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Testimony before the Subcommittee on Strategic Forces, Committee on 
Armed Services, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EDT: 

Tuesday, April 1, 2008: 

Defense Acquisitions: 

Assessment of Progress Made on Block 2006 Missile Defense Capabilities 
and Oversight: 

Statement of Paul Francis, Director, Acquisition and Sourcing 
Management: 

GAO-08-608T: 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Missile Defense Agency's 
(MDA's) strategy for acquiring a Ballistic Missile Defense System 
(BMDS) and its progress in fielding Block 2006--its second increment of 
capability. 

MDA has been charged with developing and fielding the BMDS, a system 
expected to be capable of defending the United States, deployed troops, 
friends, and allies against ballistic missiles of all ranges in all 
phases of flight. In fulfilling this charge, MDA placed an initial set 
of missile defense components in the field in December 2005. These 
components are collectively referred to as Block 2004. Recently, MDA 
delivered its second increment of capability--Block 2006--which 
includes additional components as well as performance enhancements. 

The National Defense Authorization Acts for fiscal years 2002 and 2006 
mandated that we prepare annual assessments of MDA's ongoing cost, 
schedule, testing, and performance progress. In March 2008, we issued 
our report covering MDA's progress toward achieving Block 2006 goals 
during fiscal year 2007 as well as its efforts to improve transparency, 
accountability, and oversight. My statement today will focus on the 
issues covered in that report. We conducted this performance audit from 
May 2007 to March 2008 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 

Summary: 

During Block 2006, MDA fielded additional and new assets, enhanced the 
capability of some existing assets, and achieved most test objectives. 
In short, MDA increased BMDS capability. However, MDA did not meet the 
goals it originally set for the block. Ultimately, MDA fielded fewer 
assets, increased costs by about $1 billion, and conducted fewer tests. 
Even with the cost increase, MDA deferred work to keep Block 2006 costs 
from increasing further, as some contractors overran their fiscal year 
2007 budgets. We could not determine the full cost of the block as 
deferred work is no longer counted as part of the block. Further, 
several BMDS contractors plan work in such a way that could result in 
MDA incurring costs that are not yet recognized. We could not assess 
attainment of another MDA goal: the overall performance of fielded 
assets as an integrated BMDS. This is because (1) there have not been 
enough flight tests to validate the models and simulations that are 
used to predict system-level performance, (2) the reliability of some 
interceptors could be affected by problematic parts that have not been 
replaced yet, and (3) tests done to date do not provide enough 
information for DOD's operational test and evaluation Director to fully 
determine if the BMDS is suitable and effective for battle. 

MDA has been given unprecedented funding and decision-making 
flexibility that has expedited the fielding of assets but also lessened 
the transparency and accountability provided for oversight. In the past 
year, MDA has taken significant actions to improve oversight. First, 
MDA has adopted a new block approach that offers several improvements-
-unit costs for selected assets will now be tracked and work will no 
longer be deferred from one block to another. Second, DOD has 
established an executive board to review and make recommendations on 
MDA's acquisition strategy, plans, and funding that could play a more 
significant role than its predecessor. Third, Congress directed that 
MDA begin using procurement funds to purchase certain assets, which 
generally means they must be fully paid for in the year they are 
bought. Previously, using research and development funding, MDA could 
pay for assets over several years, making it difficult to determine 
their cost. Some oversight concerns remain, however. For example, 
although MDA plans to do so, it has not yet estimated the total cost of 
any block, therefore it cannot have block costs independently verified, 
as is done for other major programs. While the new executive board 
promises to be more substantive than the previous Missile Defense 
Support Group, it will not have the information--such as on cost 
estimates and operational testing--to provide the oversight the Defense 
Acquisition Board provides on other major programs. The new board, like 
its predecessor, does not have approval authority. The executive board 
also faces the unique challenge of evaluating technology development 
efforts that range from $2 billion to about $5 billion a year--efforts 
that normally do not have a firm cost, schedule, and performance 
baseline. 

