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entitled 'Defense Acquisitions: Missile Defense Acquisition Strategy 
Generates Results but Delivers Less at a Higher Cost' which was 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

March 2007: 

Defense Acquisitions: 

Missile Defense Acquisition Strategy Generates Results but Delivers 
Less at a Higher Cost: 

GAO-07-387: 

GAO Highlights: 

Highlights of GAO-07-387, a report to congressional committees 

Why GAO Did This Study: 

Over the next 5 years, the Missile Defense Agency (MDA) expects to 
invest $49 billion in the BMD system’s development and fielding. MDA’s 
strategy is to field new capabilities in 2-year blocks. In January 
2006, MDA initiated its second block—Block 2006—to protect against 
attacks from North Korea and the Middle East. 

Congress requires GAO to assess MDA’s progress annually. This year’s 
report addresses MDA’s progress during fiscal year 2006 and follows up 
on program oversight issues and the current status of MDA’s quality 
assurance program. GAO assessed the progress of each element being 
developed by MDA, examined acquisition laws applicable to major 
acquisition programs, and reviewed the impact of implemented quality 
initiatives. 

What GAO Found: 

During fiscal year 2006, MDA fielded additional assets for the 
Ballistic Missile Defense System (BMDS), enhanced the capability of 
some assets, and realized several noteworthy testing achievements. For 
example, the Ground-based Midcourse Defense (GMD) element successfully 
conducted its first end-to-end test of one engagement scenario, the 
element’s first successful intercept test since 2002. However, MDA will 
not meet its original Block 2006 cost, fielding, or performance goals 
because the agency has revised those goals. In March 2006, MDA:
* reduced its goal for fielded assets to provide funds for technical 
problems and new and increased operations and sustainment requirements;
* increased its cost goal by about $1 billion—from $19.3 to $20.3 
billion; and
* reduced its performance goal commensurate with the reduction of 
assets. MDA may also reduce the scope of the block further by deferring 
other work until a future block because four elements incurred about 
$478 million in fiscal year 2006 budget overruns. 

With the possible exception of GMD interceptors, MDA is generally on 
track to meet its revised quantity goals. But the deferral of work, 
both into and out of Block 2006, and inconsistent reporting of costs by 
some BMDS elements, makes the actual cost of Block 2006 difficult to 
determine. In addition, GAO cannot assess whether the block will meet 
its revised performance goals until MDA’s models and simulations are 
anchored by sufficient flight tests to have confidence that predictions 
of performance are reliable. 

Because MDA has not entered the Department of Defense (DOD) acquisition 
cycle, it is not yet required to apply certain laws intended to hold 
major defense acquisition programs accountable for their planned 
outcomes and cost, give decision makers a means to conduct oversight, 
and ensure some level of independent program review. MDA is more agile 
in its decision-making because it does not have to wait for outside 
reviews or obtain higher-level approvals of its goals or changes to 
those goals. Because MDA can revise its baseline, it has the ability to 
field fewer assets than planned, defer work to a future block, and 
increase planned cost. All of this makes it hard to reconcile cost and 
outcomes against original goals and to determine the value of the work 
accomplished. Also, using research and development funds to purchase 
operational assets allows costs to be spread over 2 or more years, 
which makes costs harder to track and commits future budgets. 

MDA continues to identify quality assurance weaknesses, but the 
agency’s corrective measures are beginning to produce results. Quality 
deficiencies are declining as MDA implements corrective actions, such 
as a teaming approach, designed to restore the reliability of key 
suppliers. 

What GAO Recommends: 

GAO continues to encourage DOD to act on prior recommendations to 
implement a knowledge-based acquisition strategy for all BMDS elements 
and to adopt more transparent criteria for reporting each element’s 
quantities, cost, and performance. In this report, GAO recommends that 
DOD adopt firm baselines, use procurement funds for operational assets, 
and adopt other measures to better track cost and outcomes against 
goals. DOD did not agree to an element-based reporting approach but is 
investigating other ways to provide more program transparency. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-387]. 

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

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

BMDS Elements Made Progress, but It Was Less Than Expected and It Cost 
More than Planned: 

MDA'S Flexibility Comes at the Cost of Program Transparency: 

MDA Makes Significant Strides with Quality Improvement Processes: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Comments from the Department of Defense: 

Appendix II: MDA Contracts: 

Support Contractors Are Key to BMDS Development: 

Most Prime Contractors Did Not Execute All Planned Work within Fiscal 
Year 2006 Cost and Schedule Budgets: 

Appendix III: Scope and Methodology: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Description of BMDS Elements: 

Table 2: Block 2006 Cost Goal, as of March 2005: 

Table 3: Block 2006 Cost Goal, as of March 2006: 

Table 4: Development Funding for Assets Fielded in Block 2006: 

Table 5: Block 2006 Delivery Goals: 

Table 6: Prime Contractor Fiscal Year 2006 and Cumulative Cost and 
Schedule Performance: 

Table 7: MDA Support Contractor Job Functions: 

Table 8: Program Office Staffing: 

Table 9: BMDS Contractual Instruments: 

Figures: 

Figure 1: Aegis BMD Weapon System Cost and Schedule Performance: 

Figure 2: Aegis BMD Standard Missile-3 Cost and Schedule Performance: 

Figure 3: ABL Cost and Schedule Performance: 

Figure 4: GMD Cost and Schedule Performance: 

Figure 5: KEI Cost and Schedule Performance: 

Figure 6: BMDS Sensors Cost and Schedule Performance: 

Figure 7: STSS Cost and Schedule Performance: 

Figure 8: THAAD Cost and Schedule Performance: 

Abbreviations: 

ABL: Airborne Laser: 
Aegis BMD: Aegis Ballistic Missile Defense: 
BC/FC: Beam Control/Fire Control: 
BMDS: Ballistic Missile Defense System: 
C2BMC: Command, Control, Battle Management, and Communications: 
CLS: Contractor Logistics Support: 
CPR: Contract Performance Report: 
DOD: Department of Defense: 
EKV: Exoatmospheric Kill Vehicle: 
EO/IR: Electro- Optical/Infrared: 
FBX-T: Forward-Based X-Band--Transportable: 
FFRDC: Federally Funded Research and Development Centers: 
GMD: Ground-based Midcourse Defense: 
ICBM: Intercontinental Ballistic Missile: 
JNIC: Joint National Integration Center: 
KEI: Kinetic Energy Interceptor: 
MAP: MDA Assurance Provisions: 
MDA: Missile Defense Agency: 
MKV: Multiple Kill Vehicle: 
MRTF: Mission Readiness Task Force: 
PAC-3: Patriot Advanced Capability-3: 
SM- 3: Standard Missile-3: 
STSS: Space Tracking and Surveillance System: 
THAAD: Terminal High Altitude Area Defense: 
U.S.C.: United States Code: 

United States Government Accountability Office: 
Washington, DC 20548: 

March 15, 2007: 

Congressional Committees: 

The concern that nuclear, biological, or chemical weapons are 
proliferating has heightened the sense of urgency for our country to 
develop a comprehensive missile defense system capable of defending the 
United States and its allies against weapons of mass destruction and 
the ballistic missiles that could deliver them. The threat from 
ballistic missiles is growing with at least 25 countries now possessing 
or acquiring sophisticated missile technology. For nearly half a 
century, the Department of Defense (DOD) has been funding efforts to 
develop a system to detect, track, and defeat ballistic missiles 
deployed from enemy launch sites. The current system under development- 
the Ballistic Missile Defense System (BMDS)-includes a diverse 
collection of land-, air-, sea-, and space-based assets located around 
the globe and founded on cutting-edge technology. DOD plans to invest 
an additional $49 billion in this system, or about 13 percent of its 
research and development budget, over the next 5 years. 

The Missile Defense Agency (MDA)--the agency charged with developing an 
integrated BMDS--is currently developing nine BMDS elements. The 
elements are: 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] MDA has adopted an evolutionary acquisition 
approach in which the BMDS will be fielded in 2-year blocks. The first 
block, known as Block 2004, ended on December 31, 2005. The block 
fielded a limited capability that included initial versions of GMD; 
Aegis BMD; Patriot Advanced Capability-3; and C2BMC elements. This 
capability is designed to provide limited protection of the United 
States from intercontinental ballistic missile attacks out of North 
Korea and the Middle East and protection of U.S. forces and critical 
assets from short-and medium-range ballistic missiles. 

The current block, Block 2006-which represents the period of 
development for calendar years 2006 and 2007--enhances existing 
capabilities, provides additional assets for operational use, and 
continues development of future capabilities. MDA submitted its goals 
for Block 2006 to Congress shortly after its fiscal year 2006 budget 
request. The goals quantified the number of assets that MDA planned to 
field by the end of the block, defined the performance that fielded 
assets were expected to deliver, and identified the cost of all Block 
2006 efforts, including the cost of assets being fielded and of 
developmental activities for three elements--ABL, STSS, and THAAD--that 
will not be operational until future blocks.[Footnote 2] Fiscal year 
testing goals were also established by element program offices, but 
these goals were not formally reported to Congress. 

The National Defense Authorization Acts for fiscal years 2002 and 2005 
mandated that we prepare annual assessments of MDA's ongoing cost, 
schedule, testing, and performance progress through fiscal year 
2006.[Footnote 3] To date, we have delivered assessments covering 
fiscal years 2003, 2004, and 2005 to Congress.[Footnote 4] In this 
report, we assess the progress MDA made during fiscal year 2006 against 
the Block 2006 goals submitted to Congress in March 2005, as well as 
the testing goals established by the nine BMDS elements. We have also 
followed up on two previously reported issues: (1) whether the 
flexibility granted to MDA in acquiring the BMDS has reduced decision- 
makers' knowledge of program outcomes, thereby limiting program 
oversight and MDA's accountability for the investment being made in 
missile defense; and (2) the current status of MDA's quality assurance 
program. 

To address our objectives, we looked at the accomplishments of six BMDS 
elements--ABL, Aegis BMD, BMDS Sensors, C2BMC, GMD, and STSS. The 
report also includes information on the progress of three elements-- 
KEI, MKV, and THAAD-being developed during fiscal year 2006 that MDA 
considers part of future blocks. Together, these nine elements 
collectively account for about 72 percent of MDA's fiscal year 2006 
research and development budget. The remainder of MDA's budget funds 
activities such as new technology and system concepts and common 
support for all elements. To determine the elements' progress toward 
Block 2006 goals, we examined System Element Reviews, test plans and 
reports, production plans, and Contract Performance Reports. We also 
interviewed officials within each element program office and within MDA 
functional offices. In assessing whether a match exists between the 
missile defense program's flexibility, and the program's transparency, 
we examined documents such as those defining MDA's changes to Block 
2006 goals, acquisition laws for major DOD programs, and BMDS policy 
directives issued by the Secretary of Defense. We examined the current 
status of MDA's quality assurance program by visiting various 
contractor facilities and holding discussions with MDA officials, such 
as officials in the Office of Quality, Safety, and Mission Assurance. 
We performed our work from June 2006 to March 2007 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

In the past year, MDA's elements have done fairly well in meeting their 
test objectives, but costs have increased and the scope of the block-- 
in terms of assets to be fielded and tests to be conducted--have been 
reduced. Cost increases, caused by technical problems and greater than 
expected Ground-based Midcourse Defense element operation and 
sustainment costs led the agency to defer several assets planned for 
Block 2006 until future blocks. For example, MDA will field one less 
ground-based interceptor and four fewer missiles for the Aegis element 
during Block 2006. Even though some work for Block 2006 has been 
deferred, the cost goal for all block efforts, including work on 
elements to be fielded in the future, increased about $1 billion--from 
$19.3 to $20.3 billion. In addition, the work of five of the six 
contractors responsible for Block 2006 elements cost more than expected 
in fiscal year 2006 as they resolved technical and integration 
problems, which will likely cause MDA to defer more activities until 
the next block. The full cost of Block 2006 cannot be determined 
because work is being deferred from block to block--for example, the 
cost of deferred work benefiting Block 2004 is included in Block 2006 
cost--and the elements are inconsistently reporting block cost. In the 
area of testing, three of the Block 2006 elements and all elements 
considered part of future blocks met their primary test objectives for 
fiscal year 2006. ABL and STSS are the only elements that have both 
test delays and unmet test objectives. A notable achievement for the 
Ballistic Missile Defense program was the Ground-based Midcourse 
Defense element's first successful intercept since 2002. For one end- 
to-end scenario, the interceptor exceeded test objectives by destroying 
a target representative of a real world threat. While this test was an 
important step in demonstrating the performance of the missile defense 
system, it is too early to assess whether MDA will achieve its overall 
performance goal for the Block 2006 fielded configuration. The goal 
itself has been lowered in the past year, and MDA's models and 
simulations have not yet been anchored by sufficient flight tests to 
have confidence that predictions of performance are reliable. Several 
of the elements continue to experience technical problems, which could 
affect the performance of the fielded system and delay the capabilities 
anticipated for future blocks. 

Because the BMDS has not formally entered the system development and 
demonstration phase of the DOD acquisition cycle, it is not yet 
required to apply certain acquisition laws triggered by this phase. 
This flexibility has several distinct advantages. MDA's decision-making 
is agile because the agency is not required to obtain prior approval of 
the program's cost, schedule, and performance baseline or of changes to 
that baseline. The agency is not required to have its cost estimates 
independently verified or to have the program independently assessed at 
certain points to see if its acquisition should move forward. Also, 
because MDA's assets are considered developmental and are produced in 
limited quantities, MDA has not triggered a legal requirement for an 
operational test and evaluation prior to fielding. This allows the 
program to concurrently test and field assets, resulting in faster 
deployment. However, the program's flexibility reduces MDA's 
accountability for the resources the agency receives and the results it 
attains. Because MDA can field assets before all testing is completed, 
it has fielded some assets whose capability is uncertain. MDA can also 
decide to field fewer assets than planned and defer other work into a 
future block to accommodate cost growth, making it hard to reconcile a 
block's cost and outcomes with original goals. Additionally, MDA's 
development of the BMDS outside of DOD's acquisition cycle makes it 
difficult to compare the actual cost of a delivered asset with its 
planned cost because there is no applicable unit cost reporting 
requirement. Further, research and development funds allow MDA to 
incrementally fund the manufacture of operational assets. To the extent 
MDA uses this flexibility to spread the funding of end items over 2 or 
more years, it may "tie the hands" of future Congresses to finish 
funding end items started in previous years. 

MDA continues to address quality assurance problems that officials in 
MDA's Office of Safety and Quality Assurance told us came about when 
the government relinquished much of its oversight role during the 
acquisition streamlining effort of the 1990s and as the agency rushed 
to field an initial missile defense capability in Block 2004. The 
agency initiated several mechanisms to improve overall quality control 
processes and is progressing well with their implementation. The 
mechanisms being used to improve quality assurance processes include 
the development of a teaming approach to restore reliability in key 
suppliers, quality audits, adjusting award fee plans to encourage 
contractors to maintain a good quality assurance program and implement 
industry best practices, and continuing to incorporate the agency's key 
quality provisions into its prime contracts. Agency officials told us 
that contractors have responded to the agency's efforts and are 
implementing improvements. For example, the contractor developing the 
GMD element's exoatmospheric kill vehicle incorporated equipment into 
the production process that handles critical components, reducing the 
possibility that the components will be dropped or mishandled by 
production personnel. MDA's efforts have started to produce results as 
test failures have declined and on time deliveries have increased. 

We are recommending that MDA establish firm baselines for those 
elements considered far enough along to be in system development and 
demonstration, and report against those baselines; propose an approach 
for those same elements that provides information consistent with the 
acquisition laws that govern baselines and unit cost reporting, 
independent cost estimates, and operational test and evaluation; 
include in blocks only those elements that will field capabilities 
during the block period and develop a firm block baseline that includes 
the unit cost of its assets; request and use procurement funds, rather 
than research, development, test, and evaluation funds, to acquire 
fielded assets; and conduct an independent evaluation of the ABL and 
KEI elements prior to making a decision on the future of the programs. 

DOD partially concurred with our first three recommendations, but did 
not agree to use procurement funds to acquire fielded assets or to 
conduct an independent evaluation of the ABL and KEI elements. In 
partially agreeing, DOD recognized the need to provide greater program 
transparency and committed to providing information consistent with 
acquisition laws that govern baselines and unit cost reporting. 
However, DOD objected to the element-centric approach recommended, 
believing that this would detract from managing the BMDS as a single, 
integrated system. DOD also stated that reporting at the BMDS-level in 
accordance with our third recommendation would appear to be 
inconsistent with reporting at the element level. We continue to 
believe that all recommended changes are needed to provide a better 
balance between MDA's flexibility and BMDS program transparency. 
Because DOD awards contracts and requests funding by individual 
elements that compose the BMDS, we believe that the element approach is 
the best way to achieve increased program transparency. However, a BMDS-
level baseline derived from the capabilities that individual elements 
yield is needed to describe and manage a BMDS-wide capability. We also 
believe that the use of procurement funds contributes to program 
transparency by making clear at the outset the size of the investment 
being requested in fielded assets. Finally, we continue to believe that 
an independent assessment of the ABL and KEI capabilities can provide a 
transparent basis for making decisions on the future of the programs, 
but we did revise the recommendation to specify that the assessment 
should follow key demonstrations in 2009. 

Background: 

MDA's mission is to develop and field an integrated and layered 
Ballistic Missile Defense System to defend the United States, its 
deployed forces, allies, and friends against all ranges of enemy 
ballistic missiles in all phases of flight. This is challenging, 
requiring a complex combination of defensive components--space-based 
sensors, surveillance and tracking radars, advanced interceptors, 
command and control, and reliable communications--that work together as 
an integrated system. 

A typical hit-to-kill engagement scenario for an intercontinental 
ballistic missile (ICBM) would unfold as follows: 

* Infrared sensors aboard early-warning satellites detect the hot plume 
of a missile launch and alert the command authority of a possible 
attack. 

* Upon receiving the alert, land-or sea-based radars are directed to 
track the various objects released from the missile and, if so 
designed, to identify the warhead from among spent rocket motors, 
decoys, and debris. 

