Defense Acquisitions: Actions to Improve Navy SPAWAR Low-Rate	 
Initial Production Decisions (07-AUG-01, GAO-01-735).		 
								 
During its review of the Navy's Space and Naval Warfare (SPAWAR) 
Systems Command's fiscal year 2001 budget request, GAO found that
many information technology systems were being procured and	 
fielded in relatively large quantities--sometimes exceeding 50	 
percent of the total--during low-rate initial production and	 
before completing operational testing.	The primary purpose of	 
low-rate initial production is to produce enough units for	 
operational testing and evaluation and to establish production	 
capabilities to prepare for full-rate production. Limiting	 
initial production affords the opportunity to confirm the	 
stability and soundness of a new system before producing larger  
quantities. Commercial and Department of Defense (DOD) best	 
practices have shown that completing a system's testing prior to 
producing significant quantities will substantially lower the	 
risk of costly fixes and retrofits. For major weapons systems,	 
there are statutory provisions that limit the quantities of	 
systems produced during low-rate initial production to the	 
minimum quantity necessary and require justification for	 
quantities exceeding 10 percent of total production. Although	 
these provisions do not apply to non-major systems, DOD and Navy 
acquisition regulations encourage these programs to make use of  
the low-rate initial production concept where appropriate. This  
report reviews (1) why information systems were being procured	 
and fielded for SPAWAR in large numbers before operational	 
testing, (2) what effects this practice was having on SPAWAR and 
the fleet, and (3) what the Navy is doing to mitigate the risks  
associated with this practice. GAO found that (1) the main reason
for the high percentage of low-rate initial production quantities
is to more quickly respond to fleet demands for information	 
systems improvements, (2) many information technology systems	 
purchased and fielded during low-rate initial production and	 
prior to completing operational testing experienced problems that
negatively impacted fleet operations and capabilities, and (3)	 
SPAWAR has taken a number of steps to mitigate the risks of high 
percentage low-rate initial production procurements, such as	 
requiring program managers to use a standardized checklist and	 
establishing an Acquisition Reform Office to serve as a focal	 
point and command-wide disseminator of lessons learned and	 
process improvements.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-735 					        
    ACCNO:   A01537						        
  TITLE:     Defense Acquisitions: Actions to Improve Navy SPAWAR     
             Low-Rate Initial Production Decisions                            
     DATE:   08/07/2001 
  SUBJECT:   Information systems				 
	     Military research and development			 
	     Naval procurement					 
	     Operational testing				 
	     Concurrency					 
	     Weapons systems					 
	     Defense capabilities				 
	     Navy Command and Control Processor 		 
	     Navy Digital Wideband Transmission 		 
	     System						 
								 
	     Navy Global Positioning System			 
	     Navy Milestone III Program 			 
	     Navy Extremely High Frequency Satellite		 
	     Communications System				 
								 

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GAO-01-735
     
Report to the Secretary of the Navy

United States General Accounting Office

GAO

August 2001 DEFENSE ACQUISITIONS Actions to Improve Navy SPAWAR Low- Rate
Initial Production Decisions

GAO- 01- 735

Page 1 GAO- 01- 735 Defense Acquisitions

August 7, 2001 The Honorable Gordon R. England The Secretary of the Navy

Dear Mr. Secretary: During our review of the Navy?s Space and Naval Warfare
(SPAWAR) Systems Command?s fiscal year 2001 budget request, we found that
many information technology systems were being procured and fielded in
relatively large quantities- sometimes exceeding 50 percent of the total-
during low- rate initial production and before completing operational
testing. The primary purpose of low- rate initial production is to produce
enough units for operational testing and evaluation and to establish
production capabilities to prepare for full- rate production. Limiting
initial production affords the opportunity to confirm the stability and
soundness of a new system before producing larger quantities. Commercial and
Department of Defense (DOD) best practices have shown that completing a
system?s testing prior to producing significant quantities will
substantially lower the risk of costly fixes and retrofits. For major
weapons systems, there are statutory 1 provisions that limit the quantities
of systems produced during low- rate initial production to the minimum
quantity necessary and require justification for quantities exceeding 10
percent of total production. Although these provisions do not apply to non-
major systems, DOD and Navy acquisition regulations encourage these programs
to make use of the low- rate initial production concept where appropriate.

