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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

September 2011: 

Evolved Expendable Launch Vehicle: 

DOD Needs to Ensure New Acquisition Strategy Is Based on Sufficient 
Information: 

GAO-11-641: 

GAO Highlights: 

Highlights of GAO-11-641, a report to congressional requesters. 

Why GAO Did This Study: 

The Department of Defense (DOD) and the National Reconnaissance Office 
(NRO) plan to spend about $15 billion for launch services from fiscal 
year 2013 to fiscal year 2017 through DOD’s Evolved Expendable Launch 
Vehicle (EELV) program. The program launches satellites for military, 
intelligence, civil, and commercial customers. In 2009, DOD and the 
NRO decided the program’s business model needed improvement, and 
initiated studies to determine the best approach. The studies 
addressed potential business models, cost reductions, and the nation’s 
assured access to space. Given expected changes to the EELV 
acquisition strategy, GAO was asked to (1) determine whether DOD has 
the knowledge it needs to develop a new EELV acquisition strategy, and 
(2) identify issues that could benefit future launch acquisitions. To 
address these questions, GAO reviewed launch studies, a supplier 
survey, and interviewed DOD and other officials. 

What GAO Found: 

DOD officials believe the launch industrial base is unstable and plan 
to implement an acquisition strategy they believe will help stabilize 
it. The leading proposal would commit the government to a block buy of 
eight common booster cores—the main component of a launch vehicle—each 
year, for a 5-year term. However, this approach may be based on 
incomplete information and although DOD is gathering data that it 
needs as it finalizes the new acquisition strategy, some critical 
knowledge gaps remain. DOD expects the strategy to be finalized in the 
next few months, but this may not allow DOD sufficient time to 
leverage the knowledge it continues to gain as it develops the 
strategy. DOD analysis on the health of the U.S. launch industrial 
base is minimal, and officials continue to rely on contractor data and 
analyses in lieu of conducting independent analyses. Additionally, 
some subcontractor data needed to negotiate fair and reasonable prices 
are lacking, according to Defense Contract Audit Agency (DCAA) 
reports, and some data requirements were waived in 2007 in exchange 
for lower prices. Mission assurance comprises numerous activities to 
ensure launch success, but DOD has little insight into the sufficiency 
or excess of these activities. The expected block buy may commit the 
government to buy more booster cores than it needs, and could result 
in a surplus of hardware requiring storage and potentially rework if 
stored for extended periods. Also, DOD is gaining insight into the 
rise in some engine prices, expected to increase dramatically in the 
near term, but it is unclear how this knowledge will inform the 
expected acquisition approach or subsequent negotiations. Program 
decisions at the National Aeronautics and Space Administration (NASA) 
later this year could impact EELV engine prices, but DOD may lock in 
higher prices before it fully understands NASA’s plans. Further, DOD 
intends to allow companies other than the current sole-source 
contractor to compete for EELV launches as they prove vehicle 
reliability, but DOD is still developing criteria to facilitate this 
competition. A recent memorandum of understanding between the Air 
Force, NRO, and NASA committed to publish a coordinated certification 
strategy by July 31, 2011, but did not meet that date. 

Broader issues exist as well, regarding the U.S. government’s 
acquisition of, and future planning for, launch services—-issues which 
GAO believes should be addressed, given that they could reduce launch 
costs and assure future launch requirements are met. For example, 

* Federal agencies-—like the Air Force, NRO, and NASA-—could more 
closely coordinate their acquisitions of launch services, and recently 
committed to do so, but many details are yet to be determined. 

* Resource planning focused on launch technology development could 
inform the next generation of launch vehicles particularly with 
respect to engines, for which the United States is partially reliant 
on foreign suppliers. 

Policymakers could benefit from additional insight into these issues, 
but it is not clear that DOD will address these issues in its upcoming 
strategy. 

What GAO Recommends: 

Among other things, GAO recommends DOD assess engine costs and mission 
assurance activities, reassess the length of the proposed block buy, 
and consider how to address broader launch acquisition and technology 
development issues. DOD generally concurred with the recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-11-641]. For more 
information, contact Cristina Chaplain at (202) 512-4841 or 
chaplainc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD Gaining Knowledge as It Finalizes a New EELV Acquisition Strategy, 
but Critical Gaps Remain: 

Addressing Other Issues Could Benefit Future Launch Acquisitions: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Studies Informing New EELV Acquisition Strategy and Issues 
They Addressed: 

Table 2: Planned vs. Actual EELV Launches, Fiscal Years 2005-2009: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 15, 2011: 

The Honorable Bill Young:
Chairman:
Subcommittee on Defense:
Committee on Appropriations:
United States House of Representatives: 

The Honorable Norm Dicks:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States House of Representatives: 

The Department of Defense's Evolved Expendable Launch Vehicle (EELV) 
program is the primary provider of launch vehicles for U.S. military 
and intelligence satellites, as well as some civil and commercial 
satellites. The Department of Defense (DOD) and the National 
Reconnaissance Office (NRO) plan to spend about $15 billion to acquire 
launch services from fiscal year 2013 to fiscal year 2017; however, 
the life-cycle costs for the program are unknown. In 2009, the 
Commander of Air Force Space Command and the Director of the National 
Reconnaissance Office (NRO) determined that the current approach for 
acquiring EELV launch vehicles was likely not the best business model 
and decided that a new acquisition strategy needed to be developed. In 
March 2011, the Secretary of the Air Force created a new executive 
position, the Program Executive Officer (PEO) for Space Launch, 
responsible for, among other things, spearheading the effort to 
finalize the new EELV acquisition strategy. To inform the strategy, 
DOD conducted or commissioned various studies to evaluate alternatives 
to the current program structure, assessing the U.S. government's 
access to space, analyzing options to leverage commercial and foreign 
capabilities, identifying possible cost reductions in the program, and 
evaluating the current business model. The new PEO for Space Launch 
states he is leading several recent and ongoing efforts to gain 
additional knowledge to inform the new acquisition strategy. Given 
anticipated changes in the acquisition strategy and potential changes 
in the broader launch landscape, you asked us to report on (1) whether 
DOD has the knowledge it needs to develop a new EELV acquisition 
strategy and (2) issues that could benefit future launch acquisitions. 

To address these objectives, we reviewed and analyzed information 
contained in five recent launch studies, and interviewed study leaders 
or participants in three of the five studies; we analyzed historical 
launch data and expected launch vehicle demand, and reviewed past 
launch industry studies of the U.S. industrial base. We assessed a 
supplier survey conducted by the EELV prime contractor of its 
subcontractors. The survey was used by the government to gauge the 
health of the U.S. industrial base. We reviewed the survey 
questionnaire, comparing methods to GAO sound survey development 
practices,[Footnote 1] comparing summary data to the questions asked, 
and interviewing and obtaining information and summary data from the 
surveyors. We also interviewed or obtained perspectives from launch 
officials in various military, intelligence, and civilian government 
agencies, as well as the EELV prime contractor and two commercial 
launch companies. Through our review of DOD launch studies and other 
relevant government and industry reports, our interviews with DOD, 
NASA, and contractor officials, and information obtained from NRO, we 
identified issues that may be important to current and future 
government launch acquisitions. 

We conducted this performance audit from September 2010 to September 
2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. Additional 
details of our scope and methodology are discussed in appendix I. 

Background: 

DOD began the EELV program in 1995 to provide a new generation of 
launch vehicles to ensure affordable access to space for government 
satellites. It resulted in two families of commercially owned and 
operated launch vehicles--Boeing's Delta IV and Lockheed Martin's 
Atlas V. It also includes manufacturing and launch site facilities and 
ground support systems. Each family of launch vehicles consists of 
medium-, intermediate-, and heavy-lift vehicles.[Footnote 2] 

In 1995, DOD awarded contracts to four companies to define EELV system 
concepts and complete preliminary system designs. At the end of their 
contracts, DOD planned to choose one contractor with the most reliable 
and cost-effective design. However, in November 1997, the Office of 
the Secretary of Defense (OSD) approved maintaining two contractors, 
based on forecasts that growth in the commercial space launch market 
would support more than one launch provider and the resulting 
competition would translate into lower costs for the government. In 
1998, DOD competitively awarded Boeing and Lockheed Martin two firm-
fixed price contracts for Delta IV and Atlas V launch services, 
respectively, under the Federal Acquisition Regulation (FAR) 
provisions governing commercial items. Under these contracts, DOD had 
limited insight into contractor costs because certified cost or 
pricing data is not required in the acquisition of commercial items. 
[Footnote 3] In 2000, new market forecasts showed a dramatic reduction 
in the expected demand for commercial launch services and the robust 
launch market upon which the DOD based the EELV acquisition strategy 
did not materialize. As a consequence, estimated prices for future 
contracts for launch services increased, along with the total cost of 
the program. Commercial launch demand forecasts have remained 
relatively stable since then, and in recent years seem to indicate a 
slight upturn in worldwide demand for commercial launches, but the 
expected demand for commercial launches remains significantly lower 
than was anticipated near the start of the EELV program. 

