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entitled 'Defense Acquisitions: Missile Defense Program Instability 
Affects Reliability of Earned Value Management Data' which was 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

July 2010: 

Defense Acquisitions: 

Missile Defense Program Instability Affects Reliability of Earned 
Value Management Data: 

GAO-10-676: 

GAO Highlights: 

Highlights of GAO-10-676, a report to congressional committees. 

Why GAO Did This Study: 

By law, GAO is directed to assess the annual progress the Missile 
Defense Agency (MDA) made in developing and fielding the Ballistic 
Missile Defense System (BMDS). GAO issued its latest assessment of MDA’
s progress covering fiscal year 2009 in February 2010. This report 
supplements that assessment to provide further insight into MDA’s 
prime contractor performance for fiscal year 2009. Prime contractors 
track earned value management (EVM) by making comparisons that inform 
the program as to whether the contractor is completing work at the 
cost budgeted and whether the work scheduled is being completed on 
time. Our analysis of contractor EVM data included examining contract 
performance reports for 14 BMDS contracts, reviewing the latest 
integrated baseline reviews, performing extensive analysis of data 
anomalies, and conducting interviews with Defense Contract Management 
Agency (DCMA) officials—-the independent reviewers of MDA contractor 
EVM systems. 

What GAO Found: 

Unlike GAO’s reports in previous years, GAO was unable to analyze the 
EVM data for all MDA contracts. GAO determined that the data for the 
Ground-based Midcourse Defense (GMD) and Targets and Countermeasures 
programs were not sufficiently reliable to include in our report 
because of instability in these programs’ baselines. When the baseline 
on which the work is performed and measured against is no longer 
representative of the program of record, program managers and other 
decision makers lose the ability to develop constructive corrective 
action plans to get the program on track. Specifically, without 
reliable EVM data, GAO was unable to identify significant performance 
drivers or forecast future cost and schedule performance. Because the 
two contracts associated with these programs represent half of the 
budgeted cost at completion for the 14 contracts GAO reviewed, GAO 
also determined it was not appropriate in this report to aggregate 
total projected underruns or overruns of the remaining 12 prime 
contracts as GAO has in prior reports. 

The GMD prime contractor performance data was not sufficiently 
reliable to use as the basis for analysis because the contractor was 
unable to update its baseline to include numerous changes to the 
program and modifications to the contract. Despite three large 
restructures since 2007 totaling over $2 billion, the GMD program has 
not conducted an integrated baseline review since December 2006. DOD 
acquisition policy states that an integrated baseline review is to be 
conducted within 6 months after contract award, exercise of contract 
options, or a major modification to an existing contract. The 
Director, MDA has taken extra steps to gain insight into the 
contractor’s performance. Further, he intends to report EVM 
information to Congress annually. 

Similarly, the EVM data for the Targets and Countermeasures contractor 
is also not sufficiently reliable to use in our analysis. DCMA 
identified several issues with the stability of the Targets and 
Countermeasures program baseline including a large amount of schedule 
and quantity changes to planned flight tests and over 20 contract 
changes to the scope of work or corrective actions to quality issues 
for one of the delivery orders over the course of a year. Because the 
contractor has not been able to update the established budget in the 
baseline, the cost performance reports do not reflect an appropriate 
baseline against which to measure cost and schedule progress. Nine of 
the remaining twelve contracts experienced cost overruns for fiscal 
year 2009 mostly because of issues with maturing technologies, 
immature designs, or other technical issues. For example, the Airborne 
Laser contractor experienced a failure in some of the system’s optics 
which required it to develop and procure new high power optics, 
delaying the test schedule and increasing program cost. 

What GAO Recommends: 

GAO recommends that MDA resolve prime contractor EVM data reliability 
issues by the beginning of fiscal year 2011. If, by this time, MDA has 
not resolved these issues, the Secretary of Defense should provide a 
report to Congress on the steps MDA is taking to resolve them. DOD 
concurred with our recommendation. 

View [hyperlink, http://www.gao.gov/products/GAO-10-676] or key 
components. For more information, contact Cristina Chaplain at (202) 
512-4841 or chaplainc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

EVM Data for the GMD and Targets and Countermeasures Programs Are Not 
Sufficiently Reliable: 

BMDS Prime Contractors Aggregate Analysis Not Appropriate Due to Data 
Reliability Issues: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Comments from the Department of Defense: 

Appendix II: BMDS Prime Contractor Fiscal Year 2009 Cost and Schedule 
Performance: 

Aegis BMD Contractors Experienced Mixed Performance during the Fiscal 
Year: 

ABL Cost and Schedule Performance Declined during Fiscal Year 2009: 

C2BMC Overrunning Cumulative Cost and Schedule: 

Sensors Contractor Experienced Mixed Performance during the Fiscal 
Year: 

STSS Maintained Schedule Performance, but Cost Performance Continued 
to Decline during the Fiscal Year: 

THAAD Development Contract Overran Cost and Schedule While THAAD Fire 
Unit Fielding Production Contract Experienced Underruns: 

Appendix III: Scope and Methodology: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: MDA's BMDS Elements and Prime Contracts: 

Table 2: DCMA Compliance Rating and GAO Reliability Assessment for MDA 
Prime Contractor EVM Systems: 

Figures: 

Figure 1: Depiction of Notional Contractor Cumulative Cost and 
Schedule Performance: 

Figure 2: Aegis BMD Weapon System Cumulative Cost and Schedule 
Performance: 

Figure 3: Aegis BMD SM-3 Contract for 27 Block IA Missiles Cumulative 
Cost and Schedule Performance: 

Figure 4: Aegis BMD SM-3 Contract for 24 Block IA Missiles Cumulative 
Cost and Schedule Performance: 

Figure 5: Aegis BMD SM-3 Block IA and IB Technical Development and 
Engineering Cumulative Cost and Schedule Performance: 

Figure 6: ABL Cumulative Cost and Schedule Performance: 

Figure 7: C2BMC Cumulative Cost and Schedule Performance: 

Figure 8: BMDS Radars Cumulative Cost and Schedule Performance: 

Figure 9: AN/TPY-2 Radar #7 Cumulative Cost and Schedule Performance: 

Figure 10: Thule Radar Cumulative Cost and Schedule Performance: 

Figure 11: STSS Cumulative Cost and Schedule Performance: 

Figure 12: THAAD Development Cumulative Cost and Schedule Performance: 

Figure 13: THAAD Fire Unit Fielding Production Cumulative Cost and 
Schedule Performance: 

Abbreviations: 

ABL: Airborne Laser: 

Aegis BMD: Aegis Ballistic Missile Defense: 

AN/TPY-2: Army Navy/Transportable Radar Surveillance - Model 2: 

BMDS: Ballistic Missile Defense System: 

C2BMC: Command, Control, Battle Management, and Communications: 

DCMA: Defense Contract Management Agency: 

DOD: Department of Defense: 

EVM: Earned Value Management: 

GMD: Ground-based Midcourse Defense: 

IBR: Integrated Baseline Review: 

MDA: Missile Defense Agency: 

SM-3: Standard Missile-3: 

STSS: Space Tracking and Surveillance System: 

THAAD: Terminal High Altitude Area Defense: 

U.S.C.: United States Code: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

July 14, 2010: 

In 2002, the President of the United States directed the Department of 
Defense (DOD) to begin fielding an initial Ballistic Missile Defense 
System (BMDS) capable of defending the U.S. homeland, deployed troops, 
friends, and allies against ballistic missiles of all ranges in all 
phases of flight. The Missile Defense Agency (MDA), established to 
develop and deploy these missile defense capabilities, began 
delivering an initial capability by concurrently developing and 
fielding assets. MDA is the DOD's largest single acquisition program--
spending from approximately $7 billion to $9.5 billion per year. 

To more effectively manage complex investments such as these, in 
December 1996 the Under Secretary of Defense for Acquisition and 
Technology signed a memorandum announcing DOD's adoption of industry 
standards for earned value management (EVM) systems for use on defense 
acquisitions.[Footnote 1] EVM is a project management approach that, 
if implemented appropriately, provides objective reports of project 
status, produces early warning signs of impending schedule delays and 
cost overruns, and provides unbiased estimates of anticipated costs at 
completion. 

This report provides an in-depth analysis of MDA's prime contractor 
fiscal year 2009 EVM cost and schedule progress. Congress directed GAO 
in its fiscal year 2002, 2007, and 2008 National Defense Authorization 
Acts, to assess the cost, schedule, testing, and performance progress 
that MDA is making in developing the BMDS.[Footnote 2] We have 
delivered assessments of MDA's progress covering fiscal years 2003 
through 2009, issuing our latest assessment of fiscal year 2009 in 
February 2010.[Footnote 3] As we reported in our February 2010 report, 
although our annual assessments usually include analysis of EVM data 
for MDA contractors, this year we are reporting on this information 
separately. 

To assess progress during fiscal year 2009, we examined contract 
performance reports for 14 BMDS contracts that were managed by eight 
BMDS program elements.[Footnote 4] However, we were only able to 
report our analysis of EVM data for 12 of these 14 contracts in 
appendix II due to concerns with data reliability. The data for the 
Ground-based Midcourse Defense and the Targets and Countermeasures 
contracts were not sufficiently reliable for inclusion in our 
analysis. The 14 contracts we reviewed EVM data for are: 

* Aegis Ballistic Missile Defense (BMD) weapon system software; 

* two Aegis BMD SM-3 Block IA contracts for: 

- a fourth lot of 27 missiles and: 

- another lot of 24 missiles; 

* Aegis BMD SM-3 Block IA and IB missile technology development and 
engineering; 

* Airborne Laser (ABL);[Footnote 5] 

* three Sensors' contracts: 

- BMDS radars, 

- Army Navy/Transportable Radar Surveillance--Model 2 (AN/TPY-2) radar 
#7, and: 

- Thule upgraded early warning radar; 

* Command and Control, Battle Management, and Communications (C2BMC); 

* Ground-based Midcourse Defense (GMD); 

* Space Tracking and Surveillance System (STSS); 

* Targets and Countermeasures; and: 

* two Terminal High Altitude Area Defense (THAAD) contracts for: 

- development and: 

- fire unit fielding production. 

Because we were only able to analyze EVM data for 12 of 14 contracts, 
this report does not provide a BMDS-level analysis as we have provided 
in previous years, again, because of data reliability concerns. To 
perform our review of the EVM data for 14 contracts, we included 
several checks to ensure data reliability including reviewing the most 
current documentation on contractor performance data systems for each 
of the contractor sites, reviewing the latest integrated baseline 
review (IBR) for each contract, and following up with each program 
office to track how identified risks are being addressed. In addition, 
we checked the reliability of the performance data by consulting with 
earned value experts who provided us with tools to perform extensive 
analysis to independently review the data. We followed up on the 
results of this analysis tool with the program office and further 
reviewed its responses with the Defense Contract Management Agency 
(DCMA), which independently reviews all of the MDA contractor EVM 
systems. Our scope and methodology is discussed in more detail in 
appendix III. 

We conducted this performance audit from February 2010 to July 2010 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. 

Background: 

MDA's mission is to develop an integrated and layered BMDS to defend 
the United States, its deployed forces, allies, and friends. In order 
to meet this mission, MDA is developing a highly complex system of 
systems--land-, sea-and space-based sensors, interceptors and battle 
management. Since its initiation in 2002, MDA has been given a 
significant amount of flexibility in executing the development and 
fielding of the BMDS. To enable MDA to field and enhance a missile 
defense system quickly, the Secretary of Defense in 2002 delayed the 
entry of the BMDS program into the DOD's traditional acquisition 
process until a mature capability was ready to be handed over to a 
military service for production and operation.[Footnote 6] Because MDA 
does not follow the traditional acquisition process, it has not yet 
triggered certain statutory and regulatory requirements that other 
major defense acquisition programs are required to adhere to.[Footnote 
7] 

For example, other major defense acquisition programs are required to 
establish the total scope of work and total cost baselines as part of 
their entry into the formal acquisition cycle. Title 10 United States 
Code (U.S.C.) section 2435 requires a baseline description for major 
defense acquisition programs, however the requirement to establish a 
baseline is not triggered until a system enters into system 
development and demonstration. DOD has implemented this requirement 
with the acquisition program baseline in its acquisition policy. 
[Footnote 8] Because the BMDS has not yet formally entered the 
acquisition cycle, it has not yet been required to meet the minimum 
requirements of section 2435. Therefore, because of the Secretary of 
Defense's decision to delay entry of the BMDS system into the 
acquisition cycle, MDA is not required to establish the full scope of 
work or total cost baselines.[Footnote 9] Since we began annual 
reporting on missile defense in 2004, we have been unable to assess 
overall progress on cost. As a result, one of the only tools available 
for us to use in assessing BMDS costs is the costs reported on 
individual contracts. 