Given the risks associated with acquiring high percentages of production
quantities before completing operational testing, we reviewed the
acquisitions of information systems at SPAWAR to determine (1) why
information systems were being procured and fielded in large numbers before
operational testing, (2) what effects this practice was having on SPAWAR and
the fleet, and (3) what the Navy is doing to mitigate the risks associated
with this practice.

1 10 U. S. C. 2400.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 735 Defense Acquisitions

According to SPAWAR officials, the main reason for the high percentage of
low- rate initial production quantities is to more quickly respond to fleet
demands for information systems improvements. The SPAWAR commander noted
that the high percentage reflects the desire to quickly field information
systems to keep up with rapid advances in technology. He further noted that
the high percentage of low- rate initial production buys is generally
considered low risk when they involve proven commercial technology and are
low- cost items- compared to ships and aircraft. Officials in the Office of
the Chief of Naval Operations said the fleet would rather have an
information system with 75 to 80 percent capability than to wait until
SPAWAR completes all necessary testing to ensure a system will meet all of
its capability.

Many information technology systems purchased and fielded during lowrate
initial production and prior to completing operational testing experienced
problems that negatively impacted fleet operations and capabilities. We
analyzed 8 of the 21 fielded SPAWAR programs with a high percentage of low-
rate initial production quantities and found that all had performance
problems, all had interoperability problems, and 6 had suitability problems.
A limited analysis of the remaining 13 systems found that several also
experienced operational problems. The SPAWAR commander said most of the
problems we found were, in part, the result of an acquisition process that
needed more discipline and has recently improved. He further noted that some
operational problems with new systems are inevitable and are part of the
cost of doing business and are worth the risk in order to provide systems to
the fleet quickly. Nevertheless, the DOD Director of Operational Test and
Evaluation said that low- rate initial items can be used in an operational
environment to learn about problems and fix them, but procuring high
percentages of a system before completing operational test and evaluation is
a risky strategy.

SPAWAR has taken a number of steps to mitigate the risks of high percentage
low- rate initial production procurements. To add more discipline and rigor
to the low- rate initial production decision process, the Command now
requires program managers to use a standardized checklist and report
template as part of reviewing and approving low- rate initial production
purchase requests. SPAWAR has also established an Acquisition Reform Office
to serve as a focal point and command- wide disseminator of lessons learned
and process improvements. The reform office is currently developing a ?Rules
of the Road? Acquisition Guidebook for SPAWAR program managers. Further, in
discussions of our findings and observations during this review, the Navy
and SPAWAR agreed to Results in Brief

Page 3 GAO- 01- 735 Defense Acquisitions

provide better risk management guidance for information systems. They also
agreed to our suggested improvements in documenting, justifying, and
reporting low- rate initial production decisions.

In commenting on our draft report, the Navy agreed and stated that the
actions taken and planned by it and the SPAWAR Command are expected to
improve the Navy?s low- rate initial production decision process. The Navy?s
comments appear in appendix I.

SPAWAR is one of the Navy?s three major acquisition commands. SPAWAR
provides information technology systems to naval forces on land, at sea, and
in space and integrates all information products, including those developed
by other systems commands and agencies outside the Navy. The SPAWAR
workforce is over 7, 300 personnel, and the fiscal year 2000 budget was $3.
7 billion- about $2. 7 billion to develop and procure systems and about $1.0
billion to operate and maintain them. Specifically, SPAWAR develops,
acquires, and manages

 battle management systems (for example, software applications and
computers);  undersea, terrestrial, and space sensors (for example,
underwater

sensors, navigation and weather systems, and satellites);  information
transfer systems (for example, communications systems,

radios, antennas, and switches); and  information management systems (for
example, local area networks

and routers). As of October 2000, SPAWAR was managing 21 programs that
involved low- rate initial production. These programs had cumulative low-
rate initial procurements ranging from 5 to 100 percent of the total
inventory objective- 7 systems were above 50 percent. The estimated total
production costs for the eight systems we analyzed in detail ranged from $31
million to $525 million.

