  the parts considered obsolete. If replacement parts are needed as a result  of failures or redesigns, this could create schedule delays for the program.  Finally, the STSS program has also identified a number of activities that  have the potential to affect the program’s schedule, including completing  software development and related integration activities.
THAAD’s prime contractor performed less efficiently in fiscal year 2003 than  in previous years. However, the contractor is, overall, under budget and  ahead of schedule. Our analysis indicates that missile development was the  principal cause of the decline in the contractor’s cost and schedule  performance during fiscal year 2003.
Schedule: Because THAAD previously was under Army management, the  current program office re-planned THAAD’s primary research and  development contract to accommodate the Missile Defense Agency’s  (MDA’s) acquisition approach. The office also completed Block 2004 design  reviews largely on schedule. In addition, the program conducted ground  tests in preparation for initial flight testing, which is scheduled to begin at  the end of 2004. However, explosions that occurred in 2003 at a propellant  mixing facility could jeopardize deliveries of THAAD boosters and already  have delayed the first flight test—a non-intercept test scheduled for the first  quarter of fiscal year 2005—up to 3 months. Nevertheless, the program office  expects to maintain the schedule for the first intercept attempt, currently  scheduled for the fourth quarter of fiscal year 2005.
The Department of Defense (DOD)  budgeted about $4.3 billion for  THAAD’s development during  fiscal years 2004 through 2009.  Earlier, DOD expended about  $6.5 billion between the program’s  inception in 1992 and 2003 for  related developmental efforts.
Performance: The program office told us that key indicators show that  THAAD is on track to meet operational performance goals. However, data  from flight testing are necessary to anchor end-to-end simulations of THAAD  operations to confidently predict the element’s effectiveness.
Cost: Our analysis of prime contractor cost performance reports shows that  the contractor’s positive cost and schedule variance were somewhat eroded  during fiscal year 2003, which was driven by the missile component but  offset by other THAAD components. With 49 percent of the THAAD contract  completed, the prime contractor is, overall, under budget and ahead of  schedule.
Risks: On the basis of our assessment of fiscal year 2003 activities, we did  not find evidence of key risks that could affect MDA’s ability to develop,  demonstrate, and field the THAAD element during the 2008-2009 time frame  within scheduled and cost estimates. However, it is too early to state with  confidence whether the element will or will not be ready for integration into  the Ballistic Missile Defense System during this time.
section_title: Theater High Altitude Area Defense
subsections: section_title: Background: Element Description
paragraphs: The Theater High Altitude Area Defense (THAAD) element is a ground- based missile defense system being developed to protect forward-deployed  military forces, population centers, and civilian assets from short- and  medium-range ballistic missile attacks. As an element of the Missile  Defense Agency’s (MDA’s) Terminal Defense Segment, THAAD would  provide the opportunity to engage ballistic missiles—outside or inside the  earth’s atmosphere—that were not destroyed earlier in the boost or  midcourse phases of flight by other planned Ballistic Missile Defense  System (BMDS) elements, such as Aegis BMD.
A THAAD unit consists of a command and control/battle management  component for controlling and executing a mission, truck-mounted  launchers, interceptors, an X-band radar, and ground support equipment.  The THAAD interceptor is comprised of a single-stage booster and kill  vehicle, which destroys enemy warheads through hit-to-kill collisions. The  THAAD radar is a solid-state, phased-array, X-band radar that performs  search, track, discrimination, and other fire-control functions. The THAAD  radar also sends updated target information to the kill vehicle while in- flight.
section_title: Background: History
paragraphs: The THAAD demonstration program began in 1992 but was plagued by a  string of flight-test failures from 1995 to 1999. As noted in an earlier report,  THAAD’s early failures were caused by a combination of a compressed test  schedule and quality control problems. Also, as reported in the Director,  Operational Test and Evaluation (DOT&E) Fiscal Year 1999 Annual Report  to Congress, the sense of urgency to deploy a prototype system resulted in  an overly optimistic development schedule. Rather than being event  driven—proceeding with development only after technical milestones were  met—the program tried to keep pace with the planned schedule. Schedule  forces and budget cuts contributed to deficient manufacturing processes,  quality control, product assurance, and ground-testing procedures, which  in turn, resulted in poor design, lack of quality, and failed flight tests. The  ultimate result was a schedule slip of 6 years for the deployment of the  objective THAAD system.
