Defense Acquisitions: Sound Business Case Needed to Implement Missile Defense Agency's Targets Program
Published: 2008-09-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Missile Defense Agency (MDA) is likely to spend $460 million annually on missiles used as targets for flight tests. Executing these tests depends on the quality and availability of targets. Congress asked GAO to assess (1) if MDA is providing reliable targets; (2) the causes of any deficiencies; and (3) if resolutions exist for any problems identified. To do this, GAO analyzed acquisition policies and procedures; flight test data; and budget, program execution, and acquisition materials; and interviewed MDA and DOD officials.
section_title: What GAO Found
paragraphs: MDA has difficulty in both supplying targets for missile defense testing as well as in developing a new family of short, medium and long-range targets. The number of target failures and anomalies (failing to achieve one or more non-critical mission objective or partially achieving a critical mission objective) during flight tests has increased since 2006, contributing to delays in flight tests and modification of flight test objectives. In addition, the average unit cost of targets has grown significantly, from $4.5 million to $8.5 million from 2002 to 2006 to current estimates of $32 million to $65 million for the targets planned from 2008 to 2010. Many factors contribute to this cost growth, including increased complexity of targets to better reflect an evolving threat and late changes to target requirements on contract. MDA's difficulty in supplying existing targets is driven by diminishing sources for components, unanticipated costs, and problems incorporating requirements into contracts and establishing program baselines. MDA has also encountered problems developing the new family of targets, an effort currently estimated to cost at least $1 billion. The problems are due, at least in part, to the fact that a sound business case was not established before proceeding with the program and the attendant contracting strategy. The decision to pursue this new family of targets was made without a formal cost analysis and it is unclear whether MDA evaluated all alternatives before making this commitment. GAO also could not identify an original approved acquisition strategy for the new family of targets. Consequently, developmental problems have arisen in the new family of targets, leading to cost growth, delayed flight tests, and deferral of several key capabilities. MDA is taking a series of actions to address these problems, such as: (1) establishing technical, cost, and schedule baselines for all missions in the 2-year integrated master test plan; (2) drafting long-term target capability requirements; (3) developing a new cost model for targets; (4) making plans to improve risk management by considering program-wide issues, and including programmatic risks, cost and schedule in risk assessments. However, the prospects for resolution of the target acquisition problems are unclear and the overall success of the Ballistic Missile Defense System flight test program depends on the success of a new family of targets under development.

section_title: Letter
paragraphs: The Department of Defense’s (DOD) Missile Defense Agency (MDA) is  The Department of Defense’s (DOD) Missile Defense Agency (MDA) is  planning on spending on the order of about $460 million per year to  planning on spending on the order of about $460 million per year to  develop and build missiles to serve as targets for flight tests. MDA uses its  develop and build missiles to serve as targets for flight tests. MDA uses its  sensors and weapons to track and intercept the targets, which are  sensors and weapons to track and intercept the targets, which are  sophisticated missiles in their own right. The quality and availability of  sophisticated missiles in their own right. The quality and availability of  these targets are instrumental to the execution of MDA’s flight test  these targets are instrumental to the execution of MDA’s flight test  program. This report and its appendixes respond to a mandate concerning  program. This report and its appendixes respond to a mandate concerning  the reliability and availability of the MDA targets program contained in the  the reliability and availability of the MDA targets program contained in the  Conference Report accompanying the National Defense Authorization Act  Conference Report accompanying the National Defense Authorization Act  for Fiscal Year 2008 (H.R. Conf. Rep. No. 110-477).  for Fiscal Year 2008 (H.R. Conf. Rep. No. 110-477).