As weapon system programs move through the phases of the acquisition
process, they are subject to review at major decision points called
milestones. Major defense acquisition programs, known as acquisition
Background

Page 4 GAO- 01- 735 Defense Acquisitions

category I, and major systems programs, known as acquisition category II, 2
as well as non- major systems programs, known as acquisition category III
and IV, 3 follow the same general process. DOD and Navy acquisition policies
state that program risks shall be assessed at each milestone decision point
before approval is granted for the next phase. The policies add that test
and evaluation shall be used to determine system maturity and identify areas
of technical risk.

Major milestones in DOD?s systems acquisition process include  Milestone 0,
when the determination is made about whether an

identified mission need warrants a study of alternative concepts to satisfy
the need. If warranted, the program is approved to begin the concept
exploration and definition phase.

 Milestone I, when the determination is made about whether a new
acquisition program is warranted. If so, initial cost, schedule, and
performance goals are established for the program, and authorization is
given to start the demonstration and validation phase.

 Milestone II, when the determination is made about whether continuation of
development, testing, and preparation for production is warranted. If so,
authorization is given to start the engineering and manufacturing
development phase. Approval of this phase will often involve a commitment to
low- rate initial production, which is defined as the minimum quantity
needed to (1) provide productionrepresentative articles for operational
testing and evaluation, (2) establish an initial production base, and (3)
permit orderly ramp- up to full- rate production upon completion of
operational testing and evaluation. Operational test and evaluation is a key
internal control to ensure that decisionmakers have objective information
available on a

2 The Navy defines acquisition category I as a major defense acquisition
program that is estimated to cost more than $355 million (fiscal year 1996
dollars) for research, development, testing, and evaluation or more than $2.
1 billion (fiscal year 1996 dollars) for procurement. The Navy defines
acquisition category II as a major system program that is estimated to cost
more than $140 million (fiscal year 1996 dollars) for research, development,
testing, and evaluation or more than $645 million (fiscal year 1996 dollars)
for procurement. 3 The Navy defines acquisition category III as a weapon
system program not designated acquisition category I or II and which affects
the military characteristics of ships or aircraft or involves combat
capability. The Navy defines acquisition category IV as those not designated
as acquisition category I, II, or III.

Page 5 GAO- 01- 735 Defense Acquisitions

weapon system?s performance to minimize risks of procuring costly and
ineffective systems. Operational testing and evaluation uses field tests
under realistic conditions to determine the operational effectiveness 4 and
suitability 5 of a system for use in combat. DOD acquisition regulations
generally provide that programs successfully complete these tests before
starting full- rate production.

 Milestone III, when operational test and evaluation has been completed, a
determination is made about whether to proceed to fullrate production and
field the system.

Over the years, we have found instances in which DOD used the low- rate
initial production decision phase to purchase significant numbers of major
and non- major systems without successfully completing operational testing
and evaluation. Often, these systems later experienced significant
effectiveness and/ or suitability problems. In 1994, we reported that DOD
had made large buys of weapon systems during the low- rate initial
production phase and prior to completion of operational test and evaluation,
which resulted in operational problems. 6 For example, we reported that the
Navy procured 100 percent of a system?s inventory objective during low- rate
initial production and later found that the system lacked critical hardware
and software capabilities. In another case, the Navy procured 100 percent of
a system?s inventory objective during lowrate initial production and later
terminated the program when it failed operational testing and evaluation. A
recent Defense Science Board report found that weapons systems are still
being fielded without adequate testing to assure their effectiveness and
utility to operating units. 7 We conducted this review because buying
systems before completing operational testing has inherent risks, and
SPAWAR?s practice of buying

