NASA and its international partners--Japan, Canada, the European Space Agency, and Russia--are building the space station as a permanently orbiting laboratory to conduct materials and life sciences research, earth observation and commercial utilization, and related uses under nearly weightless conditions. Each partner is providing station hardware and crew members and is expected to share operating costs and use of the station. The NASA space station program manager is responsible for the cost, schedule, and technical performance of the total program. The Boeing Corporation, the prime contractor, is responsible for development, integration, and on-orbit performance of the station. By the end of 1997, the United States and its partners had produced well over 358,000 pounds of space flight hardware, of which the prime contractor was responsible for about 260,000 pounds. According to NASA, by the end of 1998, virtually all flight hardware for the first six flights will have been delivered to Russian or American launch sites. In June 1995, we reported that the U.S. funds required to design, launch, and operate the space station would be about $94 billion--over $48 billion to complete assembly and almost $46 billion to operate and conduct research. That total included $17.4 billion for station development activities, $13 billion for operations, and $50.5 billion for shuttle launch support during assembly and operations. Our report also noted that the program's funding reserves were limited and that the launch and assembly schedule would be difficult to achieve. Since June 1995, total space station cost estimates have increased from $93.9 billion to $95.6 billion (see table 1). In particular, the development cost estimate has increased by more than 20 percent, in-house personnel requirements have increased dramatically, and eight shuttle flights have been added to the development program. However, the shuttle support cost, as of April 1998, is less than that of June 1995 because NASA is projecting a significant reduction in the average cost per flight. The higher development costs--$21.9 billion versus $17.4 billion--are attributable to schedule delays, additional prime contractor effort not covered by funding reserves, additional crew return vehicle costs, and costs incurred as a result of delays in the Russian-made Service Module. In June 1995, NASA expected to complete assembly in June 2002. Partially due to delays in the Russian program, the last flight in the assembly sequence is now scheduled for December 2003, a delay of 18 months that has increased development costs by more than $2 billion. Also, NASA has undertaken activities such as developing the Interim Control Module to mitigate delays in the delivery of the Service Module. These activities are estimated by NASA to cost more than $200 million. It should be noted that our estimate includes the cost of the Russian Space Agency contract, which NASA does not include in its portrayal of station development funding needs. The increased in-house personnel costs during development--$2.2 billion versus $0.9 billion--are attributable to a longer development program, higher estimated personnel levels, and a more inclusive estimating methodology. Our June 1995 estimate was based on a development program scheduled to end in June 2002 while our current estimate includes an additional 18 months of effort. In addition, our prior estimate was based on an average of 1,285 civil service staff annually. NASA's budget now estimates that about 2,000 staff per year will be needed during development. The increased staffing levels are attributable largely to the inclusion of science and crew return vehicle personnel into the station budget, which in most cases were previously covered under the Science, Aeronautics and Technology budgets. Finally, our current estimate is based on an allocation of all research and program management costs to the station program, while the previous estimate did not include all components of that budget line. Regarding shuttle support, our 1995 estimate was based on 35 flights during development and 50 during operations. However, NASA now estimates 43 flights during development, including 2 additional flights to the Russian space station Mir, 1 flight to test the crew return vehicle, and flights required by changes to the assembly sequence. NASA continues to estimate that 50 flights will be needed during operations. However, NASA's estimate of average cost per flight is now lower, resulting in a shuttle launch support cost of $17.7 billion during assembly, essentially the same cost as estimated in 1995, despite the increased number of flights. During operations, the estimated cost for shuttle support is now significantly less--$25.6 billion versus $32.7 billion--based on the same number of flights. NASA's estimated reduction in the average cost per flight is based on its expectation that program efficiencies and other cost savings will be achieved and sustained throughout the operating life of the space station. If that expectation is not realized, the cost for shuttle support will increase. A number of potential program changes could significantly increase the current estimate. First, the development costs shown in table 1 would increase if the assembly complete milestone slips beyond December 2003. Second, it is likely that the program will ultimately require