We focused our review on the following objectives: (1) Is the Missile  We focused our review on the following objectives: (1) Is the Missile  Defense Agency meeting the need for reliable and timely targets for the  Defense Agency meeting the need for reliable and timely targets for the  flight test program? (2) What are the causes of any deficiencies or delays?  flight test program? (2) What are the causes of any deficiencies or delays?  (3) What are the prospects for resolution of any problems identified? On  (3) What are the prospects for resolution of any problems identified? On  July 17, 2008, we briefed Committee staff on our findings and conclusions.  July 17, 2008, we briefed Committee staff on our findings and conclusions.  The detailed briefing can be found in appendix I. This report summarizes  The detailed briefing can be found in appendix I. This report summarizes  the briefing and includes recommendations to the Secretary of Defense  the briefing and includes recommendations to the Secretary of Defense  and a matter for Congressional consideration.  and a matter for Congressional consideration.
In developing the information for this report, we focused our work on  In developing the information for this report, we focused our work on  assessing the ability of MDA’s targets program to provide support for the  assessing the ability of MDA’s targets program to provide support for the  test efforts. We analyzed test plans and schedules, flight test reports,  test efforts. We analyzed test plans and schedules, flight test reports,  budget documents, and program execution reviews. We also analyzed  budget documents, and program execution reviews. We also analyzed  program directives and acquisition policies and procedures. We  program directives and acquisition policies and procedures. We  interviewed MDA officials from the Ground-based Midcourse Defense  (GMD), Terminal High Altitude Area Defense (THAAD), Aegis BMD, and  the Targets and Countermeasures program offices as well as officials from  MDA’s Business, Test and Engineering Directorates. We also interviewed  officials from DOD’s Office of the Director, Operational Test and  Evaluation (DOT&E) and the U.S. Army’s Space and Missile Defense  Command. Our analysis covered data ranging from December 2003  through July 2008.
We assessed the reliability of the data on missile defense targets by  evaluating the agency’s management control processes, interviewing  agency officials knowledgeable about the data, and confirming the  accuracy of MDA-generated data with multiple sources within MDA and,  when possible, with independent experts. We determined that the data  were sufficiently reliable for the purposes of this report.
We conducted this performance audit from February 2008 through  September 2008, in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: MDA is the agency responsible for designing, developing, producing, and  procuring targets for testing the nation’s ballistic missile defense system.  In 2001, MDA initiated a Targets and Countermeasures Program Office.  The MDA’s Targets and Countermeasures program oversees the design,  development, fabrication, and production of ballistic missile targets and  countermeasures to be used in the MDA flight test program. These targets  must represent the full spectrum of threat missile capabilities (separating  and nonseparating reentry vehicles, varying radar cross sections,  countermeasures, etc.) and ranges. The appropriate targets are engaged by  both strategic and tactical missile defense systems developed by MDA, the  Army, and the Navy.
MDA originally used numerous contractors to design and build the various  targets; however in December 2003 Lockheed Martin was awarded a  contract to be the lead systems integrator for most of the existing targets.  The lead systems integrator was chosen to provide system-level  management, implement a single organization and management structure,  and to manage all processes. Additionally, MDA contracted with Lockheed  Martin to plan and develop a new family of targets called the Flexible  Target Family (FTF) because existing targets were deemed no longer able  to meet test needs due to aging components and an evolving threat. MDA’s  original goals for FTF included commonality of components across the  family of short, medium and long-range targets, the purchase of inventory,  reduced cycle time in the building of individual targets, increased  complexity, cost savings, and ground, air, and sea launch capabilities.
Although the development of FTF began in 2005, the first FTF target has  yet to be delivered.
While MDA manages the targets program, the Missile Defense Executive  Board (MDEB), which was created in March 2007, provides advice and  recommendations on the missile defense program. Specifically, the MDEB  reviews the implementation of strategic policies and plans, program  priorities, and investment options for protecting the United States and its  allies from missile attacks. The MDEB is chaired by the Under Secretary of  Defense for Acquisition, Technology and Logistics, who is authorized to  make recommendations to the Deputy Secretary of Defense on missile  defense issues. According to its charter, the board will provide to the  Under Secretary a recommended strategic program plan and a feasible  funding strategy for approval. Recommendations will be based on a  business case analysis that considers the best approach to field integrated  defense capabilities in support of joint objectives. A consistent business  case analysis approach will facilitate the delivery of capabilities to the war  fighter in a timely, efficient, cost-effective manner. The board will review  the missile defense program and recommend changes in the missile  defense strategic plan. In addition, Congress has mandated that DOT&E  annually assess the adequacy and sufficiency of the BMDS test program.  Congress has also mandated that DOT&E perform other BMDS program  related test and evaluation responsibilities.
