[Senate Hearing 108-669]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-669
 
                SPACE ACQUISITION POLICIES AND PROCESSES

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON STRATEGIC FORCES

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 18, 2003

                               __________

         Printed for the use of the Committee on Armed Services




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                      COMMITTEE ON ARMED SERVICES

                    JOHN WARNER, Virginia, Chairman

JOHN McCAIN, Arizona                 CARL LEVIN, Michigan
JAMES M. INHOFE, Oklahoma            EDWARD M. KENNEDY, Massachusetts
PAT ROBERTS, Kansas                  ROBERT C. BYRD, West Virginia
WAYNE ALLARD, Colorado               JOSEPH I. LIEBERMAN, Connecticut
JEFF SESSIONS, Alabama               JACK REED, Rhode Island
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
JOHN ENSIGN, Nevada                  BILL NELSON, Florida
JAMES M. TALENT, Missouri            E. BENJAMIN NELSON, Nebraska
SAXBY CHAMBLISS, Georgia             MARK DAYTON, Minnesota
LINDSEY O. GRAHAM, South Carolina    EVAN BAYH, Indiana
ELIZABETH DOLE, North Carolina       HILLARY RODHAM CLINTON, New York
JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                    Judith A. Ansley, Staff Director

             Richard D. DeBobes, Democratic Staff Director

                                 ______

                    Subcommittee on Strategic Forces

                    WAYNE ALLARD, Colorado, Chairman

JAMES M. INHOFE, Oklahoma            BILL NELSON, Florida
JEFF SESSIONS, Alabama               ROBERT C. BYRD, West Virginia
JOHN ENSIGN, Nevada                  JACK REED, Rhode Island
LINDSEY O. GRAHAM, South Carolina    E. BENJAMIN NELSON, Nebraska
JOHN CORNYN, Texas                   MARK DAYTON, Minnesota

                                  (ii)

  




                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

                Space Acquisition Policies and Processes

                           november 18, 2003

                                                                   Page

Teets, Hon. Peter, Under Secretary of the Air Force and Director, 
  National Reconnaisance Office..................................     3
Arnold, Lt. Gen. Brian, USAF, Commander Space and Missile System 
  Center, Air Force Space Command................................     9
Young, Thomas, Chairman, Defense Science Board/Air Force 
  Scientific Advisory Board Joint Task Force on Acquisition of 
  National Security Space Programs...............................    13
Levin, Robert, Director, Acquisition and Source Management, 
  General Accounting Office......................................    24

                                 (iii)


                SPACE ACQUISITION POLICIES AND PROCESSES

                              ----------                              


                       TUESDAY, NOVEMBER 18, 2003

                               U.S. Senate,
                  Subcommittee on Strategic Forces,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:07 p.m., in 
room SR-232A, Senate Russell Office Building, Senator Wayne 
Allard (chairman of the subcommittee) presiding.
    Committee members present: Senators McCain, Allard, 
Sessions, Reed, and Bill Nelson.
    Majority staff members present: Brian R. Green, 
professional staff member; Carolyn M. Hanna, professional staff 
member; and Gregory T. Kiley, professional staff member.
    Minority members present: Madelyn R. Creedon, minority 
counsel; Kenneth M. Crosswait, professional staff member; and 
Creighton Greene, professional staff member.
    Staff assistants present: Andrew W. Florell and Sara R. 
Mareno.
    Committee members' assistants present: Christopher J. Paul, 
assistant to Senator McCain; Jayson Roehl, assistant to Senator 
Allard; Arch Galloway II, assistant to Senator Sessions; 
William K. Sutey, Dan Shapiro, and Caroline Tess, assistants to 
Senator Bill Nelson; and Eric Pierce, assistant to Senator Ben 
Nelson.

      OPENING STATEMENT OF SENATOR WAYNE ALLARD, CHAIRMAN

    Senator Allard. I'm going to go ahead and call the 
Strategic Forces Subcommittee to order.
    Before I make my formal comments, I want to thank all of 
you for bearing with us while we try and work through. We set 
aside 2 hours. My Democratic counterpart is on his way over, I 
understand.
    We'd like to get started. We're a little bit late into the 
session. We've just come out of our policy meetings for both 
Republicans and Democrats--a lot of big issues that are being 
discussed on both sides.
    Frankly, I didn't quite expect my counterpart this quickly; 
so he's moving right along, and I think that's good. We've 
probably inconvenienced you all to one degree or another. I 
apologize for that, especially to Mr. Young. I understand we 
had a scheduling glitch there, and you weren't properly 
notified by our staff. I know you made a Superman effort to get 
here today on this panel, and I really do appreciate that. I 
apologize again for that mix-up.
    It's unusual also for us to put together this sort of a 
panel all at the same time. Ordinarily, protocol would say that 
we go to the Secretary and General first and then follow up 
behind that. Very graciously you've given up that protocol in 
order to expedite what we're trying to accomplish in this 
session. Again, I want to thank all of you very much for 
cooperating with the subcommittee. That's gracious on all of 
your parts.
    The hearing has been called to order, and the Strategic 
Forces Subcommittee meets today to receive testimony on 
Department of Defense (DOD) space acquisition policies and 
processes.
    I'd like to start by greeting my good friend, Senator 
Nelson, when he arrives, my ranking member, and by thanking our 
witnesses for joining us today: Peter Teets, Under Secretary of 
the Air Force; Lieutenant General Brian A. Arnold, Commander of 
Space and Missile Systems Center (SMC), Air Force Space Command 
(AFSPC); Tom Young, the Chairman of the recent Defense Science 
Board (DSB)/Air Force Scientific Advisory Board (AFSAB) Joint 
Task Force on Acquisition of National Security Space Programs; 
and Robert Levin, Director, Acquisition and Sourcing Management 
for the General Accounting Office (GAO).
    I want to welcome all of you. I know all of you have busy 
schedules and I appreciate your willingness to appear before 
our subcommittee.
    Space acquisition processes and policies may strike some as 
a rather arcane subject, but I believe that it is a vitally 
important one. This Nation relies heavily on its space assets 
to achieve decisive advantages over our adversaries on the 
battlefield. That reliance is increasing and, in all 
likelihood, will continue to grow.
    Yet we have ample evidence that the development and 
acquisition of space systems has been anything but trouble-
free. While we have the most capable space systems in the 
world, there has been a consistent history of management 
problems, cost overruns, technical complications, and schedule 
delays.
    I think it is to your credit, Secretary Teets, that you've 
sought to tackle these problems directly. You did so first by 
asking for the DSB review to get a better picture of the 
problems. The panel that performed this review is led by Tom 
Young. The panel report expresses a number of criticisms 
forcefully and clearly.
    Second, and just as important, Secretary Teets, you issued 
a new space acquisition policy intended to address the problems 
as you saw them.
    I know there are some differences of opinion on the 
efficacy of these changes. GAO has a long history of 
recommending best practices that include early technology 
maturation and knowledge-based management. GAO's recent report 
titled ``Improvements in Space Systems Acquisition Management 
Policy'' outlines where the new Air Force space acquisition 
policy may be inconsistent with those recommendations. I know 
the Air Force has firmly expressed its views that GAO's 
recommendations would be detrimental to the management of space 
programs. Consequently, I'm looking forward to an open and 
vigorous exchange.
    I hope that the subcommittee will achieve a better 
understanding of the nature of the problems faced in the space 
acquisition world, the progress that has been made in 
addressing them, the challenges that remain, what further steps 
might be needed, and, from this, the role that Congress might 
play in the future.
    Again, thanks to our witnesses.
    When Senator Nelson arrives, I'll yield for him to make 
some opening remarks.
    Let me proceed with Secretary Teets.

STATEMENT OF HON. PETER TEETS, UNDER SECRETARY OF THE AIR FORCE 
          AND DIRECTOR, NATIONAL RECONNAISANCE OFFICE

    Secretary Teets. Thank you, Mr. Chairman.
    I very much appreciate the opportunity to be here today. 
It's a real pleasure to be joined here at the witness table by 
General Arnold, who is, of course, the Commander of AFSPC's SMC 
in El Segundo, California. General Arnold also serves as the 
Program Executive Officer (PEO) for all Air Force space 
programs.
    Of course, it's a pleasure to be with Tom Young, as well. 
Tom Young is a real patriot. I must say that he's a person that 
I actually called and asked to serve as chairman of this DSB/
AFSAB panel, and he was kind enough to agree to that. Tom has a 
remarkable history and background in our Nation's space 
programs, both the civil space program as well as the defense 
space program.
    It's really great to have Tom having agreed to participate.
    Mr. Levin, I also recognize that you've run an important 
study by the GAO, and I'm pleased to be with you as well. I'm 
sure we can have some discussion of the topic.
    I have prepared a formal, written statement, Mr. Chairman, 
for the record, and, with your permission, I would like to ask 
that it be entered into the record and then I'd just make a few 
brief verbal opening remarks.
    Senator Allard. Your complete statement will be made a part 
of the record.
    Secretary Teets. Thank you.
    I'd like to start by summarizing some of the major changes 
that we have made in the management of national security space 
programs over the past 2 years.
    A point of fact, in late October 2001, the Secretary of 
Defense directed the Office of the Secretary of Defense (OSD) 
and the Air Force to consolidate national security space 
authorities. In early 2002, I was delegated authority as the 
Air Force Acquisition Executive for Space programs and also as 
the DOD Milestone Decision Authority (MDA) for all space Major 
Defense Acquisition Programs (MDAP). In July 2003, I was also 
officially delegated authority as DOD's Executive Agent for 
Space.
    All of these roles, as well as my role as Director of the 
National Reconnaissance Office (NRO), are, in my opinion, 
complementary. With the Defense Director of Research and 
Engineering, I'm also responsible for the space, science, and 
technology portfolio.
    So I do have an opportunity to view all of our national 
security space efforts. When I was initially sworn in to this 
job in December 2001, one of the first things I wanted to do 
was create an organization that would allow us to identify best 
practices in the national space security world and migrate 
those best practices across all of national security space.
    A few weeks ago--and it was really the result of a lot of 
hard work by a lot of people--I was able to formally approve 
the new National Security Space (NSS) Acquisition Policy 03-01, 
which, as it turns out, is based largely on the NRO's 
Acquisition Management Directive-7. It's the result of not an 
idea that we could improve the system, but rather proven 
practice that has been used in the NRO in past activities, 
which take advantage of the peculiar aspects associated with 
space system development and production.
    The fact is that space system development is largely front-
end loaded. There's an awful lot of engineering activity that 
goes on in the initial stages of space program development. 
Acquisition Policy 03-01 recognizes that unusual content and 
differs somewhat as a result from the DOD 5000 series, which is 
really designed to cover all DOD acquisition efforts.
    Now, when I began the job almost 2 years ago, I did 
recognize that we had some major problems with our ongoing NSS 
acquisitions. After struggling hard with major restructures on 
both the Space-Based Infrared System (SBIRS)-High program and 
the future imaging architecture program at the NRO, with the 
full support of the Secretary of Defense, the Director of 
Central Intelligence (DCI), and the Secretary of the Air Force, 
we decided to constitute this joint DSB/AFSAB panel that Mr. 
Young led. He was joined on that group by a very talented group 
of individuals.
    The point I want to make is that they first met in August 
2002. They completed most of their work by November 2002, that 
is to say, almost a year ago now. As a result, our new 
Acquisition Policy 03-01 has taken advantage of their findings 
and their recommendations.
    Now, it's true that more recently the GAO completed its 
review of NSS acquisition. Its team, of course, was led by 
Katherine Schinasi and is represented here by Robert Levin.
    I was encouraged to see their results in the sense that one 
of the things they concluded was ``that the new policy may help 
provide more consistent and robust information on technologies, 
requirements, and costs.''
    I also appreciated that they highlighted our independent 
program assessment activity, which is a major part of our 03-01 
acquisition policy. In addition, they highlighted the strength 
of our independent cost-estimating emphasis.
    Now, we do share the GAO's desire to reduce risk on our 
programs and retire it as early as we possibly can, but we do 
not agree that we should separate technology development from 
product development, nor should we set a minimum threshold of 
maturity for allowing technologies into a program. We've 
specifically tailored 03-01 space acquisition policy to the 
unique features of space system development.
    In conclusion, Mr. Chairman, from our opening remarks, I 
would just like to reemphasize something that you've already 
summarized, but it is a fact that I think both Operation 
Enduring Freedom and Operation Iraqi Freedom have shown us just 
how vitally important our national security space assets are to 
both our Intelligence Community people and the gathering of 
information, but also direct support to the warfighters.
    Our national security space assets have really enabled our 
warfighters that are in the field to deal with the remarkably 
diverse set of circumstances and deal with it effectively and 
win.
    What we're about here and you're hearing today is an 
important topic. We need to improve the way we acquire national 
security space systems. We need to be able to deliver them 
predictably and on schedule. Lives are at stake and we 
recognize that.
    Thank you for giving us the opportunity to discuss the 
subject.
    [The prepared statement of Secretary Teets follows:]

               Prepared Statement by Hon. Peter B. Teets

                              INTRODUCTION

    Mr. Chairman and members of the subcommittee, I am honored to 
appear before you today to address what we are doing to improve the NSS 
acquisition process. I am also pleased to be joined today by Lieutenant 
General Brian Arnold, Commander, SMC; Tom Young, who led the DSB and 
AFSAB Joint Task Force on the Acquisition of National Security Space 
Programs, and Katherine Schinasi, who led the GAO team.
    Operation Iraqi Freedom confirmed how important American dominance 
of space is to the successful conduct of military operations. A major 
pillar of this dominance has been our unparalleled ability to exploit 
data gathered from space, allowing our servicemen and women to fight 
and win through a wide range of weather conditions. In my testimony 
today, I will highlight the steps we in the DOD are taking to ensure 
this high quality data remains available to the warfighter--as well as 
civilian users--in the future.

                   NATIONAL SECURITY SPACE MANAGEMENT

    The DOD and the Air Force have implemented recommendations from the 
congressionally-directed Commission to Assess National Security Space 
Management and Organization. The Secretary of Defense, in October 2001, 
directed OSD and the Air Force to take certain actions to consolidate 
authorities across the national security space community. In response 
to that direction, in early 2002, I was delegated authority as the Air 
Force Acquisition Executive for Space for Air Force space programs and 
as the DOD MDA for all DOD space MDAPs. Additionally, in July of this 
year, I was also officially delegated authority as the DOD Executive 
Agent for Space. All of these roles, as well as my role as Director of 
the NRO, are complementary; I now oversee the planning, programming, 
and acquisition of all national security space programs, with broad 
insight into acquisition issues and best practices from multiple 
perspectives.
    I have spent much of my tenure emphasizing the importance of 
getting our space acquisition programs on track. Space programs--and 
specifically, military space programs--are complex systems with 
numerous unique characteristics, and, as such, bring extraordinary 
acquisition challenges. As both the DOD Executive Agent for Space and 
the Director of the NRO, I am in a position to reach across traditional 
organizational lines, and work with all interested parties, the DOD, 
the Intelligence Community, and civil agencies, to improve the way we 
do business, ensuring that we do not repeat past mistakes in our future 
acquisitions. With OSD's Director, Defense Research and Engineering, I 
am also responsible for the space science and technology (S&T) 
portfolio, and so am able to link our S&T programs with the ongoing and 
planned space acquisitions, and to directly influence our space 
technology investments.
    We've seen a great deal of change in national security space over 
the last 2 years, all of it for the better. We have a new organization, 
a new acquisition policy, and a new mindset. We've consolidated our 
chain of command, bringing all the players, Air Force, Army, Navy, 
Marine Corps, and the Intelligence Community, together in alliance. 
Through forums such as the Partnership Council, we are working even 
more closely with external agencies such as the National Aeronautics 
and Space Administration (NASA).
    A few weeks ago, I formally approved the new NSS 03-01. After 
identifying the NRO's Acquisition Management Directive 7--a policy that 
establishes direction for all NRO acquisition activities--as a best 
practice, we used it as a foundation for crafting this policy. In doing 
so, we now have, for the first time, linkages between ``black'' and 
``white'' space acquisition policies.
    At the same time we were writing our policy, a joint task force and 
the GAO were researching NSS acquisition. I think most of you have seen 
the results of these studies, so I'd like to use my time today to tell 
you how we are responding to the recommendations of each.

              DSB/AFSAB JOINT TASK FORCE (THE YOUNG PANEL)

    When I first took this job almost 2 years ago, I recognized we had 
problems with NSS acquisitions. I wanted an independent and expert 
review of NSS acquisition, and recommendations on how to fix any issues 
the review found. So, with support from the Secretary of Defense and 
the Secretary of the Air Force, I requested the DSB and the AFSAB 
sponsor a joint study on NSS acquisition. This study, chaired by Tom 
Young, did a superb job of highlighting the important issues, and I 
have taken their recommendations to heart. One of the things I most 
appreciate about the panel's recommendations is that they provide both 
near-term solutions and long-term ideas. We are implementing the near-
term solutions; General Arnold and I each will give you some examples 
today of actions directly influenced by the Young panel. For example, 
while the final report was not released until a short time ago, we were 
fortunate to have the opportunity to use the interim results, briefed 
last fall, to guide the creation of NSS 03-01. I look forward to 
incorporating the panel's insights into future changes in the space 
acquisition community as well.
    According to the study, mission success should be the guiding 
principle in all space systems acquisition. I wholeheartedly agree. I 
believe in any space system acquisition program, mission success must 
be the first consideration when assessing the risks and trades among 
cost, schedule, and performance, and we are putting that ideal into 
practice with the 03-01 policy. NSS 03-01 specifically states that 
mission success is the overarching principle behind all NSS programs, 
and that all program activities must be driven by this objective.
    Several of the panel's recommendations deal in some manner with 
cost estimation and program budgeting practices. Our long-term 
objective is to build and maintain a world-class capability within the 
Government for space and space-related weapon system cost estimating. 
The goal is to foster synergy and efficiency for DOD cost estimating 
resources and research activities by encouraging cooperation and joint 
use of resources. NSS 03-01 requires an independent cost analysis to be 
conducted prior to each Key Decision Point (KDP). For each KDP, an 
Independent Cost Assessment Team (ICAT) will be assembled and led by 
the OSD Cost Analysis Improvement Group (CAIG). Team members will be 
drawn from the entire NSS cost community. For example, both the Space-
Based Radar and Transformational Communications Military Satellite 
Communications ICATs had representation from the OSD CAIG, the 
Intelligence Community CAIG, the NRO, and the Air Force Cost Analysis 
Agency. Both of the program estimates generated by these teams served 
as good sanity checks for the program office estimates. We worked 
closely with OSD and the Intelligence Community in developing these 
ICATs, and look forward to our continued partnership with them in this 
area.
    NSS 03-01 also requires an Independent Program Assessment (IPA) 
prior to each KDP. The purpose of the IPA is to identify and quantify 
program risk areas and to advise the DOD Space MDA--either myself, or 
the PEO, depending on the program type--on a program's readiness to 
proceed to the next acquisition phase. At each KDP, the IPA conducts an 
independent evaluation for the MDA and presents the findings to the 
Defense Space Acquisition Board (DSAB). The DSAB provides input to the 
MDA on whether or not a program should proceed. After consideration of 
inputs from the program office, IPA, ICA, and DSAB, I have enough 
information to make a milestone decision while providing specific 
guidance through the Acquisition Decision Memorandum.
    Under this acquisition approach, we've already held two DSAB 
reviews, for National Polar-Orbiting Operational Environmental 
Satellite System (NPOESS) and space-based radar (SBR). We received 
positive feedback on the DSAB process from all the parties involved--
OSD, the Services, and the program office. I welcome the attendance of 
all these stakeholders at the DSAB reviews, along with their 
participation on the IPAs. They are valued for communicating the key 
issues of their parent organizations and keeping abreast of the IPA 
evaluation process.
    It is not enough to change the process of space acquisition; we 
must also ensure that the right resources are available to keep a 
program stable and on track. We build the foundation for the right 
resources with realistic cost estimates and achievable program 
management baselines. But program managers (PMs) require adequate 
resources to maintain program stability throughout the life of the 
program. One of the recommendations in the Young panel report called 
for budgeting to the 80/20 level and for a 20-25 percent management 
reserve. I agree with both these practices in theory, but, given fiscal 
realities, realize that this may not be attainable.
    We do, however, need to give our PMs the flexibility to meet the 
technical challenges that arise in virtually every program--one way to 
do that is through the judicious use of management reserve. As I 
mentioned when I testified before you in March, we often pull money 
from a stable program to solve problems in an unstable program, and 
then find that we need more money to fix the initially stable program. 
In other words, we often must break one program just to fix another.
    NSS 03-01 states, as a guiding principle, that all members of the 
NSS acquisition execution chain must insist on and protect a realistic 
management reserve. But it is not enough for us to say we will insist 
on a management reserve or budgeting to an 80/20 level--it is necessary 
and critical to gain the buy-in from our leadership at all levels: Air 
Force, OSD, Office of Management and Budget (OMB), and Congress. 
Budgeting is program dependent, so we may need a combination of options 
to ensure adequate resources for any given program. I also want to 
emphasize here that I agree with the panel--management reserve should 
not be used for new requirements. It is a management tool that provides 
our program office with a way of meeting unknown challenges, not a pool 
from which to grow a program.
    The ability to manage requirements figures into several of the 
Young panel recommendations, as well as the recent GAO report. NSS 03-
01 states that the requirements community and operators as stakeholders 
get a voice in the process, including the IPA team (IPAT)/DSAB process 
and reviewing documentation. We want to understand exactly what it is 
the user/operator/customer expects from the end product before we start 
a program.
    Chairman of the Joint Chiefs of Staff (CJCS) Manual 3170.01 lays 
down a clear process for establishing and approving requirements. The 
Initial Capabilities Document (ICD) supports initiation of programs, 
while the Capabilities Development Document (CDD) supports the 
development phase of programs, and the Capabilities Production Document 
(CPD) supports the production phase. Both CJCS Instruction (CJCSI) 3170 
and NSS 03-01 include guidance that the requirements community and the 
acquisition community must work closely together. In fact, the timing 
of the Joint Requirements Oversight Council (JROC) approval for ICDs, 
CDDs and CPDs was designed to specifically feed into KDPs for NSS 03-01 
(and Milestones for DOD 5000.2). In addition, the PM will use Cost as 
an Independent Variable (CAIV) to continuously weigh requirements 
against cost and schedule and ultimately meet the Key Performance 
Parameters (KPPs) laid out in the Acquisition Program Baseline (APB).
    One of the panel's recommendations focused on earlier reporting of 
problems. In our research behind NSS 03-01, we found that space 
programs have a different funding curve than most typical DOD weapons 
systems. A space-based system spends most of its budget up front, well 
before deployment, and spends a great deal less on the sustainment 
phase of the life cycle. Therefore, we need to make the big decisions 
earlier in the life cycle of the program, before the majority of the 
money is spent. NSS 03-01 moves the key decision points up for this 
very reason--we are trying to identify risks and potential problems 
earlier in the program. Early identification allows us to take timely 
corrective action.
    NSS 03-01 also implements a new policy in which PMs will meet with 
me, or my designee, twice a year to conduct MDAP reviews. I expect PMs 
to use these reviews to convey any problems with the program. I also 
expect them to keep me apprised of any potential program deviations 
through Monthly Activity Reports (MARs), Selected Acquisition Report 
(SARs), and Defense Acquisition Executive Summary (DAES) reports. In 
addition to reporting requirements, I hold weekly meetings with the Air 
Force PEO for Space--these meetings are another way to monitor how our 
programs are doing. Of course, OSD will continue to provide oversight 
of this process. I have welcomed their attendance at the DSAB reviews, 
along with their participation on the IPAs.
    In addition to increased programmatic reviews, we are also working 
to strengthen the systems engineering knowledge of our PMs. As the 
Young panel identified, the erosion of our systems engineering 
expertise through the 1990s led to decreased capabilities to lead and 
manage space acquisitions. To address this, we have started focused 
efforts on professional development, including additional training and 
the identification of best practices, at both the SMC and the NRO to 
rebuild this critical core competency.

