Evolved Expendable Launch Vehicle: DOD Guidance Needed to Protect Government's Interest
NSIAD-98-151
Published: Jun 11, 1998. Publicly Released: Jun 11, 1998.
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Highlights
Pursuant to a congressional request, GAO reviewed the Evolved Expendable Launch Vehicle (EELV) program, with emphasis on the Department of Defense's (DOD) revised acquisition approach, focusing on whether: (1) DOD's goal of reducing recurring space launch costs could be achieved; (2) DOD's planned investment would result in commensurate benefits; and (3) there are risks that could affect the program.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | To protect the government's interest, and to be consistent with entering a business partnership with launch industry contractors for EELV development, the Secretary of Defense should take steps to ensure that a NPV analysis of the program is performed before making a milestone II decision. The analysis should include: (1) DOD's total planned incremental investment costs for development; (2) the most current EELV costs from the contractors' proposals and DOD's estimate for launch services; and (3) a time period for which launch requirements can be verified and reasonably forecasted. |
DOD stated that a net present value analysis or initial rate of return was a more appropriate affordability measure than the method it had been using for determining program viability, thus concurring with the recommendation. The results of the analysis were to be used for decisionmaking purposes in late 1998. However, in September 1998, the Air Force presented a service cost position and life-cycle cost estimate to the Office of the Secretary of Defense's Cost Analysis Improvement Group as part of the milestone II review. These estimates were considered satisfactory by the Defense Acquisition Executive in that he approved the program's entry into the engineering and manufacturing development phase on October 15, 1998.
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| Department of Defense | The Secretary of Defense should: (1) establish criteria for judging the results of the analysis that would provide a suitable margin for discounted savings and unforeseen future costs; and (2) determine the amount of independent research and development costs that need to be factored into the analysis. |
DOD stated that the Air Force will perform several additional analyses to determine if the cost savings goal is met. The results of the analysis were to be used for decisionmaking purposes in late 1998. In September 1998, the Air Force presented a service cost position and life-cycle cost estimate to the Office of the Secretary of Defense's Cost Analysis Improvement Group as part of the milestone II review. These estimates were considered satisfactory by the Defense Acquisition Executive in that he approved the program's entry into the engineering and manufacturing development phase on October 15, 1998.
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| Department of Defense | If the results of the NPV analysis do not meet the criteria, the Secretary of Defense should review the program to either: (1) reduce the amount of the government's planned incremental investment; or (2) rejustify the program on a basis other than cost reduction. |
DOD stated affordability remains the cornerstone of the EELV program and to date all the financial analyses show that all the requirements will be met or exceeded. The results of the analysis are to be used for decisionmaking purposes in late 1998. In September 1998, the Air Force presented a service cost position and life cycle cost estimate to the Office of the Secretary of Defense's Cost Analysis Improvement Group as part of the milestone II review. These estimates were considered satisfactory by the Defense Acquisition Executive in that he approved the program's entry into the engineering and manufacturing development phase on October 15, 1998.
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| Department of Defense | Because DOD has not prescribed regulations for other transactions, as required under 10 U.S.C. 2371(g), the Secretary of Defense should review the Air Force's planned use of other transaction instruments for EELV development to ensure that the government's interest is protected. Consideration should be given to: (1) the criteria expressed by the former Under Secretary of Defense for Acquisition and Technology; and (2) DOD Inspector General's concerns regarding the other transactions process, including some degree of government audit authority. |
DOD stated that its Office of the Under Secretary of Defense for Acquisition and Technology has worked closely with the Air Force in developing the EELV acquisition strategy, including aspects that deal with protecting the government's interests. DOD intends to include a clause in the development agreement whereby the contractors would agree to provide the government insight into technical and schedule performance. The other transactions agreements contain clauses that protect the government's interests. The contracting officer was satisfied with the arrangement and signed the other transaction agreements on October 16, 1998.
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Aerospace industryCost overrunsCost sharing (finance)Defense cost controlDefense economic analysisDefense procurementDepartment of Defense contractorsMilitary satellitesResearch and development costsU.S. Air Force