more shuttle flights than are included in our analysis. Finally, NASA is now considering modifying space shuttle Columbia to permit its use for some station missions. A recent independent assessment by NASA's Cost Assessment and Validation Task Force suggests that the program's schedule will likely experience further delays and require additional funding. We believe NASA and its partners face a formidable challenge in meeting the launch schedules necessary to complete assembly. Those schedules depend on the launch capacity in the United States and Russia and the program's ability to meet all manufacturing, testing, and software and hardware integration deadlines. Through December 2003, over 90 launches by NASA and its international partners will be needed for assembly, science utilization, resupply, and crew return vehicle purposes. During this period, NASA's shuttles are currently scheduled to be flown up to 9 times a year for both station and nonstation needs, and Russia will have to average 9 to 10 launches a year to accommodate its station commitment. While these rates have been achieved in the past, a January 1998 NASA study of personnel reductions at Kennedy Space Center concluded that, without additional processing efficiencies, the required shuttle flight rate may not be supportable. If NASA is unable to maintain the planned flight rate, the station assembly schedule could experience further slippage. Also, recent Russian annual flight rates to support the Mir space station have been significantly lower than the required rate to support space station assembly. The assembly schedule also assumes that further critical manufacturing delays will not occur. According to NASA's Aerospace Safety Advisory Panel's 1997 annual report, the program's schedule is at risk due to software, hardware, and testing issues. The report states, in part, that the ". . . software development schedule is almost impossibly tight. If something else does not cause a further delay in (station) deployment, software development may very well do so." Further, the report pointed out that the crew return vehicle development schedule is "extremely optimistic," noting that any delays in the availability of the vehicle could constrain station operations. In addition, the panel stated that, while integrated testing is a "very positive step for safety," there is no room in the current schedule for required changes that may be discovered during this testing. Delays in the development program would increase costs because, at a minimum, fixed costs such as salaries, contractor overhead, and sustaining engineering would continue for a longer period than planned. Assuming NASA would continue to spend at the rate assumed in its current estimate for fiscal year 2003, the program would incur additional costs of more than $100 million for every month of schedule slippage. The program could require more shuttle flights than are baselined in our estimate. For example, the baseline does not include additional flights that may be needed for crew return vehicle testing and launches and some resupply flights. While some of these possibilities are subject to program changes that have not been adopted, it appears that the costs associated with launching the crew return vehicle are not included. Depending on the ultimate life expectancy of that vehicle, two additional flights could be needed. On the basis of NASA's estimate of average cost per flight for the shuttle, this could add about $1 billion to the total estimate. According to NASA, sustaining engineering costs associated with the crew return vehicle will have to be absorbed by the program's operations budget. Also, NASA is reviewing alternatives for making Columbia capable of supporting the station. A modified Columbia could be used as a backup (in the event one of the other orbiters is out of service) or as a delivery vehicle for cargo. Between November 1997 and April 1998, an independent cost assessment and validation team examined the program's past and projected performance and made quantitative determinations regarding the potential for additional cost and schedule growth. Reflecting many of the same areas we identified, the team cited complex assembly requirements and potential schedule problems associated with remaining hardware and software development and concluded that the program could require an additional $130 million to $250 million in annual funding. The team also indicated that the program could experience 1 to 3 years of schedule growth beyond the currently anticipated completion date of December 2003. The estimate we derived in 1995 and our latest estimate include those costs related to the space station's development, assembly, and operations. They do not include potential costs that may be incurred to satisfy NASA's space debris tracking requirement. Due to its large size and long operational lifetime, the space station will face a risk of being struck by orbital debris. NASA plans to provide shielding against smaller objects and maneuver the station to avoid collisions with large objects. The National Space Policy requires NASA to ensure the safety of all space flight missions involving the space station and shuttle, including protection against the threat of collisions from orbiting space debris. However, NASA has no surveillance capability and must rely on the Department of Defense (DOD) to