Current Acquisition Approach: 

In March 2005, DOD revised the EELV acquisition strategy to reflect 
the changes in the commercial market and the new role of the 
government as the primary EELV customer. This revised strategy 
provided two contracts apiece--Launch Capability and Launch Services--
to Boeing and Lockheed Martin, the two launch service providers. The 
EELV Launch Capability cost-plus incentive fee contract is primarily 
for launch infrastructure (such as launch pads and ranges) and labor, 
while the EELV Launch Services firm-fixed price mission success 
incentive contract is for launch services, including vehicle 
production.[Footnote 4] 

The new contracts were negotiated under FAR Part 15, which allowed the 
contracting officer to obtain certified cost or pricing data from the 
contractor for future procurements. As part of the negotiations 
process, the government waived certified cost or pricing data for some 
requirements. The contracts were awarded using "other than full and 
open competition procedures" under Part 6 of the FAR. 

In May 2005, Boeing and Lockheed Martin announced plans to form a 
joint venture that would combine the production, engineering, test, 
and launch operations associated with U.S. government launches of 
Boeing's Delta and Lockheed Martin's Atlas launch vehicles. According 
to both contractors, the joint venture, named the United Launch 
Alliance (ULA), would gain efficiencies and provide the government 
with assured access to space at the lowest possible cost by operating 
independently as a single company and providing launches on both Atlas 
V and Delta IV vehicles. Though the Federal Trade Commission (FTC) 
initially opposed the ULA joint venture because of its potential to 
limit competition in the launch industry, DOD stated the benefits of 
the joint venture to national security outweighed the loss of 
competition, and FTC allowed the joint venture to proceed. ULA 
officially began operations in December 2006 as the sole source 
contractor for EELV. The government, Boeing, Lockheed Martin, and ULA 
entered into novation agreements which transferred the obligations and 
liabilities of the earlier Boeing and Lockheed Martin contracts to 
ULA.[Footnote 5] 

Following ULA formation, the Air Force approved a waiver to obtain 
certified cost or pricing data from the top 104 Boeing subcontractors 
whose purchase orders valued at $650 thousand or more, representing 
over $1.4 billion total. The waiver states that Boeing purchased the 
materials via commercial items contracts and thus did not require the 
data of its subcontractors, and that further, the prices Boeing 
obtained in its large-quantity purchase of subcontractor hardware 
warranted waiving the data. 

In 2007, DOD decided to advance the EELV program from the production 
phase to the sustainment phase.[Footnote 6] We reported in 2008 that 
this action significantly reduced the program's reporting requirements 
to the DOD and the Congress, such as program cost and status 
information, limiting its own ability to oversee the program.[Footnote 
7] Today, ULA's customers are mostly DOD, NRO, and the National 
Aeronautics and Space Administration (NASA) (which negotiates its own 
contracts with ULA). With regard to commercial customers, since ULA 
began operations in 2006, they represent less than 20 percent of ULA's 
business. 

According to DOD officials, in late 2009, projected increases in EELV 
program costs prompted the Commander of Air Force Space Command and 
the Director of the NRO to reconsider the current EELV business model. 
They commissioned a team of Air Force and various other DOD 
acquisition officials, NRO, and NASA officials, and contractor 
personnel--known as the Tiger Team--to study the current approach to 
buying government launches, and develop a new acquisition strategy. 
Although development of the acquisition strategy shifted from the 
Tiger Team to the new PEO for Space Launch in late March 2011, the 
Tiger Team study findings and recommendations will likely remain a 
cornerstone of the new acquisition strategy. 

Planning Underway for New Acquisition Strategy: 

Under the current acquisition approach, DOD awards a contract for each 
launch vehicle as needed, with a separate contract to cover the ULA's 
overhead and facilities cost. DOD does not guarantee a specific number 
of launch vehicle orders per year to the contractor, and the quantity 
of launch vehicles needed fluctuates. While this business model is 
flexible, as launch vehicles are purchased on an as-needed basis, it 
has also been costly, and projected costs are rising. Recent DOD 
launch studies have raised concerns regarding the unpredictable orders 
and low demand for launch vehicle components, and both DOD and ULA 
officials say this condition is contributing to rising launch costs, 
particularly in the area of engines, a primary launch cost driver. To 
address its concerns, DOD is developing a new EELV acquisition 
strategy for how it procures launch services and pays for launch 
infrastructure costs, officials say to stabilize the industrial base 
and to keep costs from escalating more. Based on a memorandum of 
understanding, signed on March 10, 2011, between the Air Force, NRO 
and NASA, the new EELV acquisition strategy will most likely commit 
the Air Force and NRO to buy each year a block of eight launch 
vehicles--or more specifically eight common booster cores[Footnote 8]--
and commit to doing so for a 5-year period, instead of buying one 
launch vehicle at a time as is currently done. Though the acquisition 
strategy is still in development, the first block buy of booster cores 
is expected to cover fiscal years 2013 through 2017 and cost around 
$15 billion for that period. The PEO for Space Launch indicates the 
new strategy is expected to be finalized within the next few months. 

DOD recently conducted or participated in five major launch studies 
that officials told us were the basis for developing early concepts of 
the new EELV acquisition strategy. While the studies spanned a wide 
range of launch-related issues, we focused on issues related to the 
acquisition of launch services. The studies are: 

* The 2010 Launch Broad Area Review was conducted by the Institute for 
Defense Analyses for the Air Force to assess the current state of 
assured access to space. Issued in January 2010, this report states 
that the current practice of buying launch services as needed 
threatens the viability of the launch industrial base because the 
unpredictable buying tempo leads to inefficient production by 
suppliers.[Footnote 9] It recommended maintaining the current mission 
assurance focus, and investing in pre-planned product improvement, 
such as engine modifications and upgrades.[Footnote 10] 

* The EELV Should Cost Review was conducted by Air Force Space Command 
(AFSPC) and the NRO for the Secretary of the Air Force, to identify 
possible EELV efficiencies and cost reductions.[Footnote 11] The 
report was issued in October 2010, and recommended over 80 cost-
reduction initiatives for the EELV program. In February 2011, the 
Secretary of the Air Force directed his senior acquisition executives 
to integrate the findings from this review with Tiger Team 
recommendations (discussed below) in time to award the new launch 
contracts. Air Force officials say the Should Cost Review was 
valuable, that some of the cost reduction recommendations identified 
therein were implemented in recent contract negotiations, and that the 
Should Cost Review recommendations will support future contract 
actions. 

* The Launch Enterprise Transformation Study was conducted by Booz 
Allen Hamilton for the Air Force, to evaluate alternatives to the 
current EELV program consisting of two launch vehicle lines of 
production, or families, while assessing risks, costs, savings, and 
the industrial base, among other things. According to Air Force 
officials, this study, completed in March 2009, was the impetus for 
several of the other launch studies DOD conducted to inform the new 
acquisition strategy. This study concluded that mission success should 
remain the first priority when making decisions about the launch 
enterprise. It recommended that the Air Force adopt a more efficient 
acquisition approach, including pursuing a new definition of assured 
access to space, and enabling pre-planned product improvements. 

* The Resource Management Directive 700 Fiscal Year 2010 Launch Study 
was conducted by the Under Secretary of Defense, Office of 
Acquisition, Technology and Logistics; the Assistant Secretary of 
Defense, Office of Networks Information and Integration; the Office of 
the Secretary of Defense, Cost Assessment and Program Evaluation; and 
the Air Force Space and Missile Systems Center's Launch and Range 
Systems Directorate, to identify and assess alternatives for reducing 
launch costs, including options for downsizing to either the Atlas or 
Delta lines of launch vehicles instead of producing both, and 
leveraging commercial and foreign capabilities. Completed in August 
2010, this study stated that a new acquisition strategy should control 
cost growth and stabilize the industrial base. It also recommended 
investing in post-EELV technologies. 