MDA employs prime contractors to accomplish different tasks that are 
needed to develop and field the BMDS. Prime contractors receive the 
bulk of funds MDA requests each year and work to provide the hardware 
and software for elements of the BMDS. 

Table 1 provides a brief description of eight BMDS elements and the 
prime contracts associated with these elements currently under 
development by MDA. 

Table 1: MDA's BMDS Elements and Prime Contracts: 

BMDS element: Aegis BMD; 
Element description: Aegis BMD is a ship-based missile defense system 
designed to destroy short-to intermediate-range ballistic missiles 
during the midcourse phase of its flight; 
Prime contracts associated with element: Aegis Weapon System contract 
for software systems; 
Contractor: Lockheed Martin Mission Systems and Sensors. 

Prime contracts associated with element: Two Aegis BMD contracts for 
the production of SM-3 Block IA missiles for a fourth lot of 27 
missiles and another lot of 24 missiles; 
Prime contracts associated with element: Aegis BMD SM-3 Block IA and 
IB missile technology development and engineering contract for 
development efforts on the Aegis BMD SM-3 Block IB missile, the 
production of one SM-3 Block IB flight test missile, and efforts to 
support SM-3 Block IA sustainment engineering and flight test support; 
Contractor: Raytheon. 

BMDS element: ABL; 
Element description: ABL is an aircraft-based missile defense system 
designed to destroy all classes of ballistic missiles during the boost 
phase of their flight. ABL employs a high-energy chemical laser to 
rupture a missile's motor casing, causing the missile to lose thrust 
or flight control; 
Prime contracts associated with element: ABL contract to build and 
test the airborne laser weapon system; 
Contractor: Boeing. 

BMDS element: C2BMC; 
Element description: C2BMC is the integrating element of the BMDS. Its 
role is to provide deliberate planning, situational awareness, sensor 
management, and battle management for the integrated BMDS. C2BMC 
delivers hardware and software capabilities in spiral development 
drops--the current operational delivery is Spiral 6.2 and the program 
is currently developing Spiral 6.4 planned for delivery in the first 
quarter of fiscal year 2011; 
Prime contracts associated with element: C2BMC contract to develop, 
test, and field an integrating system for the BMDS; 
Contractor: Lockheed Martin Information Systems & Global Services. 

BMDS element: GMD; 
Element description: GMD is a ground-based missile defense system 
designed to destroy intercontinental ballistic missiles during the 
midcourse phase of their flight. Its mission is to protect the U.S. 
homeland against ballistic missile attacks from North Korea and the 
Middle East. MDA is planning on emplacing 30 operational interceptors 
at Fort Greely, Alaska, and Vandenberg Air Force Base, California, by 
the end of fiscal year 2010; 
Prime contracts associated with element: GMD contract to develop and 
deploy the ground-based system; 
Contractor: Boeing. 

BMDS element: Sensors; 
Element description: MDA is developing various stand-alone radars for 
fielding. These include forward-based sensors; 
mobile, sea-based sensors, such as the Sea-based X-band Radar; 
and upgrades to existing early-warning radars. The BMDS uses these 
sensors to identify and continuously track ballistic missiles in all 
phases of flight; 
Prime contracts associated with element: BMDS radars contract for the 
development and production for four AN/TPY-2 radars; 
Prime contracts associated with element: Contract for the AN/TPY-2 
radar #7, a forward-based radar to be a part of the second THAAD 
battery; 
Prime contracts associated with element: Contract for the Thule radar, 
an upgraded early warning radar; 
Contractor: Raytheon. 

BMDS element: STSS; 
Element description: The STSS is designed to acquire and track threat 
ballistic missiles in all stages of flight through the development and 
launch of two low-orbit demonstration satellites. In fiscal year 2009, 
MDA successfully launched both satellites. Over the next 2 years, the 
two satellites will take part in a series of tests to demonstrate 
their functionality and interoperability with the BMDS. There is no 
operational system planned for STSS; 
Prime contracts associated with element: STSS contract for development 
of demonstration satellites; 
Contractor: Northrop Grumman Aerospace Systems. 

BMDS element: Targets and Countermeasures; 
Element description: MDA develops and provides a series of targets 
used in BMDS flight tests to present authentic threat scenarios. The 
targets are designed to encompass the full spectrum of threat missile 
ranges and capabilities; 
Prime contracts associated with element: Targets and Countermeasures 
contract structured by delivery orders to develop targets including 
short-range targets, medium-range targets, and intermediate-range 
targets including the Flexible Target Family's launch vehicle-2. In 
addition, the program develops air-launched targets for various ranges; 
Contractor: Lockheed Martin Space Systems. 

BMDS element: THAAD; 
Element description: THAAD is a ground-based missile defense system 
designed to destroy short-and medium-range ballistic missiles during 
the late-midcourse and terminal phases of flight. A THAAD Battery is 
made up of 3 to 6 launchers, 24 to 48 interceptors, 1 fire control, 1 
radar, and peculiar support equipment; 
Prime contracts associated with element: THAAD development contract to 
develop the hardware and software to conduct ground and flight testing 
to validate and verify the design of the THAAD weapon system. In 
addition, this contract produced a fire control and launcher for the 
first THAAD battery; 
Prime contracts associated with element: THAAD fire unit fielding 
production contract to produce components of THAAD Battery #1 and #2--
except for the one launcher and fire control provided by the 
development contract and the radars that are produced by the Sensors 
contractor; 
Contractor: Lockheed Martin Space Systems Company. 

Source: MDA data. 

[End of table] 

Each BMDS program office's prime contractor provides monthly earned 
value reports which provide insight into the dollar gained or lost for 
each dollar invested. These Contract Performance Reports compare 
monthly progress to the existing cost or schedule performance baseline 
to reveal whether the work scheduled is being completed on time and if 
the work is being completed at the cost budgeted. For example, if the 
contractor was able to complete more work than scheduled and for less 
cost than budgeted, the contractor reports a positive schedule and 
cost variance, or "underrun". Alternatively, if the contractor was not 
able to complete the work in the scheduled time period and spent more 
than budgeted, the contractor reports both a negative schedule and 
cost variance, or "overrun". The results can also be mixed by, for 
example, completing the work ahead of schedule (a positive schedule 
variance) but spending more than budgeted to do so (a negative cost 
variance). 

We also used contract performance report data to base projections of 
likely overrun or underrun of each prime contractor's budgeted cost at 
completion. Our projections of overruns or underruns to the budgeted 
cost at completion are based on the assumption that the contractor 
will continue to perform in the future as it has in the past. In 
addition, since the budgeted cost at completion provides the basis for 
our projected overruns, we also provide it for each contract we 
assessed in appendix II.[Footnote 10] 

In addition, as part of the yearly system compliance verification 
process, DCMA conducts a periodic surveillance of contractor EVM 
systems to determine initial and continuing compliance of those 
management systems with government accepted standards.[Footnote 11] 
Surveillance (routine evaluation and assessment) of the EVM systems is 
mandatory for all contracts that require EVM systems compliance. 
[Footnote 12] Surveillance ensures that the contractor is meeting 
contractual terms and conditions and is in compliance with applicable 
policies and regulations. DCMA has primary responsibility for 
surveillance of the prime contractor and sub-tier suppliers with EVM 
requirements. According to a DCMA Earned Value Management Center 
official responsible for leading system surveillance, at the 
completion of the assessment, the DCMA Earned Value Management Center 
submits to the contracting officer a status of the contractor's EVM 
system compliance, including all supporting data to that effect. 

If deficiencies are found during the course of the surveillance 
process, it is the surveillance team's responsibility, working through 
DCMA's Earned Value Management Center, to issue a written corrective 
action request. The purpose of a corrective action request is to 
formally notify the contractor that a documented course of action in 
the form of a corrective action plan is needed to bring the EVM system 
in compliance with government accepted EVM system guidelines. 
Corrective action requests range in severity from Level I to Level IV 
where, according to a DCMA Earned Value Management Center official 
responsible for leading system surveillance, Level I is for non- 
compliance with the Defense Federal Regulation Acquisition Supplement 
clauses in the contract that can be corrected immediately and for 
which no special management attention is required, and Level IV 
identifies issues where cost, schedule, technical performance, 
resources, or management process issues have unfavorably affected the 
supplier's EVM so that it is incapable of reporting meaningful EVM 
across multiple programs or multiple sites; and these issues have not 
been corrected. Level III and IV corrective action requests may 
trigger formal reviews such as post award review for cause, compliance 
reviews, or other system validation reviews and may result in 
suspension or revocation of EVM systems certification. 

EVM Data for the GMD and Targets and Countermeasures Programs Are Not 
Sufficiently Reliable: 

For GMD and Targets and Countermeasures, we determined that the EVM 
data were not sufficiently reliable to analyze these contracts' cost 
and schedule performance because of instability in these programs. 
Without reliable EVM data, we are unable to identify significant 
performance drivers or forecast future cost and schedule performance. 
Further, when the baseline on which the work is performed and measured 
against is no longer representative of the program of record, program 
managers and other decision makers lose the ability to develop 
constructive corrective action plans to get the program on track. 
These reliability issues affect MDA's oversight of contractor progress 
and both MDA and GAO's ability to report this progress to external 
parties and Congress. MDA officials were aware that significant 
changes were not reflected in the baselines for these two elements and 
have been conducting more extensive oversight to compensate, but did 
not alert us to this issue during the course of our audit. The 
Director, MDA has acknowledged the importance of EVM and to address 
some of these issues he has enacted quarterly reviews of each of the 
program's baselines. Further, he intends to report EVM information to 
Congress annually. 

According to DCMA officials, there were several issues associated with 
the Boeing EVM system for GMD. One of the main issues was the 
contractor's inability to maintain a consistent performance 
measurement baseline. With numerous changes to the program and 
modifications to the contract, the contractor experienced difficulty 
incorporating these changes into the baseline in order to measure 
performance against this new work. For example, although the GMD 
program experienced a $1.3 billion dollar restructure in 2007, another 
major restructure beginning in fiscal year 2008 for over $500 million 
that was completed in fiscal year 2009,[Footnote 13] and a third in 
fiscal year 2010 for over $380 million, the GMD program has not 
conducted an IBR since December 2006.[Footnote 14] DOD's acquisition 
policy states that an IBR is to be conducted within 6 months after 
contract award, exercise of contract options, or major modifications 
to a contract.[Footnote 15] DCMA officials told us that the GMD 
program had an IBR underway following the restructure that began in 
fiscal year 2008 and completed in fiscal year 2009, but in May 2009 
the program was again redirected and the baseline review was canceled. 
[Footnote 16] 

The Director, MDA explained that some of the GMD program's baseline 
instability from frequent restructures was related to the changing GMD 
role in European defense. The February 2007 budget request for fiscal 
year 2008 included an approach to European defense focused on GBIs 
from the GMD element and a large fixed radar as well as transportable 
X-Band radars. In September 2009, the administration altered its 
approach to European defense and instead constructed a defense system 
to consist primarily of Aegis BMD sea-based and land-based systems and 
interceptors, as well as various sensors to be deployed over time as 
the various capabilities are matured. The Director told us that these 
European capability requirements changes drastically affected the GMD 
program as a significant amount of work had to be restructured. 

During these three to four years of GMD baseline instability, the 
Director, MDA told us that MDA took steps to gain additional insight 
into the contractor's progress. The program held added reviews in the 
absence of IBRs to understand planned near-term effort and how well 
they were executing against those plans. In addition, the Director 
told us that the program held monthly focus sessions during which the 
joint government and contractor teams briefed the status of progress 
and risks. The Director acknowledged that these insights are necessary 
to understand the meaning of the near-term EVM data. However, without 
the benefit of a documented IBR after multiple larger restructures to 
the program or being made aware of MDA's added reviews, we do not have 
sufficient confidence in the GMD program performance measurement 
baseline to reliably analyze the existing EVM data. 