After devoting substantial time to pretest activities, the THAAD program  conducted two successful flight tests in 1999. The program then  transitioned to the product development phase of acquisition, in which  developmental activities shifted from technology development and  demonstration to missile redesign and engineering. The Department of  Defense (DOD) transferred the THAAD program from the Army to the  Ballistic Missile Defense Organization (now MDA) on October 1, 2001.
section_title: Background: Developmental Phases
paragraphs: The overarching goal of the THAAD program is to field an operational  capability consisting of tens of missiles during the Block 2008 time frame.  Although THAAD’s development is broken out by block—2004, 2006, and  2008—each is a stepping-stone leading to the Block 2008 capability. The  development efforts of each block incrementally increase element  capability by maturing the hardware’s design and upgrading software.
Block 2004. Block 2004 activities are expected to focus on developing and  ground testing THAAD components. These tests lead to the demonstration  of a rudimentary capability—an intercept capability against a short-range,  threat-representative target (Flight Test 5)—at the end of Block 2004. At the  end of the block, the THAAD “missile inventory” will consist of one spare  missile.
Blocks 2006. By the end of Block 2006, the THAAD program will have  conducted six more flight tests, five of which are intercept attempts. The  flight tests scenarios are expected to include intercepts inside and outside  the Earth’s atmosphere. One of the five intercept attempts will be  conducted employing a salvo-firing doctrine, that is, two THAAD  interceptors will be launched against a single target.
Blocks 2008. By the end of Block 2008, the THAAD program plans to  demonstrate that the THAAD element is ready for fielding with tactical  missiles, demonstrate that the element can intercept threat-representative  targets (short-range and medium-range ballistic missiles), and show that  THAAD can interoperate with other elements as part of the BMDS.
section_title: Progress Assessment: Schedule
paragraphs: The THAAD program completed most activities planned for fiscal year  2003, which were focused on contractual activities, design reviews, and  subcomponent-level development and testing, leading up to flight testing  beginning in fiscal year 2005.
subsections: section_title: Align THAAD with MDA Acquisition Approach: Completed Slightly Behind Schedule
paragraphs: During 2003, the THAAD Project Office aligned its primary research and  development contract with MDA’s block acquisition approach. For  example, officials re-planned the contract to accommodate MDA’s block  strategy for developing missile defense capabilities. Because of changes in  the fiscal year 2003 budget, including a funding cut of $117 million, THAAD  completed its contract alignment activities slightly behind schedule.  However, these activities were completed by the first quarter of fiscal year  2004. Table 30 summarizes the principal contractual activities planned for  fiscal year 2003 and their actual completion date.
section_title: Block 2004 Design Reviews: Completed Largely on Schedule
paragraphs: Since 1999, the program has conducted a number of reviews to evaluate the  designs of THAAD’s various components and of the element as a whole.  Early reviews, known as Preliminary Design Reviews (PDRs), were  conducted to evaluate the progress, technical adequacy, and risk resolution  of the selected design approach; to determine their compatibility with the  performance and engineering requirements of the development  specification; and to establish the existence and compatibility of interfaces  among other items of equipment facilities, computer programs, and personnel. Later reviews—Critical Design Reviews (CDRs)—determined  that the designs satisfied the performance and engineering requirements of  the development specification; established the design compatibility  between the component and other items of equipment, facilities, computer  programs, and personnel; assessed the component’s producibility and areas  of risk; and reviewed preliminary product specifications.
The program successfully completed two design reviews scheduled in  fiscal year 2003; the THAAD missile was the subject of both of these  reviews. Tables 31 and 32 summarize all principal activities related to the  verification of THAAD’s Block 2004 design.
section_title: Ground Testing: Key Tests Completed in Preparation for Future Flight Testing
paragraphs: The THAAD program completed a number of ground tests in the fiscal year  2003 time frame. These events are listed in table 33. The program office  characterized these tests as key events in preparation for Block 2004 flight  testing. among Blocks 2004, 2006, and 2008. The first two of the five planned Block  2004 flight tests are referred to as control test flights (CTF)—non-intercept  tests that focus on how the missile operates under stressful environmental  conditions. The third flight test is a seeker characterization flight (SCF),  which ensures proper functioning of the seeker in a live intercept  environment. This is a non-intercept test as well, but targets are involved.  The fourth test, flight test 4 (FT-4), is the first intercept attempt at  White Sands Missile Range (WSMR) with a configuration—target and  engagement geometry—comparable to the flight tests during the Program  Definition and Risk Reduction phase of development. Block 2004 flight test  activities end with a second intercept attempt (FT-5), conducted at Pacific  Missile Range Facility (PMRF), against a threat-representative target. The  program office plans to consume all procured missiles in flight tests.  However, because there will be five flight tests in Block 2004 and THAAD  has plans to procure six test missiles, one missile will be available as a  spare. THAAD program office officials also noted that test missiles could  be used for emergency operational use, rather than as test assets, if needed.  Table 34 summarizes Block 2004 flight test events, including dates and  objectives.