* When the trajectory of the missile's warhead has been adequately 
established, an interceptor--consisting of a "kill vehicle" mounted 
atop a booster--is launched to engage the threat. The interceptor 
boosts itself toward a predicted intercept point and releases the kill 
vehicle. 

* The kill vehicle uses its onboard sensors and divert thrusters to 
detect, identify, and steer itself into the warhead. With a combined 
closing speed on the order of 10 kilometers per second (22,000 miles 
per hour), the warhead is destroyed through a "hit-to-kill" collision 
with the kill vehicle above the atmosphere. 

To develop a system capable of carrying out such an engagement, MDA is 
executing an evolutionary acquisition strategy in which the fielding of 
missile defense capabilities is organized in 2-year increments known as 
blocks. Each block is intended to provide the Ballistic Missile Defense 
System with capabilities that will enhance the development and overall 
performance of the system. The first block--Block 2004--ended on 
December 31, 2005, and fielded a limited initial capability that 
included early versions of the Ground-based Midcourse Defense; Aegis 
Ballistic Missile Defense; Patriot Advanced Capability-3; and the 
Command, Control, Battle Management, and Communications element. 

During calendar year 2006 and 2007, MDA is focusing its program of work 
on the enhancement of four fielded BMDS elements--GMD, Aegis BMD, 
Sensors, and C2BMC. The primary contribution of Block 2006 is that it 
fields additional assets and continues the evolution of Block 2004 by 
providing improved GMD interceptors, enhanced Aegis BMD missiles, 
upgraded Aegis BMD ships, a Forward-Based X-Band--Transportable radar, 
and enhancements to the C2BMC software. 

MDA divides each year's budget request into a request for the current 
block and requests for future blocks that have not yet formally begun. 
For example, in fiscal year 2006, MDA requested funds for Block 2006 
and for blocks that begin in 2008, 2010, 2012, and 2014. When MDA 
submitted its Block 2006 budget to Congress in February 2005, the 
agency requested funding for not only the four elements fielding assets 
during Block 2006, but also for the continued development of three 
elements--ABL, STSS, and THAAD--that will not field assets for 
operational use until future blocks. [Footnote 5] According to MDA 
officials, these elements--which are primarily developmental elements-
-were included in the block because the agency believed that during the 
block time frame the elements offered some emergency capability. MDA 
also requested fiscal year 2006 funds for two other developmental 
elements, MKV and KEI. However, MDA did not include funding for these 
elements in its Block 2006 budget request because they provided no 
capability during the block. Instead, MDA requested funding for MKV in 
its fiscal year 2006 request for Advanced Component Development and 
Prototypes--a program element that is not tied to any block--and for 
KEI in the agency's fiscal year 2006 request for Block 2014. Table 1 
provides a brief description of all elements being developed by MDA. 

Table 1: Description of BMDS Elements: 

Element: Ground-based Midcourse Defense; 
Missile defense role: GMD is a ground-based missile defense system 
designed to destroy ICBMs during the midcourse phase of their flight. 
Its mission is to protect the U.S. homeland against ballistic missile 
attacks from North Korea and the Middle East. GMD is part of the 
initial capability fielded in 2004-2005 with an inventory of 14 
emplaced interceptors. MDA plans to field about 28 additional 
interceptors in Alaska and California through 2010. 

Element: Aegis Ballistic Missile Defense; 
Missile defense role: Aegis BMD is a ship-based missile defense system 
designed to destroy short to intermediate range ballistic missiles 
during the midcourse phase of their flight. Its mission is twofold: to 
protect deployed U.S. forces, allies, and friends against ballistic 
missile attacks and to serve as a forward-deployed BMDS sensor, 
especially in support of the GMD mission. MDA is planning to procure 
147 Aegis BMD missiles—the Standard Missile-3—from calendar year 2006 
through 2012 and to upgrade 18 ships for the BMD mission by the end of 
2009.  MDA also requested funding in its fiscal year 2008 budget 
request to make Aegis BMD capable of defeating targets during the 
terminal phase of their flight. 

Element: Command, Control, Battle Management, and Communications; 
Missile defense role: C2BMC is the integrating and controlling element 
of the BMDS. C2BMC’s role is to provide deliberate planning, 
situational awareness, sensor management and control of the Forward-
Based X-Band-Transportable (FBX-T) radar, and network support for fire 
control and situational awareness. 

Element: BMDS Sensors; 
Missile defense role: MDA is developing various stand-alone radars for 
fielding. In particular, MDA leveraged the hardware design for the 
THAAD radar and modified existing software to develop the FBX-T. MDA 
placed the first FBX-T in Japan to augment existing BMD surveillance 
and tracking capabilities. The program expects to produce 3 more FBX-T 
radars by the end of Block 2008. 

Element: Airborne Laser; 
Missile defense role: ABL is an air-based missile defense system 
designed to destroy all classes of ballistic missiles during their 
boost phase of flight. ABL employs a high-energy chemical laser to 
rupture a missile’s motor casing, causing the missile to lose thrust or 
flight control. MDA plans to demonstrate proof of concept in a system 
demonstration in 2009. An operational ABL capability may be 
demonstrated in Block 2016.  

Element: Kinetic Energy Interceptors; 
Missile defense role: KEI is a land-mobile missile defense system 
designed to destroy medium, intermediate, and intercontinental 
ballistic missiles during the boost phase and all parts of the 
midcourse phase of their flight. The agency expects to demonstrate 
defensive capability through flight testing during 2012-2015. This 
capability could be expanded to sea-basing in subsequent blocks. 

Element: Space Tracking and Surveillance System; 
Missile defense role: The Block 2006 STSS consists of a constellation 
of two demonstration satellites. MDA intends to use these satellites 
for testing missile warning and tracking capabilities in the 2007-2009 
time frame. Based on demonstration satellite ground test results and 
analysis, MDA has already determined that it will request funding for a 
follow-on STSS constellation. 

Element: Terminal High Altitude Area Defense; 
Missile defense role: THAAD is a ground-based missile defense system 
designed to destroy short- and medium-range ballistic missiles during 
the late-midcourse and terminal phases of flight. Its mission is to 
defend deployed U.S. forces and population centers. MDA plans to field 
a fire unit, including 24 missiles, in 2009 and a second unit in 2010. 

Element: Multiple Kill Vehicle; 
Missile defense role: The MKV is being designed as an optional payload 
for midcourse defense systems for all midcourse interceptor elements. 
The concept mitigates the need to pinpoint the single lethal object in 
a threat cluster by using numerous kill vehicles rather than a single 
kill vehicle. The current concept consists of a number of smaller kill 
vehicles; but, MDA is developing an alternative payload concept on a 
parallel acquisition path to mitigate risk. The MDA expects initial 
capabilities to be available by Block 2014 or 2016. 

Sources: MDA (data); GAO (presentation). 

Note: The Patriot Advanced Capability-3 system is also part of the 
BMDS, but it is not included in the table because management 
responsibility for this element has been transferred to the Army. 

[End of table] 

As part of MDA's planning process, the agency defines overarching goals 
for the development and fielding of the current BMDS block. These goals 
identify the composition of the block (the elements in development and 
those planned for fielding), the type and quantity of assets to be 
fielded, the cost associated with element development and fielding 
(including operation and sustainment activities), and the performance 
expected of fielded assets.[Footnote 6] For example, in March 2005, MDA 
told Congress that its Block 2006 program of work would include seven 
elements--ABL, Aegis BMD, C2BMC, GMD, Sensors, STSS, and 
THAAD.[Footnote 7] Further, MDA identified the cumulative number of 
assets that Aegis BMD, C2BMC, GMD, and the Sensors elements would field 
by the end of the block, and the performance that those assets would 
deliver in terms of probability of engagement success, the land area 
from which a ballistic missile launch could be denied, and the land 
area that could be protected from a ballistic missile launch. Finally, 
MDA told Congress that it would try to complete all Block 2006 work for 
$20.458 billion. 

To enable MDA to meet its overarching goals, each element's program 
office establishes its own plan for fielding and/or developmental 
activities. For example, each program office develops a delivery plan 
and a test schedule that contributes to MDA's performance and fielding 
goals. The programs also work with their prime contractor to plan the 
block of work so that it can be completed within the program's share of 
MDA's budget. 

Since 2002, missile defense has been seen as a national priority and 
has been funded at nearly requested levels. However, DOD's Program 
Budget Decision in December 2004 called for MDA to plan for a $5 
billion reduction in funding over fiscal years 2006-2011. Future MDA 
budgets could be affected by cost growth in federal entitlement 
programs that are likely to decrease discretionary spending and by 
increased DOD expenditures, such as expenses created by the Iraq 
conflict. 

Last year we reported that MDA strayed from the knowledge-based 
acquisition strategy that allows successful developers to deliver, 
within budget, a product whose performance has been 
demonstrated.[Footnote 8] In doing so, MDA fielded assets before their 
capability was known and the full cost of the capability was not 
transparent to decision makers. We noted that it was possible for MDA 
to return to a knowledge-based approach to development while still 
fielding capability in blocks, but that corrective action was needed to 
put all BMDS elements on a knowledge-based approach. That is, instead 
of concurrently developing, testing and fielding the BMDS, MDA would 
need to adopt knowledge points at which the program would determine if 
it was ready to begin new acquisition activities. These knowledge 
points would be consistent with those called out in DOD's acquisition 
system policy. To provide a basis for holding MDA accountable for 
delivering within estimated resources and to ensure the success of 
future MDA development efforts, we recommended that the Secretary of 
Defense implement a knowledge-based acquisition strategy for all the 
BMDS elements, assess whether the current 2-year block strategy was 
compatible with the knowledge-based development strategy, and adopt 
more transparent criteria for reporting each element's quantities, 
cost, and performance. DOD has not taken any action on the first two 
recommendations because it considers MDA's acquisition strategy as 
knowledge-based and because MDA's block strategy is compatible with the 
strategy MDA is implementing. Neither did DOD agree to take action on 
our third recommendation to adopt more transparent criteria for 
identifying and reporting program changes. In its comments, DOD 
responded that MDA is required by statute to report significant 
variances in each block's baseline and that these reports along with 
quarterly DOD reviews provide an adequate level of program oversight. 

BMDS Elements Made Progress, but It Was Less Than Expected and It Cost 
More than Planned: 

MDA made progress during fiscal year 2006 in carrying out planned 
accomplishments for the block elements, but it will not deliver the 
value originally planned for Block 2006. Costs have increased, while 
the scope of work has decreased. It is also likely that in addition to 
fielding fewer assets other Block 2006 work will be deferred to offset 
growing contractor costs. Actual costs cannot be reconciled with 
original goals because the goals have been changed, work travels to and 
from other blocks, and individual program elements do not account for 
costs consistently. In addition, although element program offices 
achieved most of their 2006 test objectives, the performance of the 
BMDS cannot yet be fully assessed because there have been too few 
flight tests conducted to anchor the models and simulations that 
predict overall system performance. Several elements continue to 
experience technical problems which pose questions about the 
performance of the fielded system and could delay the enhancement of 
future blocks. 

Block 2006 Costs Have Increased, but a Full Accounting Is Not Possible: 

Block 2006 costs have increased because of technical problems and 
greater than expected GMD operations and sustainment costs. In March 
2006, shortly after the formal initiation of Block 2006, increasing 
costs and other events prompted MDA to reduce the quantity of assets it 
intended to field during the block. Although the agency reduced the 
scope of Block 2006, most of the elements' prime contractors reported 
that work completed during fiscal year 2006 cost more than planned. 
Consequently, MDA officials told us it is likely that other work 
planned for Block 2006 will be deferred until Block 2008 to cover 
fiscal year 2006 overruns. Furthermore, changing goals, inconsistent 
reporting of costs by the individual elements, and MDA's past practice 
of accounting for the cost of deferred work prevents a determination of 
the actual cost of Block 2006. 

Cost Increases Lead to Revised Block 2006 Cost Goal: 

MDA's cost goal for Block 2006 has increased by approximately $1 
billion. In March 2005, MDA established a goal of $20.458 billion for 
the development, fielding, and sustainment of all Block 2006 
components. However by March 2006, it had grown by about $1 billion. 
Cost increases were caused by the: 

* addition of previously unknown operations and sustainment 
requirements, 

* realignment of the GMD program to support a successful return to 
flight, 

* realignment of the Aegis BMD program to address technical challenges 
and invest in upgrades to keep pace with the near term threat, and: 

* preparations for round-the-clock operation of the BMDS when the 
system was put on alert. 

In an effort to keep costs within the goal, MDA shifted THAAD's future 
development costs of $1.13 billion to another block. That is, the 
agency moved the cost associated with THAAD's development in fiscal 
years 2006 through 2011--which in March 2005 was considered a Block 
2006 cost--to Block 2008. This accounting change accommodated the cost 
increase. According to MDA's November 2006 Report to Congress, THAAD 
costs will be reported as part of Block 2008 costs to better align the 
agency's resources with the planned delivery of THAAD fire units in 
2008. Tables 2 and 3 compare the Block 2006 cost goal established for 
the BMDS in March 2005 and March 2006. 

Table 2: Block 2006 Cost Goal, as of March 2005: 

Cost Goal, March 2005: (Dollars in millions): 

Element: C2BMC; 
FY02-FY11 Development Costs: $386; 
FY02-FY11 Fielding Costs: $24; 
FY02-FY11 Operations and Sustainment Costs: $33; 
Total Block Cost Goal: $443. 

Element: Hercules; 
FY02-FY11 Development Costs: $72; 
FY02-FY11 Fielding Costs: - 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $72. 

Element: Joint Warfighter Support; 
FY02-FY11 Development Costs: $113; 
FY02-FY11 Fielding Costs: $-; 
FY02-FY11 Operations and Sustainment Costs: $10; 
Total Block Cost Goal: $123. 

Element: Test and Evaluation; 
FY02-FY11 Development Costs: $336; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $336. 

Element: Targets and Countermeasures; 
FY02-FY11 Development Costs: $548; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $548. 

Element: THAAD; 
FY02-FY11 Development Costs: $1,172[A]; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,172. 

Element: GMD; 
FY02-FY11 Development Costs: $10,847; 
FY02-FY11 Fielding Costs: $1,469; 
FY02-FY11 Operations and Sustainment Costs: $565; 
Total Block Cost Goal: $12,881. 

Element: Aegis BMD; 
FY02-FY11 Development Costs: $1,087; 
FY02-FY11 Fielding Costs: $235; 
FY02-FY11 Operations and Sustainment Costs: $30; 
Total Block Cost Goal: $1,352. 

Element: ABL; 
FY02-FY11 Development Costs: $1,095; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,095. 

Element: BMDS Radars; 
FY02-FY11 Development Costs: $704; 
FY02-FY11 Fielding Costs: $174; 
FY02-FY11 Operations and Sustainment Costs: $248; 
Total Block Cost Goal: $1,126. 

Element: STSS; 
FY02-FY11 Development Costs: $1,310; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,310. 

Total; 
FY02-FY11 Development Costs: $17,670; 
FY02-FY11 Fielding Costs: $1,902; 
FY02-FY11 Operations and Sustainment Costs: $886; 
Total Block Cost Goal: $20,458. 

Less THAAD funding for fiscal years 2006-2011; 
FY02-FY11 Development Costs: -; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,134. 

Total Block cost after removal of THAAD's future cost; 
FY02-FY11 Development Costs: -; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $19,324. 

Source: BMDS Block Statement of Goals and Baselines, March 2005; GAO 
(analysis). 

[A] The development cost of THAAD in fiscal years 2006 through 2011-- 
$1,134--was moved to Block 2008. 

[End of table] 

Table 3: Block 2006 Cost Goal, as of March 2006: 

Revised Goal, March 2006: 
(Dollars in millions): 

Element: C2BMC; 
FY02-FY11 Development Costs: $434; 
FY02-FY11 Fielding Costs: $38; 
FY02-FY11 Operations and Sustainment Costs: $111; 
Total Block Cost Goal: $583. 

Element: Hercules; 
FY02-FY11 Development Costs: $50; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $50. 

Element: Joint Warfighter Support; 
FY02-FY11 Development Costs: $71; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: $31; 
Total Block Cost Goal: $102. 

Element: Test and Evaluation; 
FY02-FY11 Development Costs: $219; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $219. 

Element: Targets and Countermeasures; 
FY02-FY11 Development Costs: $654; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $654. 

Element: PAC-3; 
FY02-FY11 Development Costs: $3; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $3. 

Element: THAAD; 
FY02-FY11 Development Costs: $39[A]; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $39. 

Element: GMD; 
FY02-FY11 Development Costs: $10,825; 
FY02-FY11 Fielding Costs: $1,413; 
FY02-FY11 Operations and Sustainment Costs: $1,574; 
Total Block Cost Goal: $13,812. 

Element: Aegis BMD; 
FY02-FY11 Development Costs: $890; 
FY02-FY11 Fielding Costs: $300; 
FY02-FY11 Operations and Sustainment Costs: $51; 
Total Block Cost Goal: $1,241. 

Element: ABL; 
FY02-FY11 Development Costs: $1,050; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,050. 

Element: BMDS Radars; 
FY02-FY11 Development Costs: $602; 
FY02-FY11 Fielding Costs: $209; 
FY02-FY11 Operations and Sustainment Costs: $272; 
Total Block Cost Goal: $1,083. 

Element: STSS; 
FY02-FY11 Development Costs: $1,494; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,494. 

Element: EO/IR; 
FY02-FY11 Development Costs: $10[B]; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $10. 

Total;  
FY02-FY11 Development Costs: $16,341; 
FY02-FY11 Fielding Costs: $1,960; 
FY02-FY11 Operations and Sustainment Costs: $2,039; 
Total Block Cost Goal: $20,340. 

Cost Goal Established in 2005; 
FY02-FY11 Development Costs: -; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $19,324. 

Difference in 2005 and 2006 Cost Goals; 
FY02-FY11 Development Costs: -; 
FY02-FY11 Fielding Costs: -; 
FY02-FY11 Operations and Sustainment Costs: -; 
Total Block Cost Goal: $1,016. 

Source: BMDS Block Statement of Goals and Baselines, March 2006; GAO 
(analysis). 

[A] This amount of funds was requested for THAAD as part of MDA's 
request for Block 2006 funding in fiscal years 2003 and 2004. 

