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entitled 'Defense Acquisitions: Actions Needed to Ensure Adequate 
Funding for Operation and Sustainment of the Ballistic Missile Defense 
System' which was released on September 7, 2005. 

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Report to the Subcommittee on Strategic Forces, Committee on Armed 
Services, House of Representatives: 

United States Government Accountability Office: 

GAO: 

September 2005: 

Defense Acquisitions: 

Actions Needed to Ensure Adequate Funding for Operation and Sustainment 
of the Ballistic Missile Defense System: 

GAO-05-817: 

GAO Highlights: 

Highlights of GAO-05-817, a report to the Subcommittee on Strategic 
Forces, Committee on Armed Services, House of Representatives: 

Why GAO Did This Study: 

In 2002, the Department of Defense (DOD) implemented a new acquisition 
model to develop a Ballistic Missile Defense System (BMDS) that 
included all major missile defense acquisitions, some of which were 
being developed by the military services. The model called for the 
management and funding responsibility for production, operation, and 
sustainment of a capability to be transferred to a military service 
when a BMDS element or major component is technically mature and plans 
for production are well developed. 

The Missile Defense Agency (MDA) was given responsibility for 
developing the BMDS and recommending the transfer of management and 
funding responsibilities to the services. In 2004, MDA emplaced an 
initial missile defense capability, but DOD did not transfer management 
and funding responsibility for that capability. Because a formal 
transfer did not occur, GAO was asked to (1) identify DOD’s criteria 
for deciding when a missile defense capability should be transferred to 
a service and (2) determine how DOD is managing the costs of fielding a 
BMDS capability. 

What GAO Found: 

There is currently uncertainty as to which assets may eventually be 
transferred to each military service and under what conditions those 
transfers should occur. This uncertainty makes it difficult for the 
services to plan to address the requirements of DOD acquisition 
regulations and realign their budgets to support the missile defense 
mission. According to MDA and other DOD officials, when transfer 
criteria were established in 2002, the Department did not fully 
understand the complexity of the BMDS and how it could affect transfer 
decisions. For example, it has been difficult to determine whether MDA 
or a military service will be responsible for managing and funding some 
assets, such as stand-alone missile defense radars, because these 
assets are not integrated on service platforms or do not perform core 
service missions. MDA officials suggested that these components could 
be operated by either contractors or military personnel and MDA might 
fund their operation and sustainment. A team that includes 
representatives from the military services, the combatant commands, 
MDA, and other DOD offices was established early this year to address 
transfer issues. However, because MDA and the services have been unable 
to reach agreement on the transfer of some missile defense assets, a 
unit under the Joint Chiefs of Staff was tasked in July 2005 with 
recommending revisions to the existing transfer criteria. 

MDA budgeted $1.5 billion of its fiscal year 2005 research and 
development funds to acquire interceptors and radars and upgrade 
various BMDS components. It expects to continue to acquire and upgrade 
BMDS assets through 2011 and beyond. However, MDA and the services 
disagree as to who should pay for operating and sustaining the initial 
defensive capability after fiscal year 2005. Additionally, although DOD 
has budgeted $68.5 billion to develop, procure, operate, and sustain a 
missile defense capability between 2005 and 2011, it has not completely 
determined whether additional operation and sustainment funds will be 
needed, and it has not included all known operation and sustainment 
costs in its budget. Until DOD decides who will fund these costs, the 
services will likely continue to provide only the funding that they 
have been directed to provide. As a result, some needs—for which 
neither MDA nor the services have planned—will go unfunded. 
Additionally, if the funds budgeted for some purposes, such as 
logistical support for the BMDS, turn out to be insufficient, DOD will 
either have to take funds from other programs or spend less on missile 
defense. 

What GAO Recommends: 

GAO is making recommendations that will assist in clarifying MDA and 
military service roles and responsibilities for missile defense assets. 
DOD agreed to implement these recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-817. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robert E. Levin at (202) 
512-4841 or levinr@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

DOD Established Transfer Criteria But Changes Are Being Considered: 

MDA and the Military Services Disagree on Funding Responsibilities: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Air Force Officials Concerned with Some MDA Funding Plans: 

Air Force Believes Radar Test Equipment Is Needed: 

Appendix II: MDA and the Air Force Disagree as to Which Should Pay 
Eareckson Support Costs: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Total Planned Expenditures for Missile Defense, Fiscal Years 
2005-2011: 

Table 2: Research, Development, and Test Funds Devoted to Acquiring 
Missile Defense Capabilities: 

Table 3: Elements or Components MDA Plans to Acquire or Upgrade for 
Fielding between 2004 and 2011: 

Table 4: The Fiscal Year 2005 Cost of MDA's Support Agreements: 

Figures: 

Figure 1: Examples of Missile Defense Systems for which MDA Became 
Fully Responsible: 

Figure 2: Intended Model for Each Acquisition Phase: 

Abbreviations: 

BMDS: Ballistic Missile Defense System: 

DOD: Department of Defense: 

MDA: Missile Defense Agency: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 6, 2005: 

The Honorable Terry Everett: 
Chairman: 
The Honorable Silvestre Reyes: 
Ranking Minority Member: 
Subcommittee on Strategic Forces: 
Committee on Armed Services: 
House of Representatives: 

In 2002, the Secretary of Defense directed the Department of Defense 
(DOD) to adopt a new acquisition model for acquiring a missile defense 
capability.[Footnote 1] This model, which is intended to more quickly 
place a capability in the hands of the warfighter, gives the Missile 
Defense Agency (MDA) responsibility for developing the Ballistic 
Missile Defense System (BMDS), a system that includes all major missile 
defense acquisitions, some of which were being developed by the 
military services. Once capabilities useful to the warfighter are 
developed, the management and funding responsibility for production, 
operation, and sustainment of the capability is to be transferred to a 
military service.[Footnote 2]

In 2004, MDA emplaced an initial missile defense capability, but it did 
not transfer management and funding responsibility for that capability, 
or any element or major component of that capability, to a military 
service. Because a formal transfer did not occur,[Footnote 3] you asked 
that we determine (1) the criteria that DOD is using to decide when a 
missile defense capability should be transferred to a military service 
and (2) how DOD is allocating the cost of fielding a BMDS capability in 
fiscal years 2005 through 2011, if fielding costs have been fully 
identified, and if all costs expected to be incurred between 2006 and 
2011 are included in DOD's budget. 

To conduct our work, we examined relevant documents, such as directives 
issued by the Secretary of Defense and the Under Secretary of Defense 
for Acquisition, Technology and Logistics; installation support and 
services agreements between MDA and the Army and the Air Force; 
Integrated Product Team briefing charts and minutes; and fiscal year 
2006 budget documents. We also held discussions with the Office of the 
Under Secretary of Defense for Acquisition, Technology and Logistics; 
Office of the Under Secretary of Defense for Policy; Office of the 
Under Secretary of Defense (Comptroller); the Joint Theater Air and 
Missile Defense Organization; the Missile Defense Agency; and the 
Departments of the Army, Air Force, and Navy. We conducted our review 
from October 2004 to August 2005 in accordance with generally accepted 
government auditing standards. 