Boeing and MDA are taking steps to address problems with the 
reliability of the contractor's EVM data. The contractor had planned 
to deliver a performance measurement baseline by May 2010 and the GMD 
program is planning to conduct a series of IBRs on the remaining prime 
and major subcontractor effort beginning in July 2010. In addition, 
the contractor is taking initiatives to put a performance measurement 
baseline in place as quickly as possible and is providing additional 
training for its management and control account managers in charge of 
EVM. The Director, MDA told us that MDA was changing how its future 
contracts for the GMD program are being structured to be more 
receptive to modifications. This new contract structure will include 
dividing the work into delivery orders so that modifications will be 
reflected at a delivery order level instead of affecting a larger 
contract. These steps may help resolve the EVM issues; however we 
cannot determine the full effect of these steps until further 
evaluation after their full implementation. 

Similarly, we have determined that the EVM data for the Targets and 
Countermeasures contractor, Lockheed Martin Space Systems, are not 
sufficiently reliable for inclusion in our analysis. Based on 
discussions with and reports issued by DCMA, the Targets and 
Countermeasures contractor was unable to update its baseline because 
of numerous program changes. In September 2007, when the delivery 
order for the launch vehicle-2 was approximately 60 percent complete, 
Lockheed Martin signaled that its baseline was no longer valid by 
requesting a formal reprogramming of the effort to include an overrun 
in its baseline for this delivery order. MDA allowed the contractor to 
perform a schedule rebaseline and remove schedule variances - but did 
not provide any more budget for the recognized overrun in the 
performance measurement baseline. As a result, DCMA reported that the 
performance indicators for this delivery order, needed to estimate a 
contract cost at completion, were unrealistic. According to the 
Director, MDA did not believe the contractor had justified that there 
was a scope change warranting additional budget in the performance 
measurement baseline. He said he believed doing so would mask problems 
the contractor was experiencing planning and executing the contract 
which he identified as the issue as opposed to changes in the 
contract's scope. According to the Director, one example of the issues 
the contractor was experiencing on this delivery order included a 
failure rate of 64 percent on production qualification components. MDA 
has since completed the work on this delivery order and begun managing 
follow-on target production on a newly established delivery order. 

In addition, during fiscal year 2009 DCMA identified several issues 
with the stability of the Targets and Countermeasures program 
baseline. For example, program changes since fiscal year 2008 on one 
delivery order included over 20 contract changes to the scope of work 
or corrective actions to quality issues. In addition, the schedule and 
quantity of planned flight tests changed significantly. During the 
fiscal year, DCMA submitted a corrective action request for 
noncompliance with incorporating authorized changes in a timely manner 
although the contractor was able to close this issue before the end of 
the reporting period. Because of the instability in the baseline and 
the contractor's inability to update the baseline with these frequent 
changes, we determined the cost performance reports for 2009 do not 
reflect an appropriate baseline against which to measure cost and 
schedule progress. 

According to the Director, MDA, the agency has undertaken a major 
effort to stabilize the Targets and Countermeasures program. MDA has 
established a new target acquisition strategy to address recurring 
target performance issues and increases in target costs. In this new 
strategy, the agency will buy generic targets in larger lots that are 
not tied to a particular test instead of smaller lots. This effort 
should also help increase MDA's flexibility to respond to changing 
program requirements. In addition, the Director, MDA told us that the 
Director of Engineering at MDA will define target requirements instead 
of the program manager which should also help create more stability. 

Despite Non-Compliance Ratings for MDA Prime Contractor EVM Systems, 
Most Were Sufficiently Reliable for GAO Review: 

During the course of our review, we found that DCMA assessed 7 of the 
14 contractors' EVM systems as noncompliant in fiscal year 2009. DCMA 
also rated 3 of the 14 contractors systems as unassessed. We reviewed 
the basis for the noncompliance and unassessed ratings and determined 
that only the GMD and Targets and Countermeasures contractor EVM 
issues affected the reliability of the data for our purposes. See 
table 2 for the DCMA compliance ratings for the 14 MDA prime 
contracts' EVM systems and GAO's reliability assessment. 

Table 2: DCMA Compliance Rating and GAO Reliability Assessment for MDA 
Prime Contractor EVM Systems: 

Contracts: Aegis BMD Weapon System; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Check]; 
Compliant: [Empty]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: Aegis BMD SM-3 Block IA missiles for fourth lot of 27 
missiles; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Check]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: Aegis BMD SM-3 Block IA missiles for another lot of 24 
missiles; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Check]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Aegis BMD SM-3 Block IA and IB missile technology development and 
engineering; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Check]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: ABL; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Check]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: C2BMC; 
Contractor site EVM system compliance rating for 2009:
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: GMD; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Check]. 

Contracts: Sensors' BMDS Radars; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: Sensors' AN/TPY-2 radar #7; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: Sensors' Thule radar; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: STSS contract; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: Targets and Countermeasures; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Empty]; 
Compliant: [Empty]; 
Noncompliant: [Check]; 
GAO determination: Not sufficiently reliable: [Check]. 

Contracts: THAAD development; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Check]; 
Compliant: [Empty]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

Contracts: THAAD fire unit fielding production; 
Contractor site EVM system compliance rating for 2009: 
Not assessed: [Check]; 
Compliant: [Empty]; 
Noncompliant: [Empty]; 
GAO determination: Not sufficiently reliable: [Empty]. 

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

Note: A rating of noncompliant indicates that at least one corrective 
action request was open at the end of the rating assessment period. 
The noted noncompliance can vary significantly from a small isolated 
case that does not affect management data reported to being systemic 
across the company affecting all management data reported. 

[End of table] 

Five EVM systems besides the GMD and Targets and Countermeasures 
contractor EVM systems were rated as noncompliant by DCMA during the 
fiscal year but did not lead to GAO to conclude that the EVM data were 
not sufficiently reliable. In order to judge the reliability of the 
data, we reviewed the significance of any open corrective action 
request(s) that triggered a noncompliance rating and its impact on the 
contractor's ability to judge cost and schedule performance against a 
baseline. During the course of our audit, we interviewed DCMA 
representatives at each of the contractor sites to understand the 
basis for the noncompliance determination and to gain information to 
help us assess the reliability of the data. 

For example, the EVM system of the STSS contractor Northrop Grumman 
was deemed noncompliant because of two low-level corrective action 
requests related to issues with other contracts that did not 
materially affect the performance baseline for the STSS contract we 
assessed. Also, the C2BMC's contractor Lockheed Martin Information 
Systems & Global Services received a rating of noncompliant during 
2009 because of a corrective action request that stated that major 
subcontractor efforts were not specifically identified, assigned, or 
tracked in the organizational breakdown structure. However, after the 
noncompliant rating was given, DCMA reversed its decision and decided 
to close the corrective action without requiring the contractor to 
change its methods. 

In addition, although DCMA was unable to assess two EVM systems during 
2009 for Lockheed Martin Mission Systems and Sensors under the Aegis 
BMD weapon system contract, and Lockheed Martin Space Systems Company 
under the two THAAD contracts, we determined that the reasons for the 
unassessed rating did not lead to issues with data reliability. 
According to the DCMA EVM specialist responsible for monitoring the 
Aegis BMD weapon system, the Aegis BMD weapon system contractor was 
unassessed because some of the accounting guidelines could not be 
assessed in time for the compliance rating. In addition, the THAAD 
contractor was not assessed because, according to DCMA, although the 
contractor had addressed the open corrective action requests, DCMA did 
not have the resources to review and document the effectiveness of 
those actions in order to close these items before the end of the 
rating assessment period. However, subsequent to the closing of the 
rating assessment period, the contractor's actions were deemed 
sufficient by DCMA to fix the unresolved issues and the corrective 
action requests were closed. 

BMDS Prime Contractors Aggregate Analysis Not Appropriate Due to Data 
Reliability Issues: 

We are unable in this year's report to aggregate total projected 
underruns or overruns in our analysis of the remaining 12 prime 
contracts because we had to exclude the GMD and Targets and 
Countermeasures programs due to data reliability issues. The GMD and 
Targets and Countermeasures prime contracts' budgeted costs at 
completion total nearly $16 billion dollars or half of the total 14 
contracts' budgeted cost at completion. By removing such a large 
portion of data from our analysis, we determined that it is 
inappropriate to perform any aggregate analysis. More detail is 
provided for each of the contractors responsible for the remaining 
twelve BMDS contracts' cost and schedule performance in appendix II. 

Nine of the remaining 12 contracts experienced cost overruns for 
fiscal year 2009. Most of the overruns were because of issues with 
maturing technologies, immature designs, or other technical issues. 
For example, the ABL contractor experienced a failure in some of the 
system's optics which required it to develop and procure new high 
power optics, delaying the test schedule and increasing program cost. 
In addition, the THAAD development contractor expended more funds than 
expected for redesigns on the missile's divert and attitude control 
system assembly, correcting issues with its boost motor, and making 
changes on the design of its optical block--a safety system to prevent 
inadvertent launches. Also, the contractor experienced cost overruns 
on extended testing and redesigns for its prime power unit in the 
radar portion of the contract. 

Contractors were able to perform within their fiscal year 2009 
budgeted costs for three contracts--the Aegis BMD SM-3 contract for a 
fourth lot of 27 SM-3 Block IA missiles and contract for another lot 
of 24 SM-3 Block IA missiles, and the BMDS radars contract. The Aegis 
BMD SM-3 contractor attributed underruns in both of these lots of 
Block IA missiles to production efficiencies since the contractor has 
been building Aegis BMD SM-3 Block I and IA missiles for nearly 6 
years. The BMDS radars contractor improved cost performance during the 
fiscal year through efficiencies in the software development and 
systems engineering. 

Conclusions: 

Because MDA has not established cost baselines, prime contractor EVM 
data provides one of the only tools to understand MDA's cost and 
schedule progress, particularly for purposes of external oversight. At 
present that tool cannot be used effectively for two major contractors 
because their data are not sufficiently reliable. While MDA is taking 
action to stabilize its programs and thereby improve the reliability 
of its EVM data, any additional delays into fiscal year 2011 could 
affect future fiscal years' oversight. Moreover, until the data are 
sufficiently reliable, MDA, GAO and Congress lose the valuable 
insights into contractor performance that EVM provides, including an 
understanding of significant drivers to performance, the ability to 
forecast future cost and schedule performance, and the ability to 
develop constructive corrective action plans based on these results to 
get programs that have encountered problems back on track. 

Recommendation for Executive Action: 

We recommend the Secretary of Defense direct MDA to resolve prime 
contractor data reliability issues by the beginning of fiscal year 
2011 and, if MDA has not resolved the data reliability problems, 
determine the barriers preventing resolution and provide a report to 
Congress on: 

* the steps MDA is taking to make its contractor data sufficiently 
reliable, 

* how the data reliability issues affect MDA's ability to provide 
oversight of its contractors, and: 

* the effect these issues have on MDA's ability to report contractor 
progress to others, including Congress. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report. These 
comments are reprinted in appendix I. DOD also provided technical 
comments, which were incorporated as appropriate. 

DOD concurred with our recommendation to resolve prime contractor EVM 
data reliability issues by 2011; however, DOD stated that MDA 
considers its fiscal year 2009 prime contractor performance data to be 
reliable. It should be noted that, while MDA has undertaken extra 
measures to gain insight into and compensate for the program 
instability effects on its EVM data, the insights gained by MDA are 
not available to external organizations which depend on the EVM data 
to analyze and forecast trends. Without the benefit of MDA's extra 
measures and added reviews, we maintain that the prime contractor 
fiscal year 2009 EVM data are not sufficiently reliable for analysis. 
Although we agree that MDA will likely have better insight into the 
reliability of its contractor performance data once it completes its 
comprehensive Integrated Baseline Review process and verifies data 
reliability through joint surveillance of the contractor's EVM system 
as stated in the DOD response, we are retaining the recommendation to 
ensure that these corrective steps are implemented in time to improve 
the reliability of the EVM data by the beginning of the next fiscal 
year. 

We are sending copies of this report to the Secretary of Defense, the 
Director, MDA, and Office of Management and Budget. The report also is 
available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions concerning 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 report. GAO staff who made major 
contributions to this report are listed in appendix IV. 

