NASA’s programs encompass a broad range of complex and technical activities—from investigating the composition and resources of Mars to providing satellite and aircraft observations of Earth for scientific and weather forecasting. NASA currently funds more than 100 programs and projects in various phases of execution in 7 strategic Enterprises: Space Science, Earth Science, Biological and Physical Research, Aeronautics, Space Flight, Education, and Exploration Systems. Two NASA offices have key responsibilities in ensuring the effective execution of these programs: the Office of the Chief Financial Officer, which is responsible for providing oversight and financial management of agency resources and establishing related policy guidance, and the Office of Chief Engineer, which is responsible for ensuring development efforts and mission operations are planned and conducted using sound engineering practices. More than two-thirds of NASA’s work force is made up of contractors and grantees, and 90 percent—or roughly $13 billion—of NASA’s annual budget is spent on work performed by its contractors. Since 1990, we have identified NASA’s contract management as a high-risk area. This assessment has been based in part on our repeated finding that NASA does not have good cost-estimating processes or the financial information needed to develop good cost estimates for its programs, making it difficult for NASA to oversee its contracts and control costs. For example, in July 2002, we reported that an independent task force convened to assess the management of the International Space Station concluded that the program’s fiscal year 2002 through fiscal 2006 budget was not credible because of weaknesses in its cost-estimating processes. The task force pointed out that these problems occurred because NASA had not instituted or had ignored many of the program’s control and contract oversight procedures—such as preparing a full life-cycle cost estimate—that should have alerted the agency to the growing cost problem and the need for mitigating actions. According to the cost analysis team that supported the task force, NASA’s focus on staying within annual budgets instead of managing total program costs was perhaps the single greatest factor in the program’s cost growth. NASA’s unreliable cost estimates have significant implications for potential future endeavors, such as those outlined by the President in January of this year. Specifically, the President called for a shift in NASA’s long-term focus, envisioning that NASA will retire the shuttle program as soon as assembly of the International Space Station is completed, planned for the end of the decade; develop a new crew exploration vehicle as well as launch human missions to the moon between 2015 and 2020, and build a permanent lunar base as a stepping stone for more ambitious missions. To achieve these goals, the President proposed spending $12 billion over the next 5 years— about $1 billion of which would come from an increase in NASA’s budget, currently $15.4 billion—with the remaining $11 billion being reallocated from existing NASA programs. Developing reliable cost estimates has been difficult for agencies across the federal government. The need for reliable cost estimates is at the heart of two of the five-governmentwide initiatives in the 2002 President’s Management Agenda (PMA); the two are “improved financial performance” and “budget and performance integration.” These initiatives are aimed at ensuring that federal financial systems produce accurate and timely information to support operating, budget, and policy decisions and that budgets are performance-based. As part of these initiatives, the President calls for changes to the budget process to better measure the real cost and performance of programs. According to the PMA, accomplishing all of the crosscutting initiatives will matter little without the integration of agency budgets with performance. As of April 2003, the baseline development cost estimates for the programs we reviewed varied considerably from the programs’ initial baseline estimates. More than half of the programs’ development cost estimates increased, and for some programs, this increase was significant. The baseline development cost estimates for each of the 10 programs we reviewed in detail were rebaselined—that is, recalculated to reflect new costs, time frames, or resources associated with program changes in program objectives, deliverables, or scope and plans. Although NASA provided specific reasons for the increased cost estimates and rebaselinings—such as delays in the development or delivery of key system components and funding shortages—it does not have guidance for determining when rebaselinings are justified. Such criteria are important to instilling discipline in the cost-estimating process. Most of the 27 programs we reviewed experienced a change in their development costs estimates. While 8 of the 27 programs experienced slight decreases in their development cost estimates, 17 experienced cost growth—as much as almost 94 percent. The remaining two programs had no change. Ten of the 17 programs’ cost growth was greater than 25 percent. Table 1 shows the development cost estimate changes from the initial baseline to the baseline as of April 2003 and the life-cycle cost