section_title: Increased Target Failures and Anomalies Have Made It Difficult to Supply Reliable Targets On Time
paragraphs: The number of target failures and anomalies during flight tests has  increased over time. From 2002 through 2005, 7 percent (3 of 42 launches)  of the targets launched had in-flight target failures and anomalies, while  from 2006 through 2007, 16 percent (6 of 38 launches) of the targets  launched had in-flight failures or anomalies. Though problems providing  reliable and timely targets have negatively affected many of the missile  defense elements, THAAD and GMD missile defense elements have been  affected the most. GMD experienced a target failure in 2007 in which the  primary objectives failed to be achieved. THAAD experienced one failure  and two anomalies between 2006 and 2007.
The immediate effect of a target delay or problem is on an individual flight  test. For example, unavailable targets have delayed tests such as FTT-08  and FTM-15. There are longer term effects of these delays on subsequent  tests and demonstration of capability in the flight test program.  Specifically, MDA’s flight test program has been restructured to reflect  target deficiencies and availability. For example, validating GMD  capability has been delayed due to target availability and a failure. The  THAAD flight test program has decreased the amount of flight tests due to  reduced availability of targets. Additionally, target failures and anomalies  caused THAAD to replan key objectives in their flight test plan due to the  inability to collect necessary information during flight tests.
Since we briefed your staff in July 2008, MDA has experienced two  additional target anomalies. The target flown in a recent sensor test (FTX- 03) under-flew the planned trajectory. Test reports indicate that target  trajectory fell short of what was planned and thus did not reach the  anticipated intercept area. While the anomaly did not prevent MDA from  achieving the sensor test objectives, had this been an intercept attempt,  the target anomaly would have precluded the launch of the interceptor due  to safety restrictions on the test range. In September 2008, the THAAD  element was unable to complete a planned flight test because the target  missile malfunctioned and did not have enough momentum to reach the  intercept area. Therefore, the two THAAD interceptors taking part in the  flight test were not launched.
At the same time, the unit cost of targets has grown exponentially, from  $4.5 to $8.5 million from 2002 to 2006 to current estimates of $32 to $65  million for the targets planned from 2008 to 2010. Many factors contribute  to this cost growth, including increased complexity of targets to better  reflect an evolving threat and late changes to target requirements on  contract. In addition, the shift to a lead systems integrator resulted in an  increase in composite hourly labor rates. MDA has also encountered  development problems with the FTF program and the total cost of FTF  remains unclear. According to information provided by MDA in July 2008,  nonrecurring engineering costs plus the cost to purchase some test assets  is at least $1 billion, of which about $553 million has already been spent.
section_title: Several Factors Contribute to Problems with Targets
paragraphs: Difficulties with target availability are traceable to (1) supplier base and  problems incorporating requirements into the contracts and establishing  program baselines for existing targets and (2) the lack of a sound business  case for FTF development. Regarding existing targets, inventory is aging  for key components. For example, motors used in some targets are now  over 40 years old. In addition, vendors who previously supplied targets to  MDA are leaving the market due to lack of business. MDA has also  experienced program and requirements issues with the existing targets on  contract. According to MDA officials, several target contracts did not  capture all of the needed test requirements. Furthermore, target technical,  cost, and schedule baselines were not always established in a timely  manner. MDA officials acknowledged that they have only recently  established these baselines for all missions planned to take place in the  next 2 years.