Signed by: 

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

List of Committees: 

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

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate: 

The Honorable Ike Skelton:
Chairman:
The Honorable Howard P. McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives: 

The Honorable Norman D. Dicks:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Appendix I: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
Acquisition, Technology	And Logistics
3000 Defense Pentagon: 
Washington, DC 20301-3000: 
	
July 1, 2010: 

Ms. Christina T. Chaplain: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Ms. Chaplain: 

This is the Department of Defense (DOD) response to the GAO Draft 
Report, GAO-10-676,`Defense Acquisitions: Missile Defense Earned Value 
Management Effectiveness Limited by Data Reliability Issues:' dated 
May 28, 2010 (GAO Code 120891). 

The DOD concurs with the draft report's recommendation. The rationale 
for our position is included in the enclosure. A list of technical and 
factual errors has been submitted separately for your consideration. 

We appreciate the opportunity to comment on the draft report. My point 
of contact for this effort is Mr. David Crim, (703) 697-5385, 
david.crim@osd.mil. 

Sincerely, 

Signed by: 

David G. Ahern: 
Director: 
Portfolio Systems Acquisition: 

Enclosures: As stated: 

[End of letter] 

GAO Draft Report—dated May 28, 2010: 
GAO Code 120891/GA0-10-676: 

"Defense Acquisitions: Missile Defense Earned Value Management 
Effectiveness Limited by Data Reliability Issues" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends the Secretary of Defense direct 
MDA to resolve prime contractor data reliability issues by the 
beginning of fiscal year 2011 and, if MDA has not resolved the data 
reliability problems, determine the barriers preventing resolution and 
provide a report to Congress on: 

* The steps MDA is taking to make its contractor data sufficiently 
reliable, 

* How the data reliability issues affect MDA's ability to provide 
oversight of its contractors, and, 

* The effect these issues have on MDA7s ability to report contractor 
progress to others, including Congress. 

DOD Response: Concur. MDA considers the prime contractor data to be 
sufficiently reliable to assess fiscal year 2009 performance. MDA 
expects data reliability issues to be resolved by the beginning of 
fiscal year 2011 and that accurate contractor progress will be 
reported to outside entities, including Congress. MDA will verify data 
reliability through joint surveillance of the contractor's Earned 
value Management System and a comprehensive Integrated Baseline Review 
(IBR) process. All IBRs will be conducted by a joint team consisting 
of the program office, the contractor, and Defense Contract Management 
Agency (DCMA). 

[End of section] 

Appendix II: BMDS Prime Contractor Fiscal Year 2009 Cost and Schedule 
Performance: 

To determine if they are executing the work planned within the funds 
and time budgeted, each prime contractor provides monthly reports 
detailing cost and schedule performance. The contractor tracks earned 
value management (EVM) by making comparisons that inform the program 
as to whether the contractor is completing work at the cost budgeted 
and whether the work scheduled is being completed on time and then 
reports this information on Contract Performance Reports.[Footnote 17] 
For example, if the contractor was able to complete more work than 
scheduled and for less cost than budgeted, the contractor reports a 
positive schedule and cost variance, or "underrun". Alternatively, if 
the contractor was not able to complete the work in the scheduled time 
period and spent more than budgeted, the contractor reports both a 
negative schedule and cost variance, or "overrun". The results can 
also be mixed by, for example, completing the work ahead of schedule 
(a positive schedule variance) but spending more than budgeted to do 
so (a negative cost variance). 

We provide two kind of variances in our individual contract 
assessments pertaining to overruns or underruns either cumulatively 
over the life of the contract or during the fiscal year. Cumulative 
variances are the overruns or underruns the contractor has earned 
since the contract began. In order to calculate fiscal year variances, 
we determined the contractor's cumulative variances at the end of 
September 2008 and subtracted them from the cumulative variances at 
the end of September 2009. Fiscal year 2009 variances give us an idea 
of the contractor's performance trends during the fiscal year. A 
contractor may have cumulative overruns but underrun its fiscal year 
budgeted cost or schedule by improving its cost performance over the 
course of the fiscal year. 

In our graphs, positive fiscal year variances (underrunning cost or 
schedule) are indicated by increasing performance trend lines and 
negative fiscal year variances (overrunning cost or schedule) are 
shown by decreasing performance trend lines. In our notional example 
in Figure 1, the positive slope of the cost variances line indicates 
that the contractor is underrunning fiscal year budgeted cost. 
Specifically, the contractor began the fiscal year with a negative 
cumulative cost variance of $7.0 million but ended the fiscal year 
with a negative cumulative cost variance of $1.0 million. That means 
that the contractor underran its fiscal year budgeted costs by $6.0 
million and therefore has a positive $6.0 million fiscal year cost 
variance. Alternately, the cumulative schedule variance is decreasing 
during the fiscal year indicating that the contractor was unable to 
accomplish planned fiscal year work and therefore has a negative 
fiscal year schedule variance. In this case, the schedule performance 
declined during the fiscal year from $5.0 million down to $2.0 
million. Therefore, the contractor was unable to accomplish $3.0 
million worth of work planned during the fiscal year. 

Figure 1: Depiction of Notional Contractor Cumulative Cost and 
Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$7 million; 
Cumulative schedule variance: $5 million. 

Month: October 2008; 
Cumulative cost variance: -$6.5 million; 
Cumulative schedule variance: $4.4 million. 

Month: November 2008; 
Cumulative cost variance: -$5.5 million; 
Cumulative schedule variance: $4.2 million. 

Month: December 2008; 
Cumulative cost variance: -$5.8 million; 
Cumulative schedule variance: $4 million. 

Month: January 2009; 
Cumulative cost variance: -$5.3 million; 
Cumulative schedule variance: $2.8 million. 

Month: February 2009; 
Cumulative cost variance: -$3 million; 
Cumulative schedule variance: $2.5 million. 

Month: March 2009; 
Cumulative cost variance: -$3.3 million; 
Cumulative schedule variance: $3.5 million. 

Month: April 2009; 
Cumulative cost variance: -$3 million; 
Cumulative schedule variance: $3.8 million. 

Month: May 2009; 
Cumulative cost variance: -$3.8 million; 
Cumulative schedule variance: $3.5 million. 

Month: June 2009; 
Cumulative cost variance: -$2.5 million; 
Cumulative schedule variance: $3.3 million. 

Month: July 2009; 
Cumulative cost variance: -$1.5 million; 
Cumulative schedule variance: $2.5 million. 

Month: August 2009; 
Cumulative cost variance: -$1.5 million; 
Cumulative schedule variance: $2.5 million. 

Month: September 2009; 
Cumulative cost variance: -$1 million; 
Cumulative schedule variance: $2 million. 

Source: GAO. 		 

[End of figure] 

The individual points on Figure 1 also show the cumulative performance 
over the entire contract up to each month. Points in a month that are 
above $0 million represent a positive cumulative variance 
(underrunning cost or schedule) and points below $0 million represent 
a negative cumulative variance (overrunning cost or schedule). In our 
notional example, the contractor ended the fiscal year with a negative 
cumulative cost variance of $1.0 million. This means that since the 
contract's inception, the contractor is overrunning its budgeted cost 
by $1.0 million. Alternately, the contractor ended the fiscal year 
with a positive cumulative schedule variance of $2.0 million. That 
means that over the life of the contract, the contractor has been able 
to accomplish $2.0 million more worth of work than originally planned. 

Besides reporting cost and schedule variances, we also used contract 
performance report data to base projections of likely overrun or 
underrun of each prime contractor's budgeted cost at completion. Our 
projections of overruns or underruns to the budgeted cost at 
completion are based on the assumption that the contractor will 
continue to perform in the future as it has in the past. Our 
projections are based on the current budgeted costs at completion for 
each contract we assessed, which represents the total planned value of 
the contract as of September 2009.However, the budgeted costs at 
completion, in some cases, have grown significantly over time. For 
example, the Airborne Laser (ABL) contractor reported budgeted costs 
at completion totaling about $724 million in 1997, but that cost has 
since grown to about $3.7 billion. 

Our assessment only reveals the overrun or underrun since the latest 
adjustment to the budget at completion. It does not capture, as cost 
growth, the difference between the original and current budgeted costs 
at completion. As a result, comparing the underruns or overruns for 
Missile Defense Agency (MDA) programs with cost growth on other major 
defense acquisition programs is not appropriate because MDA has not 
developed the full scope of work and total cost baselines that other 
major defense acquisition programs have. 

Aegis BMD Contractors Experienced Mixed Performance during the Fiscal 
Year: 

The Aegis Ballistic Missile Defense (BMD) program employs two prime 
contractors for its two main components--Lockheed Martin Mission 
Systems and Sensors for the Aegis BMD Weapon System and Raytheon for 
the Aegis BMD Standard Missile-3 (SM-3). During fiscal year 2009, the 
Aegis BMD SM-3 Block IA and IB missile technology development and 
engineering contract experienced declining cost and schedule 
performance, the Aegis BMD SM-3 contract for a fourth lot of 27 Block 
IA missiles had increasing cost and schedule performance, and the 
Aegis Weapon System and Aegis BMD SM-3 contractor for another lot of 
24 SM-3 Block IA missiles experienced mixed performance. 

Aegis BMD Weapon System: 

Although the Aegis Weapon System contractor overran fiscal year 2009 
budgeted costs by $0.2 million, it was able to accomplish $1.7 million 
more worth of work than originally anticipated. The fiscal year 2009 
cost overrun is attributed to unplanned complexity associated with 
developing radar software. During the fiscal year, the decline in cost 
performance and subsequent recovery is partially attributed to annual 
technical instruction baseline updates. These baseline updates occur 
over the course of a sixty day period during which varying performance 
data occurs. At the end of this period, there is a jump in performance 
as the contractor earns two months worth of performance. Some of the 
cost savings from April through September 2009 are the result of a 
planned flight test being canceled during the fiscal year and the 
contractor not spending intended funds on pre-flight test, flight 
test, and post-flight test activities. The favorable schedule variance 
was driven by completion of some technical instruction efforts. Figure 
2 shows cumulative variances at the beginning of fiscal year 2009 
along with a depiction of the contractor's cost and schedule 
performance throughout the fiscal year. 

Figure 2: Aegis BMD Weapon System Cumulative Cost and Schedule 
Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $0; 
Cumulative schedule variance: -$8.4 million. 

Month: October 2008; 
Cumulative cost variance: $0.5 million; 
Cumulative schedule variance: -$7.6 million. 

Month: November 2008; 
Cumulative cost variance: -$14.2 million; 
Cumulative schedule variance: -$7.3 million. 

Month: December 2008; 
Cumulative cost variance: -$16.9 million; 
Cumulative schedule variance: -$8.7 million. 

Month: January 2009; 
Cumulative cost variance: -$16.8 million; 
Cumulative schedule variance: -$7.9 million. 

Month: February 2009; 
Cumulative cost variance: -$20.6 million; 
Cumulative schedule variance: -$8.2 million. 

Month: March 2009; 
Cumulative cost variance: -$16.8 million; 
Cumulative schedule variance: -$5.6 million. 

Month: April 2009; 
Cumulative cost variance: -$14.1 million; 
Cumulative schedule variance: -$5.4 million. 

Month: May 2009; 
Cumulative cost variance: -$14.8 million; 
Cumulative schedule variance: -$6.7 million. 

Month: June 2009; 
Cumulative cost variance: -$15.9 million; 
Cumulative schedule variance: -$5.7 million. 

Month: July 2009; 
Cumulative cost variance: -$14.7 million; 
Cumulative schedule variance: -$6.6 million. 

Month: August 2009; 
Cumulative cost variance: -$8.9 million; 
Cumulative schedule variance: -$6.9 million. 

Month: September 2009; 
Cumulative cost variance: -$0.2 million; 
Cumulative schedule variance: -$6.7 million. 

90.6 percent of contract complete. 

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

[End of figure] 

Considering prior performance on the Aegis Weapon System contract 
since it began performance in October 2003, the contractor is $0.2 
million over budget and has been unable to accomplish $6.7 million 
worth of work. The small negative cost variance was driven primarily 
by radar software development issues, including a significant redesign 
not included in the original baseline. In addition, the engineering 
test and evaluation portion of the radar software is experiencing an 
increase in the lines of code that also accounts for some of the 
budget overrun. The unfavorable $6.7 million in schedule variances are 
attributed to the engineering test and evaluation portion of the radar 
software for which builds and capabilities are being delivered later 
than originally planned. If the contractor continues to perform as it 
did through September 2009, our analysis projects that at completion 
in June 2010, the work under the contract could cost about $0.2 
million more than the budgeted cost of $1.5 billion. 

