In May 2003, the Army and Boeing entered into an “other transaction agreement” for the system development and demonstration phase of the FCS program. Other transaction agreements are not subject to the Federal Acquisition Regulation (FAR) and this gave the Army considerable flexibility to negotiate the terms and conditions with Boeing as the LSI. The Army’s rationale for using such an agreement was to encourage innovation and to use its wide latitude in tailoring business, organizational, and technical relationships to achieve the program goals. Congress raised concerns over the use of the agreement for the development of a program as large and risky as FCS, and the Secretary of the Army directed that the other transaction agreement be converted to a FAR-based contract. In March 2006, the Army definitized a FAR-based contract with Boeing for the remainder of FCS development. Science Applications International Corporation (SAIC) has a contract with Boeing to provide assistance in performing the LSI functions. All of the work performed from May 2003 through September 2005 is accounted for under the prior other transaction agreement, and all work after September 2005 is included under the new contract. Appendix II of this report provides a brief discussion of the conversion of the FCS contract from an other transaction agreement to a FAR-based contract. The LSI as an entity is intended as a single contractor responsible for developing and integrating the FCS system of systems within a given budget and schedule. Furthermore, the LSI was intended to act throughout the system development and demonstration phase to optimize the FCS capability, maximize competition, ensure interoperability and maintain commonality to reduce life-cycle cost. The Army established a number of key tenets that it wanted to achieve on the FCS program, in partnership with the LSI. They include: create opportunity for best of industry to participate; leverage government technology base to maximum extent; associate ongoing enabling efforts with LSI-led activity; maintain a collaborative environment from design through as a minimum, achieve commonality at subsystem/component level; design/plan for technology integration and insertion; maintain and shape the industrial base for the future; retain competition throughout future force acquisition; have appropriate government involvement in procurement achieve consistent and continuous definition of requirements; maintain and shape government acquisition community; achieve program affordability—balance performance and have a “one team” operating with partnership and teamwork. An LSI creates an additional tier in the management structure of the FCS program that would not appear in an acquisition program for a major individual system. The Army itself does not have a direct contractual relationship with the prime-item developers as it would when buying a single system, but rather works through the LSI. This additional tier serves as a layer of separation between the customer (the Army) and the platform developers (the tier immediately below the LSI). The Army believes that this additional layer is required to bring all of the developers together to a single point of communication and interaction for the Army. The Army, LSI and platform developers are all members of the “one-team” structure of the FCS program. The current contract between the Army and Boeing continues into fiscal year 2015 and the Army intends to begin low-rate initial production in 2013. The Army intends to start full-rate production in 2016. The Army plans to achieve initial operational capability in fiscal year 2015 and full operational capability in fiscal year 2017. The Army intends to continue FCS procurement through fiscal year 2030, eventually equipping 15 brigade combat teams—about one-third of the current active force. Figure 1 shows the schedule of key events for the FCS program. The Army has recently decided to make a number of key changes to the FCS program as it was considering funding plans for the fiscal 2008-2013 period. These changes include eliminating or deferring certain FCS systems, increasing quantities of some systems, reducing quantities of other systems, reducing annual procurement rates, and delaying key program milestone dates. For example, the Army deleted or deferred four systems from the FCS system of systems architecture and delayed the start of initial FCS production by five months. The FCS program’s complexity and aggressive schedule is unprecedented for the Army. As we have reported, the program was not near ready for starting the system development and demonstration phase when it did, primarily because the majority of the needed technologies were immature. The Army not only went forward with FCS, it did so with a planned schedule less than that of a single new system. The Army determined that with its existing acquisition workforce and organizations, it did not have the agility, capability, or capacity to manage the program without an LSI to assist with certain aspects of program management. In using an LSI, the Army also wanted to structure a development contract that would create incentives for the contractor to succeed and profit in development and to increase competition at lower levels in the supplier chain. The sheer scope and complexity of the program was driven by the Army’s desire to concurrently develop and field all systems as an integrated unit. The backbone of this unit is a ubiquitous