We have previously made recommendations to improve oversight in the 
areas that MDA has recently taken action. In March 2008, we also made 
recommendations to build on the actions already taken to further 
improve the transparency of block costs and oversight of the BMDS 
program. These included having MDA develop a full cost estimate for 
each block of BMDS capability with verification of that estimate, and 
examine ways to develop a baseline or some other standard against which 
the progress of technology programs may be assessed. We also 
recommended that MDA and the Director of Operational Test and 
Evaluation agree on criteria and incorporate corresponding scope into 
developmental tests that will allow a determination of whether a block 
of BMDS capability is suitable and effective for fielding. DOD 
concurred with having MDA develop block cost estimates and obtaining 
independent verification of those estimates. DOD partially concurred 
with the recommendations regarding examining ways to measure the 
progress of technology programs and adding scope to developmental 
tests. 

Background: 

Funded at $8 billion to nearly $10 billion annually, MDA's BMDS is the 
largest research development program in DOD's budget. Since the 1980s, 
DOD has spent more that $100 billion to develop and field the BMDS and 
it estimates that continued development and fielding will require an 
additional $50 billion between fiscal years 2008 and 2013. 

Since 2002, MDA has worked to fulfill its mission through its 
development and fielding of a diverse collection of land-, air-, sea-, 
and space-based assets. These assets are developed and fielded through 
nine BMDS elements and include the Airborne Laser (ABL); Aegis 
Ballistic Missile Defense (Aegis BMD); BMDS Sensors; Command, Control, 
Battle Management, and Communications (C2BMC); Ground-based Midcourse 
Defense (GMD); Kinetic Energy Interceptors (KEI); Multiple Kill 
Vehicles (MKV); Space Tracking and Surveillance System (STSS); and 
Terminal High Altitude Area Defense (THAAD).[Footnote 1] 

To develop a system capable of carrying out its mission, MDA, until 
December 2007, executed an acquisition strategy in which the 
development of missile defense capabilities was organized in 2-year 
increments known as blocks. Each block was intended to provide 
capabilities that enhanced the development and overall performance of 
the BMDS. The first 2-year block, known as Block 2004, fielded a 
limited initial capability that included early versions of the GMD, 
Aegis BMD, Patriot Advanced Capability-3, and C2BMC elements. The 
agency's second 2-year block--Block 2006--culminated on December 31, 
2007 and fielded additional BMDS assets. This block also provided 
improved GMD interceptors, enhanced Aegis BMD missiles, upgraded Aegis 
BMD ships, a Forward-Based X-Band-Transportable radar, and enhancements 
to C2BMC software. In December 2007, MDA's Director approved a new 
block construct that will be the basis for all future development and 
fielding, which I will discuss in more detail shortly. 

To assess progress during Block 2006, we examined the accomplishments 
of nine BMDS elements that MDA is developing and fielding. Our work 
included examining documents such as Program Execution Reviews, test 
plans and reports, production plans, and Contract Performance Reports. 
We also interviewed officials within each element program office and 
within MDA functional directorates. In addition, we discussed each 
element's test program and its results with DOD's Office of the 
Director, Operational Test and Evaluation. Regarding transparency, 
accountability, and oversight, we held discussions with officials in 
MDA's Directorate of Business Operations to determine whether its new 
block structure improved accountability and transparency of the BMDS. 
In addition, we reviewed pertinent sections of the U.S. Code to compare 
MDA's current level of accountability with federal acquisition laws. We 
also interviewed officials from the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics and DOD's Joint 
Staff to discuss the oversight role of the new Missile Defense 
Executive Board (MDEB). Additionally, we reviewed the MDEB charter to 
identify the oversight responsibility of the board. 

Fielded Capability Increased, but Less than Planned at Higher Cost: 

MDA made progress in developing and fielding the BMDS during 2007. 
Additional assets were fielded and/or upgraded, several tests met 
planned objectives, and other development activities were conducted. On 
the other hand, fewer assets were fielded than originally planned, some 
tests were delayed, and the cost of the block increased by 
approximately $1 billion. To stay within the revised budget despite 
increasing contractor costs, MDA deferred some budgeted work to future 
blocks. Such deferrals, coupled with a planning methodology too often 
used by some contractors that could obscure cost reporting, prevent us 
from determining the full cost of Block 2006. MDA was able to meet most 
test objectives despite delays in several elements' test schedules. 
Neither we nor DOD could evaluate the aggregate performance of fielded 
assets because flight testing to date has not generated sufficient 
data. An evaluation of aggregate performance would also have to 
consider that (1) some parts in fielded interceptors identified as 
potentially problematic have not been replaced yet, and (2) tests done 
to date do not provide enough information for DOD's independent test 
organization to fully determine if the BMDS is suitable and effective 
for battle. 