Aegis BMD SM-3 for 27 Block IA Missiles: 

The Aegis BMD SM-3 contractor for a fourth lot of 27 Block IA missiles 
underran its budgeted fiscal year 2009 cost and schedule by $0.5 
million and $5.8 million respectively. The program attributed its cost 
and schedule underruns to efficiencies in producing Aegis BMD SM-3 
Block I and IA missiles since the contractor has been building these 
missiles for nearly 6 years. Additionally, the program reported that 
the contract incentivizes the contractor to deliver missiles ahead of 
schedule for maximum incentive fee which further encouraged the 
contractor to accomplish $5.8 million more worth of work then 
originally planned during the fiscal year. See figure 3 for an 
illustration of cumulative cost and schedule variances during the 
course of the fiscal year. 

Figure 3: Aegis BMD SM-3 Contract for 27 Block IA Missiles Cumulative 
Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $3.3 million; 
Cumulative schedule variance: -$7 million. 

Month: October 2008; 
Cumulative cost variance: $3 million; 
Cumulative schedule variance: -$4.1 million. 

Month: November 2008; 
Cumulative cost variance: $6.2 million; 
Cumulative schedule variance: -$0.2 million. 

Month: December 2008; 
Cumulative cost variance: $6.9 million; 
Cumulative schedule variance: -$2.5 million. 

Month: January 2009; 
Cumulative cost variance: $6.3 million; 
Cumulative schedule variance: -$6.4 million. 

Month: February 2009; 
Cumulative cost variance: $8.8 million; 
Cumulative schedule variance: -$3.3 million. 

Month: March 2009; 
Cumulative cost variance: $8.9 million; 
Cumulative schedule variance: -$0.6 million. 

Month: April 2009; 
Cumulative cost variance: $2.3 million; 
Cumulative schedule variance: -$1 million. 

Month: May 2009; 
Cumulative cost variance: $2.7 million; 
Cumulative schedule variance: -$0.1 million. 

Month: June 2009; 
Cumulative cost variance: $2.7 million; 
Cumulative schedule variance: -$1.7 million. 

Month: July 2009; 
Cumulative cost variance: $3.9 million; 
Cumulative schedule variance: -$2.2 million. 

Month: August 2009; 
Cumulative cost variance: $4.4 million; 
Cumulative schedule variance: -$4.2 million. 

Month: September 2009; 
Cumulative cost variance: $3.9 million; 
Cumulative schedule variance: -$1.3 million. 

95.0 percent of contract complete. 

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

[End of figure] 

Considering prior years' performance since the contract began in May 
2007, the contractor is performing under budgeted cost with a 
favorable cumulative cost variance of $3.9 million but is behind 
schedule on $1.3 million worth of work. The cost underruns are 
primarily driven by implemented efficiencies, material transfers, and 
program management adjustments within the solid divert and attitude 
control system; a decrease in rework and more efficiencies realized 
with the seeker; and underruns in engineering efforts associated with 
the third stage rocket motor. The $1.3 million in schedule overruns 
are attributed to late delivery of parts as the result of some 
equipment failures. If the contractor continues to perform as it did 
through September 2009, our analysis projects that at completion in 
December 2011, the work under the contract could cost about $5.2 
million less than the budgeted cost of $233.8 million. 

Aegis BMD SM-3 for 24 Block IA Missiles: 

As of September 2009, the Aegis BMD SM-3 contractor for another lot of 
24 Block IA missiles had underrun its fiscal year budget by $4.2 
million and was behind in completing $3.7 million worth of work. The 
contractor attributes its cost underrun to efficiencies in program 
management and systems engineering because of its experience in 
building SM-3 Block I and IA missiles. The $3.7 million in schedule 
overruns resulted from the contractor planning the baseline to a more 
aggressive schedule than the contractual missile delivery schedule 
requires. The contractor plans in this way because it is incentivized 
to deliver missiles 2 months ahead of schedule. As a result, negative 
schedule variances have occurred as the contractor is pushing to 
deliver missiles early. Figure 4 shows both cost and schedule trends 
during fiscal year 2009. 

Figure 4: Aegis BMD SM-3 Contract for 24 Block IA Missiles Cumulative 
Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$2.7 million; 
Cumulative schedule variance: $1.6 million. 

Month: October 2008; 
Cumulative cost variance: -$2.5 million; 
Cumulative schedule variance: $1.9 million. 

Month: November 2008; 
Cumulative cost variance: -$2.1 million; 
Cumulative schedule variance: $2.3 million. 

Month: December 2008; 
Cumulative cost variance: -$2.5 million; 
Cumulative schedule variance: $2 million. 

Month: January 2009; 
Cumulative cost variance: -$4.4 million; 
Cumulative schedule variance: $1.7 million. 

Month: February 2009; 
Cumulative cost variance: -$4.9 million; 
Cumulative schedule variance: $0.5 million. 

Month: March 2009; 
Cumulative cost variance: -$1.1 million; 
Cumulative schedule variance: $4 million. 

Month: April 2009; 
Cumulative cost variance: -$0.8 million; 
Cumulative schedule variance: $4.8 million. 

Month: May 2009; 
Cumulative cost variance: $0.4 million; 
Cumulative schedule variance: $5.5 million. 

Month: June 2009; 
Cumulative cost variance: $1.5 million; 
Cumulative schedule variance: $4.1 million. 

Month: July 2009; 
Cumulative cost variance: $2 million; 
Cumulative schedule variance: $3.4 million. 

Month: August 2009; 
Cumulative cost variance: $2 million; 
Cumulative schedule variance: $1.4 million. 

Month: September 2009; 
Cumulative cost variance: $1.4 million; 
Cumulative schedule variance: -$2.1 million. 

38.7 percent of contract complete. 

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

[End of figure] 

Cumulatively, since the contract began in February 2008, the 
contractor is underrunning its contract's budgeted cost by $1.4 
million but is behind on $2.1 million worth of work. The contractor 
attributes the cost underrun to labor efficiencies and reduced 
manpower within the seeker design as well as a slower-than-planned 
ramp-up of some engineering efforts. The schedule delays are mainly 
driven by non-delivery of parts for the first stage rocket motor and 
late deliveries of parts associated with the third stage rocket motor. 
If the contractor continues to perform as it did through September 
2009, our analysis projects that at completion in December 2011, the 
work under the contract could cost from $15.3 million less to $1.9 
million more than the budgeted cost of $192.6 million. 

Aegis BMD SM-3 Block IA and IB Technical Development and Engineering: 

For the majority of the fiscal year, the Aegis BMD SM-3 Block IA and 
IB Technical Development and Engineering contractor experienced a 
negative downward trend in cost and schedule performance. The program 
attributes its fiscal year cost overrun of $44.6 million to 
engineering development on its Aegis BMD SM-3 Block IB throttleable 
divert and attitude control system being more difficult than planned. 
The $29.4 million of unaccomplished work during the fiscal year was 
due to late receipt of materials that drove delays in some of the 
hardware testing. See figure 5 for trends in the contractor's cost and 
schedule performance during the fiscal year. 

Figure 5: Aegis BMD SM-3 Block IA and IB Technical Development and 
Engineering Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$6.7 million; 
Cumulative schedule variance: -$10.6 million. 

Month: October 2008; 
Cumulative cost variance: -$10.3 million; 
Cumulative schedule variance: -$15.5 million. 

Month: November 2008; 
Cumulative cost variance: -$12.2 million; 
Cumulative schedule variance: -$15.7 million. 

Month: December 2008; 
Cumulative cost variance: -$11 million; 
Cumulative schedule variance: -$18.4 million. 

Month: January 2009; 
Cumulative cost variance: -$12 million; 
Cumulative schedule variance: -$20.9 million. 

Month: February 2009; 
Cumulative cost variance: -$14.8 million; 
Cumulative schedule variance: -$21.1 million. 

Month: March 2009; 
Cumulative cost variance: -$20.5 million; 
Cumulative schedule variance: -$21.9 million. 

Month: April 2009; 
Cumulative cost variance: -$26.3 million; 
Cumulative schedule variance: -$24.7 million. 

Month: May 2009; 
Cumulative cost variance: -$31.8 million; 
Cumulative schedule variance: -$26.5 million. 

Month: June 2009; 
Cumulative cost variance: -$38.5 million; 
Cumulative schedule variance: -$29.5 million. 

Month: July 2009; 
Cumulative cost variance: -$43.8 million; 
Cumulative schedule variance: -$33.5 million. 

Month: August 2009; 
Cumulative cost variance: -$53.8 million; 
Cumulative schedule variance: -$37.5 million. 

Month: September 2009; 
Cumulative cost variance: -$51.2 million; 
Cumulative schedule variance: -$40 million. 

54.5 percent of contract complete. 

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

[End of figure] 

Cumulatively, since the contract began in December 2007, the program 
also has unfavorable cost and schedule variances of $51.2 million and 
$40.0 million, respectively. Drivers of the $51.2 million in cost 
overruns are throttleable divert and attitude control system 
engineering and hardware major submaterial price increases in support 
of design reviews and demonstration unit. In addition, quality issues 
added to cost overruns as the contractor experienced unanticipated 
design changes to the nozzle resulting from foreign object debris 
issues. The $40.0 million worth of work that the contractor was unable 
to achieve was driven by several issues, including late receipt of 
hardware and late production-level drawings. In addition, delays in 
testing for attitude control system thrusters and a quality issue that 
led to the contractor receiving nonconforming hardware also 
contributed to unaccomplished work. If the contractor continues to 
perform as it did through September 2009, our analysis projects that 
at completion in December 2010, the work under the contract could cost 
from $94.0 million to $194.8 million more than the budgeted cost of 
$588.9 million. 

ABL Cost and Schedule Performance Declined during Fiscal Year 2009: 

The ABL contractor, Boeing, experienced cost growth and schedule 
delays throughout the fiscal year. The contractor overran budgeted 
fiscal year 2009 cost and schedule by $10.2 million and $14.9 million 
respectively. The major drivers of fiscal year negative variances were 
technical issues and the addition of some testing that was not 
originally anticipated. For example, a fire suppression system failed 
to meet performance requirements for the laser flight test which 
limited the scope of the testing, added an unscheduled ground test and 
flight tests to ensure that the system worked properly, and increased 
costs. In addition, the contractor experienced a failure in some of 
the system's optics which required it to develop and procure new high-
power optics and ultimately delayed the test schedule and increased 
program cost. Lastly, because of issues discovered during beam 
control/fire control flights, the program scheduled additional 
unplanned beam control flights to accomplish the necessary objectives. 
The contractor experienced a continuing cost and schedule performance 
decline, as seen in figure 6. 

Figure 6: ABL Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$84.8 million; 
Cumulative schedule variance: -$23.6 million. 

Month: October 2008; 
Cumulative cost variance: -$85.3 million; 
Cumulative schedule variance: -$22.2 million. 

Month: November 2008; 
Cumulative cost variance: -$83.6 million; 
Cumulative schedule variance: -$20.3 million. 

Month: December 2008; 
Cumulative cost variance: -$80.9 million; 
Cumulative schedule variance: -$21.6 million. 

Month: January 2009; 
Cumulative cost variance: -$76.6 million; 
Cumulative schedule variance: -$18 million. 

Month: February 2009; 
Cumulative cost variance: -$80.9 million; 
Cumulative schedule variance: -$22.4 million. 

Month: March 2009; 
Cumulative cost variance: -$83.1 million; 
Cumulative schedule variance: -$25.4 million. 
		
Month: April 2009; 
Cumulative cost variance: -$87.6 million; 
Cumulative schedule variance: -$30.8 million. 

Month: May 2009; 
Cumulative cost variance: -$89.5 million; 
Cumulative schedule variance: -$32.4 million. 

Month: June 2009; 
Cumulative cost variance: -$90.5 million; 
Cumulative schedule variance: -$33 million. 

Month: July 2009; 
Cumulative cost variance: -$86.3 million; 
Cumulative schedule variance: -$36.9 million. 

Month: August 2009; 
Cumulative cost variance: -$86.5 million; 
Cumulative schedule variance: -$42.1 million. 

Month: September 2009; 
Cumulative cost variance: -$95 million; 
Cumulative schedule variance: -$38.5 million. 

