NASA's X-33 and X-34 Programs (13-AUG-01, GAO-01-1041R).	 
								 
This report (1) reviews the usefulness of cooperative agreements 
as a National Aeronautics and Space Administration (NASA)	 
contractual mechanism, (2) the reasons behind NASA's aggressive  
and rapid-style management of the X-33 and X-34 programs, (3) the
timeliness of NASA's plans to generate adequate program cost	 
estimates for gauging management reserves in the 15-20 percent	 
range, and (4) the influence of the Young report on NASA's	 
management style regarding the restructured X-34 Program. GAO	 
found that the X-33 cooperative agreement limited NASA's exposure
to cost growth and allowed industry to embark on such a program  
at relatively modest investment. To meet the goal set in 1994 by 
the White House Space Policy, NASA implemented the Reusable	 
Launch Vehicle Program, incorporating a "fast-track" management  
approach and "new ways of doing business." NASA did not conduct  
cost estimates before awarding several contracts, thereby	 
increasing the risk that the management reserves might not be	 
sufficient to cover additional contract costs. NASA restructured 
the plan for the X-34 Program in response to both X-34 Program	 
technical reviews and other internal assessments of NASA	 
programs, including reports on the failed Mars missions, the	 
shuttle wiring problems, as well as an assessment of NASA's	 
approach to executing its "Faster, Better, Cheaper" projects.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1041R					        
    ACCNO:   A01583						        
  TITLE:     NASA's X-33 and X-34 Programs			      
     DATE:   08/13/2001 
  SUBJECT:   Aerospace contracts				 
	     Contract costs					 
	     Space exploration					 
	     Cooperative agreements				 
	     Cost control					 
	     NASA Propulsion Module				 
	     NASA Second Generation Reusable Launch		 
	     Vehicle Program					 
								 
	     NASA X-33 Program					 
	     NASA X-34 Program					 

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GAO-01-1041R
     
GAO- 01- 1041R NASA Project Management United States General Accounting
Office

Washington, DC 20548

August 13, 2001 The Honorable Dana Rohrabacher Chairman, Subcommittee on
Space and Aeronautics Committee on Science House of Representatives

Subject: NASA?s X- 33 and X- 34 Programs Dear Mr. Chairman: On June 29,
2001, you asked me to provide additional comments on several issues that I
raised in my June 20, 2001, testimony before your Subcommittee on areas the
National Aeronautics and Space Administration (NASA) needs to address in
managing its Reusable Launch Vehicle Program. I am pleased to submit the
following comments for your consideration.

1. What are your conclusions regarding the usefulness of cooperative
agreements as a NASA contractual mechanism and should they be terminated?

Cooperative agreements with commercial firms, such as the one used in the X-
33 Program, can be useful in limiting the government?s investment in a
research and development project by providing for cost sharing with private
industry. However, such agreements can pose risks to the government when the
extent of private investment is based on assumptions about the potential
commercial viability of a project.

Under the Federal Grant and Cooperative Agreements Act of 1977, 1 a
procurement contract is used when an agency?s purpose is to acquire property
or services for the direct benefit to the government. When the agency is
merely transferring money to a commercial entity to carry out an activity
with a public purpose, and there is substantial government involvement, the
act generally requires the use of a cooperative agreement. This was the case
for the X- 33 Program. NASA?s specific objective was to demonstrate the
technical, operational, and business feasibility of a single- stage- to-
orbit commercial reusable launch vehicle, and it sought to work with private
industry in doing so. Given the purposes of the X- 33 program, NASA?s use of
a cooperative agreement in this instance was in accordance with the act.

1 31 U. S. C. sec. 6301 et seq.,.

GAO- 01- 1041R NASA Project Management Page 2 The X- 33 cooperative
agreement was NASA?s first large- scale attempt to implement a

program using this method. Previously, NASA had used cooperative agreements
to implement relatively small programs, mostly science- related efforts at
academic institutions.

In terms of potential usefulness, the X- 33 cooperative agreement limited
NASA?s exposure to cost growth and allowed industry to embark on such a
program at relatively modest investment. NASA?s industry partners assumed
the risk of cost growth in exchange for the prospect of a competitive edge
and potential economic benefits.

However, as we indicated at the hearing, the business- related assumptions
initially underlying industry?s willingness to assume the risk of cost
growth did not remain valid. The anticipated demand for commercial launch
services did not materialize. Eventually, program cost growth, difficulties
developing the needed technologies, and weakened launch market projections
undermined the anticipated economic benefits. Since NASA?s cooperative
agreement policy limited its contribution to a fixed amount, the X- 33
Program, in effect, took on aspects of a fixed- price contract for basically
a research and development program.

2. What was the reason behind NASA?s aggressive and rapid- style management
of the X- 33 and X- 34 programs?

The 1994 White House Space Policy established a goal to make a decision on
the fullscale development of a single- stage- to- orbit reusable launch
vehicle by the end of calendar year 2000. To meet this goal, NASA
implemented the Reusable Launch Vehicle Program, incorporating a ?fast-
track? management approach and ?new ways of doing business.? A key element
was the creation of industry- led partnerships. NASA believed that private
industry, with limited government involvement, would be able to develop
these vehicles, which incorporated new and unproven technologies, more
rapidly, cheaply, and quickly than could be done by NASA using its
traditional acquisition approach.

3. Your written testimony stated that NASA plans to generate adequate
program cost estimates for gauging management reserves in the 15 to 20
percent range as a way of avoiding problems encountered in the X- vehicle
programs. You expressed concern as to NASA?s timeliness in preparing these
cost estimates. Why?

In May 2001, NASA awarded the first contracts under the 2 nd Generation
Reusable Launch Vehicle Program. At the time of our testimony, we reported
that the program manager planned to update the cost estimates this summer
before NASA conducts a separate, independent technical review and cost
estimate in September 2001. We believe that program cost estimates should
have been completed and available prior to the award of any contracts in
order to adequately assess the reasonableness of contractor proposals and
the sufficiency of reserves set aside to meet the risk

GAO- 01- 1041R NASA Project Management Page 3 inherent in these proposals.
NASA?s own program guidance requires that such cost

estimates be prepared before proceeding into program implementation. Other
NASA programs, such as the International Space Station and the Propulsion
Module Project, have also experienced schedule delays and incurred
additional costs due to design changes and program management problems.
Timely and realistic cost estimates and budgets would help ensure potential
risks are identified and the cost to resolve such risks is included in the
project plan. Further, adequate reserves help protect the funding of other
ongoing programs that otherwise might be used to cover the cost growth.

4. How much did the lessons learned in the Young report influence NASA?s
management style regarding the restructured X- 34 Program?

The Young report 2 was a NASA- initiated study assessing the causes of the
failure of two missions to Mars-- the Mars Climate Orbiter and the Mars
Polar Lander-- and other deep space missions. It would be difficult to
quantify the extent that the Young report or any of NASA?s internal reports
influenced a particular change to the X- 34 Project. We did find that NASA
restructured the plan for the X- 34 Project in response to both X- 34
Project technical reviews and other internal assessments of NASA programs,
including reports of the failed Mars missions, the Shuttle wiring problems,
as well an assessment of NASA?s approach to executing its ?Faster, Better,
Cheaper? projects. X- 34 Project management reviewed these reports and
assessments, identified common problems, and took corrective measures to
prevent the same problems from reoccurring with the X- 34 Project. For
example, NASA consolidated the X- 34 vehicle and engine projects under one
NASA manager and relegated the contractor to a more subordinate role. The
restructured plan also added several risk mitigation tasks.

- - - - If you have any questions about this letter or need additional
information, please call me on (202) 512- 4841. Copies of this letter are
also available on GAO?s homepage at http:// www. gao. gov. Key contributors
to this letter included Jerry Herley, Noel Lance, Carlos Garcia, Charles
Malphurs, and Cristina Chaplain.

Sincerely yours, Allen Li Director, Acquisition and Sourcing Management

(120090) 2 Mars Program Independent Assessment Team Summary Report, March
14, 2000.
*** End of document. ***