With the passage of the Aviation and Transportation Security Act (ATSA) in November 2001, TSA assumed from the Federal Aviation Administration (FAA) the majority of the responsibility for civil aviation security, including the commercial aviation system. ATSA required that TSA screen 100 percent of checked baggage using explosive detection systems by December 31, 2002. As it became apparent that certain airports would not meet the December 2002 deadline, the Homeland Security Act of 2002 in effect extended the deadline to December 31, 2003, for noncompliant airports. Under ATSA, TSA is responsible for the procurement, installation, and maintenance of explosive detection systems used to screen checked baggage for explosives. Airport operators and air carriers continued to be responsible for processing and transporting passengers’ checked baggage from the check-in counter to the airplane. Explosive detection systems include EDS and ETD machines (fig. 1). EDS uses computer-aided tomography X-rays adapted from the medical field to automatically recognize the characteristic signatures of threat explosives. By taking the equivalent of hundreds of X-ray pictures of a bag from different angles, EDS examines the objects inside of the baggage to identify characteristic signatures of threat explosives. TSA has certified, procured, and deployed EDS manufactured by three companies—L-3 Communications Security and Detection Systems (L-3); General Electric InVision, Inc. (GE InVision); and Reveal Imaging Technologies, Inc. (Reveal). In general, EDS is used for checked baggage screening. ETD machines work by detecting vapors and residues of explosives. Human operators collect samples by rubbing bags with swabs, which are then chemically analyzed in the ETD machine to identify any traces of explosive materials. ETD machines are used for both checked baggage and passenger carry-on baggage screening. TSA has certified, procured, and deployed ETD machines from three manufacturers, Thermo Electron Corporation, Smiths Detection, and General Electric Company. TSA’s EDS and ETD maintenance contracts provide for preventative and corrective maintenance. Preventative maintenance includes scheduled activities, such as changing filters or cleaning brushes, to increase machine reliability and are performed monthly, quarterly, or yearly based on the contractors’ maintenance schedules. Corrective maintenance includes actions performed to restore machines to operating condition after failure, such as repairing the conveyer belt mechanism after a bag jams the machine. TSA is responsible for EDS and ETD maintenance costs after warranties on the machines expire. From June 2002 through March 2005, Boeing was the prime contractor primarily for the installation and maintenance of EDS and ETD machines at over 400 U.S. airports. TSA officials stated that the Boeing contract was awarded at a time when TSA was a new agency with many demands and extremely tight schedules for meeting numerous congressional mandates related to passenger and checked baggage screening. The cost reimbursement contract entered into with Boeing had been competitively bid and contained renewable options through 2007. Boeing subcontracted for EDS maintenance through firm-fixed-price contracts with the original EDS manufacturers, GE InVision and L-3, which performed the maintenance on their respective EDS. Boeing subcontracted for ETD maintenance through a firm-fixed-price contract with Siemens. Consistent with language in the fiscal year 2005 House Appropriations Committee report and due to TSA’s acknowledgment of Boeing’s failure to control costs, TSA received DHS authorization to negotiate new EDS and ETD maintenance contracts in January 2005. In March 2005, TSA signed firm-fixed-price contracts for EDS and ETD maintenance. TSA awarded a competitively bid contract to Siemens to provide maintenance for ETD machines. According to TSA, it negotiated sole source contracts with L-3 and GE InVision for maintaining their respective EDS because they are the original equipment manufacturers and owners of the intellectual property rights of their respective EDS. In September 2005, TSA awarded a competitively bid firm-fixed-price contract to Reveal for both the procurement and maintenance of a reduced size EDS. TSA obligated almost $470 million from fiscal year 2002 through fiscal year 2005 for EDS and ETD maintenance, according to TSA budget documents. In fiscal year 2006, TSA estimates it will spend $199 million and has projected it will spend $234 million in fiscal year 2007. According to TSA officials, in fiscal year 2004, TSA requested and received approval to reprogram about $32 million from another account to EDS/ETD maintenance due to higher levels of maintenance costs than expected. Similarly, in fiscal year 2005, TSA requested and received approval to reprogram $25 million to fund the L-3 contract and to close out the Boeing contract. TSA was not able to provide us with data on the maintenance cost per machine before fiscal year 2005 because, according to TSA officials, TSA’s previous contract with Boeing to maintain EDS and ETD machines was not structured to capture these data. Table 1 identifies the maintenance