MDA began the FTF without establishing a sound business case. We have  previously reported on the importance of using a solid, executable  business case before committing resources to a new product development  effort. A sound business case demonstrates that (1) the identified needs  are real and necessary and are best met with the chosen concept and (2)  the chosen concept can be developed and produced with existing  resources—such as technical knowledge, funding, time and management  capacity. According to a July 2006 MDA briefing, the decision to commit to  a lead systems integrator and FTF was not based on a formal cost or  business case analysis. The briefing further indicated that the FTF cost  estimates considered at the time only included integration costs and did  not address nonrecurring engineering costs, unit costs for FTF configured  targets, or the costs to purchase existing target systems through the prime  contract. Nor was there any indication that FTF costs had been reviewed  by independent cost organizations within the Department of Defense. It is  also unclear whether MDA evaluated all alternatives before committing to  a lead systems integrator and the FTF. MDA did perform a study to  identify requirements design attributes and candidate configurations for a  family of targets by reviewing existing systems. However, in a July 2006  assessment, MDA stated that other alternatives for improving legacy  targets were not considered at that time.
We also could not identify an original approved FTF acquisition strategy.  Originally, the lead systems integrator proposed using existing launch  vehicles for short- and medium-range missions, and developing a new  long-range launch vehicle family while maximizing the reuse of existing  target system designs. However, MDA committed to a riskier strategy that  required developing a single common architecture across three target  system families. Early in the development of FTF, MDA underestimated  the technical and design challenges involved in the development of a new  target family. By May of 2006, MDA recognized that the funding set aside  for FTF development was no longer adequate and made a decision to  focus developmental efforts on the ground-launched 72-inch long-range  target needed for near-term missions and defer other key capabilities.
Despite the focus on the 72-inch ground-launched target, development  problems have delayed the first launch from July 2008 to April 2009. The  72-inch target qualification process has been more difficult and costly than  expected and development is still not complete. Of the 69 components in  development, 24 had not passed the qualification process as of August  2008. In addition, according to the targets program director, the  qualification process completion date has moved from early October to  November 2008. Delays have also occurred because development of the  72-inch target began without a stable design. Eleven of the remaining  unqualified components are considered critical technologies and are  currently being redesigned. MDA acknowledged both underestimating the  difficulty in using components never qualified for this shock and vibration  environment and underestimating the complexity of combining multiple  launch vehicle and mission requirements. Similarly, the 52-inch target’s  first flight will occur no earlier than fiscal year 2012, representing a 3 year  slip from the original expectations of first flight in fiscal year 2009. This  slip has resulted in the need to initiate an interim target development  effort to satisfy near-term target requirements of the Aegis flight test  program.
section_title: MDA Is Undertaking A Series of Initiatives To Address Problems with Targets Development, but Challenges Remain
paragraphs: MDA recently began implementing a series of management initiatives to  improve the targets program, such as establishing technical, cost, and  schedule baselines for all missions in the 2-year integrated master test  plan. The new program director and staff have also begun drafting long- term target capability requirements, and developing and implementing a  new cost model for targets. In addition, plans have been made to improve  risk management by (1) considering program-wide issues, and (2)  including programmatic risks, cost and schedule in the risk assessments.
Overall, the success of the flight test program depends on the success of  FTF. However, the current FTF acquisition strategy will yield fewer targets  at higher costs and the entire FTF might not be fully pursued. For  example, key capabilities such as the air-launched targets have been  deferred and MDA is considering whether to continue with the 52-inch  target development. Further, the initial plan for 10 to 12 72-inch target  flights per year has been reduced to 4 to 5 flights per year. In addition, the  development and production of the first four 72-inch targets cost has  grown 63 percent, from $248 million to at least $405 million, and the cost  to complete development of the entire FTF is not known. Given that the  GMD and THAAD flight test programs have already been negatively  affected by target difficulties, further changes to the flight test program  could become necessary if the FTF program does not deliver its  capabilities as scheduled.