GAO REPORT (IMPROVEMENTS NEEDED IN SPACE SYSTEMS ACQUISITION MANAGEMENT 
                                POLICY)

    In addition to the Young panel, the GAO recently conducted a study 
on NSS acquisition. Not surprisingly, they found problems with our 
acquisition process, specifically, that in the past, space programs 
have suffered from gaps between resources and requirements. In fact, 
the GAO's findings in this report in many ways mirror the Young panel's 
findings. Both highlight the need to solidly define requirements at the 
beginning of the program, the need to increase the accuracy of cost 
estimates, and the need to carefully manage the risks associated with 
the use of leading edge technology.
    The GAO study also focused on what we are doing to fix the 
problems. I was very encouraged to see the GAO's conclusion that the 
new policy ``may help provide more consistent and robust information on 
technologies, requirements and costs.'' Increasing the MDA's 
understanding of any gaps between resources and requirements is a 
critical first step towards program success. I also appreciated that 
they highlighted the Independent Cost Estimating Process and the 
Independent Program Reviews. I feel both of these processes will bring 
a tremendous benefit to space programs.
    We wholeheartedly concur with the GAO's recommendation that we 
should ``ensure decisions to start programs are based on sound 
criteria.'' I believe, and I have made it clear to my staff, that a 
program should not proceed unless we are confident that it has met all 
the relevant milestones and that it has developed a clear way forward. 
If I am not convinced through the IPA and DSAB process that a program 
is ready to move into the next acquisition phase, I will not hesitate 
in denying the request to move forward until I am satisfied that it is 
the appropriate step. Just such a situation occurred on Global 
Positioning System (GPS) III when, based on an initial review, the 
program was not allowed to proceed into the next phase, and instead 
directed to continue with concept/architecture development.
    The GAO recommendations are focused on helping us reduce cost and 
schedule overruns by reducing the risk inherent in space program 
acquisition. I believe we have done that in NSS 03-01. The policy was 
developed with the specific goal of enhancing space program success. 
Using independent technology assessments and an exhaustive peer review 
process, the policy is designed to ensure that senior leadership has a 
solid foundation of knowledge on which to make sound milestone 
decisions. Another way we are working to achieve mission success is to 
set our decision points early in a program, allowing us to judge 
whether a program is ready to move on or not before we have spent the 
majority of the program's budget.
    The GAO report made two specific recommendations: to separate 
technology development from product development and to set a minimum 
threshold of maturity for allowing technologies into a program. The 
recommendations stem from a desire to reduce program risk. Obviously, 
we share this desire; however, often product development is the impetus 
that drives technology development. If we only pursued ``off-the-
shelf'' technology for our programs, we would never increase the state-
of-the-art. A balance has to be found and managed within a program that 
doesn't put a technological miracle in the critical path to success 
while at the same time allowing us to pursue the new capabilities we 
need. In the first two phases of a program under our new acquisition 
policy, risk reduction is a major activity, and the IPA/DSAB requires a 
technology maturation assessment at each KDP. If the technology is not 
mature, or if there is not an adequate plan to deal with program risk, 
I will not direct the program to continue into the next phase. I do not 
believe mandating particular Technology Readiness Levels (TRLs) is 
necessary. To do so takes away the flexibility we have deliberately 
built into NSS 03-01, along with our ability to meet the users needs in 
a timely manner.
    The NSS 03-01 policy has program initiation at the beginning of the 
risk reduction and design development phase due to the high cost of 
maturing space technologies and the high cost of the initial system 
design and component and sub-system development. By putting the program 
initiation here, we ensure both early MDA insight and oversight and an 
appropriate level of reporting to Congress during this costly phase of 
space programs. Delaying program initiation until the necessary 
component and subsystems had been demonstrated in a relevant 
environment could mean that we would have spent billions of dollars--a 
large portion of the budget--without a baseline or reports on progress, 
and very little official oversight.

                               CONCLUSION

    This is an exciting time for the space programs in the Department 
of Defense. In spite of the challenges we face, we have the most 
capable space force in the world as proven by recent actions in 
Afghanistan and Iraq. Our accomplishments in the past 2 years include 
successful launches of 12 military satellites and the successful 
inaugural launches of both the Atlas V and Delta IV Evolved Expendable 
Launch Vehicle (EELV) rockets. In addition, we have made great progress 
in modernizing our current family of systems, working toward the next 
generation of intelligence, communications, remote sensing, missile 
warning and weather satellites.
    The Young panel and the GAO report have helped us identify systemic 
issues--issues that we are addressing in order to improve our ability 
to deliver these vital capabilities. However, space programs are hard--
by virtue of the difficult technologies, small quantities, and the 
inability to repair on-orbit. This requires up-front investment and 
attention to practices that are greater than in most other 
acquisitions. As long as we continue to want our space systems to 
provide extremely asymmetric advantages, even after years on-orbit, 
then we will be building systems that are on the leading edge of 
technology. We are working to minimize problems, and especially 
surprises, but they are part of working at the edge. I appreciate the 
continued support Congress and this subcommittee have given to help 
deliver these vital capabilities, and I look forward to working with 
you as we continue to push the envelope developing new technologies 
that can be exploited to deliver even greater effects.

    Senator Allard. General Arnold.

 STATEMENT OF LT. GEN. BRIAN ARNOLD, USAF, COMMANDER SPACE AND 
         MISSILE SYSTEM CENTER, AIR FORCE SPACE COMMAND

    General Arnold. Good afternoon, Mr. Chairman. Thank you for 
inviting me to attend this afternoon's session. I, too, have 
submitted some formal remarks, and I'd like to submit those for 
the record.
    Senator Allard. Without objection, we'll make that part of 
the record.
    General Arnold. Thank you, sir. It's my pleasure to be 
joined by Secretary Teets, Mr. Young, and Mr. Levin.
    Going back to the review by Tom Young and part of the 
review that I had chartered by the Booz Allen company to look 
at why space programs had grown, we, too, agree that we had a 
lot of work to do to at SMC. We've basically gone back to 
basics.
    Our overriding theme is mission success in everything we 
do. That entails going back to developing military specs and 
standards to allow us to have some special standards for space 
quality that we've done away with in the past. It means getting 
back to controlling our requirements with command, in this 
case, AFSPC and the NRO in most cases; eliminating contracts 
that prevented us from controlling particularly complex 
programs early in the developmental phase; and then, again, 
revitalizing our systems engineering that we had basically 
begun to deplete over a period of about a generation under 
acquisition reform, with a focus on program management, 
training the PMs, and building a good cost-estimating 
capability, both organically and then relying on what we have 
at the OSD and the Air Force levels.
    Having the PEO move from Washington to SMC in Los Angeles 
allows us to have eyes on target virtually every day, giving us 
better oversight. We've developed over the last year and half a 
whole set of reviews, if you will, to give us better insight 
and oversight onto our programs.
    We've instituted new training to look at systems 
engineering revitalization across the board, and also taken a 
hard look at both retention, as well as recruiting, of younger 
engineers to come into the space acquisition career field.
    For each of my PMs, we've instituted an accountability 
process that follows a contract to hold to a baseline. We do 
that in the fall, and then we follow up with several reviews 
looking at where they stand with the execution of the dollars, 
and they have that in writing with me and also with Secretary 
Teets in the Acquisition Decision Memorandum.
    The bottom line is that I believe after instituting several 
of these over the last year and a half that we are starting to 
see a change in course. Again, successes we have had are small. 
But I believe that we're starting to change course, if you 
will.
    We do have some great successes in launch. In fact, we've 
now launched 32 back-to-back launches without a failure, which 
I would believe is significant and plays out in some of the 
things we're doing with respect to deeper insight and 
independent reviews. I think the bottom line is our 
constellations are providing great capability for the 
warfighter and are in a great state of health right now.
    Thank you for allowing me these opening comments.
    [The prepared statement of General Arnold follows:]

           Prepared Statement by Lt. Gen. Brian Arnold, USAF

                              INTRODUCTION

    Mr. Chairman and members of the subcommittee, on behalf of the 
outstanding men and women of AFSPC, thank you very much for the 
opportunity to talk with you today about what we are doing to improve 
the NSS acquisition process.
    I echo the Under Secretary's remarks--we sincerely appreciate the 
hard work that Tom Young and his team did to highlight critical issues 
in space acquisition and provide actionable recommendations for the 
future. Improving how we acquire space assets is absolutely crucial for 
our Nation's defense--and we are completely committed to this process. 
We have used the DSB's report to guide our improvement efforts and will 
continue to look to it as a measure of our progress.
    Before I address some of the initiatives we have implemented in 
response to the report, I want to reiterate the Young panel and the 
Space Commission's finding that U.S. national security is critically 
dependent upon space capabilities and that dependence will continue to 
grow. This underscores why I am so proud of the recent successes we 
have had that contribute to our Nation's defense.
    Ladies and gentlemen, we have had 32 successful launches in a row 
and, in the last 3 years alone, we have launched 12 satellites 
delivering unprecedented capability to the warfighter. With these 
launches, we placed the final two Milstar satellites in orbit to 
provide robust, secure communications to our warfighters. We placed two 
GPS IIR satellites in orbit--to provide precision navigation to both 
Government and commercial users. We placed Defense Meteorological 
Satellite Program (DMSP), National Oceanic and Atmospheric 
Administration (NOAA), and Coriolis weather satellites in orbit to 
provide 24  7 weather coverage for targeting and mission 
planning. We placed two Defense Satellite Communications System (DSCS) 
satellites in orbit to provide enhanced voice and imagery communication 
in direct support of theater operations. We placed classified payloads 
supporting national priorities in orbit. Finally, we have demonstrated 
a new launch capability with our EELVs--ensuring continued access to 
the high ground. These successes are the direct result of the hard work 
and commitment across the space industry--our uniformed men and women, 
our civilian workforce, and the entire space industrial base.
    This dedicated team is also working to revitalize how we do 
business--based in part on recommendations from the DSB and the GAO. As 
Mr. Teets mentioned, changes were incorporated into the final NSS 
Acquisition Policy 03-01 to address many of the issues highlighted by 
the Young panel and the GAO report. We are just beginning to implement 
the policy and are confident that the new processes and reviews will 
address many of the cost, budgeting and performance challenges 
highlighted by the panel.
    What I would like to do today is provide specific information on 
what we have done at Headquarters (HQ) AFSPC and at the SMC to address 
these issues.

              CONTEXT FOR CHANGE--NATIONAL SECURITY SPACE

    Within the first months that I was at SMC, we made the transition 
to HQ AFSPC. As a Command, we began the implementation of the NSS 
Commission recommendations. At that time, we laid out a plan to address 
not only the short-term, pressing issues, but also the long-term 
challenges. We set our vision to become the Center of Excellence for 
Space and Missiles by building a reputation of producing quality 
products on time, at cost, that meet warfighter needs. Everything we do 
as a command, under the leadership of General Lance Lord, is geared 
towards maintaining space superiority to defend all our critical 
capabilities in space. At SMC, we are supporting General Lord's vision 
by rapidly moving technology to the warfighter.
    Shortly thereafter, I commissioned Booz Allen Hamilton--under the 
leadership of General Tom Moorman, USAF, Retired--to look at our 
programs and assess what was driving our cost challenges. Their 
recommendations kicked off a number of initiatives that crossed every 
aspect of the program life cycle--from research and development (R&D), 
to requirements, to the acquisition and fielding of our systems. The 
theme that evolved was clear: we need to get back to basics. That means 
placing mission success as the first consideration--period. That means 
putting military specifications and military standards back where 
appropriate. That means making the Government responsible for total 
system performance (rather than our contractors). That means getting a 
firm control on requirements. That means elimination of firm fixed 
price contracts on most developmental efforts. Finally, that means 
revitalizing our capabilities in core business areas such as systems 
engineering, program management, and cost estimating. I'm sure you 
recognize that many of these efforts take significant time, but we're 
making progress, and I'd like to highlight just a few areas where we 
are.

                            MISSION SUCCESS

    The Young panel voiced concerns that cost had replaced mission 
success as a driver in space development programs. I'll reiterate Mr. 
Teets' commitment that mission success must be the first consideration 
when assessing risks and trades. To address this, I have 
institutionalized a formal flight readiness review process 
incorporating both a launch verification process and an independent 
review of both satellites and boosters prior to launch. The culmination 
of these reviews results in a Space Flight Worthiness Certification to 
me at the Flight Readiness Review.
    In addition to the program efforts, I maintain an independent 
readiness review team that focuses on test failures, test as you fly 
exceptions, and hardware production abnormalities. It is a second set 
of eyes ensuring important steps in the launch process have not been 
overlooked. The independent readiness review team is chartered to 
advise me on technical risks of booster launch and satellite deployment 
and reports directly to me. They do not consider cost or schedule in 
their assessment. Additionally, the Aerospace Corporation compiles a 
watch list of items that PMs want to bring before senior Aerospace and 
Air Force leadership. Typically, the items incorporated in the list are 
significant technical challenges faced by the Air Force-Aerospace-
contractor team. The list is updated weekly.
    Finally, we have provided mission assurance funding and added a 
Government mission director for all of our EELV launches, and provided 
mission success incentives for each of our heritage launch programs. I 
can't overemphasize the priority we place on mission success--it is 
what we are about.

                IMPROVING COST ESTIMATING AND BUDGETING

    Another concern brought up by the Young panel was unrealistic 
budgets and cost estimates. We agree this is a very challenging area 
and recognize this goes beyond SMC. As Mr. Teets said, we are teaming 
with the Air Force Cost Analysis Group, the OSD Cost Analysis Group and 
the NRO to best leverage these scarce resources while working to 
reinvigorate the function. At SMC, we are cherry picking the best from 
the industry to strengthen our core capability as well as hiring high 
potential candidates and beginning an aggressive education and training 
program.

                     IMPROVING REQUIREMENTS PROCESS

    In terms of requirements, both the GAO report and the Young panel 
also discussed concerns with the requirements process. In addition to 
the newly created DSAB process where our stakeholders are clearly 
involved in every key program decision, we have begun an ``Urgent and 
Compelling'' process with HQ AFSPC to closely manage requirements. This 
process was started on our SBIRS, but we are now rolling it out to all 
of our programs. In fact, HQ AFSPC has embraced this process as a key 
initiative to move technology to the warfighter. In essence, this 
provides a structured method to collect, coordinate, and prioritize 
operational needs not currently in a base-lined program. Through this 
process only the top few critical requirements are identified from the 
potentially hundreds of needs not already incorporated in the program. 
Those needs are then formally presented to the PEO and System Program 
Office Director. Only then, and only if there is adequate funding, will 
additional requirements be added.

                     REVITALIZING CORE CAPABILITIES

    The DSB also commented on the erosion of government capabilities to 
lead and manage the space acquisition process. We absolutely concur 
and, in 2001, we started focused efforts of professional development in 
key areas of the space acquisition business to ensure mission success.
    A key driver in this effort is the systems engineering discipline, 
for it ensures that we build and deliver the system that best meets the 
users requirements. It is the system engineer who reviews the complex 
requirements and allocates the key functions, defines the interfaces, 
and ensures the end-to-end integrity of the total system. Thus, they 
are the glue, if you will, that holds our complex systems together, and 
our capability in this area had declined. To revitalize this skill, we 
started and implemented efforts on many fronts.
    First, we partnered with the California Institute of Technology, 
and in the fall of 2002, graduated 48 of our engineers with highly 
focused training in the system engineering discipline. In addition, we 
have also partnered with industry to provide on the job training for 
nine of our engineers. These partnership efforts with universities and 
industry are part of a comprehensive strategy to revitalize systems 
engineering proficiency at SMC. Other training efforts we have 
completed include a one-day class that provided an overview of systems 
engineering to over 2,500 personnel. Finally, we are working with the 
Air Force Institute of Technology to sponsor both short courses and a 
master's degree program in system engineering.
    Second, we are converging on common processes and practices across 
the Center to take advantage of best practices and make the best use of 
our engineering talent. This effort includes developing a baseline of 
systems engineering processes against a capability maturity matrix 
integration model (CMMI), developed for SMC by the Software Engineering 
Institute, to understand best practices and provide a focus for 
improvement areas. This also includes selection of a minimum set of 
compliance specifications and standards that can be used by all of our 
programs.
    Third, we are implementing an integrated set of reviews and metrics 
to ensure adequate insight into all of our programs. Proactive efforts 
include integrated program assessments, integrated program baseline 
reviews, and revitalized program management reviews. Each of these is 
tailored to the specific program; however, they include a set of 
standard metrics to ensure adequate understanding and insight of 
program risk and to foster the transfer of lessons learned and best 
practices across programs.
    The steps we have taken, and are taking today, to revitalize our 
capabilities in systems engineering will allow us to lead the top level 
architecting and implementation of complex systems of systems. As many 
have commented, this is not an area that will be fixed quickly. 
Building this competency will require continuous, concerted effort and 
focus over many years. As noted in Tom Young's report, in the interim, 
we need to rely on our aerospace counterparts to fill in for the much 
needed organic capability. Next year we hope to fund an increase for 
our Federally Funded Research and Development Centers (FFRDCs) to help 
mitigate this gap.

                         SPACE INDUSTRIAL BASE

    Finally, the Young panel commented on the necessity for industry to 
use proven management and engineering practices to ensure successful 
development of space programs. One of the steps we are taking to 
improve this area is our industry benchmarking initiative. Our goal is 
to raise the bar across our space industrial team by providing candid 
feedback to individual contractors each quarter regarding their 
performance on key factors across their portfolio of business with 
SMC--broader than program specific feedback. The areas we assess 
include executive management, program management, cost management, 
schedule management, systems engineering, and subcontractor management. 
These feedback sessions provide an opportunity--outside the normal 
assessment and award fee channels--to discuss risk areas, issues and 
concerns as well as opportunities across program boundaries. We believe 
these sessions have increased communication, clarified expectations, 
and have led to improvement efforts on both the Government and 
contractor teams.

                               CONCLUSION

    Thank you for giving me the opportunity to discuss a few of the 
initiatives we have undertaken to address the concerns Tom Young and 
his team highlighted. As I said earlier, these changes are not easy; 
they require a long-term commitment, and, in many cases, we are 
changing things mid-course. We have a large number of programs in the 
development pipeline where decisions have already been made. We are 
imposing a new management discipline, but we need your support as we 
work through the challenges that lie ahead.
    The capability of our space and missile systems and the commitment 
of our men and women continue to contribute to the successes we are 
having in Operation Iraqi Freedom and in the defense of our Nation. Our 
unprecedented combat synergy is enabled by the high ground of space. 
Private Jessica Lynch's heroic rescue mission by Special Forces relied 
on Milstar's secure, protected communications capability. Our 
communication satellites were also used to send re-targeting 
information to the B-1 bomber that dropped four GPS precision-guided 
munitions on Saddam Hussein's suspected hide-out.
    Our success in these operations relies on robust, secure 
communication, precise navigation and targeting, satellite 
intelligence, and the advanced warning of incoming missiles. I believe 
our contributions will continue to grow as the Nation responds to 
emerging threats. Once again, I am honored to appear before you and 
welcome your questions.

    Senator Allard. Thank you for your comments.
    Mr. Young?

STATEMENT OF THOMAS YOUNG, CHAIRMAN, DEFENSE SCIENCE BOARD/AIR 
FORCE SCIENTIFIC ADVISORY BOARD JOINT TASK FORCE ON ACQUISITION 
              OF NATIONAL SECURITY SPACE PROGRAMS

    Mr. Young. Thank you, Mr. Chairman.
    Secretary Teets has effectively described the background of 
our task force, so I'll not be redundant. I would say that it 
is encouraging to hear the actions that Secretary Teets and 
General Arnold are implementing, some in response to the report 
that we prepared.
    We were chartered to pursue several issues. The major issue 
was to determine why the cost growth and schedule delays and to 
make recommendations for corrective actions.
    We found five basic reasons for the cost growth and the 
schedule delays. One, cost had replaced mission success as the 
primary driver in managing space development programs. We 
recommended returning to a mission-success culture.
    Two, unrealistic cost estimates led to unrealistic budgets 
and unexecutable programs. We recommended budgeting for the 
most probable cost estimates including--and underlining 
``including''--a 20- to 25-percent cost reserve.
    Three, undisciplined definition and uncontrolled growth in 
system requirements increased cost and schedule delays. We 
recommended centralizing the requirements development process, 
continued analysis of requirements during preliminary design, 
and rigorous control of requirements by the PM doing program 
implementation.
    Four, Government capabilities to lead and manage the space 
acquisition process had seriously eroded. We recommended 
reconstituting systems engineering, cost estimating, and 
program management capabilities within the Government. We also 
recommended adequate staffing and staffing critical positions 
with acquisition-experienced personnel.
    Five, industry had failed to implement proven practices on 
some of the programs that we examined. We recommended 
contractors be responsible and accountable for mission success 
on their programs, including using proven management and 
engineering practices and timely reporting of problems to their 
Government customers.
    While we believe that these five items are the causes of 
the cost growth and the schedule delays, it's our opinion that 
they're not the root cause.
    The root cause is actions, policies, and events that 
occurred during the decade of the 1990s: specifically, one, 
acquisition budgets declined while requirements did not 
decline, resulting in underbudgeted, unexecutable programs; 
two, acquisition reform with significant unintended 
consequences that resulted in a loss of capability to manage 
the acquisition of space programs; three, increased acceptance 
of risk, which resulted in programs with excessive risk; four, 
unrealized growth of a commercial space market, which resulted 
in the loss of an assumed financial base that is particularly 
important for our launch vehicle industry; five, increased 
dependence upon space by an expanding user base, which resulted 
in a flood of requirements that overwhelmed the requirements 
management process; and six, consolidation of the space 
industrial base to remove excess capacity, which resulted in 
every major program competition becoming life or death for 
contractors and the resulting excessive program optimism.
    We were also asked if we are too dependent upon space. Your 
comments, as well as Secretary Teets', have been responsive to 
this. But, basically, our response was that the national 
security of our country is critically dependent upon space for 
both military operations and national policy execution.
    We were asked if the industrial base is adequate to support 
current programs. The task force conclusion was that the 
industrial base is adequate, with some concern for specific 
second and third tier suppliers. However, there is a long-term 
concern because of the aging work force.
    We were asked to focus special attention upon three 
programs: SBIRS-High, Tactical High Energy Laser (THEL), and 
EELV. We made specific recommendations for each of these 
programs.
    For SBIRS-High, we concluded the corrective actions already 
implemented were positive. However, a review of past 
engineering test decisions was in order, and we recommended 
augmenting the program management staff.
    For THEL, we concluded that the THEL program under 
contract--emphasizing the program under contract at the time of 
our review--was unexecutable, and a major restructuring was 
required. We recommended, with the major restructuring, the 
program continue.
    For EELV, we concluded that the business plans for each 
contractor were seriously financially deficient largely due to 
the collapse of the commercial space market, and additional 
Government funding was required.
    We also recommended a detailed acquisition plan be 
established and that assured access to space be established as 
an element of national security policy.
    Thank you.
    [The Report of the DSB/AFSAB Joint Task Force on 
Acquisition of NSS Programs follows:]
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    
      
    Senator Allard. Mr. Levin?