96.9 percent of contract complete. 

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

[End of figure] 

The contractor's cumulative cost variance is over budget by $95.0 
million and behind schedule by $38.5 million from when the contract 
began in November 1997. The program attributes these variances to 
optics issues that have affected delivery and installation and caused 
test program delays. If the contractor continues to perform as it did 
through September 2009, our analysis projects that at completion in 
February 2010, the work under the contract could cost from $98.0 
million to $116.8 million more than the budgeted cost of $3.7 billion. 
[Footnote 18] 

C2BMC Overrunning Cumulative Cost and Schedule: 

The Command and Control, Battle Management, and Communications (C2BMC) 
contractor, Lockheed Martin Information Systems & Global Services, is 
currently overrunning budgeted costs for the agreement since it began 
performance in February 2002 by $29.5 million and has a cumulative 
schedule variance of $4.2 million.[Footnote 19] According to program 
officials, the main drivers of the cumulative variances are associated 
with the Part 4 and Part 5 portions of the agreement. The Part 4 
effort, which began in January 2006 and finished December 2007, was 
for the completion of several spiral capabilities, the upgrade for 
spiral suites, and implementation of initial global engagement 
capabilities at its operations center. The Part 5 effort, which began 
in January 2008 and is still ongoing, covers operations and 
sustainment support for fielded C2BMC; deliveries of spiral hardware, 
software, and communications; and initiated development of initial 
global engagement capabilities. MDA and the contractor anticipate 
being able to cover cost overruns on the agreement with the nearly $39 
million in management reserve set aside by the contractor. 

Part 5 accounts for nearly $10.4 million of the $29.5 million in 
negative cumulative cost variances. These budgeted cost overruns are 
driven by increased technical complexity of Spiral 6.4 development, 
and more support needed than planned to address requests from the 
warfighter for software modifications. The $4.2 million of 
unaccomplished work on the agreement is driven by efforts in the Part 
5 portion of the agreement, including delays in system level tests, 
late completion of C2BMC interface control document updates, and 
unexpected complexity of algorithm development and network design. See 
figure 7 for an illustration of cumulative cost and schedule 
performance during fiscal year 2009. 

Figure 7: C2BMC Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$24.3 million; 
Cumulative schedule variance: -$7.1 million. 

Month: October 2008; 
Cumulative cost variance: -$25.2 million; 
Cumulative schedule variance: -$11.4 million. 

Month: November 2008; 
Cumulative cost variance: -$26.3 million; 
Cumulative schedule variance: -$6.3 million. 

Month: December 2008; 
Cumulative cost variance: -$26.4 million; 
Cumulative schedule variance: -$6 million. 

Month: January 2009; 
Cumulative cost variance: -$26.3 million; 
Cumulative schedule variance: -$6.2 million. 

Month: February 2009; 
Cumulative cost variance: -$27.8 million; 
Cumulative schedule variance: -$7.2 million. 

Month: March 2009; 
Cumulative cost variance: -$31.7 million; 
Cumulative schedule variance: -$8.8 million. 

Month: April 2009; 
Cumulative cost variance: -$27.9 million; 
Cumulative schedule variance: -$8.3 million. 

Month: May 2009; 
Cumulative cost variance: -$29 million; 
Cumulative schedule variance: -$9.7 million. 

Month: June 2009; 
Cumulative cost variance: -$30.6 million; 
Cumulative schedule variance: -$8.4 million. 

Month: July 2009; 
Cumulative cost variance: -$29 million; 
Cumulative schedule variance: -$11.8 million. 

Month: August 2009; 
Cumulative cost variance: -$29.5 million; 
Cumulative schedule variance: -$4.2 million. 

Month: September 2009; 
Cumulative cost variance: -$95 million; 
Cumulative schedule variance: -$38.5 million. 

89.3 percent of contract complete. 

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

[End of figure] 

The contractor overran its fiscal year 2009 budgeted cost by $5.2 
million but is $2.9 million ahead of schedule. The drivers of the 
unfavorable fiscal year cost variance of $5.2 million are complexities 
associated with Spiral 6.4 development, additional design excursions, 
and additional costs to address system modifications requested by the 
warfighter. The contractor achieved a favorable fiscal year schedule 
variance largely because of gains in the month of September 2009. 
During this month, the contractor performed a replan of its work 
content and a future spiral's scope was removed from the Part. This 
replan eliminated approximately $10 million in schedule variances for 
labor and materials because the work was no longer to be performed. If 
the contractor continues to perform as it did through September 2009, 
our analysis projects that at completion in December 2011, the work 
under the agreement could cost from $26.5 million to $33.1 million 
more than the budgeted cost of $1.0 billion. 

Sensors Contractor Experienced Mixed Performance during the Fiscal 
Year: 

This year we are reporting on three contracts under the Sensors 
program--the Ballistic Missile Defense System (BMDS) Radars contract 
on which we have reported in prior years, the Terminal High Altitude 
Area Defense (THAAD) fire unit radar #7 contract, and the Thule radar 
contract. During fiscal year 2009, the Sensors' contractor, Raytheon, 
experienced declining cost and schedule performance on the Thule radar 
and Army Navy/Transportable Radar Surveillance--Model 2 (AN/TPY-2) 
radar #7 contracts, but had favorable cost and schedule performance on 
the BMDS Radars contract. 

BMDS Radars: 

Throughout fiscal year 2009, the BMDS Radars contractor exhibited 
improved cost and schedule performance. The contractor was able to 
perform $5.8 million under budgeted cost and $3.5 million ahead of 
schedule for the fiscal year. The drivers of the contractor's improved 
cost performance are efficiencies in the software development and 
systems engineering. The contractor reports that the improved schedule 
performance is due to software schedule improvement as well as 
completion of manufacturing and integration testing on one of the 
radars. The variances, depicted in figure 8, represent the BMDS Radars 
contractor's cumulative cost and schedule performance over fiscal year 
2009. 

Figure 8: BMDS Radars Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $22 million; 
Cumulative schedule variance: -$9.6 million. 

Month: October 2008; 
Cumulative cost variance: $22.3 million; 
Cumulative schedule variance: -$10.4 million. 

Month: November 2008; 
Cumulative cost variance: $24.1 million; 
Cumulative schedule variance: -$10.8 million. 

Month: December 2008; 
Cumulative cost variance: $23.9 million; 
Cumulative schedule variance: -$9.6 million. 

Month: January 2009; 
Cumulative cost variance: $25.6 million; 
Cumulative schedule variance: -$9.7 million. 

Month: February 2009; 
Cumulative cost variance: $25.3 million; 
Cumulative schedule variance: -$10.7 million. 

Month: March 2009; 
Cumulative cost variance: $23.3 million; 
Cumulative schedule variance: -$12.4 million. 

Month: April 2009; 
Cumulative cost variance: $23.3 million; 
Cumulative schedule variance: -$8.6 million. 

Month: May 2009; 
Cumulative cost variance: $23.9 million; 
Cumulative schedule variance: -$8.6 million. 

Month: June 2009; 
Cumulative cost variance: $24.6 million; 
Cumulative schedule variance: -$7.8 million. 

Month: July 2009; 
Cumulative cost variance: $27.5 million; 
Cumulative schedule variance: -$7.8 million. 

Month: August 2009; 
Cumulative cost variance: $27 million; 
Cumulative schedule variance: -$8.1 million. 

Month: September 2009; 
Cumulative cost variance: $27.8 million; 
Cumulative schedule variance: -$6.1 million. 

88.7 percent of contract complete. 

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

[End of figure] 

Since the contract began in March 2003, the BMDS Radars contractor is 
under budget by $27.8 million but is behind on accomplishing $6.1 
million worth of work. The favorable cost variance of $27.8 million is 
driven by the use of less manpower than planned and the benefit of 
lessons learned from previous radar software builds. The unfavorable 
$6.1 million of unaccomplished work was driven by the late start on 
restructuring the latest software release and rework and subcomponent 
delays with one of the radars. If the contractor continues to perform 
as it did through September 2009, our analysis projects that at 
completion in August 2010, the work under the contract could cost from 
$31.3 million to $43.0 million less than the budgeted cost of $1.2 
billion. 

AN/TPY-2 #7 Radar: 

The AN/TPY-2 radar #7 contractor experienced unfavorable fiscal year 
2009 cost and schedule variances of $4.3 million and $15.2 million, 
respectively. As of September 2009, the AN/TPY-2 radar #7 contract had 
overrun its budgeted cost by $1.9 million but was ahead in completing 
$9.0 million worth of work. Contributors to the cumulative cost 
overruns included supplier quality issues that required an increase in 
supplier quality support that was not in the original baseline. In 
addition, the program's prime power unit purchase orders were over 
budgeted cost because the budgeted cost for four of the prime power 
units was prematurely established before the design of the first prime 
power unit was finalized. These delays caused some uncertainty in the 
final production costs until the design was finalized. As of August 
2009, the contractor was working to develop a cost model and establish 
a true unit cost price per prime power unit. Trends in cost and 
schedule performance during the fiscal year are depicted in figure 9. 

Figure 9: AN/TPY-2 Radar #7 Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $2.4 million; 
Cumulative schedule variance: $24.2 million. 

Month: October 2008; 
Cumulative cost variance: $2.4 million; 
Cumulative schedule variance: $25.6 million. 

Month: November 2008; 
Cumulative cost variance: $2 million; 
Cumulative schedule variance: $27.5 million. 

Month: December 2008; 
Cumulative cost variance: $2.2 million; 
Cumulative schedule variance: $30.4 million. 

Month: January 2009; 
Cumulative cost variance: $1.9 million; 
Cumulative schedule variance: $29.1 million. 

Month: February 2009; 
Cumulative cost variance: $2.6 million; 
Cumulative schedule variance: $27.9 million. 

Month: March 2009; 
Cumulative cost variance: $2.3 million; 
Cumulative schedule variance: $31.1 million. 

Month: April 2009; 
Cumulative cost variance: $1.6 million; 
Cumulative schedule variance: $29.6 million. 

Month: May 2009; 
Cumulative cost variance: $0.5 million; 
Cumulative schedule variance: $25.6 million. 

Month: June 2009; 
Cumulative cost variance: $0.4 million; 
Cumulative schedule variance: $20.5 million. 

Month: July 2009; 
Cumulative cost variance: -$0.1 million; 
Cumulative schedule variance: $16 million. 

Month: August 2009; 
Cumulative cost variance: -$1.2 million; 
Cumulative schedule variance: $13.4 million. 

Month: September 2009; 
Cumulative cost variance: -$1.9 million; 
Cumulative schedule variance: $9 million. 

77.0 percent of contract complete. 

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

[End of figure] 

Cumulatively, since the contract began in February 2007, the AN/TPY-2 
Radar #7 contractor has completed $9.0 million worth of work ahead of 
schedule on this contract by executing work ahead of the contract 
baseline plan in some areas, including obtaining materials for 
equipment supporting radar operation. If the contractor continues to 
perform as it did through September 2009, our analysis projects that 
at completion in April 2010, the work under the contract could cost 
from $0.3 million less to $36.9 million more than the budgeted cost of 
$172.5 million. 

Thule Radar: 

The Thule radar contractor overran fiscal year 2009 budgeted costs by 
$0.4 million and was unable to accomplish $0.8 million worth of work. 
The contractor attributes the cost overruns to exceeding planned 
engineering efforts in order to proactively work on issues prior to 
equipment delivery and ship readiness. The unfavorable schedule 
performance is due to the contractor expending some if its positive 
schedule variance in 2008 and from being behind schedule on the 
implementation of information assurance requirements. Figure 10 shows 
cumulative variances at the beginning of fiscal year 2009 along with a 
depiction of the contractor's cost and schedule performance throughout 
the fiscal year. 

Figure 10: Thule Radar Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $2.9 million; 
Cumulative schedule variance: $0.6 million. 

Month: October 2008; 
Cumulative cost variance: $3.3 million; 
Cumulative schedule variance: $0.6 million. 

Month: November 2008; 
Cumulative cost variance: $4.1 million; 
Cumulative schedule variance: $0.8 million. 

Month: December 2008; 
Cumulative cost variance: $4.3 million; 
Cumulative schedule variance: $0.7 million. 

Month: January 2009; 
Cumulative cost variance: $4.3 million; 
Cumulative schedule variance: $0.5 million. 