[B] Development costs for PAC-3 and Electro-Optical/Infrared (EO/IR) 
totaling $13 million were added when MDA revised its Block 2006 cost 
goal in March 2006. The EO/IR Active Sensors is advanced laser radar 
technology being developed for insertion in future kinetic kill 
vehicles and surveillance systems. This technology, coupled with 
passive sensors, is expected to provide improved discrimination 
performance. 

[End of table] 

For the purposes of this report, we have adjusted the March 2005 cost 
goal to reflect the deletion of future THAAD cost from Block 2006. This 
enables the revised cost goal that excludes THAAD to be compared with 
the original cost goal. Had THAAD's cost been removed from MDA's March 
2005 cost goal, Block 2006 would have actually totaled about $19.3 
billion. Comparing this with the March 2006 revised goal of 
approximately $20.3 billion reveals the $1 billion increase in 
estimated Block 2006 costs. 

Individual Elements Account for Block 2006 Costs Differently: 

The 2-year block structure established by MDA has proven to be a 
complicated concept for its BMDS elements to implement. According to 
officials, MDA defines its block structure in two types of 
capabilities: 

* Early Capability-A capability that has completed sufficient testing 
to provide confidence that the capability will perform as designed. In 
addition, operator training is complete and logistical support is 
ready. So far, Aegis BMD, C2BMC, and GMD are the only elements that 
have met these criteria. 

* Full Capability-These capabilities have completed all system-level 
testing and have shown that they meet expectations. At this stage, all 
doctrine, organization, training, material, leadership, personnel, and 
facilities are in place. 

According to MDA officials, the early capability is typically fielded 
during one block and the full capability is usually attained during the 
next or a subsequent block. However, not all elements account for Block 
2006 costs in the same manner. For example, table 4 below shows that 
some elements included costs that will be incurred to reach full 
capability--costs that will be recognized in fiscal year 2009 through 
2011--while other elements have not. 

Table 4: Development Funding for Assets Fielded in Block 2006: 

(Dollars in millions). 

C2BMC; 
FY 02: $3.7; 
FY 03: $26.5; 
FY 04: $52.5; 
FY 05: $26.8; 
FY 06: $133.5; 
FY 07: $148.8; 
FY 08: $39.4; 
FY 09: $2.3; 
FY 10: $0.2; 
FY 11: [Empty]. 

GMD; 
FY 02: $2,460.1; 
FY 03: $2,063.0; 
FY 04: $1,607.1; 
FY 05: $1,886.8; 
FY 06: $1,444.3; 
FY 07: $1,363.7; 
FY 08: [Empty]; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Aegis BMD; 
FY 02: [Empty]; 
FY 03: [Empty]; 
FY 04: $24.4; 
FY 05: $83.6; 
FY 06: $271.1; 
FY 07: $343.6; 
FY 08: $82.0; 
FY 09: $57.1; 
FY 10: $24.8; 
FY 11: $3.5. 

BMDS Radars; 
FY 02: [Empty]; 
FY 03: $31.5; 
FY 04: $145.3; 
FY 05: $207.8; 
FY 06: $137.2; 
FY 07: $79.7; 
FY 08: $0.7; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Joint Warfighter Support; 
FY 02: [Empty]; 
FY 03: [Empty]; 
FY 04: [Empty]; 
FY 05: [Empty]; 
FY 06: $22.5; 
FY 07: $48.7; 
FY 08: [Empty]; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Hercules; 
FY 02: [Empty]; 
FY 03: [Empty]; 
FY 04: $27.0; 
FY 05: $22.7; 
FY 06: [Empty]; 
FY 07: [Empty]; 
FY 08: [Empty]; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Test and Evaluation; 
FY 02: $0.7; 
FY 03: $0.8; 
FY 04: $2.1; 
FY 05: $9.8; 
FY 06: $101.4; 
FY 07: $103.8; 
FY 08: [Empty]; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Targets and Countermeasures; 
FY 02: $0.5; 
FY 03: $3.7; 
FY 04: [Empty]; 
FY 05: $24.8; 
FY 06: $294.6; 
FY 07: $325.4; 
FY 08: $5.3; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

EO/IR; 
FY 02: [Empty]; 
FY 03: [Empty]; 
FY 04: [Empty]; 
FY 05: $9.6; 
FY 06: [Empty]; 
FY 07: [Empty]; 
FY 08: [Empty]; 
FY 09: [Empty]; 
FY 10: [Empty]; 
FY 11: [Empty]. 

Total; 
FY 02: $2,465.0; 
FY 03: $2,125.5; 
FY 04: $1,858.4; 
FY 05: $2,271.9; 
FY 06: $2,404.6; 
FY 07: $2,413.7; 
FY 08: $127.4; 
FY 09: $59.4; 
FY 10: $25.0; 
FY 11: $3.5. 

Source: MDA. 

Note: All MDA resources are Research, Development, Test, and Evaluation 
funds. 

[End of table] 

According to agency officials, the cost of all activities needed to 
validate the performance of Block 2006 Fielded Configuration elements 
should be included as part of the BMDS Block 2006 costs even though 
these activities may occur during future blocks. According to officials 
from MDA's Systems Engineering and Integration Directorate, the C2BMC 
and Aegis BMD programs' cost accounting for Block 2006 are the most 
accurate because the programs included the costs to conduct follow-on 
testing in subsequent years. Additionally, the officials said that 
other elements of the BMDS will conduct similar tests in the years 
following the actual delivery of their Block 2006 capabilities; 
however, the costs were not included as Block 2006 costs. If each BMDS 
element were to consistently report block costs, the planned costs for 
Block 2006 would be higher than MDA's current reported costs of $20.34 
billion. 

Increasing Costs Are Causing MDA to Reduce Scope of Block 2006: 

MDA is making some progress toward achieving its revised Block 2006 
goals, but the number of fielded assets and their overall performance 
will be less than planned when MDA submitted its Block 2006 goals to 
Congress in March 2005. MDA notified Congress that it was revising its 
Block 2006 Fielded Configuration Baseline in March 2006, shortly after 
submitting its fiscal year 2007 budget. 

When MDA provided Congress with its quantity goals in March 2005, it 
stated those goals cumulatively. That is, MDA added the number of Block 
2004 assets that it planned to field by December 31, 2005, to the 
number of assets planned for Block 2006. However, in the case of GMD 
interceptors, MDA was unable to meet its Block 2004 quantity goals, 
which, in effect, caused MDA's Block 2006 goal for interceptors to 
increase. For example, MDA planned to field 18 GMD interceptors by 
December 31, 2005, and to field an additional 7 interceptors during 
Block 2006, for a total of 25 interceptors by the end of Block 2006. 
But, because it did not meet its Block 2004 fielding goal--fielding 
only 10 of the 18 planned interceptors--MDA could not meet its Block 
2006 cumulative goal of 25 without increasing its Block 2006 
deliveries. For purposes of this report, we determined the number of 
assets that MDA would have to produce to meet its Block 2006 cumulative 
quantity goal. Table 5 depicts only those quantities and shows how they 
have changed over time. 

Table 5: Block 2006 Delivery Goals: 

BMDS element: GMD; 
Original Goal as of March 2005: 
* Up to 15 interceptors; 
* Thule Interim Upgrade Early Warning Radar; 
Goal as of March 2006: 
* Up to 12 interceptors; 
* Deferred to Block 2008. 

BMDS element: Sensors; 
Original Goal as of March 2005: 
* 1 additional Forward-Based X-Band-Transportable Radar (FBX-T); 
Goal as of March 2006: 
* 1 additional Forward-Based X-Band-Transportable Radar (FBX-T). 

BMDS element: Aegis BMD SM-3; 
Original Goal as of March 2005: 
* 19 missiles; 
Goal as of March 2006: 
* 15 missiles. 

BMDS element: Aegis BMD; 
Original Goal as of March 2005: 
* 4 new destroyers; long-range surveillance and tracking only; 
* 8 upgraded destroyers for the engagement mission; 
* 1 new cruiser; 
Goal as of March 2006: 
* 4 new destroyers; long-range surveillance and tracking only; 
* 7 upgraded destroyers for the engagement mission; 
* 1 new cruiser. 

BMDS element: C2BMC; 
Original Goal as of March 2005: 
* 3 suites; 
Goal as of March 2006: 
* Suites deferred. 

Source: MDA (data); GAO (presentation). 

[End of table] 

According to MDA, it reduced the number of GMD interceptors in March 
2006 for four primary reasons: 

* delays in interceptor deliveries caused by an explosion at a chemical 
plant, 

* a halt in production after several flight test failures and pending 
Mission Readiness Task Force (MRTF) reviews, 

* a MRTF review that redirected some interceptors from fielding to 
testing, and: 

* the temporary suspension of fielding interceptors due to 
manufacturing and quality issues associated with the exoatomospheric 
kill vehicle (EKV). 

MDA also delayed a partial upgrade to the Thule early warning radar 
until a full upgrade can be accomplished. According to a July 11, 2005, 
DOD memorandum, the full upgrade of Thule is the most economical option 
and it meets DOD's desire to retain a single configuration of upgraded 
early warning radars. 

Additionally, the delivery of Aegis BMD Standard Missile -3 (SM-3) was 
reduced as technical challenges associated with the Divert Attitude 
Control System were addressed and as investments in upgrades were made 
to keep pace with emerging ballistic missile threats. According to 
Aegis BMD officials, the program also revised the upgrade schedule for 
engagement destroyers because other priorities prevent the Navy from 
making one ship available before the end of the block. 

Budget cuts to the C2BMC program also caused MDA to defer the 
installation of C2BMC suites at three sites. MDA had planned to install 
the suites at U.S. Central Command, European Command, and another site 
that was to be determined before the end of the block. However, MDA now 
plans to place less expensive Web browsers at these sites. 

MDA made progress in fielding additional BMDS assets in 2006 and is 
generally on track to meet most of its revised block goals. MDA's 
delivery schedules and System Element Review reports show that MDA 
planned to accomplish these goals by making the following progress by 
December 31, 2006: adding 4 Aegis BMD missiles to inventory,[Footnote 
9] adding 2 new Aegis BMD destroyers for long-range surveillance and 
tracking, upgrading 2 Aegis BMD destroyers and 2 Aegis BMD cruisers to 
perform both engagement and long-range surveillance and tracking, 
adding 1 new Aegis BMD destroyer and 1 new cruiser with both engagement 
and long-range surveillance and tracking capability, completing a 
number of activities prior to delivering the FBX-T radar, delivering 
the hardware for the 3 Web browsers, and emplacing 8 GMD interceptors. 
With the exception of the GMD interceptors, MDA completed all work as 
planned. The GMD program was only able to emplace four interceptors by 
December 2006, rather than the eight planned. However, program 
officials told us that the contractor has increased the number of 
shifts that it is working and the program believes that with this 
change the contractor can accelerate deliveries and emplace as many as 
24 interceptors by the end of the block. However, to do so, the GMD 
program will have to more than double its 2007 interceptor emplacement 
rate. 

MDA Likely to Defer Additional Work into Future Blocks to Offset Rising 
Costs: 

Even though MDA reduced the quantity of assets it planned to deliver 
during Block 2006 to free up funds, most of the MDA's prime contractors 
overran their fiscal year 2006 budgets. Collectively, the prime 
contractors developing elements included in Block 2006 exceeded their 
budgets by approximately $478 million, with GMD accounting for about 72 
percent of the overrun. Table 6 contains our analysis of prime 
contractors' cost and schedule performance in fiscal year 2006 and the 
potential overrun or underrun of each contract at completion.[Footnote 
10] All estimates of the contracts' cost at completion are based on the 
contractors' performance through fiscal year 2006. Appendix II provides 
further details regarding the cost and schedule performance of the 
prime contractors for the seven elements shown in table 6. 

Table 6: Prime Contractor Fiscal Year 2006 and Cumulative Cost and 
Schedule Performance: 

BMDS Element: ABL; 
FY06 Cost Variance: ($54.8); 
FY06 Schedule Variance[A]: ($26.4); 
Cumulative Cost Variance: ($77.9); 
Cumulative Schedule Variance: ($50.0); 
Percent of Contract Completed: 79%; 
Estimated Contract Underrun/Overrun[B]: Overrun of $112.1 to $ 248.3. 

BMDS Element: Aegis BMD Weapon System; 
FY06 Cost Variance: ($6.0); 
FY06 Schedule Variance[A]: ($0.8); 
Cumulative Cost Variance: $0.1; 
Cumulative Schedule Variance: ($0.8); 
Percent of Contract Completed: 81%; 
Estimated Contract Underrun/Overrun[B]: Overrun of $0.1 to $4.7. 

BMDS Element: Aegis BMD SM-3[C]; 
FY06 Cost Variance: ($7.8); 
FY06 Schedule Variance[A]: $0.7; 
Cumulative Cost Variance: $3.1; 
Cumulative Schedule Variance: ($8.9); 
Percent of Contract Completed: 82%; 
Estimated Contract Underrun/Overrun[B]: Underrun of $1.9 to overrun of 
$2.7. 

BMDS Element: GMD; 
FY06 Cost Variance: ($346.5); 
FY06 Schedule Variance[A]: $90.2; 
Cumulative Cost Variance: ($1,059.6); 
Cumulative Schedule Variance: ($137.8); 
Percent of Contract Completed: 74%; 
Estimated Contract Underrun/Overrun[B]: Overrun of $1,485.8 to 
$1,853.5. 

BMDS Element: Sensors; 
FY06 Cost Variance: $3.8; 
FY06 Schedule Variance[A]:$5.4;  
Cumulative Cost Variance: $20.2; 
Cumulative Schedule Variance: $26.6; 
Percent of Contract Completed: 65%; 
Estimated Contract Underrun/Overrun[B]: Underrun of $44.9 to $26.3. 

BMDS Element: STSS; 
FY06 Cost Variance: ($66.8); 
FY06 Schedule Variance[A]: ($84.1); 
Cumulative Cost Variance: ($163.7); 
Cumulative Schedule Variance: ($104.4); 
Percent of Contract Completed: 42%; 
Estimated Contract Underrun/Overrun[B]: Overrun of $567.3 to $1,378.3. 

Total for Block 2006 Elements;  
FY06 Cost Variance: ($478.1); 
FY06 Schedule Variance[A]: ($15.0); 
Cumulative Cost Variance: ($1,277.8); 
Cumulative Schedule Variance: ($275.3); 
Percent of Contract Completed: [Empty]; 
Estimated Contract Underrun/Overrun[B]: Total estimated Block 2006 
Overrun $2,118.5 to $3,461.2. 

BMDS Element: KEI; 
FY06 Cost Variance: $0.6; 
FY06 Schedule Variance[A]: $0.6; 
Cumulative Cost Variance: $3.6; 
Cumulative Schedule Variance: ($5.3); 
Percent of Contract Completed: 6%; 
Estimated Contract Underrun/Overrun[B]: N/A[D]. 

BMDS Element: THAAD[E]; 
FY06 Cost Variance: ($87.9); 
FY06 Schedule Variance[A]: ($37.9); 
Cumulative Cost Variance: ($104.2); 
Cumulative Schedule Variance: ($28.0); 
Percent of Contract Completed: 81%; 
Estimated Contract Underrun/Overrun[B]: Overrun of $134.7 to $320.2. 

Total for Future Block Elements; 
FY06 Cost Variance: ($87.3); 
FY06 Schedule Variance[A]: ($37.3); 
Cumulative Cost Variance: ($100.6); 
Cumulative Schedule Variance: ($33.3); 
Percent of Contract Completed: [Empty]; 
Estimated Contract Underrun/Overrun[B]: [Empty]. 

Total for all elements; 
FY06 Cost Variance: ($565.4); 
FY06 Schedule Variance[A]: ($52.3); 
Cumulative Cost Variance: ($1,378.4); 
Cumulative Schedule Variance: ($308.6); 
Percent of Contract Completed: [Empty]; 
Estimated Contract Underrun/Overrun[B]: Total estimated Overrun for all 
elements: Overrun of $2,253.2 to $3,781.4. 

Source: Contract Performance Reports (data); GAO (analysis). 

Notes: Negative variances are shown with parentheses around the dollar 
amounts. MDA directed that the contractors for the MKV and C2BMC 
elements suspend Earned Value reporting during the fiscal year and data 
for those contracts is not included above. 

[A] Schedule variance represents the value of planned work that the 
contractor has not performed as scheduled. 

[B] Contracts may include some work that is not related to Block 2006. 

[C] Contractor performance reporting data for the Aegis BMD SM-3 
contract was not available prior to fiscal year 2005. Therefore, 
cumulative values are from fiscal year 2005 to the present. 

[D] We could not estimate the likely outcome of the KEI contract at 
completion because a trend cannot be predicted until 15 percent of the 
planned work is completed. 

[E] Earned Value data for the THAAD contract is reported under two 
contract line item numbers, 1 and 10. We report only the contractor's 
cost and schedule performance for contract line item 1 because it 
represents the majority of the total work performed under the contract. 

[End of table] 

As shown in table 6, the Sensors element is the only Block 2006 element 
that according to our analysis performed within its fiscal year 2006 
budget. The ABL, Aegis BMD, GMD, and STSS programs overran their fiscal 
year budgets as a result of technical problems and integration issues 
encountered during the year. We could not assess the C2BMC contractor's 
cost and schedule performance because MDA suspended Earned Value 
reporting during the year as the contractor replanned its Block 2006 
program of work. 

In addition to analyzing the fiscal year 2006 cost and schedule 
performance of elements included in Block 2006, we also analyzed the 
performance of elements included in other blocks. Of the elements 
reporting Earned Value data, only KEI performed within its budget. 
THAAD's integration problems once again caused it to exceed its budget. 
We were unable to determine whether the work accomplished by the MKV 
contractor cost more than originally planned because Contract 
Performance Reports were suspended in February 2006 as the program 
transitioned from an advanced technology development program to a 
system development program. This transition prompted MKV to establish a 
new baseline for the program, which the contractor will not report 
against until early in fiscal year 2007. 

MDA officials told us that MDA is likely to defer some Block 2006 work 
activities (other than the delivery of assets) into future blocks in an 
effort to operate within the funds programmed for the block. If the 
agency reports the cost of deferred work as it has in the past, the 
cost of Block 2006 will not include all work that benefits the block 
and the cost of the future block will be overstated. 