4 DOD defines operational effectiveness as a system?s overall degree of
mission accomplishment when representative personnel use the system in its
planned or expected operational environment considering organization,
doctrine, tactics, survivability, vulnerability, and threat. 5 DOD defines
operational suitability as the degree to which a system can be
satisfactorily placed in field use considering such factors as availability,
compatibility, transportability, interoperability, reliability, wartime
usage rates, maintainability, safety, and supportability. 6 Weapons
Acquisition: Low- Rate Initial Production Used to Buy Weapon Systems
Prematurely (GAO/ NSIAD- 95- 18, Nov. 24, 1994).

7 Report of the Defense Science Board Task Force on Test and Evaluation
Capabilities, Office of the Under Secretary of Defense for Acquisition and
Technology, Dec. 2000.

Page 6 GAO- 01- 735 Defense Acquisitions

high percentages of a system?s total inventory objective during low- rate
initial production raised these risk concerns.

SPAWAR officials cited three primary reasons for high- percentage buys
during low- rate initial production. First, to meet Navy initiatives, SPAWAR
must provide the fleet with large quantities of information technology
systems as quickly as possible. Second, many information systems consist of
evolving technology that quickly becomes obsolete. Third, additional low-
rate initial production buys are approved due to delays in conducting the
operational test and evaluation.

The main reason that SPAWAR officials cited for high- percentage buys during
low- rate initial production is the need to provide as many information
technology systems to the fleet as quickly as possible to meet several Navy
initiatives. The Navy?s current vision for the 21st century, Forward From
The Sea, involves innovations in technology to rapidly transform the Navy
into a 21st century force. SPAWAR provides or contributes to many of the
operational capabilities that support the vision. Officials in the Chief of
Naval Operations? Fleet and Allied Requirements Division stated that the
fleets put pressure on SPAWAR to provide information systems faster. These
officials, as well as SPAWAR officials, contend that if SPAWAR does not
provide systems to the fleet quickly, then the fleet will bypass the Chief
of Naval Operations and SPAWAR and procure some systems with fleet funding.
If the fleet buys the systems, SPAWAR cannot control the configuration of
these systems, which can eventually result in interoperability problems with
systems that SPAWAR procures. An official in the Office of the Deputy
Assistant Secretary of the Navy responsible for communications and space
systems also agreed that there is pressure on SPAWAR to meet fleet demands.
He said that the Under Secretary of Defense for Acquisition, Technology, and
Logistics stated about 3 years ago that the pace of developing systems was
too slow and called for shortening the development cycle by incorporating
evolutionary development and acquisition. Through evolutionary development
and acquisition, systems are continuously improved, as new technology
becomes available.

According to the SPAWAR commander, another reason for quickly providing
systems to the fleet is that information systems consist of rapidly
advancing technology, which can become obsolete within 18 months. He said
that procuring and fielding a large percentage of a system?s inventory
objective while still in low- rate initial production quickly provide the
fleet with better information systems and provide important operational data
so that any system performance problems can Fleet Demands and

Rapidly Advancing Technology Cited for the High Percentage of Low- Rate
Initial Production Purchases

Page 7 GAO- 01- 735 Defense Acquisitions

be quickly fixed. Officials in the Navy Fleet and Allied Requirements
Division said that the 18- month obsolescence cycle is the main reason that
the fleet would rather have a system now with 75 to 80 percent of its full
capability as opposed to waiting until the system has all of its capability.
However, officials in the Chief of Naval Operations? Office of Test,
Evaluation, and Technology Requirements disputed that rapidly advancing
technology is a legitimate reason for making high- percentage buys during
low- rate initial production and before completing operational testing.
These officials concluded that making high- percentage buys during lowrate
initial production circumvents the operational testing and evaluation
process and increases the risk that systems will not work as intended when
fielded.