Fielding of Assets and Cost: 

During Block 2006, MDA increased its inventory of BMDS assets while 
enhancing the system's performance. It fielded 14 additional Ground- 
based interceptors, 12 Aegis BMD missiles designed to engage more 
advanced threats, 4 new Aegis BMD destroyers, 1 new Aegis BMD cruiser, 
and 8 Web browsers and 1 software suite for C2BMC. In addition, MDA 
upgraded half of its Aegis BMD ship fleet, successfully conducted four 
Aegis BMD and two GMD intercept tests, and completed a number of ground 
tests to demonstrate the capability of BMDS components. 

MDA was unable to deliver all assets originally planned for Block 
2006.[Footnote 2] The Sensors element was the only Block 2006 element 
to meet all of its original goals set in March 2005 while the remaining 
elements--GMD, Aegis BMD, C2BMC--did not meet all of their original 
quantity goals. Sensors delivered a second FBX-T in January 2007 while 
the GMD element fielded 14 of the 15 Ground-Based interceptors 
originally planned during Block 2006. Last year, we reported that MDA 
delayed the partial upgrade of the Thule early warning radar--one of 
GMD's original goals--until a full upgrade could be accomplished. 
Additionally, the Aegis BMD element delivered 4 additional Destroyers 
and 1 new Cruiser as originally planned, but delivered 12 of the 19 SM- 
3 missiles planned for the block. C2BMC did not deliver two of the 
three software suites originally planned for Block 2006, but did 
provide the needed capability less expensively through Web browsers and 
other techniques. 

The work MDA completed for Block 2006 cost more than planned. In March 
2007, we reported that MDA's cost goal for Block 2006 increased by 
approximately $1 billion because of greater than expected GMD 
operations and sustainment costs and technical problems. If the 
contractors continue to perform as they did in fiscal year 2007, we 
estimate that at completion, the cumulative overrun in the contracts 
could be between about $1.3 billion and $1.9 billion. To stay within 
its revised budget, MDA deferred some work it expected to accomplish 
during the block. When work is deferred, its costs are no longer 
accounted for in the original block. In other words, if work planned 
and budgeted for Block 2006 was deferred to Block 2008, that work would 
be counted as a Block 2008 cost. Because MDA did not track the cost of 
the deferred work, the agency could not make an adjustment that would 
have matched the cost with the correct block. Consequently, we were 
unable to determine the full cost of Block 2006. 

Another reason why it is difficult to determine the actual cost of 
Block 2006 is a planning methodology too often employed by some MDA 
prime contractors that can obscure the full cost of work. Contractors 
typically divide the total work of a contract into small efforts in 
order to define them more clearly and to ensure proper oversight. Work 
may be planned into categories including: (1) level of effort--work 
that contains tasks of a general or supportive nature and does not 
produce a definite end product and (2) discrete--work that has a 
definable end product or event. When work is discrete, delivery of the 
end product provides a sound basis for determining actual contractor 
performance. When discrete work is instead planned as level of effort, 
the contractor's performance becomes less transparent because work is 
considered complete when the time planned for it has expired, whether 
or not the intended product has been completed. Earned value management 
does not recognize such variances in completing scheduled work and to 
the extent more work has to be done to complete the product, additional 
costs could be incurred that are not yet recognized.[Footnote 3] Many 
of MDA's prime contractors plan a large percentage of their work as 
level of effort. MDA officials agree that its contractors have 
improperly planned discrete work as level of effort, and are taking 
steps to remedy the situation. 

We also observed that while several contractors had difficulty with 
controlling costs, during fiscal year 2007, MDA awarded approximately 
95 percent or $606 million of available award fee to its prime 
contractors. In particular, contractors developing the ABL and Aegis 
BMD Weapon System were rated as performing very well in the cost and/or 
program management elements and received commensurate fees, even though 
earned value management data showed that their cost and schedule 
performance was declining. Although DOD guidance discourages the use of 
earned value performance metrics in award fee criteria, MDA includes 
this--one of many factors for consideration in rating contractors' 
performance--in several of its award fee plans. The agency recognizes 
that there is not always a good link between its intentions for award 
fees and the amount of fee being earned by its contractors. In an 
effort to rectify this problem, the agency has begun to revise its 
award fee policy to align agency practices more closely with DOD's 
current policy that better links performance with award fees. 