The deferral of work, while necessary to offset increased costs, 
complicates making a comparison of a block's actual costs with its 
original estimate. According to the Statement of Federal Financial 
Accounting Standards Number 4, a federal program should report the full 
cost of its outputs, which is defined as the total amount of resources 
used to produce the output. In March 2006, we reported that the cost of 
MDA's Block 2004 program of work was understated because the reported 
costs for the block did not include the cost of Block 2004 activities 
that were deferred until Block 2006. Conversely, the cost of Block 2006 
is overstated because the deferred activities from Block 2004 do not 
directly contribute to the output of Block 2006. Similarly, if MDA 
decides to defer Block 2006 activities until Block 2008 as officials in 
MDA's Office of Agency Operations told us is likely, the cost of those 
activities will likely be captured as part of Block 2008 costs. 

MDA Able to Achieve Most Test Objectives Despite Some Delays in Test 
Schedule: 

Most BMDS elements achieved their primary calendar year 2006 test 
objectives and conducted test activities on schedule. By December 2006- 
the midpoint of Block 2006-three of the six Block 2006 elements and all 
elements considered part of future blocks--met their 2006 primary test 
objectives. Only the ABL, Aegis BMD, and STSS elements were unable to 
achieve these objectives. 

Progress Made on Block 2006 Elements: 

Although the elements encountered test delays, some were able to 
achieve noteworthy accomplishments. For example, in its third flight 
test, the GMD program exceeded its test objectives by intercepting a 
target. This intercept was particularly noteworthy because it was the 
first successful intercept attempt for the program since 2002. Also, 
although the test was for only one engagement scenario, it was notable 
because it was GMD's first end-to-end test. 

The GMD program originally planned to conduct four major flight tests, 
during fiscal year 2006, two using operational interceptors. However, 
the program was only able to conduct three flight tests during the 
fiscal year. In one, an operational interceptor was launched against a 
simulated target; in a second test, a simulated target was launched to 
demonstrate the ability of the Beale radar to provide a weapon system 
task plan; and in the other, an interceptor was launched against an 
actual target. It was in the third test that--for one end-to-end 
scenario--the program exceeded test objectives by destroying a target 
representative of a real world threat. The objectives of the fourth 
test were to be similar to those of the third test--an interceptor 
flying-by a target with no expectation of a hit. However, program 
officials told us that the success of the earlier tests caused them to 
accelerate the objectives of the fourth test by making it an intercept 
attempt. The fourth test has not yet taken place because a delay in the 
third test caused a similar delay in the fourth test and because 
components of the test interceptor are being changed to ensure that 
they will function reliably. This test is currently scheduled no 
earlier than the third quarter of fiscal year 2007. 

Both the C2BMC and Sensors elements conducted all planned test 
activities on schedule and were able to meet their 2006 objectives. The 
C2BMC software, which enables the system to display real-time target 
information collected by BMDS sensors, was tested in several flight 
tests with the Aegis BMD and GMD programs and was generally successful. 
The Sensors element was also able to complete all tests planned to 
ensure that the Forward-Based X-Band--Transportable (FBX-T) radar will 
be ready for operations. The warfighter will determine when the FBX-T 
will become operational, but MDA officials told us that this may not 
occur until the United States is able to provide the radar's data to 
Japan. 

MDA was unable to successfully execute the 2006 test objectives for the 
STSS program. Thermal vacuum testing that was to be conducted after the 
first payload was integrated with space vehicle 1 was delayed as a 
result of integration problems. According to program officials, testing 
began in January 2007 and it was expected to be completed in late 
February 2007. 

Although the Aegis BMD program conducted its planned test activities on 
schedule, it was unable to achieve all of its test objectives for 2006. 
Since the beginning of Block 2006, the program has conducted one 
successful intercept, which tested the new Standard Missile-3 design 
that is being fielded for the first time during Block 2006. This new 
missile design provides a capability against more difficult threats and 
has a longer service life than the missile produced in Block 2004. In 
December 2006, a second intercept attempt failed because the weapon 
system component was incorrectly configured and did not classify the 
target as a threat, which prevented the interceptor from launching. Had 
this test been successful, it would have been the first time that the 
pulse mode of the missile's Solid Divert and Attitude Control System 
would have been partially flight tested. 

A sixth BMDS element-ABL-experienced delays in its testing schedule and 
was also unable to achieve its fiscal year 2006 test objectives. ABL is 
an important element because if it works as desired, it will defeat 
enemy missiles soon after launch, before decoys are released to confuse 
other BMDS elements. Development of the element began in 1996, but MDA 
has not yet demonstrated that all of ABL's leading-edge technologies 
will work. The ABL program plans to prove critical technologies during 
a lethality demonstration. This demonstration is a key knowledge point 
for ABL because it is the point at which MDA will decide the program's 
future. However, technical problems encountered with the element's Beam 
Control/Fire Control component caused the program to experience over a 
3-month delay in its ground test program, which has delayed the planned 
lethality demonstration until 2009. In addition, all software problems 
have not been completely resolved and, according to ABL's Program 
Manager, will have to be corrected before flight testing can begin, 
which could further delay the lethality demonstration. 

Test Results for Future Block Elements Are Positive: 

The KEI element also has a key decision point--a booster flight test-- 
within the next few years. In preparation for this test, the program 
successfully conducted static fire tests and wind tunnel tests in 
fiscal year 2006 to better assess booster performance. Upon completion 
of KEI's 2008 flight test and ABL's 2009 lethalithy demonstration, MDA 
will compare the progress of the two programs and decide their futures. 

In January 2005, MDA established ABL as the primary boost phase defense 
element. At the same time, MDA restructured the KEI program to develop 
an upgraded long-range midcourse interceptor and reduced KEI's role in 
the boost phase to that of risk mitigation. A KEI official told us that 
a proposal is being developed that suggests MDA approach the 2009 
decision as a down select or source selection that would decide whether 
ABL or KEI would be the BMDS boost phase capability. 

The MKV program accomplished all of its planned activities as scheduled 
during fiscal year 2006, which included several successful propulsion 
tests. In November 2005, the program tested a preliminary design of 
MKV's liquid propellant divert and attitude control system-the steering 
mechanism for the carrier and kill vehicles. This test was a precursor 
to a successful July 2006 test of the liquid divert and attitude 
control system's divert thruster, which was conducted under more 
realistic conditions. The program also executed a solid propellant 
divert and attitude control system test in December 2005. Results of 
the December test, combined with a technology assessment, led program 
officials to pursue a low-risk, high-performance liquid fueled divert 
and attitude control system. The MKV program will continue to explore 
other divert and attitude control system technologies for future use. 

The THAAD program achieved its primary fiscal year 2006 test 
objectives, although it did experience test delays. The program planned 
to conduct five flight tests during fiscal year 2006, but was only able 
to execute four. During the program's first two flight tests, program 
officials demonstrated the missile's performance, including the 
operation of the missile's divert and attitude control system and the 
control of its kill vehicle. The third flight test conducted in July 
2006 demonstrated THAAD's ability to successfully locate and intercept 
a target, a primary 2006 test objective. The fourth THAAD flight test 
was declared a "no-test" after the target malfunctioned shortly after 
its launch, forcing program officials to terminate the test. THAAD 
officials told us that the aborted test will be deleted from the test 
schedule and any objectives of the test that have not been satisfied 
will be rolled-up into future tests. The program planned to conduct its 
fifth (missile only) flight test-to demonstrate the missile's 
performance in the low atmosphere-in December 2006. However, due to 
reprioritization in test flights, the fifth flight test is now 
scheduled for the second quarter of fiscal year 2007. Flight test 6, 
the next scheduled flight test, was successfully conducted at the end 
of January 2007. It was the first flight test performed at the Pacific 
Missile Range. 

Overall BMDS Performance Remains Unverified: 

In March 2005, MDA set performance goals for Block 2006 that 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.[Footnote 11] In March 2006, MDA altered 
its Block 2006 performance goals commensurate with reductions in Block 
2006 fielded assets. Although MDA revised its goal downward, 
insufficient data exists to assess whether MDA is on track to meet its 
new goal. 

MDA uses the WILMA model to predict overall BMDS performance even 
though this model has not been validated or verified by DOD's 
Operational Test Agency. According to Operational Test Agency 
officials, WILMA is a legacy model that does not have sufficient 
fidelity for BMDS performance analysis. MDA officials told us the 
agency is working to develop an improved model that can be matured as 
the system matures. 

In addition, the GMD program has not completed sufficient flight 
testing to provide a high level of confidence that the BMDS can 
reliably intercept ICBMs. In September 2006, the GMD program completed 
an end-to-end test of one engagement sequence that the GMD element 
might carry out. While this test provided some assurance that the 
element will work as intended, the program must test other engagement 
sequences, which would include other GMD assets that have not yet 
participated in an end-to-end flight test. Additionally, independent 
test agencies told us that additional flight tests are needed to have a 
high level of confidence that GMD can repeatedly intercept incoming 
ICBMs. Additional tests are also needed to demonstrate that the GMD 
element can use long-range surveillance and tracking data developed by 
the Aegis BMD element. In March 2006, we reported that Aegis BMD was 
unable to participate in a GMD flight test, which prevented MDA from 
exercising Aegis BMD's long-range surveillance and tracking capability 
in a manner consistent with an actual defensive mission. The program 
office told us that the Aegis BMD is capable of performing this 
function and has demonstrated its ability to surveil and track ICBMs in 
several exercises. Additionally, Aegis BMD has shown that it can 
communicate this data to GMD in real time. However, because of other 
testing priorities, GMD has not used this data to prepare a weapon 
system task plan in real time. Rather GMD developed the plan in post- 
test activities. Officials in the Office of the Director for 
Operational Test and Evaluation told us that having GMD prepare the 
test plan in real time would provide the data needed to more accurately 
gauge BMDS performance. 

Delayed testing and technical problems may also impact the performance 
of the system and the timeliness of future enhancements to the fielded 
system. For example, the performance of the new configuration of the 
Aegis BMD SM-3 missile is unproven because design changes in the 
missile's solid divert and attitude control system and one burn pattern 
of the third stage rocket motor, according to program officials, were 
not flight tested before they were cut into the production line. MDA is 
considering a full flight test of the pulsed solid divert and attitude 
control system during the third quarter of fiscal year 2007. The solid 
divert and attitude control system is needed to increase the missile's 
ability to divert into its designated target and counter more complex 
threats. The zero pulse-mode of the missile's third stage rocket motor, 
which is expected to provide a capability against a limited set of 
threat scenarios, will not be fully tested until fiscal year 2009. 

Confidence in the performance of the BMDS is also reduced because the 
GMD element continues to struggle with technical issues affecting the 
reliability of some GMD interceptors. For example, GMD officials told 
us that the element has experienced one anomaly during each of its 
flight tests since its first flight test conducted in 1999. 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 or defined. Program officials plan to 
continue their assessment of current and future test data to identify 
the root cause of the problem. 

The reliability of emplaced GMD interceptors also remains uncertain 
because inadequate mission assurance/quality control procedures may 
have allowed less reliable or inappropriate parts to be incorporated 
into the manufacturing process. Program officials plan to replace these 
parts in the manufacturing process, but not until interceptor 18. The 
program plans to begin retrofitting the previous 17 interceptors in 
fiscal year 2009. According to GMD officials, the cost of retrofitting 
the interceptors will be at least $65.5 million and could be more if 
replacement of some parts proves more difficult than initially 
expected. 

The ABL program also experienced a number of technical problems during 
fiscal year 2006 that delayed future decisions for the BMDS program. As 
previously noted, the program's 2008 lethality demonstration will be 
delayed until 2009. The delay is caused by Beam Control/Fire Control 
(BC/FC) software, integration, and testing difficulties and unexpected 
hardware failures. According to contractor reports, additional software 
tests were needed because changes were made to the tested versions, the 
software included basic logic errors, and unanticipated problems were 
caused by differences in the software development laboratory and ABL 
aircraft environments. 

MDA'S Flexibility Comes at the Cost of Program Transparency: 

MDA enjoys a significant amount of flexibility in developing the BMDS, 
but it comes at the cost of transparency and accountability. Because 
the BMDS program has not formally entered the system development and 
demonstration phase of the acquisition cycle, it is not yet required to 
apply several important oversight mechanisms contained in certain 
acquisition laws that, among other things, provide transparency into 
program progress and decisions. This has enabled MDA to be agile in 
decision making and to field an initial BMDS capability quickly. On the 
other hand, MDA operates with considerable autonomy to change goals and 
plans, making it difficult to reconcile outcomes with original 
expectations and to determine the actual cost of each block and of 
individual operational assets. 

Acquisition Laws Promote Program Transparency: 

Past Congresses have established a framework of laws that make major 
defense acquisition programs accountable for their planned outcomes and 
cost, give decision makers a means to conduct oversight, and ensure 
some level of independent program review.[Footnote 12] The threshold 
application of these acquisition laws is typically triggered by a 
program's entry into system development and demonstration--a phase 
during which the weapon system is designed and then demonstrated in 
tests. The BMDS has not entered into system development and 
demonstration because it is being developed outside DOD's normal 
acquisition cycle. 

To provide accountability, major defense acquisition programs are 
required by statute to document program goals in an acquisition program 
baseline[Footnote 13] that, as implemented by DOD, has been approved by 
a higher-level DOD official prior to the program's initiation. The 
baseline, derived from the users' best estimates of cost, schedule, and 
performance requirements, provides decision makers with the program's 
total cost for an increment of work, average unit costs for assets to 
be delivered, the date that an initial operational capability will be 
fielded, and the weapon's intended performance parameters. The baseline 
is considered the program's initial business case-evidence that the 
concept of the program can be developed and produced within existing 
resources. Once approved, major acquisition programs are required to 
measure their program against the baseline or to obtain approval from a 
higher-level acquisition executive before making significant changes. 
Programs are also required to regularly provide detailed program status 
information to Congress, including information on program cost, in 
Selected Acquisition Reports.[Footnote 14] In addition, Congress has 
established a cost monitoring mechanism that requires programs to 
report significant increases in unit cost measured from the program 
baseline.[Footnote 15] 

Other statutes ensure that DOD provides some independent program 
verification external to the program. Title 10, United States Code 
(U.S.C.), section 2434 prohibits the Secretary of Defense from 
approving system development and demonstration, or production and 
deployment, of a major defense acquisition program unless an 
independent estimate of the program's full life-cycle cost has been 
considered by the Secretary.[Footnote 16] The independent verification 
of a program's cost estimate allows decision makers to gauge whether 
the program is executable given other budget demands and it increases 
the likelihood that a program can execute its plan within estimated 
costs.[Footnote 17] In addition, 10 U.S.C. § 2399 requires completion 
of initial operational test and evaluation of a weapon system before a 
program can begin full-rate production. The Director of Operational 
Test and Evaluation, a DOD office independent of the acquisition 
program, not only approves the adequacy of the test plan and its 
subsequent evaluation, but also reports to the Secretary of Defense 
whether the test and evaluation were adequate and whether the test's 
results confirm that the items are effective and suitable for combat. 

By law, appropriations are to be applied only to the objects for which 
the appropriations were made except as otherwise provided by 
law.[Footnote 18] Research and development appropriations are typically 
specified by Congress to be used to pay the expenses of basic and 
applied scientific research, development, test, and evaluation. On the 
other hand, procurement appropriations are, in general, specified by 
Congress to be used for the purchase of weapon systems and equipment, 
that is, production or manufacturing. In the 1950s, Congress 
established a policy that items being purchased with procurement funds 
be fully funded in the year that the item is procured. This policy is 
meant to prevent a program from incrementally funding the purchase of 
operational systems. According to the Congressional Research Service, 
"incremental funding fell out of favor because opponents believed it 
could make the total procurement costs of weapons and equipment more 
difficult for Congress to understand and track, create a potential for 
DOD to start procurement of an item without necessarily stating its 
total cost to Congress, permit one Congress to 'tie the hands' of 
future Congresses, and increase weapon procurement costs by exposing 
weapons under construction to uneconomic start-up and stop 
costs."[Footnote 19] 

Congress continues to enact legislation that improves program 
transparency. In 2006, Congress added 10 U.S.C. § 2366a, which 
prohibits programs from entering system development and demonstration 
until certain certifications are made. For example, the decision 
authority for the program must certify that the program has a high 
likelihood of accomplishing its intended mission and that the program 
is affordable considering unit cost, total acquisition cost, and the 
resources available during the year's covered by DOD's future years 
defense program.[Footnote 20] 

Similar to other government programs, one of the laws affecting MDA 
decisions is the Antideficiency Act.[Footnote 21] The fundamental 
concept of the Antideficiency Act is to ensure that spending does not 
exceed appropriated funds. The act is one of the major laws in which 
Congress exercises its constitutional control of the public purse. The 
fiscal principles underlying the Antideficiency Act are quite simple. 
Government officials may not make payments, or commit the United States 
to make payments at some future time, for goods or services unless the 
available appropriation is sufficient to cover the cost in full. To 
ensure that it is always in compliance with this law, MDA adjusts its 
goals and defers work as needed to execute the BMDS within its 
available budget. 

Benefits of MDA's Flexibility: 

In 2001, DOD conducted extensive missile defense reviews to decide how 
best to defend the United States, deployed troops, friends, and allies 
from ballistic missile attacks. The studies determined that DOD needed 
to find new approaches to acquire and deploy missile defenses. 
Flexibility was one of the hallmarks of the new approach that DOD chose 
to implement. One flexibility accorded MDA was the authority to develop 
the BMDS outside of DOD's normal acquisition cycle, by not formally 
entering the system development and demonstration phase. This 
effectively enabled MDA to defer application of certain acquisition 
laws until the agency transfers a fully developed capability to a 
military service for production, operation, and sustainment--the point 
at which DOD directed that the BMDS program reenter the acquisition 
cycle. At that point, basic development and initial fielding would 
generally be complete. 