section_title: Conclusions
paragraphs: Targets are sophisticated and expensive missiles that are essential to flight  testing the ballistic missile defense system. As such, management of the  targets program must be both effective in supplying enough reliable  targets and efficient as to their cost. Increasing problems with target  failures and anomalies have caused degradations in the missile defense  flight test program. The strategy of supplanting the use of existing targets,  which contain aging components, with a new family of targets, has not  gone as planned. The new FTF has been delayed, costs have increased,  and the program’s scope is being reduced. The difficulties with executing  FTF are due, at least in part, to the fact that a sound business case was not  established before proceeding with the program and the attendant  contracting strategy. MDA has recently initiated a series of actions to  improve the targets program in general, and the FTF program specifically.  Even so, the availability of targets for flight tests continues to be  problematic, and as a result the scope of the flight test program has been  reduced to better match available targets. The availability of targets is also  dependent on the ultimate success of the FTF program.
section_title: Recommendations For Executive Action
paragraphs: We recommend that the Secretary of Defense take the following two  actions:    Require the Director, MDA to establish a revised business case for  providing reliable and timely targets for a robust flight test program.  Such a business case should, among other things,    determine the best approach for providing an ample supply of  quality targets to support the missile defense flight test program,  including consideration of approaches other than the FTF.    demonstrate that the chosen approach—including the attendant  acquisition and contracting strategy–can be executed with available  technologies, funding, time, and management capacity.    establish separate cost, schedule, and performance baselines for  each class of target under development against which progress can  be measured.  reflect input from key organizations, such as the Missile Defense  Executive Board, independent cost estimators, and the Director,  Operational Test and Evaluation.
Align MDA’s plans and resources with the targets program approach  resulting from the above business case.
section_title: Matters For Congressional Consideration
paragraphs: The Congress has repeatedly stressed the need for robust testing of the  Ballistic Missile Defense System and has become concerned with the  health of the MDA targets program. The Congress has also expressed  concern that the FTF program is proceeding at a slower pace and greater  cost than expected. Therefore, Congress may wish to consider whether to  require the Secretary of Defense to report the departmentally approved  missile defense target development and procurement strategy, business  case, and baselines to the Congressional Defense Committees.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report. These  comments are reprinted in appendix II. DOD also provided technical  comments, which we incorporated as appropriate.
In our first recommendation, we outlined four components that the  Secretary of Defense should require in a revised business case for the  missile defense targets program. DOD partially concurred with this  recommendation. In responding to the first component of the business  case, which is to determine the best approach for providing an ample  supply of quality targets, DOD stated that MDA is reviewing the acquisition  strategy for targets. It is important that the review be a fresh look at the  business case for targets, which is why we recommended that approaches  other than the FTF be considered as well. DOD’s response failed to make  it clear whether such approaches will be included in the MDA review.
In responding to the second component of the business case, to  demonstrate that the chosen approach could be executed with available  technologies, funding, time, and management capacity, DOD explained  that the review underway will result in an approach that will be  technologically achievable, executable within budget, and will support the  flight test schedule. DOD noted that the delivery of the first four 72-inch  FTF targets will inform the review in the area of cost. While we agree that  such cost information will be important, we also note that the 72-inch  targets have already experienced cost overruns, qualification problems,  and delivery delays. As such, they remain unproven, which underscores  the need for the business case review to remain open to other approaches  to supplying targets.
DOD also partially concurred with the third component of the business  case, to establish cost, schedule, and performance baselines for each class  of target. DOD indicated that baselines are established for each individual  target procured and that a baseline for each class of target would be  redundant. While individual baselines are appropriate for legacy systems  in production, the key issue is establishing baselines for new classes of  targets under development, like the FTF. In the course of our review, MDA  could not provide a full cost estimate or a baseline for the FTF  developmental effort. We have modified the recommendation to deal  specifically with establishing baselines for new classes of targets under  development, like the FTF.
DOD partially concurred with the last component of the first  recommendation, which recommends that the business case reflect input  from key organizations, such as the MDEB, independent cost estimators,  and DOT&E. DOD acknowledged that the MDEB and DOT&E inputs have  been extremely valuable but that the decision regarding the targets  business case should be reserved for the Director of MDA. Our  recommendation calls for the input of key organizations but does not  suggest that their approval is required. Thus, it does not pose a challenge  to the MDA Director’s decision making authority. MDA has not always  obtained such input on key decisions. For example, DOT&E was not  consulted for the recent decision to cancel an important GMD flight test.  Also, estimates of MDA costs have typically not been obtained from  independent cost estimators.