Results in Brief: 

DOD is in the process of considering revisions to the criteria that it 
will use to decide when and under what conditions elements and 
components will be transferred from MDA to the military services. 
Criteria established by the Under Secretary of Defense for Acquisition, 
Technology and Logistics in December 2002 called for a transfer when an 
element or component was technically mature, plans for production were 
well developed, and funds had been allocated to carry out the 
production plans. However, officials across the department now 
recognize that the transfer criteria are neither complete nor clear 
given the BMDS's complexity. For example, it has been difficult to 
determine whether MDA or a military service will be responsible for 
managing and funding some assets, such as stand-alone missile defense 
radars, because these assets are not integrated on service platforms or 
do not perform core service missions. MDA officials suggested that 
these components could be operated by either contractors or military 
personnel and MDA might fund their operation and sustainment. Early 
this year, a team that includes representatives from the Missile 
Defense Agency, the Office of the Secretary of Defense, the military 
services, and the U.S. Strategic and Northern Commands was established 
to develop individual transfer plans for each BMDS element or major 
component. However, because MDA and the services have been unable to 
reach agreement on the transfer of some missile defense assets, a unit 
under the Joint Chiefs of Staff was tasked in July 2005 with 
recommending revisions to the existing transfer criteria. 

In providing direction on the implementation of the 2002 acquisition 
model, the Secretary of Defense directed the military services to 
budget the resources to procure and operate the planned force structure 
for fielding the BMDS. However, MDA and the military services continue 
to disagree as to which organization should pay for operating and 
sustaining the initial missile defense capability, which remains under 
MDA's management, after fiscal year 2005. Additionally, DOD has not yet 
determined the full cost of procuring, operating, and sustaining the 
initial capability from 2006 through 2011, and it has not included all 
known costs in its budget. While the military services do not object to 
funding the operation and sustainment costs of elements or major 
components transferred to them, the military services do not believe 
that they should pay these costs for developmental assets even though 
the assets may be available for operational use. It is likely that 
until DOD decides which organization will fund these costs, the 
military services will continue to provide only the funding that they 
were directed to provide in a 2003 Program Decision Memorandum and some 
needs, for which neither MDA nor the military services have planned, 
will go unfunded. Additionally, if the funds budgeted for some 
purposes, such as logistical support for the BMDS, turn out to be 
insufficient, DOD will either have to take funds from other programs or 
spend less on missile defense. 

We are making recommendations to DOD that will assist in clarifying the 
roles and responsibilities of MDA and the military services for 
managing and funding missile defense assets. In commenting on a draft 
of this report, DOD agreed to implement our recommendations. 

Background: 

In 2001, DOD conducted missile defense reviews to determine how best to 
fulfill the nation's need to defend the United States, deployed forces, 
allies, and friends from ballistic missile attacks. The findings of 
these reviews led the Secretary of Defense to declare the need for a 
new strategy to acquire and deploy missile defenses and to issue 
direction in January 2002 to improve the leadership, management, and 
organization of missile defense activities. 

Specifically, the Secretary delegated to MDA the authority to manage 
all ballistic missile defense systems under development and shifted 
programs being executed or developed by the military services to MDA. 
Figure 1 below describes some of the missile defense programs whose 
execution or development was transferred from the military services 
into MDA. 

Figure 1: Examples of Missile Defense Systems for which MDA Became 
Fully Responsible: 

[See PDF for image]

[End of figure]

The Secretary also instructed MDA to develop a single integrated 
system, to be called the Ballistic Missile Defense System, capable of 
intercepting enemy missiles launched from all ranges and in all phases 
of their flight. The systems transferred from or executed by the 
services and new systems whose development MDA initiates are considered 
to be elements of the BMDS and are managed by MDA. In 2002, drawing on 
research and development efforts that were ongoing for years, MDA 
established the Command, Control, Battle Management, and Communications 
system as an element to provide connectivity between other BMDS 
elements and to manage their operation as an integrated, layered 
missile defense system. 

In his direction to MDA and the military services, the Secretary called 
for a capabilities-based requirements process and an evolutionary 
development program. In a capabilities-based program, the system 
developer--MDA--designs a system based on the technology available, 
rather than designing a system to meet requirements established by 
those that will use the system. Additionally, in an evolutionary 
program, a baseline capability is developed that is improved over time. 
Therefore, the BMDS has no fixed design or final architecture. Each 
evolution, or block, as MDA calls such increments, is meant to take 
advantage of advancing technology so that over time the BMDS is 
enhanced. MDA's capabilities-based evolutionary approach to development 
is meant to provide a capability to the users as quickly as possible 
while also maintaining flexibility. MDA is in the process of developing 
the first BMDS block, which is known as Block 2004. This block consists 
of the Ground-Based Midcourse Defense, Aegis Ballistic Missile Defense, 
Patriot Advanced Capability-3, and Command, Control, Battle Management, 
and Communications elements, as well as the Forward- Based X-Band 
Radar.[Footnote 4]

The Secretary also established a procedure for making developmental 
assets available for operational use. On the basis of assessments of 
the BMDS's military utility, progress in development, and a 
recommendation by the Director, MDA, and the military services, the 
Secretary, with input from the DOD Senior Executive Council, decides 
whether assets whose development is ongoing should be fielded.[Footnote 
5] When such a decision is made, the Secretary directed that the 
military departments provide forces to support the early fielding and 
budget resources to procure and operate the planned force structure. In 
December 2002, the President directed DOD to begin fielding an initial 
set of missile defense capabilities to meet the near-term ballistic 
missile threat to our nation. MDA responded by emplacing Block 2004 
developmental assets for use against limited attacks. However, the 
Secretary has not yet activated this capability by placing it on alert. 

The Secretary's 2002 direction intended that acquisition of missile 
defense elements and components be completed in three phases. In the 
first phase, MDA develops ballistic missile defense elements and 
components using research, development, test, and evaluation funds. 
When appropriate, the MDA Director recommends and the Senior Executive 
Council approves the entry of an element or major component into the 
second phase, known as the transition phase. This phase allows the 
military services to prepare for the element's or component's transfer. 
During the third phase, a military service--using procurement, 
operation and maintenance, and personnel funds--procures, operates, and 
sustains the element or component. Figure 2 includes some of the 
activities, such as those carried out by the Joint Air and Missile 
Defense Organization (JTAMDO)[Footnote 6] that DOD envisioned taking 
place during each of the three phases. 

Figure 2: Intended Model for Each Acquisition Phase: 

[See PDF for image]

[End of figure]

Finally, the Secretary's 2002 direction effectively allowed MDA to 
defer application of many of the requirements that are generally 
applied to the development of major systems under DOD's traditional 
acquisition system regulations.[Footnote 7] For example, the 
requirements for acquisition program baselines and independent cost 
estimates, generally applicable by statute to major defense acquisition 
programs and implemented by the DOD regulations, will not be applied 
until a BMDS element or component is transferred to a military service 
concurrent with Milestone C.[Footnote 8] Milestone C, the point at 
which a decision is made to begin initial production, is the point at 
which the service is to assume management and funding responsibility 
for an element or component of the BMDS. 

Once elements or components are transferred, the Secretary directed MDA 
to continue to fund modifications to fielded systems and to manage 
development activities for new missile defense capabilities.[Footnote 
9] The Secretary also gave MDA approval authority over any engineering 
changes that the military services might want to make to transferred 
BMDS elements. This process, known as configuration control, is meant 
to ensure that changes do not degrade the interoperability of the BMDS. 