Month: February 2009; 
Cumulative cost variance: $3.7 million; 
Cumulative schedule variance: $0 million. 

Month: March 2009; 
Cumulative cost variance: $3.6 million; 
Cumulative schedule variance: $0 million. 

Month: April 2009; 
Cumulative cost variance: $3.5 million; 
Cumulative schedule variance: $0 million. 

Month: May 2009; 
Cumulative cost variance: $2.7 million; 
Cumulative schedule variance: -$0.1 million. 

Month: June 2009; 
Cumulative cost variance: $3 million; 
Cumulative schedule variance: -$0.1 million. 

Month: July 2009; 
Cumulative cost variance: $3.2 million; 
Cumulative schedule variance: -$0.1 million. 

Month: August 2009; 
Cumulative cost variance: $2.8 million; 
Cumulative schedule variance: -$0.2 million. 

Month: September 2009; 
Cumulative cost variance: $2.5 million; 
Cumulative schedule variance: -$0.2 million. 

88.6 percent of contract complete. 

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

[End of figure] 

The Thule radar contractor, since it began performance in April 2006, 
is underrunning budgeted costs by $2.5 million and overrunning 
schedule by $0.2 million. Underruns in hardware, manufacturing, and 
facility design, construction, and installation drove the $2.5 million 
in cost underruns. If the contractor continues to perform as it did 
through September 2009, our analysis projects that at completion in 
September 2010, the work under the contract could cost from $1.4 
million to $2.8 million less than the budgeted cost of $101.9 million. 

STSS Maintained Schedule Performance, but Cost Performance Continued 
to Decline during the Fiscal Year: 

During fiscal year 2009, the Space Tracking and Surveillance System 
(STSS) contractor, Northrop Grumman, was able to accomplish $0.1 
million more worth of work than originally anticipated, but overran 
budgeted costs by $72.6 million. The contractor reports that the 
favorable schedule variances are due to completed space vehicle 1 and 
2 shipment, setups and validations, and launch. In addition, the 
contractor overran budgeted fiscal year costs because of additional 
support required to support launch operations including addressing 
hardware anomalies, payload integration, procedure development, and 
launch site activities. Additional support was also required to 
support the delays to the launch date beyond the original plan. See 
figure 11 for an illustration of the cumulative cost and schedule 
variances during fiscal year 2009. 

Figure 11: STSS Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$319.3 million; 
Cumulative schedule variance: -$17.8 million. 

Month: October 2008; 
Cumulative cost variance: -$331.3 million; 
Cumulative schedule variance: -$18.2 million. 

Month: November 2008; 
Cumulative cost variance: -$339.6 million; 
Cumulative schedule variance: -$18.6 million. 

Month: December 2008; 
Cumulative cost variance: -$345.4 million; 
Cumulative schedule variance: -$18.6 million. 

Month: January 2009; 
Cumulative cost variance: -$356.3 million; 
Cumulative schedule variance: -$18.8 million. 

Month: February 2009; 
Cumulative cost variance: -$366.2 million; 
Cumulative schedule variance: -$18.4 million. 

Month: March 2009; 
Cumulative cost variance: -$374.8 million; 
Cumulative schedule variance: -$18.4 million. 

Month: April 2009; 
Cumulative cost variance: -$370.5 million; 
Cumulative schedule variance: -$18.4 million. 

Month: May 2009; 
Cumulative cost variance: -$376.9 million; 
Cumulative schedule variance: -$18.5 million. 

Month: June 2009; 
Cumulative cost variance: -$371.2 million; 
Cumulative schedule variance: -$18.7 million. 

Month: July 2009; 
Cumulative cost variance: -$379.4 million; 
Cumulative schedule variance: -$18.2 million. 

Month: August 2009; 
Cumulative cost variance: -$386.7 million; 
Cumulative schedule variance: -$17.7 million. 

Month: September 2009; 
Cumulative cost variance: -$391.8 million; 
Cumulative schedule variance: -$17.7 million. 

57.4 percent of contract complete. 

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

Note: The STSS contract includes line items for work that do not 
necessarily apply to the satellites that were launched in the fourth 
quarter of fiscal year 2009. Removing these line items from our 
analysis, the program's contract would be considered 84.1 percent 
complete. 

[End of figure] 

Despite the small gains in schedule variances during the fiscal year, 
the contractor maintains cumulative negative cost and schedule 
variances of $391.8 million and $17.7 million respectively from the 
contract's inception in August 2002. Drivers of the $391.8 million in 
contract cost overruns are for labor resources exceeding planned 
levels and unanticipated difficulties related to space vehicle 
environment testing, hardware failures and anomalies, and program 
schedule extension. In addition, space vehicle-1 testing, rework, 
hardware issues, and sensor testing anomaly resolution as well as 
space vehicle-2 anomalies and testing have also contributed to the 
unfavorable cost variances. System test and operations and program 
management experienced cost overruns because of launch date schedule 
extensions. Lastly, ground labor resources exceeded planned levels 
because of the unanticipated need for a new ground software build and 
ground acceptance and verification report activities. The contractor 
has been unable to accomplish $17.7 million worth of work on the 
contract because of launch schedule delays, delays in verification of 
system requirements caused by late space segment deliveries, and tasks 
slipping in response to fiscal year 2009 funding reductions. If the 
contractor continues to perform as it did through September 2009, our 
analysis projects that at completion in September 2010, the work under 
the contract could cost from $620.9 million to $1.6 billion more than 
the budgeted cost of $1.6 billion. 

THAAD Development Contract Overran Cost and Schedule While THAAD Fire 
Unit Fielding Production Contract Experienced Underruns: 

This year we report on two THAAD contracts--the development contract 
and the fire unit fielding production contract. As the contractor for 
both of these contracts, Lockheed Martin Space Systems Company was 
overrunning budgeted cost and schedule on the THAAD development 
contract but remained under cost and ahead of schedule on the THAAD 
fire unit fielding production contract. 

THAAD Development: 

During fiscal year 2009, the THAAD development contractor overran its 
budgeted cost by $33.1 million but was ahead on completing $7.4 
million worth of work.[Footnote 20] The fiscal year cost overruns are 
mainly in the missile, launcher, and radar portions of the contract. 
The missile experienced overruns on divert and attitude control system 
assembly redesigns, correcting issues with its boost motor, and making 
changes on the design of its optical block--a safety system to prevent 
inadvertent launches. The contractor spent more than expected during 
the fiscal year on the launcher portion of the contract, investing in 
labor and overtime to recover schedule. Lastly, the prime power unit 
in the radar portion of the contract required extended testing and 
redesign, which also contributed to fiscal year costs. 

Despite fiscal year cost overruns, the contractor was able to 
accomplish $7.4 million more worth of work than originally anticipated 
also in the missile and launcher portions of the contract. The 
schedule variance improved in the missile portion because of 
completion of missile qualification work. The contractor was also able 
to complete software activities and resolve hardware design and 
qualification issues in the launcher. See figure 12 for trends in the 
contractor's cost and schedule performance during the fiscal year. 

Figure 12: THAAD Development Cumulative Cost and Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: -$228.7 million; 
Cumulative schedule variance: -$16.5 million. 

Month: October 2008; 
Cumulative cost variance: -$232.3 million; 
Cumulative schedule variance: -$17.4 million. 

Month: November 2008; 
Cumulative cost variance: -$236.9 million; 
Cumulative schedule variance: -$20.1 million. 

Month: December 2008; 
Cumulative cost variance: -$236.7 million; 
Cumulative schedule variance: -$19.9 million. 

Month: January 2009; 
Cumulative cost variance: -$239.8 million; 
Cumulative schedule variance: -$18.9 million. 

Month: February 2009; 
Cumulative cost variance: -$245.3 million; 
Cumulative schedule variance: -$18.7 million. 

Month: March 2009; 
Cumulative cost variance: -$249.3 million; 
Cumulative schedule variance: -$18.2 million. 

Month: April 2009; 
Cumulative cost variance: -$254.3 million; 
Cumulative schedule variance: -$17.8 million. 

Month: May 2009; 
Cumulative cost variance: -$258.1 million; 
Cumulative schedule variance: -$15.2 million. 

Month: June 2009; 
Cumulative cost variance: -$260 million; 
Cumulative schedule variance: -$14.8 million. 

Month: July 2009; 
Cumulative cost variance: -$261.5 million; 
Cumulative schedule variance: -$14.1 million. 

Month: August 2009; 
Cumulative cost variance: -$260.1 million; 
Cumulative schedule variance: -$9.7 million. 

Month: September 2009; 
Cumulative cost variance: -$261.9 million; 
Cumulative schedule variance: -$9.1 million. 

95.1 percent of contract complete. 

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

[End of figure] 

Although the contractor made some schedule gains during the fiscal 
year, overall the contractor since it began performance in June 2000 
is behind on $9.1 million worth of work. The radar's portion of 
unfavorable schedule variance is driven by delays to THAAD flight test 
missions during fiscal year 2009. In addition, the fire control's 
software qualification testing had to be extended because of the 
number of software changes and because the welding on the fire control 
power distribution unit's chassis failed weld inspection and was 
subsequently unusable which contributed to the unfavorable schedule 
variance. The launcher experienced design delays and quality issues 
that led to nonconformances in delivered hardware. This hardware 
subsequently required investigation and rework, which also added 
unexpected work to the schedule. Lastly, the program was unable to 
accomplish work in the missile component's flight sequencing assembly 
component because qualification tests were delayed due to failures 
with the optical block switch. 

The unfavorable fiscal year cost variances added to the overall cost 
overruns of $261.9 million. The contractor attributes overruns to the 
missile, launcher, and radar portions of the contract. The missile's 
unfavorable cost variance is driven by unexpected costs in electrical 
subsystems, propulsion, and divert and attitude control systems. Also 
contributing are issues associated with the optical block, range 
safety, communications systems, and boost motors. The launcher has 
experienced cost growth because of inefficiencies that occurred during 
hardware design, integration difficulties, quality issues leading to 
delivered hardware nonconformances, and ongoing software costs being 
higher than planned because of rework of software to correct testing 
anomalies. These problems resulted in schedule delays and higher labor 
costs to correct the problems. In addition, cooling and power issues 
with the radar have contributed to overruns with the prime power unit. 
Numerous fan motor control system redesigns and retrofits for the 
cooling system drove costs by the supplier. Inexperience with building 
a prime power unit and a limited understanding of the true complexity 
and risks associated with the system led to significant cost growth 
and delivery delays. If the contractor continues to perform as it did 
through September 2009, our analysis projects that at completion in 
January 2011, the work under the contract could cost from $267.2 
million to $287.4 million more than the budgeted cost of $4.8 billion. 

THAAD Fire Unit Fielding Production: 

The THAAD fire unit fielding production contractor overran fiscal year 
2009 budgeted cost and schedule by $4.7 million and $10.7 million, 
respectively. The fiscal year cost and schedule overruns were caused 
primarily by the missile and fire control components. Unfavorable 
missile cost and schedule variances were the result of hardware 
failures associated with components of the inertial measurement unit, 
communications transponder, and the boost motor causing delays and 
rework. In addition, the fire control portion of the contract 
experienced overruns because of unplanned engineering design changes 
and labor associated with fire control hardware and issues identified 
during testing. These changes were made to the hardware and deliveries 
already completed. See figure 13 for an illustration of cumulative 
cost and schedule variances during the course of the fiscal year. 

Figure 13: THAAD Fire Unit Fielding Production Cumulative Cost and 
Schedule Performance: 

[Refer to PDF for image: multiple line graph] 

Month: September 2008; 
Cumulative cost variance: $10.9 million; 
Cumulative schedule variance: $22.1 million. 

Month: October 2008; 
Cumulative cost variance: $10.6 million; 
Cumulative schedule variance: $22.5 million. 

Month: November 2008; 
Cumulative cost variance: $10.7 million; 
Cumulative schedule variance: $21.4 million. 

Month: December 2008; 
Cumulative cost variance: $10.9 million; 
Cumulative schedule variance: $18.8 million. 

Month: January 2009; 
Cumulative cost variance: $10.9 million; 
Cumulative schedule variance: $17.8 million. 

Month: February 2009; 
Cumulative cost variance: $8.9 million; 
Cumulative schedule variance: $17.2 million. 

Month: March 2009; 
Cumulative cost variance: $4.8 million; 
Cumulative schedule variance: $16.2 million. 