Regarding our second recommendation to align MDA’s plans and  resources with the targets program, DOD partially concurred, stating that  revisions to the acquisition strategy will be incorporated into the Program  Budget development.
Finally, DOD did not concur with a third recommendation, subsequently  removed from the final report, to report the departmentally approved  missile defense target development and procurement strategy, business  case, and baselines to the Congressional Defense Committees. DOD  preferred to rely on briefings to Congressional staff to convey this  information. MDA began developing the new target family without a  complete acquisition strategy, baselines, or a business case and the  program has already experienced qualification problems, schedule delays  and cost overruns. Because of the importance of an ample supply of  reliable targets to the success of the Ballistic Missile Defense System, we  continue to believe that the Secretary of Defense needs to ensure that  MDA takes a fresh look at alternatives when it establishes a revised  acquisition strategy and business case. The departmentally approved  approach should then be reported to the Congressional Defense  Committees because MDA’s targets program and strategy are of interest to  the Congress, as evidenced by the language that requested our assessment.  Accordingly, we have elevated the recommendation for executive action  to a matter for congressional consideration.
We will send copies of this report to the Secretary of Defense, the  Director, MDA, appropriate congressional committees, and other  interested parties. This report is also available at no charge on GAO’s Web  site at http://www.gao.gov. If you or your staff have any questions  concerning this report and its appendixes, please contact me at (202) 512- 4841 or FrancisP@gao.gov. Contact points for our offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  The major contributors are listed in appendix III.
section_title: Appendix I: Briefing to Defense Committees on Review of the Missile Defense Agency’s Targets Program
subsections: section_title: Briefing Overview
subsections: section_title: Acronyms
section_title: Introduction
paragraphs: GAO undertook this work in response to a mandate contained in  the Conference Report accompanying the National Defense  Authorization Act for Fiscal Year 2008 (H.R. Rep. No. 110-477).
We focused our review on the following three objectives: (1) Is the  Missile Defense Agency (MDA) meeting the need for reliable and  timely targets for the flight test program? (2) What are the causes of  any deficiencies or delays? (3) What are the prospects for  resolution of any problems identified?
We will follow up on this briefing by September 30, 2008, with a report.
Technical comments from the agency were incorporated as  appropriate. Our scope & methodology is described on slide 29.
section_title: Background
paragraphs: The Ballistic Missile Defense System (BMDS) and its elements  verify design performance and assess capabilities in a variety of  ways, including flight testing BMDS missiles to track or intercept  live targets that represent real-world missile threats.
MDA’s Targets and Countermeasures program oversees the  design, development, fabrication, and production of ballistic  missile targets and countermeasures to be used in the BMDS test  program. Target systems are ballistic missiles and are available in  numerous configurations designed to test the performance of the  system’s sensors and weapons.
The target systems include launch vehicles, payloads,  instrumentation, and flight controls.
section_title: Existing Targets
section_title: Flexible Target Family
section_title: Lead Systems Integrator
paragraphs: In December 2003, MDA awarded Lockheed Martin a contract to be the  Lead Systems Integrator (LSI) for most of the existing targets and FTF  target development.
Lockheed Martin now subcontracts with vendors who previously  supplied targets directly to MDA.
section_title: MDA has Difficulty Supplying Reliable
paragraphs: In-flight target failures and anomalies All targets used to date were predecessors to FTF.
FTF has not delivered a new development target yet.
Existing targets include off-the-shelf components with some  modifications, new productions of existing designs, and  modifications.