MDA has recommended and DOD approved the transfer of one missile 
defense element to a military service since 2002. DOD transferred the 
Patriot Advanced Capability-3 program to the Army in 2003. MDA 
continues to exercise configuration control and provide funding for the 
development of Patriot Advanced Capability-3 missile defense-related 
upgrades.[Footnote 10]

DOD Established Transfer Criteria But Changes Are Being Considered: 

In December 2002, the Under Secretary of Defense for Acquisition, 
Technology and Logistics established criteria for deciding when to 
transfer acquisition responsibility from MDA to the military services. 
The specified criteria are (1) testing demonstrates that an element or 
component is mature, (2) plans and resources are in place to ensure 
that facilities are available to support production, and (3) funds are 
programmed in DOD's Future Years Defense Program to carry out 
production plans.[Footnote 11] After the Under Secretary established 
these criteria, one BMDS element--the Patriot Advanced Capability-3-- 
was transferred to a military service. 

However, officials across DOD now recognize that the transfer criteria 
are neither complete nor clear and believe that revised criteria are 
needed for deciding to move an element or component into the transition 
phase. These officials told us that when the Under Secretary 
established transfer criteria in 2002, DOD did not fully understand the 
complexity of the BMDS and how it could affect transfer decisions. 

MDA's Director testified earlier this year that MDA will use several 
models to transfer system elements to the military services and that it 
may not be appropriate to transfer some elements or 
components.[Footnote 12] In such cases, he envisions the services and 
MDA sharing responsibilities for the assets. Further, he said that MDA 
will continue to work with the Secretary of Defense, the military 
services, and the Combatant Commanders to arrange appropriate transfers 
on a case-by-case basis. 

MDA Contemplates a Revised Acquisition Model: 

There is currently uncertainty as to when and under what conditions DOD 
will transfer management and funding responsibility for elements and 
major components from MDA to the military services. The acquisition 
model directed by the Secretary in 2002 is now viewed by many in DOD as 
needing modifications to meet the evolving needs of a complex ballistic 
missile defense system. 

Although MDA began to emplace Block 2004 developmental assets for the 
warfighters' potential use, it is not ready to transfer management 
responsibility for some of these assets to the military services. 
According to officials in MDA's Business Management Office, continued 
management of some system elements and components by MDA may be 
necessary to fully develop the overall effectiveness of the BMDS. For 
example, if the missile-tracking capability of the Space Tracking and 
Surveillance System is going to be added to the BMDS, MDA will need to 
test it with other BMDS elements to determine how to make all elements 
work together most effectively. To do this, MDA believes it must have 
the authority to pull back elements or components that are fielded so 
that the elements and components can be utilized in developmental 
efforts. 

The MDA officials also indicated that full transfer of elements and 
components could threaten the priority that the President and DOD have 
given to missile defense. The officials told us that the military 
services could subordinate missile defense missions to service 
missions, funding service programs at the expense of the missile 
defense program. Service acquisition officials and officials in the 
Office of the Secretary of Defense agreed that the military services 
have many competing priorities and that should missile defense programs 
be transferred to a service, those programs would likely have to 
compete with service programs for procurement, operations, and 
sustainment funds. 

Officials in MDA's transition office offered examples of how management 
and funding responsibility of elements and components currently in 
development might be handled. 

* Management responsibility for some elements and components might 
never be transferred to a military service because these assets are not 
integrated on service platforms or do not perform core service 
missions. Examples include the Cobra Dane radar, the Forward-Based X- 
Band radars, and the Sea-Based X-Band radar. MDA officials suggested 
that these components could be operated by either contractors or 
military personnel,[Footnote 13] and MDA might fund their operation and 
sustainment. However, discussions are still ongoing as to whether these 
components will eventually be transferred to the military services. 

* MDA and a military service might be collaboratively involved in the 
management of other assets, such as the Airborne Laser, the Kinetic 
Energy Interceptor, the Space Tracking and Surveillance System, and 
Terminal High Altitude Area Defense because these elements are not yet 
technically mature and MDA needs to manage their development.[Footnote 
14] The services will remain closely involved to provide feedback on 
the development process. As the capability of these elements is ready 
to be demonstrated, MDA will acquire them in limited quantities. For 
example, MDA plans to acquire two Terminal High Altitude Area Defense 
fire units, which include 48 missiles. If early tests are successful, 
MDA will turn the first fire unit over to the Army in 2009. The Army 
will operate it and provide feedback on its performance. Once any of 
these assets are available for operational use, MDA believes that the 
services should accept some responsibility for funding their operation 
and sustainment costs. 

Officials in MDA's transition office told us that management 
responsibility for assets in this group may eventually be handed over 
to a military service. The officials said that the transition status of 
an element is a function of technical maturity, programmatic 
achievement, time, and relative stakeholder involvement. 

* Management and funding responsibility for other systems already have 
or likely will be transitioned to a military service because they have 
reached or are nearing technical maturity. As mentioned above, MDA 
transferred responsibility for the Patriot Advanced Capability-3 to the 
Army in 2003, and it is likely that in the future MDA will transfer 
responsibility for Aegis Ballistic Missile Defense to the Navy. 
Officials in MDA's transition office told us that Aegis Ballistic 
Missile Defense is reaching technical maturity, as demonstrated by its 
being fielded operationally on Navy ships. The Navy is almost certain 
to accept responsibility for the Aegis missile defense capability 
because it is mounted on the Aegis ships. 

Service Officials Emphasize Need for Sufficient Advance Notice of 
Transfers: 

Service acquisition officials told us that they need sufficient notice 
to prepare for a transfer and enough time to ensure that funds are 
available to produce, operate, and sustain the system. Several things 
have to be done for a service to operate and maintain a system. For 
example, personnel have to be assigned and trained, a command structure 
has to be organized, and facilities may have to be provided for the 
system and its operators. Also, because transferred elements of the 
BMDS will enter DOD's acquisition cycle at Milestone C, other 
activities have to be completed in advance of the milestone to ensure 
compliance with DOD acquisition regulations. For example, the 
documentation required by the Chairman of the Joint Chiefs of Staff 
Capabilities Integration and Development System must be completed and 
an independent cost estimate must be obtained. Service officials 
estimated that it takes at least a year and a half to complete all of 
the tasks needed to meet Milestone C requirements of the DOD 
acquisition regulations. 

Sufficient advance notice is also needed for budgeting purposes. One 
DOD official said that until responsibilities are established and 
transition plans are in place, it is difficult for the services to plan 
their budgets. If transfers take place with little advance notice, DOD 
will either have to provide the services with additional funds for the 
production, operation, and sustainment of BMDS elements or direct the 
services to support the BMDS assets with funds reserved for service 
missions. In written comments on a draft of this report, DOD said that 
there is no basis to presume that programs will transfer from MDA to 
the services with insufficient notice because of the process 
established by the Secretary and described above. 

Work Begun to Develop Transfer Plans and Revise Criteria: 

Early in 2005, an Integrated Product Team was established to develop 
transition plans. The team's mission is to: 

* specify management and funding responsibilities for MDA and the 
military services;

* work out a strategy for establishing doctrine, planning an 
organizational structure and its leadership, developing training and 
materiel, and providing personnel and facilities;

* provide appropriate notification for service budget requirements;

* establish configuration control procedures; and: 

* ensure mission success. 

The team has conducted three meetings to date at the colonel and 
captain level and two at the general officer level. The inaugural 
meeting of colonels and captains was held on January 21, 2005. It was 
attended by almost 80 people who represented MDA, the Office of the 
Secretary of Defense, the military services, the U.S. Strategic 
Command, and the U.S. Northern Command. An MDA executive official 
chairs the team. Two more meetings (one at each level) are planned, 
along with numerous meetings of support working groups. 