* The Tiger Team Study was co-sponsored by the Commander of AFSPC and 
the Director of the NRO, with members from the Air Force, NRO, various 
DOD offices, and NASA. The study began in November 2009 to look at 
alternative acquisition models for EELV and develop a revised EELV 
acquisition strategy. The Tiger Team concluded its formal study period 
in August 2010, and its recommendations will likely be a key input to 
the expected EELV block buy acquisition strategy, which has yet to be 
finalized. We interviewed multiple DOD officials and obtained their 
views on what the recommendations included. We received substantive 
oral briefings from the study co-leader and participants, but we did 
not receive copies of the Tiger Team briefings or supporting 
documentation with sufficient time to review them during the course of 
our work. 

In addition to the issues for which the studies were commissioned, 
several of the study reports addressed other topics. Table 1 shows the 
broad issues each study addressed. 

Table 1: Studies Informing New EELV Acquisition Strategy and Issues 
They Addressed: 

2010 Launch Broad Area Review: 
Competition for EELV Launches: [Check]; 
EELV Program Structure: [Check]; 
Launch Costs: [Empty]; 
Launch Industrial Base: [Check]; 
Launch Plans & Schedule: [Check]; 
Launch Site and Range Infrastructure: [Check]; 
Launch Vehicle Hardware Upgrades: [Check]; 
Launch Vehicle Mission Assurance: [Check]; 
Leadership of the Launch Community: [Check]. 

EELV Should Cost Review: 
Competition for EELV Launches: [Empty]; 
EELV Program Structure: [Empty]; 
Launch Costs: [Check]; 
Launch Industrial Base: [Empty]; 
Launch Plans & Schedule: [Empty]; 
Launch Site and Range Infrastructure: [Empty]; 
Launch Vehicle Hardware Upgrades: [Empty]; 
Launch Vehicle Mission Assurance: [Empty]; 
Leadership of the Launch Community: [Empty]. 

Launch Enterprise Transformation Study: 
Competition for EELV Launches: [Check]; 
EELV Program Structure: [Check]; 
Launch Costs: [Empty]; 
Launch Industrial Base: [Check]; 
Launch Plans & Schedule: [Check]; 
Launch Site and Range Infrastructure: [Check]; 
Launch Vehicle Hardware Upgrades: [Check]; 
Launch Vehicle Mission Assurance: [Check]; 
Leadership of the Launch Community: [Empty]. 

Resource Management Directive 700 Fiscal Year 2010 Launch Study: 
Competition for EELV Launches: [Check]; 
EELV Program Structure: [Check]; 
Launch Costs: [Check]; 
Launch Industrial Base: [Check]; 
Launch Plans & Schedule: [Empty]; 
Launch Site and Range Infrastructure: [Empty]; 
Launch Vehicle Hardware Upgrades: [Empty]; 
Launch Vehicle Mission Assurance: [Empty]; 
Leadership of the Launch Community: [Empty]. 

Tiger Team Study: 
Competition for EELV Launches: [Check]; 
EELV Program Structure: [Check]; 
Launch Costs: [Check]; 
Launch Industrial Base: [Check]; 
Launch Plans & Schedule: [Empty]; 
Launch Site and Range Infrastructure: [Empty]; 
Launch Vehicle Hardware Upgrades: [Empty]; 
Launch Vehicle Mission Assurance: [Empty]; 
Leadership of the Launch Community: [Empty]. 

Source: GAO analysis of information on launch studies. 

[End of table] 

Finally, although no U.S. commercial launch capability for EELV-class 
payloads other than Atlas V and Delta IV existed when the previous 
EELV acquisition strategy was developed, domestic commercial launch 
providers are emerging that may satisfy some of DOD's EELV-class 
launch vehicle needs. According to DOD officials, these newer 
providers have not yet demonstrated adequate reliability to provide 
launches for critical satellites, but may be poised in the future to 
compete with the current sole-source EELV provider, ULA. Such 
competition could incentivize ULA pricing and efficiencies, 
potentially yielding cost savings to the government. 

DOD Gaining Knowledge as It Finalizes a New EELV Acquisition Strategy, 
but Critical Gaps Remain: 

DOD officials are gathering data they expect will fill some knowledge 
gaps, but they do not have some of the information they need to make 
informed decisions in developing the new acquisition strategy for 
EELV. Current plans are to finalize the acquisition strategy later 
this year, but efforts to gain additional knowledge are still 
underway. Program officials state that a primary reason for revising 
the EELV acquisition strategy is to stabilize the launch industrial 
base, but analyses performed by DOD on the health of the space launch 
industrial base are limited. EELV program officials plan to devise a 
new contracting approach as a part of the new acquisition strategy, 
but they may have difficulty assessing fair and reasonable prices 
given the insufficiency of historical and current contractor cost or 
pricing data. DOD also continues to have limited insight into mission 
assurance costs, gaining clarity on which, DOD officials say, would be 
cost-prohibitive given the integrated nature of these activities. 
Additionally, DOD has incomplete data on current and future engine 
prices--though Air Force officials are pursuing cost data from 
subcontractors who supply engines--which some estimates show doubling 
or even tripling in the near term. The proposed block buy of eight 
booster cores per year for five years is based on ULA's stated minimum 
necessary to maintain a steady production rate, but this number of 
cores may not reflect the actual number needed, and could result in a 
surplus of booster cores if not used. DOD indicates plans to allow 
companies other than the current prime contractor, ULA, to compete for 
EELV launches once these companies have proven their reliability, and 
although DOD has developed criteria for how to facilitate this 
competition in conjunction with the NRO and NASA, DOD officials 
indicate the criteria are not yet finalized. 

DOD analysis on the health of the launch industrial base is limited: 

Program officials, recent launch studies, and the prime EELV 
contractor all cite a diminishing launch industrial base as a risk to 
the mission success of the program, but DOD analysis supporting this 
condition is minimal. Tiger Team leaders asked the prime EELV 
contractor and three subcontractors in April 2010 to respond to 
questions concerning production rates needed to sustain viability and 
achieve cost efficiencies, but independent government analyses on the 
health of the space launch industrial base were not performed. 
[Footnote 12] A principal source of data cited by DOD is a 2009-2010 
survey of about 50 subcontractors out of roughly 3,000, conducted and 
analyzed by ULA. According to ULA, the subcontractors surveyed 
represent about 80 percent of total subcontract value.[Footnote 13] 
EELV program officials say they relied, in part, on the 2009-2010 ULA 
supplier survey when assessing the health of the industrial base, in 
addition to more detailed information they obtained from the engine 
subcontractors. The 2010 Launch Broad Area Review--which DOD officials 
cite as support for the proposed block buy approach--also relied, in 
part, on the 2009-2010 ULA data and analysis to conclude that the 
launch industrial base needs stability. 

Although the ULA survey of its supplier base covered the appropriate 
topic areas for such a review--for example, financial stability and 
production operations--our analysis determined the survey was neither 
designed nor administered in a manner consistent with sound survey 
methodology practices, and in some cases, survey results presented to 
DOD could not be linked back to the survey questions. When ULA sent 
its survey questionnaire to its suppliers, it provided a cover letter 
to introduce the survey. The survey cover letter goes beyond the 
standard acceptable practices of stating the purpose of the survey and 
why the respondents' answers are important by including ULA's Chief 
Executive Officer's views on the "inefficient" method used by DOD to 
acquire launch vehicles and the need for "a relatively stable multi 
year demand." It further states that the goal of the survey is to 
"justify" a new acquisition strategy "that will enhance our collective 
business," but sound survey practices indicate that surveys should not 
be perceived as trying to support a particular position. The purpose 
of questionnaires is to develop information for an objective 
evaluation. 

Further, sound survey practices often provide for the use of close- 
ended questions with various response options provided to the survey 
respondent to facilitate survey response and analysis. In a well- 
designed survey, close-ended questions contain a comprehensive list of 
options that are mutually exclusive and unbiased. Pre-testing the 
survey with expected respondents is important for ensuring the 
adequacy of the questionnaire, and in principle, enough people should 
be tested in order to obtain a sufficiently valid sample of 
participants. ULA pre-tested only a subset of its survey questions 
with a single ULA supplier. 