Because MDA currently does not have to apply many of the oversight 
requirements for major defense acquisition programs directed by 
acquisition laws, the BMDS program operates with unusual autonomy. In 
2002, the Under Secretary of Defense for Acquisition, Technology, and 
Logistics delegated to MDA the authority to establish its own baseline 
and make changes to that baseline without approval outside of MDA. 
Because it has not formally entered system development and 
demonstration, MDA can also initiate a block of capability and move 
forward with its fielding without an independent cost estimate or an 
independent test of the effectiveness and suitability of assets 
intended for operational use. The ability to make decisions on its own 
and proceed without independent verifications reduces decision 
timelines, making the BMDS program more agile than other DOD programs. 

MDA's ability to quickly field a missile defense capability is also 
enhanced by its ability to field the BMDS before all testing is 
complete. MDA considers the assets it has fielded to be developmental 
assets and not the result of the production phase of the acquisition 
cycle. Because MDA has not advanced the BMDS or its elements into the 
acquisition cycle, it is continuing to produce and field assets without 
completing the operational test and evaluation normally required by 10 
U.S.C. § 2399 before full-rate production. For example, MDA has 
acquired and emplaced 14 ground-based interceptors for operational use 
before both developmental and operational testing is completed. The 
agency's strategy is to continue developmental testing while fielding 
assets and to also incorporate operational realism into these tests so 
that the Director of Operational Test and Evaluation can make an 
operational assessment of the fielded assets' capability. 

Because all of MDA's funding comes from the Research, Development, 
Test, and Evaluation appropriation account, MDA enjoys greater 
flexibility in how it can use funds compared to a traditional DOD 
acquisition program where funding is typically divided into research, 
development, and evaluation, procurement, and operations and 
maintenance.[Footnote 22] This is particularly true of an element. For 
example, a Block 2006 element like GMD covers a wide range of 
activities, from research and development on future enhancements to the 
fabrication of interceptors for operations. If the GMD program runs 
into problems with one activity, it can defer work on another to cover 
the cost of the problems. MDA's flexibility to change goals for each 
element complements the flexibility in how it uses its funds. 

Comparing Actual Work to Budgeted Work Is Difficult: 

After a new block of the BMDS has been presented in the budget, MDA can 
change the outcomes-in terms of planned delivery of assets and other 
work activities-that are expected of the block. While this freedom 
enables MDA to operate within its budget, it decouples the activities 
actually completed from the activities that were budgeted, making it 
difficult to assess the value of what is actually accomplished. For 
example, between 2003 and mid-2005, MDA changed its Block 2004 delivery 
goals three times, progressively decreasing the number of assets 
planned for the block when it was initially approved for funding. This 
trend has continued into Block 2006, with the agency changing its 
delivery plans once since it presented its initial Block 2006 goals to 
Congress. MDA is required to report such changes only if MDA's Director 
considers the changes significant. 

In addition to deferring the delivery of assets from one block to 
another, MDA also has the flexibility to defer other work activities 
from a current to a future block. This creates a rolling scope, making 
it difficult to keep track of what an individual block is responsible 
for delivering. For example, during Block 2004, MDA deferred some 
planned development, deployment, characterization, and verification 
activities until Block 2006 so that it could cover contractor budget 
overruns. MDA is unable to determine exactly how much work was 
deferred. However, according to a November 2006 report to Congress, MDA 
found it necessary to defer the work until Block 2006 to make Block 
2004 funding available to implement a new GMD test strategy following 
two GMD flight test failures, resolve quality issues associated with 
GMD interceptors and its exoatmospheric kill vehicle, and add an FBX-T 
radar to the initial deployed capability. Agency officials are already 
anticipating the deferral of work from Block 2006 into Block 2008. In 
fiscal year 2006, the work of five of the six contractors responsible 
for elements included in Block 2006 cost more than expected. Given 
program funding limits, MDA officials told us that they will either 
have to defer work or request additional funds from Congress during the 
remaining years of the block. MDA did not increase its fiscal year 2007 
budget request; therefore, it is likely that the agency will once again 
have to defer some planned work into the next block. 

Not only do changes in a block's work plan make it difficult to know 
what outcomes the program expects to achieve, the changes also have the 
potential to impact the BMDS' performance. For example, by decreasing 
the number of fielded interceptors, MDA decreases the likelihood that 
it can defeat enemy missiles if multiple threats are prevalent because 
the number of available interceptors will be limited. In addition, if 
activities, such as testing and validation, are not complete when 
assets are fielded, the assets may not perform as expected and changes 
may be needed. This effect of early fielding was seen in Block 2004 
when GMD interceptors were fielded before testing was complete. Later 
tests showed that the interceptors may contain unreliable parts, some 
of which MDA now plans to replace. 

Lack of Independent Reviews Contributes to Changing Goals: 

Although acquisition laws governing major defense acquisition programs 
as well as DOD acquisition policy recognize the need for independent 
program reviews, few such reviews are part of the BMDS program. This 
has contributed to the difficulty in assessing MDA's progress toward 
expected outcomes. As described above, major programs are required by 
law to have an independent cost estimate (performed by the DOD Cost 
Analysis Improvement Group) for entry into system development and 
demonstration, as well as production and deployment. According to MDA 
officials, MDA has so far obtained an independent assessment of only 
one BMDS element's life-cycle cost estimate--Aegis BMD's estimate for 
Block 2004.[Footnote 23] In our opinion, without a full independent 
cost estimate, MDA has established optimistic block goals that could 
not be met. This is supported by an MDA spokesman's statement that the 
agency's optimism in establishing Block 2004 cost and quantity goals 
contributed to several goal changes. According to MDA officials, unlike 
its action on its Block 2004 cost goal, MDA did not request an 
assessment of MDA's Block 2006 goal. 

Further, DOD policy calls for a milestone decision authority with 
overall responsibility for the program that is independent of the 
program.[Footnote 24] Although the Director reports to the Under 
Secretary of Defense for Acquisition, Technology, and Logistics and 
keeps the Under Secretary and congressional defense committees informed 
of MDA decisions, MDA's Director is authorized to make most program 
decisions without prior approval from a higher-level authority. The 
Under Secretary of Defense delegated this authority to the Director in 
a February 2002 memorandum. The Secretary of Defense also appointed 
MDA's Director as both the BMDS Program Manager and its Acquisition 
Executive (including the authority to serve as milestone decision 
authority until an element is transferred out of MDA). As the 
Acquisition Executive, the Director was given responsibility for 
establishing programmatic policy and conducting all research and 
development of the BMDS. This delegation included responsibility for 
formulating BMDS acquisition strategy, making program commitments and 
terminations, deciding on affordability trade-offs, and baselining the 
capability and configuration of blocks and elements. 

Block Costs Cannot Be Tracked: 

Because MDA can redefine outcomes, the actual cost of a block cannot be 
compared with the cost originally estimated. MDA considers the cost of 
deferred work--which may be the delayed delivery of assets or other 
work activities--as a cost of the block in which the work is performed, 
even though the work benefits and was planned for a prior block. 
Further, MDA does not track the cost of deferred work from one block to 
the next and, therefore, cannot make adjustments that would match the 
cost with the block it benefits. For example, in March 2006, we 
reported that MDA deferred some Block 2004 work until Block 2006 so 
that it could use the funds appropriated for that work to cover 
unexpected cost increases caused by such problems as poor quality 
control procedures and technical problems during development, testing, 
and production. MDA officials told us that additional funds have been, 
or will be, requested during Block 2006 to carry out the work. However, 
the officials could not tell us how much of the Block 2006 budget is 
attributable to the deferred work. These actions caused Block 2004 cost 
to be understated and Block 2006 cost to be overstated. In addition, if 
MDA delays some Block 2006 work until Block 2008, as expected, Block 
2006 cost will become more difficult to compare with its original 
estimate as the cost of the deferred work will no longer count against 
the block. The Director, MDA, determines whether he reports the cost of 
work being deferred to future blocks and, so far, has not done so. 

The planned and actual unit costs of assets being acquired for 
operational use are equally hard to determine. Because the BMDS and its 
elements are a single major defense acquisition program that has not 
officially entered into system development and demonstration, it is not 
required to provide the detailed reports to Congress directed by 
statute.[Footnote 25] While it is possible to reconstruct planned unit 
costs from budget documents, the planned unit cost of some assets--for 
example, GMD interceptors--is not easy to determine because the 
research and development funds used to buy the interceptors are spread 
across 3 to 5 budget years. Also, because MDA is not required to report 
significant increases in unit cost,[Footnote 26] it is not easy to 
determine whether an asset's actual cost has increased significantly 
from its expected cost. For example, we were unable to compare the 
actual and planned cost of a GMD interceptor. By comparison, the Navy 
provides more transparency in reporting on the cost of ships, some of 
which are incrementally funded with procurement funds. When a Navy ship 
program overruns the cost estimate used to justify the budget, the Navy 
identifies the additional funding needed to cover the overruns 
separately from other shipbuilding programs. 

Using research and development funds to purchase fielded assets further 
reduces cost transparency because these dollars are not covered by the 
full-funding policy for procurement. Therefore, when the program for a 
2-year block is first presented in the budget, Congress is not 
necessarily fully aware of the dimensions and cost of that block. 
Although a particular block may call for the delivery of a specific 
number of interceptors, the full cost of those interceptors may not be 
contained in that block. In addition, incremental funding has the 
potential to "tie the hands" of future Congresses to finish funding for 
assets started in prior years. Otherwise, Congress could run the risk 
of a production stoppage and the increased costs associated with 
restarting the production line. 

MDA Makes Significant Strides with Quality Improvement Processes: 

During Block 2004, poor quality control procedures that MDA officials 
attribute to acquisition streamlining and schedule pressures caused the 
missile defense program to experience test failures and slowed 
production. MDA has initiated a number of actions to correct its 
quality control weaknesses and those actions have been largely 
successful. Although MDA continues to identify quality control 
procedures that need improvement, the number of deficiencies has 
declined and contractors are responding to MDA's improvement efforts. 
These efforts include a teaming approach designed to restore the 
reliability of MDA's suppliers, regular quality inspections to quickly 
identify and find resolutions for quality problems, and award fees with 
an increased emphasis on quality assurance. In addition, MDA's attempts 
to improve quality assurance have attracted the interest of other 
government agencies and contractors. MDA is leading quality improvement 
conferences and co-sponsoring a Space Quality Improvement Council. 

Officials in MDA's Office of Quality, Safety, and Mission Assurance and 
in GMD's Program Office attribute the weaknesses in MDA's quality 
control processes to acquisition streamlining and schedule pressures. 
According to a former DOD Director of Operational Test and Evaluation, 
during the early 1990's there was a common goal for DOD management to 
streamline the acquisition process to reduce burgeoning costs of new 
weapons. By streamlining the process, DOD commissions and task forces 
hoped to drastically cut system development and production time and 
reduce costs by eliminating management layers, eliminating certain 
reporting requirements, using more commercial-off-the-shelf systems and 
subsystems, reducing oversight from within as well as from outside DOD, 
and by eliminating perceived duplication of testing. In addition to 
acquisition streamlining, schedule pressures caused MDA to be less 
attentive to quality assurance issues. This was particularly true for 
the GMD element that was tasked with completing development and 
producing assets for operational use within 2 years of a Presidential 
directive to begin fielding an initial missile defense capability. 
While the GMD program had realized for some time that its quality 
controls needed to be strengthened, the program's accelerated schedule 
left little time to address quality problems. 

MDA has initiated a number of mechanisms to rectify the quality control 
weaknesses identified in the BMDS program. For example, as early as 
2003, MDA, in concert with industry partners, Boeing, Lockheed Martin, 
Raytheon, and Orbital Sciences began a teaming approach to restore 
reliability in a key supplier. In exchange for allowing the supplier to 
report to a single customer--MDA--the supplier gave MDA's Office of 
Quality, Safety, and Mission Assurance authority to make a critical 
assessment of the supplier's processes. This assessment determined that 
the supplier's manufacturing processes lacked discipline, its 
corrective action procedures were ineffective, its technical data 
package was inadequate, and personnel were not properly trained. The 
supplier responded by hiring a Quality Assurance Director, five quality 
assurance professionals, a training manager, and a scheduler. In 
addition, the supplier installed an electronic problem reporting 
database, formed new boards--such as a failure review board-- 
established a new configuration management system, and ensured that 
manufacturing activity was consistent with contract requirements. 
According to MDA, by 2005, these changes began to produce results. 
Between March 2004 and September 2005, test failures declined by 43 
percent. In addition, open quality control issues decreased by 64 
percent between September 2005 and August 2006 and on-time deliveries 
increased by 9 percent between March 2005 and August 2006. MDA's 
teaming approach was expanded in 2006 to another problem supplier and 
many systemic solutions are already underway. 

MDA also continues to carry-out regular contractor quality inspections. 
For example, during fiscal year 2006, MDA completed quality audits of 6 
contractors and identified a total of 372 deficiencies and 
observations.[Footnote 27] As of December 2006, the contractors had 
closed 157 or 42 percent of all audit findings. These audits are also 
producing other signs of quality assurance improvements. For example, 
after an August 2006 review of Raytheon's production of the last five 
GMD exoatmospheric kill vehicles, MDA auditors reported less 
variability in Raytheon's production processes, increasing stability in 
its statistical process control data, fewer test problem reports and 
product waivers, compliance with manufacturing "clean room" 
requirements, and a sustained improvement in product quality. Because 
of the emphasis placed on the recognition of quality problems, Raytheon 
is conducting regular inspections independently of MDA to identify 
problems. 

Over the course of 2006, MDA also continued to incorporate MDA 
Assurance Provisions (MAP) into its prime contracts. The MAP provides 
MDA methods to measure, verify, and validate mission success through 
the collection of metrics, risk assessment, technical evaluations, 
independent assessments, and reviews. Four BMDS elements-BMDS Sensors, 
C2BMC,[Footnote 28] KEI, and THAAD-modified their contracts during 2006 
to incorporate the MAP.[Footnote 29] The remaining five BMDS elements 
have not yet included the plan on their contracts because the contract 
is mostly in compliance with the MAP or because of the timing and 
additional costs of adding the requirements. 

MDA also encourages better quality assurance programs and contractors' 
implementation of best practices through award fee plans. In 2003, 
three BMDS elements-BMDS Sensors, KEI, and THAAD-revised their 
contracts to include 25 MAP criteria in their award fee plans.[Footnote 
30] For example, the BMDS Sensors element included system quality, 
reliability, and configuration control of data products as part of its 
award fee criteria for its FBX-T contract.[Footnote 31] Contractors are 
also bringing their best practices to the table. For example, in an 
effort to prevent foreign object debris in components under assembly, 
Raytheon and Orbital Sciences have placed all tools in special tool 
boxes known as shadow boxes. Raytheon has also incorporated equipment 
into the production process that handles critical components, removing 
the possibility that the components will be dropped or mishandled by 
production personnel. 

Because of its quality assurance efforts, contractors and other 
government agencies have called on MDA to lead quality conferences and 
sponsor an improvement council. MDA's Office of Quality, Safety, and 
Mission Assurance was co-sponsor of a conference on quality in the 
space and defense industry and the office's Director has also served as 
panel discussion chair at numerous other conferences. The conferences 
focus on the safety, reliability, and quality aspects of all industries 
and agencies involved in defense and space exploration. MDA is also a 
co-sponsor of the Space Quality Improvement Council, a council 
established to cooperatively address critical issues in the 
development, acquisition, and deployment of national security space 
systems. Contractors are also adopting some MDA methods for improving 
quality assurance. For example, Raytheon Integrated Defense Systems has 
adopted the MAP as a performance standard for all of its defense 
programs. 

Conclusions: 

In a general sense, our assessment of MDA's progress on missile defense 
is similar to that of previous years: accomplishments have been made 
and capability has been increased, but costs have grown and the scope 
of planned work has been reduced. The fielding of additional assets, 
the ability to put BMDS on alert status, and the first end-to-end test 
of GMD were notable accomplishments during fiscal year 2006. On the 
other hand, it is not easy to answer the question of how well BMDS is 
progressing relative to the funds it has received and goals it has set 
for those funds. 

As with previous years, we have found it difficult to reconcile the 
progress made in Block 2006 with the original cost and scope of the 
program. The block concept, while a useful construct for harvesting and 
fielding capability incrementally, is a muddy construct for 
accountability. Although BMDS is managed within a relatively level 
budget of about $10 billion a year, the scope of planned work is 
altered several times each year. Consequently, work travels from one 
block to another, weakening the connection between the actual cost and 
scope of work done and the estimated cost and scope of work used to 
justify budget requests. Block 2006 is a case in point. Compared with 
its original budget justification, it now contains unanticipated work 
from Block 2004 but has deferred some of its own planned work to future 
blocks. Costs for the THAAD element are no longer being counted in 
Block 2006 although they were last year. Some developmental elements 
that will be fielded in later blocks, such as KEI and MKV, are not 
considered part of Block 2006, while ABL, which is also a developmental 
element to be fielded in later blocks, is considered part of Block 
2006. Establishing planned and actual costs for individual assets is 
also elusive because MDA's development of the BMDS outside of DOD's 
acquisition cycle blurs the audit trail. Using research and development 
funds--funds that are not covered by the full-funding policy-- 
contributes to the difficulty in determining some assets' cost. 

None of the foregoing is to suggest that MDA has acted inconsistently 
with the authorities it has been granted. Indeed, by virtue of its not 
having formally begun system development and demonstration, coupled 
with its authority to use research and development funds to manufacture 
and field assets, MDA has the sanctioned flexibility to manage exactly 
as it has. It could be argued that without this latitude, the initial 
capability fielded last year and put on alert this year would not have 
been possible. Yet, the question remains as to whether this degree of 
flexibility should be retained on a program that will spend about $10 
billion a year for the foreseeable future. It does not seem 
unreasonable to expect a program of this magnitude to be held to a 
higher standard of accountability than delivering some capability 
within budgeted funds. In fact, the program is likely to undergo 
greater scrutiny as DOD faces increasing pressure to make funding trade-
offs between its investment portfolios, ongoing military operations, 
and recapitalization of its current weapon systems. 

Within BMDS, key decisions lie ahead for DOD. Perhaps the most 
significant decision in the next 2 years will be to determine what 
investments should be made in the two boost phase elements--ABL and 
KEI--under development. This decision would benefit greatly from good 
data on actual versus expected performance, actual versus expected 
cost, and independent assessments of both cost and performance. 