Officials in MDA's transition office told us that the team will draw up 
a broad plan, but it will include annexes tailored for each individual 
element or component. These annexes will specify the likely date that 
the element or component under consideration will be transferred; 
identify how MDA, the affected military service, and the combatant 
commander will share responsibilities; provide the status of existing 
contracts; identify funding requirements; and lay out tasks and 
milestones in the transfer process. MDA transition office officials 
also told us that the annexes may propose handovers from MDA to the 
services that are not as formal as the transfers originally envisioned 
by the Secretary of Defense. 

Each individual transition plan will be cosigned by MDA's Director and 
a military service representative. However, DOD officials noted that 
the team will likely have disputes that can only be decided by 
officials in the Office of the Secretary of Defense. DOD and service 
acquisition officials expressed concern that although the Integrated 
Product Team members may be able to plan transition details, they 
likely will not be empowered to make major decisions or resolve major 
impasses. However, MDA transition office officials told us that the 
team's objective is to secure agreement of transition and transfer 
plans at the lowest level possible. 

The Deputy for Ballistic Missile Defense, Missile Warfare Division, 
within the Office of the Under Secretary of Defense for Acquisition, 
Technology and Logistics, said that the current plan is to have the 
Missile Defense Support Group recommend solutions for impasses to the 
Under Secretary of Defense for Acquisition, Technology and 
Logistics.[Footnote 15] The Under Secretary would then consider the 
support group's recommendations, make any needed changes, and forward 
all transition/transfer plans to the Secretary of Defense for approval. 
According to the Deputy, the goal is to have DOD approve all transfer 
plans by December 31, 2005, so that direction is available to the 
appropriate DOD components as they begin preparing their 2008-2013 
budgets. 

In July 2005, the Director, Joint Staff, directed the Joint Staff's 
Deputy for Force Protection to establish a team to recommend revised 
criteria for making transfer decisions. The team members told us that 
the impetus for their study was the Integrated Product Team's 
difficulties in determining when and under what conditions military 
services should take responsibility for some BMDS components. They said 
that the military services are not eager to receive components, such as 
the Sea-Based X-Band Radar, Forward-Based X-Band Radar, and the Cobra 
Dane Radar, that do not provide a capability that furthers the military 
services' core missions. The team, which expects to complete its work 
by December 31, 2005, expects to work with the Integrated Product Team 
and the Missile Defense Support Group. 

MDA and the Military Services Disagree on Funding Responsibilities: 

In 2002, the Secretary of Defense directed the military services to 
budget the resources to procure and operate the planned force structure 
for an early missile defense capability. However, MDA and the military 
services continue to disagree as to which organization should pay, 
after 2005, for operating and sustaining developmental assets even 
though the assets may be available for operational use. Additionally, 
DOD has not yet determined the full cost of procuring, operating, and 
sustaining the BMDS from 2006 through 2011, and it has not included all 
known costs in its budget. Until DOD decides which organization will 
fund these costs, the services will likely continue to provide only the 
funding that they are directed to make available, and some needs, which 
neither MDA nor the services have planned for, will probably go 
unfunded. Additionally, if the funds budgeted for some purposes, such 
as logistical support for the BMDS, turn out to be insufficient, DOD 
will either have to take funds from other programs or spend less on 
missile defense. 

DOD reports that it will spend $68.5 billion between fiscal years 2005 
and 2011 to develop, acquire, and support missile defense capabilities, 
including an initial capability emplaced in 2004-2005 that can be used 
in the event of an emergency. MDA has been authorized by statute to use 
research and development funds for this purpose. Table 1 identifies the 
DOD components that have budgeted funds for missile defense activities 
through 2011. 

Table 1: Total Planned Expenditures for Missile Defense, Fiscal Years 
2005-2011: 

In millions of then-year dollars. 

DOD Component: MDA; 
Research, development,test & evaluation: $66,458; 
Military construction: $69; 
Total: $66,527. 

DOD Component: Air Force; 
Procurement: $59; 
Operation and maintenance: $174; 
Military personnel: $46; 
Total: $279. 

DOD Component: Army; 
Operation and maintenance: $475; 
Total: $475. 

DOD Component: Army National Guard; 
Operation and maintenance: $941; 
Military personnel: $165; 
Total: $1,106. 

DOD Component: Navy; 
Operation and maintenance: $144; 
Total: $144. 

Total; 
Research, development,test & evaluation: $66,458; 
Procurement: $59; 
Operation and maintenance: $1,734; 
Military construction: $69; 
Military personnel: $211; 
Total: $68,531. 

Source: DOD Fiscal Year 2006/2007 Budget Estimates, Research, 
Development, Test, and Evaluation, Defense-Wide, Volume 2, Missile 
Defense Agency. 

[End of table]

MDA Is Using RDT&E Funds to Acquire BMDS Components: 

In fiscal year 2005, MDA budgeted $1.5 billion of its research and 
development funds to acquire interceptors and radars and to upgrade 
various BMDS elements or components. It expects to continue to acquire 
and upgrade BMDS assets through 2011. Table 2 shows planned funding by 
fiscal year. 

Table 2: Research, Development, and Test Funds Devoted to Acquiring 
Missile Defense Capabilities: 

In billions of then-year dollars. 

FY 2006: $1.055; 
FY 2007: $1.754; 
FY 2008: $2.490; 
FY 2009: $2.085; 
FY 2010: $1.987; 
FY 2011: $1.201; 
Total: $10.572. 

Source: MDA, Fiscal Year 2006 Staffer Day Overview. 

[End of table]

A complete list of all assets that MDA is acquiring during Block 2004 
and plans to acquire or enhance from 2006-2011 is provided in table 3. 

Table 3: Elements or Components MDA Plans to Acquire or Upgrade for 
Fielding between 2004 and 2011: 

Element or component being acquired or upgraded for fielding: Terminal 
High Altitude Area Defense Element; 
Quantity to be acquired or upgraded for fielding during Block 2004: 0; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 2 
fire units, each with an inventory of 24 missiles. 

Element or component being acquired or upgraded for fielding: Aegis 
Ballistic Missile Defense's Standard Missile-3; 
Quantity to be acquired or upgraded for fielding during Block 2004: 8; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 93 
missiles. 

Element or component being acquired or upgraded for fielding: Ground- 
Based Midcourse Defense Element's Interceptor; 
Quantity to be acquired or upgraded for fielding during Block 2004: 14; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 30 
interceptors. 

Element or component being acquired or upgraded for fielding: Sea-Based 
X-Band Radar; 
Quantity to be acquired or upgraded for fielding during Block 2004: 1; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 0. 

Element or component being acquired or upgraded for fielding: Forward- 
Based X-Band Radar; 
Quantity to be acquired or upgraded for fielding during Block 2004: 1; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 3. 

Element or component being acquired or upgraded for fielding: Upgrades 
to Early Warning Radar located at various sites; 
Quantity to be acquired or upgraded for fielding during Block 2004: 2; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 1. 

Element or component being acquired or upgraded for fielding: 
Discrimination X-Band Radar; 
Quantity to be acquired or upgraded for fielding during Block 2004: 0; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 3. 

Element or component being acquired or upgraded for fielding: Upgrade 
of Aegis Cruiser to allow engagement of ballistic missiles; 
Quantity to be acquired or upgraded for fielding during Block 2004: 2; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 1. 

Element or component being acquired or upgraded for fielding: Upgrade 
of Aegis Destroyers to allow engagement of ballistic missiles; 
Quantity to be acquired or upgraded for fielding during Block 2004: 0; 
Quantity to be acquired or upgraded for fielding from 2006 to 2011: 15. 