Month: April 2009; 
Cumulative cost variance: $6.2 million; 
Cumulative schedule variance: $16.5 million. 

Month: May 2009; 
Cumulative cost variance: $4.4 million; 
Cumulative schedule variance: $16.5 million. 

Month: June 2009; 
Cumulative cost variance: $3.6 million; 
Cumulative schedule variance: $16.2 million. 

Month: July 2009; 
Cumulative cost variance: $5.2 million; 
Cumulative schedule variance: $18.9 million. 

Month: August 2009; 
Cumulative cost variance: $6.7 million; 
Cumulative schedule variance: $11.9 million. 

Month: September 2009; 
Cumulative cost variance: $6.1 million; 
Cumulative schedule variance: $11.3 million. 

67.2 percent of contract complete. 

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

[End of figure] 

Despite fiscal year overruns, the fire unit production contractor 
continues to underrun its total contract cost and schedule. The 
contractor, since it began performance in December 2006, is currently 
$6.1 million under budgeted costs and has completed $11.3 million more 
worth of work than originally anticipated. The cost underruns are 
primarily due to a slow start-up on fire unit fielding level of effort 
activities. Schedule variances are not reported on level of effort 
activities, so delaying these activities would save on costs without 
affecting reported schedule. However, these false positive cost 
variances will erode over time once the work gets accomplished. When 
planned level of effort work is not performed, EVM metrics are 
distorted because they show cost savings for work that has not yet 
been accomplished. However, once the work is finished, large 
unfavorable cost variances will be revealed since the program will 
need to expend funds to accomplish the work for which it has already 
received credit. In addition, the program reports its favorable 
schedule variances are due to the transfer of excess interceptor 
hardware from the development contract to the fire unit fielding 
contract. Although the favorable schedule variance from this transfer 
of hardware is nearly $23.0 million, offsets occurred from delayed 
interceptor build activity driven by multiple supplier hardware issues 
and schedule delays because of issues with the boost motor including 
unplanned replacement of motor cases, delayed case fabrication, and 
slowed operations caused by a safety incident at a production 
facility. If the contractor continues to perform as it did through 
September 2009, our analysis projects that at completion in August 
2011, the work under the contract could cost from $1.3 million to 
$17.9 million less than the budgeted cost of $604.4 million. However, 
it should be noted that the projection of the estimated cost at 
completion may also be overestimated because it is based on current 
cost performance that is inflated because of level of effort 
activities and schedule performance which are inflated by transfers of 
materials from another contract. 

[End of section] 

Appendix III: Scope and Methodology: 

To examine the progress Missile Defense Agency (MDA) prime contractors 
made in fiscal year 2009 in cost and schedule performance, we examined 
contractor performance on 14 Ballistic Missile Defense System (BMDS) 
element contracts. In assessing each contract, we examined contract 
performance reports from September 2008 through October 2009 for each 
contract, including the format 1 variance data report, cost and 
schedule variance explanations included in the format 5, and format 2 
organizational category variance totals where available. We performed 
extensive analysis on the format 1 of the contract performance reports 
in order to aggregate the data and verify data reliability. 

To ensure data reliability, we performed a series of checks based on 
consultation with earned value experts and in accordance with GAO 
internal reliability standards. We began by tracking which earned 
value management (EVM) systems that produced the contract performance 
reports were compliant with American National Standards Institute 
standards in 2009 by reviewing the certification documentation. We 
received this documentation through the Defense Contract Management 
Agency (DCMA), which performs independent EVM surveillance of MDA 
contractors. We then reviewed the latest integrated baseline review 
out-briefs for the BMDS elements' contracts to examine the earned 
value-related risks that were identified during the review and 
followed up with the program office to see which, if any, risks were 
still open action items. 

To further review the contract performance report format 1 data, we 
performed basic checks on the totals from contract performance report 
format 1 to ensure that they matched up with organizational totals 
from the contract performance report format 2, where available. This 
check enabled us to review whether the earned value data were 
consistent across the report. In addition, we obtained a spreadsheet 
tool from GAO internal earned value experts to perform a more 
extensive check of the data. Using this tool, we ran various analyses 
on the data we received to search for anomalies. We then followed up 
on these anomalies with the program offices that manage each of the 14 
BMDS element contracts. We reviewed the responses with GAO EVM experts 
and further corroborated the responses with DCMA officials. 

We used contract performance report data in order to generate our 
estimated overrun or underrun of the contract cost completion by using 
formulas accepted by the EVM community and printed in the GAO Cost 
Estimating and Assessment Guide.[Footnote 21] We generated multiple 
formulas for the projected contract cost at completion that were based 
on how much of the contract had been completed up to September 2009. 
The ranges in the estimates at completion are driven by using 
different efficiency indices based on the program's completion to 
adjust the remaining work according to the program's past cost and 
schedule performance. The idea in using the efficiency index is that 
how a program has performed in the past will indicate how it will 
perform in the future. In close consultation with earned value 
experts, we reviewed the data included in the analysis and made 
adjustments for anomalous data where appropriate. 

We conducted this performance audit from February 2010 to July 2010 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. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

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

Acknowledgments: 

In addition to the contact named above, David Best, Assistant 
Director; Meredith Kimmett; LaTonya Miller; Karen Richey; Robert 
Swierczek; Alyssa Weir, and John A. Krump made key contributions to 
this report. 

[End of section] 

Footnotes: 

[1] Earned value management is a program management tool that 
integrates the technical, cost, and schedule parameters of a contract. 
During the planning phase, an integrated baseline is developed by time-
phasing budget resources for defined work. As work is performed and 
measured against the baseline, the corresponding budget value is 
"earned." Using this earned value metric, cost and schedule variances 
can be determined and analyzed. 

[2] National Defense Authorization Act for Fiscal Year 2002, Pub. L. 
No. 107-107, § 232(g) (2001); Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375, § 233 
(2004); National Defense Authorization Act for Fiscal Year 2006, Pub. 
L. No. 109-163, § 232 (2006); John Warner National Defense 
Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, § 224 
(2006); and National Defense Authorization Act for Fiscal Year 2008, 
Pub. L. No. 110-181, § 225 (2008). 

[3] We did not assess MDA's progress in fiscal year 2002 as the agency 
did not establish goals for that fiscal year. We delivered the 
following reports for fiscal years 2003 through 2007: GAO, Missile 
Defense: Actions Are Needed to Enhance Testing and Accountability, 
[hyperlink, http://www.gao.gov/products/GAO-04-409] (Washington, D.C.: 
Apr. 23, 2004); Defense Acquisitions: Status of Ballistic Missile 
Defense Program in 2004, [hyperlink,
http://www.gao.gov/products/GAO-05-243] (Washington, D.C.: Mar. 31, 
2005); Defense Acquisitions: Missile Defense Agency Fields Initial 
Capability but Falls Short of Original Goals, [hyperlink, 
http://www.gao.gov/products/GAO-06-327] (Washington, D.C.: Mar. 15, 
2006); Defense Acquisitions: Missile Defense Acquisition Strategy 
Generates Results but Delivers Less at a Higher Cost, [hyperlink, 
http://www.gao.gov/products/GAO-07-387] (Washington, D.C.: Mar. 15, 
2007); Defense Acquisitions: Progress Made in Fielding Missile 
Defense, but Program Is Short of Meeting Goals, [hyperlink, 
http://www.gao.gov/products/GAO-08-448] (Washington, D.C.: Mar. 14, 
2008); Defense Acquisitions: Production and Fielding of Missile 
Defense Components Continue with Less Testing and Validation Than 
Planned, [hyperlink, http://www.gao.gov/products/GAO-09-338] 
(Washington, D.C.: Mar. 13, 2009); and Defense Acquisitions: Missile 
Defense Transition Provides Opportunity to Strength Acquisition 
Approach, [hyperlink, http://www.gao.gov/products/GAO-10-311] 
(Washington, D.C.: Feb. 25, 2010). 

[4] BMDS elements are separate ongoing units to address a different 
facet of missile defense, but that work in unison to make up the 
greater BMDS. 

[5] Since September 2009, MDA has renamed this program the Airborne 
Laser Test Bed. 

[6] Secretary of Defense Memorandum "Missile Defense Program 
Direction" (Jan. 2, 2002). 

[7] The BMDS program meets the definition of a major defense 
acquisition program, which is defined in 10 U.S.C. § 2430. 

[8] DOD Directive 5000.01 (May, 2003) and DOD Instruction 5000.02 
(Dec. 2008). 

[9] Though MDA is not yet required to meet the requirements to 
establish a baseline under 10 U.S.C. § 2435, Congress has enacted 
legislation requiring MDA to establish some baselines. The Fiscal Year 
2005 National Defense Authorization Act, Pub. L. No. 108-375, § 
234(e), required the Director, MDA, to establish and report annually 
to Congress a cost, schedule, and performance baseline for each block 
configuration being fielded. MDA has since terminated its block 
approach. In addition, the National Defense Authorization Act for 
Fiscal Year 2008, Pub. L. No. 110-181, § 223(g) required that no later 
than the submittal of the budget for fiscal year 2009, MDA shall 
"establish acquisition cost, schedule and performance baselines" for 
BMDS elements that have entered the equivalent of system development 
and demonstration or are being produced and acquired for operational 
fielding. 

[10] The budget at completion represents the total planned value of 
the contract. 

[11] American National Standards Institute/Electronics Industries 
Alliance-748 is a collection of 32 earned value management system 
guidelines that incorporate business best practices for program 
management systems proven to provide strong benefits for program or 
enterprise planning and control. The processes include integration of 
program scope, schedule, and cost objectives, establishment of a 
baseline plan for accomplishment of program objectives, and use of 
earned value techniques for performance measurement during the 
execution of a program. The system provides a sound basis for problem 
identification, corrective actions, and management replanning as 
required. 

[12] DOD's Earned Value Implementation Guide states that surveillance 
of management control systems is required for all contract efforts 
that require EVM compliance with American National Standards 
Institute/Electronics Industries Alliance -748. According to the 
Defense Federal Acquisition Regulation Supplement, contractors with 
cost and incentive contracts with values over certain thresholds shall 
use an earned value management system that complies with the 32 earned 
value management system guidelines established by American National 
Standards Institute/Electronics Industries Alliance-748. 

[13] MDA notes that the two major program restructures in 2007 and 
fiscal year 2008 were accomplished via an alpha contracting process. 
During this process, there is joint government and contractor 
participation including agreement on scope and requirements 
development, integrated schedules, and amount and time phasing of 
resources. Although these activities satisfy some IBR objectives, 
alpha contracting is not a substitute for conducting an IBR. 

[14] The GMD program has conducted integrated baseline reviews on a 
subcontract effort at the Fort Greely Power Plant, but has not 
conducted a comprehensive integrated baseline review of the contract. 

[15] Department of Defense Instruction, 5000.02 (Dec. 2, 2008). 

[16] The MDA Director told us that the IBR was canceled because the 
proposed budget changes would have reduced the program's budget by 
nearly half. Later, the program's funding was restored and a 
subsequent restructure was issued in October 2009. 

[17] Earned value management is a program management tool that 
integrates the technical, cost, and schedule parameters of a contract. 
During the planning phase, an integrated baseline is developed by time-
phasing budget resources for defined work. As work is performed and 
measured against the baseline, the corresponding budget value is 
"earned." Using this earned value metric, cost and schedule variances 
can be determined and analyzed. 

[18] Since September 2009, the period of performance for the contract 
was extended to August 2010. 

[19] The C2BMC element operates under an Other Transaction Agreement 
with cost reimbursement aspects. These types of agreements are not 
always subject to procurement laws and regulations meant to safeguard 
the government. MDA chose the Other Transaction Agreement to 
facilitate a collaborative relationship between industry, government, 
federally funded research and development centers, and university 
research centers. For the purposes of this report, we have included 
this agreement in our analysis of BMDS contracts. 

[20] Earned value data for the THAAD development contract is reported 
under two contract line item numbers--1 and 10. We report only the 
contractor's cost and schedule performance for contract line item 
number 1 because it represents the majority of the total work 
performed under the contract. Contract line item number 10 provides 
for Patriot Common Launcher initiatives funded by the Army's Lower 
Tier Program Office. 

[21] GAO, GAO Cost Estimating and Assessment Guide: Best Practices for 
Developing and Managing Capital Program Costs, [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009). 

[End of section] 

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