High- percentage buys during low- rate initial production also were the
result of delays in conducting the operational test and evaluation.
According to the SPAWAR commander, the pass or fail nature of operational
testing contributed to delays. Rather than fail a test and risk program
reduction or termination, operational tests were delayed until there was a
good probability that the system would pass the tests. As tests were
delayed, additional low- rate initial production buys were approved. Six of
the eight systems we analyzed had additions to the original low- rate
initial production quantities.

The SPAWAR commander said that making high- percentage buys of a system
while still in low- rate initial production is low risk when proven
commercial technology items are being procured and they are relatively low-
cost items- when compared to the cost of ships and aircraft. Further, if
problems arise after the low- rate initial production systems are fielded,
the cost to fix them is not significant. However, SPAWAR officials agreed
that none of the eight systems we analyzed are entirely commercial and that
all of them have military requirements that must be tested in a realistic
operational environment.

The DOD Director of Operational Test and Evaluation agreed that low- rate
initial production items can be used in an operational environment to learn
about problems and fix them, but he said that procuring large quantities of
a system before operational test and evaluation is a risky strategy.

Page 8 GAO- 01- 735 Defense Acquisitions

We analyzed eight SPAWAR systems and found seven of them had a combination
of problems that adversely affected fleet operations- all had performance
problems, all had interoperability problems, and six had suitability
problems. A performance problem is the inability of a system to effectively
and efficiently perform its assigned mission. An interoperability problem is
the inability of systems to work together effectively to provide services to
and accept services from other systems. A suitability problem involves a
system not satisfactorily meeting one or more requirements, including
reliability, maintainability, logistics support, or training. These problems
may delay progress in achieving the Navy?s vision for using information
technology to attain and maintain network- centric warfighting knowledge and
decision- making superiority. The last of the eight systems had not been
installed when we analyzed the eight systems. Table 1 illustrates the types
of problems identified for seven of the eight systems.

Table 1: Types of Problems for High- Percentage Low- rate Initial Production
Systems System Types of problems

Description Current

inventory objective

Percent low- rate production Performance InteroperName ability Suitability

Automated Digital Network System/ Sensitive Compartmented Information
Automated Digital Network System

Provides communications network and selects best path for transmissions

513 51 X X X Combat Direction Finding System Detects, identifies, and

provides long- range hostile target data

36 22 X X Command and Control Processor Provides interface for

communications and shipboard processors

105 41 X X X Commercial Wideband Satellite Program (Terminals)

Provides super- high frequency ship satellite communications

37 78 X X X Digital Wideband Transmission System Provides ultra- high

frequency voice, video, and data communications

45 100 X X X Miniaturized Demand Assigned Multiple Access Provides
capability to

share multiple signals on a satellite broadcast

142 72 X X X Navy Modular Automated Communications System II Provides
automatic

processing and storage of messages

305 21 X X X Submarine High Data Rate Provides high capacity

communications in extremely and super high frequencies

60 37 a aa a The first low- rate initial production unit had not been
installed as of September 2000; therefore, no information existed about its
operational effectiveness and suitability in the fleet.

Problems Experienced When Procuring High Percentages of Units In Low- Rate
Initial Production