Source: MDA and the military services. 

[End of table]

Although the elements or components shown in table 3 will be available 
to provide an increased missile defense capability, officials within 
MDA's transition office told us that responsibility for acquiring them 
will not be transferred to a military service. For example, MDA is 
acquiring two Terminal High Altitude Area Defense fire units, including 
48 missiles. The fire units will be made available to the Army so that 
soldiers can operate Terminal High Altitude Area Defense to provide 
feedback on its development and to defend against short-and medium- 
range ballistic missiles in the event of an emergency. Should the Army, 
or any other military service that has received a developmental asset, 
need additional units of an element or larger quantities of some 
components--for example, should the Army need more Terminal High 
Altitude Area Defense fire units or missiles--the officials suggested 
that the military service should be responsible for acquiring them. In 
addition, MDA would expect the services to budget funds for any common 
support equipment required for the elements that MDA is acquiring. For 
example, according to MDA's Terminal High Altitude Area Defense Program 
Office, it expects the Army to purchase trucks needed to move the two 
Terminal High Altitude Area Defense fire units' radar, launchers, and 
generators. 

However, no military service has budgeted funds for procurement of 
elements or components, and only the Air Force has included funds in 
its budget for support equipment. An official in the Air Force's 
Missile Warning and Defense Office within the Office of the Deputy 
Chief of Staff for Air and Space Operations told us that the Air Force 
included approximately $59 million in its fiscal year 2006-2011 budgets 
to acquire and sustain devices that detect incursions at Vandenberg Air 
Force Base and to improve test equipment for upgraded early-warning 
radars located at Beale (California) Air Force Base and at Fylingdales 
Air Force Station in the United Kingdom. However, the official told us 
that the cost of acquiring and sustaining the detection devices and the 
test equipment is expected to exceed planned funding. Further 
information on Air Force officials' concerns with MDA's plan for 
funding procurements is discussed in appendix 1. 

While the Army has not budgeted funds for support equipment, it has 
provided equipment from inventory to support the Ground-based Midcourse 
Defense element that MDA has emplaced at Fort Greely. An official from 
the Army's Air and Missile Defense/Space Division within the Office of 
the Assistant Secretary for Acquisition, Logistics and Technology told 
us that the Army, Army National Guard, and National Guard Bureau 
provided equipment, such as trucks, radios, and machine guns, from 
inventory to support the Ground-Based Midcourse Defense element. 
Additionally, pending Terminal High Altitude Area Defense test results 
and Senior Executive Council decisions, the official told us that the 
Army expects to include funds in its fiscal year 2008-2013 budgets for 
Terminal High Altitude Area Defense common support equipment. 

Military Services Fund Costs for Most Personnel Operating BMDS Assets: 

The military services are currently paying for most of the personnel 
who operate the missile defense assets. For example, an Army National 
Guard unit operates Ground-Based Midcourse Defense components located 
at Fort Greely, and Navy sailors operate the Aegis Ballistic Missile 
Defense element. The cost to the military services of operating these 
missile defense elements is not easily discernable because it is 
intermingled with other operation and sustainment costs. However, Army 
officials told us that the Army is providing about $2.4 million for 
missile defense operations in fiscal year 2005 and expects to incur an 
additional cost of $23.3 million for this purpose between fiscal years 
2006 and 2011. Navy officials told us that at this time the missile 
defense mission does not create additional personnel cost because the 
same sailors who stand watch in the combat information center to 
support conventional anti-air warfare missions also support the 
ballistic missile defense mission. Additionally, the Air Force has not 
identified any additional personnel cost between 2006 and 2011 to 
operate upgraded early warning radar for the missile defense mission. 

Officials in MDA's transition office told us that in the future MDA may 
use some of its research and development funds to operate major 
components that are bought in small quantities. The officials suggested 
that components such as the Forward-Based X-Band and Sea-Based X-Band 
radar, which may never be transferred to a military service, could be 
operated by contractor personnel who, at least through 2011, would be 
paid from funds set aside for contractor logistics support. 

MDA and Military Services Are Presently Sharing Sustainment Costs: 

In fiscal year 2005, MDA and the military services shared sustainment 
costs. These costs are incurred for (1) logistics support, which 
includes the services and materiel needed to support the fielded BMDS; 
(2) installation support and services costs, which are all of the 
additional costs incurred by an installation (or base) to support a 
resident tenant; and (3) other supplies, such as fuel and lubricants. 

Sustainment costs are generally one of the largest contributors to a 
weapon's life-cycle cost because weapon systems are usually in the 
field for years and require support during this time. Together, 
operation, maintenance, and disposal costs typically account for about 
72 percent of the total cost of a weapon system.[Footnote 16] However, 
MDA does not believe that this percentage can be used to estimate the 
sustainment cost of BMDS elements or components because MDA Program 
Officials expect fielded assets will be updated and improved more 
quickly than standard DOD weapon systems. If this proves true, an 
element or component may be in the field for only a few years before it 
is replaced with an enhanced configuration. But regardless of the 
length of time each configuration is in use, DOD will incur sustainment 
cost because each configuration must be sustained. 

Contractors to Provide Logistics Support: 

In December 2003, DOD's Program Decision Memorandum III directed MDA to 
assume all fiscal year 2005 and 2006 costs for materials and services 
needed to support the operation of primary BMDS mission equipment, 
critical spares, and standard military equipment. MDA is paying prime 
contractors, who are developing the elements that will be available for 
limited use, to provide this support in fiscal year 2005. For example, 
MDA has contracted with the Boeing Company to provide logistics support 
for the Ground-Based Midcourse Defense element. Transition office 
officials told us that they plan to continue this arrangement through 
2011. 

However, MDA cannot be sure that the funds set aside for logistics 
support will provide all of the material and services needed. 
Reliability and maintainability are key factors in the design of 
affordable and supportable systems. Generally reliability growth is the 
result of an iterative design, build, test, analyze, and fix 
process.[Footnote 17] However, officials in MDA's Business Management 
Office told us that because they have limited experience with the 
systems being fielded, they cannot estimate how often parts will break 
or how much repairs will cost. Additionally, as noted in table 3, MDA 
plans to add assets to its limited capability during this time frame, 
and as the quantity of assets increases, the cost of logistics support 
can be expected to grow. 

By 2007, MDA hopes to better understand the cost of logistics support. 
To gain this understanding, MDA has directed the contractors to collect 
and report reliability data, including data on the frequency of 
breakdowns and the cost of repairs. 

MDA and the Services Are Jointly Funding Installation Support and 
Services Costs: 

In fiscal year 2005, MDA and the military services are sharing the 
additional cost that the military services are incurring because BMDS 
elements or components and the personnel who work with them have been 
placed on military bases. Generally, a tenant on a military base is 
expected to reimburse its host (the military service whose base the 
tenant is occupying) for additional base support costs incurred because 
the tenant is in residence.[Footnote 18] For example, the tenant is 
expected to reimburse the host for the additional cost of 
communications services, lodging, and utilities. However, DOD's Program 
Decision Memorandum III directed the Army and Air Force to assume some 
installation costs related to missile defense. The Memorandum directed 
the Army to provide funds for Fort Greely installation costs and 
training, and the Air Force to fund additional security forces and 
infrastructure at Vandenberg Air Force Base.[Footnote 19]

To address the DOD memorandum's directions, the Army is supporting 
soldiers stationed at Fort Greely to operate deployed missile defense 
assets. This support includes providing mail services, health and food 
services, and chaplain services. The Army budgeted $42 million in 
fiscal year 2005 for these purposes and estimates that it will need 
about $402.7 million more between fiscal years 2006 and 2011. 