The recommendations that follow build upon those we made in last year's 
report on missile defense. In general, those recommendations called for 
the Secretary of Defense to align individual BMDS elements around a 
knowledge-based strategy and to determine whether a block approach to 
fielding was compatible with such a strategy. 

Recommendations for Executive Action: 

To increase transparency in the missile defense program, we recommend 
that the Secretary of Defense: 

* Develop a firm cost, schedule, and performance baseline for those 
elements considered far enough along to be in system development and 
demonstration, and report against that baseline. 

* Propose an approach for those same elements that provides information 
consistent with the acquisition laws that govern baselines and unit 
cost reporting, independent cost estimates, and operational test and 
evaluation for major DOD programs. Such an approach could provide 
necessary information while preserving the MDA Director's flexibility 
to make decisions. 

* Include in blocks only those elements that will field capabilities 
during the block period and develop a firm cost, schedule, and 
performance baseline for that block capability including the unit cost 
of its assets. 

* Request and use procurement funds, rather than research, development, 
test, and evaluation funds, to acquire fielded assets. 

* Conduct an independent evaluation of ABL and KEI after key 
demonstrations, now scheduled for 2008 and 2009, to inform decisions on 
the future of the two programs. 

Agency Comments and Our Evaluation: 

DOD's comments on our draft report are reprinted in appendix I. DOD 
partially concurred with our first three recommendations and non- 
concurred with the last two. 

In partially concurring with the first recommendation, DOD recognized 
the need for greater program transparency, but objected to implementing 
an element-centric approach to reporting, believing that this would 
detract from managing the BMDS as a single integrated system. We agree 
that management of the BMDS as a single, integrated program should be 
preserved. However, since DOD already requests funding and awards 
contracts by the individual elements that compose the BMDS, we believe 
that establishing a baseline for those elements far enough along to be 
considered in system development and demonstration provides the best 
basis for transparency of actual performance. This would not change 
DOD's approach to managing the BMDS, because merely reporting the cost 
and performance of individual elements would not cause each element to 
become a major defense acquisition program. DOD stated that MDA intends 
to modify its current biennial block approach that is used to define 
reporting baselines. In making this change, MDA states that it intends 
to work with both Congress and GAO to ensure that its new approach 
provides useful information for accountability purposes. At this point, 
we believe that the information needed to define a reporting baseline 
for a block would best be derived from individual elements. That having 
been said, a discourse can be had on whether elements are the only way 
to achieve the needed transparency and we welcome the opportunity to 
work toward constructive changes. 

DOD also partially concurred with our second recommendation that BMDS 
elements effectively in system development and demonstration provide 
information consistent with the acquisition laws that govern baselines 
and unit cost reporting, independent cost estimates, and operational 
test and evaluation for major programs. DOD did commit to providing 
additional information to Congress to promote accountability, 
consistency, and transparency. Nonetheless, DOD remains concerned that 
having elements, rather than the BMD system, report according to these 
laws will have a fragmenting effect on the development of an integrated 
system and put more emphasis on individual programs as though each is a 
major defense acquisition program. We believe that greater transparency 
into the BMDS program depends on DOD reporting in the same manner that 
it requests program funding. This ensures that decision makers can 
reconcile the expected cost and performance of assets DOD plans to 
acquire with actual cost and performance. We recognize that MDA does 
provide Congress with information on cost and testing, but this 
information is not of the caliber or consistency called for by 
acquisition laws. 

DOD stated that our third recommendation on reporting at the BMDS-level 
appears to be inconsistent with our recommendations on reporting at the 
element level. The basis for our third recommendation is that a block, 
which is a construct to describe and manage a defined BMDS-wide 
capability, must be derived from the capabilities that individual 
elements can yield. Except for activities like integrated tests that 
involve multiple elements, the cost, schedule, and performance of the 
individual assets to be delivered in a block come from the elements. 
Further, those elements that are not far enough along to deliver assets 
or capabilities within a particular block should not be considered part 
of that block. We believe that as MDA works to modify its current 
biennial block approach, it needs to be clearer and more consistent 
about what is and is not included in a block and that the cost, 
schedule, and performance of the specific assets in the block should be 
derived from the information already generated by the elements. 

DOD did not concur with our recommendation that it request and use 
procurement funds to acquire fielded assets. It noted that the 
flexibility provided by Research, Development, Test, and Evaluation 
funding is necessary to develop and acquire new capabilities quickly 
that can respond to new and unexpected ballistic missile threats. We 
recognize the need to be able to respond to such threats. However, 
other DOD programs are also faced with unexpected threats that must be 
addressed quickly and have found ways to do so while acquiring 
operational assets with procurements funds. If MDA requires more 
flexibility than other programs, there should be a reasonable budgetary 
accommodation available other than funding the entire budget with 
Research, Development, Test, and Evaluation funds. More needs to be 
done to get a better balance between flexibility and transparency. 
Thus, we continue to believe that decision makers should be informed of 
the full cost of assets at the time DOD is asking for approval to 
acquire them and that procurement funds are the best way to provide 
that transparency. 

DOD also did not concur with our fifth recommendation to conduct an 
independent evaluation of ABL and KEI to inform the upcoming decisions 
on these programs. It believes that MDA's current integrated 
development and decision-making approach should continue as planned. We 
continue to believe that MDA would benefit from an independent 
evaluation of both ABL and KEI. However, we do believe such an 
evaluation should be based on the results of the key demonstrations 
planned for the elements in 2008 and 2009. We have modified our 
recommendation accordingly. 

We are sending copies of this report to the Secretary of Defense and to 
the Director, MDA. 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 concerning this report, 
please contact me at (202) 512-4841. Contact points for our offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. The major contributors are listed in appendix IV. 

Signed by: 

Paul Francis: 
Director, Acquisition and Sourcing Management: 

List of Congressional Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Ted Stevens: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable John P. Murtha: 
Chairman: 
The Honorable C. W. Bill Young: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
3000 Defense Pentagon: 
Washington, DC 20301-3000: 
Acquisition, Technology And Logistics: 

Mar 1 4 2007: 

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

Dear Mr. Francis: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-07-387 "Defense Acquisitions: Missile Defense Acquisition 
Strategy Generates Results but Delivers Less at a Higher Cost," dated 
February 8, 2007 (GAO Code 120552). 

The DoD partially concurs with the draft report's recommendations. The 
rationale for our position is included in the enclosure. I submitted 
separately a list of technical and factual errors for your 
consideration. 

We appreciate the opportunity to comment on the draft report. My point 
of contact for this effort is Mr. Greg Hulcher, (703) 695-2680, 
greg.hulcher@osd.mil. 

Sincerely, 

Signed by: 

David G. Ahern: 
Director: 
Portfolio Systems Acquisition: 

Enclosure: 
As stated: 

GAO Draft Report Of February 8, 2007 GAO-07-387 (GAO Code 120552): 

"Defense Acquisitions: Missile Defense Acquisition Strategy Generates 
Results but Delivers Less at a Higher Cost" 

Department Of Defense Comments To The GAO: 

Recommendation 1: The Government Accountability Office (GAO) 
recommended that the Secretary of Defense develop a firm cost, 
schedule, and performance baseline for those elements considered far 
enough along to be in system development and demonstration, and report 
against that baseline. 

DOD Response: Partially Concur. DoD is concerned that implementing 
GAO's element-centric recommendation would de-emphasize Missile Defense 
Agency's (MDA) single integrated program of development in favor of the 
fragmented development of some elements (those far enough along) as if 
they were individual major defense acquisition programs. MDA has 
consistently driven towards a single, integrated program of development 
since January 2002. That approach has figured prominently in the 
success MDA has had in rapidly making prototype and test assets 
available for use as an initial defensive capability when directed. The 
single integrated program of development approach has afforded MDA the 
opportunity to make both technical and programmatic trades and to 
advance certain capabilities while maintaining a balance between near- 
term capabilities and the development of future technologies. 

To date, MDA has established cost, schedule and performance baselines 
at the system-wide level and reported variations against them as 
required by Sec. 234 of the FY 2005 National Defense Authorization Act. 
To promote greater transparency, however, the agency intends to modify 
its current biennial block approach used in defining and reporting 
against those baselines. MDA will work with the Congress and GAO in the 
coming months to ensure that the new approach provides useful 
information for accountability purposes. 

Recommendation 2: The GAO recommended that the Secretary of Defense 
propose an approach for those same elements that provides information 
consistent with the acquisition laws that govern baselines and unit 
cost reporting, independent cost estimates, and operational test and 
evaluation for major DoD programs. Such an approach could provide 
necessary information while preserving the MDA Director's flexibility 
to make decisions. 

DOD Response: Partially Concur. For the reasons stated above, DoD 
remains concerned about the potentially fragmenting effect of 
implementing this second, element-centric recommendation. Also, the GAO 
report could have done more to document MDA's past reporting of 
production unit cost information to the Congress and past and planned 
use of independent cost estimating and operationally realistic testing. 
Nonetheless, MDA intends to provide additional information to the 
Congress to promote accountability, consistency, and transparency while 
(1) preserving the MDA Director's flexibility to make decisions and (2) 
continuing to emphasize the single, integrated program of development. 

Recommendation 3: The GAO recommended that the Secretary of Defense 
include in blocks only those elements that will field capabilities 
during the block period and develop a firm cost, schedule, and 
performance baseline for that block capability including the unit cost 
of its assets. 

DOD Response: Partially Concur. This recommendation appears to be 
inconsistent with the first recommendation above. Whereas the first 
recommendation seeks to establish a baselining requirement for BMDS 
elements, the third recommendation suggests dictating a different 
approach to the BMDS block structure and applying a unit cost reporting 
requirement for the block's "assets." MDA's current approach to 
defining baselines is consistent with the GAO recommendation, at least 
in part, in that MDA defines its 2006 and 2008 fielding baselines using 
inventory deliveries and Engagement Sequence Groups that are expected 
to be fielded by 31 December of the Block's odd year. (See pages 12-15 
of MDA's BMDS Block Baselines and Goals, submitted to the Congress on 
05 February 2007.) As noted above, however, MDA intends to modify the 
current biennial block approach used in defining and reporting against 
those baselines to promote greater transparency. 

Recommendation 4: The GAO recommended that the Secretary of Defense 
request and use procurement funds, rather than research, development, 
test and evaluation funds, to acquire fielded assets. 

DOD Response: Non-concur. The proliferation of increasingly 
sophisticated ballistic missile systems and associated technologies and 
expertise continues to pose a danger to our national security. In this 
environment, where we must be prepared to respond to new and unexpected 
ballistic missile threats, DoD is acquiring a unique, first-of-kind 
Ballistic Missile Defense System (BMDS). To accomplish this 
unprecedented technical and programmatic challenge, MDA is using a 
capability based spiral development approach. Spiral development 
involves a continuous research; development and testing regimen where 
the capability of our developmental assets is improved by block 
upgrades and/or inserting new technologies as they become available. 
These improved developmental assets can then be made available for 
deployment, when directed, to respond to an evolving threat. RDT&E 
funding provides the flexibility to acquire these developmental assets 
in relatively small quantities, as needed, over a period of years. This 
flexible approach is appropriate because in an uncertain threat 
environment MDA must be able to accelerate or modify development of 
BMDS elements as may be required. This approach, with Congressional 
support, was instrumental to our ability to field an initial capability 
to defend the nation against ballistic missile attack - a capability 
which was put on alert in July 2006 and prepared to respond if 
necessary to a North Korean ballistic missile threat. Without this 
flexibility, the continuous development of missile defense assets would 
be inhibited and our ability to protect the United States, our deployed 
forces, friends and allies from evolving threats would be impaired. 

Recommendation 5: The GAO recommended that the Secretary of Defense 
conduct an independent evaluation of Airborne Laser and Kinetic Energy 
Interceptor to inform the upcoming decision. 

DOD Response: Non-concur. As mentioned earlier, the single integrated 
program of development approach has figured prominently in the success 
MDA has had in rapidly making prototype and test assets available for 
use as an initial defensive capability when directed. Given that the 
threat continues to advance, DoD believes the best course is to 
continue that integrated development and decision-making approach. The 
decision on all components of the BMDS will be informed by, and subject 
to, near-continuous scrutiny from the Department, the Administration, 
and from the congressional defense committees. DoD continuously 
assesses all aspects of its developments and will direct an independent 
evaluation of the missile defense development if changed circumstances 
call for one. 

[End of section] 

Appendix II: MDA Contracts: 

Like other government agencies, MDA acquires the supplies and services 
needed to fulfill its mission by awarding contracts. Two types of 
contracts are prevalent at MDA--contracts for support services and 
contracts for hardware. The contractors that support MDA's mission are 
commonly known as support contractors, while the contractors that are 
responsible for developing elements of the Ballistic Missile Defense 
System (BMDS) are called prime contractors. 

Support Contractors Are Key to BMDS Development: 

According to MDA's manpower database, about 8,186 personnel positions-
-not counting prime contractors--currently support the missile defense 
program. These positions are filled by government civilian and military 
employees, contract support employees, employees of federally funded 
research and development centers (FFRDC), researchers in university and 
affiliated research centers, and a small number of executives on loan 
from other organizations. At least 94 percent of the 8,186 positions 
are paid by MDA through its research and development 
appropriation.[Footnote 32] Of this 94 percent, only about 33 percent, 
or 2,578 positions, are set aside for government civilian personnel. 
Another 57 percent, or 4,368 positions,[Footnote 33] are support 
contractors that are supplied by 44 different defense companies. The 
remaining 10 percent are positions either being filled, or expected to 
be filled, by employees of FFRDCs and university and affiliated 
research centers that are on contract or under other types of 
agreements to perform missile defense tasks. Table 7 illustrates the 
job functions that contract employees carry out. 

Table 7: MDA Support Contractor Job Functions: 

Illustrative Job Functions: Acquisitions/Contracts. 

Illustrative Job Functions: Administrative/Clerical. 

Illustrative Job Functions: Business & Financial Management. 

Illustrative Job Functions: General Engineering (All other 
engineering). 

Illustrative Job Functions: Human Resource Management. 

Illustrative Job Functions: Information Management & Information 
Technology. 

Illustrative Job Functions: Legislative/Public Affairs. 

Illustrative Job Functions: Logistics. 

Illustrative Job Functions: Quality Assurance. 

Illustrative Job Functions: Scientific (physics, mathematics, etc.) 

Illustrative Job Functions: Security and Intelligence. 

Illustrative Job Functions: Systems Engineering. 

Illustrative Job Functions: Technical Analysis and Support. 

Illustrative Job Functions: Testing/Evaluation. 

Source: MDA. 

[End of table] 

MDA officials explained that the utilization of support contractors is 
key to its operation of the BMDS because it allows the agency to obtain 
necessary personnel and develop weapon systems more quickly. 
Additionally, the officials told us that its approach is consistent 
with federal government policy on the use of contractors. MDA officials 
estimate that while the average cost of the agency's government 
employee is about $140,000 per year, a contract employee costs about 
$175,000 per year. Table 8 highlights the staffing levels for each BMDS 
element. 

Table 8: Program Office Staffing: 

Element: Aegis BMD; 
Government employees[A]: 415; 
Support contractors: 367; 
FFRDC employees: 29; 
University and Affiliated Research Center employees: 124. 

Element: Airborne Laser; 
Government employees[A]: 110; 
Support contractors: 81.7; 
FFRDC employees: 6.5; 
University and Affiliated Research Center employees: [Empty]. 

Element: C2BMC; 
Government employees[A]: 61; 
Support contractors: 91; 
FFRDC employees: 36; 
University and Affiliated Research Center employees: [Empty]. 

Element: GMD; 
Government employees[A]: 316.5; 
Support contractors: 505.5; 
FFRDC employees: 34; 
University and Affiliated Research Center employees: [Empty]. 

Element: KEI; 
Government employees[A]: 11; 
Support contractors: 26; 
FFRDC employees: 0; 
University and Affiliated Research Center employees: [Empty]. 

Element: MKV; 
Government employees[A]: 15.5; 
Support contractors: 29; 
FFRDC employees: 11; 
University and Affiliated Research Center employees: 15. 

Element: Sensors; 
Government employees[A]: 23; 
Support contractors: 32; 
FFRDC employees: 24.5; 
University and Affiliated Research Center employees: 32.5. 

Element: STSS; 
Government employees[A]: 16; 
Support contractors: 2; 
FFRDC employees: 86.5; 
University and Affiliated Research Center employees: [Empty]. 

Element: THAAD; 
Government employees[A]: 263; 
Support contractors: 210; 
FFRDC employees: 9; 
University and Affiliated Research Center employees: [Empty]. 

Source: MDA (data); GAO (analysis). 

Notes: The numbers in this chart do not account for all MDA personnel 
as the agency employs these same types of personnel in other areas of 
its organization. The table also identifies positions, some of which 
may be presently vacant. 

[A] The numbers shown include both government civilian and military 
personnel combined. 

[End of table] 

Most Prime Contractors Did Not Execute All Planned Work within Fiscal 
Year 2006 Cost and Schedule Budgets: 

Prime contractors developing elements of the Ballistic Missile Defense 
System (BMDS) typically receive most of the funds MDA requests from 
Congress each fiscal year. The efforts of prime contractors may be 
obtained through a wide range of contract types. Because MDA is 
requiring its prime contractors to perform work that includes enough 
uncertainty that the cost of the work cannot be accurately estimated, 
all of the agency's prime contracts are cost reimbursement 
arrangements. Under a cost reimbursement contract, a contractor is paid 
for reasonable, allowable, and allocable costs incurred in performing 
the work directed by the government to the extent provided in the 
contract. The contract includes an estimate of the work's total cost 
for the purpose of obligating funds and establishes a ceiling cost that 
the contractor may not exceed without the approval of the contracting 
officer. 

Many of the cost reimbursement contracts awarded by MDA include an 
award fee. Cost plus award fee contracts provide for a fee consisting 
of a base amount, which may be zero, that is fixed at the inception of 
the contract and an award amount, based upon a subjective evaluation by 
the government, that is meant to encourage exceptional performance. The 
amount of the award fee is determined by the government's assessment of 
the contractor's performance compared to criteria stated in the 
contract. This evaluation is conducted at stated intervals during 
performance, so that the contractor can be periodically informed of the 
quality of its performance and, if necessary, areas in which 
improvement are required. 