Page 9 GAO- 01- 735 Defense Acquisitions

Two of the systems- the Digital Wideband Transmission System and the Command
and Control Processor- illustrate how interoperability, performance, and
suitability problems impact fleet operations. The Digital Wideband
Transmission System is a radio transmission system supporting voice, video,
and data communications. It is required on all aircraft carriers and
amphibious ships and at training facilities. SPAWAR approved 100 percent of
the total inventory objective to be bought under low- rate initial
production; however, the system does not work due to a number of problems
with the antenna, power amplifier, and radio frequency control. The system
also created, and was affected by, electromagnetic interference, which
caused severe interoperability problems. For example, the interference
caused a complete loss of Global Positioning System navigation capability.
Furthermore, in order for the digital system to work, an air- search radar
had to be shut down. Consequently, the Navy turned off the system the first
time it was used during an amphibious ready group deployment in the Pacific,
replaced it with a legacy system, and placed the digital system in an
inoperative status for 9 months. By November 2000, SPAWAR had installed 78
percent of the systems in the fleet, but it will cost $4.3 million to fix
the problems for this $40- million program- $1.2 million for engineering
work and $3. 1 million for retrofit costs. SPAWAR is currently developing
and testing improvements to system performance.

The Command and Control Processor acquires information from other
communications systems, stores the information, and reformats it for use by
the Aegis combat system on aircraft carriers and naval combat surface ships.
Although SPAWAR originally approved a small purchase of the processor during
the low- rate initial production, three subsequent low- rate initial
production increases bought the total to 41 percent of the inventory
objective. From 1995 to 2000, there were 263 problems noted with the system,
mostly involving software, during battle group system integration tests. The
processor has severe suitability problems because it breaks down
unpredictably up to 12 hours at a time (due to software problems) and
freezes up, which eliminates the system?s capability to provide current
situational awareness. Also, on an aircraft carrier that we visited,
operators said that the processor would not integrate with other systems,
even though it is designed to do so. To prevent the breakdowns, SPAWAR
developed a workaround procedure, which involves resetting the system every
2 hours instead of every 24 hours. In addition, the breakdowns and
workarounds put more pressure on operators and maintainers during combat or
hostile situations.

Page 10 GAO- 01- 735 Defense Acquisitions

Some of SPAWAR?s 13 other systems with a high percentage of low- rate
initial production buys also had operational effectiveness and suitability
problems. The Pacific Fleet experienced 46 problems with the Navy Extremely
High Frequency Satellite Communications System from 1995 to 2000. The
problems involved hardware and software, interoperability, and training. For
example, in February 2000, system performance was degraded due to a part
failure. In April 2000, SPAWAR reported that the problem had been solved.
However, about a month later, the system had problems again, resulting in no
response from the satellite and timetracking errors being returned. The
system was again placed in a degraded status and, as of August 2000, the
problem was still unresolved. The Pacific Fleet also experienced problems
with the High Frequency Radio Group, mainly due to system performance
problems and training shortfalls. For example, on a ship visit in October
2000, ship communications personnel said that the system had broken down
several times for a duration of 1 week to 1 month at a time. They said that,
when it breaks down, the operators must tune in the radio frequency
manually, but ship operators have not been trained to do this because they
were used to relying on the system to tune into a particular frequency
automatically. The Pacific Fleet also identified several other problems with
the radio group, including a ship that experienced 15 failures of a system
switch within 11 months.

The SPAWAR commander said that the Command did not have adequate controls
and oversight, at the time of most of these low- rate initial production
decisions, to either mitigate or manage risks associated with procuring and
fielding large percentages of systems during low- rate initial production.
He said the need for more discipline in the acquisition process contributed
to the interoperability, performance, and suitability deficiencies we
identified. He further noted, however, that some problems are part of the
cost of doing business with new systems and are worth the risk to provide
systems to the fleet quickly. According to the SPAWAR commander, the most
meaningful measure of success is whether the systems are meeting their
operational requirements, and he said that SPAWAR?s systems are meeting
theirs based on a performance parameter called operational availability. 8
However, according to the DOD Director of

8 Operational availability is calculated in two ways. For continuously
operating systems, it is calculated by dividing the amount of time that the
system is up and running by the cumulative amount of time that the system is
up and running plus the down time. For ondemand systems, operational
availability is calculated by dividing the number of times the system was
available by the number of times the system was required to be available.

Page 11 GAO- 01- 735 Defense Acquisitions

Operational Test and Evaluation and the Chief of Naval Operations? Office of
Test, Evaluation, and Technology Requirements, operational availability is
only one of a number of key performance measures, and an overall assessment
of system performance should not be based solely on that parameter.

The Navy and SPAWAR have taken or plan to take a number steps to mitigate
the risks of large low- rate initial production procurements. To add more
discipline and rigor to the low- rate initial production decision process,
the Command now requires program managers to use a standardized checklist
and report template as part of reviewing and approving low- rate initial
production purchase requests. SPAWAR has also established an Acquisition
Reform Office to serve as a focal point and command- wide disseminator of
lessons learned and process improvements. The reform office is currently
developing a ?Rules of the Road? Acquisition Guidebook for SPAWAR program
managers. Further, in discussions of our findings and observations during
this review, the commander called for the development of risk management
guidance for information systems and agreed to suggested improvements in
documenting and justifying low- rate initial production decisions.

The SPAWAR commander said better risk management guidance would improve low-
rate initial production decisions on information systems, especially when
milestone decision authorities and program managers rotate in and out over
time. The commander stated that he and the program managers primarily use
their acquisition knowledge, wisdom, and experience when making risk
management decisions.

In discussions with Navy and SPAWAR officials, we noted that the Acquisition
Decision Memorandums, 9 used to document and support milestone decisions,
did not always include the low- rate initial production quantity being
approved, the cumulative number of low- rate initial production items that
had been approved, or the cumulative low- rate initial production
percentage. We also noted that, at SPAWAR, the justification for approving
low- rate initial production purchases was not always documented. The Navy
and SPAWAR officials agreed to document

9 The Acquisition Decision Memorandum is a memorandum signed by the
milestone decision authority that documents decisions made as a result of a
milestone decision review or an in- process review. DOD Instruction 5000. 2
and Navy Instruction 5000. 2B require a decision memorandum for all
acquisition milestones for major and non- major programs but do not specify
format or content. Navy and SPAWAR

Take Steps to Reduce Low- Rate Initial Production Risks

Page 12 GAO- 01- 735 Defense Acquisitions

in the Acquisition Decision Memorandum the justification for all low- rate
initial production approvals, as well as the current inventory objective and
the cumulative number of units bought under low- rate initial production.
SPAWAR also agreed to include in its quarterly program status report when
cumulative low- rate initial production approvals reach 50 percent or more
of the current inventory objective. Recognizing that other Navy activities
can benefit from the low- rate initial production decision checklist and
report template, we recommended that this guidance be distributed throughout
the Navy. The Navy subsequently distributed the guidance DOD- wide. Finally,
the Navy and SPAWAR agreed to supplement acquisition training for program
managers and staff by incorporating risk management tools into existing
courses.

In seeking to provide new information systems to the fleet as quickly as
possible, SPAWAR officials procured and fielded relatively large quantities
of systems during low- rate initial production and before completing
operational testing. Our subsequent review of seven of these systems found
that six had experienced operational problems that negatively impacted the
fleet. The SPAWAR commander noted that controls and oversight, at the time
of most of these decisions, were not adequate to either mitigate or manage
risks associated with procuring and fielding large percentages of systems
during low- rate initial production. He said the need for more discipline in
the acquisition process contributed to deficiencies we identified. Since
that time, Navy and SPAWAR officials have taken or have plans to take a
number steps to mitigate the risks of large low- rate initial production
procurements. In addition, they have agreed to implement, and in one case
have already implemented, process improvements we suggested during the
course of this review. Given these actions, we are not making any
recommendations in this report.

In commenting on our draft report, the Navy agreed and stated that the
actions taken and planned by it and the SPAWAR Command are expected to
improve the Navy?s low- rate initial production decision process. The Navy?s
comments appear in appendix I.

To acquire information about the number and status of SPAWAR low- rate
initial production programs, we interviewed officials and obtained
documentation from the SPAWAR Acquisition Reform Office; selected SPAWAR
program offices; the Office of the Assistant Secretary of the Navy
(Research, Development, and Acquisition); the Office of the Deputy Assistant
Secretary of the Navy (Command, Control, Communications, Computers, and
Information/ Electronic Warfare/ Space); the Office of the Deputy Director
Defense Procurement Strategies; the Office of the Under Conclusions

Agency Comments Scope and Methodology

Page 13 GAO- 01- 735 Defense Acquisitions

Secretary of Defense (Acquisition and Technology); and the Office of the
Chief of Naval Operations.

To obtain detailed information about the impact of the high percentage of
SPAWAR low- rate initial production procurements, we selected and reviewed
14 programs, representing 70 percent of all SPAWAR low- rate initial
production programs. Of these 14 programs, we examined 8 programs in detail
looking at operational, logistic, interoperability, and training issues to
determine how well these programs were performing.

To obtain information about the operational testing, evaluation,
interoperability, and fielding of low- rate initial production systems, we
interviewed officials and obtained documentation from the Office of the
Director of Navy Test, Evaluation, and Technology Requirements; the Office
of the Navy Commander Operational Testing and Evaluation Force; the Office
of the Program Manager for Battle Group Systems Integration Testing; and the
Office of the Director of Operational Test and Evaluation, Office of the
Assistant Secretary of Defense.

To obtain information about the operation, performance, interoperability,
maintenance, repair, retrofit, suitability, and training regarding low- rate
initial production systems in the fleet, we visited the Naval Surface Force
Command, Pacific; the Naval Air Command, Pacific; and the Naval Submarine
Command, Pacific, Squadron Eleven. We also visited specific ships in each
command, including the U. S. S. Benfold (DDG- 65), the U. S. S. Pearl Harbor
(LSD- 52), the U. S. S. John C. Stennis (CVN- 74), and the U. S. S. Salt
Lake City (SSN- 716). In addition, we held discussions with SPAWAR program
officials and officials from SPAWAR?s In- Service Engineering Activity,
Fleet Support Engineering Team, and Installations and Logistics Directorate.

To obtain information about the laws, regulations, procedures, and guidance
governing the procurement of information technology systems in low- rate
initial production, we interviewed officials and obtained documentation from
the Office of the Commander, Space and Naval Warfare Systems Command; the
Office of the Chairman Deskbook Working Group (DOD 5000 Rewrite); the
Assistant Secretary of the Navy (Research, Development and Acquisition); and
the Office of the Assistant Deputy Under Secretary of Defense (Systems
Acquisition). We also reviewed selected laws and regulations governing low-
rate initial production, including title 10 of the U. S. Code, the DOD 5000
series acquisition regulations (the1996 and revised 2000 version), and
Secretary

Page 14 GAO- 01- 735 Defense Acquisitions

of the Navy Instruction 5000- 2B governing acquisition and procurement of
low- rate initial production and commercial- off- the- shelf technology.

We conducted our review from June 2000 through May 2001 in accordance with
generally accepted government auditing standards.

We are sending copies of this report to interested congressional committees;
the Honorable Donald H. Rumsfeld, Secretary of Defense; and the Honorable
Mitchell E. Daniels Jr., Director of the Office of Management and Budget.
Copies will be made available to others upon request.

Please contact me at (202) 512- 4821 if you have any questions regarding
this report. Key contributors to this report were Cristina Chaplain, Joe
Dewechter, Dorian Dunbar, Stephanie May, Gary Middleton, Sarah Prehoda,
Richard Price, and William Woods.

Sincerely yours, James F. Wiggins Director Acquisition and Sourcing
Management

Appendix I: Comments From the Department of the Navy

Page 15 GAO- 01- 735 Defense Acquisitions

Appendix I: Comments From the Department of the Navy

Appendix I: Comments From the Department of the Navy

Page 16 GAO- 01- 735 Defense Acquisitions

Appendix I: Comments From the Department of the Navy

Page 17 GAO- 01- 735 Defense Acquisitions (707533)

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