According to an official in the Air Force Missile Warning and Defense 
Office, the Air Force included some funds in its fiscal year 2006 
budget to procure and install detection devices at Vandenberg Air Force 
Base as directed by the memorandum. The official said funds were also 
included in the budgets for the following fiscal years (2007-2011) to 
sustain the devices. However, the official told us that a new cost 
estimate shows that it is likely to cost more to procure and install 
the devices than first estimated. Without the detection devices, Air 
Force officials estimate that additional security personnel will be 
needed, but funds for these personnel are not included in the Air 
Force's budget. Because the Air Force has not added all security forces 
needed, the security at Vandenberg is not at the level directed by U.S. 
Strategic Command. Additionally, because the Air Force had no funds set 
aside in fiscal year 2005 for missile defense active duty security 
personnel, the Air Force is mostly relying upon Air Reserve volunteers 
to provide some additional security for missile defense assets located 
at Vandenberg and Schriever Air Force Bases.[Footnote 20]

MDA Pays Most Installation Services and Support Costs in 2005: 

MDA is paying for other installation services and support costs that 
the DOD memorandum did not direct the military services to fund. 
Agreements have been finalized with the Army for installation services 
and support at Fort Greely and with the Air Force for services and 
support at Vandenberg and Schriever Air Force Bases and Eareckson Air 
Station. Table 4 exhibits the costs MDA has agreed to pay at each of 
the bases in fiscal year 2005. 

Table 4: The Fiscal Year 2005 Cost of MDA's Support Agreements: 

Dollars in millions. 

Installation: Fort Greely; 
Host: Army; 
Cost to be recovered from MDA: $5.53. 

Installation: Vandenberg Air Force Base; 
Host: Air Force; 
Cost to be recovered from MDA: $1.89. 

Installation: Eareckson Air Station; 
Host: Air Force; 
Cost to be recovered from MDA: $9.80[A]. 

Other Air Force facilities; 
Host: Air Force; 
Cost to be recovered from MDA: $2.21. 

Source: MDA. 

[A] Appendix II provides information on the disagreement between MDA 
and the Air Force as to which organization should pay support costs at 
Eareckson Air Station. 

[End of table]

MDA and the Services Disagree On Responsibility for Operation and 
Sustainment Costs: 

The 2003 Program Decision Memorandum directed the military services, 
combatant commands, and MDA to continue to refine fiscal years 2006- 
2011 missile defense operation and support requirements and costs. The 
memorandum also directed MDA and the military services to budget for 
those costs, but it did not clarify which costs would be assumed by 
each organization. An official in MDA's transition office told us that 
MDA included funds in its 2006-2011 budgets for costs similar to those 
paid in fiscal year 2005. However, the official pointed out that the 
Military Service Deputies for Operations are examining whether MDA 
should pay any operations and sustainment costs, other than contractor 
logistics costs, after fiscal year 2005. Additionally, MDA proposes 
that the military services assume contractor logistics costs beginning 
in 2012. 

However, in February 2005, the Deputies for Operations from the three 
military services involved met to develop a coordinated position on the 
services' roles and missions for missile defense. The Deputies 
concluded that the services should not incur operation and support 
costs for fielded missile defense elements or components until a 
transition plan for those elements or components is successfully 
executed. 

We talked to acquisition officials in each of the three services 
involved in operating the BMDS about their services' views on paying 
future operation and sustainment costs for assets that have not been 
transferred. 

* Navy officials believe that ongoing transition discussions will 
determine which Aegis Ballistic Missile Defense components are 
sufficiently mature for the Navy to assume the cost of their operation 
and sustainment. The officials pointed out that the Navy addressed the 
Program Decision Memorandum III. However, it is the Navy's position 
that a transfer decision should precede the Navy's assumption of future 
operation and sustainment costs. The Navy expects MDA to maintain the 
Standard Missile-3 until it is transferred to the Navy and to procure 
all Aegis Ballistic Missile Defense equipment, including any support 
equipment, through 2011. Additionally, the officials told us that the 
Navy does not expect to incur any support costs for the Sea-Based X- 
Band radar that will support the Ground-Based Midcourse Defense element 
when it is fielded. 

* Air Force officials told us that the Air Force should not incur any 
operation and sustainment costs after 2005 unless a decision is made to 
transfer an element or component to the Air Force. An official in the 
Air Force's Missile Warning and Defense Office said that only MDA, 
which is developing and deploying the elements and components, can 
control or plan for operations and sustainment costs. Furthermore, the 
official said that transition plans can best be made after assets have 
been deployed, costs are known, military utility is verified, and 
capabilities have been evaluated. He told us that this approach would 
provide programming structure and cost transparency. 

* The Army is willing to assume some costs associated with supporting 
the initial missile defense capability. An official in the Army's Air 
and Missile Defense/Space Division told us that the Army is willing to 
continue to budget for the cost of operating this capability, 
supporting soldiers that perform a missile defense mission, and for 
common support equipment for fielded assets. However, the official said 
that the Army would not want to assume the maintenance costs of 
elements or major components until those assets are transferred to the 
Army. The official said that the Army usually maintains its own 
equipment and that as long as an asset is in development the Army would 
not have an inventory of spare parts to make repairs. Neither would it 
have engineers, or maintenance personnel with an equivalent level of 
expertise, to make the repairs. 

Conclusions: 

The military services are uncertain as to which missile defense assets 
may eventually be transferred to them and under what conditions those 
transfers may occur. This uncertainty makes it difficult for the 
services to plan the activities that are necessary to apply the 
requirements of DOD acquisition system regulations and to consider how 
to best realign their budgets to support the missile defense mission. 
DOD needs to establish clear and complete transfer criteria to better 
guide those making the difficult decisions for allocating management 
and funding responsibilities for missile defense assets. 

DOD also needs to clarify whether MDA or the services will be 
responsible for sustaining missile defense capabilities that have not 
been transferred to the services. The Secretary's direction did not 
clearly spell out whether MDA or the military departments would be 
responsible for sustaining the early capability, and it is this cost 
that has become most contentious. If sustainment costs are much higher 
than expected and the number of assets being made available to the 
warfighter grows, as MDA expects, the use of research and development 
dollars to procure and sustain a missile defense capability will begin 
to affect MDA's primary mission of developing new capabilities and 
enhancing existing ones. On the other hand, the military services will 
not want to fund the operation and sustainment of a missile defense 
capability if its cost cannot be accurately estimated. Nor will they 
want to fund the capability if they are not given the time to determine 
how to do so with the least impact on service missions. While the team 
established by MDA to develop transition plans includes working-level 
representatives from MDA, the military services, and the combatant 
commands, it will be difficult to reach full agreement as to who should 
pay sustainment costs for these assets because the representatives do 
not have the authority to make binding financial decisions for their 
organizations. MDA and the services may continue to disagree as to 
which component will bear sustainment costs for the early capability 
until DOD directs one or the other to do so. Because the services and 
MDA will begin to plan their 2008-2013 budgets in 2006, a decision as 
to who will fund these costs should be made in time for the budget 
deliberations. 

Recommendations: 

We recommend that the Under Secretary of Defense for Acquisition, 
Technology and Logistics revise the criteria for deciding when 
management and funding responsibility for missile defense assets should 
be transferred from MDA to a military service so that those criteria 
are clear and complete. 