Testing and Performance of Fielded Capability: 

Most test objectives were achieved during 2007, although several BMDS 
programs experienced setbacks in their test schedules. The MKV, KEI, 
and Sensors elements were able to execute all scheduled activities as 
planned. The Aegis BMD, THAAD, ABL, STSS, and C2BMC elements 
experienced test delays, but all were able to achieve their primary 
test objectives. GMD successfully completed an intercept with an 
operationally representative interceptor and a radar characterization 
test. A second intercept test employing the SBX radar has been delayed 
because a target malfunction delayed the execution of the first 
intercept test. The SBX capability is important as it is a primary 
sensor to be used to engage ballistic missiles in the midcourse phase 
of flight. As of yet, this capability has not been verified through 
flight testing. 

As we reported in March 2007, MDA altered its original Block 2006 
performance goals commensurate with the agency's reductions in the 
delivery of fielded assets.[Footnote 4] For several reasons, 
information is not sufficient to assess whether MDA achieved its 
revised performance goals. First, MDA uses a combination of simulations 
and flight tests to determine whether performance goals are met. 
However, too few flight tests have been completed to ensure the 
accuracy of the models and simulations predictions. Second, confidence 
in the performance of the BMDS is reduced because of unresolved 
technical and quality issues in the GMD element. For example, the GMD 
element has experienced the same anomaly during each of its flight 
tests since 2001. This anomaly has not yet prevented the program from 
achieving any of its primary test objectives, but to date neither its 
source nor solution has been clearly identified. Program officials plan 
to continue their assessment of test data to determine the anomaly's 
root cause. The performance of some fielded GMD assets is also 
questionable because they contain parts identified by auditors in MDA's 
Office of Quality, Safety, and Mission Assurance as less reliable or 
inappropriate for use in space that have not yet been replaced. MDA has 
begun to replace the questionable parts in the manufacturing process 
and to purchase the parts for retrofit into fielded interceptors. 
However, it will not complete the retrofit effort until 2012. 

Finally, tests of the GMD element have been of a developmental nature, 
and have not included target suite dynamic features and intercept 
geometries representative of the operational environment in which GMD 
will perform its mission. MDA has added operational test objectives to 
its developmental test program, but many of the objectives are aimed at 
proving that military personnel can operate the equipment. Up until 
2007, the lack of data limited the operational test and evaluation 
Director's annual BMDS assessment to commenting on aspects of tests 
that were operationally realistic and recommending other tests to 
characterize system effectiveness and suitability. In 2007, tests 
allowed a partial assessment of the BMDS' effectiveness, suitability, 
and survivability. According to the Office of the Director of 
Operational Test and Evaluation, (1) further testing that incorporates 
realistic operational objectives and (2) verification, validation, and 
accreditation of models and simulations will be needed before the 
performance, suitability, and survivability of the BMDS can be fully 
characterized. 

Key Steps Taken to Enhance BMDS Oversight, but More Can Be Done: 

Since its initiation in 2002, MDA has been given a significant amount 
of flexibility. While this flexibility allows agile decision making, it 
lessens the transparency of MDA's acquisition processes, making it 
difficult to conduct oversight and hold the agency accountable for its 
planned outcomes and costs. As we reported in March 2007, MDA operates 
with considerable autonomy to change goals and plans, which makes it 
difficult to reconcile outcomes with original expectations and to 
determine the actual cost of each block and of individual operational 
assets. In the past year, MDA has begun implementing two initiatives-- 
a new block construct and a new executive board--to improve 
transparency, accountability, and oversight. These initiatives 
represent improvements over current practices, although we see 
additional improvements MDA can make. In addition, Congress has 
directed that MDA begin buying certain assets with procurement funds 
like other programs, which should promote accountability for and 
transparency of the BMDS. 