Effect of target problems on elements is greater than in-flight  anomalies and failures. THAAD and GMD affected most by target problems.
section_title: Target Delays and Performance Issues Since 2005
section_title: FTF Development Delays
paragraphs: First FTF launch was scheduled for July 2008, now April 2009  Deferrals of subsequent developmental work LV-2 air launch, all sea launch, LV-3, Common-liquid Rocket  Boosters, and the 52” configured FTF have been deferred. 52” configured FTF was assumed to be available for first use  in FY 2009.
subsections: section_title: Recurring Target Unit Costs Growing
section_title: Factors Affecting Target Cost Growth
paragraphs: increasing complexity of targets (including existing targets) late changes to target requirements on contract schedule delays shift to Lead Systems Integrator – higher labor rates,  additional oversight of subcontractors  Cost increases associated with recent target failures and  anomalies are only partially estimated.~$87 M cost increase associated with FTG-03 failure ~$80 M associated with target availability and affordability  Unknown cost implications for Radar Data Collection  “anomalies”
subsections: section_title: Cost of Flexible Target Family Unclear; Cost
paragraphs: MDA has estimated some cost for FTF, but total  nonrecurring development remains unclear because some  cost figures include the purchase of test assets.
According to information MDA provided July 15, 2008,  nonrecurring cost plus the cost to purchase some  test assets are estimated at about $1.2 billion.
Sunk costs are about $553 million.
subsections: section_title: Objective 2: Causes of Problems
paragraphs: Supplier base problems with existing targets: Aging inventory/diminishing sources  Motors used in some targets are over 40 years old. Vendors are leaving the market due to lack of business.
Target contracts have not captured all element testing requirements. Target technical, cost, and schedule baselines were not always  established before targets were placed on contract.   MDA acknowledges they have recently established these  baselines for all missions in the next 2 years.
Flat charges assessed to each element do not represent actual  use. Flight test costs.
section_title: Objective 2: Causes of Problems
paragraphs: According to MDA, contracting with an LSI increased costs; the  magnitude of the increase exceeded expectations.
For example, composite hourly labor rates were 32% higher in  2004 than prior to the contract with the LSI.
Effective cost of subcontractor labor is higher on prime  contract due to management oversight of subcontractors.
section_title: First FTF target delayed from July 2008 to April 2009 because the ground launched (72”) target encountered environmental qualification problems.
paragraphs: Heritage components put in unverified environment, failures due to  high vibration and shock levels.11 of 69 components are considered critical.
As of April 2008, all 11 were in redesign or failure analysis.  5 of these critical components were not projected to complete  qualification testing until September at the earliest.
As of April 2008, 35 components had not completed qualification  testing. By June 2008, 28 components remained unqualified.
MDA acknowledged (1) underestimating the difficulty in using  components never qualified for this shock and vibration environment  and (2) underestimating the complexity of combining multiple launch  vehicle and mission requirements.
section_title: Design Challenges Contributed to FTF Delay
subsections: section_title: According to MDA, they did perform a trade study to
paragraphs: identify requirements, design attributes, and candidate  configurations for a family of targets by reviewing  existing systems.
In a July 2006 assessment, MDA stated that other  alternatives for improving legacy targets were not  considered at that time.
subsections: section_title: Objective 2: Causes of Problems
section_title: Objective 2: Causes of Problems
paragraphs: According to a July 2006 MDA briefing, the decision to adopt the FTF and a LSI was not based on a formal cost or business case  analysis.
FTF original cost estimates only included the integration costs  and did not address:  nonrecurring engineering costs, unit costs for FTF  configured targets, or the costs to purchase existing target  systems through the prime contract.
A formal analysis of the relative merits and costs of each  alternative could not be performed when the commitments to  the LSI and the FTF were made because cost estimates were  not available.
section_title: Objective 2: Causes of Problems
paragraphs: We could not identify an original approved FTF acquisition strategy.
MDA did, however, provide a May 2006 FTF briefing that stated: At that time, the majority of the investment required for the FTF LV  (LV-2 and LV-3) family design effort had been expended.
LV-2 development cost estimated at $248 million (FY06 dollars).  Completion of entire FTF LV family is required to realize  substantial yearly recurring cost reductions.  Assumed 10 to 12 LV missions per year.