perform this function. As mentioned previously, NASA updated its overall requirement for space debris tracking as it relates to supporting the space station, to include the ability to track and catalog objects as small as 1 centimeter. NASA recognized that such a capability could require sensor facility upgrades and the addition of new sensors to DOD's surveillance network. However, DOD maintains that the upgrade is not feasible within current budget constraints. A NASA study suggested that developing a system to satisfy NASA's needs could cost about $1 billion. A DOD study suggested that the cost of a space-based system satisfying all DOD and NASA needs could exceed $5 billion and noted that the cost to maintain a system that provides 24-hour a day tracking of 1-centimeter-sized space debris could be "prohibitively expensive." More recently, the Senate Committee on Armed Services, in its report on the National Defense Authorization Act for Fiscal Year 1998, directed the Secretary of the Air Force to undertake a design study for a 1-centimeter debris tracking system. The study was to be coordinated with a number of national laboratories. The resulting report, which was transmitted to congressional committees on April 2, 1998, identified three possible designs that range in estimated cost from about $400 million to $2.5 billion. The sources of funding for the system are undetermined at this time. Also, while the more stringent requirement is related to the space station, all other space activities would benefit from the ability to track 1-centimeter-sized debris. Since debris tracking is a NASA-wide requirement, and the agency relies on DOD to provide the service, the two agencies will have to work together to determine how to provide the capability. We have previously expressed our concern with the adequacy of space station financial reserves. We continue to be concerned. The program has used, or identified specific uses for a significant portion of its available reserves, with almost 6 years left before the last assembly flight is scheduled to be launched. In January 1995, the space station program had more than $3 billion in financial reserves to cover development contingencies. In March 1998, the financial reserves available to the program were down to about $2.1 billion, and NASA had identified over $1 billion in potential funding requirements against those reserves. In the past, reserves have been used to fund additional requirements, overruns, and other authorized changes. Some of the potential funding needs include those related to NASA's decision to add a third node to the station's design and unforeseen costs associated with the development of an Interim Control Module. We recognize that NASA identifies adequacy of reserves as one of the highest current program risks. We also note that the current reserve status could be affected by additional schedule slips, contract disputes, manufacturing problems, or the need for additional testing. Inadequate reserves hinder program managers' ability to cope with unanticipated problems. If a problem could not be covered by available reserves, program managers could be faced with deferring or rephasing other activities, thus possibly delaying the space station's development schedule or increasing future costs. In the summer of 1997, after many months of estimating that the total cost growth at the completion of the contract would not exceed $278 million, Boeing more than doubled its estimate--to $600 million. Through September 1997, $398 million in cost growth had already accumulated. On September 30, 1997, Boeing formally asked NASA to consider rebaselining the program using a more "meaningful program baseline against which performance measurements (could) be taken." In October 1997, NASA granted approval to Boeing to begin tracking cost and schedule performance using a new performance measurement baseline. The revised baseline permitted Boeing to reset its budgeted cost of work scheduled and performed equal to the actual cost of work performed as of September 1997. According to Boeing, this change provides the program with the most accurate cost information and incorporates updated program schedules to reflect the most achievable recovery plans. For reporting purposes, the change had the effect of resetting cost and schedule variances to zero. We asked the program officials to provide us with an analysis depicting a crosswalk back to the original baseline. That analysis shows that, as of February 1998, the total variance was $448 million. Of that amount, about $50 million was incurred in the first 5 months of fiscal year 1998. While NASA approved the new baseline for reporting purposes, it continues to use Boeing's estimate of overrun at completion--$600 million--as the basis for calculating the contractor's incentive award fee. NASA's estimate of total cost growth at completion, which had been in general accord with Boeing's $600 million estimate, has been increased to $817 million, and is the basis for its fiscal year 1999 budget request. This higher estimate is based on its assessment of trends and its belief that Boeing's cost control strategy will not be fully successful. Since our last cost estimate was completed in June 1995, U.S. life-cycle funding requirements for building and operating the International Space Station have increased--from $93.9 billion to $95.6 