costs by type of EDS and ETD machine for fiscal years 2005 and 2006. TSA did not provide us with projections of EDS and ETD maintenance costs beyond 2007. TSA officials told us that future costs will be influenced by the number, type, quantity, and locations of machines necessary to support system configurations at airports, such as the extent to which EDS are integrated with airport baggage conveyor systems or are operated in stand-alone modes. Further, TSA officials told us that future EDS and ETD maintenance costs are dependent on decisions related to the deployment of new technologies and the refurbishment of existing equipment, among other things. The current contracts would have negotiated maintenance prices per machine through March 2009, if TSA decides to exercise option years in the contracts. We identified different factors that have played a role in costs to date and that will influence future maintenance costs for EDS and ETD machines. According to a September 2004 DHS OIG report, TSA did not follow sound contracting practices in administering the Boeing contract, which was primarily for the installation and maintenance of EDS and ETD machines. According to DHS OIG officials, TSA’s failure to control costs under the Boeing contract, including the lack of sound contracting practices, contributed to increases in maintenance costs. Among other things, the DHS OIG report stated that TSA had paid provisional award fees totaling $44 million through December 2003 without any evaluation of Boeing’s performance. In response to the DHS OIG, TSA agreed to recover any excessive award fees paid to Boeing, if TSA determined that such fees were not warranted. In commenting on our draft report in July 2006, DHS stated that TSA has conducted a contract reconciliation process to ensure that no fees would be paid on costs that exceeded the target due to poor contractor performance. Further, DHS stated that TSA and Boeing had reached an agreement in principle on this matter and that the documentation was in the approval process with closure anticipated in July 2006. In its report accompanying the DHS Appropriations Bill for fiscal year 2007, the House Appropriations Committee stated its need for a report from TSA on any actions it has taken to collect excessive award fees, how much of the fees have been received to date, and specific plans to obligate these collections and cited TSA’s plans to use any cost recoveries to purchase and install additional EDS. These actions were based on the committee’s long-standing concerns about the increasing costs for EDS and ETD maintenance. In addition to matters related to the Boeing contract, TSA officials stated that another factor contributing to cost increases were the larger than expected number of machines that came out of warranty and their related maintenance costs. According to TSA officials, they were not able to determine the cost impact of these additional machines because the Boeing contract was not structured to provide maintenance costs for individual machines. With regard to future EDS and ETD maintenance costs under firm-fixed- price contracts, maintenance costs per machine will increase primarily by an annual escalation factor in the contracts that takes into account the employment cost index and the consumer price index, if TSA decides to exercise contract options. In addition, future maintenance costs may be affected by a range of factors, including the number of machines deployed and out of warranty, conditions under which machines operate, contractor performance requirements, the emergence of new technologies or improved equipment, and alternative screening strategies. Lastly, life-cycle cost estimates were not developed for the Boeing, Siemens, L-3, and GE InVision contracts before the maintenance contracts were executed, and, as a result, TSA did not have a sound estimate of maintenance costs for all the years the machines are expected to be in operation. In August 2005, TSA hired a contractor to define parameters for a life-cycle cost model, among other things. This contract states that TSA and the contractor will work together to ensure that the full scope of work is planned, coordinated, and executed according to approved schedules. In commenting on our draft report in July 2006, DHS stated that the TSA contractor estimated completing a prototype life-cycle cost model by September 2006. Further, DHS stated that TSA’s evaluation of the prototype would begin immediately upon delivery and that full implementation of an EDS life-cycle cost model would be completed within 12 months after the prototype had been approved. According to a TSA official, the life-cycle cost model would be useful in determining machine reliability and maintainability and to inform future contract negotiations, such as when to replace a machine versus continuing to repair it. We identified several actions TSA has taken to control EDS and ETD maintenance costs. First, TSA entered into firm-fixed-price contracts starting in March 2005 with maintenance contractors, which offer TSA certain advantages over cost reimbursement contracts because price certainty is guaranteed for up to 5 years if TSA exercises options to 2009.