Completion of the entire FTF family is required to support the  increased pace and complexity of BMDS testing 2-4 years in the  future.
section_title: Objective 2: Causes of Problems
paragraphs: Design and cost implications of the FTF requirements were  underestimated.
In May 2006, MDA acknowledged that significant technology and  design challenges were inherent in FTF.
Initial FTF requirements “levied functional capabilities and  operational environments far above existing targets’ current  qualifications.”
Choice of nonproprietary, single common architecture required  new “clean-sheet-of-paper” designs. Only capable of marginal  reuse of existing designs.
Funding set aside was no longer adequate to resource the  development.  Decision made to focus on ground-launched LV-2 for near- term missions, and delay other key capabilities.
section_title: Objective 3: Prospects for Resolution
paragraphs: Full FTF LV family may not be fully pursued.
The LV-3 and the LV-2 air-launched capabilities are deferred;  LV-2 air launch considered a key capability which provides  greater test flexibility.
Assumption of 10–12 LV-2 flights per year, including 4 GMD  tests, is no longer valid, expect only 4–5 per year. The development and production costs of the first 4 LV-2s  have grown from $248 M to $405 M (a 63 percent increase).
MDA is considering whether to continue with 52” development First 52” flight will occur no earlier than FY12 (delayed  from FY09).
The cost to complete development of the FTF is not known.
section_title: Objective 3: Prospects for Resolution
paragraphs: MDA recently began implementing a series of management  initiatives for BMDS target acquisition.  Establishing technical, cost, schedule baselines for all  missions in the 2-year integrated master test plan.
Implementing a requirements stabilization process  requiring higher-level approval for target changes.
Drafting long-term target capability requirements  Drafting initial comprehensive plan to validate system-level  models and simulations.
Improving risk management by (1) considering program-wide  issues, (2) including programmatic risks, cost & schedule.
Developing and implementing a new cost model for targets.  New program director and personnel.
section_title: Objective 3: Prospects for Resolution
paragraphs: BMDS flight test program has changed to reflect target  availability and deficiencies.
THAAD flight test program extended.  GMD flight test objectives delayed.
Success of flight test program assumes success of FTF.
If everything goes as planned, the targets program may  be able to meet the future needs of the BMDS test plan.  MDA’s Integrated Master Test Plan is modified as often  as every quarter.
Key deferred work not in funding plan–including air- launched LV-2 capability.
section_title: Conclusions
subsections: section_title: The decision to pursue the FTF and the LSI was made
paragraphs: without demonstrating a sound business case.  Specifically, MDA did not show that the FTF could be  developed and produced within existing resources.
Assumptions underlying the FTF development have  changed, including whether the concept of a “family” of  targets can be accomplished.
MDA has taken actions to improve target acquisition  deficiencies, but these actions may not be enough to  provide an adequate supply of targets.
section_title: Scope, Methodology, and Auditing Standards
paragraphs: To assess the ability of MDA’s targets program to provide support for the  BMDS test efforts, we analyzed test plans and schedules, flight test reports,  budget documents, and program execution reviews. We also analyzed  program directives and acquisition policies and procedures. We interviewed  MDA officials from GMD, THAAD, Aegis BMD, and the Targets and  Countermeasures program offices as well as officials from MDA’s Business,  Test, and Engineering directorates. We also interviewed officials from DOD’s  Office of the Director, Test and Evaluation, and the Space and Missile Defense  Command. Our analysis covered data ranging from December 2003 through  July 2008.
We conducted this performance audit from February 2008 through July 2008,  in accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions based  on our audit objectives.
section_title: Acronyms
subsections: section_title: BMDS CDR DOT&E FTF GMD GSE LV LSI MBRV MDA RV RDC STSS THAAD
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Major contributors to this report were David B. Best, Ivy G. Hübler, Steven  B. Stern, Robert S. Swierczek, Letisha T. Watson, and Alyssa B. Weir.