Two of the cost reimbursement contracts shown in table 9--MKV and 
C2BMC--differ somewhat from other elements' cost reimbursement 
contracts. The MKV prime contract is an indefinite delivery/indefinite 
quantity cost-reimbursement arrangement. This type of contract allows 
the government to direct work through a series of task orders. Such a 
contract does not procure or specify a firm quantity of services (other 
than a minimum or maximum quantity). This contracting approach permits 
MDA to order services as they are needed after requirements materialize 
and provides the government with flexibility because the tasks can be 
aligned commensurate with available funding. Since the MKV element is 
relatively new to the BMDS, its funding is less predictable than other 
elements' and the ability to decrease or increase funding on the 
contract each year is important to effectively manage the program. 

The C2BMC element operates under an Other Transaction Agreement that is 
not subject to many procurement laws and regulations. However, even 
though an Other Transaction Agreement is not required to include all of 
the standard terms and conditions meant to safeguard the government, 
the C2BMC agreement was written to include similar clauses and 
provisions. We found no evidence at this time that the C2BMC agreement 
does not adequately protect MDA's interests. MDA chose the Other 
Transaction Agreement to facilitate a collaborative relationship 
between industry, government, federally funded research and development 
centers, and university research centers. Contract officials told us 
that a contract awarded under the Federal Acquisition Regulation is 
normally regarded as an arms-length transaction in which the government 
gives the contractor a task that the contractor performs autonomously. 
While an important purpose of an Other Transaction Agreement is to 
broaden DOD's technology and industrial base by allowing the 
development and use of instruments that reduce barriers to 
participation in defense research by commercial firms that 
traditionally have not done business with the government, the 
agreements' value in encouraging more collaborative environments is 
also recognized. Table 9 outlines the contractual instruments that MDA 
uses to procure the services of its prime contractors. 

Table 9: BMDS Contractual Instruments: 

Element: Airborne Laser; 
Contract type: cost Plus Award Fee/incentive Fee; 
Prime contractor; % work performed[A]: Boeing: 35%;  
Subcontractor: % work performed: Northrup Grumman[B] and Lockheed 
Martin[B]: 65%; 
Period of performance: Nov. 1996-Dec. 2008; 
Contract Budget Base as of September 2006: $3,369. 

Element: Aegis BMD Weapon System; 
Contract type: Cost Plus Award Fee; 
Prime contractor; % work performed[A]: Lockheed Martin: 82%; 
Subcontractors: % work performed: Computer Sciences: 18%; 
Period of performance: Oct. 2003-Dec. 2006; 
Contract Budget Base as of September 2006: $699[C]. 

Element: Aegies BMD-SM-3; 
Contract type: Cost Plus Award Fee/Incentive Fee; 
Prime contractor; % work performed[A]: Raytheon: 58%; 
Subcontractors: % work performed: Alliant Techsystems. Boeing, Aerojet; 
42%; 
Period of performance: Aug. 2003-Dec. 2007; 
Contract Budget Base as of September 2006: $413. 

Element: BMDS Sensors-FBX-T; 
Contract type: Cost Plus Award Fee; 
Prime contractor; % work performed[A]: Raytheon: 65%; 
Subcontractors: % work performed: Tec Masters, inc., Hewlett-Packard 
Co., Burtek, Inc., Remmele Engineering, Inc., Gichner Systems Group, 
Inc.: 35%; 
Period of performance: Apr. 2003-Mar. 2009; 
Contract Budget Base as of September 2006: $822. 

Element: C2BMC; 
Contract type: Other Transaction Agreement (Part 4); 
Prime contractor; % work performed[A]: Lockheed Martin: 35%; 
Subcontractors: % work performed: Raytheon, Boeing, General Dynamics, 
Northrup-Grumman, Sparta: 65%; 
Period of performance: Jan. 2005-Dec. 2007; 
Contract Budget Base as of September 2006: $311[D]. 

Element: GMD; 
Contract type: Cost Plus Award Fee; 
Prime contractor; % work performed[A]: Boeing: 30%; 
Subcontractors: % work performed: Raytheon, Lockheed Martin, Orbital 
Sciences, Northrup Grumman, Bechtel, Teledyne Brown Engineering: 70%; 
Period of performance: Jan. 2001-Dec. 2008; 
Contract Budget Base as of September 2006: $12,322. 

Element: KEI; 
Contract type: Cost Plus Award Fee; 
Prime contractor; % work performed[A]: Northrup Grumman: 41%[E]; 
Subcontractors: % work performed: Raytheon: 59%[E]; 
Period of performance: Dec. 2003-Oct. 2014; 
Contract Budget Base as of September 2006: $4,081. 

Element: MKV; 
Contract type: Indefinite delivery/Indefinite Quantity; 
Prime contractor; % work performed[A]: Lockheed Martin Space Systems 
Company: 62%; 
Subcontractors: % work performed: BAE, Pratt-Whitney Rocketdyne, L-3 
Communications/Coleman Aerospace: 38%; 
Period of performance: Task order 4- Oct. 2005-Jul. 2007, Task Order-5: 
Jun. 2006- Sep. 2007; 
Contract Budget Base as of September 2006: $123[F]. 

Element: THAAD; 
Contract type: Cost Plus Award Fee; 
Prime contractor; % work performed[A]: Lockheed Martin: 44%; 
Subcontractors: % work performed: Raytheon. Boeing, Rocketdyne, BAE 
Systems, Honeywell, Aerojet, Hamilton Sundstrand: 56%; 
Period of performance: Aug. 2000-Sep. 2009; 
Contract Budget Base as of September 2006: $4,255[G]. 

Element: STSS; 
Contract type: Cost Plus Award Fee/Fixed Fee; 
Prime contractor; % work performed[A]: Northrup Grumman: 50%; 
Subcontractors: % work performed: Raytheon, Spectrum Astro: 50%; 
Period of performance: Apr. 2002-Sep. 2008; 
Contract Budget Base as of September 2006: $1,528. 

Source: MDA (data); GAO (analysis). 

Note: The contract budget base column does not include any contract's 
negotiated award fee. 

[A] Percentages represent MDA's best estimates of how work is split 
between the prime contractor and its subcontractors. 

[B] Northrop Grumman and Lockheed Martin are part of a contractor team 
with Boeing. 

[C] $584 million of Aegis BMD Weapon System funding is provided by the 
United States, while $115 million is provided by foreign military sales 
to Japan. 

[D] The value shown is for Part IV only. 

[E] The prime-subcontractor work split reflects 2006 work content, not 
total contract work content. 

[F] The budget for the MKV contract represents the negotiated cost of 
the contract without fee. According to MDA officials, this is 
equivalent to the contract budget base as of September 30, 2006. 

[G] The THAAD contract budget baseline includes contract line item 1 
only. 

[End of table] 

Most Prime Contractors Exceed Their Fiscal Year 2006 Budgets: 

Excluding the C2BMC and MKV elements, MDA budgeted approximately $3 
billion for its prime contractors to execute planned work during fiscal 
year 2006.[Footnote 34] To determine if these contractors are executing 
the work planned within the funds and time budgeted, each BMDS program 
office requires its prime contractor to provide monthly reports 
detailing cost and schedule performance. In these reports, which are 
known as Contract Performance Reports, the prime contractor makes 
comparisons that inform the program as to whether the contractor is 
completing work at the cost budgeted and whether the work scheduled is 
being completed on time.[Footnote 35] If the contractor does not use 
all funds budgeted or completes more work than planned, the report 
shows positive cost and/or schedule variances. Similarly, if the 
contractor uses more money than planned or cannot complete all of the 
work scheduled, the report shows negative cost and/or schedule 
variances. A contractor can also have mixed performance. That is, the 
contractor may spend more money than planned (a negative cost variance) 
but complete more work than scheduled (a positive schedule variance). 
Using data from Contract Performance Reports, a program manager can 
assess trends in cost and schedule performance, information that is 
useful because trends tend to persist. Studies have shown that once a 
contract is 15 percent complete, performance metrics are indicative of 
the contract's final outcome. 

We used contract performance report data to assess the fiscal year 2006 
cost and schedule performance of prime contractors for seven of the 
nine BMDS elements being developed by MDA. When possible, we also 
predicted the likely cost of each prime contract at completion. Our 
predictions of final contract cost are based on the assumption that the 
contractor will continue to perform in the future as it has in the 
past. An assessment of each element is provided below. 

Aegis BMD Contractors End Fiscal Year 2006 Mostly within Cost and on 
Schedule: 

The Aegis BMD program has awarded a prime contract for each of its two 
major components--the Aegis BMD Weapon System and the Standard Missile- 
3. During fiscal year 2006, the work of both prime contractors cost a 
little more than expected, but only the weapon system contractor was 
slightly behind schedule. 

Even though the weapon system contractor was unable to perform fiscal 
year 2006 work at the planned cost, its cumulative cost performance 
remains positive because of good performance in prior years. At year's 
end, the weapon system contract had a cumulative favorable cost 
variance of $0.1 million, but an unfavorable cumulative schedule 
variance of $0.8 million. As shown in figure 1, the contractor's cost 
and schedule performance fluctuated significantly throughout the year. 

Figure 1: Aegis BMD Weapon System Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

The decline in the Aegis BMD Weapon System contractor's cost 
performance began shortly after the contractor adjusted its cost and 
schedule baseline in September 2005. At that time, the contractor 
corrected its baseline to account for a December 2004 DOD budget 
cut.[Footnote 36] However, it did not make adjustments to the baseline 
to incorporate new work that the government directed. This caused the 
contractor's cost performance to decline significantly because although 
the cost of the new effort was being reported, the baseline included no 
budget for the work. Recognizing that the contract baseline still 
needed to be replanned, the Director issued approval to restructure the 
program and rebaseline the contract in December 2005. To accommodate 
the work added to the contract, MDA and the contractor realigned 
software deliveries for Block 2006. The contractor completed the 
rebaselining effort in April 2006, and since then the contractor has 
performed within budgeted cost and schedule. Based on the contractor's 
fiscal year 2006 cost performance, we estimate that at completion the 
contract may cost from $0.1 to $4.7 million more than anticipated. 

Aegis BMD SM-3 Contractor Overruns Cost Budget, but Is Ahead of 
Schedule: 

For fiscal year 2006, the Standard Missile-3 contractor incurred an 
unfavorable cost variance of $7.8 million and a favorable schedule 
variance of $0.7 million. Even though the contractor was unable to 
complete fiscal year 2006 work within the funds budgeted, it ended the 
year with a cumulative positive cost variance of $3.1 million. The 
cumulative positive cost variance was the result of the contractor 
performing 2005 work at $10.9 million less than budgeted. In addition, 
although the contractor performed work ahead of schedule in fiscal year 
2006, it was unable to overcome a negative schedule variance of $9.6 
million created in 2005 caused by delayed hardware deliveries and 
delayed test events. The contractor ended fiscal year 2006 with a 
cumulative $8.9 million negative schedule variance. Figure 2 shows 
cumulative variances at the beginning of fiscal year 2006 year along 
with a depiction of the contractor's cost and schedule performance 
throughout the fiscal year. 

Figure 2: Aegis BMD Standard Missile-3 Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

The unfavorable cost variance for fiscal year 2006 was caused by 
performance issues associated with the third stage rocket motor, the 
kinetic warhead and the missile's guidance system. In addition, 
production costs associated with the Solid Divert and Attitude Control 
System were higher than anticipated. If the contractor continues to 
perform as it did in fiscal year 2006, we estimate that at completion 
the contract could cost from $1.9 million less than expected to $2.7 
million more than expected. 

ABL Continues to Experience Cost and Schedule Growth: 

Our analysis of ABL's Contract Performance Reports indicates that the 
prime contractor's cost and schedule performance continued to decline 
during fiscal year 2006. The contractor overran its fiscal year 2006 
budget by $54.8 million and did not perform $26.4 million of work on 
schedule. By September 2006, this resulted in an unfavorable cumulative 
cost variance of $77.9 million and an unfavorable cumulative schedule 
variance of $50 million. Figure 3 shows the decline in cost and 
schedule performance for the ABL prime contractor throughout fiscal 
year 2006. 

Figure 3: ABL Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

During the fiscal year, the ABL contractor needed additional time and 
money to solve technical challenges associated with the element's Beam 
Control/Fire Control component. Software, integration, and testing 
difficulties caused significant delays with the component. Software 
problems were caused by the incorporation of numerous changes, basic 
logic errors, and differences between the environment of the software 
development laboratory and the environment aboard the aircraft. 
Integration and testing of the complex system and hardware failures 
also contributed to the delays. Together, according to ABL's program 
manager, these problems caused the contractor to experience about a 3 
1/2 month schedule delay that in turn delays the program's lethality 
demonstration from 2008 to 2009. Also, if the contractor's cost 
performance continues to decline as it did in fiscal year 2006, we 
estimate that at completion the contract could overrun its budget by 
about $112.1 million to $248.3 million. 

Limited Contractor Data Prevented Analysis of C2BMC Contractor 
Performance: 

We were unable to fully evaluate the contractor's performance for the 
C2BMC program because the contractor did not report all data required 
to conduct earned value analysis for 7 months of the fiscal year. 
During fiscal year 2006, the C2MBC contractor ended the Block 2004 
increment or Part 3 of its Other Transaction Agreement and began work 
on its Block 2006 program of work, referred to as Part 4 of the 
agreement. The contractor completed its Block 2004 program of work 
(Part 3) in December 2005 and was awarded the Block 2006 increment 
(Part 4) on December 28, 2005. However, budget cuts prompted the 
program to reduce the C2BMC enhancements planned for Block 2006 and 
revise its agreement with the contractor. Shortly after, the program 
received additional funds which led to a re-negotiation of the Part 4 
agreement. The new scope of work included enhancements that could not 
be completed within available funding. In March 2006, the program began 
to replan its Block 2006 increment of work (Part 4) and suspended 
earned value management reporting. During the replan, which occurred 
throughout most of fiscal year 2006, the contractor reported only 
actual cost data in lieu of comparing actual costs to budgeted cost. 
The cost of the revised agreement on the Block 2006 increment of work 
was negotiated in October 2006. 

GMD Contractor Continues to Spend More Money and Time than Budgeted: 

The GMD prime contractor's cost performance continued to decline during 
fiscal year 2006, but its fiscal year schedule performance improved. By 
September 2006, the cumulative cost of all work completed was $1.06 
billion more than expected and in fiscal year 2006 alone, work cost 
about $347 million more than budgeted. The contractor was able to 
complete $90.2 million of fiscal year 2006 work ahead of schedule; but 
the cumulative schedule variance continued to be negative at $137.8 
million. Figure 4 depicts the cost and schedule performance for the GMD 
contractor during fiscal year 2006. Based on its fiscal year 2006 
performance, the GMD contractor could overrun the total budgeted cost 
of the contract by about $1.5 to $1.9 billion. 

Figure 4: GMD Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

The GMD program recently finished rebaselining its contract to reflect 
a significant program realignment to reduce program risk and to execute 
the program within available funding. While the new baseline was being 
implemented, earned value metrics, according to program officials, were 
significantly distorted because progress was measured against a plan of 
work that the program was no longer following. The contractor is in the 
process of developing a new contract baseline that incorporates the 
program's new scope, schedule, and budget. By the end of September 
2006, phase one of the new baseline covering fiscal year 2006-2007 
efforts had been implemented and validated through Integrated Baseline 
Reviews of the prime contractor and its major subcontractors.[Footnote 
37] Implementation of the phase 2 baseline covering the remaining 
contract effort was completed in October 2006 with the final integrated 
baseline reviews of the prime and major subcontractors completed by mid-
December 2006. 

Based on the data provided by the contractor during fiscal year 2006, 
technical and quality issues with the exoatmospheric kill vehicle (EKV) 
are the leading contributors to cost overruns and schedule slips for 
the GMD program. In fiscal year 2006, EKV related work cost $135.2 
million more than budgeted. Quality problems identified after faulty 
parts had been incorporated into components required rework and forced 
the subcontractor to increase screening tests to identify defective 
parts. 

Development issues with two boosters being developed to carry the 
exoatmospheric kill vehicles into space also increased costs during 
fiscal year 2006.[Footnote 38] The element's Orbital Boost Vehicle 
experienced cost growth totaling $15.0 million while the Boost Vehicle+ 
booster experienced growth of $74.1 million. The Orbital Boost 
Vehicle's cost grew as the need for more program management, systems 
engineering, and production support was required to work an extended 
delivery schedule. The Boost Vehicle+ contractor incurred additional 
costs as a result of its efforts to redesign the booster's motors. For 
example, the contractor spent additional time preparing drawings and 
providing technical oversight of suppliers. 

The contractor also experienced cost growth as it readied the Sea-based 
X-Band radar for deployment. Maintenance, repair, and certification 
problems cost more than expected. In addition to making changes that an 
independent review team suggested were needed before the radar was made 
operational, the contractor had to repair an unexpected ballast leak 
requiring the installation of hydraulic valves and other engineering 
changes. 

GMD's cumulative negative schedule variance is primarily caused by a 
subcontractor needing more time than planned to manufacture 
exoatmospheric kill vehicles. In addition, the prime contractor delayed 
planned tests because test interceptors were being produced at a slower 
rate. According to program officials, variances improved during fiscal 
year 2006 as the subcontractor delivered components on schedule. 

KEI Contractor Makes Progress during Fiscal Year 2006: 

In July 2005, the KEI program modified its prime contract to require 
that the KEI element be capable of intercepting enemy missiles in the 
midcourse of their flight. Consequently, the program is rebaselining 
its prime contract to better align its cost and schedule objectives 
with the new work content. During fiscal year 2006, the contractor's 
work cost approximately $0.6 million less than expected and the 
contractor completed about $0.6 million of work ahead of schedule. 
Cumulatively, the contractor's cost performance has been positive, with 
all work to date being performed for $3.6 million less than budgeted. 
However, by year's end, the cumulative schedule variance was a negative 
$5.3 million. We cannot estimate whether the total contract can be 
completed within budgeted cost because the contract is only 6 percent 
complete and trends cannot be developed until at least 15 percent of 
the contract is completed. Figure 5 highlights the contractor's 
performance during fiscal year 2006. 

