Defense Acquisitions:

Risks Posed by DOD's New Space Systems Acquisition Policy

GAO-04-379R: Published: Jan 29, 2004. Publicly Released: Jan 29, 2004.

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On November 18, 2003, we testified before Congress on the Department of Defense's (DOD) new acquisition policy for space systems. The new acquisition policy, issued in October 2003, sets the stage for decision making for DOD's investment in space systems, which currently stands at more than $18 billion annually and is expected to grow considerably over the next decade. Congress requested that we provide additional comments on several issues relating to the new policy and other space acquisition issues.

Our concern with the Defense Space Acquisition Board is not with earlier identification of problems or the added senior level attention the new process calls for, but with earlier investment decisions, which are also called for. Under the new process, the DSAB may approve product development to begin before DOD knows whether technologies can work as intended. As a result, it will make major investment commitments without really knowing what resources will be required to deliver promised capability. We do not believe the new space acquisition policy will provide better cost estimates. Although some process changes will be made, the underlying causes of underestimating costs remain. DOD's acquisition policy for other weapon systems requires a commitment for full funding at milestone B--the start of product development and the point at which DOD should have knowledge that technologies can work as intended. Competition can provide natural incentives for an organization to be more efficient and more innovative. These incentives work in DOD's favor. However, it is also important to recognize that competition can take various forms. For example, DOD can increase competition by using shadow contractors, pursuing alternative sensor designs, and breaking acquisitions into smaller blocks. DOD can also optimize its investment in weapon systems by competing air, land, sea, and space-based capabilities. While there are only a few contractors currently capable of implementing large and complex space programs, there are many more capable of building specific satellite components and technologies. Thus, by increasing competition at the mission payload or sensor level and breaking acquisitions into smaller pieces, DOD can expand the universe of contractors competing for work. Over the long run, this could enable more contractors to build the expertise and knowledge needed to manage large space programs. It would also require DOD to have significant insight into the lower tiers of the industry. Managing the industrial base is one of the most critical determinants of acquisition success. According to DOD studies, this not only means injecting competition early on to ensure that the highest performing and most cost-effective technologies and designs are being pursued, but adequately defining work; establishing shorter, more manageable contract periods; and providing the right incentives for contractors. GAO does not believe that space programs will be less schedule driven under the new policy. In the past, DOD has taken a schedule-driven versus a knowledge-driven approach to the acquisition process for space and other weapons systems with the justification that capabilities were urgently needed. Prior to the restructuring, the SBIRS High program office exerted no control over requirements changes, leaving many decisions on requirements to its contractors or within lower management levels of the program office. As part of the SBIRS High program restructuring, the Air Force established an advisory program management board to oversee requirements changes. The board's role is to ensure that new requirements are urgent and compelling, that they reflect an appropriate use of funds, and that decisions about requirements are more transparent. Air Force leadership, not the Space-Based Infrared System High (SBIRS) program office, made the decision that the new requirements were urgent and compelling enough to address. Problems with software development in DOD weapons systems are well known. The fundamental problem with the SBIRS High program has been the failure to develop key knowledge at critical junctures early in the development of the system, that is, before major investments were made. The program is now paying the price for this lack of knowledge development. We recently reported that the majority of satellite programs over the past couple decades, like SBIRS High, cost more than expected and took longer to develop than planned.

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