Flight-test conditions are grouped by block. For example, Block 2004 tests  focus on engagements outside the atmosphere (exoatmospheric), whereas  the first intercept attempt inside the atmosphere (endoatmospheric)  occurs in Block 2006. The level and sophistication of testing achieved to  that point defines the capability of the THAAD element at a given time.
Finally, deliveries of THAAD boosters could be jeopardized by explosions  at Pratt & Whitney’s propellant mixing facility that occurred during the  summer of 2003. According to updated test schedules, these incidents have  already delayed the first non-intercept flight test, Control Test Flight 1, by  3 months. However, the program office expects to maintain the schedule  for the first intercept attempt, FT-4, currently scheduled for the fourth  quarter of fiscal year 2005. To mitigate schedule risk, the program office  enlisted Aerojet as the replacement vendor for Pratt and Whitney’s  propellant mix and cast operations. We note that this Pratt & Whitney  facility also provides rocket motors for the Aegis BMD and GMD programs.
section_title: Progress Assessment: Performance
paragraphs: Data collected during element-level flight testing will be used to “anchor”  end-to-end simulations of THAAD operation. Until these simulations are  properly validated and verified, one cannot be confident of any quantitative  assessment of the element’s effectiveness for terminal defense.  Nonetheless, the program office told us that all performance indicators  predict that THAAD is on track to meet operational performance goals.
section_title: Program Assessment: Cost
paragraphs: MDA expects to invest about $4.3 billion from fiscal year 2004 through 2009  in the development and enhancement of the THAAD element. This is in  addition to the $1.47 billion expended in fiscal years 2002 and 2003.
Most of the THAAD budget goes to fund the element’s prime contract. The  contractor reported that its fiscal year 2003 work cost slightly more than  budgeted and that it was somewhat behind schedule. Specifically, the work  cost about $12 million more than expected, and the contractor could not  complete approximately $12.2 million of the work scheduled for the fiscal  year.
subsections: section_title: Program Cost: THAAD Program Costing Approximately $710 Million per Year
paragraphs: The program estimates that it will need about $4.3 billion over the next 6  years to continue THAAD’s development. This includes funds for Blocks  2004, 2006, and Block 2008. Program costs prior to THAAD’s transfer to  MDA at the beginning of fiscal year 2002 amounted to approximately $4.9  billion. In fiscal years 2002 and 2003, the program expended an additional  $1.6 billion, bringing the total investment in THAAD between the program’s  inception and 2003 to about $6.5 billion. Table 35 shows the expected  THAAD program costs by fiscal year from 2004 through 2009, the last year  for which MDA published its funding plans.
section_title: Prime Contractor Fiscal Year 2003 Cost and Schedule Performance: Declining Performance Erodes Positive Variances
paragraphs: The THAAD prime contract consumes the bulk of the program budget: an  average of 70 percent is allocated to the prime contractor team and 30  percent is allocated to the government for Block 2004 efforts. The contract  has undergone re-planning to re-phase the work according to blocks. As  indicated in table 30, the re-planning was completed in November 2003, and  contract negotiations were finalized in December 2003. THAAD’s prime  contract is held by Lockheed Martin Space Systems in Sunnyvale,  California; Lockheed also manages the missile’s development.
The government routinely uses contractor Cost Performance Reports to  independently evaluate prime contractor performance relative to cost and  schedule. Generally, the reports detail deviations in cost and schedule  relative to expectations established under the contract. Contractors refer  to deviations as “variances.” Positive variances—activities costing less or  completed ahead of schedule—are generally considered as good news and  negative variances—activities costing more or falling behind schedule—as  bad news.
The THAAD prime contract continued to carry a positive cost and schedule  variance during fiscal year 2003. However, as figure 11 shows, the  contractor’s positive cost and schedule variance eroded somewhat during  fiscal year 2003: the contractor’s work cost about $12.0 million more than  budgeted, and the contractor could not complete approximately $12.2  million worth of work scheduled during this time. The unfavorable cost  variance was driven by the missile component but partially offset by other  components. However, with 49% of the THAAD contract completed, the  prime contractor is, overall, under budget and ahead of schedule.