Figure 5: KEI Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

The KEI prime contractor was able to perform within its budgeted costs 
during fiscal year 2006 as a result of its efficient use of test 
resources. Although the contractor improved its negative schedule 
variance over the course of the year, its cumulative schedule variance 
remains unfavorable because requirements changes have delayed the 
development of the element's design and of manufacturing processes. 
Schedule delays caused the program to postpone its element-level System 
Design Review originally scheduled for July 2007. However, the 
contractor asserts that there is no impact to the booster flight test 
currently scheduled for fiscal year 2008. 

Lack of Reporting Limits Knowledge of MKV Contractor's Performance: 

Our analysis of the performance of the contractor developing the MKV 
element was limited because MDA suspended contract performance 
reporting in February 2006 as the program transitioned from an advanced 
technology development program to a system development program. The 
transition prompted MKV to establish a new contract baseline. Although 
the contractor could begin reporting after the baseline is in place, it 
is not issuing Contract Performance Reports until an Integrated 
Baseline Review is completed. Until that time, the contractor is 
measuring its progress against an integrated master schedule. 

Sensors' FBX-T Contractor Meets Fiscal Year Cost and Schedule 
Objectives: 

As of September 2006, the Sensor's contractor had underrun its fiscal 
year 2006 budget by $3.8 million and it was ahead in completing $5.4 
million of scheduled work. Considering prior years performance, the 
contractor is performing under budget with a favorable cumulative cost 
variance of $20.2 million and ahead of schedule with a favorable 
cumulative schedule variance of $26.6 million. Judging from the 
contractor's cost and schedule performance in fiscal year 2006, we 
estimate that at the contract's completion, the contractor will 
underrun the budgeted cost of the contract by between $26.3 million and 
$44.9 million. Figure 6 shows the favorable trend in FBX-T 2006 
performance. 

Figure 6: BMDS Sensors Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

According to program officials, the cumulative favorable cost variance 
is driven by reduced cost in radar hardware and manufacturing created 
by machine process improvements and staffing efficiencies. The 
favorable cumulative schedule variance primarily results from a 
positive $17 million cumulative schedule variance brought forward from 
fiscal year 2005 that was created when the contractor began 
manufacturing radars 2 through 4 ahead of schedule. 

STSS Contractor Performance Declines during the Year: 

The STSS contractor's cost and schedule performance continued to 
degrade during fiscal year 2006. During the fiscal year, the contractor 
overran budgeted costs by about $66.8 million and was unable to 
complete $84.1 million of work as scheduled. Combining the contractor's 
performance during fiscal year 2006 with its performance in prior 
years, the contract has a cumulative unfavorable cost variance of 
approximately $163.7 million and a cumulative negative schedule 
variance of $104.4 million.[Footnote 39] If the contractor's 
performance continues to decline, the contract could exceed its 
budgeted cost at completion by $567.3 million to $1.4 billion. Figure 7 
depicts the cumulative cost and schedule performance of the STSS prime 
contractor. 

Figure 7: STSS Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor (data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

Quality issues at the payload subcontractor and technical difficulties 
encountered by the prime contractor during payload integration and 
testing contributed to the STSS element's cumulative unfavorable cost 
and schedule variances. The first satellite's payload experienced 
hardware failures when tested in a vacuum and at cold temperatures, 
slowing integration with the first satellite. Integration issues were 
also discovered as the payload was tested at successively higher levels 
of integration. According to program officials, the prime contractor 
tightened its inspection and oversight of the subcontractor responsible 
for integrating and testing the satellite payloads. Also, a re- 
education effort was undertaken to ensure that all personnel on the 
program knew and understood program instructions. Although the prime 
contractor continued to experience negative variances during the fiscal 
year, it should be noted that the subcontractor's performance with 
respect to the second payload improved as the result of these added 
steps. However, the degradation of the prime contractor's performance 
offset the improved performance of the subcontractor. 

THAAD Contractor's Performance Erodes in Fiscal Year 2006: 

During fiscal year 2006, the THAAD contractor expended more money and 
time than budgeted to accomplish planned work. During fiscal year 2006, 
the contractor incurred a negative cost variance of $87.9 million, 
which boosted the cumulative negative cost variance to $104.2 million. 
Similarly, the contractor did not complete $37.9 million of work 
scheduled for fiscal year 2006 on time. However, because the contractor 
completed prior years' work ahead of schedule, the cumulative negative 
schedule variance was $28 million. Based on fiscal year performance, we 
estimate that at completion the contract could exceed its budgeted cost 
by between $134.7 million and $320.2 million. 

Figure 8: THAAD Cost and Schedule Performance: 

[See PDF for image] 

Source: Contractor(data); GAO (analysis). 

Note: A cumulative variance reflects the additive effect of the 
contractor's prior years' cost and schedule performance and the current 
year's performance. 

[End of figure] 

The THAAD prime contractor's negative cost variance for the fiscal year 
can be attributed to the increased cost of missile manufacturing, re- 
designs, and rework, as well as launcher hardware design, integration 
difficulties, and software problems. However, the contractor is 
performing well in regard to the radar portion of the contract, which 
is offsetting a portion of the negative cost variance. 

The program's negative schedule variance is largely driven by the 
missile, the launcher, and systems tests. The negative missile variance 
is mainly caused by problems with the Divert Attitude Control System 
and delays in activation of a test facility. 

[End of section] 

Appendix III: Scope and Methodology: 

To examine the progress MDA made in fiscal year 2006 toward its Block 
2006 goals, we examined the efforts of individual programs, such as the 
GMD program, that are developing BMDS elements under the management of 
MDA. The elements included in our review collectively accounted for 72 
percent of MDA's fiscal year 2006 research and development budget 
request. We evaluated each element's progress in fiscal year 2006 
toward Block 2006 schedule, testing, performance, and cost goals. In 
making this comparison, we examined System Element Reviews, test and 
production schedules, test reports, and MDA briefing charts. We 
developed data collection instruments, which were submitted to MDA and 
each element program office, to gather detailed information on 
completed program activities including tests, prime contracts, and 
estimates of element performance. In addition, we visited an 
operational site at Vandenberg Air Force Base, California; and we 
visited MDA contractor facilities including Orbital Sciences 
Corporation in Chandler, Arizona; Raytheon in Tucson, Arizona; and 
Lockheed Martin in Sunnyvale, California. To understand performance 
issues, we talked with officials from MDA's System's Engineering and 
Integration Directorate. We also discussed fiscal year 2006 progress 
and performance with officials in MDA's Agency Operations Office, each 
element program office, as well as the office of DOD's Director, 
Operational Test and Evaluation, DOD's office of Program Analysis and 
Evaluation, and DOD's Operational Test Agency. To assess each element's 
progress toward its cost goals, we reviewed Contract Performance 
Reports and, when available, the Defense Contract Management Agency's 
analyses of these reports. We also interviewed officials from the 
Defense Contract Management Agency. We applied established earned value 
management techniques to data captured in Contract Performance Reports 
to determine trends and used established earned value management 
formulas to project the likely costs of prime contracts at completion. 
We reviewed each element's prime contract and also examined fiscal year 
2006 award fee plans and award fee letters. 

In assessing MDA's flexibility, transparency, and accountability, we 
interviewed officials from the Office of the Under Secretary of 
Defense's Office for Acquisition, Technology, and Logistics. We also 
examined Government Auditing Standards, a Congressional Research 
Service report, U.S. Code Title 10, DOD acquisition system policy, and 
the Statement of Federal Financial Accounting Standards Number 4. 

To determine the progress MDA has made in ensuring quality, we talked 
with officials from MDA's Office of Safety, Quality, and Mission 
Assurance. We also held discussions with MDA's Office of Agency 
Operations, and discussed quality issues at contractor facilities 
including Orbital Sciences Corporation in Chandler, Arizona; Raytheon 
in Tucson, Arizona; and Lockheed Martin in Sunnyvale, California. 

To ensure that MDA-generated data used in our assessment are reliable, 
we evaluated the agency's management control processes. We discussed 
these processes with MDA senior management. In addition, we confirmed 
the accuracy of MDA-generated data with multiple sources within MDA 
and, when possible, with independent experts. To assess the validity 
and reliability of prime contractors' earned value management systems 
and reports, we interviewed officials and analyzed audit reports 
prepared by the Defense Contract Audit Agency. Finally, we assessed 
MDA's internal accounting and administrative management controls by 
reviewing MDA's Federal Manager's Financial Integrity Report for Fiscal 
Years 2003, 2004, 2005, and 2006. 

Our work was performed primarily at MDA headquarters in Arlington, 
Virginia. At this location, we met with officials from the Aegis 
Ballistic Missile Defense Program Office; Airborne Laser Program 
Office; Command, Control, Battle Management, and Communications Program 
Office; Multiple Kill Vehicle Program Office; MDA's Agency Operations 
Office; MDA's Office of Quality, Safety, and Mission Assurance; DOD's 
office of the Director, Operational Test and Evaluation; DOD's office 
of Program Analysis and Evaluation; and the Office of the Under 
Secretary of Defense for Acquisition, Technology and Logistics. We held 
a teleconference with officials from DOD's Operational Test Agency, 
also in Arlington, Virginia. In addition, we met with officials in 
Huntsville, Alabama, including officials from the Ground-based 
Midcourse Defense Program Office, the Terminal High Altitude Area 
Defense Project Office, the Kinetic Energy Interceptors Program Office, 
and the Defense Contract Management Agency. 

We conducted our review from June 2006 through March 2007 in accordance 
with generally accepted government auditing standards. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Paul Francis (202) 512-4841 or FrancisP@gao.gov: 

Acknowledgments: 

In addition to the individual named above, Barbara Haynes, Assistant 
Director; LaTonya Miller; Ivy Hubler; Steven Stern; Meredith Allen; 
Sigrid McGinty; Tony Beckham; and Adam Vodraska made key contributions 
to this report. 

FOOTNOTES 

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

[2] MDA included THAAD as part of its initial Block 2006, but later 
moved its cost to Block 2008. According to MDA officials, this action 
was taken to more accurately align resources with the capability's 
delivery time frame. The agency is also continuing the development of 
KEI and MKV, but these efforts are being financed through 
appropriations received for other blocks. 

[3] National Defense Authorization Act for Fiscal Year 2002, Pub. L. 
No. 107-107, § 232(g) (2001); Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375, § 233. 
Section 224 of the John Warner National Defense Authorization Act for 
2007, Pub. L. No. 109-364 (2006) recently extended the requirement for 
GAO assessment. 

[4] GAO, Missile Defense: Actions Are Needed to Enhance Testing and 
Accountability, GAO-04-409 (Washington, D.C.: Apr. 23, 2004); Defense 
Acquisitions: Status of Ballistic Missile Defense Program in 2004, GAO-
05-243 (Washington, D.C.: Mar. 31, 2005); Defense Acquisitions: Missile 
Defense Agency Fields Initial Capability but Falls Short of Original 
Goals, GAO-06-327 (Washington, D.C.: Mar. 15, 2006). 

[5] Although MDA included THAAD in its Block 2006 program of work when 
it submitted its original Block 2006 goals to Congress, it removed 
THAAD from the block in March 2006, when it revised its goals. THAAD is 
now considered part of Block 2008. 

[6] MDA goals are formally detailed in the agency's budget estimates 
and in the MDA documents, BMDS Block Statement of Goals and Baselines, 
March 2005; and BMDS Block Baselines and Goals, March 2006. 

[7] In March 2006, MDA removed its developmental efforts for the THAAD 
element, along with THAAD's budget for fiscal year 2006-2011, from the 
agency's Block 2006 goals. THAAD is now considered part of Block 2008 
and its funding is requested as part of each fiscal year's budget 
request for Block 2008 efforts. 

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

[9] MDA also delivered two additional missiles for flight tests, 
bringing the total number of missiles delivered during calendar year 
2006 to six. Test missiles are identical to those delivered for 
operational use. 

[10] Contractors for C2BMC and MKV were directed to suspend earned 
value reporting during fiscal year 2006; therefore, data for these 
contracts are not included in the table. See appendix II for more 
information as to why reporting was suspended. 

[11] Specifics of MDA's performance goals are classified and cannot be 
presented in this report. 

[12] The BMDS program meets the definition of a major defense 
acquisition program, which is defined in 10 U.S.C. § 2430 and 
implemented by DOD in its 5000 series. A major defense acquisition 
program is an acquisition program that is not a highly sensitive 
classified program and is designated as a major defense acquisition 
program or is estimated to require an eventual total expenditure for 
research, development, test, and evaluation of more that $365 million 
in fiscal year 2000 constant dollars or, for procurement, of more than 
$2.190 billion in fiscal year 2000 constant dollars. 

[13] 10 U.S.C. § 2435 requires an approved program baseline for major 
defense acquisition programs. Although this requirement is not 
triggered until entry into system development and demonstration, MDA is 
subject to a requirement enacted in section 234(e) of the Fiscal Year 
2005 National Defense Authorization Act (Pub. L. No. 108-375). The 
provision requires the Director, MDA, to establish and report annually 
to Congress a cost, schedule, and performance baseline for each block 
configuration being fielded. Modification to the baseline and 
variations against the baseline must also be reported. In a February 
2002 memorandum, the Under Secretary of Defense delegated to the 
Director, MDA, the full responsibility and authority for baselining 
each BMDS capability and configuration. 

[14] 10 U.S.C. § 2432. 

[15] 10 U.S.C. § 2433, known as "Nunn-McCurdy." 

[16] This statute also requires a manpower estimate, which is reviewed 
by the office of the Under Secretary of Defense for Personnel and 
Readiness. 

[17] Section 234(e) of the Fiscal Year 2005 National Defense 
Authorization Act requires MDA to consider life-cycle costs. However, 
MDA is not required to obtain an independent assessment of life-cycle 
cost. 

[18] 31 U.S.C. § 1301(a). 

[19] Congressional Research Service, Defense Procurement: Full Funding 
Policy--Background, Issues, and Options for Congress (Oct. 20, 2006). 

[20] DOD's Future Years Defense Program is the official DOD document 
that summarizes forces and resources associated with programs approved 
by the Secretary of Defense. 

[21] 31 U.S.C. § 1341. 

[22] Congress has provided MDA authority to use its research, 
development, test, and evaluation appropriation for development and 
fielding of the BMDS. The most recent authority applies to funds 
authorized to be appropriated for fiscal years 2007 and 2008 and 
appears in section 221 of the Fiscal Year 2007 National Defense 
Authorization Act. In expenditure of these funds, MDA can incrementally 
fund the BMDS components that it fields. 

[23] In October 2004, MDA asked DOD's Cost Analysis Improvement Group 
to assess GMD deployment costs included in Missile Defense Plan II. 
This was not an estimate of block cost. 

[24] For major defense acquisition programs, the milestone decision 
authority is typically either the Under Secretary of Defense for 
Acquisition, Technology and Logistics, or the component acquisition 
executive. The establishment of the milestone decision authority and 
associated milestone decisions is recognized in laws applicable to 
DOD's major acquisition programs. See, e.g. 10 U.S.C. § 2366a. 

[25] 10 U.S.C. § 2432, Selected Acquisition Reports. MDA provides a 
limited report to Congress under the statute for the BMDS as a whole. 

[26] Because the BMDS or its major elements have not been designated by 
MDA as being in system development and demonstration, no acquisition 
program baseline is required to be established under 10 U.S.C. § 2435. 
Thus, there is no basis for determining unit cost under 10 U.S.C. § 
2433 (Nunn-McCurdy), which requires calculation of unit cost from the 
baseline. Further, for the same reason, only limited Selected 
Acquisition Reports to Congress on program status are generated (10 
U.S.C. § 2432(h)) that do not include unit costs. 

[27] A deficiency is recognized when the contractor fails to comply 
with a contractual or internal procedure requirement. On the other 
hand, observations are the failure to employ an MDA or industry best 
practice. 

[28] The C2BMC element modified its contract by adding a tailored 
version of the MAP called the MDA/C2BMC Mission Assurance 
Implementation Plan. The Mission Assurance Implementation Plan contains 
those requirements that are specifically applicable to the C2BMC 
element on contract. 

[29] The Joint National Integration Center (JNIC) included elements of 
MAP as part of its award fee criteria. However, this contract was not 
included in our review and is not considered as a specific BMDS 
element. 

[30] The THAAD element modified its contract by adding a tailored 
version of the MAP called the Mission Assurance Implementation Plan. 
This plan contains those requirements that are specifically applicable 
to the THAAD element on contract. 

[31] The BMDS Sensors element also added MAP to its Contractor 
Logistics Support (CLS) prime contract and award fee plan in May 2006. 

[32] A mixture of other organizations pay MDA's other employees. DOD 
military personnel accounts pay 260 military personnel assigned to MDA; 
other DOD components compensate 182 detailees performing missile 
defense duties; and other organizations pay 11 executives on loan to 
MDA. 

[33] The number of support contract positions within MDA is current as 
of November 2006. 

[34] Contractors for C2BMC and MKV were directed to suspend earned 
value reporting during fiscal year 2006; therefore, data for these 
contracts are not included. 

[35] In March 2005, DOD directed that CPRs be named Contract 
Performance Reports. Formerly, CPRs were known as Cost Performance 
Reports. 

[36] A performance measurement baseline identifies and defines tasks, 
designates and assigns organizational responsibilities for each task, 
schedules the work tasks in accordance with established targets, and 
allocates budget to the scheduled work. 

[37] An Integrated Baseline Review (IBR) is the program manager's 
review of a contractor's performance measurement baseline. The review 
is conducted by the program manager and the manager's technical staff. 
It verifies the technical content of the baseline and ensures that 
contractor personnel understand and have been adequately trained to 
collect earned value management data. The review also verifies the 
accuracy of the related budget and schedules, ensures that risks have 
been properly identified, assesses the contractor's ability to 
implement earned value management properly, and determines if the work 
identified by the contractor meets the program's objectives. 

[38] The GMD program has initiated two booster development efforts to 
mitigate development and production risks. The Orbital Sciences 
Corporation is developing and producing one booster design, while 
Lockheed Martin is developing and producing a booster with a different 
design. 

[39] A portion of the unfavorable cost and schedule variance is related 
to work that does not contribute to the Block 2006 effort. 

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