  STATEMENT OF ROBERT LEVIN, DIRECTOR, ACQUISITION AND SOURCE 
             MANAGEMENT, GENERAL ACCOUNTING OFFICE

    Mr. Levin. Thank you, Mr. Chairman. I'm pleased to be here 
today. Thank you for the invite to join this distinguished 
panel.
    I agree with much of what was said, but there's not total 
unanimity, and I'll explain where I'm coming from and where GAO 
thinks the new policy goes wrong.
    My bottom line message basically is this: We do have some 
concerns about the new space acquisition policy. We do not 
think it puts space acquisitions in the absolute best position 
to succeed. We think that the new policy increases risks 
because it does not ensure that adequate knowledge is provided 
to decisionmakers in advance of critical investment decisions. 
At a time when DOD plans to more than double its investment 
from $3.5 billion to $7.5 billion in new space systems in the 
next 4 years, in our view now is not necessarily the time to 
take on greater risks.
    By contrast, we think DOD's new acquisition policy for 
nonspace systems--the DOD 5000--will help programs succeed. We 
think the space policy should be changed to be in sync with the 
new DOD 5000 policy.
    Two recent examples, of course, are paramount in people's 
minds. In the advanced extremely high frequency (AEHF) program, 
total program costs, as you probably know, have jumped from 
$4.4 billion in 1999 to $5.6 billion in 2001. Over-optimism and 
funding gaps eventually culminated in the 2-year delay in the 
launch of the first satellite. Even with additional time and 
money invested in the program, there are still some technical 
and production risks that need to be overcome.
    A second example is the SBIRS-High program. Development 
costs for SBIRS-High have more than doubled from $1.8 billion 
to $4.4 billion--an increase of more than 200 percent, and 
costs continue to grow. We have recently reported to your 
subcommittee that the program has been experiencing problems 
and risks related to changing requirements, design instability, 
and software development changes.
    We recommended that DOD take a hard look at whether the 
program office and contractors were really doing everything 
necessary to make the program succeed. DOD happened to concur 
with us in this recommendation.
    Mr. Chairman, the lack of knowledge for decisionmakers at 
critical junctures has been at the root of the problems in 
space programs such as AEHF and SBIRS-High, as well as nonspace 
programs. This is the essence of it: we have found through our 
work over the years that DOD programs have consistently failed 
to achieve a match between the user's stated needs and the 
developer's resources, namely, technical knowledge, time, and 
money, before deciding to start product development.
    Instead, product development has begun with rigid 
requirements and a hope that unproven technologies will develop 
on schedule. When the technology does not perform as planned, 
adding resources in terms of time and money becomes the primary 
option for solving the problems, understandably, because the 
user's performance requirements have been hardened.
    For the past 6 years, at the request of your committee, we 
have been examining ways that DOD can get better outcomes from 
its investments in weapon systems, drawing on the best 
practices of leading commercial firms. We found that these 
firms make the needs and resources match before the start of 
product development so they can make reliable cost and schedule 
estimates and prevent late arriving technical problems from 
disrupting design and production efforts. Thus, leading firms 
do make this important distinction, Mr. Teets. At least, we 
have found this to be the case between technology and product 
development.
    Mr. Teets doesn't believe that that's necessary. We have a 
disagreement. Our view is that whether you're building a few 
units or a thousand units, it really makes sense to separate 
technology from product development, because you don't want to 
be trying to integrate the subsystems and pieces of technology 
that you're not sure is going to work. You want to make sure 
the technology works first.
    On page 12, I think it is, of my written statement, and in 
this chart behind me, we've laid out the two acquisition policy 
approaches.
    Senator Allard. Can you turn that around a little bit so we 
can see? That's better. Thank you.
    [The information referred to follows:]
      
    
    
      
    Mr. Levin. DOD is taking two acquisition policy approaches. 
Highlighted at the top is the DOD 5000. It establishes mature 
technologies as a critical achievement before entering product 
development.
    The DOD 5000 policy puts programs, in our view, in a better 
position to deliver capability to the warfighter in a timely 
fashion and within funding estimates, because PMs will know 
whether their critical technologies will work as intended. They 
can focus not on developing these technologies but rather on 
capturing design and manufacturing knowledge.
    The space policy highlighted at the bottom calls for tools 
to be put in place, such as technology maturity assessments, 
IPAs, and cost estimates. We like these tools. We think they 
will help decisionmakers assess whether gaps exist between the 
user's needs and the developer's resources. However, only the 
system engineering that General Arnold spoke about and other 
R&D efforts actually help users and developers gain the 
knowledge needed to close the gaps.
    We are concerned that the space policy increases risk by 
allowing programs to go into product development with unknowns 
about the form, fit, and function of critical technologies. In 
our view, clearly separating technology development from 
product development, as called for by the DOD 5000 policy, is 
an essential first step toward optimizing DOD's space 
investment and ensuring there's a more timely delivery of 
capability to the warfighter. Thus, we made a recommendation 
that DOD change its space policy to mirror the DOD 5000.
    Before I conclude my remarks, Mr. Chairman, I would like to 
say something about one of the systems getting ready for a key 
decision under the new space policy. This system is the 
transformational satellite (TSAT), the subject of a draft 
report that I sent to DOD for comment last month.
    As you probably know, TSAT will use laser optics to 
transport information over long distances in much greater 
quantities than radio waves. It's the cornerstone of DOD's 
future communications architecture. DOD plans to begin the TSAT 
program in December 2003. At that time, DOD expects to formally 
commit to this investment and, as required by law, set goals 
for you on cost schedule and performance.
    Even if TSAT's technology development proceeds as planned, 
however, DOD does not expect to know whether the critical 
technologies will have the necessary form, fit, and function 
until the year 2006; therefore, DOD is now poised to provide 
you with goals for TSAT based on its hopes rather than 
demonstrated knowledge. In our view, if the program is launched 
now, I predict probably in several years the PM and contractors 
will find themselves burdened by unreasonable expectations 
about cost, schedule, and performance.
    I think clearly the way to go here is to have DOD's space 
policy conform with its overall 5000 acquisition policy. I 
understand there's a disagreement here, but that's our position 
based on many years of research into what makes programs work.
    I thank you for your time.
    [The prepared statement of Mr. Levin follows:]

                 Prepared Statement by Robert E. Levin

    Mr. Chairman and members of the subcommittee: I am pleased to be 
here today to discuss the DOD's new space acquisition policy. This 
policy will be critical as DOD strives to optimize its investment in 
space--which currently stands at more than $18 billion \1\ annually and 
is expected to grow considerably over the next decade. DOD's space 
acquisitions have experienced problems over the past several decades 
that have driven up costs by hundreds of millions, even billions of 
dollars, stretched schedules by years, and increased performance risks. 
In some cases, capabilities have not been delivered to the warfighter 
after decades of development.
---------------------------------------------------------------------------
    \1\ This includes research, development, and testing; procurement; 
and operations and maintenance accounts.
---------------------------------------------------------------------------
    Similar to all weapon system programs, we have found that the 
problems being experienced on space programs are largely rooted in a 
failure to match the customer's needs with the developer's resources--
technical knowledge, timing, and funding--when starting product 
development. While DOD's new policy for space acquisitions may help to 
illuminate gaps between needs and resources, it will not help DOD to 
close this gap. More specifically, the policy allows programs to 
continue to develop technologies after starting product development, 
which not only means that costs and schedule will be more difficult to 
estimate, but that there will be more risk that DOD will encounter 
technical problems that could disrupt design and production and require 
more time and money to address than anticipated. More important, over 
the long run, the extra investment required to address these problems 
may likely prevent DOD from pursuing more advanced technologies and 
from making effective tradeoff decisions between space and other weapon 
system programs.
    By contrast, DOD is taking steps to better position its other 
acquisition programs for success. Its revised acquisition policy for 
nonspace systems separates technology development and product 
development.
            the importance of dod's space systems is growing
    DOD's current space network is comprised of constellations of 
satellites, ground-based systems, and associated terminals and 
receivers. Among other things, these assets are used to perform 
intelligence, surveillance, and reconnaissance functions; perform 
missile warning; provide communication services to DOD and other 
government users; provide weather and environmental data; and provide 
positioning and precise timing data to U.S. forces as well as national 
security, civil, and commercial users.
    All of these systems are playing an increasingly important role in 
military operations. According to DOD officials, for example, in 
Operation Iraqi Freedom, approximately 70 percent of weapons were 
precision-guided, most of those using GPS capabilities. Weather 
satellites enabled warfighters to not only prepare for but also take 
advantage of blinding sandstorms. Communication and intelligence 
satellites were also heavily used to plan and carry out attacks and to 
assess post-strike damage. Some of DOD's satellite systems--such as 
GPS--have also grown into international use for civil and military 
applications and commercial and personal uses. Moreover, the demand for 
space-based capabilities is outpacing DOD's current capacity. For 
example, even though DOD has augmented its own satellite communications 
capacity with commercial satellites, in each major conflict of this 
past decade, senior military commanders reported shortfalls in 
capacity, particularly for rapid transmission of large data files, such 
as those created by imagery sensors.
    DOD is looking to space to play an even more pivotal role in future 
military operations. As such, it is developing several families of new, 
expensive, and technically challenging satellites, which are expected 
to require dramatically increased investments over the next decade. For 
example, DOD is building new satellites that will use laser optics to 
transport information over long distances in much larger quantities 
than radio waves. The system, known as the TSAT, is to be the 
cornerstone of DOD's future communications architecture. Many space, 
air, land, and sea-based systems will depend on TSAT to receive and 
transmit large amounts of data to each other as DOD moves toward a more 
``network centric'' warfighting approach. DOD is also building a new 
space-based radar (SBR) system, which is to employ synthetic aperture 
radar \2\ and other advanced technologies to enable DOD to have 24-hour 
coverage over a large portion of the Earth on a continuous basis and 
allow military forces a ``deep-look'' into denied areas of interest, on 
a nonintrusive basis without risk to personnel or resources. SBR itself 
is expected to generate large amounts of imagery data, and it will rely 
on TSAT to deliver this data to warfighters.
---------------------------------------------------------------------------
    \2\ Synthetic Aperture Radar ``synthesizes'' an antenna--a very 
long antenna--by taking radar samples looking sideways along a flight 
path of an aircraft or satellite, taking advantage of the fact that the 
ground and objects on the ground are essentially stationary during the 
fly-by time. The synthesized radar signals can be used to generate 
quality resolution ground imagery.
---------------------------------------------------------------------------
    As figure 1 shows, the costs of these and other new efforts will 
increase DOD's annual space investment significantly. For example, 
based on the 2003 President's budget, acquisition costs for new 
satellite programs and launch services in the next 4 years are expected 
to grow by 115 percent--from $3.5 billion to about $7.5 billion. Costs 
beyond that period are as yet unknown. While DOD's budget documents 
show a decrease in 2009 for these systems to $6.4 billion--they do not 
include procurement costs for some of the largest programs, including 
TSAT, GPS III, SBR, Space Tracking and Surveillance System (STSS), and 
Space-Based Surveillance System (SBSS), which DOD will begin fielding 
beginning 2011. Nor do these numbers reflect the totality of DOD's 
investment in space. For example, ground stations and user equipment 
all require significant investment and that investment will likely 
increase as the new programs mature.
      
    
    
      
    Table 1 identifies specific programs factored into our analysis of 
upcoming investments. It also shows that DOD will be fielding many of 
the new programs within just a few years of each other.
      
    
    
      
  grounding decisions in knowledge is vital for dod's space investment
    For the past 6 years, we have been examining ways DOD can get 
better outcomes from its investment in weapon systems, drawing on 
lessons learned from the best, mostly commercial, product development 
efforts.\3\ Our work has shown that leading commercial firms expect 
that their managers will deliver high quality products on time and 
within budgets. Doing otherwise could result in losing a customer in 
the short term and losing the company in the long term. Thus, these 
firms have adopted practices that put their individual programs in a 
good position to succeed in meeting these expectations on individual 
products. Collectively, these practices ensure that a high level of 
knowledge exists about critical facets of the product at key junctures 
and is used to make decisions to deliver capability as promised. We 
have assessed DOD's space acquisition policy as well as its revised 
acquisition policy for other weapon systems against these practices.
---------------------------------------------------------------------------
    \3\ For example, see U.S. General Accounting Office, Best 
Practices: Better Matching of Needs and Resources Will Lead to Better 
Weapon System Outcomes, GAO-01-288 (Washington, DC: March 8, 2001). 
Best Practices: Better Management of Technology Development Can Improve 
Weapon System Outcomes, GAO/NSIAD-99-162 (Washington, DC: July 30, 
1999). Best Practices: Capturing Design and Manufacturing Knowledge 
Early Improves Acquisition Outcomes, GAO-02-701 (Washington, DC: July 
15, 2002).
---------------------------------------------------------------------------
    Our reviews have shown that there are three critical junctures at 
which firms must have knowledge to make large investment decisions. 
First, before a product development is started, a match must be made 
between the customers' needs and the available resources--technical and 
engineering knowledge, time, and funding. Second, a product's design 
must demonstrate its ability to meet performance requirements and be 
stable about midway through development. Third, the developer must show 
that the product can be manufactured within cost, schedule, and quality 
targets and is demonstrated to be reliable before production begins. If 
the knowledge attained at each juncture does not confirm the business 
case on which the acquisition was originally justified, the program 
does not go forward. These precepts hold for technically complex, high 
volume programs as well as low volume programs such as satellites.
    In applying the knowledge-based approach, the most-leveraged 
investment point is the first: matching the customer's needs with the 
developer's resources. The timing of this match sets the stage for the 
eventual outcome--desirable or problematic. The match is ultimately 
achieved in every development program, but in successful development 
programs, it occurs before product development begins. When the needs 
and resources match is not made before product development, realistic 
cost and schedule projections become extremely difficult to make. 
Moreover, technical problems can disrupt design and production efforts. 
Thus, leading firms make an important distinction between technology 
development and product development. Technologies that are not ready 
continue to be developed in the technology base--they are not included 
in a product development.
    With technologically achievable requirements and commitment of 
sufficient resources to complete the development, programs are better 
able to deliver products at cost and on schedule. When knowledge lags, 
risks are introduced into the acquisition process that can result in 
cost overruns, schedule delays, and inconsistent product performance. 
As we recently testified,\4\ such problems, in turn, can reduce the 
buying power of the defense dollar, delay capabilities for the 
warfighter, and force unplanned--and possibly unnecessary--trade-offs 
in desired acquisition quantities and an adverse ripple effort among 
other weapon programs or defense needs. Moreover, as DOD moves more 
toward a system-of-systems approach--where systems are being designed 
to be highly interdependent and interoperable--it is exceedingly 
important that each individual program stay on track.
---------------------------------------------------------------------------
    \4\ U.S. General Accounting Office. Best Practices: Better 
Acquisition Outcomes Are Possible If DOD Can Apply Lessons from F/A-22 
Program, GAO-03-645T (Washington, DC: April 11, 2003).
---------------------------------------------------------------------------
Decisions on Space Programs Have Not Been Sufficiently Grounded in 
        Knowledge
    Our past work \5\ has shown that space programs have not typically 
achieved a match between needs and resources before starting product 
development. Instead, product development was often started based on a 
rigid set of requirements and a hope that technology would develop on a 
schedule. At times, even more requirements were added after the program 
began. When technology did not perform as planned, adding resources in 
terms of time and money became the primary option for solving problems, 
since customer expectations about the products' performance already 
became hardened.
---------------------------------------------------------------------------
    \5\ U.S. General Accounting Office. Military Space Operations: 
Common Problems and Their Effects on Satellite and Related 
Acquisitions, GAO-03-825R (Washington, DC: June 2, 2003).
---------------------------------------------------------------------------
    For example, after starting its AEHF communications satellite 
program, DOD substantially and frequently changed requirements. In 
addition, after the launch failure of one of DOD's legacy 
communications satellites, DOD decided to accelerate its plans to build 
AEHF satellites. The contractors proposed, and DOD accepted, a high 
risk schedule that turned out to be overly optimistic and highly 
compressed, leaving little room for error and depending on a precise 
chain of events taking place at certain times. Moreover, at the time 
DOD decided to accelerate the program, it did not have funding needed 
to support the activities and manpower needed to design and build the 
satellites quicker. The effects of DOD's inability to match needs to 
resources were significant. Total program cost estimates produced by 
the Air Force reflected an increase from $4.4 billion in January 1999 
to $5.6 billion in June 2001--a difference of 26 percent. Although 
considered necessary, many changes to requirements were substantial, 
leading to cost increases of hundreds of millions of dollars because 
they required major design modifications. Also, schedule delays 
occurred when some events did not occur on time, and additional delays 
occurred when the program faced funding gaps. Scheduling delays 
eventually culminated into a 2-year delay in the launch of the first 
satellite. We also reported that there were still technical and 
production risks that need to be overcome in the AEHF program, such as 
a less-than-mature satellite antenna system and complications 
associated with the production of the system's information security 
system.
    Another example can be found with DOD's SBIRS-High program, which 
is focused on building high-orbiting satellites that can detect 
ballistic missile launches. Over time, costs have more than doubled for 
this program. Originally, total development costs for SBIRS-High were 
estimated at $1.8 billion. In the fall of 2001, DOD identified 
potential cost growth of $2 billion or more, triggering a mandatory 
review and recertification under 10 U.S.C. section 2433.\6\ Currently, 
the Air Force estimates research and development costs for SBIRS-High 
to be $4.4 billion. We reported that when DOD's SBIRS-High satellite 
program began in 1994, none of its critical technologies were mature. 
Moreover, according to a DOD-chartered independent review team, the 
complexity, schedule, and resources needed to develop SBIRS-High, in 
hindsight, were misunderstood when the program began. This led to an 
immature understanding of how requirements translated into detailed 
engineering solutions. We recently reported \7\ to this subcommittee 
that while the SBIRS restructuring implemented a number of needed 
management changes, the program continues to experience problems and 
risks related to changing requirements, design instability, and 
software development concerns. We concluded that if the Air Force 
continues to add new requirements and program content while prolonging 
efforts to resolve requirements that cannot be met, the program will 
remain at risk of not achieving, within schedule, its intended 
purposes--to provide an early warning and tracking system superior to 
that of its current ballistic missile detection system.
---------------------------------------------------------------------------
    \6\ This unit cost reporting mechanism, which also applies to 
procurement unit cost for procurement programs, originated with the 
Nunn-McCurdy Amendment to the Department of Defense Authorization Act, 
1982. The amendment, as revised, was made permanent law in the 
following year's authorization act. Known as Nunn-McCurdy ``breaches,'' 
program unit cost increases of 15 percent or more trigger a requirement 
for detailed reporting to Congress about the program. Increases of 25 
percent or more also trigger the requirement for Secretary of Defense 
certification.
    \7\ U.S. General Accounting Office. Defense Acquisitions: Despite 
Restructuring, SBIRS-High Program Remains at Risk of Cost and Schedule 
Overruns, GAO-04-48 (Washington, DC: October 31, 2003).
---------------------------------------------------------------------------
    DOD has also initiated several programs and spent several billion 
dollars over the past two decades to develop low-orbiting satellites 
that can track ballistic missiles throughout their flight. However, it 
has not launched a single satellite to perform this capability. We have 
reported \8\ that a primary problem affecting these particular programs 
was that DOD and the Air Force did not relax rigid requirements to more 
closely match technical capabilities that were achievable. Program 
baselines were based on artificial time and/or money constraints. Over 
time, it became apparent that the lack of knowledge of program 
challenges had led to overly optimistic schedules and budgets that were 
funded at less than what was needed. Attempts to stay on schedule by 
approving critical milestones without meeting program criteria resulted 
in higher costs and more slips in technology development efforts. For 
example, our 1997 and 2001 reviews of DOD's $1.7 billion SBIRS-Low 
program (which was originally a part of the SBIRS-High program) showed 
that the program would enter into the product development phase with 
critical technologies that were immature and with optimistic deployment 
schedules. Some of these technologies were so critical that SBIRS-Low 
would not be able to perform its mission if they were not available 
when needed. DOD eventually restructured the SBIRS-Low program because 
of the cost and scheduling problems, and it put the equipment it had 
partially built into storage. In view of the program's mismatch between 
expectations and what it could achieve, Congress directed DOD to 
restructure the program (now under the responsibility of the Missile 
Defense Agency) as a research and development effort.
---------------------------------------------------------------------------
    \8\ U.S. General Accounting Office, Missile Defense: Alternate 
Approaches to Space Tracking and Surveillance System Need to Be 
Considered, GAO-03-597 (Washington, DC: May 23, 2003) and Defense 
Acquisitions: Space-Based Infrared System-Low At Risk of Missing 
Initial Deployment Date, GAO-01-6 (Washington, DC: February 28, 2001).
---------------------------------------------------------------------------
    NEW SPACE POLICY ALLOWS PROGRAMS TO GO FORWARD WITH KEY UNKNOWNS

    DOD's new space acquisition policy may help increase insight into 
gaps between needs and resources, but it does not require programs to 
close this gap before starting product development. In other words, the 
new policy does not alter DOD's practice of committing major 
investments before knowing what resources will be required to deliver 
promised capability.
    There are tools being adopted under the new policy that can enable 
DOD to better predict risks and estimate costs. Similar tools are also 
being adopted by other weapon system programs. For example:

         DOD is requiring that all space programs conduct 
        technology maturity assessments before key oversight decisions 
        to assess the maturity level of technology.
         DOD is requiring space programs to more rigorously 
        assess alternatives, consider how their systems will operate in 
        the context of larger families of systems, and think through 
        operational, technical, and system requirements before programs 
        are started.
         The new policy seeks to improve the accuracy of cost 
        estimates by establishing an independent cost-estimating 
        process in partnership with DOD's CAIG and by adopting 
        methodologies and tools used by the NRO. To ensure timely cost 
        analyses, the CAIG will augment its own staff with cost 
        estimating personnel drawn from across the entire national 
        security space cost-estimating community.

    Moreover, to facilitate faster decisionmaking on programs, the 
policy also calls for IPAs to be performed on space programs nearing 
KDPs. The teams performing these assessments are to be drawn from 
experts who are not directly affiliated with the program, and they are 
to spend about 8 weeks studying the program, particularly the 
acquisition strategy, contracting information, cost analyses, system 
engineering, and requirements. After this study, the team is to 
conclude its work with recommendations to the Under Secretary of the 
Air Force, as DOD's MDA for all DOD MDAPs for space, on whether or not 
to allow the program to proceed, typically using the traditional 
``red,'' ``yellow,'' and ``green'' assessment colors to indicate 
whether the program has satisfied key criteria in areas such as 
requirements setting, cost estimates, and risk reduction.
    The benefits that can be derived from tools called for by the space 
acquisition policy, however, will be limited since the policy allows 
programs to continue to develop technologies while they are designing 
the system and undertaking other product development activities. As 
illustrated below, this is a very different and important departure 
from DOD's acquisition policy for other weapon systems.
      
