MDA’s mission is to develop an integrated and layered BMDS to defend the United States, its deployed forces, allies, and friends. In order to meet this mission, MDA is developing a highly complex system of systems—land-, sea- and space-based sensors, interceptors and battle management. Since its initiation in 2002, MDA has been given a significant amount of flexibility in executing the development and fielding of the BMDS. To enable MDA to field and enhance a missile defense system quickly, the Secretary of Defense in 2002 delayed the entry of the BMDS program into the DOD’s traditional acquisition process until a mature capability was ready to be handed over to a military service for production and operation. Because MDA does not follow the traditional acquisition process, it has not yet triggered certain statutory and regulatory requirements that other major defense acquisition programs are required to adhere to. For example, other major defense acquisition programs are required to establish the total scope of work and total cost baselines as part of their entry into the formal acquisition cycle. Title 10 United States Code (U.S.C.) section 2435 requires a baseline description for major defense acquisition programs, however the requirement to establish a baseline is not triggered until a system enters into system development and demonstration. DOD has implemented this requirement with the acquisition program baseline in its acquisition policy. Because the BMDS has not yet formally entered the acquisition cycle, it has not yet been required to meet the minimum requirements of section 2435. Therefore, because of the Secretary of Defense’s decision to delay entry of the BMDS system into the acquisition cycle, MDA is not required to establish the full scope of work or total cost baselines. Since we began annual reporting on missile defense in 2004, we have been unable to assess overall progress on cost. As a result, one of the only tools available for us to use in assessing BMDS costs is the costs reported on individual contracts. MDA employs prime contractors to accomplish different tasks that are needed to develop and field the BMDS. Prime contractors receive the bulk of funds MDA requests each year and work to provide the hardware and software for elements of the BMDS. Table 1 provides a brief description of eight BMDS elements and the prime contracts associated with these elements currently under development by MDA. Each BMDS program office’s prime contractor provides monthly earned value reports which provide insight into the dollar gained or lost for each dollar invested. These Contract Performance Reports compare monthly progress to the existing cost or schedule performance baseline to reveal whether the work scheduled is being completed on time and if the work is being completed at the cost budgeted. For example, if the contractor was able to complete more work than scheduled and for less cost than budgeted, the contractor reports a positive schedule and cost variance, or “underrun”. Alternatively, if the contractor was not able to complete the work in the scheduled time period and spent more than budgeted, the contractor reports both a negative schedule and cost variance, or “overrun”. The results can also be mixed by, for example, completing the work ahead of schedule (a positive schedule variance) but spending more than budgeted to do so (a negative cost variance). We also used contract performance report data to base projections of likely overrun or underrun of each prime contractor’s budgeted cost at completion. Our projections of overruns or underruns to the budgeted cost at completion are based on the assumption that the contractor will continue to perform in the future as it has in the past. In addition, since the budgeted cost at completion provides the basis for our projected overruns, we also provide it for each contract we assessed in appendix II. In addition, as part of the yearly system compliance verification process, DCMA conducts a periodic surveillance of contractor EVM systems to determine initial and continuing compliance of those management systems with government accepted standards. Surveillance (routine evaluation and assessment) of the EVM systems is mandatory for all contracts that require EVM systems compliance. Surveillance ensures that the contractor is meeting contractual terms and conditions and is in compliance with applicable policies and regulations. DCMA has primary responsibility for surveillance of the prime contractor and sub-tier suppliers with EVM requirements. According to a DCMA Earned Value Management Center official responsible for leading system surveillance, at the completion of the assessment, the DCMA Earned Value Management Center submits to the contracting officer a status of the contractor’s EVM system compliance, including all supporting data to that effect. If deficiencies are found during the course of the surveillance process, it is the surveillance team’s responsibility, working through DCMA’s Earned Value Management Center, to issue a written corrective action request. The purpose of a corrective action request is to formally notify the contractor that a documented course of action in the form of a corrective action plan is needed to bring the EVM system in compliance with government accepted EVM system