In the Overall Risk Profile portion of its survey, ULA asked 
respondents to list and rank--in an open-ended format--five short-, 
and five long-term risks in maintaining production for ULA. ULA 
provided survey participants with four suggested risk items that 
supported the ULA survey's stated purpose of justifying a stable 
multiyear acquisition approach for the EELV program. According to one 
ULA official, "we wanted certain answers." Summary data presented to 
DOD shows the potential risk items provided to suppliers by ULA as the 
four top-rated risk areas identified by suppliers, without indicating 
that the answers were suggested by ULA. This implies that survey 
respondents independently raised those areas as their top-rated 
concerns. ULA presents these results specifically in its briefing as 
support for a multiple year acquisition approach. [Footnote 14] 

Despite these and other methodological weaknesses, the data generated 
from the survey were neither reviewed nor independently assessed by 
DOD officials, according to ULA surveyors. Further, although the 
intention of the survey was in part to help the EELV program develop a 
new acquisition strategy, ULA told us the program office did not 
review the survey design, questions, methods, or analysis, though 
program officials said they provided questions for the follow-up 
survey. Additionally, although the 2010 Launch Broad Area Review uses 
direct language from the ULA supplier survey results, according to ULA 
officials, the review participants also did not ask to independently 
assess any of the ULA data or analysis, relying instead on ULA's 
analysis of its survey data. 

ULA's survey findings are in some cases inconsistent with each other. 
For example, ULA data analysis used in the 2010 Launch Broad Area 
Review report indicates that most suppliers are operating at or below 
their minimum production rates and that at least 50 percent are 
concerned about customer demand and long-term viability. However, 
other ULA data contained in its briefing to us indicated no current 
concern regarding the financial viability of its main suppliers, 
stating that "98 percent of the ULA suppliers meet or exceed 
sustainable financial and operational criteria in 2010 (92 percent in 
2009)." The ULA briefing also shows that ULA/EELV business constitutes 
15 percent or less of the total business base for 75 percent of ULA 
suppliers who responded to the survey. ULA officials told us at no 
time did DOD ask to review the survey source data or ULA analysis, and 
ULA provided it to no one until we requested it for this review. 

Cost or pricing data for the EELV program are largely unknown: 

Under the new acquisition strategy, contracting officials may have 
difficulty assessing fair and reasonable prices given the limited 
availability of contractor and subcontractor cost or pricing data. The 
EELV Should Cost Review indicates there are significant contractor 
data and business system limitations that we believe should be 
resolved before DOD makes a commitment to a long-term (block buy) 
acquisition of launch vehicles. According to Defense Contract Audit 
Agency (DCAA) reports, ULA proposals contain inadequate cost or 
pricing data that make it difficult for DOD to assess the adequacy and 
fairness of launch prices and the cost-effectiveness of launch 
operations. DCAA has stated DOD should obtain additional data before 
negotiating launch contracts to ensure ULA proposals are an acceptable 
basis for contract negotiation. Despite historical challenges 
obtaining cost or pricing data, senior Air Force officials recently 
indicated they have confidence in their ability to obtain adequate 
cost or pricing data to facilitate informed contract negotiations as 
part of the new acquisition strategy. It is unclear whether this data 
will be captured in advance of the expected release of the new 
acquisition strategy later this year, or how it may be used to inform 
the strategy or subsequent contract negotiations. 

For over a decade, the EELV program has been unable to access 
subcontractor cost and pricing data for hardware used on Delta IV 
booster cores. In 2007, the Program Executive Officer for Space 
authorized a waiver to Boeing for certified cost or pricing data for 
104 of Boeing's major subcontractors and suppliers. The rationale for 
this decision was based on Boeing's purchase of items from these 
subcontractors and suppliers under a commercial contract, and that 
certified cost or pricing data are not required for that type of 
contract. The waiver covered the entire lot of items that had been 
purchased by Boeing in 1998, comprising hardware such as engines, 
graphite motors and guidance systems, to build 42 common booster 
cores, as the prices negotiated under the large-quantity subcontracts 
may not have been achievable by the government at the time. At that 
time, industry experts expected a high commercial demand for launch 
vehicles, and it was assumed by the program that the lot would be used 
in a few years; Boeing's Decatur, Alabama facility was built with the 
capacity to produce 40 common booster cores per year. However, the 
anticipated commercial market never materialized, and the EELV program 
is still using hardware from Boeing's first lot buy. 

Without certified cost or pricing data on the booster cores, which 
constitute the major component on a launch vehicle, DCAA officials 
believe that program contracting officials have an inadequate basis on 
which to negotiate launch contracts. In fact, DCAA audits consistently 
find ULA proposals and estimating techniques inadequate for evaluation 
and audit, and recommend deferring contract negotiations until the 
data are made available. The recent EELV Should Cost Review found that 
ULA business systems, including purchasing, accounting, and estimating 
systems are immature, making it difficult for DCAA to validate cost 
data. ULA's business systems have "weak auditable records with high 
error rates," it says, causing reduced confidence and unreliability in 
ULA cost estimates. It further states that since ULA's formation, 
every audit report of EELV pricing DCAA issued has contained an 
adverse opinion, with unsupported or questioned costs ranging from 20-
60 percent. Program contracting officials say that while this data 
would be beneficial, they are able to adequately estimate prices 
within the Air Force, which is how they can obtain clearance from 
their leadership to proceed with contract negotiations despite DCAA 
adverse opinions. ULA business systems are currently under review by 
DCAA and DCMA, and officials estimate these reviews will complete by 
the end of calendar year 2011. 

DOD has little insight into mission assurance costs and activities, 
but plans to incentivize the contractor to gain efficiencies: 

DOD officials believe that mission assurance is the most important 
contributing factor to launch mission success, but the costs, 
sufficiency or excess of these activities have not been fully 
assessed, and current contracts with ULA may not motivate the 
contractor to operate efficiently. Launch studies point to major 
launch failures in the late 1990s that are largely thought to be the 
result of inadequate mission assurance. Since then, the Air Force and 
NRO have taken steps to enhance mission assurance and government 
oversight. DOD launch studies credit enhanced mission assurance 
activities with the unprecedented launch successes in the EELV 
program, but have thus far been unable to quantify mission assurance 
costs, or pinpoint the sufficiency of mission assurance activities, 
limiting DOD's ability to gauge the sufficiency or surplus of its 
investment in mission assurance activities. For example, 

* A 2007 Booz Allen Hamilton report created a definition of launch 
mission assurance, the basis of which is still in use, but the report 
was not able to quantify specific costs that comprise launch vehicle 
mission assurance, relying instead on percentages of total launch 
vehicle costs and averages to give a general picture.[Footnote 15] 

* The 2010 Broad Area Review was tasked in part with assessing the 
effectiveness of launch vehicle mission assurance, but it did not 
identify actual costs associated with mission assurance activities, 
such as pre-launch readiness reviews or launch vehicles hardware and 
software verification activities. This review supported maintaining 
the current level of mission assurance, but did not attempt to assess 
the sufficiency or surplus of current launch vehicle mission assurance 
activities, stating only that, "the current process and resource 
allocation…is producing the desired result." 

* Mission assurance costs are not fully quantified in launch 
contracts, either. According to the 2010 EELV Should Cost Review, 
mission assurance activities are part of the same contract line item 
number as mission integration activities like requirements analysis 
and verification, even though they are not directly related. This 
review also noted that under the contract structure at that time, ULA 
was neither motivated nor incentivized to find efficiencies in its 
operations, but Air Force officials told us they recently changed the 
EELV launch infrastructure contract to incentivize ULA to deliver 
mission success at a lower cost. 

DOD officials maintain that mission assurance costs may not be 
severable from the many launch activities in which they are 
integrated, adding that the level of effort required to do so may far 
outweigh the potential cost savings that may be identified in the 
process. Also, recent launch studies have been unable to assess the 
level of investment or execution of activities thought to be part of 
the mission assurance process. Identifying the adequacy or excess of 
these activities is increasingly important, however, as new launch 
providers emerge who may be able to compete for EELV launches, 
providing the government with an unprecedented opportunity to 
incentivize efficiencies at ULA. Senior Air Force officials told us 
they plan to include incentives in upcoming EELV contracts to motivate 
ULA to identify ways to increase efficiency in its operations. 
Incentivizing the contractor to find efficiencies in its own processes 
while maintaining mission success, without prescribing the areas to 
streamline, could allow DOD to effect cost savings while sustaining 
the unprecedented and critical launch success in the EELV program. 

Data on EELV engine costs are incomplete: 

One of the primary drivers of rising launch cost estimates is the 
escalating price of engines used on both Atlas V and Delta IV launch 
vehicles, and while Air Force officials are undertaking efforts to 
assess engine price increases, some data are still lacking, and it 
remains unclear how this information will impact development of the 
new acquisition strategy and future contract negotiations. Air Force 
officials have recently begun pursuing explanations for engine price 
increases from one EELV engine subcontractor, and expect to obtain 
additional data before the new acquisition strategy is finalized. The 
subcontractor presented Air Force officials with cost breakdown 
information on the RL-10 upper stage engine, a version of which is 
used on both Atlas V and Delta IV launch vehicles, that Air Force 
officials say satisfied their request for information on that engine. 
However, similar cost information on EELV main engines is not 
available. For example, the EELV Should Cost Review indicates prices 
for the RS-68 engine, the main engine used on Delta IV launch 
vehicles, are expected to increase four-fold, but is unable to 
attribute the rise in prices to specific and identifiable cost 
increases. Air Force officials requested a cost breakdown on the RS-68 
from the same subcontractor who provided cost data on the RL-10, but 
the subcontractor has not yet provided adequate data, according to Air 
Force officials. One reason for the lack of insight into engine costs 
is that ULA buys engines under commercial subcontracts, which limit 
the cost or pricing data available to the government. Additionally, 
according to DOD officials, the Should Cost Review team was unable to 
obtain detailed technical or cost data for the Russian RD-180 main 
engines used on the Atlas V due to time constraints, though EELV 
program officials say some cost data are available. 

Further, uncertainty in NASA launch development programs like the 
Constellation program could make EELV the primary customer for some 
engines, resulting in the EELV program having to pay most labor and 
infrastructure costs at engine production facilities. DOD cost 
estimators suggest that when program decisions are finalized at NASA, 
the price of EELV engines will stabilize and may decrease. For 
example, if NASA pursues a program that uses the same engines as EELV, 
the two programs might share labor and infrastructure costs, bringing 
down the per-engine costs for EELV. However, DOD may lock in current 
unstable EELV engine prices before it has collected and fully analyzed 
the cost data it is pursuing, and before program decisions at NASA are 
final. NASA is in the process of transitioning away from the 
Constellation Program in FY 2011--which would have used the same RS-68 
engines that are used on EELVs--to the new Space Launch System (SLS) 
heavy-lift launch vehicle. NASA has yet to finalize plans for the SLS 
design. NASA's decisions could have significant bearing on engine 
prices for the EELV program. 

Proposed block buy may generate oversupply: 

DOD's new EELV acquisition strategy may commit the Air Force and NRO 
to buy eight common booster cores--four each of the Atlas V and Delta 
IV lines--each year over a five-year term, which may be more than it 
needs. NASA launch needs are not factored into the proposed block buy, 
and will be purchased independently of the new EELV acquisition 
strategy. ULA says that eight cores per year is the minimum number it 
needs to keep production steady and maintain mission success, but 
historical launch rates indicate that DOD may face an oversupply at 
that rate. The Air Force believes a "bow wave" of satellite payloads 
will be ready for launch in the near future as satellites previously 
delayed are nearing delivery and will require launch vehicles at an 
unprecedented rate. Satellite delivery delays are often the primary 
cause of launch delays, and Air Force officials expect most satellites 
planned for launch in the next several years to launch on time. Many 
of these satellites are clones of previously-built satellites, so the 
satellite development risk (and thus risk of delayed delivery) is 
significantly reduced, according to Air Force officials, providing 
confidence that launches planned will launch on time. 

Historically, according to the 2010 Launch Broad Area Review, only 
about two-thirds of planned launches are launched in any given year; 
in recent years that number has been closer to forty percent, as shown 
in the table below. If DOD purchases eight cores per year and does not 
use them all in that year, they may have to be stored. Table 2 shows 
launch rates for fiscal years 2005 through 2009. 

Table 2: Planned vs. Actual EELV Launches, Fiscal Years 2005-2009: 

Missions Planned at Beginning of Fiscal Year: 

Delta IV: 
FY 05: 6; 
FY 06: 7; 
FY 07: 4; 
FY 08: 5; 
FY 09: 5. 

Atlas V: 
FY 05: 3; 
FY 06: 4; 
FY 07: 6; 
FY 08: 9; 
FY 09: 7. 

Total: 
FY 05: 9; 
FY 06: 11; 
FY 07: 10; 
FY 08: 14; 
FY 09: 12. 

Missions Launched by End of Fiscal Year: 

Delta IV: 
FY 05: 1; 
FY 06: 2; 
FY 07: 1; 
FY 08: 1; 
FY 09: 2. 

Atlas V: 
FY 05: 3; 
FY 06: 2; 
FY 07: 2; 
FY 08: 4; 
FY 09: 3. 

Total: 
FY 05: 4; 
FY 06: 4; 
FY 07: 3; 
FY 08: 5; 
FY 09: 5. 

Percent of Planned Missions Actually Launched: 
FY 05: 44%; 
FY 06: 36%; 
FY 07: 30%; 
FY 08: 36%; 
FY 09: 42%. 

Source: GAO analysis of Air Force data. 

[End of table] 

DCMA officials at the ULA Decatur production facility say that storing 
cores for a year or more would likely require retooling and 
retrograding, which would increase program costs. DOD may be able to 
use stored booster cores in the following year, but under the proposed 
five-year block buy, DOD will be committed to buying an additional 
eight in each year of the block buy term, potentially creating its own 
bow wave of cores produced, the use of which would continue to be 
pushed out to subsequent years. The number of stored cores and the 
length of time they need storing could accumulate if several years of 
underutilization pass. Though Air Force officials say they have no 
concerns about storing unused booster cores, DCMA technical officials 
expressed concerns over long-term storage of booster cores as they 
contain some limited life items that may have to be retested and 
possibly replaced if stored long term. They said the main 
consideration is the time required to bring the items up-to-date with 
relevant engineering; changes which cannot be made while the booster 
cores are stored. The new acquisition strategy will likely propose a 
term of five years for the first block buy, but none of the recent 
launch reports indicate that a five-year term is the optimum period in 
which to achieve the goals of the new acquisition strategy. In fact, 
officials at the EELV program office and ULA were at a loss to explain 
the rationale behind the five-year term, though recent launch studies 
assert a multiyear or long-term block buy would benefit the industrial 
base. Further, DOD has not conducted a detailed risk analysis using 
available knowledge of current planned launches for fiscal years 2013 
to 2017--the time frame of the expected block buy--to determine the 
likelihood that planned launches will actually launch, and that the 
expected block buy of 40 booster cores will not exceed projected needs. 

DOD criteria for new EELV-class launch vehicle providers are still in 
development: 

DOD plans to allow new companies to compete for EELV launches once 
they can prove their launch vehicles are reliable, but DOD has yet to 
finalize metrics that will allow these companies to demonstrate launch 
vehicle reliability. Competition to provide government launch services 
has historically been minimal in the EELV program; demand for launch 
vehicles is low, and the EELV program continues to award sole-source 
contracts to ULA. These contracts have precluded the need for new 
entrant eligibility criteria, but while ULA is currently the only U.S. 
company able to launch the full range of EELV-class[Footnote 16] 
payloads, there are two other U.S. space launch companies that may be 
capable in the near future.[Footnote 17] Representatives from these 
companies say that they need a clear set of criteria from DOD as they 
develop their launch vehicles, so they can be developed to meet 
mission assurance needs and compete for EELV launches. The development 
of such criteria could encourage additional launch companies to 
participate in the EELV program, thereby increasing competition. The 
subject of the March 2011 memorandum of understanding signed by the 
Air Force, NRO and NASA was the stabilization of the current EELV 
industrial base, while recognizing the need for future entrants, to 
ensure long-term, viable, assured access to space. The three agencies 
agreed to finalize criteria for new entrants to compete by July 31, 
2011, but DOD officials indicate the effort to finalize the criteria 
is still in process. It is expected at this time that the new 
entrants' criteria will be issued separately from the new acquisition 
strategy. 

