National Airspace System: Progress and Ongoing Challenges for the
Air Traffic Organization (14-APR-05, GAO-05-485T).		 
                                                                 
Congress's formation of the Air Traffic Organization (ATO) and	 
the Joint Planning and Development Office (JPDO), both within the
Federal Aviation Administration (FAA), represent the latest	 
efforts to address the monumental challenges of modernizing the  
national airspace system (NAS) during the first quarter of the	 
twenty-first century. For more than two decades, FAA has been	 
working to modernize the air traffic control (ATC) system, but	 
projects have repeatedly missed cost, schedule, and performance  
targets. Consequently, ATC modernization has been on GAO's list  
of high-risk federal programs since 1995. The ATO's focus is on a
rolling 10- year outlook to operate and modernize the NAS. By	 
contrast, the JPDO's vision is longer term, focused on		 
coordinating the research efforts of diverse federal agencies to 
achieve a common goal of meeting potential air traffic demands in
2025. This statement discusses (1) GAO's assessment of the ATO's 
efforts to date in addressing some of the key challenges for the 
ATC modernization program and (2) challenges that lie ahead for  
the ATO and options that it could consider in addressing the	 
needs of the NAS over the next decade, as well as longer-term	 
needs defined by the JPDO.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-485T					        
    ACCNO:   A21779						        
  TITLE:     National Airspace System: Progress and Ongoing Challenges
for the Air Traffic Organization				 
     DATE:   04/14/2005 
  SUBJECT:   Air traffic control systems			 
	     Cost analysis					 
	     Cost overruns					 
	     Federal procurement				 
	     Internal controls					 
	     Investment planning				 
	     Performance measures				 
	     Program evaluation 				 
	     Schedule slippages 				 
	     Strategic planning 				 
	     Capital investment planning			 
	     Stakeholder consultations				 
	     Transparency					 
	     FAA Air Traffic Control Modernization		 
	     Program						 
                                                                 

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GAO-05-485T

     

     * Four Interrelated Factors Contributed to Acquisitions Missing Cost,
       Schedule, and Performance Targets
     * ATO Is Taking Some Positive Steps to Address Legacy Acquisition
       Problems
     * ATO Recognizes the Importance of Organizational Culture for
       Facilitating Transition
     * Continued Reductions in Funding Levels Will Chall
     * The ATO Has Options to Increase Its Prospects for Success
     * Appendix I: Major ATC System Acquisitions
     * Appendix II: Changes in Cost and Schedule Targets for 16 Major ATC
       System Acquisitions
     * Appendix III: Key Practices and Implementation Steps for Mergers and
       Organizational Transformations
     * Related GAO Products
          * Order by Mail or Phone

                 United States Government Accountability Office

Testimony

GAO

      Before the Subcommittee on Aviation, Committee on Transportation and
                    Infrastructure, House of Representatives

For Release on Delivery       NATIONAL AIRSPACE SYSTEM                     
Expected at 10:00 a.m. EDT    
Thursday, April 14, 2005      
                                 Progress and Ongoing Challenges for the Air  
                                 Traffic Organization                         
                                 Statement of Gerald L. Dillingham, Director, 
                                 Civil Aviation Issues                        

GAO-05-485T

NATIONAL AIRSPACE SYSTEM

Progress and Ongoing Challenges for the Air Traffic Organization

  What GAO Found

The ATO is taking a number of positive steps to address the legacy cost,
schedule, and performance problems that have affected the ATC
modernization program for the past two decades. For example, the ATO is
beginning to involve stakeholders early and throughout a system's
development; has demonstrated a willingness to cut major acquisitions that
are not meeting their goals, even after investing significant resources;
and has improved its management of information technology. However, the
ATO does not use a knowledge-based approach to acquisitions,
characteristic of best commercial and federal practices, which would help
avoid cost, schedule, and performance problems. Additionally, the ATO has
used a process improvement model in several software-intensive
acquisitions. However, because the ATO has not mandated use of the model
in all such acquisitions, it risks taking a major step backwards in its
capabilities for ATC systems and software. Finally, the ATO is taking
steps to change the culture of its component organizations by, for
example, replacing a personality-driven culture with one that is more
sustainable and stable. Continued management attention in this area will
be important to the organization's success.