We also recommend that the Secretary of Defense ensure that a decision 
is made as to which DOD organization will fund the operation and 
sustainment of missile defense assets that are part of the initial 
defensive capability but have not been transferred from MDA to a 
military service and direct that organization, or those organizations, 
to budget for those costs. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report (see app. III), DOD 
agreed that the criteria for making decisions to transfer missile 
defense assets from MDA to the services must be clear. Our draft report 
had recommended that the Secretary of Defense direct the Under 
Secretary of Defense for Acquisition, Technology, and Logistics to 
revise the criteria. In its comments, DOD stated that the Secretary of 
Defense did not need to provide additional direction to the Under 
Secretary. We accepted this view and, accordingly, revised the 
recommendation's wording in the final report. 

DOD also agreed with the need to settle, as soon as possible, the issue 
as to which component will fund the operation and sustainment of 
missile defense assets that are part of the initial defensive 
capability. DOD said this issue would soon be resolved without the 
Secretary taking additional action. We continued to address our final 
report's recommendation to the Secretary because if the services and 
MDA can not agree about which organization(s) should pay for these 
costs, the decision may have to be elevated to the Secretary's level. 

We are sending copies of this report to the Chairmen and Ranking 
Minority Members of the Senate Committee on Armed Services; the Senate 
Committee on Appropriations, Subcommittee on Defense; the House 
Committee on Armed Services; and the House Committee on Appropriations, 
Subcommittee on Defense; the Secretary of Defense; and the Director, 
Missile Defense Agency. We will make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4841 or levinr@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix IV. 

Signed by: 

Robert E. Levin: 
Director, Acquisition and Sourcing Management: 

[End of section]

Appendix I: Air Force Officials Concerned with Some MDA Funding Plans: 

Air Force Space Command officials are concerned that the Missile 
Defense Agency (MDA) is not providing funds to purchase test equipment 
for upgraded early-warning radars. According to the officials, without 
the test equipment, the operation of upgraded early-warning radars 
could be degraded. 

Air Force Believes Radar Test Equipment Is Needed: 

Air Force Space Command officials told us that a system programming 
agency is needed to support software and hardware changes to the Beale 
and Fylingdales early-warning radars once they are upgraded. A system 
programming agency consists of multiple strings of computers and 
peripherals that can emulate the unique aspects of the radar's 
operating system and is used to maintain, modify, and test software and 
hardware changes prior to those changes being made to the operational 
radar. The Air Force currently has a system programming agency in place 
to support hardware and software development for the early-warning 
radar. However, neither MDA nor the Air Force has included funds in 
their budgets to establish a system programming agency for the upgraded 
Beale and Fylingdales radars. 

Space Command officials told us that a system programming agency is of 
particular importance because the upgraded early-warning radar is very 
dependent on commercial off-the-shelf equipment that often has a short 
life cycle. If a computer or radar replacement part is needed, there is 
no certainty that the part available will be compatible with other 
parts installed in the radar or its operating system. The officials 
said that if a replacement part operates nanoseconds faster or slower 
than the old part, the radar could fail or possibly generate false 
missile reports. 

An official in the Air Force's Missile Warning and Defense Office told 
us that the Air Force included funds in its 2008-2011 budgets to 
upgrade the system programming agency so that its hardware and software 
would always be identical to the software and hardware in the 
operational radar. However, the official said that the Air Force 
believed that MDA planned to pay for the system programming agency's 
development cost and that the funds budgeted by the Air Force are not 
sufficient to both create and sustain an upgraded early-warning radar 
system programming agency. Space Command officials told us that the 
system programming agency could cost as much as $88 million. Without 
the system programming agency, the officials said changes will be made 
directly to the operational radar, decreasing its operational 
availability and increasing operational risks. In a written response to 
a draft of this report, MDA officials said that MDA has not agreed to 
fund a system programming agency for upgraded early-warning radar as 
the Air Force has requested. 

[End of section]

Appendix II: MDA and the Air Force Disagree as to Which Should Pay 
Eareckson Support Costs: 

During much of fiscal year 2005, MDA and the Air Force disagreed as to 
which organization should pay the additional costs being incurred at 
Eareckson Air Station in support of the missile defense mission. While 
MDA eventually agreed to pay all fiscal year 2005 costs, no agreement 
has been reached for subsequent fiscal years. Both MDA and the Air 
Force predict that costs at Eareckson will again be a contentious issue 
in fiscal year 2006. 

The Air Force maintains that Program Decision Memorandum III did not 
direct the Air Force to provide security forces and infrastructure for 
the missile defense mission at Eareckson. Therefore, the Air Force's 
position is that the additional costs being incurred at Eareckson 
should be paid by MDA. Officials in the Air Force's Missile Warning and 
Defense Office told us that Eareckson is populated entirely with 
contractor personnel who operate and maintain the Cobra Dane radar in 
its intelligence-gathering role. The Air Force maintains a small 
diversionary air strip at the base, but it does not have any military 
personnel located there. The officials said that the Air Force is the 
administrator for the Eareckson Air Station contract, but the 
intelligence community reimburses the Air Force for the station's 
operations costs. The officials said that MDA should pay the costs 
incurred at Eareckson that are directly attributable to the missile 
defense mission, just as the intelligence community pays all costs 
attributable to its mission. 

Conversely, MDA maintains that omitting Eareckson from the Program 
Decision Memorandum was an oversight. However, an official in the 
Department of Defense's (DOD) Comptroller's Office told us that DOD 
always intended that MDA pay normal installation support and services 
cost at Eareckson. DOD recognized that Eareckson is an unusual base 
because the Air Force does not maintain a presence there. For the first 
two quarters of fiscal year 2005, MDA paid the additional costs that 
the Air Force incurred because missile defense contract personnel were 
located on the base and because the number of security personnel was 
increased to protect the missile defense mission. However, for the 
first 7 months of fiscal year 2005, MDA and the Air Force continued to 
disagree as to which party would pay installation support and services 
cost for the last two quarters of fiscal year 2005. In May 2005, MDA 
agreed to assume these costs. MDA transition office officials said that 
the issue of Eareckson support costs would be raised again in fiscal 
year 2006. 

MDA officials told us that Eareckson installation support and services 
cost will continue to be an issue because MDA is being asked to pay 
costs that are normally paid by the installation's host and that MDA is 
not paying at other bases with which it has agreements. For example, 
the host typically provides fire protection for the base and the tenant 
would only pay the additional cost created by the tenant's residency. 
However, at Eareckson, MDA is being asked to pay a portion of the cost 
that the Air Force is incurring to provide a basic fire protection 
capability. The officials said that they fear the Eareckson 
installation support and services agreement could establish a precedent 
that the military services could insist on following at other bases 
where missile defense assets are located. Should this happen, MDA 
officials contend that MDA would, in effect, be supplementing the 
military services' operation and maintenance budget. 

[End of section]

Appendix III: Comments from the Department of Defense: 

OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON: 
ACQUISITION TECHNOLOGY AND LOGISTICS:
WASHINGTON, DC 20301-3000: 

AUG 1 2005: 

Mr. Robert E. Levin:
Director, Acquisition and Sourcing Management: 
U. S. Government Accountability Office:
441 G. Street, N. W.: 
Washington, DC 20548: 

Dear Mr. Levin: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-05-817 "DEFENSE ACQUISITIONS: Actions Needed to Ensure 
Adequate Funding for Operation and Sustainment of the Ballistic Missile 
Defense System (BMDS)," dated July 12, 2005 (GAO Code 120379). 