Conflicting goals within DOD of preserving the current program versus 
expanding the launch provider pool for EELV may make it difficult for 
the program office to finalize criteria for new entrant eligibility, 
even though National Security Presidential Directive-40 outlined the 
need for commercial competition in EELV in 2004. Some DOD officials 
acknowledge competition offers potential benefits, but others believe 
that competing for EELV launches will endanger the program's stability 
and threaten its long history of launch successes. These officials 
would rather increase the number, reliability, and quality of ULA 
vehicles produced and launched, and believe that allowing competition 
with ULA could decrease ULA's business and potentially hurt the 
quality of its product, ultimately risking government satellites. On 
the other hand, with launch prices likely to continue increasing, and 
the emergence of potentially capable new entrants to the EELV market, 
some DOD officials believe that competition could incentivize ULA to 
find efficiencies and restrain prices while broadening the provider 
pool and bolstering U.S. access to space. The new PEO for Space Launch 
told us he believes competition will benefit the program, and intends 
to work with ULA and potential competitors to incentivize cost 
efficiencies while maintaining mission success. It is unclear whether 
the new EELV acquisition strategy will introduce specific measures to 
increase competition in the EELV program. Both DOD and ULA acknowledge 
that launch prices may increase substantially in the coming years. 

Addressing Other Issues Could Benefit Future Launch Acquisitions: 

The studies we analyzed and our interviews with agency officials 
identified broader issues about the federal government's use of launch 
services that we believe should be addressed as DOD plans and 
implements its next EELV acquisition, as well as in any future 
acquisitions of launch services, particularly since these issues have 
the potential to reduce costs and assure future requirements can be 
met. For example: 

* Coordination of launch acquisitions across federal agencies--like 
the Air Force, NRO, and NASA--is limited, but recent launch studies 
suggest it could potentially benefit the government as a whole in the 
form of increased efficiencies and potential launch cost savings. 
These three agencies recently committed to more closely coordinate 
launch vehicle acquisition, but there is currently no strategy in 
place to implement this coordination. 

* Planning is needed for technology development focused on the next 
generation of launch technologies, particularly with respect to 
engines, for which the U.S. is partially reliant on foreign suppliers. 

It is not clear whether DOD will integrate issues that cut across the 
government into its upcoming EELV strategy, and officials indicate 
that quantifying mission assurance costs is not part of the current 
acquisition strategy development effort. 

Increased U.S. government coordination of launch acquisitions may 
yield efficiencies: 

Multiple government entities, including DOD, NRO, and NASA buy launch 
services each year from U.S. launch providers, but these agencies 
typically acquire launch services with minimal formal coordination, 
according to recent launch studies and DOD and NASA officials. The 
Secretary of the Air Force, Director of the NRO, and the Administrator 
of NASA recently signed an agreement formalizing their commitment to 
more closely coordinate launch vehicle acquisitions, but according to 
DOD and NASA officials, the details of how it will be implemented are 
still undecided. 

The EELV Should Cost Review said increased coordination and 
information sharing between the Air Force, NRO, and NASA, for example, 
and within the Air Force itself, presented opportunities for cost 
savings by avoiding fees on items ULA buys for the program office 
(known as pass-through fees), and implementing process efficiencies in 
launch activities. According to the EELV Should Cost Review, ULA 
charges up to an 18 percent profit on top of engine prices and to act 
as a broker for the program office on commodities like propellants 
bought from other government agencies, like NASA and the Defense 
Logistics Agency--costs the program could avoid if it were to 
coordinate purchases directly from other agencies. The review also 
recommends that the EELV program office develop stronger relationships 
with other Air Force launch operations organizations so it can buy 
launch and range support directly from them and avoid the pass-through 
fees associated with buying through ULA. Some studies highlight 
opportunities to increase efficiency through interagency information 
sharing and coordination of launch mission assurance activities, like 
hardware pedigree reviews.[Footnote 18] 

Although launch acquisitions are not part of the launch scheduling 
process, increased coordination among agencies that buy launch 
services could also improve launch scheduling at the launch pads and 
ranges. Recent launch studies point to inefficient launch scheduling 
due in part to competing agency interests and reluctance to relinquish 
launch slots until it is too late to reassign them. This is 
problematic, because according to the 2010 Launch Broad Area Review, 
"launch slots are a limited and critical asset and should be treated 
as such." Despite the widespread call for increased coordination in 
launch acquisitions in various launch studies and the acknowledged 
need for collaboration by launching agencies, according to EELV 
officials, the new EELV acquisition strategy may not present a 
strategy for facilitating greater agency coordination. 

Technology development may be needed to inform the next generation of 
launch vehicles: 

The EELV program currently relies on technology that dates back to the 
1950s. While heritage technology is good from a launch vehicle 
maturity standpoint, less expensive materials and more advanced 
capability may be available. Also, the EELV program is dependent on 
Russian RD-180 engines for its Atlas line of launch vehicles, which 
according to the Launch Enterprise Transformation Study, is a 
significant concern for policymakers. Although the EELV program is in 
the sustainment phase of its lifecycle, and as such, receives minimal 
research and development funding, recent national space policy and 
launch studies point to a lack of investment in the future of the U.S. 
launch industry, and indicate there are several areas, including 
engines, where launch technology development may be needed. 

* The 2010 National Space Policy of the United States of America 
recognizes a need to continue technology development as it directs the 
Secretary of Defense, with NASA, to sustain technology development for 
the next generation of launch; 

* A 2007 Acquisition Decision Memorandum issued by the Office of the 
Under Secretary of Defense for Acquisition, Technology and Logistics 
directs the Air Force to continue to pursue research and development 
of a hydrocarbon engine to meet future space launch requirements; the 
2010 Broad Area Review also indicates that developing a hydrocarbon 
engine could address U.S. reliance on a foreign engine; 

* The Launch Enterprise Transformation Study found that domestic 
propulsion technology is lagging and suggests that to meet future 
spacelift capability demands, the U.S. should consider developing a 
new EELV-class engine; the study recommends establishing a full-scale 
engine development program;[Footnote 19] 

* The Resource Management Directive 700 study report recommended 
investing in next-generation of launch to facilitate lower cost, 
reliable EELV replacement when the program ends in 2030; 

* A 2010 Air Force Scientific Advisory Board study determined that 
investment in future launch systems is needed, recommending evolving 
current EELV capabilities and investing in new vehicle concepts. 

Several of the studies, and the 2010 NASA Authorization Act,[Footnote 
20] discuss developing reusable launch vehicles, which could also 
influence future acquisitions. A 2010 Air Force Science Advisory Board 
study on the future of Air Force launch systems also noted that while 
solid rocket motors would likely be part of future strategic systems, 
there is no ongoing technology development on them. It recommended the 
Air Force pursue science and technology development efforts for 
launch. While the 2011 Space Science and Technology Strategy--mandated 
by the 2010 National Defense Authorization Act--calls for the 
development of a national space science and technology strategy to 
guide development of space technologies and presents short-and long-
term space access goals, it does not specify a direction for launch 
technology development.[Footnote 21] Because technology development is 
not typically part of a program's acquisition strategy, it may not be 
included in the new EELV acquisition strategy. However, the future of 
U.S. launch depends in part on next-generation technology, and 
decision-makers could benefit from early insight into the path forward 
for launch. 

Conclusions: 

The EELV program serves a vital mission of placing critical national 
security and civilian satellites in their required orbits. It is also 
on the brink of major changes. EELV is an important investment for the 
government as the program executes national security space launches, 
but recent contractor projections indicate significant price 
increases. DOD needs to ensure it is taking the time it needs to 
collect and assess sufficient information on which to base its new 
acquisition strategy. DOD is taking steps to gain knowledge on the 
best way forward for the program through ongoing data collection and 
recent EELV studies, but its focus on finalizing the new strategy by 
the end of this year may not allow for a full evaluation of the 
information it is still collecting. Gaining sufficient knowledge to 
make sound decisions before committing to an expensive long-term block 
buy is essential to an acquisition of this magnitude. Considering that 
the leading proposal for a new acquisition strategy may commit the 
government to spending billions of dollars on a block buy covering at 
least 5 years, it is imperative that DOD continue to obtain and use 
all available information to make decisions in its long-term interests 
and in the interests of the American taxpayer. 

Recommendations for Executive Action: 

To gain a better understanding of the condition of the U.S. space 
launch industrial base, facilitate fair and reasonable launch contract 
negotiations, ensure consistent grounds for evaluating launch 
providers, and identify the best path forward for U.S. space launch 
operations and technology development, we recommend the Secretary of 
Defense take the following seven actions. 