The contractor experienced difficulties with missile development, which  accounts for 35 percent of the contract’s total cost. In fiscal year 2003, work  on missile development cost approximately $11 million more than  budgeted. According to MDA’s analysis, propulsion subsystem  development, particularly problems with the development of the Divert and  Attitude Control System, has been the driver for missile development  cost overruns.
The prime contractor estimates that the entire contract will be completed  slightly under budget. However, in order to finish the work effort within  budget, the contractor needs to work as efficiently as it did in the previous  fiscal years. In our opinion, the contractor’s estimate is somewhat  optimistic, considering the contractor’s trend of declining performance and  because approximately 5 years of work remain on this contract. According  to our analysis of the contractor’s data, the contractor has been completing,  on average, $0.97 worth of scheduled work for every budgeted dollar spent  to accomplish that scheduled work during fiscal year 2003. On the basis of  this efficiency rate, we estimate that the contract will overrun its budget at  completion by between $23 million and $65 million.
section_title: Program Risks
paragraphs: On the basis of our assessment of fiscal year 2003 activities, we did not find  any evidence of key risks that could affect MDA’s ability to develop,  demonstrate, and field the THAAD element within schedule estimates.  However, it is too early to state with confidence whether the element will  or will not be ready for integration into the BMDS during the Block 2008  time frame, especially since flight testing has not yet begun. Unsuccessful  intercept attempts could delay the program and increase its cost, as was  the case during THAAD’s Program Definition and Risk Reduction phase of  the 1990s.
section_title: Fiscal Year 2002 Assessment
paragraphs: The National Defense Authorization Act for Fiscal Year 2003 directed the  Department of Defense (DOD) to establish cost, schedule, testing, and  performance goals for its ballistic missile defense programs for the years  covered by the Future Years Defense Plan. In the act, Congress also  directed us to assess the extent to which the Missile Defense Agency  (MDA) achieved these goals each in fiscal years 2002 and 2003. We were  unable to fulfill this mandate in fiscal year 2002 because MDA had not  established such goals.
As an alternative, we began to assess the tools that MDA uses as part of the  agency’s management process to monitor cost, schedule, and performance  progress. In February 2003, we briefed the staff of the Congressional  addressees of this report on our initial findings. However, we were unable  to complete this assessment, because some of the tools were evolving and  others had been only partially implemented.
MDA identified four tools it uses to monitor progress: the Integrated Master  Plan (IMP), the Integrated Master Schedule (IMS), the Earned Value  Management System (EVMS), and Technical Performance Measures  (TPM). The IMP identifies essential actions that must be completed to  successfully deliver a block of BMDS capability. Between our review in  September 2002 and June 2003, the document remained in draft form and  evolved from a generic checklist of activities into a template focused on the  specific activities needed to deliver a particular block. In June 2003, MDA  amended the draft BMDS IMP to reflect the President’s direction of  December 2002 to begin fielding the Block 2004 system.
Similarly, the IMS was evolving. The purpose of the IMS is to plot the  expected date of activities that must be completed to achieve a block of  capability. MDA altered the IMS because the capability being developed in  Block 2004 changed from the delivery of a test bed to the delivery of a  fielded capability.
The EVMS, which tracks whether the contractor is performing work within  budgeted cost and schedule, was only partially implemented at the time of  our fiscal year 2002 review. Many of the element prime contracts were  being modified to reflect MDA’s new block strategy, and the contractors  could not report progress toward Block 2004 until the contractor could  develop a program performance baseline against which cost and schedule  performance could be measured.
Finally, MDA had only partially implemented the tracking of TPMs— parameters of system, element, and component effectiveness—as part of  its program management process. Specific elements such as GMD had  tracked TPMs, but as noted by program officials, MDA had just begun to  develop system-level TPMs.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the individual named above, Lily Chin, Tana Davis, Diana  Dinkelacker, David Hand, David Hubbell, Sigrid McGinty, Madhav Panwar,  Karen Richey, Adam Vodraska, Carrie Wilson, and Randy Zounes (Analyst- in-Charge) made key contributions to this report.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional responsibilities  and to help improve the performance and accountability of the federal government  for the American people. GAO examines the use of public funds; evaluates federal  programs and policies; and provides analyses, recommendations, and other  assistance to help Congress make informed oversight, policy, and funding  decisions. GAO’s commitment to good government is reflected in its core values of  accountability, integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail this  list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs