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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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.

GAO noted that: (1) DOD's goal in acquiring the EELV system is to reduce recurring production and launch costs by at least 25 percent for fiscal years 2002 through 2020 from the costs that would be incurred if the existing Delta, Atlas, and Titan launch vehicles were used; (2) using DOD's methodology, GAO estimated that the program would exceed the 25-percent goal; (3) however, the number, type, and timing of launches specified in the vehicle's mission model have continued to fluctuate, making a cost reduction estimate, based on the model, uncertain; (4) the major reasons for the fluctuations were that: (a) satellites were assigned to the wrong type of launch vehicle; (b) launch requirements were unverified; and (c) satellite downsizing has changed launch requirements; (5) the Air Force is in the process of developing a new launch cost baseline and cost reduction estimate, based on the most current EELV mission model, in preparation for the DOD milestone II review in June 1998; (6) more importantly, the Air Force's recurring cost methodology does not adequately measure the economic benefits of the program; (7) the reason is that nonrecurring investment costs, which DOD plans to incur to develop the system in order to achieve a cost savings, are not included; (8) the standard criterion for deciding whether a government program can be justified on economic principles--the primary purpose of this program--is net present value (NPV), which would include both recurring and nonrecurring costs and the time value of money; (9) DOD has not yet officially performed a NPV analysis and has not identified all government costs to do so; (10) the use of other transaction instruments for EELV development will challenge DOD in determining how best to protect the government's interests; (11) under DOD's revised acquisition approach, the contractors are not willing to guarantee system performance because their financial risk would be open ended and DOD's investment would be limited; (12) despite this position, the Air Force is counting on the contractors to provide launch services to satisfy the government's requirements, based on their financial interest in a growing commercial market for launch services; (13) in addition, the Air Force planning documentation states that the primary program risk is in meeting launch site facility preparation schedules; and (14) other Air Force planning documentation shows the continued use of certain launch facilities for several months after the facilities are scheduled to undergo site preparation for the vehicle.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: 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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