    
    
      
    As we reported \9\ last week, the revised acquisition policy for 
nonspace systems establishes mature technologies--that is, technologies 
demonstrated in a relevant environment--as critical before entering 
product development. By encouraging programs to do so, the policy puts 
programs in a better position to deliver capability to the warfighter 
in a timely fashion and within funding estimates because PMs can focus 
on the design, system integration, and manufacturing tasks needed to 
produce a product. By contrast, the space acquisition policy increases 
the risk that significant problems will be discovered late in 
development because programs are expected to go into development with 
many unknowns about technology. In fact, DOD officials stated that 
technologies may well enter product development at a stage where basic 
components have only been tested in a laboratory, or an even lower 
level of maturity. This means that programs will still be grappling 
with the shapes and sizes of individual components while they are also 
trying to design the overall system and conduct other program 
activities. In essence, DOD will be concurrently building knowledge 
about technology and design--an approach with a problematic history 
that results in a cycle of changes, defects, and delays. Further, the 
consequences of problems experienced during development will be much 
greater for space programs since, under the new space acquisition 
policy, critical design review occurs at the same time as the 
commitment to build and deliver the first product to a customer. It is 
thus possible that the design review will signify a greater commitment 
on a satellite program at the same time less knowledge will be 
available to make that commitment.
---------------------------------------------------------------------------
    \9\ U.S. General Accounting Office. Defense Acquisitions: DOD's 
Revised Policy Emphasizes Best Practices But More Controls Are Needed, 
GAO-04-53 (Washington, DC: November 10, 2003).
---------------------------------------------------------------------------
    An upcoming decision by DOD on the new TSAT program represents the 
potential risks posed by the new space acquisition policy. The $12 
billion program is scheduled to start product development in December 
2003, meaning that the Air Force will formally commit to this 
investment and, as required by law,\10\ set goals on cost, schedule and 
performance. However, at present, TSAT's critical technologies are 
underdeveloped, leaving the Air Force without the knowledge needed to 
build an effective business case for going forward with this massive 
investment. In fact, most of the technologies for TSAT are at a stage 
where most of the work performed so far has been based on analytical 
studies and a few laboratory tests or, at best, some key components 
have been wired and integrated and have been demonstrated to work 
together in a laboratory environment. The program does not know yet 
whether TSAT's key technologies can effectively work, let alone work 
together in the harsh space environment for which they are intended. 
Yet the space acquisition policy allows the Air Force to move the 
program forward and to set cost, schedule, and performance goals in the 
face of these unknowns. Moreover, the Air Force has scaled back its 
AEHF program, whose technologies are more mature, to help pay for 
TSAT's development. Making trade-off decisions between alternative 
investments is difficult at best. Yet doing so without a solid 
knowledge basis only compounds the risk of failures. Our work on 
program after program has demonstrated that DOD's optimism has rarely 
been justified.
---------------------------------------------------------------------------
    \10\ 10 U.S.C. Sections 2220 and 2435.
---------------------------------------------------------------------------
          CHANGES NEEDED TO OPTIMIZE DOD'S INVESTMENT IN SPACE

    The growing importance of space systems to military and civil 
operations requires DOD to achieve timely delivery of high quality 
capability. New space systems not only need to support important 
missions such as missile defense and reconnaissance, they need to help 
DOD move toward a more ``network-centric'' warfighting approach. At the 
same time, given its desire to transform how military operations are 
conducted, DOD must find ways to optimize its overall investment on 
weapon systems since the transformation will require DOD to develop new 
cutting edge systems while concurrently maintaining and operating 
legacy systems--a costly proposition. Recognizing the need to optimize 
its investment, DOD has expressed a desire to move toward an ``effects-
based'' investment approach, where decisions to acquire new systems are 
made based on needs and joint interests versus annual budgets and 
parochial interests. Changing the new space acquisition policy to 
clearly separate technology development from product development is an 
essential first step toward optimizing DOD's space investment and 
assuring more timely delivery of capability since it enables a program 
to align customer expectations with resources and, therefore, minimize 
problems that could hurt a program in its design and production phase. 
Thus, we recommended that DOD make this change in our recent report on 
the new space acquisition policy.\11\ DOD did not agree with our 
recommendation because it believed that it needs to keep up with the 
fast-paced development of advanced technologies for space systems, and 
that its policy provides the best avenue for doing so. In fact, it is 
DOD's long-standing and continuous inability to bring the benefits of 
technology to the warfighter in a timely manner that underlies our 
concerns about the policy for space acquisitions. In our reviews of 
numerous DOD programs, including many satellite developments, it has 
been clear that committing to major investments in design, engineering, 
and manufacturing capacity without knowing a technology is mature and 
what resources are needed to ensure that the technology can be 
incorporated into a weapon system has consistently resulted in more 
money, time, and talent spent than either was promised, planned for, or 
necessary. The impact of such high risk decisions has also had a 
damaging effect on military capability as other programs are taxed to 
meet unplanned cost increases and product units are often cut because 
unit costs increase and funds run out. Moreover, as it moves toward a 
more interdependent environment, DOD can simply no longer afford to 
misestimate the cost and time to field capabilities--such as TSAT--
since they are needed to support other applications.
---------------------------------------------------------------------------
    \11\ U.S. General Accounting Office. Defense Acquisitions: 
Improvements Needed in Space Systems Acquisition Management Policy, 
GAO-03-1073 (Washington, DC: September 15, 2003).
---------------------------------------------------------------------------
    Further, policy changes are just a first step toward optimizing 
DOD's investment in space and other weapon systems. There are also some 
changes that need to be made at a corporate level to foster a 
knowledge-based acquisition approach. As we have reported in the past, 
DOD needs to remove incentives that drive premature product development 
decisions. This means embracing a willingness to invest in technology 
development outside a program as well as alleviating pressures to get 
new acquisition programs approved and funded on the basis of 
requirements that must beat out all other alternatives. Other changes--
some of which have been recognized by recent DOD studies on space 
acquisitions--include:

         Keeping key people in place long enough so that they 
        can affect decisions and be held accountable. Part of the 
        solution would be to shorten product development times.
         Providing program offices with the capability needed 
        to craft acquisition approaches that implement policy and to 
        effectively oversee the execution of programs by contractors.
         Realigning responsibilities and funding between S&T 
        organizations and acquisition organizations to enable the 
        separation of technology development from product development.
         Bringing discipline to the requirements-setting 
        process by demanding a match between requirements and 
        resources.
         Designing and implementing test programs that deliver 
        knowledge when needed, including reliability testing early in 
        design.

    Lastly, DOD leadership can use this knowledge-based approach to 
effectively rebalance its investment portfolio. For programs whose 
original justification was based on assumptions of cost, schedule and 
performance that have not been realized, having a consistent set of 
standards allows DOD and Congress to reevaluate alternatives and make 
investment decisions across programs that increase the likelihood that 
the warfighter will have the best possible mix of capabilities in a 
timely fashion.
    In conclusion, using an approach for managing weapon system 
investments based on knowledge instead of promises can help DOD fully 
leverage the value of its investment dollars. At a time when the Nation 
is facing a large and growing fiscal gap, DOD's $150 billion annual 
investment in the acquisition of new weapons is the single largest area 
of discretionary spending. While there are differing views on what 
weapons DOD should or should not invest in and how much should be 
invested, there cannot be any disagreement that within this fiscal 
environment, once a consensus has been reached on the level of 
investment and the specific weapons to be acquired, we should get those 
weapons for what was estimated in the budget. While DOD's revised 
acquisition policy for nonspace systems puts DOD on a better footing 
toward this end, DOD's acquisition policy for space systems does not 
because it allows programs to proceed into product development before 
knowing what their true costs will be. Therefore, we continue to 
recommend that DOD modify its policy to separate technology development 
from product development so that needs can be matched with available 
technology, time, and money at the start of a new development program.
    Mr. Chairman and members of the subcommittee, this concludes my 
statement. I would be happy to respond to any questions that you or 
other members of the subcommittee may have.

                         SCOPE AND METHODOLOGY

    In preparing for this testimony, we relied on previously issued GAO 
reports on DOD's space acquisition policy, common problems affecting 
space acquisitions, SBIRS-High and other individual programs, as well 
as our reports on best practices for weapon systems development. We 
also analyzed DOD's Future Years Defense Program (FYDP) to assess 
investment trends. In addition, we reviewed DOD reports on satellite 
acquisition problems. We conducted our review between October 29 and 
November 14, 2003, in accordance with generally accepted government 
auditing standards.

Contacts and Acknowledgements
    For future information, please contact Katherine Schinasi or Bob 
Levin at (202) 512-4841 or by email at [email protected] or 
[email protected]. Individuals making key contributions to this testimony 
include Cristina Chaplain, Jean Harker, and Art Gallegos.

    Senator Allard. Thank you for sharing your views with us. I 
want to thank all the panel members for their testimony. I'm 
going to turn to the ranking minority member here and see if he 
has an opening statement. Then, we'll proceed with questioning, 
and I'll start off the questioning. We'll go to Senator Nelson 
and Senator McCain.
    Senator Bill Nelson. Mr. Chairman, I would have been here 
on time, but we have a few other things that we're laboring on, 
not the least of which is prescription drugs and energy right 
now. I apologize for being late.
    Senator Allard. I understand.
    Senator Bill Nelson. I'm concerned about a series of not-
so-good news that's been coming out.
    Four weeks ago, the Air Force had successfully launched the 
last Titan II, which placed the Defense Message System (DMS) 
satellite into low Earth orbit. While a successful launch is 
always good news, the bad news is that the launch was 
originally scheduled to take place in January 2001. Due to a 
variety of issues with both the Titan II launch vehicle and the 
spacecraft, this launch was delayed over 2\1/2\ years.
    Just last week was the news that the SBIRS-High has again 
been delayed. That payload was supposed to be ready in the late 
1990s, but has been repeatedly delayed. Most recently, the 
payload delivery date was November 7. Now it's sometime early 
next year.
    As the schedule has slipped, the costs have more than 
doubled. The cost, unlike the payload, has skyrocketed. This 
program is now at $8.5 billion, having grown from an early 
estimate of $2 billion.
    An article in Defense News cites General Arnold, one of our 
witnesses, as characterizing the program as ``chronically 
plagued with failures.'' I'm looking forward to discussing this 
with the general.
    Our witness from the DSB, Mr. Young, my long-time friend 
and someone for whom I have enormous respect, having worked 
with him in the space arena over the years, has looked closely 
at the broad area of space acquisition and has come to some 
very troubling conclusions.
    Our witness from GAO, Mr. Levin, has looked specifically at 
SBIRS-High and similarly highlighted troubling issues in that 
program.
    With the results of these studies, we will be able to 
discuss both the macro- and programmatic-level issues and 
problems associated with space acquisition.
    Senator Allard, I thank you for holding this hearing. I 
look forward to digging into it.
    Senator Allard. Thank you. We'll start with questions, and 
I'll begin.
    Secretary Teets, I think the most difficult thing to ask of 
anybody is to give yourself a self-evaluation, and that's what 
I'm going to ask you, to judge your progress at this point. 
What grade would you give yourself, up to this point, since 
you've been dealing with the acquisition problems, and why?
    Secretary Teets. I think we have made some reasonable 
progress. We have not made progress as fast as I would have 
liked or hoped to have made. I would give myself a ``C-plus.''
    Senator Allard. General Arnold, you made a comment a couple 
years ago that all your space programs were broken. How would 
you describe the overall status today?
    General Arnold. Mr. Chairman, I think that comment was out 
of context a little bit. I was commenting that the Space 
Commission recommended that the PEO be moved from Washington to 
Los Angeles to the product center so you could then have daily 
oversight and insight into your programs. The reason the Space 
Commission recommended that was because they stated all space 
programs were broken. I believe that article that came out took 
that out of context.
    I believe that the things that we're doing in changing our 
processes and our procedures; the insight that we are now 
providing to change from a decade of acquisition reform, where 
we were drawing down the size of our special project officers 
(SPOs), challenged with reduced budgets and an increase in 
number and content of programs; and based on Tom Young's 
recommendations that we really took to heart and listened to, 
given time, we're really starting to make some significant 
changes.
    I would agree with Secretary Teets; it's probably a bit 
early to grade us. The ink on 03-01 is barely dry. These types 
of programs take many years to turn around.
    But I think we're on the right track. I think we have the 
right kinds of PMs that will stay at the product center for at 
least 4 years. I hold each one of them accountable to a 
baseline and manage that baseline. They're responsible for 
execution of those programs, and, in working with our industry 
partners to get them to take that same kind of accountability 
through many processes, which I can go into in detail later, we 
are starting to make some significant changes, if you will.
    Senator Allard. Mr. Young, we hear a report and everything. 
I'd like to have you now just tell us how you think the Air 
Force is doing today, what it's doing right, and what might 
need more improvement.
    Mr. Young. The first comment I should make is that we have 
not gone back and done a re-review of the status of the 
implementation of our recommendations. That is planned. We 
basically said after a period of approximately a year that we 
would like the opportunity, and I think that's generally agreed 
that we would do that. I speak without having had the 
opportunity to do that.
    When we did our review, we actually saw some things that 
were happening at that time. I've obviously kept track, 
somewhat from afar, in listening to Secretary Teets and General 
Arnold this morning.
    The thing that strikes me as extraordinarily significant is 
reconstituting the Government's capability to manage these 
programs. That was one of the things that really stood out to 
us in the 1990s--how much we had eroded the capability.
    Essentially, we've gotten rid of systems engineering. We 
had devalued the role of the PM. Independent review and cost 
estimating were not factored in very effectively when programs 
were started. I think if you heard this morning the comments 
that were made, their comments were rebuilding that capability.
    The thing I have to caution all of us, though, is we didn't 
get to where we are in a day or two. We won't make the 
corrective actions in a short amount of time. It'll take a 
considerable amount of time to rebuild the capabilities.
    My observations are that they have the right actions in 
place to do that. I should not overstate that because we have 
not had the opportunity to look at it in great detail, which, 
hopefully, we will do sometime in the near future.
    Senator Allard. Let me restate the picture just a little 
bit and then have you comment on it, if you would, Mr. Young.
    The way I understand it, the problem is that you determine 
a project that you're going to go on and there are 
requirements--and we're changing that terminology, too, I 
understand. But, at least at that point in time, there were 
requirements. Then, maybe there was a 10-year lag on it, and 
the requirements kept changing--things kept getting added into 
the satellite, for example. Then we got down to the end, we had 
the satellite that was a mixed bag, had a lot of things nobody 
anticipated on being there.
    Some of it was very new technology. We weren't sure whether 
it was going to work or not and almost put the whole thing at 
risk. By the time we got done, it was a pretty hefty price tag 
at the end. We need to do something to make the vision a little 
clearer.
    Did I have that put together fairly accurately?
    Mr. Young. Yes. I think so. If I might add to that, our 
observations were that many of the programs we looked at--for 
the reasons that I've commented upon--on day one were 
underbudgeted to the level of 50 to 100 percent.
    Our conclusion from the programs that we examined was that 
if, on day one, the PMs had a $5 billion program, they had a 
probability of $1 billion to $2.5 billion overrun. That was the 
most probable outcome.
    Then you give PMs a responsibility where they are 50 to 100 
percent deficient in funding, and good PMs have only one 
alternative. That is to use schedule as a reserve and, 
basically, to manage the program to accomplish the maximum they 
can with the funds available and to delay the program. Then, at 
some point along the line, we have to pay, obviously, for that 
schedule delay.
    You described it very well, but I would like to just 
emphasize that particular point, that our observations were the 
funding problems should have been known at the front end of the 
programs.
    Senator Allard. Mr. Levin, I'd like to have you answer the 
same question I asked Mr. Young, and I'll repeat that just so 
that you'd start out at this point.
    How do you think the Air Force is doing, what it's doing 
right, and what we maybe need to be doing to improve it? Then, 
maybe you might respond to my observations.
    Mr. Levin. Okay. I guess, in terms of a grade, I would say 
it's too early to tell, maybe an incomplete. I mean, much 
remains to be seen if the changes will help. Obviously, we 
don't think that some of the changes in the new space policy 
will put them in a position to get an ``A.''
    Some of the new ways of gaining insight into the cost and 
into the program risks are good. We are still concerned, 
though, that that knowledge build isn't going to happen in time 
for that program start decision, when you're going to launch 
the program, whether it's TSAT or SBR or some of these other 
new programs. We build the best weapons systems in the world. 
GAO's problem has always been, ``You can do it a lot more 
efficiently.''
    I think one of the reasons that we find the underbudgeting 
that Mr. Young refers to is that there isn't a whole lot of 
knowledge in place when those cost estimates are made. 
Technologies aren't mature. We don't know how much more time 
and money it's going to take to mature those technologies. We 
end up finding the program office burdened by these cost 
limitations. It gets back to what I was saying about how these 
come back to haunt you later.
    I think one of the main things that has to be done here is 
to build the knowledge, know the technology works, know that 
your design is going to work, and know that your manufacturing 
can produce very reliable systems. There's a very structured, 
reliable process in place there. The DOD 5000 reflects this 
knowledge build very well. We think that the space policy needs 
to be revised to reflect more of what the DOD 5000 dictates.
    Senator Allard. Thank you all for responding to my 
question. I just wanted to lay things out in a general nature 
here, and then we'll call on the rest of the members of the 
subcommittee.
    I'll call on Senator Nelson, and then we'll have Senator 
McCain.
    Senator Bill Nelson. Mr. Chairman, I have quite a few 
questions, and I would defer to Senator McCain if his schedule 
is such that he wants to ask questions first so he can exit.
    Senator McCain. I thank you, Senator Nelson, and I'll be 
brief.
    Secretary Teets, I believe in August you announced that the 
Air Force suspended Boeing units and shifted rocket launch 
contracts worth about $1 billion from Boeing to Lockheed 
Martin, saying ``Boeing committed serious substantial 
violations of Federal law.'' That's a quote from you.
    Air Force Under Secretary Peter Teets said, ``Boeing 
possessed an extraordinary 25,000 pages of Lockheed proprietary 
materials,'' et cetera.
    After this rather strong statement, Secretary Teets said, 
``Boeing could resume work as a contractor within 60 to 90 days 
in time to bid for 15 to 20 additional rocket launchers to be 
awarded late this year if it took meaningful corrective 
actions.''
    Has it taken meaningful corrective action, Secretary Teets?
    Secretary Teets. I do believe, Senator McCain, that 
corrective actions are under way, now.
    Senator McCain. For example?
    Secretary Teets. For example, the companies that were 
suspended from the award of new Government contracts have all 
stood down for a full day of training and indoctrination 
relative to the violations that caused the violation of the 
Procurement Integrity Act.
    Senator Rudman has completed, I guess, about a 60-day or 
thereabouts review of the ethical conduct program within the 
Boeing Corporation and has issued a report. I have not had the 
opportunity to fully read the report. I received a copy 
yesterday, as a matter of fact, sir.
    I do believe, though, that Boeing has announced the 
creation of an ethics and internal oversight office that would 
report directly to Chief Executive Officer Phil Condit. I would 
say those are the main elements of change that I'm aware of.
    Senator McCain. You are aware that the Project on 
Government Oversight reports that since 1990 Boeing has been 
accused of some 50 incidents of misconduct, or alleged 
misconduct, and been assessed fines, settlements, and penalties 
totalling more than $348 million. Are you aware of that?
    Secretary Teets. Honestly, I'm not, sir. No, I'm not.
    Senator McCain. Well, maybe you should check up on it 
before you give them a blank check again.
    Now, at the time, you said that they would be suspended 
from further launches for a while. Is that right?
    Secretary Teets. Yes. They were suspended from being 
awarded new Government contracts unless there was a compelling 
national need for the award of a contract.
    Senator McCain. Yet, within a period of about 2 months, you 
decided to allow them to launch again.
    Secretary Teets. Yes, that is correct. It was with a rocket 
that they have developed over the years to launch GPS 
satellites, and we had a need to launch a GPS satellite.
    Senator McCain. Didn't you know that at the time when you 
barred them from further launches, Secretary Teets?
    Secretary Teets. Sir, we didn't bar them from future 
launches. We barred them from winning new contracts.
    Now, if I may, sir, just a word of explanation to you: Our 
GPS satellites are launched on a Delta II vehicle. They have 
been launched with this same vehicle throughout the course of 
history of GPS, and the plan was to continue to launch with 
these already built Titan II rockets. What we did is we had a 
contract end date of September 30 or some such thing as that, 
and, in order to have the GPS launch that occurred in early 
October, we needed to renew that contract or extend that 
contract, so we did.
    Senator McCain. Didn't you know at the time you suspended 
them that you would have to renew that contract?
    Secretary Teets. I knew that it was likely, but I didn't 
know that we would necessarily have to extend it prior to the 
time that they would have become a responsible contractor.
    Senator McCain. So you suspended it and then, less than 2 
months later, reinstated it.
    Mr. Teets, next year we're going to do some looking at this 
whole incestuous relationship between corporations and the 
Pentagon and back and forth and the revolving door.
    I notice that there are many examples. In 1999, Air Force 
weapons buyer Darleen Druyun criticized Lockheed Martin's 
management study during a private meeting. Details leaked 
around Washington, and the scolding reportedly contributed to a 
Lockheed management shakeup. Earlier this year, Druyun retired 
from the Pentagon and went to work for Boeing.
    We have an incredible appearance problem here, Secretary 
Teets. We will be looking into it either from the standpoint of 
the Armed Services Committee or from the Commerce Committee, 
which I chair.
    I don't see how you say the terrible things--I mean, it was 
a scandal, Lockheed Martin, Boeing, having all these documents. 
You call it ``extraordinary'' that Boeing committed ``serious 
and substantial violations of Federal law.'' So your punishment 
is 60 to 90 days, and then you don't even adhere to that--
remarkable.
    I have no more questions, Mr. Chairman.
    Senator Allard. Go ahead, Senator Nelson.
    Senator Bill Nelson. Mr. Chairman, likewise, I'll defer so 
that Senator Reed could leave.
    Senator Allard. Senator Reed?
    Senator Reed. Thank you very much, Mr. Chairman.
    Thank you, Senator Nelson.
    Secretary Teets, you've been given unprecedented 
responsibility in terms of not only making all milestone 
decisions but effectively being the Executive Agent for Space, 
merging programmatic and oversight responsibilities.
    In your testimony, you say that OSD will continue to 
provide oversight of the process even though you've been 
delegated that. Can you elaborate on how OSD is going to do 
this within the Secretary's office? Is there a regular formal 
process to ensure that everything is on schedule and within 
budget and that requirements are being established properly and 
met?
    Secretary Teets. Yes, Senator Reed. OSD will continue 
oversight of the acquisition process through the Under 
Secretary for Acquisition, Technology, and Logistics--formerly 
Pete Aldridge. I believe Mike Wynne's nomination hearing is yet 
today. That office and that individual will be performing 
oversight of the acquisition process.
    In that regard, for example, we plan to have, at Secretary 
Aldridge's request, a review with him of the SBIRS-High program 
sometime early on in December. When we emerge from the Nunn-
McCurdy violation, Secretary Aldridge asked that we provide a 
year-end review of status on the SBIRS program. We will 
certainly do that.
    In addition to that, I meet periodically with Pete, and now 
with Mike Wynne in his acting role, and review with them the 
important status and progress on space programs. Similarly, 
Steve Cambone, in his new role as Under Secretary of Defense 
for Intelligence, has some oversight activity ongoing as well. 
I review, for example, with him the programs in the NRO.
    Other elements of OSD have oversight functions as well. Dov 
Zakheim, the comptroller, oversees the financial activity of 
all Air Force programs, including Air Force space programs.
    In essence, it's the OSD, John Stenbit, who, in his former 
command, control, communications, and intelligence (C\3\I) 
role, was providing oversight for C\3\I programs and now is 
very much involved in our transformational communications 
program in his network information and integration role.
    So, those OSD offices do provide an oversight function.
    Senator Reed. Thank you, Mr. Secretary.
    Senator Bill Nelson. Would the Senator yield?
    Senator Reed. I would yield.
    Senator Bill Nelson. The question specifically is, will 
there be a regular formal process by which OSD ensures that 
these programs are meeting the requirements, they're on 
schedule, and they're within budget?
    Secretary Teets. Yes, sir. Now that formal process that 
you're referring to has been delegated to me. I have been 
delegated the authority as DOD's Executive Agent for Space. We 
run a formal process. We have formal DSAB meetings.
    Senator Bill Nelson. You will report to Secretary Wynne 
once he's confirmed or directly to OSD?
    Secretary Teets. We will report in the sense that we will 
provide the outcome of these DSAB meetings to Secretary Wynne 
once he's confirmed, yes.
    Senator Bill Nelson. Will he have review of this formal 
process before it goes on up to the Secretary of Defense?
    Secretary Teets. If he requests an additional review, he 
will have an additional review; that's not part of the formal 
process, no, sir.
    Senator Reed. Thank you, Senator Nelson.
    Mr. Secretary and General Arnold, China recently launched a 
man into space, which was a great public relations coup, at 
least for the People's Republic, but it has raised questions 
about their long-term intentions and our long-term intentions 
with respect to space and, obviously, the question of 
weaponization.
    What is your policy regarding space weaponization by the 
United States?
    Secretary Teets. Our policy is to make certain that our 
country has the ability to be aware of exactly what is 
happening in space, be able if necessary to defend our space 
assets, and, if necessary, be able to enforce space control 
activity. We need to protect and defend our assets.
    Brian, you may want to add to that.
    Senator Allard. General Arnold?
    General Arnold. Yes, sir. Granted, the policy is dictated 
from on top. But, clearly, the Space Commission's message to us 
in the acquisition was to be careful that we avoid a Pearl 
Harbor in space, meaning that you have a infrastructure in 
space that is a center of gravity, and, typically, enemies come 
after centers of gravity.
    We rely heavily on everything from GPS satellites to our 
common network to the daily weather that we provide so well to 
everybody in this country.
    It's incumbent upon us to develop the capability to 
surveil--in other words, have good situational awareness of 
what's up there. We do that through both ground and notional 
space-based systems to being able to gain and maintain space 
superiority, should we be required to do that. As good military 
planners, that's exactly what we're often looking at.
    Senator Reed. I know my time has expired, Mr. Chairman. 
Could I have an additional minute for one more question, or 2 
minutes, if possible?
    Senator Allard. Yes. Maybe Senator Nelson took some of your 
time. Maybe he'll yield some of his. I want to call him next, 
so that would be fine.
    Senator Reed. Okay, let me just follow up.
    The real question is, is there a preference to weaponize 
space within your policy. You're leaving all options open, but 
is there a preference to put weapons in space to prevent this 
Pearl Harbor? Can you state there's such a preference, or 
there's no preference to weaponize space, or there's a 
preference not to weaponize space, to do it without? What's the 
preference?
    Secretary Teets. Our preference is to be able to exercise 
space control with reversible effects, and, for certain, that 
is the preference.
    Senator Reed. I will try to determine what that means in 
terms of placing weapons in space.
    The Senator is very kind to yield time. One additional 
question: the Missile Defense Agency has planned to launch a 
space-based test bed in 2008 consisting of two to three 
satellite-based interceptors (SBIs), which I don't think would 
be adequate to defend against missiles, but it would be an 
effective anti-satellite system. That seems to mean that 
there's active planning to put weapons in space. Are you aware 
of this proposal for 2008? Have you been consulted about it? 
Have you opined about whether it is appropriate?
    Secretary Teets. No, I haven't, Senator Reed.
    Now, I do sit on what we call a board of directors for the 
Missile Defense Agency, because ultimately the systems that the 
Missile Defense Agency is building for space will be 
transferred to the Air Force and become part of the Air Force 
inventory.
    I have not had a briefing on the subject of a space-based 
test bed. I'd be glad to take that question for the record. It 
interests me, but I've not heard of it, sir.
    [The information referred to follows:]

    Your question for the record refers to the Near Field InfraRed 
Experiments (NFIRE). These experiments are conducted in support of the 
development of a Ballistic Missile Defense System (BMDS), which the 
President has made a priority. The objective of NFIRE is to reduce the 
risk of the BMDS Interceptors program. These experiments are designed 
to collect missile plume data for boost vehicle detection and tracking 
and to demonstrate command and control. They are not space weapons.
    In fiscal year 2003, the Missile Defense Agency embarked on an 
acquisition strategy to deliver a capability to intercept intermediate 
and long range, enemy ballistic missiles during the boost and ascent 
phase of their trajectory. This plan inaugurates capability initially 
from terrestrial platforms. The second and longer-term element of the 
strategy invests in the development of a SBI test bed.
    During last year's budget submittal, an ambitious, experimental SBI 
program was identified to tackle the key technical and operational 
issues of an SBI element. This plan would leverage NFIRE with follow-on 
SBI spacecraft launched as early as 2008. Budget cuts and the political 
climate forced a reduced scope of the plan in the fiscal year 2005 
budget submittal.
    The NFIRE satellite, a lightweight spacecraft, will launch into low 
earth orbit atop a Minotaur Launch Vehicle in fall 2005. The objectives 
of NFlRE are twofold: collect near field infrared imagery of boosting 
ballistic missiles to reduce development risk for terrestrial boost 
phase ballistic missile defense and collect experimental data on the 
potential capability of an advanced space-based element for the BMDS. 
The spacecraft contains two sensor payloads: a multi-spectral tracking 
sensor and a maneuverable boost phase kill vehicle (KV). The NFIRE 
ground segment will be located at the Missile Defense Agency's Joint 
National Integration Center (JNIC) to facilitate integrated experiments 
with the BMDS.
    Over the 1 year lifetime of the satellite, it will execute four 
mission types: (1) ground observations; (2) track targets of 
opportunity worldwide including aircraft flights, space launches, and 
operational missile tests; (3) track an ICBM closing on the spacecraft; 
and (4) deploy a KV to engage a boosting intercontinental ballistic 
missile (ICBM). For mission types three and four, a boosting ballistic 
missile target will be guided to a point less than  10 kilometers from 
the orbiting NFIRE satellite to provide near field imagery.
    The boost/ascent Kinetic Energy Interceptor (KEI) terrestrial 
development and test program, along with NFIRE, will lay the groundwork 
for the space-based test bed program. These efforts, along with other 
Missile Defense Agency programs, will address some of the technical 
challenges identified by the DSB. Other challenges, including BMDS 
integration, battle management, and constellation management and 
control are amenable to simulation. In fiscal year 2004 an analytical 
effort with the Missile Defense National Team (MDNT) will be conducted 
to identify the benefits of incorporating SBIs into a layered BMDS. The 
MDNT will continue this effort by outlining an operational concept, 
forming a framework for future wargames.
    Beginning in fiscal year 2005 and continuing through fiscal year 
2009, the space-based program will begin a ground-based risk reduction 
effort. The program will initiate development of miniaturized, 
lightweight interceptor components to include axial stages and KVs. 
Building on the MDNT efforts, they will initiate a modeling and 
simulation effort to address the risks associated with BMDS 
integration, battle management, and constellation management and 
control. The program will continually update these simulation and 
modeling tools throughout the life of the program.
    Based on the results of the ground-based risk reduction efforts, 
simulation and modeling results, and the MDNT analytical effort, the 
Director, Missile Defense Agency, will make a decision in 2008 to 
develop satellites to conduct on orbit experiments. In 2012, the space-
based test bed will have on-orbit a thin constellation of three to six 
spacecraft to test the functionality of a space-based BMDS element.

    Senator Reed. Mr. Secretary, you are the chief space 
executive charged with the policy decisions oversight program 
and review, and you haven't heard about it, which I think 
speaks volumes.
    General Arnold, are you aware of this program?
    General Arnold. Sir, only that I worked for General Kadish 
on STSS as a part of an adjunct to the old SBIRS-Low. My 
understanding is that we're looking at both terrestrial-based 
interceptors, as you're aware of, sea-based, air-based 
eventually, perhaps something like an Airborne Laser (ABL) and 
then eventually perhaps a space-based system.
    Other than that, my programs do not work on that.
    Senator Reed. Thank you, gentlemen.
    Thank you, Mr. Secretary.
    Thank you, Senator Nelson.
    Thank you, Mr. Chairman.
    Senator Allard. Continue, Senator Nelson.
    Senator Bill Nelson. I'm a little concerned if we have 
another Admiral Poindexter situation here where people are 
running amok and the two premier space officials in the DOD 
aren't fully engaged in this program, which had planned to put 
a weapon in space in 5 years.
    Make us feel better about this, that the two of you don't 
know anything about this, and that the Missile Defense Agency 
had planned to launch the satellites by 2008.
    Mr. Young. I'm sorry, sir. I am not familiar with that 
plan.
    Mr. Levin. Senator Nelson?
    Senator Bill Nelson. Mr. Levin.
    Mr. Levin. We've looked at that system. Our understanding 
is that it is going to use sensors to detect missile launches. 
That is its purpose, not that it would have an ability to 
intercept, destroy other satellites. This is the first I've 
heard of it too, but I'm going to nose around a little bit.
    Senator Bill Nelson. Mr. Levin, you're talking about a 
different system.
    Mr. Levin. STSS.
    Senator Bill Nelson. That's a different system.
    General Arnold. Senator Nelson, if I could try this on. My 
understanding, again, is that this is an intercept vehicle, not 
one that would be on orbit, but would then be launched and then 
could be on orbit in the event that they detected a launch.
    This is an extension of what General Kadish was looking at 
in all avenues, again, terrestrial, sea-based, air-based, and 
space-based systems. It's part of the construct that the 
Missile Defense Agency has been building over several years.
    Senator Bill Nelson. We may have the beginning of a serious 
failure of oversight here. I would ask that both of you get 
fully briefed on this program, and then that we have a chance 
in our oversight capacity to follow it up, Mr. Chairman.
    Let's go back to Senator Reed's earlier question.
    Secretary Teets, you used the word ``reversible.'' He moved 
on to the next question without the definition of that--
creating an effect which would temporarily disable an attacking 
spacecraft or a spacecraft that is performing a mission but it 
would not be an irreversible effect. For example, a ground-
based ability to jam a communication satellite without damaging 
the satellite would be a reversible action.
    In Senator Reed's earlier question about weaponization, if 
we move to that position where, regardless of the systems that 
would be reversible as you're talking about, as a policy 
matter, how would we deal with other countries that would 
respond in kind if we start the weaponization?
    Secretary Teets. I think that it is possible that other 
countries have already started thinking about how to deny us 
the ability of our assets. As they start to think about it, we 
need to start to think about how we would protect our assets.
    Senator Bill Nelson. General?
    General Arnold. If I could add to that, Senator Nelson, the 
basic effects that were in the arena of space control from the 
reversible, or deny and disrupt, and then to the more 
permanent, the degrade and destroy, those are the realms you 
have, from the very basic to completely destroying an asset in 
orbit.
    Clearly, we've already seen other countries try to deny us. 
The Iraqi use of the GPS jammers in Operation Iraqi Freedom was 
a very good example of trying to deny us the capability of a 
very fragile signal. In this case, the satellite signal to 
earth or to a manned system was attempted to be jammed.
    We've seen additional jamming already taking place on the 
roof of the Iraqi embassy in Cuba, and, as free Iraqi radio was 
broadcasting, they intercepted the signal and jammed it.
    So we already have strong evidence of other countries 
taking measures to take away that capability.
    Many of the signals are very fragile, and there are various 
ways to go about it. You can go against the signal from the 
satellite to the ground, or from the ground to the satellite. 
You can go after the ground control site itself, and many of 
those are in very remote spots that are very easy to get to, or 
you can go after the satellite itself. You have various avenues 
of attack. Our construct is to protect every one of those. We 
have red teams that look at those. We take a very deep look at 
intelligence of other people that are interested and look at 
how they would go about perhaps going after these systems.
    When we design systems in the arena of space control, we 
look at the entire gamut. In protecting those systems, the 
defensive counterspace, if you will, you're not weaponizing 
anything. In others, you are doing what we call the basic 
protection that we would offer to you as the right thing to do 
and the proper thing to protect those assets, because so many 
people would be interested in taking those away, either during 
wartime, or perhaps even holding us hostage during peacetime.
    Senator Allard. OK, very good. Let me get us back on the 
ground and talk a little bit about the launch part of what were 
the costs.
    Obviously, the launching process has some built-in costs. I 
think the launching process also has some scheduling concerns 
that go with that. We're moving forward on the EELV. The 
question I have for you, Dr. Teets, is, is the EELV going to 
meet your operational needs today and in the future, say, 
within the next 20 years?
    Secretary Teets. Yes, sir. EELV comes in two families--the 
Atlas and the Delta families. They are, in my opinion, the 
finest expendable launch systems that the Nation has ever 
fielded.
    On the other hand, as we look at the future, and the fact 
is that--as Mr. Young mentioned in his testimony--both 
contractors that are involved with manufacturing the EELVs are 
facing a tough business environment because of the fallout in 
the commercial marketplace. I do believe that we can expect to 
see prices increase as a result of that business problem that 
exists, and future costs for EELVs will rise.
    I think it's very important for us to be looking for ways 
to develop a next generation launch system. I must say that we 
are in active partnership with NASA in looking at the future of 
launch systems and what is the right way to go.
    My own belief is that we need to be driving toward reusable 
systems that will allow us to deliver spacecraft into orbit for 
lower costs on a more regular, more responsive, reliable kind 
of a basis. Yet, looking at the whole picture, it's my belief 
that we are not; the technology is not in place yet to be able 
to do something like a fully reusable single stage door.
    But has technology developed to a point where we could 
consider two-stage, fully reusable, horizontal take-off, 
horizontal landing? We came to the conclusion that the 
technology wasn't there yet, either.
    But as we look out into the future, I think it's important 
for us to keep our eyes open and keep some S&T investment 
flowing that will enable some breakthrough technologies that 
can give us major improvements in our launchability. Quite 
frankly, while EELV is the best we've ever had in expendable 
launch vehicles, it's still an awful lot like what we were 
doing 40 years ago.
    Senator Allard. Now, the first time this year, the Air 
Force has actually had money for what we call an operationally 
responsive launch capability.
    Secretary Teets. Yes, sir.
    Senator Allard. What needs will that capability meet?
    Secretary Teets. We have asked that we take a good, hard 
look at what we could do for an operationally responsive launch 
system that would allow us to launch 500 to 1,000 pounds into 
low Earth orbit and do it for a low cost, namely in the $5 
million to $10 million ballpark.
    Hopefully, that will spawn some ideas and some technology 
which could be expandable to heavier spacecraft. But the first 
step would be could we, in an operationally responsive way and 
in an inexpensive way, launch lightweight spacecraft into low 
Earth orbit.
    Senator Allard. Where are we in the development of that 
capability? Then, how long do you think that development should 
take?
    Secretary Teets. We're in the process right now of actually 
selecting contractors to proceed on this 500 to 1,000 pound 
capability in an operationally responsive way. There are 
several excellent, good new ideas that are being evaluated. The 
plan will be to narrow down those ideas to two and perhaps have 
two demonstration flights in about a year to a year and a half 
timeframe.
    General Arnold could probably give you more detail on that 
initiative.
    General Arnold. Yes, sir.
    We are working in the Defense Advanced Research Projects 
Agency (DARPA) on a couple of projects right now to look at 
this reusable space vehicle. It could be a first-stage flyback 
with a second-stage expendable. Right now, looking out, as 
Secretary Teets said, it may be in the next year and a half to 
two that we would potentially fly.
    Again, the idea would be whether you can develop an overall 
system that has reusability of the rocket at a lower weight, 
the 500 to 1,000 pound category, and then the reusability or a 
satellite that is easily and quickly turned on. Because the 
notion that you'd want to do this quicker, you'd do it for a 
reason, and the reason is you would want to repopulate the 
constellation.
    We're looking with the Air Force Research Lab (AFRL) at 
other DARPA activities to see if we can package what we would 
call reusable space, which entails a reusable rocket and a 
satellite that is quickly turned on. That would be the effects 
we're trying to----
    Senator Allard. I hope there is some thought as to how your 
payload matches your delivery system on that, too.
    General Arnold. Absolutely.
    Senator Allard. I would think that would be important.
    General Arnold. Yes, sir.
    Senator Allard. How would you, General Arnold and maybe 
Secretary Teets, assess the health of the space launch 
industrial base?
    General Arnold. As we went into EELV, of course, back when 
we signed the contract in the late 1990s, the forecast was for 
a very broad commercial market, which we know has basically 
gone away, withered away, leaving primarily your Government as 
your prime customer.
    The business case, as Secretary Teets has said, is changed 
dramatically. For that reason, you will see an increase in 
price.
    The notion of going into the EELV was the right thing for 
the right reason. We reduced the part count. The RD-180 on the 
Atlas V is a great engine. The RS-68 on the Boeing Delta IV is 
a great engine. We've had six successes in a row without a 
failure, which is unusual early in your launch campaigns with 
any new family of rockets.
    For those reasons, we feel it would be right to keep two 
vendors, both Boeing and Lockheed, in business until you mature 
these systems and begin to fly them out, at least six or seven 
for each of the families, and there are four separate families 
in each of these--for each of the vendors. But that will be our 
mainstay, to get our satellites on orbit for at least the next 
10 to possibly 15 years.
    At the same time, our legacy systems, we've flown out the 
last of our Titan IIs in a successful launch of, finally, DMSP 
F-16. We will continue to launch the Delta II and be using it 
for the GPS.
    We have a certain number of heritage systems yet to fly. We 
have three Titan IVs, which are our largest, to launch a 
Defense Support Program (DSP) 22, and then two very large NRO 
payloads. We're really paying attention to those.
    But, again, the commercial market has really withered away. 
The basis is primarily your Government to support the launch 
industry in this country.
    Senator Allard. I am interested in your thoughts about the 
health of the launch industry, Mr. Young. Then, Mr. Levin, 
perhaps you'd like to make some comments.
    Mr. Young. If I had to use one word to describe it, I'd say 
fragile. What I really mean by that idea is that when we did 
our study, both Boeing and Lockheed Martin were very open with 
us in their business plans.
    When you look at the business plans in great detail, you 
would wonder why they were pursuing the business. I think the 
reason is twofold. One is the expectation that things would get 
better in the future. Second, both companies, in my view, have 
an extraordinary passion for these expandable launch vehicles, 
which only carry you so far.
    I think that's the reason that Secretary Teets and General 
Arnold were saying costs are going to change. We've predicated 
it upon the concept that the commercial market was going to 
provide a strong foundation of financial underpinning, and that 
has just not materialized.
    I don't think we want, as a country, to be in a 
circumstance where we have our two primary providers of assured 
access to space with inadequate business plans.
    I could add one other comment: We spent a lot of time 
talking about this subject. The one thing I would really also 
like to add is that assured access to space is too important, 
in our view, to be a budget issue.
    You constantly read in the periodicals about possible down-
selects or discussions of down-selects. Assured access to space 
should be a national security policy issue and should be 
treated in that manner. We would strongly advocate that be the 
position that our country would take.
    Senator Allard. Mr. Levin, any comments?
    Mr. Levin. Yes, sir.
    I think they eloquently stated the concerns. I would only 
add that----
    Senator Allard. Fragile and going to cost more. [Laughter]
    Mr. Levin.--in going through a decision on schedule and 
what resources are available to the developers, this is a very 
crucial issue that has to be thought about and planned out so 
promises can be made with knowledge.
    Senator Allard. Do you have any suggestions on how we can--
any solutions?
    Mr. Levin. I'm not aware of a GAO report on the subject. I 
haven't looked at it myself, sir.
    Senator Allard. Okay, very good.
    Let me recognize Senator Nelson for some questions now.
    Senator Bill Nelson. Mr. Secretary, do you expect to keep 
both contractors in the EELV for the next 5 years?
    Secretary Teets. Yes, sir. That would be my very strong 
recommendation and thought process.
    We're in the process right now of putting ideas together 
for how we would conduct the third buy of the EELVs. What we'd 
like to do is find ourselves in a situation where we don't have 
a winner-take-all procurement.
    We have some form of leader-follower, where each contractor 
is incentivized to reduce costs, to provide mission success, to 
assign strong people to the program, to innovate, to improve, 
et cetera, but it's not a case of loser is now out of business 
forever. Rather, loser can improve his product and have a 
larger share of the winnings and buy four. So proceed in that 
direction, and in that way, keep both the Delta family and the 
Atlas family of expendable launch vehicles until we can get to 
this next generation system that'll be an improvement.
    Senator Allard. I think I understand that has been their 
effort to have that competition.
    Getting back to Senator McCain's concern here about Boeing 
and the adequate penalties and what not, if you get carried 
away there, you end up with one contractor. That's something, 
perhaps, this committee needs to delve into a little bit more 
if we're going to keep competition. Then we have a bad actor 
that comes along, you apply the penalties or whatever, and when 
you get done, you may end up with one contractor, which is 
contrary to our overall goal of two contractors. That's a good 
question.
    Senator Bill Nelson. I suspect that Senator McCain might 
consider an offset of allowing both contractors to go forward 
in exchange for the resignation of some high level officers of 
the company, but we'll leave that for another day for Senator 
McCain.
    What do you estimate to be the cost of these dual 
provisions of the EELVs over the course of the next 5 years?
    Secretary Teets. We'll know a lot more when we get 
proposals back on this Buy III. But I would say that I think we 
can anticipate price increases somewhere between 20 and 50 
percent. With that kind of price increase, I do think it'll be 
possible for us to craft this kind of a leader-follower sort of 
procurement approach that can allow each contractor to have a 
successful business going forward.
    By that, I mean we will definitely have a form of contract 
that allows us to have full visibility into the cost being 
charged, and we'll have complete cost disclosure.
    We still want each contractor, though, incentivized to 
innovate and put good people on these two vitally important 
programs.
    In terms of quantification, I think the best thing I can 
say is that what we're trying to do is start, in our budgeting 
process, to look at accommodating a 50-percent increase in 
launch costs going forward.
    Senator Bill Nelson. When you shape up those figures, would 
you share them with the committee?
    Secretary Teets. I'd be pleased to, yes, sir.
    [The information referred to follows:]

    As reflected in the fiscal year 2005 President's budget request, 
the estimated cost over the next 5 years (fiscal years 2005-2009) for 
dual EELV contractors to maintain assured access to space is $4.2 
billion. This includes an anticipated 50 percent price increase on 
future Buy III missions. The precise cost will depend upon the Buy III 
acquisition strategy currently in development and on subsequent actual 
negotiated contractor prices for Buy III launch services.

    Senator Bill Nelson. Let's go back to your comment earlier 
that NASA and DOD are cooperating on the programs. You 
mentioned developing follow-on vehicles for the EELVs, and NASA 
has some reason to want to have a follow-on vehicle to the 
shuttle.
    Is there cooperation going on between the two agencies?
    Secretary Teets. Yes, sir. You may know that we have a 
partnership council formed between the DOD and NASA. Sean 
O'Keefe and I and Lance Lord, Commander of AFSPC; Admiral Jim 
Ellis, Commander of U.S. Strategic Command; and Ron Siga--the 
five of us meet quarterly. We discuss important technology 
thrusts going forward in both areas and try to understand how 
we can leverage each other's technology development.
    We meet regularly, and, frankly, this spring we had some 
rather intense get-togethers and commissioned a study to look 
at this issue of could we see our way clear to a fully 
reusable, two-stage to orbit, horizontal take-off, horizontal 
landing launch capability.
    We tried to scale it by what kind of lift capability do we 
really need for a DOD mission, which would be unmanned, and 
scale it in the same way that would serve NASA's needs to 
provide a manned kind of capability.
    The conclusion we came to at that time, which was in the 
June-ish timeframe, was that it's still a reach too far. We 
still need better technology development before we're going to 
be able to embark upon that particular course.
    But I only use that as an illustration of the kind of 
activity that we're in partnership with, and, of course, at the 
moment, NASA's thinking through its future, for sure.
    Senator Bill Nelson. I would encourage you to hurry up 
because NASA has to make some decisions pretty soon about what 
its follow-on vehicle--if we're going to have a manned space 
program, they're going to have to start deciding that pretty 
quick.
    Secretary Teets. Yes, sir.
    Senator Bill Nelson. I want to talk to you about some of 
the funding for space programs.
    As I said in my opening comments, one of the problems has 
been the unrealistic cost estimates. It's important to continue 
to fully cost space programs. But I don't understand, Mr. 
Secretary, why you decided to exempt all space programs from 
the full funding requirement. Sounds to me that this is 
unprecedented and will virtually guarantee that the space 
programs continue to be chronically underfunded.
    Share with the committee, if you will--you've recently 
issued new acquisition regulations for space programs, which 
are different from the regulations which govern all other DOD 
programs. One of the things that you changed was the 
longstanding requirement of full funding. Given the major cost 
problems that continue to occur, why would you want to 
eliminate the requirement to fully funded space programs?
    Secretary Teets. Sir, I am very concerned about the issue 
of cost performance on our space programs and properly 
programming and budgeting for development of these programs.
    One of the initiatives that we have under way is to 
strengthen our Government's independent cost-estimating 
capabilities so that we can predict in advance the resource 
requirements that are going to be needed in order to properly 
execute a space development program.
    I would say that one of the things that we often run into 
in our space programs is--since we're trying to put leading 
edge technology on our space systems and leverage that 
technology--we typically have cost reimbursable development 
programs. We typically involve some multiple contractors in a 
phase A kind of activity to study a development. We then get 
proposals from these contractors for the full development of 
the program.
    I will say that in a cost reimbursable environment, you 
don't get a lot of help from the contractors in knowing what 
it's going to cost to complete the program.
    That is to say, contractors in a cost reimbursable 
competitive environment are highly incentivized to look upon 
the program with a lot of optimism. It's therefore incumbent 
upon the Government to have independent cost-estimating 
capability that will allow us to understand what are the 
requirements for funding going to be over the life cycle of the 
program.
    Ofttimes now, with the kind of leading edge technologies 
that we're talking about, we're talking about 6, 7, even 8 
years from the time the design of a system starts until we're 
going to have a first launch kind of capability. It's important 
for us to plan for these resources in a way that allows the PM 
to have program margin, have reserve, that he can apply to 
problems as they arise in the development phase.
    Long story short, we need the world class independent cost-
estimating capability within the Government, so that we can 
properly budget and program for these programs.
    Senator Bill Nelson. But the funding requirement isn't 
written down. It's not a specific funding requirement.
    Secretary Teets. When you say funding requirement, the 
funding required is all a function of a quality of a cost 
estimate. The fact is, we don't have perfect knowledge of what 
these programs are going to run out at.
    Again, I would only tell you that with world class cost-
estimating capability, we will have a better handle on what 
those funding requirements are than we do today.
    Senator Bill Nelson. Mr. Young, what do you think about the 
elimination of the full funding requirement, which is 
applicable to all other DOD programs?
    Mr. Young. When you say the full funding requirement----
    Senator Allard. Let me elaborate on that. Senator, I think 
that you're going from a full funding requirement to desired 
capabilities. I think that's the question that you're asking 
him.
    Mr. Young. I certainly believe that the Government has to 
have the strong independent cost-estimating capability that 
Secretary Teets talked about.
    I think our report would say that one of the fundamental 
problems in the acquisition of national security space programs 
has been underfunding programs due to excessive optimism for a 
whole collection of reasons, which we define in the report.
    I would be a strong advocate that when programs are 
initiated that there be full recognition of the funding 
required to do the program at that time, and that a mechanism 
for making that available happen.
    Secretary Teets mentioned one other thing. Maybe I'm 
hitchhiking on your question, Senator Nelson, but--reserves. 
One of the things we also talk a lot about in our report is the 
necessity of reserves. We constantly heard that the senior 
levels of DOD won't allow there to be any reserves. Congress 
won't allow there to be any reserves. It seemed that everybody 
in the world wouldn't allow there to be any reserves.
    I have no idea of the validity of that. The one thing I do 
know is that a reserve in the execution of one of these 
programs is just as important as the budget for the attitude 
control system.
    If we don't have reserves in these programs--not reserves 
above the most probable cost, reserves within the most probable 
cost, not a slush fund, not an excuse for not managing the 
programs well, but the recognition that we know there is a 
class of problems that come up in the kind of programs that 
we're doing--we don't know exactly where they're going to 
occur. The budgeting of reserves only to be expended for the 
execution of the approved requirements is a mandatory concept, 
in our view, to being able to manage these programs 
successfully.
    Senator Bill Nelson. Do you understand that there are those 
kinds of reserves in this program, or are they not?
    Mr. Young. When we look at it, most programs did not have 
those kinds of reserves.
    Senator Bill Nelson. Mr. Levin?
    Mr. Levin. I would be strongly supportive of a full funding 
approach at program start, identifying exactly what will be 
involved, how much money throughout the life cycle of the 
program is going to be needed.
    The difficulty of establishing those estimates, however, at 
the front end, when you do not have mature technology, is 
something that we have talked about many times. SBIRS-High is 
an example, and there are many others, where DOD gets into a 
program, begins technology development, and doesn't know how 
much it's going to cost, really, to get that technology to 
work. Until DOD really gets it to work, it's really tough to 
make estimates.
    Senator Allard. I can think of an example, too, where we 
built up a reserve, Mr. Young. We had a change in attitude in 
Congress, and all of a sudden it was gone. I don't know how 
you--there's no way that you can protect against that. I think 
that's one of the problems that we have.
    If I were a businessman, I'd certainly do it your way. But 
in a political environment, I don't know how you keep that 
money available there. I think that's what so many of us 
struggle with.
    Mr. Young. If I might just add, I recognize the political 
challenges to it. The only argument, I think, that I could make 
is that it is a necessary budget item, just like any other line 
item in the project--not something that's set aside just in 
case we happen to get into trouble.
    I think if somehow we could visualize reserve, as I said, 
being a budget item, just like the budget for the attitude 
control system or the power system or the propulsion system, 
and that it is within--and I really emphasize that, because I 
think it should be within the most probable cost of the 
program--it is necessary to achieve the degree of success that 
I think you really are looking for.
    I do strongly recognize and appreciate the political 
realities of the challenges that brings.
    Senator Allard. I want to talk a little bit about inherent 
risk. In your statement, you talked a little bit about inherent 
risk, Secretary Teets.
    On page 2, you state that space programs, and specifically 
military space programs, are complex systems with numerous 
unique characteristics, such as bringing extraordinary 
acquisition challenges.
    Later on, on page 9, you noted that the GAO recommendations 
are focused on helping us reduce costs and schedule overruns by 
reducing the risk inherent in space program acquisition. Then 
you state further in your testimony that I believe that we've 
done that in our space acquisition policy.
    Would you be specific on how your space acquisition policy 
reduces that inherent risk in the programs? My personal view is 
that when you're talking about military space programs, they're 
almost always a first time endeavor. It seems to me like it's 
just part of the system, and I wondered if you'd comment on 
that.
    Secretary Teets. Sure.
    In our new NSS Acquisition Policy, we break the life cycle 
of the program up into several phases. In the Phase A 
timeframe, contractors, or Government people as well, are doing 
trade studies on system concepts and notional ideas.
    In phase B, which starts the design actually, we start into 
a risk reduction phase simultaneously with the start of this 
system level design. What we're trying to do in this phase now 
is to bring along the technology at a black box level.
    We know how all these black boxes are going to connect into 
the system, but we're actually trying to implement now 
technology risk reduction efforts in parallel with the system 
design, so that by the time we complete phase B, we'll have 
mature technology.
    We will have, by the end of phase B, in fact, a solid 
system design that we can now proceed through this key decision 
point B (KDPB). It is through that mechanism that we think we 
will retire technology risk in a way that doesn't cause us to 
do everything in series.
    The life cycle of our space development programs is in a 
sense growing and growing. I mentioned earlier, some of our 
programs that we're talking about developing now are 6, 7, 8 
years in the incubation period between program start and first 
launch.
    You run dangerously close, in this world we're living in, 
of developing a system that might cost $1 billion, and when you 
launch it, it's technologically obsolete. We need to be careful 
of that.
    General Arnold. Senator, if I could add, with respect to 
risk reduction, if we were to wait until all of the 
technologies, the various subcomponents, were at what is called 
technology readiness level six, then that assumes that none of 
the activities in the AFRL, DARPA, or Lincoln Lab--all of these 
vendors out there that do risk reduction--ever takes place. For 
example, on SBR, we went through 2 or 2\1/2\ years of Discover 
II that did a tremendous amount of risk reduction already.
    What Secretary Teets is talking about, where we run into 
problems--and we have a very detailed study by Aerospace 
Corporation that looked at satellite systems that were launched 
since 1995--a large number experienced a failure in the first 
100 days.
    The reason they experienced the failure of a subsystem in 
the first 100 days draws back to lack of risk reduction at the 
box level. For something like a SBR, that would be, for 
example, an electronic scanned array or it could be onboard 
processing. What you need to do is get the level of technology 
to a certain point.
    At KDPB, we feel confident we can then go forward. During 
that period of time, and the gate being KDPC, we can have those 
systems mature enough and all the subcomponents, through a 
technology assessment, also done by an independent group that 
oversees this. Then say we're now ready to transition to the 
next phase, in this case to production at KDPC.
    So at KDPA, KDPB, and KDPC, we have an ICAT, and we also 
have an IPAT.
    The IPAT does what we call a technology maturity 
assessment. In this case, we would hire outsiders to come in 
and assess the levels of those technologies, along with people 
like General Paul Nielsen from AFRL telling us the state of 
those technologies and where we're at.
    Senator Allard. Mr. Levin, do you want to respond?
    Mr. Levin. Yes.
    The process they're describing is a very risky one, in our 
view.
    If you don't know that that technology, the specific 
component, is going to work--you're hoping it's going to work, 
but you're not sure, you haven't demonstrated it--you are 
taking a risk that you've moved along. You've committed a lot 
of resources in the product development sphere. You've had a 
lot of people and activities involved. This can be very costly. 
You're hoping those technologies work, and, so, you're keeping 
your fingers crossed.
    Leading commercial firms don't do it this way. They're 
building a car. They know certain systems are reaches. They 
don't have them proven out yet, and so they keep those 
technologies in the technology development phase. When those 
technologies are ready, then they insert them into the overall 
car.
    Now that's the beauty of evolutionary development, really, 
because you could then take proven technologies out of the 
technology base and insert them, when they're proven, into the 
final product.
    Once there's a commitment here to start the program, people 
start thinking they have to launch by 2009 or 2011. They have 
that mind-set. Problems that come up in technology development 
are really disruptive and distractions, and they don't want to 
hear about the problems in some cases.
    But with a space system, once it's up there, you need it to 
be completely reliable and effective. You can't put it in the 
garage and work on it.
    Senator Allard. Are you talking about 100 percent 
reliability or 80 percent reliability?
    Mr. Levin. I would want 100 percent reliability for a 
satellite or close to it.
    Senator Allard. How can we afford that? I mean, my car 
isn't 100 percent reliable. Sometimes you buy a lemon.
    Mr. Levin. You can take it into the shop to get it worked 
on. Once you've launched a satellite, you can't do that. So, 
yes, reliability is very important.
    Senator Allard. Have to get rid of the car, usually.
    Mr. Levin. All the more important it is to make sure that 
you have the technical knowledge, you have your design stable, 
you know exactly what the manufacturing processes are going to 
do, so you have that knowledge build. So when you do launch, 
you're absolutely confident.
    Now, what happens if you're very close to launch and you 
find out there's this new technology that can help you make a 
more effective system? I would argue that's when you go to the 
next spiral.
    Senator Allard. We are having some good discussion. General 
Arnold, I think you want to respond to Secretary Teets.
    General Arnold. I would offer that if we took that track, 
we'd still be flying the B-52 instead of the B-2. We don't take 
risk; we manage risk. We do it through a very deliberate 
process that's not explained here.
    We do brass board, we do breadboard. We have the best minds 
in the world at Lincoln Lab, at AFRL. You could find these 
nowhere else--from the Massachusetts Institute of Technology, 
the California Institute of Technology--that come and help us 
develop at the full-fledged initiation from what we call a 6-1 
or 6-2, all the way up to what we call a 6-4, which is ready to 
transition.
    We have developed transition road maps that take us from a 
technology and then push it into a maturity level so that it is 
ready to go into the next phase.
    So, we do that; space testing is particularly very 
difficult because we have to somehow simulate the environment 
that you're going to fly. We don't watch--in the air business, 
you can take off and land back and you get the ability to sense 
how airworthy that system is going to be.
    In the space business, you can do it at box level and what 
we call a thermal vac, which takes it into the environment that 
we believe that temperature-wise and pressure-wise you're going 
to see in space. At the same time, we do this same thing all 
the way up through full components.
    I would offer to you that the first THEL system will be the 
most tested system we've ever designed in space.
    Second, I would challenge the GAO to name a satellite that 
is now on orbit in our constellations, either a weather 
satellite, a navigation satellite, a communications satellite, 
or a warning satellite that shows the effects of poor design or 
rushing through this risk.
    I would like to know that satellite because I launch those 
every day. I would offer to you that the ones on orbit have a 
fairly good record, and they're holding up quite well.
    Mr. Levin. We don't dispute that, sir.
    General Arnold. Pardon?
    Mr. Levin. We don't dispute that the satellites work very 
well. We're talking about how efficiently you get there.
    Senator Allard. Let me ask you a question then. Is your 
acquisition model a good fit with the program to develop small 
constellations of very complex satellites?
    Then, how do you respond to the Air Force concern that such 
an approach will increase costs, delay programs, and actually 
increase risks?
    Mr. Levin. Absolutely.
    What we have found in our research over the years is even 
if you're building a few items, versus 1,000, a few make it all 
the more important to get it really right. That technology 
knowledge, the design knowledge, has to be there before you'd 
finally put that satellite together. You don't want to make any 
mistakes.
    We would argue that, if anything, it's even more important 
if you're building onesies and twosies.
    Senator Allard. So we're getting right down--do you want to 
respond back, General Arnold? Do you have anything, or 
Secretary Teets?
    Secretary Teets. Yes, sir. I think the notion--we deal with 
spiral development all the time. If you look at, let's take the 
GPS satellite. We're into what's called the block 2R right now.
    We are going to modify that, even though we've already 
built it, with an M-code. I don't want to go into detail, but 
it gives us ability to overcome some jamming by jamming 
ourselves and not have fratricide. That's a perfect example of 
a system that's already built that we can take apart and easily 
put a signal structure. It's challenging. It's complex. But 
that's spiral development. Then we'll build block 3--or block 
2-F and then a block 3.
    By nature, because of the small numbers we build, we spiral 
already. We are well into that. That's what we're going to do--
what we would offer for SBR, we would offer for 
transformational communications. It allows us to manage the 
challenging technologies.
    If, in fact, as Mr. Levin said, a newer technology comes 
down, then we can get it at the next cut, either a software cut 
or perhaps a hardware cut.
    Senator Allard. Mr. Young, is there anything you want to 
contribute to this discussion?
    Mr. Young. I was debating whether to enter into this fray 
because it's not something we looked at. I will offer a couple 
of comments.
    One thing which is clear that the two of you well recognize 
from your questions and your background: space is different 
than most things that we do. I think generalizing the 
acquisition of space systems, like acquiring tanks and ships or 
what have you, is an extraordinary mistake in my view.
    The second comment I might make is that I don't think it's 
quite as black and white as it sounds. You heard Secretary 
Teets earlier talking about the reusable two-stage to orbit; 
they're not pursuing it because the technology's not ready. 
They've made a technology assessment in that regard. That's 
different than the technology of an optic system that you may 
be doing on a program. So I think it is a matter of degrees.
    But I would caution us--and I know that you're well aware 
of this--that space is different. In that regard, the return 
from our space assets is so extraordinary that whatever base 
set technology we have when we start the program, we are going 
to pursue some level of technology development on that program 
to get capabilities beyond what we have at that point, no 
matter where we are, because the return is so enormous.
    I think it's a mistake to have this assumption that we can 
have a given level of technology and then assemble the 
spacecraft and fly it. Because whatever that level of 
technology, we're going to push beyond it because typically the 
return is so enormous.
    The only thing I'd end with is to say that I think we also 
know how to make these things work. When I say ``space is 
different,'' my way of saying it is ``space is a one strike and 
you're out of business.''
    There are not many things in this world you don't get a 
second crack at. You don't get a second crack at space. We know 
how to do that. If we test them like we fly them and fly them 
like we test them, they typically work. If we have deficiencies 
in the test program, we typically run into problems.
    Senator Allard. Senator Nelson?
    Senator Bill Nelson. General Arnold, in that speech that I 
quoted you earlier, you had also gone on to say that the 
Government must clearly define its requirements to give it to 
the industry so that they know exactly what we're intending to 
do. Then, you heard the GAO report that recommended that the 
Air Force change its acquisition policy.
    How can the Government clearly define requirements without 
implementing the acquisition strategy GAO recommends?
    General Arnold. Senator Nelson, it's a very good question. 
One of the things that Mr. Young's panel pointed out, for 
example, on SBIRS, is that it had an open-ended requirements 
process that allowed virtually any user out there to come in 
and tell the contractor, ``Well, why don't you try this?''
    What happens is, it may not be a major requirement that we 
call a KPP, but it could be a smaller one that we call small 
Rs, and they start to add up. They make substantial changes so 
that you really never have a steady-state baseline to which the 
PM can then execute.
    A couple of lessons we learned were, go back to just a 
handful of KPPs like, for example, four or five that you can 
substantially hold the PM or the program to go to, and it'll 
give you the increased capability that Mr. Young mentioned.
    Now, in order to do that, it takes two partners. One is the 
using community. That's led by, in this case for space, AFSPC 
Director of Requirements (DR). They have established what we 
call an urgent and compelling process. It is a very formal 
process. When we baseline the program, all of the content going 
in at KDPB would be in what's called a CDD that substantiates 
these are what we're going to buy, and that becomes the 
baseline. Then they developed a concept of operations in 
addition to that.
    Now, Secretary Teets holds our feet to the fire before we 
go forward to release a request for proposal (RFP) or go to a 
next DSAB. We have to satisfy that, and there has to be a valid 
dated set of requirements there.
    They go then through the JROC process. If it's a space 
system that is also fundamental to supporting the intelligence 
committee, it goes through what's called a Mission Requirements 
Board, very similar to our JROC in the OSD.
    Now, once that happens, any new requirement that comes 
along has to go through this urgent compelling process. That 
means the DR and AFSPC table these things, see how urgent that 
requirement is.
    If it does come to us, it has to come with money. Then he 
comes to us, and we have a strict configuration control board 
on each of our programs that then takes and looks at when I can 
insert that. Is it an emergency change that I have to do right 
now? Or can I wait until the next spiral? Then we would pull it 
in there.
    But it has to be funded, has to be a fully validated 
requirement. No longer will we allow people just to come to us 
helter skelter. That allows us to have a firm baseline with a 
very deliberate integrated master schedule, integrated master 
plan.
    Then the things that will give a PM success is the mission, 
the management reserve, about 20, 25 percent, stable 
requirements, stable budget and stable resources--read that as 
the right kinds of people to help them run that program. If we 
can do that with a good cost accounting of what we have here, 
then we have success. But it starts with the requirements.
    Senator Bill Nelson. I think we've heard here a number of 
things, Mr. Chairman, about reserves, about adequately 
budgeting for the technology development and so forth.
    The difference in attitude is that the reserve is generally 
sized to the project risk. This line of thinking supports the 
GAO view that technology development must be mature to support 
a good, reliable cost estimate. Without this cost basis and 
confidence, I think Congress is going to view a reserve as a 
slush fund. The challenge is to have Congress have confidence 
in the cost.
    Mr. Secretary, how do you achieve this confidence?
    Secretary Teets. I think it has to come by proven 
performance over a period of time, Senator Nelson. It is true 
that in the cases of both SBIRS-High and in the case of THEL, 
we have not performed well. Historically, space programs 
haven't done real well in their cost performance or their 
schedule performance.
    What we have tried to do with this new NSS Acquisition 
Policy is tailor-make an acquisition policy for space programs. 
Now, I would maintain that this policy we have is the way world 
class companies develop commercial communications satellites. 
It's different from the way automobile manufacturers develop 
new cars and new model years. It is tailored to the needs of 
space system development, I do believe. We would very much like 
the opportunity to implement it and improve the way we are 
acquiring these space systems.
    Senator Allard. Senator Nelson, thank you. I think this has 
been a good hearing, and I think it's not been as boring as 
perhaps maybe it was laid out to be. I appreciate all your 
comments. I think this is going to be helpful in the record.
    We're going to keep this open for 10 days. There might be 
some members of the subcommittee that have some questions. If 
you would respond in an expeditious manner, we'd appreciate 
that very much.
    Senator Bill Nelson. Mr. Chairman?
    Senator Allard. Senator Nelson?
    Senator Bill Nelson. Whenever you invite Senator McCain, 
it's never going to be boring. [Laughter]
    Senator Allard. I have to agree with you on that.
    Again, thank you. Thank you for your dedication to your 
jobs. It's people like you that make a difference in America. 
With that, we'll call the subcommittee hearing to a close.
    The hearing is adjourned.
    [Questions for the record with answers supplied follow:]

              Questions Submitted by Senator Wayne Allard

                       CYCLE IN SPACE ACQUISITION

    1. Senator Allard. Secretary Teets, on page two of your prepared 
testimony, you state that ``space programs and specifically, military 
space programs are complex systems with numerous unique 
characteristics, and as such, bring extraordinary acquisition 
challenges.'' I'm a little concerned with what seems to me to be a 
cycle in space acquisition that may not contribute to a solution of 
space system management problems. The cycle seems to me as follows:
    A. Complexity drives cost. Space systems, as we've noted, are big 
and very capable, and that makes them very expensive machines that are 
expensive to launch.
    B. Satellite and launch costs drive quantity. Space systems are 
expensive, so we can't afford many.
    C. Quantity drives complexity. If we can't afford many, we have to 
build them big and complicated. And that takes us right back to the 
beginning of the cycle complexity drives cost.
    Please give me your assessment of this simplified description, and, 
if you think it has some validity, should it be a matter of concern?
    Secretary Teets. The basic driving factors for all space systems 
are the total breadth of system-level requirements. The basic 
requirements are the primary drivers of the complexity and quantity of 
satellites within a system. To address this, the NSS Acquisition Policy 
includes a study phase, Phase A, where the concepts and architectures 
are studied and evaluated to determine the best means to meet the 
requirements.
    It is also likely that the high cost of launch has led us to more 
complex spacecraft to maximize capability on each launch. We are 
pursuing demonstration programs for operationally responsive, low cost 
spacelift and similarly responsive spacecraft to determine if there are 
other good alternatives to meeting national security space needs.

                    TECHNOLOGY DEVELOPMENT AND RISK

    2. Senator Allard. Secretary Teets, when in the development and 
acquisition process do you expect technology to mature so that it can 
be incorporated into satellite and space system design?
    Secretary Teets. Per NSS Acquisition Policy 03-01, technology 
maturation is addressed throughout the development and acquisition 
process. At each KDP, the program office must provide a technology 
assessment and risk mitigation strategy. I will use this technology 
assessment and risk mitigation strategy to determine if the technology 
is sufficiently mature to enter the next acquisition phase. NSS 
Acquisition Policy 03-01 identifies technology development as a program 
office activity during the first two phases: the Study Phase and the 
Design Phase. We expect technology to have been matured by Critical 
Design Review.

    3. Senator Allard. Secretary Teets, many of our satellite systems 
are very complex, using state-of-the-art technology. Doesn't the 
complexity of these systems render the integration of the component 
technologies into a functioning system a very challenging task in and 
of itself? In other words, is integration itself a ``technology''?
    Secretary Teets. Integration is certainly a technical skill, if not 
an explicit technology. In our vocabulary it is based on a disciplined 
application of the systems engineering process. The more complex a 
system is to integrate, the more challenging it is to perform good 
systems engineering. We use the collective experience of the prime 
contractors, government employees, and FFRDCs, as well as a disciplined 
systems engineering process, to scope integration efforts to manageable 
levels. Systems engineering is also vital to risk management, which is 
a key tenet of space acquisition. The new space acquisition policy 
places a heavy emphasis on risk management and system engineering 
throughout the life cycle and at each KDP.

    4. Senator Allard. Secretary Teets, how do you control the risks 
posed by very complex integration problems?
    Secretary Teets. Each program uses risk management plans as a part 
of their systems engineering process to achieve an optimal balance of 
cost, schedule, and performance. We are emphasizing a rigorous system 
engineering approach to address the complex integration challenges in 
all of our programs. Robust systems engineering is the key to designing 
and building any complex system and is a proven method that has been 
employed successfully on many complex projects. We have expanded our 
skill base in this area through training of our government personnel, 
and more focused use of System Engineering and Integration contractors 
and FFRDCs throughout the acquisition cycle of our space programs. We 
evaluate these risks and mitigation plans during the KDPs reviews as 
outlined in the NSS Acquisition Policy 03-01.

    5. Senator Allard. Secretary Teets, you have described ``off 
ramps'' as a way of limiting technical risk in satellite development. 
But if a component technology doesn't mature, and you exercise one of 
these off ramps, aren't we just getting a less capable satellite for 
the same cost?
    Secretary Teets. We are getting a satellite that meets our needs, 
including the constraints imposed by time and funding limits. If 
technology matures as we expect, we will be able to deliver 
capabilities somewhere between the threshold and objective 
requirements. If it does not mature in specific areas, off ramps are 
used to control critical risks while still meeting the validated 
national space security requirements. 

    6. Senator Allard. Secretary Teets, how does your concept of ``off 
ramps'' apply after your KDPC, the point at which you decide to build, 
test, and launch a satellite system? It is not clear to me where an 
``off ramp'' after KDPC would lead.
    Secretary Teets. The concept of ``off ramps'' has very limited 
applications after KDPC.

                  SPACE REQUIREMENTS AND CAPABILITIES

    7. Senator Allard. Secretary Teets, it seems to me that 
capabilities we desire in our space systems ultimately lead to system 
complexity. Do you agree that the capabilities that are determined to 
be necessary in our satellites and space systems drive the technical 
complexity inherent in so many of our space systems?
    Secretary Teets. Yes, the complexity of our space systems is tied 
directly to the capabilities that these systems provide to the DOD. We 
constantly balance capability-complexity-cost-risk as a program moves 
through the acquisition process. Our ability to manage this balance has 
delivered space capabilities for our Nation that are essential for 
national security, and provide an asymmetric advantage over any 
potential adversary. 

    8. Senator Allard. Secretary Teets, desired capabilities result 
from an interplay between what the warfighter and Intelligence 
Community wants and what the technologist says can be accomplished. In 
your view, is there something inherent in this interplay and how we 
think about desired capabilities that skews the process in a way that 
leads to materiel solutions more complex technically than they might 
need to be?
    Secretary Teets. It is always a challenge to balance warfighter and 
Intelligence Community needs and available technology. However, I don't 
believe that the interplay between the user and the technologist 
results in solutions that are more complex then necessary. The new NSS 
Acquisition Policy and the revised Chairman's Instruction on 
capability-based requirements will significantly improve both our 
ability to iterate system requirements with the user and our use of 
evolutionary and revolutionary technologies to meet the user's needs.

    9. Senator Allard. Secretary Teets, the Department has a fairly 
elaborate process to identify desired capabilities within a joint 
context and attempting to put individual systems in the context of 
functional architectures. GAO believes that the Department hasn't 
examined alternatives to space capabilities carefully enough. How do 
you respond to that criticism?
    Secretary Teets. I believe it is an inaccurate perception. Prior to 
initiating a program, we always consider the best option for delivering 
the desired capability before going down a particular path; however, we 
are making enhancements. The Department's requirements process has 
focused on a ``capability based focused-effect'' philosophy and not a 
particular systemic solution (e.g. space). This is clearly demonstrated 
by the early restructure of the SBR Analysis of Alternatives (AoA) into 
a surface Moving Target Indicator (MTI) AoA with study co-leads from 
AFSPC and the Air Force Command and Control, Intelligence, 
Surveillance, and Reconnaissance Center (AFC2ISRC). We invested in 
multiple additional studies by Government and independent research 
agencies for the specific purpose of evaluating air/space trades in 
addition to an ongoing study with the purpose of further refining those 
results. We are applying this philosophy across the entire Department. 
For instance, all future ICDs will truly reflect the required 
``capability'' and not be limited to a specific solution for a portion 
of the capability. 

    10. Senator Allard. Secretary Teets, one criticism that both the 
GAO and the DSB report have expressed is that desired capabilities have 
not been stable in space programs, and that requirements growth has 
lead to cost growth and schedule delays. Why do you think space 
programs have suffered from requirements growth?
    Secretary Teets. Technical requirements adjustments are a natural 
part of the acquisition process. We have learned the value of involving 
the warfighter in acquisition early and more often throughout the 
process. This additional operator involvement often results in 
technical requirement clarifications that enable our acquisition 
professionals to deliver the operational capability envisioned by the 
warfighter; these clarifications normally do not change the approved 
threshold requirements in the applicable document approved by the 
Service and JROC. Also, lessons learned from conflicts like Operation 
Desert Storm and Operational Iraqi Freedom can drive requirements 
specification adjustments. These adjustments are vital to ensure our 
warfighters can continue to succeed on the battlefield.
    To balance changing warfighter needs and long lead times to field 
space assets against the need for requirements stability, the 
Department has moved to an evolutionary acquisition process. Unlike a 
traditional approach where full capability is delivered in a single 
step, evolutionary acquisition delivers capabilities in increments, 
recognizing up front the need for future capability improvements. The 
objective is to balance needs and potential capabilities against 
resources earlier in the process and to put militarily useful 
capabilities into the hands of operators sooner.

    11. Senator Allard. General Arnold, you described in your testimony 
the ``urgent and compelling'' process in which additional requirements 
are prioritized. Isn't this a clear statement that requirements growth 
is actually built into the space acquisition process?
    General Arnold. Requirements growth is not inherent in the space 
acquisitions process; however, changes do occur during the acquisition 
cycle. The ``urgent and compelling'' process was developed in response 
to findings in both the Young panel report and a recent GAO report that 
space acquisitions lack a disciplined management process to approve and 
control requirements.
    The ``urgent and compelling'' process was instituted to 
systematically collect and evaluate emerging warfighter needs. Urgent 
needs are those requirements that demand immediate resolution to keep 
the program on schedule. Compelling needs are defined as those 
requirements that are extremely important to program mission success.
    The ``urgent and compelling'' requirements review process provides 
management control over the introduction of requirements. All baseline 
adjustments, study requests, and new requirements are evaluated for 
performance, cost, schedule, and risk impacts. Baseline adjustments are 
only incorporated into the program if the necessary funding source is 
also identified. The urgent and compelling process provides a 
disciplined way to stabilize a program baseline.

                           LAUNCH CAPABILITY

    12. Senator Allard. Secretary Teets, is the development of an 
operationally responsive launch capability consistent with the size and 
weight of current and planned next-generation satellites?
    Secretary Teets. The intent of operationally responsive launch is 
to create a more responsive, reliable, and affordable lift family 
capable of fulfilling both current and future launch requirements. In 
the near term, we plan to demonstrate a more responsive and less 
expensive launch system capability of placing approximately 1,000 pound 
payloads into low earth orbit. Concurrently the AFRL, NRO, DARPA, OSD 
Office of Force Transformation, and our national laboratories are 
sponsoring initiatives to decrease the size, cost, and timelines of 
satellite development. The results of these initiatives, operationally 
responsive launch and satellite development, will transform the 
delivery of space-based capabilities.

                              DSAB PROCESS

    13. Senator Allard. Mr. Levin, the Air Force maintains that its 
DSAB process allows earlier identification of problems and senior level 
attention, which will improve management and lower risk. Does GAO have 
any concerns with the DSAB process?
    Mr. Levin. Our concern is not with earlier identification of 
problems or the added senior level attention the new process calls for, 
but with earlier investment decisions, which are also called for. Under 
the new process, the DSAB may approve product development to begin 
before DOD knows whether technologies can work as intended. As a 
result, it will make major investment commitments without really 
knowing what resources will be required to deliver promised capability. 
Moreover, the policy encourages development of leading-edge technology 
within product development, that is, at the same time the PM is 
designing the system and undertaking other product development 
activities. DOD believes this approach will allow space systems to 
better incorporate leading-edge technologies. But as our work has 
repeatedly shown, such concurrency within space and other weapon system 
programs increases the risk that significant problems will be 
discovered as the system is integrated and built, when it is more 
costly and time consuming to fix them.
    Moreover, as we testified, the knowledge-building approach for 
space stands in sharp contrast to that followed by successful programs 
and the approach recommended by DOD's revised acquisition policy for 
weapon systems. Successful programs will not commit to undertaking 
product development unless they have high confidence that they have 
achieved a match between what the customer wants and what the program 
can deliver. Technologies that are not mature continue to be developed 
in an environment that is focused solely on technology development. 
This system puts programs in a better position to succeed because they 
can focus on design, system integration, and manufacturing. Further, 
our work has shown that taking an evolutionary approach to improving 
capability increases the likelihood of delivering that capability to 
the warfighter sooner than the revolutionary approach the Air Force 
continues to support in the new space policy.

                      REALISTIC COST AND BUDGETING

    14. Senator Allard. Secretary Teets, the Young panel suggested that 
unrealistically low cost estimates led to unrealistic budgets. Many 
observers have noted that contractors, when bidding for a contract, 
often produce unrealistically low cost estimates. This practice often 
leads to significant problems later in the program. Why do you believe 
that contractors feel both able to and compelled to offer unrealistic 
cost estimates? Do you think that some of the contractor motivation 
stems from the fact that there are so few major space programs?
    Secretary Teets. Contractors have visibility into our program 
budgets and have an incentive to fit the estimates to the budget. Given 
the nature of space programs--evolving technologies, huge nonrecurring 
costs, and little opportunity for economies of scale--this ``bid to 
budget'' tendency can lead to overruns. I believe our efforts to 
strengthen our cost estimating will lead to more realistic budgets 
which eventually will ameliorate our cost problems.
    Second, many of our programs were bid in an era that predicted a 
robust marketplace. We are now experiencing the impact of that 
commercial market decline through costs such as increased overhead due 
to lower than anticipated business bases. While the consolidation of 
the commercial space industry has certainly impacted the cost of our 
military systems, I don't believe the lack of major military space 
programs is the root problem. However, this environment leaves little 
opportunity for the loser to reenter a mission area, leading to a 
``winner takes all'' mentality.

    15. Senator Allard. Secretary Teets, how will you encourage 
contractors to bid realistically in the future?
    Secretary Teets. We will continue to encourage realistic offers 
throughout our source selection and proposal evaluation process. For 
example, in our requests for proposals we make it clear we award on the 
basis of value as opposed to the lowest cost. We perform a detailed 
evaluation of a contractor's proposal prior to contract award to ensure 
the proposed costs are realistic for the required effort. During the 
execution phase of the program, we provide financial incentives for the 
contractor to control costs by making cost control a significant factor 
in earning award and incentive fees.

    16. Senator Allard. Secretary Teets, one of the ``guiding 
principles'' of the space acquisition process is ``cost realism.'' That 
obviously involves tools to provide accurate cost estimates. At what 
phase of the program will you insist on getting those estimates?
    Secretary Teets. Programs are required to have a program office 
estimate at each  KDP beginning with KDPA. Government and contractor 
estimates are developed as early as the decision to enter Phase A, the 
study phase--to help the government adequately budget for the 
acquisition. Higher fidelity estimates at KDPB and KDPC are developed 
to support the ``go'' or ``no go'' decision for the design and build 
phases, Phase B and C, respectively.

    17. Senator Allard. Secretary Teets, if the CAIG and independent 
estimates differ from independent cost estimates, which estimate will 
you use and why?
    Secretary Teets. I assume this question is asking how will I deal 
with differences between the program office estimate and the estimate 
developed by the ICAT. Both provide valuable information to determine 
the most likely program cost, develop the program budget, and assess 
the execution status of the program. In general, the program office 
estimate and independent cost estimate will vary due to differing 
assumptions made in their formulation. I will weigh the reasons for the 
differences and determine which estimate or combination of estimates is 
best for the program budget.

    18. Senator Allard. Secretary Teets, the space acquisition policy 
states that the ``Space milestone decision authority shall determine 
the appropriate point at which to fully fund a DOD space major defense 
acquisition program. . .'' You also indicate in your testimony that 
budgeting to an ``80/20'' confidence level may not be realistic. Will 
you fully budget for the realistic costs? If not, why not?
    Secretary Teets. In general, I plan to budget to the realistic 
costs. There may be some circumstances where I will not budget to the 
predicted costs across the FYDP. For instance, if a program is still in 
the Study Phase (Phase A) or pre-Phase A, it may not be appropriate to 
fully budget to the projected costs in the out-years of the FYDP.

    19. Senator Allard. Secretary Teets, at what stage of a space 
program do you believe that budgeting for expected costs is desirable 
or appropriate?
    Secretary Teets. It is always appropriate to budget to expected 
costs, especially in the near years. The NSS Acquisition Policy 03-01 
states that ``The DOD Space MDA shall determine the appropriate point 
at which to fully fund a DOD Space MDAP--generally when a system 
concept and design have been selected, a system program director (SPD)/
PM has been assigned, capability needs have been approved, and system-
level development is ready to begin.''

    20. Senator Allard. Secretary Teets, why shouldn't that be 
formalized in the space acquisition policy?
    Secretary Teets. It is formalized in the space acquisition policy. 
The policy states, ``The DOD Space MDA shall determine the appropriate 
point at which to fully fund a DOD Space MDAP--generally when a system 
concept and design have been selected, a SPD/PM has been assigned, 
capability needs have been approved, and system-level development is 
ready to begin (paragraph 5.3.2).''

    21. Senator Allard. Secretary Teets, are there any specific 
instances you can cite in which the Air Force or the OSD has decided 
not to fully budget for expected costs? If so, why was this decision 
made?
    Secretary Teets. I am not aware of any instances where the Air 
Force or OSD have decided not to fully budget for expected costs for a 
space system.

    22. Senator Allard. Mr. Levin, does GAO believe that the process 
put into place in the new space acquisition policy by which cost 
estimates are derived will provide better cost estimates?
    Mr. Levin. No. Although some process changes will be made, the 
underlying causes of underestimating costs remain.
    DOD is adopting new methodologies and tools to enhance cost 
estimates, and it is enlisting assistance from DOD's CAIG to conduct 
independent cost estimates using cost-estimating teams drawn from a 
broad spectrum of the cost-estimating community. Moreover, programs are 
now required to resolve differences between their cost estimates and 
estimates produced by the independent teams. In the past, cost-
estimating groups have developed estimates that were different, leaving 
decision makers to select one estimate or combine a few.
    However, under the new space acquisition policy, cost estimates do 
not have to be based on the knowledge that technologies can work as 
intended. History has shown that cost estimates not based on such 
knowledge are significantly understated. Moreover, incentives that work 
against providing good estimates have not changed. Unlike the 
commercial world where the focus is on delivering a product to market, 
DOD's system focuses on competing for resources from oversubscribed 
budgets. In the competition for funding, managers are encouraged to 
launch product developments before technologies are mature. Because 
funding is competitive and DOD's forecasts of costs, schedules, and 
performance are largely based on immature technologies and other 
unknowns, estimates tend to be squeezed into insufficient profiles of 
available funding. In fact, pressures to underestimate costs may 
increase over the next decade as DOD plans to undertake a number of 
new, challenging space programs--which are expected to require an 
additional $4 billion in the next 4 years alone. Costs beyond that 
period are as yet unknown but are likely to be considerably higher.

    23. Senator Allard. Mr. Levin, what is GAO's view on the Air Force 
policy related to full funding?
    Mr. Levin. DOD's acquisition policy for other weapon systems 
requires a commitment for full funding at milestone B--the start of 
product development and the point at which DOD should have knowledge 
that technologies can work as intended. However, the new space 
acquisition policy does not require DOD to commit to fully fund a space 
program either when this knowledge has been obtained or at any point in 
the development process. Hence, there is no guarantee that the 
resources needed to meet requirements on any individual program will be 
there when needed--particularly as DOD moves forward with its new 
programs.
    This represents another important departure from the development 
approach followed by successful programs. Our prior work \1\ has found 
that if a product's business case measures up--that is a company is 
assured that there is a market or need for the product and that it has 
the right knowledge in hand to develop the product with firm cost and 
schedule estimates--the company then commits to the entire development 
of the product, including the financial investment. In other words, 
corporate resources are made available to the development team so that 
product success is not compromised. As noted earlier, because DOD 
begins too many programs, its resources are always oversubscribed. By 
requiring PMs to continually justify funding, DOD runs a risk of 
foreclosing the ability for sound planning and execution.
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office, Best Practices: A More 
Constructive Test Approach Is Key to Better Weapon System Outcomes, 
GAO/NSIAD-00-199 (Washington, DC, July 31, 2000).

                            MISSION SUCCESS

    24. Senator Allard. Secretary Teets, the Young panel concluded that 
cost had replaced mission success as the primary driver in program 
management. The space acquisition policy addresses that directly by 
stating that mission success is the overarching principle behind the 
policy. I think that is an important first step, but maybe not the last 
step. Doesn't this relate to a cultural change that will take time to 
achieve?
    Secretary Teets. Yes, it does require a cultural change. We are 
revamping our core processes and developing mentoring, training, and 
educational programs to develop a cadre of space acquisition 
professionals whose cultural orientation is mission success. This will 
take time. In the interim, we must ensure we begin new programs 
correctly within the culture of mission success and review programs 
that were awarded when cost was the primary driver, applying the proper 
incentives to redirect the focus of the latter programs.

    25. Senator Allard. Secretary Teets, doesn't this also relate to 
underlying dynamics of space acquisition tight Air Force budgets, 
concern that cost overruns will threaten the political viability of a 
program, and budget instability because of internal DOD and 
congressional actions?
    Secretary Teets. The underlying dynamics of the DOD budget 
certainly has an influence on putting an emphasis on cost. This 
emphasis is important--cost does need to be managed, and cost overruns 
will always be a concern. However, mission success must be the first 
consideration when making decisions. Decisions made early in the 
program are aimed at having a successful mission, and this will reduce 
the potential for finding problems later when they are much more 
difficult to correct. I also believe we can improve our cost 
performance through realism in our cost estimating. Better estimates 
based on the importance of mission success, specifically ensuring PMs 
have the resources and flexibility to address problems when they occur, 
can drive our funding profiles and decrease the likelihood of overruns.

    26. Senator Allard. Secretary Teets, how will those dynamics affect 
the cultural change, and how will you deal with them?
    Secretary Teets. I agree budget and political dynamics will affect 
implementation of cultural change. These dynamics need to be viewed as 
part of the overall program requirements and constraints. As cultural 
change is achieved, and with the help of Congress, programs will have 
solid risk management plans and more realistic, stable budgets. These 
will provide flexibility to manage problems early and avoid program 
cost overruns.

                              PROTOTYPING

    27. Senator Allard. Secretary Teets, the space acquisition policy 
states that ``Satellite programs . . . are usually bought in quantities 
of ten or less. These types of programs do not have on-orbit prototypes 
. . . due to the expense of the satellites and launch costs.'' Does the 
fact that you don't get the chance to fly prototypes increase risk to 
these programs?
    Secretary Teets. Yes, however, program risk is reduced through a 
variety of lower-level prototypes, engineering models, ground testing, 
and modeling and simulation. There are many examples of space and 
nonspace systems that are designed and built without placing a 
prototype into an operational environment.

    28. Senator Allard. Secretary Teets, in a small constellation of 
complex satellites, aren't we in a situation in which we have to expect 
the very first satellite presumably a very complex, technologically 
very sophisticated satellite to work pretty much perfectly in an 
operational environment? If so, is that a reasonable expectation?
    Secretary Teets. Yes, we do expect our very first satellites to 
work very well in the operational environment. History has shown that 
this is a very reasonable expectation. We do an excellent job of 
simulating the operational environment and conducting component, 
subsystem and system-based testing. Although there are exceptions, our 
on-orbit success rate is high.

                        EVOLUTIONARY ACQUISITION

    29. Senator Allard. Secretary Teets, much of the Department is 
moving toward evolutionary acquisition. I understand that this approach 
is intended to recognize the uncertain nature of future threats, to 
shorten development time lines, to provide warfighters capability prior 
to achieving the ``100 percent solution,'' and, by allowing incremental 
improvements, to reduce technical risk in a development effort. I also 
understand that your space acquisition policy states that this is the 
preferred approach for space programs.
    Many satellite programs involve very small constellations of 
extraordinarily capable satellites. Such programs do not seem quite 
consistent with ``spiral development'' or ``evolutionary acquisition.'' 
How do you ``spirally develop'' such programs?
    Secretary Teets. We develop programs by doing periodic evaluations 
of what is possible and affordable in the near term, and assessing 
whether a capability would have enough operational utility to warrant 
deployment. The near-term options could include less capable systems 
that are adequate in the early years of deployment; systems with full 
mission capability but shorter lifetimes than required due to some 
life-limiting technology not yet at maturity; and prototypes that are 
adequate for field trials and operational concept maturation.
    Based on the near-term option, we pursue the additional capability, 
extending lifetime or the operational system in subsequent spirals. For 
example, we use software upgrades, both on the ground and in 
satellites, that add capability. This process puts the best products 
available in the hands of warfighters as soon as possible. In practice, 
this approach of incremental improvements has been the ``norm'' on 
virtually all of our ``low quantity'' national security space systems.

                  CAPABILITIES IDENTIFICATION PROCESS

    30. Senator Allard. Secretary Teets, technology evolves rather 
rapidly, and yet space programs take years to develop, acquire, and 
launch. At the same time, many architectures for example, an integrated 
intelligence, surveillance, and reconnaissance architecture have not 
been successfully established yet. How does the process to identify 
desired capabilities in our space systems account for these factors?
    Secretary Teets. The time required to develop systems that must 
survive in the environment of space, without ``hands on'' maintenance 
once launched, does require the designs to be set a notable time prior 
to launch. However, this does not preclude us from delivering the 
capability required by our warfighters and national leadership. We 
place extensive emphasis on anticipating the threat and capability 
required at the time the system is targeted to be on orbit. This, 
combined with our evolutionary acquisition approach, provides us the 
opportunity to deliver the capability required. For many years we have 
addressed overall system architectures through various efforts such as 
Long Range Plans, Capstone Requirements Documents, and studies 
conducted by renowned research firms. We are adding more structure into 
the process through a new DOD capability development process, an 
increased emphasis on joint architecture development, implementation of 
the Air Force's Concept of Operations (CONOPs) process, and the 
continued use of studies. The CONOPs process focuses on the capability 
and affect delivered or required versus individual programs. This 
approach ensures we consider the overall system and capability to be 
delivered and not look at a single program in isolation.

                              COMPETITION

    31. Senator Allard. Secretary Teets, the Young panel was not 
convinced of the merits of competition in some circumstances, 
particularly when the incumbent has performed well and ``owns'' the 
expertise and the Government would incur significant cost in choosing 
another contractor for a follow-on system. In light of the Young panel 
commentary, how do you view the advantages and disadvantages of 
competition in space systems?
    Secretary Teets. I continue to view competition in space systems as 
very advantageous for achieving the best possible value for the DOD. 
The Young panel highlighted areas that need to be carefully assessed 
when developing an acquisition strategy for upgrading a current 
capability or procuring a new capability.