The draft report recommends certain actions in the Department that need 
to occur and recommends the Secretary of Defense take steps to assure 
that they do occur. The Department partially concurs with the 
recommendations. The actions that the report identifies are, in fact, 
in progress now, so the Secretary of Defense does not need to carry out 
specific recommendations in the report. 

The Department appreciates the opportunity to comment on the draft 
report. The Department provided technical comments separately. For 
further questions concerning this report, please contact Colonel Dan 
Hughes, Deputy for Ballistic Missile Defense, Missile Warfare, Defense 
Systems, 703-695-7329. 

Sincerely,

Signed for: 

Glenn F. Lamartin: 
Director:
Defense System: 

GAO DRAFT REPORT DATED JULY 12, 2005 GAO-05-817 (GAO CODE 120379): 

"DEFENSE ACQUISITIONS: Actions Needed to Ensure Adequate Funding for 
Operations and Sustainment of the Ballistic Missile Defense System"

DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS: 

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology, and 
Logistics to clarify the criteria that MDA will consider when 
recommending formal transfers of elements and components to the 
Services. (p. 25/GAO Draft Report): 

DOD RESPONSE: Partially Concur. MDA will continue its work with the 
Services and the Combatant Commands through the Transition and Transfer 
IPT to develop the annexes to the BMDS Transition and Transfer Plan. 
Each of the components of the BMDS will have an annex that will include 
a detailed description of the agreed--to criteria to be considered when 
recommending a component for transfer. The Department sees no need for 
the Secretary to provide additional direction to the USD(AT&L) on the 
subject. 

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology, and 
Logistics to clarify the criteria that the Senior Executive Council 
will use in making formal transfer decisions. (p. 25/GAO Draft Report): 

DOD RESPONSE: Partially Concur. The Department agrees the criteria must 
be clear. As noted in the draft report (p. 7), the Under Secretary of 
Defense for Acquisition, Technology and Logistics established the 
transfer criteria in December 2002. Those criteria will apply in making 
transfer decisions. In addition, we would require that the transfer 
plan for each element or component of the BMDS (the appropriate annex 
noted above) be agreed by both MDA and the appropriate Service or that 
any issues between them would be resolved. In this circumstance, there 
is no need for additional action by the Secretary of Defense. 

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
ensure that a decision is made by December 2005 as to which DOD 
component will fund the operation and sustainment of missile defense 
assets that are part of the initial defensive capability but have not 
been transferred from MDA to a Service and direct that component, or 
components, to budget for those costs. (p. 25/GAO Draft Report): 

DOD RESPONSE: Partially Concur. The Department agrees this issue must 
be settled as soon as possible. Activity is currently underway, 
including the work of the Transition Transfer IPT noted above, to 
resolve the issue for each element and component of the initial 
defensive capability. We expect most of the issues will be resolved by 
December 2005, but some may take until early 2006. In this 
circumstance, there is no need for additional action by the Secretary 
of Defense. 

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Robert E. Levin (202) 512-4841 or levinr@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Barbara Haynes, Assistant 
Director; David Hand; Mary Quinlan; Adam Vodraska, and Karen Sloan made 
key contributions to this report. 

FOOTNOTES

[1] Secretary of Defense Memorandum, Missile Defense Program Direction, 
January 2, 2002. 

[2] Sustainment costs include all costs incurred from initial system 
deployment through the end of system operations, including the costs of 
operating, maintaining, and supporting a fielded system. 

[3] A formal transfer decision is made when MDA recommends and DOD's 
Senior Executive Council approves the transfer of acquisition 
responsibility for an element or major component from MDA to a military 
service. 

[4] Block 2004 began in January 2004 and ends in December 2005. 

[5] The Senior Executive Council is a committee established at the 
direction of the Secretary of Defense to provide policy, planning, and 
programming guidance; oversee DOD's missile defense activities; and 
approve BMDS fielding recommendations. The council is chaired by the 
Deputy Secretary of Defense. 

[6] The Joint Air and Missile Defense Organization, which reports to 
the Joint Chiefs of Staff, is chartered to plan, coordinate, and 
oversee Joint Air and Missile Defense requirements, joint operational 
concepts, and operational architectures. 

[7] DOD Directive 5000.1, The Defense Acquisition System; DOD 
Instruction 5000.2, Operation of the Defense Acquisition System, May 
12, 2003. 

[8] Baseline descriptions and independent cost estimates, as well as 
other management and oversight requirements, are normally first 
required for Milestone B, the decision to enter system development and 
demonstration. However, because BMDS elements will not enter DOD's 
acquisition cycle until Milestone C, these requirements may not be 
applied to the BMDS until the transition phase that leads to the 
transfer to a military service. We note that in the absence of the 
baselines required by DOD's acquisition system regulations, Congress 
has required MDA to separately establish cost, schedule, and 
performance baselines for each block of the BMDS being fielded, 
including full life cycle costs. Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005 (P.L 108-375), sec. 234(e). 

[9] MDA Business Management officials told us that MDA only expects to 
fund modifications that are directly attributable to the missile 
defense mission. 

[10] MDA is required by Section 232 of the 2005 Defense Authorization 
Act to maintain configuration control of the Patriot Advanced 
Capability-3/Medium Extended Air Defense System program as an element 
of the BMDS. 

[11] DOD's Future Years Defense Program is a massive DOD database and 
internal accounting system that summarizes forces and resources 
associated with programs approved by the Secretary of Defense. The 
program is required by statute to be submitted to Congress each year 
with the President's budget. It reflects the estimated expenditures and 
proposed appropriations included in that budget and also covers at 
least the four succeeding fiscal years. 

[12] Lieutenant General Henry A. Obering III, USAF, Director, Missile 
Defense Agency, presented this information in his statement before the 
Senate Committee on Appropriations, Subcommittee on Defense, regarding 
the Fiscal Year 2006 Defense Appropriations for Ballistic Missile 
Defense, May 11, 2005. 

[13] We did not discuss with these officials potential legal issues 
associated with contractor operation of a component of a deployed 
weapons system. 

[14] MDA initiated development of the Kinetic Energy Interceptor 
element in fiscal year 2003. It is being designed to attack ballistic 
missiles in the boost phase of their flight, while their motors are 
thrusting. 

[15] The Missile Defense Support Group includes representatives from 
the Joint Air and Missile Defense Organization; the DOD Comptroller's 
Office; the Office of the Director, Operational Test and Evaluation; 
and other units across DOD. Its purpose is to advise MDA's Director on 
such subjects as policy, operations, testing, acquisition, and 
resources. 

[16] GAO, Best Practices: Setting Requirements Differently Could Reduce 
Weapon Systems' Total Ownership Costs, GAO-03-57 (Washington, D.C.: 
Feb. 11, 2003). 

[17] GAO, Best Practices: Capturing Design and Manufacturing Knowledge 
Early Improves Acquisition Outcomes, GAO-02-701 (Washington, D.C.: July 
15, 2002). 

[18] DOD Instruction 4000.19 provides that a DOD activity requesting 
support from an interservice host reimburse the host for the 
incremental direct cost of the services provided. 

[19] Program Decision Memorandum III also directed the Navy to provide 
funds for additional ship operations, training, and contractor support. 
The Navy addressed the Memorandum's direction by programming funds for 
maintenance of missile defense software and the ships' fuel when it 
conducts missile defense missions. It is also conducting training to 
certify crews for this new mission. 

[20] Schriever Air Force Base houses a missile defense command and 
control suite. 

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