billion. Many of the reasons for this increase were not foreseen by NASA in 1995. Reasons include schedule delays by Russia and prime contractor difficulties. In light of our analysis and that by an independent team, additional costs could materialize. Potential program changes, such as additional schedule slippage and more shuttle flights, could increase our latest cost estimate. Also, NASA's updated requirement for tracking space debris may require DOD to upgrade its surveillance network. NASA's potential share of this cost has not yet been determined. When the station is fully assembled, funding requirements for operational activities, such as shuttle launches, the crew return vehicle, principal investigator work, and in-house personnel support, will need to be fully defined. During the station's projected 10-year utilization period, U.S. funding requirements are estimated to total over $42 billion, or about an average of $4.2 billion per year. Therefore, station-related funding needs will continue be a major portion of NASA's future budgets. In commenting on a draft of this report, NASA raised three major concerns: (1) our use of average cost per flight to estimate shuttle launch support costs, (2) the inclusion of certain program costs in the station development estimate, and (3) the inclusion of references to the requirement for improved orbital debris tracking capability. NASA also provided a number of technical and clarifying comments, which have been incorporated where appropriate. NASA believes that marginal cost, rather than average cost per flight, is a more accurate estimate of shuttle launch support costs. NASA defines marginal cost per flight as those costs incurred or avoided as a result of adding or deleting one flight to or from the shuttle manifest in a given fiscal year. Marginal cost does not include any fixed costs that NASA says are required to maintain the capability to launch the shuttle a specific number of times during a given year. Average cost per flight as defined by NASA is the total cost to operate the space shuttle on a recurring and sustained basis for a given fiscal year divided by the number of flights planned for that year. Its calculation of average cost per flight captures most costs in the shuttle operations budget line, as well as prorations of civil service personnel, space communications network costs, and recurring costs for shuttle improvements. We believe our use of average cost per flight is appropriate because more than 70 percent of shuttle flights during fiscal years 1999 through 2003 will be devoted to the space station. NASA expressed concern with our inclusion of certain costs in the development estimate, particularly the Russian Space Agency contract cost. We chose to include all costs that we believe directly support station development and construction activities to more completely portray that portion of the life-cycle cost estimate. However, we revised the report to recognize the way NASA treats those costs. NASA also expressed concern that our discussion of the costs associated with orbital debris tracking could be misunderstood. We believe our discussion is clear. We agree that debris tracking costs should not be considered part of the space station's life-cycle cost estimate, and benefits would accrue to programs other than the space station. However, it is a potential cost that is related to space station support because the requirement to track and catalog 1-centimeter-sized debris was established to support the station. As stated in the report, since debris tracking is a NASA-wide responsibility and the agency relies on DOD to provide the service, the two agencies will have to work together to achieve the improved capability. We provide additional details on NASA's comments in appendix I. To estimate station costs, identify program uncertainties, examine program reserves, and assess the prime contractor's cost and schedule reporting system, we reviewed NASA's program planning and budgeting documents, internal cost reports, independent program assessments, and contracts relating to space station development. We interviewed NASA officials in the Space Station Program Office, the Space Shuttle Program Office, the Office of Human Space Flight, the Office of Life and Microgravity Sciences and Applications, the Office of the Comptroller, and the X-38 development program. We also met with officials from NASA's space station Cost Assessment and Validation Task Force to discuss the scope and results of their work, and the National Research Council to discuss ongoing work related to station disposal. To examine potential impacts of satisfying NASA's debris tracking requirement, we discussed a recent Air Force study with cognizant officials and reviewed previous debris tracking studies. We used NASA budget data to depict certain costs and to derive other costs. We used cost reports and independent assessments to test the reliability of NASA's estimates and to identify cost risks to the program. We did not, however, attempt to independently validate NASA's budget data. We performed our work from December 1997 to April 1998 in accordance with generally accepted government auditing standards. Unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days from its issue date. At that time, we will send copies to appropriate congressional committees, the NASA Administrator, and the Director of the Office of Management and Budget. We will also make copies available to others on request. Please contact me at (202) 512-4841 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix II. The following are GAO's comments on the National Aeronautics and Space Administration's (NASA) letter dated April 27, 1998. 