    32. Senator Allard. Mr. Levin, the Young panel was not convinced of 
the merits of competition in some circumstances, particularly when the 
incumbent has performed well and ``owns'' the expertise and the 
Government would incur significant cost in choosing another contractor 
for a follow-on system. Does GAO have a view on the merits or demerits 
of competition in space programs?
    Mr. Levin. Competition can provide natural incentives for an 
organization to be more efficient and more innovative. These incentives 
work in DOD's favor. However, it is also important to recognize that 
competition can take various forms. For example, DOD can increase 
competition by using shadow contractors, pursuing alternative sensor 
designs, and breaking acquisitions into smaller blocks. DOD can also 
optimize its investment in weapon systems by competing air, land, sea, 
and space-based capabilities. By pursuing these various options, DOD 
would have greater assurance that it is obtaining the best value when 
it must select a prime contractor for follow-on systems.

    33. Senator Allard. Secretary Teets and Mr. Levin, how effective 
can competition be when we have so few major contractors capable of 
executing large and complex space programs?
    Secretary Teets. It is very effective when we have at least two 
viable competitors. The DOD continually monitors the contractor 
industrial base and diligently works to maintain at least two viable 
competitors for potential weapons systems and key technologies that 
enable those systems to work. 
    Mr. Levin. While there are only a few contractors currently capable 
of implementing large and complex space programs, there are many more 
capable of building specific satellite components and technologies. 
Thus, by increasing competition at the mission payload or sensor level 
and breaking acquisitions into smaller pieces, DOD can expand the 
universe of contractors competing for work. Over the long run, this 
could enable more contractors to build the expertise and knowledge 
needed to manage large space programs. It would also require DOD to 
have significant insight into the lower tiers of the industry.

    34. Senator Allard. Secretary Teets and Mr. Levin, is there a path 
to making competition a useful element in healthy programs?
    Secretary Teets. Yes. The early phases of the program are the most 
conducive to reaping the benefits of competition and are the best time 
to explore a range of different solutions. Competition should be a part 
of each healthy program in these early phases. During the later phases, 
competition can be very expensive to maintain due to large nonrecurring 
costs. It is possible, sometimes, to maintain a second contractor into 
the later phases for specific risk reduction, but not typically as a 
full-fledged prime competitor.
    Mr. Levin. Managing the industrial base is one of the most critical 
determinants of acquisition success. According to DOD studies, this not 
only means injecting competition early on to ensure that the highest 
performing and most cost-effective technologies and designs are being 
pursued, but adequately defining work; establishing shorter, more 
manageable contract periods; and providing the right incentives for 
contractors. Following an evolutionary development path would better 
enable programs to take these kinds of actions. It would also foster a 
healthier industrial base because it would get programs into production 
sooner. Also important is ensuring that programs have the right 
capability to evaluate contractor proposals and to manage the contracts 
once they are in place. As DOD's studies of space programs show, the 
Government will invariably encounter problems when too much 
responsibility is handed over to contractors and too little oversight 
is provided.
    We have also found that the path to healthier programs is 
characterized by having an open systems design. Such a design is 
characterized by: (1) well defined, widely used, preferably 
nonproprietary interfaces and protocols between systems, subsystems, 
and components; and (2) an explicit provision for system expansion or 
upgrade through incorporation of additional higher performance 
subsystems and components with minimal negative impact on the existing 
system. Open systems design allows competing developers to offer 
additional features and capabilities. With this approach, the 
Government might be able to minimize dependence on a specific 
contractor. Also, upgrades can be added without replacing the entire 
system. Costs across the board--development, production, operations, 
and support--can thereby be reduced.

                                SCHEDULE

    35. Senator Allard. Secretary Teets, GAO has been critical of 
programs that are ``schedule-driven'' as opposed to ``knowledge-
based.'' While GAO's most recent report states that your recent reforms 
will provide you with additional information, it does appear to me that 
some efforts have a strong ``schedule driven'' flavor to them, for 
example, a first launch of SBR in 2010, GPS III in 2012, or a 
transformational communications satellite in 2009. In your new 
acquisition policy, how important is schedule in structuring programs?
    Secretary Teets. Schedule is an important factor, but just one of 
many important considerations in structuring programs. In the new 
acquisition policy, mission success is the first priority, and this 
requires managing the program's risks. Schedule risk must be considered 
in space program risk management plans. We will push to the limits of 
what can be realistically expected, but we will not allow a program to 
proceed to the next phase of development unless it is ready. 
Evolutionary acquisition is one method we use to deliver capabilities 
over time versus delaying capability to the warfighter by pursuing a 
100-percent solution.
    In our fiscal year 2005 budget, you will note that the planned 
first launch for all of the systems you mention has been adjusted to 
present our best estimate of the time required to deliver the required 
capability.

    36. Senator Allard. Mr. Levin, do you believe that space programs 
will be less schedule driven under the new acquisition policy?
    Mr. Levin. No. In the past, DOD has taken a schedule-driven versus 
a knowledge-driven approach to the acquisition process for space and 
other weapons systems with the justification that capabilities were 
urgently needed. In other words, commitments were made to achieving 
certain capabilities without knowing whether technologies being pursued 
could really work as intended. As a result, time and costs estimates 
were consistently exceeded, and steps essential to containing costs, 
maximizing competition among contractors, and testing technologies were 
shortchanged. Perversely, programs actually took longer when rushed at 
the start. Moreover, DOD often lacked assurance that it was even 
pursuing the best technical solution because alternatives were not 
analyzed or they were eliminated in order to meet schedule pressures. 
When technology did not perform as planned, assigning additional 
resources in terms of time and money became the primary option for 
solving problems, since customer expectations about the products' 
performance already became hardened.
    The new space acquisition process does not change this approach or 
the incentives that drive it. Rather, it encourages programs to enter 
into product development without knowledge that technologies can work 
as intended. Moreover, for new programs like the TSAT and SBR, DOD is 
still setting initial satellite launch dates before this knowledge has 
been obtained. By contrast, DOD's acquisition policy for nonspace 
systems establishes mature technologies--that is, technologies 
demonstrated in a relevant environment--as critical before entering 
product development. By encouraging programs to do so, the policy for 
nonspace systems puts programs in a better position to deliver 
capability to the warfighter in a timely fashion and within funding 
estimates because PMs can focus on the design, system integration, and 
manufacturing tasks needed to produce a product.

                   PERSONNEL RECRUITING AND RETENTION

    37. Senator Allard. General Arnold, the DSB report states that the 
Government's ability to lead and manage the space acquisition process 
has seriously eroded. What is your assessment of the current technical 
competence within SMC to manage complex space program developments?
    General Arnold. The challenge we face at the SMC is having enough 
experienced personnel to meet the needs of a robust portfolio. While we 
rely heavily on FFRDC technical support, there is still an urgent need 
for military and Government civilians to manage our FFRDCs and our 
prime contracts. The issue is not the level of competence of our 
personnel; it is in recreating core competencies that have eroded. We 
recognize the need to revitalize our capabilities in such areas as 
systems engineering, program management, and cost estimating and have 
begun several initiatives to address these shortfalls.
    We are working to improve our systems engineering and program 
management capabilities here at SMC. We have partnered with the 
California Institute of Technology to provide highly focused training 
in the systems engineering process, and, in the fall of 2002, graduated 
48 of our engineers. We have designed a one-day class that provides an 
overview of systems engineering that over 2,500 SMC personnel have 
completed. The Aerospace Institute has created the Systems Architecting 
and Engineering Program, which involves over 180 hours of classroom 
training and mentored on-the-job training assignments.
    We are converging on common processes and practices across the 
Center to take advantage of best practices and make the best use of our 
engineering talent. We are also implementing an integrated set of 
reviews and metrics to ensure adequate insight into all our programs.

    38. Senator Allard. General Arnold, what interim steps have you 
taken to address this concern of the Young panel to help assure that 
capable personnel manage our space programs in the near term?
    General Arnold. We have developed and participate in a number of 
programs to ensure our workforce is prepared for the challenge of 
managing space programs. These include Air Force, AFSPC, and local 
initiatives, each developed to address personnel challenges.
    One of the Air Force initiatives that will help ensure capable 
management of space programs is the Chief's Development Teams. The goal 
of these teams is to provide Air Force officers with operational 
experience, or exposure to  operations and the warfighter perspective, 
through assignments, participation in wargames or exercises, or short 
tours to operational locations. The Air Force is also improving general 
acquisition, engineering and technical management training in 
conjunction with the Defense Acquisition University and the Air Force 
Institute of Technology.
    AFSPC has established additional initiatives to train and 
development a space cadre. These focus on Space Professional 
Development for officers and civilians, and provide both training and 
certification. Courses include Space 100-300, which focus on 
developing, acquiring, and operating space systems, and emphasize 
technical knowledge. 
    The SMC has several local initiatives to improve organic management 
capability. We offer short courses in a systems engineering program, 
including concept development, space system design, development, 
integration, testing, and operations. The Aerospace Institute has 
created the Systems Architecting and Engineering Program, which 
involves over 180 hours of classroom training and mentored on-the-job 
training assignments. Finally, we offer an introductory Understanding 
Space course to assist personnel in understanding how their jobs impact 
the space community.
    SMC has also established Personnel Exchange Programs, or Education 
with Industry (EWI), with the Jet Propulsion Laboratory and the 
Aerospace Corporation, and also sponsors intensive California Institute 
of Technology Space Systems Engineering classes. These partnership 
efforts are part of a comprehensive strategy to revitalize systems 
engineering proficiency at SMC. 

    39. Senator Allard. General Arnold, how long do you think it will 
take to address these concerns in the longer term?
    General Arnold. Efforts are in place, and we are making progress, 
but cultivating and growing our workforce is a continuous process, not 
a problem that will be solved at a defined point in the future. The SMC 
is working with AFSPC and HQ Air Force to obtain more experienced 
personnel and keep them longer; however, recruiting and retaining 
people for the future will be a long-term focus item for SMC, AFSPC, 
and the Air Force.
    In parallel, we are constantly working to improve our core 
capabilities and processes at SMC. We offer academic courses, education 
with industry opportunities, on-the-job training, and mentoring 
programs designed to improve the capabilities of SMC's personnel; and 
we are implementing common processes based on best practices to best 
utilize our engineering talents.
                                 ______
                                 
              Questions Submitted by Senator Jeff Sessions

               EVOLVED EXPENDABLE LAUNCH VEHICLE PROGRAM

    40. Senator Sessions. Secretary Teets, the EELV program has 
undergone a reapportionment of launches in light of the alleged use of 
proprietary information by the Boeing Company.
    Since your decision, the Government waived launch restrictions for 
two national security payloads, which I believe flew successfully in 
support of GPS Government missions. Are you satisfied that Boeing is 
managing the tasks you assigned them after your investigation?
    Secretary Teets. Yes, I approved extension of the Boeing Delta II 
launch contract in order to continue launching GPS satellites in fiscal 
year 2004, and I am fully satisfied that the Boeing Company is 
currently managing all the tasks that have been assigned to them.

    41. Senator Sessions. Secretary Teets, when do you see the 
Government lifting the launch bar on Boeing?
    Secretary Teets. Once we have determined that Boeing has taken 
sufficient corrective actions, the suspensions will be terminated, and 
the three Boeing business units will once again be eligible to bid on 
new Government contracts.

    42. Senator Sessions. Secretary Teets, when will the next launch 
competitions emerge, and how many flights will be part of that package?
    Secretary Teets. The acquisition strategy for future awards of EELV 
launch services is currently under development. However, the time line 
for the next contract selection and award depends upon when the 
Government lifts the contracting suspension of the affected Boeing 
business units. The number of missions will depend on the decisions 
made during acquisition strategy development.

    43. Senator Sessions. Secretary Teets, despite previous issues, can 
Boeing emerge from the future competition as a leader in the leader-
follower relationship you described in the hearing?
    Secretary Teets. The Air Force remains committed to retaining two 
competing launch service providers as a cornerstone of assured access 
to space. I have confidence the Boeing Company has the capability to 
successfully compete within the framework of our final acquisition 
strategy.

    44. Senator Sessions. Secretary Teets, is Boeing meeting all costs, 
schedule, and performance criteria in a way that will guarantee assured 
access both in the long- and short-term?
    Secretary Teets. Yes, the Boeing Company's approach to cost, 
schedule, and performance criteria on the missions it has been awarded 
continues to support our assured access strategy.

                  KINETIC ENERGY ANTISATELLITE PROGRAM

    45. Senator Sessions. Secretary Teets, I am still concerned about 
those offensive and defensive systems needed today and those that will 
be needed tomorrow to wage what I consider to be an inevitable space 
conflict. To this end, I am not aware of all the solutions you might be 
considering, however, is the Kinetic Energy Antisatellite (KEASAT) 
still a viable candidate technology you are considering?
    We were able to fund the KEASAT program through the Missile Defense 
Agency this year. More needs to be done in my opinion with this program 
that has had so much invested. I wanted to thank you for taking the 
KEASAT briefing several months ago in Huntsville and I hope you will 
continue to examine the utility this program brings to solving some of 
your space concerns.
    Secretary Teets. The Department's current position on space 
negation favors temporary and reversible techniques. These approaches 
have much greater operational utility and flexibility, can be developed 
rapidly with adequate funding, can be reused indefinitely, and produce 
no space debris.
                                 ______
                                 

               Questions Submitted by Senator Bill Nelson

                               SBIRS-HIGH

    46. Senator Bill Nelson. Mr. Levin, the requirements for SBIRS-High 
still continue to change. In your report you highlight several 
examples, including batteries and solar cell panels. From the report, I 
gather that GAO finds that the Air Force efforts to limit requirements 
changes to only those that are ``urgent and compelling'' are better, 
but that they are not successfully eliminating the growth of 
requirements. You mention at least $203 million in new requirements. Is 
this a correct interpretation of the new ``urgent and compelling 
approach?''
    Mr. Levin. Prior to the restructuring, the SBIRS-High program 
office exerted no control over requirements changes, leaving many 
decisions on requirements to its contractors or within lower management 
levels of the program office. As part of the SBIRS-High program 
restructuring, the Air Force established an advisory program management 
board to oversee requirements changes. The board's role is to ensure 
that new requirements are urgent and compelling, that they reflect an 
appropriate use of funds, and that decisions about requirements are 
more transparent. Air Force leadership, not the SBIRS-High program 
office, made the decision that the new requirements were urgent and 
compelling enough to address.
    We believe that establishing the board is a positive step and 
should help manage requirements changes more effectively. Nevertheless, 
the board will still be challenged to ensure some discipline in 
requirements setting, since there is a diverse group of Air Force and 
other DOD users that have an interest in SBIRS-High and there are 
increasing demands for surveillance capabilities. Currently, there are 
several proposed requirements changes on the table that could have a 
significant impact on the program.

    47. Senator Bill Nelson. Mr. Levin, your report also indicates that 
software development problems continue to be a problem. This problem is 
not limited to SBIRS-High, however. What recommendations can you make 
to address this continuing problem?
    Mr. Levin. Problems with software development in DOD weapons 
systems are well known. For example, the DSB reviewed selected DOD 
software intensive systems and found that programs lacked well thought-
out, disciplined program management and/or software development 
processes. The programs lacked meaningful cost, schedule, and 
requirements baselines, making it difficult to track progress against 
them. These findings are echoed by the work of DOD's Tri-Service 
initiative. Because weapon systems are becoming increasingly dependent 
on software, lax management, and oversight over software development 
can be detrimental to a program, as it was for SBIRS-High.
    There are steps we have identified in an ongoing review for the 
Senate Committee on Armed Services that DOD could take to address this 
problem. Chief among them is to require programs to apply best 
practices for software development and acquisition, many of which have 
been identified by the Software Engineering Institute at Carnegie 
Mellon University and packaged into continuous improvement models and 
guidance. In adopting these models, organizations would take a more 
disciplined and rigorous approach toward managing or overseeing 
software development. At the same time, organizations need to provide 
the right environment to reduce software development risk. This means 
establishing an environment comprised of an evolutionary software 
development approach that relies on well-understood, manageable 
requirements and a desire to continuously improve development 
processes. It also means adopting and using a host of metrics to track 
cost and scheduling deviations; requirements changes and their impact 
on software development efforts; testing efforts; as well as efforts to 
detect and fix defects. Also important is to integrate these practices 
into existing acquisition policies and improvement plans as well as to 
enforce the use of these practices within individual programs.

    48. Senator Bill Nelson. Mr. Levin, the GAO conclusion is that 
SBIRS-High is still a program in trouble. To remedy this problem GAO 
recommends that the Secretary reconvene the independent review team, or 
a similar body, to provide an assessment of the restructured program 
and concrete guidance for addressing the program's underlying problems. 
To play devil's advocate for a moment, how will another review of this 
program improve its chances of technical, budget, and schedule success?
    Mr. Levin. The fundamental problem with the SBIRS-High program has 
been the failure to develop key knowledge at critical junctures early 
in the development of the system, that is, before major investments 
were made. The program is now paying the price for this lack of 
knowledge development. Although the restructuring of the program in 
2002 improved management and oversight capabilities, it did not go far 
enough in addressing the underlying problems with system design, 
integration, and software development. Another independent and in-depth 
technical review of the program is important to ensure that these 
problems are more clearly understood and that there are no other hidden 
problems lurking. At the same time, such a review will keep attention 
focused and heighten oversight of the program. Moreover, until it 
becomes standard to make knowledge-based decisions on DOD programs, ad 
hoc reviews such as the one we call for may be the only way to bring 
transparency to the decisionmaking process.

    49. Senator Bill Nelson. Mr. Levin, SBIRS-High is clearly a highly 
visible troubled program. How representative is it of space programs in 
general? Is it unique or are the problems identified present throughout 
the space acquisition effort?
    Mr. Levin. We recently reported \2\ that the majority of satellite 
programs over the past couple decades, like SBIRS-High, cost more than 
expected and took longer to develop than planned. SBIRS-High is one of 
the few weapon systems programs to exceed the 25 percent cost threshold 
established in 10 U.S.C. 2433, but the problems affecting other 
programs have been equally dramatic. For example, cost estimates for 
the AEHF communications satellite program grew by $1.2 billion from 
1999 through 2001, while the program experienced a 2-year delay in the 
launch of the first satellite. While DOD has spent several billion 
dollars over the past 2 decades to develop low-orbiting satellites that 
can track ballistic missiles throughout their flight, it has not 
launched a single satellite to perform this capability.
---------------------------------------------------------------------------
    \2\ U.S. General Accounting Office, Military Space Operations: 
Common Problems and Their Effects on Satellite and Related 
Acquisitions, GAO-03-825R (Washington, DC: June 2, 2003).
---------------------------------------------------------------------------
    A key underlying problem with many programs has been the desire to 
achieve revolutionary advancements in capability instead of 
evolutionary advancements. Such an approach meant that requirements 
exceeded resources (time, money, and technology) at the time of product 
development, setting the stage for costly and time-consuming rework 
later in the program. More specifically, in reviewing our past reports, 
we found that: (1) requirements for what the satellite needed to do and 
how well it must perform were not adequately defined at the beginning 
of a program or were changed significantly once the program had already 
begun; (2) investment practices were weak, e.g., cost estimates were 
optimistic or potentially more cost-effective approaches were not 
examined; (3) acquisition strategies were poorly executed, e.g., 
competition was reduced for the sake of schedule or DOD did not 
adequately oversee contractors; and (4) technologies were not mature 
enough to be included in product development. All of these problems 
affected SBIRS-High and AEHF. One or more affected the STSS and the 
predecessor SBIRS programs as well as Milstar, the GPS, and the NPOESS.
    Because DOD took a schedule-driven approach instead of a knowledge-
driven approach to the acquisition process, activities essential to 
containing costs, maximizing competition among contractors, and testing 
technologies were compressed or not done. Like SBIRS-High, many 
programs also encountered problems in setting requirements due to the 
diverse array of organizations with competing interests involved in 
overall satellite development--from the individual military services, 
to testing organizations, contractors, civilian agencies, and in some 
cases international partners. Requirements setting for SBIRS-High was 
particularly problematic because the Government put too much 
responsibility on its contractors to balance these competing 
interests--a problem recognized in DOD's own study of SBIRS-High and 
other studies of space acquisition problems.
    In our view, new programs like the TSAT will likewise be unable to 
make a match between needs and resources at the onset of product 
development because DOD's new space acquisition policy encourages 
product development to begin without knowing that technologies can work 
as intended to meet capability needs.

                      BUDGETING FOR SPACE PROGRAMS

    50. Senator Bill Nelson. Secretary Teets, the GAO notes that 
between now and 2008, the DOD's estimated cost for space programs more 
than doubles going from $3.5 billion to $7.5 billion. In addition, GAO 
notes that this cost does not include the procurement costs for any 
major new program. Specifically, the procurement costs for the TSAT 
Communications program, GPS III, SBR, the STSS, and the SBSS are not 
included in the DOD's 5-year budget yet.
    Each of these satellite systems is likely to cost billions of 
dollars to procure--SBR alone will likely cost tens of billions.
    Why aren't the projected procurement costs for any of these systems 
in DOD's 5-year budget, and how do you expect DOD will be able to 
afford to buy all of these new space systems, while at the same time 
covering continuing cost overruns on systems like SBIRS-High and the 
EELV program?
    Secretary Teets. The GPS III, SBR, STSS, and the SBSS programs do 
not begin their procurement within the Department's fiscal year 2004 
FYDP; thus the Department has not yet laid the procurement funding for 
those programs into our FYDP plan. Additionally, several of these 
programs are still in the study phase--procurement numbers are 
preliminary.
    The Department recognizes the significant dollar investment that 
these and other space programs will require in their production and 
deployment. As we build our budgets, space programs, like all DOD 
efforts, must compete for limited resources. I am proud of the fact 
that in recent budgets we have been able to increase space-related 
funding to provide improved capabilities to the warfighter.

               GLOBAL POSITIONING SATELLITES AND GALILEO

    51. Senator Bill Nelson. Secretary Teets, the European Community is 
developing the Galileo system to compete directly with the U.S. GPS 
system of location, navigation, and timing. Because of delays in the 
U.S. GPS III program, the Galileo system may have a window of 
opportunity to deploy a system more capable than the GPS II system. 
There has been speculation in the press that if the Galileo deploys in 
2008, Europe could have a 4 to 5 year period when it could have better 
performance than GPS. What do you think of the speculation that the 
European Galileo system will be deployed in 2008 or so and could 
provide 4 or 5 years of superior performance than GPS?
    Secretary Teets. If the Galileo project holds its current schedule, 
the Europeans will have a head start on the advanced civil capabilities 
that the GPS Block IIR-M, Block IIF, and Block III satellites will 
bring to the world.
    There is a substantial amount of risk involved for Europe to 
achieve the 2008 deployment date.

    52. Senator Bill Nelson. Secretary Teets, there is also talk of 
having receivers capable of receiving both Galileo signals and GPS 
signals. Do you believe this is feasible, and would DOD consider 
developing or using such receivers?
    Secretary Teets. We fully expect the commercial vendors to build 
receivers that take advantage of both GPS and Galileo signals for civil 
users. However, DOD security policy mandates that, for force protection 
purposes, GPS military users will use the military GPS Precise 
Positioning Service or military signal (M-Code) because of its 
exclusivity and security. Only authorized users can access the GPS 
military signals, and these are specifically designed for use under 
wartime electronic combat conditions.

    53. Senator Bill Nelson. Secretary Teets, there is also speculation 
that Galileo may be in competition with the GPS for certain spectrum 
that would reduce or diminish the ability of the U.S. to either prevent 
jamming or deny use in theaters to adversaries. What is your view on 
this speculation?
    Secretary Teets. The Galileo system uses the same area of spectrum 
used by GPS. State Department-led consultations to resolve potential 
conflicts will continue in early 2004, and hopefully will be 
successfully concluded in the near future.

    [Whereupon, at 4:02 p.m., the subcommittee adjourned.]

                                 
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