estimate for each of the 27 programs. The 10 programs that we reviewed in detail are shaded and italicized. (See app. II for assessments of the 10 programs and app. III for descriptions of the remaining 17 programs.) The development cost estimates for each of the 10 programs that we reviewed in detail have been rebaselined—for some programs, as many as four times—and for 7 of the 10 programs, the cost estimate increased each time it was rebaselined (see fig. 1). For the 10 programs we reviewed in detail, NASA cited specific reasons for changes in the baseline development cost estimates and the recalculated baselines—many of which were related to technical problems and subsequent delays in the development or delivery of key system components, and insufficient funding and reserves, as illustrated in the following examples: Technical problems in the MERs program required a significant redesign of components and the development of a new landing system. Two of MERs’ three rebaselinings were also the result of inadequate reserves. According to NASA officials, without the rebaselinings, the development cost “to go” would have drained the program’s reserves. The increase in CLCS’s development cost estimate and rebaselining was the result of poorly defined requirements and design, software integration problems, and fundamental changes in the project’s management structure and contractors’ approach to the work. The project, which experienced an almost 94 percent increase in its baseline development cost estimate, was ultimately terminated. The GP-B program—which was rebaselined four times—experienced significant schedule slippages due to repeated technical problems, including failures in the probe’s heat exchanger, the need for additional testing, payload electronics delays, and thermal vacuum test failures. Schedule slippages in the SIRTF program—which contributed to increases in the program’s baseline development cost estimate and four rebaselinings of the estimate—were caused by delays in the delivery of components, flight software, and the mission operation system as well as launch delays that resulted from a handling accident involving a global positioning system payload and concerns of delamination on the launch vehicle’s solid rocket motors. Changes in development cost estimates for the CAU program were primarily the result of the program’s expanded scope, which occurred in October 2002, to produce modification kits that would allow the CAU upgrade to be installed into the orbiters. The Hyper-X program experienced three rebaselinings, and according to the project manager, the program will be rebaselined again in the near future. The rebaselinings were due to schedule slippages resulting from the need to fund an investigation of the problems experienced in the first Mach 7 flight vehicle—which was destroyed in flight—and related corrective actions to the second Mach 7 flight. Revised contract requirements, funding changes, or the realization that program goals are not achievable may require a formal rebaselining. However, NASA has not defined or provided guidance or restrictions on rebaselining to ensure that programs consistently and appropriately apply rebaselinings and do not adjust their baseline cost estimates whenever the estimates become unmanageable. Further, NASA lacks a process for systematically identifying and assessing programs that are not achieving their cost, schedule, and performance goals. Such a process has been employed by the Department of Defense (DOD), which also relies heavily on contractors to deliver complex, cutting-edge technologies to meet its mission. Specifically, DOD must report to the Congress programs that incur a cost growth of 15 percent or more in the program baseline. Moreover, DOD must justify the continuation of acquisition programs that incur a cost growth of 25 percent or more in the program baseline by certifying that specific criteria have been met—including that the new cost estimates are reasonable. Under such a process, 5 of the 10 programs that we reviewed in detail would have been required to report to the Congress, and 4 of the 5 programs would have had to certify that their new cost estimates were reasonable. NASA has yet to implement a well-defined process for estimating the cost of its programs—a weakness we and NASA’s Inspector General have repeatedly reported. Recognizing the need for such a process, NASA developed a cost-estimating handbook in 2002—the first such guidance provided to its cost-estimating community and program and project managers. Despite this effort, the programs we reviewed failed to follow key cost-estimating processes, including developing and documenting full life-cycle cost estimates, summarizing estimates according to the current breakdown of work to be performed, conducting an uncertainty analysis, performing an independent review of contractors’ cost estimates, and later using earned value management (EVM) to assess progress. Reflecting Office of Management and Budget (OMB) guidance and best practices of government and industry leaders, NASA requires that full life-cycle cost estimates be prepared using full cost accounting, that estimates be summarized according to the current breakdown of work to be performed, and that major changes be tracked to the life-cycle cost.