New Block Structure Offers Improvements, but Does Not Resolve All 
Issues: 

In 2007, MDA redefined its block construct to better communicate its 
plans and goals to Congress. The agency's new construct is based on 
fielding capabilities that address particular threats as opposed to the 
previous biennial time periods. MDA's new block construct makes many 
positive changes. These include establishing unit cost for selected 
block assets, incorporating into a block only those elements or 
components that will be fielded during the block, and abandoning the 
practice of deferring work from block to block. 

These changes should improve the transparency of the BMDS program and 
make MDA more accountable for the investment being made in missile 
defense. For example, the actual cost of each block can be tracked 
because MDA will no longer defer work planned for one block, along with 
its cost, to a future block. In addition, MDA plans to develop unit 
costs for selected BMDS assets--such as THAAD interceptors--so that the 
cost of those assets can be monitored. In addition, the agency plans to 
request an independent verification of these unit costs and report 
significant cost growth to Congress. However, MDA has not yet 
determined all of the assets that will report a unit cost or how much a 
unit cost must increase before it is reported to Congress. 

Although improvements are inherent in MDA's proposed block construct, 
the new construct does not resolve all transparency and accountability 
issues. For example, MDA has not yet estimated the full cost of a 
block. According to its fiscal year 2009 budget submission, MDA does 
not initially plan to develop a full cost estimate for any BMDS block. 
Instead, when a firm commitment can be made to Congress for a block of 
capability, MDA will develop a budget baseline for the block. This 
budget will include anticipated funding for each block activity that is 
planned for the 6 years included in DOD's Future Years Defense 
Plan.[Footnote 5] Once baselined, if the budget for a block changes, 
MDA plans to report and explain those variations to Congress. At some 
future date, MDA does expect to develop a full cost estimate for each 
committed block and is in discussions with DOD's Cost Analysis 
Improvement Group on having the group verify each estimate; but 
documents do not yet include a timeline for estimating block cost or 
having that estimate verified. Other DOD programs are required to 
provide the full cost estimate of developing and producing their weapon 
systems before system development and demonstration can begin. Until 
the full cost of each block is known, it will be difficult for decision 
makers to compare the value of investing in each block to the value of 
investing in other DOD programs or to determine whether a block is 
affordable over the long term. 

Another issue yet to be addressed is whether the concurrent development 
and fielding of BMDS assets will continue. Fully developing an asset 
and demonstrating its capability prior to production increases the 
likelihood that the product will perform as designed and can be 
produced at the cost estimated. To field an initial capability quickly, 
MDA accepted the risk of concurrent development and fielding during 
Block 2004. It continued to do so during Block 2006 as it fielded 
assets before they were fully tested. For example, by the end of Block 
2004, the agency realized that the performance of some ground-based 
interceptors could be degraded because the interceptors included 
inappropriate or potentially unreliable parts.[Footnote 6] As noted 
earlier, MDA has begun the process of retrofitting these interceptors, 
but work will not be completed until 2012. Meanwhile, there is a risk 
that some interceptors might not perform as designed. MDA has not 
addressed whether it will accept similar performance risks under its 
new block construct or whether it will fully develop and demonstrate 
all elements/components prior to fielding. 

MDA has not addressed whether it will transfer assets produced during a 
block to a military service for production and operation at the block's 
completion. Officials representing multiple DOD organizations recognize 
that transfer criteria are neither complete nor clear given the BMDS's 
complexity. Without clear transfer criteria, MDA has transferred the 
management of only one element--the Patriot Advanced Capability-3--to 
the military for production and operation. For other elements, MDA and 
the military services have been negotiating the transition of 
responsibilities for the sustainment of fielded elements-
-a task that has proven to be time consuming. Although MDA documents 
show that under its new block construct the agency should be ready to 
deliver BMDS components that are fully mission-capable, MDA officials 
could not tell us whether at the end of a block MDA's Director will 
recommend when management of components, including production 
responsibilities, will be transferred to the military. 

New Executive Board Offers Improved, but Not Full, Oversight: 

Oversight improvement initiatives are also underway for MDA. In March 
2007, the Deputy Secretary of Defense established a Missile Defense 
Executive Board (MDEB) to recommend and oversee implementation of 
strategic policies and plans, program priorities, and investment 
options for protecting the United States and its allies from missile 
attacks. The MDEB is also to replace existing groups and structures, 
such as the Missile Defense Support Group. 