network through which all systems of FCS will operate and communicate—a first-of-a-kind network that will also have to be developed. FCS represents a huge technological leap in system development and acquisition. Some of the major technical challenges faced in the program include: The 14 major weapon systems or platforms have to be designed and integrated simultaneously and within strict size and weight limitations. At least 46 technologies that are considered critical to achieving critical performance capabilities will need to be matured and integrated into the system of systems. The development, demonstration, and production of as many as 170 complementary systems and associated programs must be synchronized with FCS content and schedule. This will also involve developing about 100 network interfaces so the FCS can be interoperable with other Army and joint forces. An estimated 63 million lines of software code, more than 3 times the amount being developed for the Joint Strike Fighter program. In addition to the complexity of the integration task, the Army also outlined an unprecedented timeline for FCS’s development—about 5½ years—a shorter timeline than typical for a single weapon system development. We have pointed out a third source of risk, in addition to complexity and schedule, namely that the program started before it was ready for system development and demonstration because the majority of its critical technologies were immature. Mature technologies are central to having a sound business case at the start of development. Cognizant of these risks, the Army believed it could achieve its goals through use of an LSI because of the technical expertise and workforce flexibility that a private company could bring to the program. In fact, the Army wanted the LSI to help it define the FCS solution. The Army determined it could not meet the challenges of the FCS scope and accelerated schedule with its workforce alone and with traditional management approaches. Army leadership saw its workforce as stovepiped into organizations having areas of expertise that were not a full match for what FCS needed and not large enough with the right skills to staff several separate program offices. Army leadership did not see its workforce as being well-suited to making the tradeoffs and integration that the FCS program demanded. As an integrated system of systems, defining requirements and designing solutions for FCS would necessitate crossing two sets of organizational lines. The first involves the Army’s traditional warfare communities, such as infantry, armor, artillery, and aviation. In the past, these communities developed their own requirements and their own weapon systems. FCS program officials noted that the Army had little success integrating such separately developed platforms because the individual communities did not coordinate their development efforts; specifically, they did not interface across communities during development to ensure systems were being designed to work with each other. A second organizational line involves the users, who develop requirements, and the developers, who manage the weapon systems. Much of the Army’s previous experience with major integration efforts was problematic because of a lack of coordination between the developers and the users. Each system was developed separately and integrated into the force after the fact. The users’ needs to have multiple systems integrated and working together in the field were thus not sufficiently considered in the development process. The Army believed that an LSI could achieve this more effectively than an Army program office because a contractor had greater flexibility to work across these lines. Capability of the Army’s workforce was also a factor in the decision to use an LSI. The Army’s traditional areas of technical expertise, such as in armored vehicles like tanks, were not sufficient to address all the needed expertise for FCS. FCS performance is controlled to a great extent— estimated at 95 percent—by software. Current estimates put the amount of software needed at 63 million lines—the most ever for a weapon system— much of which will be needed for the information network that is the heart of FCS. The Army did not have sufficient skills in software and networks to manage this effort. Even with the LSI, the relative thinness of the Army’s expertise in these areas is evident in the integrated product teams through which the Army and the LSI jointly manage the program. For example, according to an LSI program official, there are 28 LSI representatives for every Army representative on the team responsible for developing the information network. However, according to data provided by an Army official, on the manned ground vehicles team, where the Army has more expertise, there are only about 15 LSI representatives for every Army representative. Service contractors separate from the LSI are counted among the Army program office representatives. Thus, the actual numbers of individuals who work for the Army directly is lower than these numbers represent. A third factor was workforce capacity. If the FCS platforms were to be developed as separate programs, each platform would need its own workforce, meaning several separate Army program offices, each with a full complement of acquisition and technical staff. The demand for this many people would have been a challenge in light of the decline in its acquisition workforce throughout the 1990s.