1. According to NASA, shuttle support costs for the space station would be $3.1 billion during development and $5.5 billion during operations if marginal cost per flight is used to estimate those costs. However, we believe that it is more appropriate to use average cost per flight to estimate shuttle support. NASA defines marginal cost per flight as those costs incurred or avoided as a result of adding or deleting one flight to or from the shuttle manifest in a given fiscal year. Marginal cost does not include any fixed costs that NASA says are required to maintain the capability to launch the shuttle a specific number of times during a given year. According to NASA officials, eliminating or adding a single flight in a given year has no effect on these fixed costs. Marginal cost per flight includes costs of personnel and any consumable hardware and materials, such as propellant, that can be added or removed with only temporary adjustment in the flight rate. NASA defines average cost per flight as the total cost to operate the space shuttle on a recurring and sustained basis for a given fiscal year divided by the number of flights planned for that year. Its calculation of average cost per flight captures most costs in the shuttle operations budget line, as well as prorations of civil service personnel, space communications network costs, and recurring costs for shuttle improvements. The calculation does not include capital-type costs, such as those required to develop the system, and construct and modify government-owned facilities or nonrecurring costs associated with system improvements. During its assembly, station elements will be almost the exclusive payload on the shuttle, and there is no alternative means of transportation for the station. Also, during the operations period, the station will be a major user of the shuttle. Since the station will be the predominant user of the shuttle for many years, we believe the use of average cost per flight is more appropriate than the use of marginal cost per flight to estimate shuttle launch support costs. 2. The time frames for the cost estimates were clearly portrayed in the life-cycle cost table. We added a footnote in the Results in Brief section to cite those dates earlier in the report. 3. We changed the heading in the table from "development budget" to "development cost". We chose to aggregate all costs related directly to space station development and construction. 4. We revised the report to refer to earth observation and commercial utilization and related uses. 5. We revised the report to read ". . . development, integration, and on-orbit performance." 6. We recognize that we have included some costs in our development total that were not included in 1995, such as the Russian Space Agency contract and crew return vehicle development costs. In calculating the percentage increase, we excluded those costs from our total in order to make a proper comparison. Using NASA's own figures, the increase is more than 22 percent--$17.4 billion vs. $21.3 billion. 7. We recognize that the NASA Administrator initiated the idea of conducting an independent cost review. However, we note that the Congress specifically requested such an analysis in Conference Report 105-297. The report specified a number of preconditions to the release of some space station funding. One of those requirements was "a detailed analysis by a third party of (space station) cost and schedule projections . . ." For brevity, we have deleted references to this sequence of events. 8. We agree that debris tracking costs should not be considered part of the space station's life-cycle cost estimate. We believe we have made that clear by (1) excluding any reference to debris tracking from the life-cycle cost table and (2) stating that debris tracking is a NASA-wide responsibility. However, we believe it is important to identify this potential cost because NASA established the requirement to catalog and track objects as small as 1 centimeter, in part, to support the International Space Station, and funding to achieve that capability is not yet available. As stated in the report, since debris tracking is a NASA-wide responsibility and the agency relies on the Department of Defense to provide the service, the two agencies will have to work together to determine how to move ahead on this challenge. 9. We do not imply that the program has spent $2 billion of reserves. However, according to program documentation, the net unencumbered reserve posture, as of March 1998, was about $1.1 billion. This compared with a starting point of about $3.1 billion in January 1995. 10. We believe the sentence, as written, accurately reflects the status of cost variance under the prime contract. 11. We revised our terminology. 12. We changed the life-cycle cost table category to read "development cost from 1994 to assembly complete" and added language in the report narrative to recognize NASA's position. We note that in testimony on April 23, 1998, the NASA Administrator pointed out the relevance of the activities under the Russian contract to the development and construction of the space station. 