The MDEB appears to be vested with more authority than its predecessor, 
the Missile Defense Support Group. When the Support Group was chartered 
in 2002, it was to provide constructive advice to MDA's Director. 
However, the Director was not required to follow the advice of the 
group. According to a DOD official, although the Support Group met many 
times initially, it did not meet after June 2005. This led to the 
formation of the MDEB. Its mission is to review and make 
recommendations on MDA's comprehensive acquisition strategy to the 
Deputy Secretary of Defense. It is also to provide the Under Secretary 
of Defense (Acquisition, Technology and Logistics) with a recommended 
strategic program plan and a feasible funding strategy based on 
business case analysis that considers the best approach to fielding 
integrated missile defense capabilities in support of joint MDA and 
warfighter objectives. The MDEB will be assisted by four standing 
committees. These committees, which are chaired by senior-level 
officials from the Office of the Secretary of Defense and the Joint 
Staff, could play an important oversight role as they are expected to 
make recommendations to the MDEB, which in turn, will recommend courses 
of action to the Under Secretary of Defense and the Director, MDA as 
appropriate. 

Although the MDEB is expected to exercise some oversight of MDA, it 
will not have all the information normally available to DOD oversight 
bodies. For other major defense acquisition programs, the Defense 
Acquisition Board has access to critical information because before a 
program can enter the System Development and Demonstration phase of the 
acquisition cycle, statute requires that certain information be 
developed. However, in 2002, the Secretary of Defense deferred 
application of DOD policy to BMDS that, among other things, requires 
major defense programs to obtain approval before advancing from one 
phase of the acquisition cycle to another. Because MDA does not yet 
follow this cycle, and has not yet entered System Development and 
Demonstration, it has not triggered certain statutes requiring the 
development of information that the Defense Acquisition Board uses to 
inform its decisions. For example, most major defense acquisition 
programs are required by statute to obtain an independent verification 
of life-cycle cost estimates prior to beginning system development and 
demonstration, and/or production and deployment. Independent life- 
cycle cost estimates provide confidence that a program is executable 
within estimated cost. Although MDA plans to develop unit cost for 
selected block assets and to request that DOD's Cost Analysis 
Improvement Group verify the unit costs, the agency does not initially 
plan to develop a block cost estimate and therefore, cannot seek an 
independent verification of that cost. Although MDA will not be 
required to obtain an independent verification of block costs when they 
are estimated, MDA officials told us that they have initiated 
discussions with the Cost Analysis Improvement Group on independent 
verifications of block cost estimates. 

Statute also requires an independent verification of a system's 
suitability for and effectiveness on the battlefield through 
operational testing before a program can proceed beyond low-rate 
initial production.[Footnote 7] After testing is completed, the 
Director for Operational Test and Evaluation assesses whether the test 
was adequate to support an evaluation of the system's suitability and 
effectiveness for the battlefield, whether the test showed the system 
to be acceptable, and whether any limitations in suitability and 
effectiveness were noted. However, a comparable assessment of the BMDS 
assets being fielded will not be available to the MDEB. As noted 
earlier, the limited amount of testing completed, which has been 
primarily developmental in nature, and the lack of verified, validated, 
and accredited models and simulations prevent the Director of 
Operational Test and Evaluation from fully assessing the effectiveness, 
suitability, and survivability of the BMDS in annual assessments. 

MDA will also make some decisions without needing approval from the 
MDEB or any higher level DOD official. Although the charter of the MDEB 
includes making recommendations to MDA and the Under Secretary of 
Defense (Acquisition, Technology and Logistics) on investment options, 
program priorities, and MDA's strategy for developing and fielding an 
operational missile defense capability, the MDEB will not necessarily 
have the opportunity to review and recommend changes to BMDS blocks. 
MDA documents show that the agency plans to continue to define each 
block of development without requiring input from the MDEB. According 
to a briefing on the business rules and processes for MDA's new block 
structure, the decision to initiate a new block of BMDS capability will 
be made by MDA's Director. Also cost, schedule, and performance 
parameters will be established by MDA when technologies that the block 
depends upon are mature, a credible cost estimate can be developed, 
funding is available, and the threat is both imminent and severe. The 
Director will inform the MDEB as well as Congress when a new block is 
initiated, but he will not seek the approval of either. 