* Conduct an independent assessment of the health of the U.S. launch 
industrial base, paying special attention to engine manufacturers, 

* Reassess the block buy contract length given the additional 
knowledge DOD is gaining as it finalizes its new acquisition strategy, 

* Work closely with NASA to ensure DOD has sufficient knowledge of 
NASA heavy-lift program decisions--given the potential bearing those 
decisions could have on EELV engine prices--to facilitate DOD's 
ability to negotiate EELV launch contract prices that maximize the 
government's investment, 

* Refrain from waiving FAR requirements for contractor and 
subcontractor certified cost and pricing data as DOD finalizes its new 
EELV acquisition strategy, 

* Ensure launch mission assurance activities are sufficient and not 
excessive, and identify ways to incentivize the prime contractor to 
implement efficiencies without affecting mission success as DOD 
develops a new contracting structure for the EELV program, 

* Examine how broader launch issues, such as greater coordination 
across federal agencies, can be factored into future launch 
acquisitions to increase efficiencies and cost savings, and: 

* Develop a science and technology plan for improving and evolving 
launch technologies. This plan should link to the broader space 
science and technology plans mandated by the 2010 National Defense and 
NASA Authorization Acts. 

Agency Comments and Our Evaluation: 

We provided a draft copy of this report to the Secretary of Defense 
for comment in May 2011. In written comments on the draft report, DOD 
concurred with one of our seven recommendations, partially concurred 
with four, and nonconcurred with two. In July 2011, following the 
formal agency comment period, DOD officials requested the opportunity 
to provide additional documentation, follow-up interviews, and various 
relevant DOD, contractor, and subcontractor briefings to us that they 
believed directly addressed some of the findings and recommendations 
identified in the draft report. We agreed to review the additional 
information, but because this information was provided to us after our 
review was completed, we did not fully evaluate or assess the data or 
documentation provided. Based on our review of the additional 
information from DOD and NASA, we included relevant information 
throughout the report as appropriate, revised the report title, and 
clarified four of the seven recommendations to reflect efforts 
currently underway at both agencies. 

In a written response to the revised draft dated September 12, 2011, 
DOD concurred with six of our seven recommendations, and partially 
concurred with one. DOD partially concurred with our recommendation 
that the Secretary of Defense reassess the block buy contract length 
given the additional knowledge DOD is gaining as it finalizes its new 
EELV acquisition strategy. DOD indicated that it intends to use all 
the information being collected to develop an acquisition strategy for 
EELV, and will balance contractual decisions such as the quantity 
purchased and the length of the contract, with other factors such as 
price, operational requirements and the potential for new launch 
providers to compete. 

DOD’s written comments are reprinted in appendix II.

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of Defense, the appropriate congressional committees and other 
interested parties. In addition, the report will be available at no 
charge on GAO's Web site at [hyperlink, http://www.gao.gov]. If you 
have any questions about this report, please contact me at (202) 
512-4841 or chaplainc@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this letter. Key contributors to this report are provided in 
appendix III. 

Signed by: 

Cristina T. Chaplain: 
Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine whether DOD has the knowledge it needs to develop a new 
Evolved Expendable Launch Vehicle (EELV) acquisition strategy, we 
reviewed and analyzed information contained in five recent DOD- 
sponsored launch studies including the 2010 Launch Broad Area and EELV 
Should Cost Reviews, Launch Enterprise Transformation and Resource 
Management Directive 700 Fiscal Year 2010 Launch studies, and the EELV 
Tiger Team study. We assessed the ULA-conducted 2009-2010 supplier 
survey used by the government to gauge the health of the U.S. 
industrial base by reviewing the survey questionnaire, comparing 
methods of administering the survey and obtaining responses with 
established survey writing guidance, comparing summary data to the 
questions asked, and interviewing and obtaining information and 
summary data from the surveyors.[Footnote 22] DOD officials provided 
additional information on the acquisition strategy development effort 
during the report draft agency comment period, including briefings 
from three engine subcontractors they obtained as part of their 
assessment of the space launch industrial base in April 2010, but did 
not provide the briefings or results to us within the audit time 
frame. As a result, we were unable to evaluate the methods or 
conclusions drawn from these efforts as part of this review, though we 
incorporated relevant information as appropriate in the report that we 
obtained from these documents, and through multiple discussions with 
senior Air Force and DOD personnel from June to September 2011. 

In reviewing the 2010 Launch Broad Area Review, we interviewed people 
who had indirect involvement in the report, and discussed the report's 
findings and methodology with them. In reviewing the 2010 EELV Should 
Cost Review, we discussed the report's methodology, findings, and data 
sources with the report's leader and several study participants. In 
reviewing the Resource Management Directive Study, we met with some of 
the study leaders and participants and discussed with them the study's 
methodology and findings. In reviewing the Tiger Team study, we 
interviewed DOD officials and received substantive oral briefings from 
the study co-leader and participants, but we did not receive copies of 
the briefings or supporting documentation with sufficient time to 
review them during the course of our work. 

To identify other important launch issues with potential bearing on 
current and future government launch acquisitions, we reviewed the DOD 
launch studies listed above and interviewed study leaders or 
participants in three of the five studies; we analyzed historical 
launch data and expected launch vehicle demand; reviewed other 
relevant government and industry reports; interviewed DOD, NASA, and 
contractor officials; and reviewed information from NRO. 

We interviewed officials in Washington, D.C., at the Offices of the 
Under Secretary of Defense for Acquisition, Technology and Logistics; 
and the Office of the Secretary of Defense, Cost Assessment and 
Program Evaluation. We also reviewed and analyzed documents from and 
interviewed officials at the Office of the Assistant Secretary of 
Defense for Networks and Information Integration; Office of the 
Assistant Secretary of the Air Force for Acquisitions; and at the 
Orbital Sciences Corporation. In addition, we reviewed and analyzed 
documents from and interviewed officials at Air Force Space Command; 
the Launch and Range Systems Directorate, Air Force Space and Missile 
Systems Center, Los Angeles Air Force Base, California; Defense 
Contract Audit Agency, Centennial, Colorado; Defense Contract 
Management Agency, Littleton, Colorado, and Decatur, Alabama; National 
Aeronautics and Space Administration, Washington, D.C. and Cape 
Canaveral Air Force Station, Florida; National Reconnaissance Office, 
The Aerospace Corporation, and Space Exploration Technologies, 
Hawthorne, California; National Security Space Office, Washington, 
D.C. and Fairfax, Virginia; and United Launch Alliance, Centennial, 
Colorado and Decatur, Alabama. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office Of The Assistant Secretary Of Defense: 
Networks And Information Integration: 
6000 Defense Pentagon: 
Washington, DC 20301-6000: 

September 12, 2011: 

Ms. Cristina Chaplain: 
Director, Acquisition and Sourcing Management: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Chaplain: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report GAO-11-641, "Evolved Expendable Launch Vehicle: DoD Needs to 
Ensure New Acquisition Strategy is Based on Sufficient Information," 
dated May 31, 2011(GA0 Code 120933). The Department offers the 
following response to the recommendations expressed in the GAO report. 

Recommendation 1: The GAO recommends that the Secretary of Defense 
conduct an independent assessment of the health of the U.S. launch 
industrial base paying special attention to engine manufacturers. 

DoD Response: The DoD concurs with this recommendation. The Department 
recently completed the Solid Rocket Motor Industrial Base study and is 
currently executing a study on liquid rocket engines which is expected 
to be completed in 2011. The Solid Rocket Motor Industrial Base study 
report is located at [hyperlink, 
http://www.acq.osd.mil/mibp/studies.shtml] under "studies." 
Furthermore, the DoD is conducting a sector-by-sector, tier-by-tier 
evaluation of the industrial base including not only space but other 
industrial sectors as well. This evaluation will provide a 
comprehensive understanding of not only the prime contractors but the 
subcontractors and suppliers that contribute vital components, 
subsystems, and services. Initial space sector results are expected by 
the end of 2011. All of these studies are led by the Office of the Under
Secretary of Defense Acquisition, Technology and Logistics 
(USD(AT&L)), Manufacturing and Industrial Base Policy. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
reassess the block buy contract length given the additional knowledge 
DoD is gaining as it finalizes its new acquisition strategy. 

DoD Response: The DoD partially concurs with this recommendation. The 
DoD will use all the information being collected to determine an 
appropriate, yet to be developed, acquisition strategy for Evolved 
Expendable Launch Vehicle (EELV). The decision on specific contractual 
quantity and period of commitment will be balanced among price, 
operational requirements, budget realities and the potential for new 
entrant competition. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
work closely with NASA to ensure DoD has sufficient knowledge of NASA 
heavy-lift program decisions--given the potential bearing those 
decisions could have on EELV engine prices--to facilitate
DoD's ability to negotiate EELV launch contract prices that maximize 
the government's investment. 

DoD Response: The DoD concurs with this recommendation and will 
continue to work with NASA to ensure full understanding of the 
potential bearing NASA program decisions may have on sustaining the 
launch industrial base. 