13. The shuttle was incapable of supporting space station assembly without incorporating certain enhancements. We believe these nonrecurring costs are completely relevant to the discussion of space station life-cycle cost estimates. 14. We changed the footnote to read "U.S. missions to . . . Mir." 15. We changed the footnote to read "Russian Space Agency contract." 16. We did not change the order of reasons for contract growth. See comment 12 for discussion of Russian Space Agency contract. 17. Our estimate of civil service personnel costs includes an allocation of all elements of the research and program management budget--personnel and related costs, travel, and research operations support--to the station program. According to a NASA official, the agency's estimate only allocates personnel and related costs to the station program. Since the station program benefits from all elements of the research and program management budget, we believe that it is appropriate to allocate all of those costs to the program. 18. We modified the report to incorporate this suggestion. 19. A crew return vehicle is required for space station operations. The X-38 program is focused on demonstrating a concept for station crew return. Therefore, we believe those costs are directly related to station development. 20. We changed the report to reflect NASA's current plans for modifying space shuttle Columbia. 21. We modified the report to read ". . . Over 90 launches by NASA and its international partners." 22. We disagree. We believe a "delay" in the seven person operational capability is a constraint to the station program. 23. See comment 20. 24. We revised the report to reflect information in the final Cost Assessment and Validation Task Force report. 25. See comment 8. 26. See comment 9. 27. We believe report language accurately reflects the rebaselining of the prime contract performance measurement reporting system. 28. We modified the report to incorporate NASA's suggestion. 29. We modified the report to incorporate NASA's suggestion. 30. We identified the independent cost team as NASA's Cost Assessment and Validation Task Force earlier in the report. 31. See comment 8. 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Summary:
Pursuant to a congressional request, GAO reviewed issues associated with the National Aeronautics and Space Administration's (NASA) International Space Station program, focusing on: (1) estimates of the station's development, assembly, and operations costs and comparing this estimate with the estimate in GAO's June 1995 report; (2) program uncertainties that may affect those costs; (3) potential debris tracking costs; (4) the status of program reserves; and (5) recent actions to measure prime contractor performance based on rebaselined information. GAO noted that: (1) life-cycle cost is the sum total of direct, indirect, recurring, and nonrecurring cost of a system over its entire life through disposal; (2) overall, the estimated U.S. cost to develop, assemble, and operate the space station is about $96 billion, an increase of almost $2 billion over GAO's last estimate made in 1995; (3) development costs represent the largest increase--more than 20 percent; (4) the development increase is attributable to schedule slippages, prime contract growth, additional crew return vehicle costs, and the effects of delays in delivery of the Russian-made Service Module; (5) overall costs would have been significantly higher had there not been an offsetting reduction in shuttle support costs; (6) a number of potential program changes could significantly increase the updated cost estimate; (7) they include the potential or additional schedule slippage and the need for shuttle launches to test and deliver the crew return vehicle; (8) at the current estimated spending rate, the program would incur additional costs of more than $100 million for every month of schedule slippage; (9) in addition, NASA may have to incur costs related to protecting the station from space debris; (10) in August 1997, the agency updated its overall space debris tracking requirement; (11) the new requirement, as it relates to supporting the space station, includes the ability to track and catalog objects as small as 1 centimeter; (12) the adequacy of the space station program's funding reserves has been a concern of GAO's; (13) the program has used, or identified potential uses for, a significant portion of its available reserves, with almost 6 years left before the last assembly flight is scheduled to be launched; (14) in October 1997, NASA granted approval to Boeing Corporation to begin tracking cost and schedule performance using a new performance measurement baseline; (15) the purpose of the change was to incorporate updated program schedules to reflect the most achievable recovery plans; (16) for reporting purposes, the change had the effect of resetting cost and schedule variances to zero; (17) the original baseline shows that the February 1998 cost variance would have been about $50 million higher than the $398 million Boeing reported prior to the change; and (18) while NASA approved the new baseline for reporting purposes, it continues to use Boeing's estimate of overrun at completion--$600 million--as the basis for calculating the contractor's incentive award fee.