Finally, there will be parts of the BMDS program that the MDEB will 
have difficulty overseeing because of the nature of the work being 
performed. MDA plans to place any program that is developing technology 
in a category known as Capability Development. These programs, such as 
ABL, KEI, and MKV, will not have a firm cost, schedule, or performance 
baseline. This is generally true for technology development programs in 
DOD because they are in a period of discovery, which makes schedule and 
cost difficult to estimate. Yet, the scale of the technology 
development in BMDS is unusually large, ranging from $2 billion to 
about $5 billion dollars a year--eventually comprising nearly half of 
MDA's budget by fiscal year 2012. The MDEB will have access to the 
budgets planned for these programs over the next 5 or 6 years, each 
program's focus, and whether the technology is meeting short-term key 
events or knowledge points. But without some kind of baseline for 
matching progress with cost, the MDEB will not know how much more time 
or money will be needed to complete technology maturation. MDA's 
experience with the ABL program provides a good example of the 
difficulty in estimating the cost and schedule of technology 
development. In 1996, the ABL program believed that all ABL technology 
could be demonstrated by 2001 at a cost of about $1 billion. However, 
MDA now projects that this technology will not be demonstrated until 
2009 and its cost has grown to over $5 billion. 

MDA Directed to Use Procurement Funding: 

In an effort to further improve the transparency of MDA's acquisition 
processes, Congress has directed that MDA's budget materials delineate 
between funds needed for research, development, test and evaluation; 
procurement; operations and maintenance; and military 
construction.[Footnote 8] Congress gave MDA the flexibility to field 
certain assets using research, development, test and evaluation funding 
which allowed MDA to fund the purchase of assets over multiple years. 
Congress recently restricted MDA's authority and required MDA to 
purchase certain assets with procurement funds. Using procurement funds 
will mean that MDA will be required to ensure that assets are fully 
funded in the year of their purchase, rather than incrementally funded 
over several years. Additionally, our analysis of MDA data shows that 
incremental funding is usually more expensive than full-funding, in 
part, because inflation decreases the buying power of the dollar each 
year. For example, after reviewing MDA's incremental funding plan for 
THAAD fire units and Aegis BMD missiles, we analyzed the effect of 
fully funding these assets and found that the agency could save about 
$125 million by fully funding their purchase and purchasing them in an 
economical manner. In the National Defense Authorization Act for Fiscal 
Year 2008, Congress directed that MDA request procurement funding and 
advanced procurement funding for long lead items in its fiscal year 
2009 budget including funding for THAAD fire units and Aegis BMD SM-3 
missiles. MDA did not request such funding because it slipped the 
schedule for procuring THAAD fire units 3 and 4 by one year and because 
the National Defense Authorization Act for Fiscal Year 2008 was not 
signed in time to allow MDA to adjust its budget request for SM-3 
missiles. However, in MDA's fiscal year 2010 budget submittal, the 
agency intends to incorporate a detailed plan of action and milestones 
to transition from incremental funding to full funding beginning in 
fiscal year 2010 and for all fiscal years thereafter. 

Actions Recommended in Our Recent Report: 

In our March 2008 report, we made several recommendations to build on 
efforts to further improve the transparency, accountability, and 
oversight of the missile defense program. Specifically, we recommended 
that the Secretary of Defense direct: 

* MDA to develop a full cost for each block and request an independent 
verification of that cost; 

* MDA to clarify the criteria that it will use for reporting unit cost 
variances to Congress; 

* MDA to examine a contractor's planning efforts when 20 percent or 
more of a contract's work is proposed as level of effort; 

* MDA to investigate ways of developing a baseline or some other 
standard against which the progress of technology programs may be 
assessed; and: 

* MDA and the Director of Operational Test and Evaluation to agree on 
criteria and incorporate corresponding scope into developmental tests 
that will allow a determination of whether a block of BMDS capability 
is suitable and effective for fielding. 