Recommendation 4: The GAO recommends that the Secretary of Defense 
refrain from waiving Federal Acquisition Regulation (FAR) requirements 
for contractor and subcontractor certified cost and pricing data as 
DoD finalizes its new EELV acquisition strategy. 

DoD Response: The DoD concurs and agrees that certified cost and 
pricing is an important aspect of confidence in the contractor's 
proposals and will refrain from waiving FAR requirements as 
appropriate. However, there are cases where it is impractical. For 
example, it is not likely the prime contractor or the DOD will be able 
to obtain certified cost or pricing data for the Atlas V RD-180 
engines which are purchased from a Russian company. 

Recommendation 5: The GAO recommends that the Secretary of Defense 
ensure launch mission assurance activities are sufficient and not 
excessive, and identify ways to incentivize the prime contractor to 
implement efficiencies without affecting mission success as DoD 
develops a new contracting structure for the EELV program. 

DoD Response: The DoD concurs with this recommendation. The DoD has 
already taken steps to more effectively incentivize the contractor to 
gain efficiencies in launch capability by moving from a cost-plus 
award fee to a cost-plus incentive fee contract, where the contractor 
earns fee based on cost reductions below the negotiated target. The 
DoD will continue to look at other ways to incentivize efficiencies 
without affecting mission success. 

Recommendation 6: The GAO recommends that the Secretary of Defense 
examine how broader launch issues, such as greater coordination across 
federal agencies, can be factored into future launch acquisitions to 
increase efficiencies and cost savings. 

DoD Response: The DoD concurs with this recommendation. The Department 
continues to monitor and assess the overall domestic and international 
launch market and take into consideration trends and capabilities as 
they evolve. 

Recommendation 7: The GAO recommends that the Secretary of Defense 
develop a science and technology plan for improving and evolving 
launch technologies. This plan should link to the broader space 
science and technology plans mandated by the 2010 National Defense and 
NASA Authorization Acts. 

DoD Response: The DoD concurs with this recommendation. A vibrant 
Science and Technology (S&T) plan is key to the long range technology 
investment for space access, and the Department is currently 
developing an S&T plan for utilizing new and improved concepts. 

The Department appreciates the opportunity to respond to the report 
prior to publication. If there are any questions, please contact Ms. 
Ruth Moser, ruth.moser@osd.mil, 703-607-0401. 

Sincerely, 

Signed by: 

Dr. Ronald C. Jost: 
Deputy Assistant Secretary of Defense (C3, Space and Spectrum): 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov: 

Staff Acknowledgments: 

Key contributors to this report were Art Gallegos, Assistant Director; 
Claire Buck; Laura Hook; John Krump, Sigrid McGinty, Carol Petersen, 
and Bob Swierczek. 

[End of section] 

Footnotes: 

[1] GAO, Program Evaluation and Methodology Division: Developing and 
Using Questionnaires, [hyperlink, 
http://www.gao.gov/products/GAO/PEMD-10.1.7] (Washington, D.C.: Oct.1, 
1993). 

[2] The Atlas V heavy lift vehicle is neither fully designed nor built. 


[3] Under the FAR, the government typically has little insight into a 
contractor's costs since contracting officers cannot require cost or 
pricing data when the contracting officer determines, among other 
things, that prices agreed upon are based upon adequate price 
competition or when a commercial item is being acquired. FAR 15.403- 
1(b). 

[4] In July 2011, the EELV program awarded a Launch Capability 
contract as a cost-plus incentive fee contract. Air Force officials 
stated the contract includes a mission performance incentive plan and 
that the change in contract type is intended to incentivize ULA to 
deliver mission success at a lower cost. 

[5] With respect to government contracts, a novation agreement is a 
legal instrument executed by the contractor (transferor), successor in 
interest (transferee), and government, and by which, among other 
things, the transferor guarantees performance of the contract, the 
transferee assumes all obligations under the contract, and the 
government recognizes the transfer of the contract and related assets. 
FAR 2.101. 

[6] Typically, major defense acquisition programs in the production 
phase achieve an operational capability that meets mission needs; the 
sustainment phase begins when the acquired weapons or automated 
information systems have been fielded or deployed. In this phase, DOD 
oversight is normally reduced and program emphasis is on activities 
such as supply, maintenance, and transportation. 

[7] GAO, Space Acquisitions: Uncertainties in the Evolved Expendable 
Launch Vehicle Program Pose Management and Oversight Challenges, 
[hyperlink, http://www.gao.gov/products/GAO-08-1039] (Washington, 
D.C.: Sept. 26, 2008). 

[8] The booster core is the main body of a launch vehicle. In the EELV 
program, common booster cores are used to build all of the Atlas V and 
Delta IV launch vehicles. Medium and intermediate launch vehicles use 
one core each, while the Delta IV Heavy launch vehicle requires three. 

[9] Institute for Defense Analyses is a federally funded research and 
development center (FFRDC). FFRDCs are unique independent nonprofit 
entities sponsored and funded by the government to meet specific long- 
term technical needs that cannot be met by existing in-house or 
contractor resources. 

[10] Industry and DOD studies describe launch mission assurance as the 
comprehensive collection of activities undertaken throughout the 
lifecycle of a launch vehicle development program and through launch 
to assure success and safety. 

[11] Should-cost reviews are a specialized form of cost analysis. 
These reviews evaluate the economy and efficiency of the contractor's 
existing work force, methods, materials, equipment, real property, 
operating systems, and management. The objective of should-cost 
reviews is to promote both short and long-range improvements in the 
contractor's efficiency in order to reduce the cost of performance of 
government contracts. 

[12] The three engine subcontractors questioned in April 2010 included 
Aerojet, Alliant Techsystems, Inc., and Pratt & Whitney Rocketdyne, 
each of which provides engines or rockets for use on EELVs. 

[13] ULA sent its initial survey in 2009, and then sent another 
version of the same survey to suppliers in March 2010 to capture 
additional detail. The 2009 survey had an 82 percent response rate (45 
of 51 suppliers), and the follow-up to that survey sent in March 2010 
received about a 55 percent response rate (29 of 51 suppliers). 
Because data used in the cited studies constitute the combined data 
from both the 2009 and 2010 survey responses, for presentation 
purposes, we refer in this report to the 2009 survey and the 2010 
follow-up as the 2009-2010 survey. 

[14] In other questions, ULA also asked respondents to rank various 
risks and did not provide any potential responses. However, such open- 
ended questions do not help respondents consider a comprehensive range 
of possible answers; rather they depend on the respondent's unaided 
recall. Moreover, the mere rank ordering of risks conveys nothing 
about their magnitude or the degree to which they can be managed and 
ULA did not include any questions that addressed these issues. 

[15] Booz Allen Hamilton, Launch Mission Assurance Assessment Study 
(April 2007). This study was commissioned by the Air Force and 
National Reconnaissance Office. The study defined launch vehicle 
mission assurance as: "a technical and management process rigorously, 
continuously, and iteratively employed over the life-cycle of a launch 
system to maximize mission success, ahead of cost and schedule." 
According to the 2010 Should Cost Review, however, "nearly every 
organization and person involved has a different definition of mission 
assurance." 

[16] EELV-class payloads range from 6,000 to 28,000 pounds to 
Geosynchronous Transfer Orbit. They are divided into intermediate 
(6,000-18,000 pounds to GTO), and heavy (18,000-28,000 pounds to GTO) 
classes. Medium class launches range from 2,500-6,000 pounds to GTO. 

[17] The two space launch companies are Space Exploration 
Technologies, Inc. (also known as SpaceX), and Orbital Sciences 
Corporation. 

[18] Pedigree reviews are vehicle and component data packages to 
ensure that the subject articles have been manufactured and tested in 
accordance with approved processes. 

[19] The report specifically advocates a liquid oxygen/hydrocarbon 
engine, as due to lower cost, better operability, and its significant 
advantages over other liquid propulsion systems. 

[20] National Aeronautics and Space Administration Authorization Act 
of 2010, Pub. L. No. 111-267, § 802(c). 

[21] National Defense Authorization Act for Fiscal Year 2010, Pub. L. 
No. 111-84, § 911 (2009). 

[22] GAO, Program Evaluation and Methodology Division: Developing and 
Using Questionnaires, [hyperlink, 
http://www.gao.gov/products/GAO/PEMD-10.1.7] (Washington, D.C.: Oct.1, 
1993). 

[End of section] 

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