guidelines. Corrective action requests range in severity from Level I to Level IV where, according to a DCMA Earned Value Management Center official responsible for leading system surveillance, Level I is for non-compliance with the Defense Federal Regulation Acquisition Supplement clauses in the contract that can be corrected immediately and for which no special management attention is required, and Level IV identifies issues where cost, schedule, technical performance, resources, or management process issues have unfavorably affected the supplier's EVM so that it is incapable of reporting meaningful EVM across multiple programs or multiple sites; and these issues have not been corrected. Level III and IV corrective action requests may trigger formal reviews such as post award review for cause, compliance reviews, or other system validation reviews and may result in suspension or revocation of EVM systems certification. For GMD and Targets and Countermeasures, we determined that the EVM data were not sufficiently reliable to analyze these contracts’ cost and schedule performance because of instability in these programs. Without reliable EVM data, we are unable to identify significant performance drivers or forecast future cost and schedule performance. Further, when the baseline on which the work is performed and measured against is no longer representative of the program of record, program managers and other decision makers lose the ability to develop constructive corrective action plans to get the program on track. These reliability issues affect MDA’s oversight of contractor progress and both MDA and GAO’s ability to report this progress to external parties and Congress. MDA officials were aware that significant changes were not reflected in the baselines for these two elements and have been conducting more extensive oversight to compensate, but did not alert us to this issue during the course of our audit. The Director, MDA has acknowledged the importance of EVM and to address some of these issues he has enacted quarterly reviews of each of the program’s baselines. Further, he intends to report EVM information to Congress annually. According to DCMA officials, there were several issues associated with the Boeing EVM system for GMD. One of the main issues was the contractor’s inability to maintain a consistent performance measurement baseline. With numerous changes to the program and modifications to the contract, the contractor experienced difficulty incorporating these changes into the baseline in order to measure performance against this new work. For example, although the GMD program experienced a $1.3 billion dollar restructure in 2007, another major restructure beginning in fiscal year 2008 for over $500 million that was completed in fiscal year 2009, and a third in fiscal year 2010 for over $380 million, the GMD program has not conducted an IBR since December 2006.DOD’s acquisition policy states that an IBR is to be conducted within 6 months after contract award, exercise of contract options, or major modifications to a contract.DCMA officials told us that the GMD program had an IBR underway following the restructure that began in fiscal year 2008 and completed in fiscal year 2009, but in May 2009 the program was again redirected and the baseline review was cancelled. The Director, MDA explained that some of the GMD program’s baseline instability from frequent restructures was related to the changing GMD role in European defense. The February 2007 budget request for fiscal year 2008 included an approach to European defense focused on GBIs from the GMD element and a large fixed radar as well as transportable X-Band radars. In September 2009, the administration altered its approach to European defense and instead constructed a defense system to consist primarily of Aegis BMD sea-based and land-based systems and interceptors, as well as various sensors to be deployed over time as the various capabilities are matured. The Director told us that these European capability requirements changes drastically affected the GMD program as a significant amount of work had to be restructured. During these three to four years of GMD baseline instability, the Director, MDA told us that MDA took steps to gain additional insight into the contractor’s progress. The program held added reviews in the absence of IBRs to understand planned near-term effort and how well they were executing against those plans. In addition, the Director told us that the program held monthly focus sessions during which the joint government and contractor teams briefed the status of progress and risks. The Director acknowledged that these insights are necessary to understand the meaning of the near-term EVM data. However, without the benefit of a documented IBR after multiple larger restructures to the program or being made aware of MDA’s added reviews, we do not have sufficient confidence in the GMD program performance measurement baseline to reliably analyze the existing EVM data. Boeing and MDA are taking steps to address problems with the reliability of the contractor’s EVM data. The contractor had planned to deliver a performance measurement baseline by May 2010 and the GMD program is planning to conduct a series of IBRs on the remaining prime and major subcontractor effort beginning in July 2010.