DOD concurred with the first three recommendations DOD partially 
concurred with the remaining two recommendations to investigate ways of 
developing a baseline or some other standard against which the progress 
of technology programs may be assessed and to agree on criteria and 
incorporate corresponding scope into developmental tests. DOD stated 
that MDA already uses key knowledge points, technology levels, and 
engineering readiness levels to assess the progress of technology 
programs and that it will continue to investigate other ways of making 
such assessments. DOD also noted that MDA's mission is to work with the 
warfighter, rather than Director of Operational Test and Evaluation, to 
determine that the BMDS is ready for fielding. However, DOD stated that 
MDA will continue to work with operational testers to strengthen the 
testing of BMDS suitability and effectiveness. We believe that DOD and 
Congress would benefit from understanding the remaining cost and time 
needed to complete a technology program, important information that 
MDA's methods do not yet provide. Since BMDS testing will continue to 
serve both developmental and operational purposes, its scope should be 
sufficient to enable the Director of Operational Test and Evaluation to 
evaluate the system's operational effectiveness, suitability, and 
survivability. 

Mr. Chairman, this concludes my statement. I would be pleased to 
respond to any questions you or members of the subcommittee may have. 

Contact and Staff Acknowledgments: 

For questions about this statement, please contact me at (202) 512-4841 
or Francisp@gao.gov. Individuals making key contributions to this 
statement include David Best, Assistant Director; LaTonya D. Miller; 
Steven B. Stern; Meredith Allen Kimmett; Kenneth E. Patton; and Alyssa 
Weir. 

[End of section] 

Footnotes: 

[1] The BMDS also includes a 10th element, Patriot Advanced Capability- 
3 which has been transferred to the Army for production, operation, and 
sustainment. This report does not evaluate Patriot because its initial 
development is complete and is now being managed by the Army. 

[2] In March 2006, MDA made reductions to its block 2006 goals. It was 
able in nearly all instances to meet or exceed these revised goals. Two 
elements--GMD and C2BMC--were able to exceed their revised fielding 
goals. In addition, the Aegis BMD element was able to meet its revised 
block goals for one of its two components. The program upgraded all 
planned ships, but fielded three fewer Aegis BMD Standard Missile-3s 
(SM-3) than planned because the missiles were delayed into 2008 to 
accommodate an unanticipated requirement to deliver three missiles to 
Japan. 

[3] Earned Value Management (EVM) is a program management tool that 
integrates the technical, cost, and schedule parameters of a contract. 
During the planning phase, an integrated baseline is developed by time 
phasing budget resources for defined work. As work is performed and 
measured against the baseline, the corresponding budget value is 
"earned". Using this earned value metric; cost and schedule variances 
can be determined and analyzed. EVM is program management that provides 
significant benefits to both the Government and the contractor. 

[4] GAO, Defense Acquisitions: Missile Defense Acquisition Strategy 
Generates Results but Delivers Less at a Higher Cost, GAO-07-387 
(Washington, D.C.: Mar.15, 2007). BMDS performance goals included a 
numerical goal for the probability of a successful BMDS engagement, a 
defined area from which the BMDS would prevent an enemy from launching 
a ballistic missile, and a defined area that the BMDS would protect 
from ballistic missile attacks. 

[5] There are five blocks included in the new block construct--1.0, 
2.0, 3.0, 4.0, and 5.0. MDA expects to initially develop budget 
baselines and report variances to this baseline for Blocks 1.0, 2.0, 
and a portion of 3.0. 

[6] See GAO, Defense Acquisitions: Missile Defense Agency Fields 
Initial Capability but Falls Short of Original Goals, GAO-06-327 
(Washington, D.C.: Mar. 15, 2006). 

[7] The Defense Acquisition Board advises the Under Secretary of 
Defense for Acquisition, Technology, and Logistics on critical 
acquisition decisions. 

[8] 10 U.S.C  2399 requires completion of initial operational test and 
evaluation of a weapon system before a program can proceed beyond low-
rate initial production. According to DOD policy, low-rate initial 
production is intended to result in completion of manufacturing 
development in order to ensure adequate and efficient manufacturing
capability and to produce the minimum quantity necessary to provide 
production or production-representative articles for operational test 
and evaluation, establish an initial production base for the system; 
and permit an orderly increase in the production rate for the system, 
sufficient to lead to full-rate production upon successful completion of
operational (and live-fire, where applicable) testing. 

[9] The National Defense Authorization Act for Fiscal Year 2008, Pub. 
L. No. 110-181,  223. 

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