The ATO faces the challenges of (1) modernizing and expanding NAS capacity
to accommodate an expected 25-percent increase in the volume of air
traffic over the next 10 years, (2) hiring thousands of air traffic
controllers to replace those expected to retire over the next decade, (3)
working with the new JPDO to coordinate the research efforts of diverse
federal agencies to transform the NAS to meet potential air travel needs
of 2025, and (4) addressing aging infrastructure. To fund its major system
acquisitions through fiscal year 2009 while remaining within projected
budget targets, the ATO has substantially reduced funding for other areas.
However, the ATO does not provide administration and congressional
decisionmakers with information about the impact of the reduced funding on
NAS modernization. To deal with these challenges, some aviation experts
suggested options that the ATO could consider, including contracting out
more services and incurring debt to obtain multiyear funding for capital
investments (an option requiring legislative change). Our work and some
experts also suggest clarifying budget submissions to show decisionmakers
how constrained budgets affect NAS modernization and how the ATO is
working to live within its means.

                           Air Traffic Control Tower

Source: National Aeronautics and Space Administration.

United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

We appreciate the opportunity to participate in today's hearing to discuss
the implementation of the Federal Aviation Administration's (FAA) Air
Traffic Organization (ATO) and the new Joint Planning and Development
Office (JPDO). Both organizations represent the latest efforts of Congress
and FAA to address the monumental challenges of transforming the national
airspace system (NAS) during the first quarter of the twenty-first
century. As key organizations for determining how to safely accommodate
projected increases in air traffic demand, the ATO and JPDO are distinct
yet complementary. The ATO's focus is on a rolling 10-year outlook to
operate and modernize the NAS. By contrast, the JPDO's focus is longer
term-determining how the NAS will meet possible air traffic demands in
2025.

As brief background: in 1981, over two decades ago, FAA began what it
initially proposed as a 10-year program to replace and upgrade the NAS's
facilities and equipment. However, systemic management problems associated
with ATC system acquisitions and organizational culture resulted in cost
growth, schedule slippages, and performance shortfalls, leading us to
classify FAA's ATC modernization program as high risk in 1995. 1 In 2000,
the administration issued an executive order that called for a
performance-based air traffic organization to, among other things, improve
the provision of air traffic services and accelerate modernization
efforts, and Congress passed legislation that established an oversight
body and a chief operating officer. FAA hired a chief operating officer in
2003 and in February 2004, formed the ATO, merging its former acquisitions
2 and air traffic operations offices, to manage FAA's air traffic control
investments and operations. Congress also directed the Secretary of
Transportation to establish the JPDO to develop a "next generation"
transportation plan to meet air traffic demands by 2025. Located within
FAA and reporting to the FAA Administrator, the JPDO has responsibility
for coordinating the research efforts of several diverse federal agencies
to support the goals of the next-generation plan.

My statement today will focus on two key questions: First, what is GAO's
assessment of the ATO's efforts to date in addressing some of the key

1

ATC modernization has remained on our high-risk list since 1995. See GAO
High Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).

2

These included FAA's Office of Research and Acquisitions and Free Flight
Program Office.

    Page 1 GAO-05-485T

challenges for the ATC modernization program? Second, what challenges lie
ahead for the ATO, and what options could it consider in addressing the
needs of the NAS over the next decade, as well as the longer-term needs
defined by the JPDO? My statement is based on recently completed and
ongoing studies for this committee and for the House Committee on
Government Reform. We obtained information from FAA officials, an
international panel of aviation experts, and relevant stakeholders on the
ATO's prospects for addressing the systemic management problems on which
we and others have reported. (See the list of related products at the end
of this statement). Later this year, we expect to issue a detailed report
that will address these and other related issues. We also obtained
information and perspectives from the JPDO and other knowledgeable sources
on its mission and plans for achieving that mission. We performed our work
in accordance with generally accepted government auditing standards.

In summary:

        * The ATO is taking a number of positive steps to address legacy
          challenges in system acquisitions and organizational culture that
          have affected the ATC modernization program for the past two
          decades. Our work indicates that four interrelated factors have
          contributed to the legacy challenges in meeting system
          acquisitions' cost, schedule, and performance targets: (1) funding
          acquisitions at lower levels than called for in agency planning
          documents, (2) adding requirements and/or unplanned work, (3)
          underestimating the complexity of software development, and (4) not
          sufficiently involving stakeholders throughout system development.
          Among the positive steps it is taking, the ATO is beginning to
          include stakeholders in all phases of system development, so that
          they can provide input in response to technical or financial
          developments. The ATO has also demonstrated a willingness to cut
          some major acquisitions that are not meeting their goals, even
          after investment of significant resources. And it has improved its
          management of information technology investments and
          software-intensive acquisitions. However, the ATO does not use a
          knowledge-based approach to system acquisitions, characteristic of
          best commercial practices for managing commercial and Department of
          Defense (DOD) product developments, which would help avoid cost,
          schedule, and performance problems. Additionally, because the ATO
          has not mandated use of a process improvement model for all
          software-intensive acquisitions, it risks taking a major step
          backwards in its capabilities for ATC systems and software.
          Finally, the ATO has recognized the fundamental importance of
          changing its organizational culture; it has been working on
          altering its leadership model and replacing a personality-driven
          culture-one that changes as leadership changes-
        * with one that is sustainable and stable. Continued improvement and
          management attention will be crucial if the organization's efforts
          are to succeed.
     o The ATO's key challenges include modernizing and increasing NAS
       capacity to accommodate a 25-percent increase in air traffic
       operations by 2015, hiring thousands of air traffic controllers to
       replace those expected to retire in the next decade, working with the
       new JPDO to ensure that research programs led by diverse agencies
       support national goals, and repairing or replacing facilities believed
       to be beyond their useful lives. The ATO will be further challenged to
       accomplish these tasks while remaining within the administration's
       future budget targets, which are lower than those of recent years. To
       fund its major system acquisitions while remaining within the budget
       targets, the ATO has eliminated planned funding to start new projects
       and substantially reduced planned funding for other areas. However,
       when forwarding its budget submission for administration and
       congressional review, the ATO provides no detail on the impact of the
       planned funding reductions on ATC or NAS modernization. Aviation
       experts and our work have identified options for the ATO to increase
       its chances of success. First, some aviation experts proposed that the
       ATO evaluate its experience in contracting out flight service stations
       and, if positive, consider contracting out other services. Second,
       some experts suggested that the ATO be allowed to incur debt so that
       it could obtain multiyear funding for capital investments, an option
       that would require a legislative change. While we have consistently
       maintained that Congress should control new funding sources through
       the budget and appropriations processes, these experts believed that
       giving the ATO access to multiyear funds for capital investments would
       increase its flexibility, thereby allowing it to modernize systems
       more efficiently. Third, our preliminary work shows, and some experts
       agreed, that the ATO should provide the administration and Congress
       with detailed information in its budget submissions about the impact
       of reduced budgets on both ATC and NAS modernization. To do so, the
       ATO should explicitly identify the trade-offs it is making to reach
       administration budget targets, highlighting those programs slated for
       increased funding and those slated for reduced funding.

  The ATO Has Made Progress in Addressing Key Challenges and Needs to Continue

The ATO inherited a decades-long legacy of cost, schedule, and performance
problems in the ATC modernization program. We found that four interrelated
factors contributed to these problems. The ATO has taken a number of
positive steps to address these issues through improvements in its
management of information technology investments and software-intensive
acquisitions, but there is room for further progress. Additionally, the
ATO recognizes that changing its organizational culture is a key challenge
underlying its transition to a highly effective, performance-based
organization. Options are available to help the ATO address these
challenges.

    Four Interrelated Factors Contributed to Acquisitions Missing Cost,
    Schedule, and Performance Targets

Our research shows that four common factors emerged that contributed to 12
of FAA's 16 major systems missing their original cost, schedule, or
performance targets. (See table 1.) Appendix I provides the full name and
a description of each of the 16 systems. Appendix II shows changes in cost
and schedule for these systems.

Table 1: Four Key Factors Contributing to Cost Growth, Schedule
Extensions, and Performance Shortfalls for 12 ATC System Acquisitions

           The funding level          The system                              
           received was less         acquisition                              
                    than the         experienced  The complexity Stakeholders 
             agency-approved requirements growth     of software were not     
Name of    funding levela    and/or unplanned development was sufficiently
system                                   work  underestimated involved
ASDE-X                  X                                     

ASR-11                          X                  X       
ATCBI-6                         X                  
CPDLC                                              X       
FFP2                            X                  
ITWS                            X                  X       X       
LAAS                                               X          X          X 
NEXCOM                          X                  X               
NIMS-2                          X                  X               
OASIS                           X                  X          X          X 
STARS                                              X                     X 
WAAS                                               X          X          X 
                     Source: GAO Analysis of FAA Data                 

a

Agency approved funding level refers to the annual funding required to
deliver a system as planned-that is, as documented in an acquisition
program baseline, the document approved by the agency at the beginning of
an acquisition. In December 2004, the ATO began using the Office of
Management and Budget's Capital Asset Plan and Business Case (exhibit 300)
in place of the acquisition program baseline, as the primary
decisionmaking document for acquisitions.

Note: Blank spaces in the chart denote that the specific factor was not a
key contributor to a program's inability to meet cost, schedule, or
performance targets. The remaining four major systems we reviewed are FTI,
ERAM, ECG, and ATOP. FTI's revised baseline reflected increased costs to
cover requirements which, while included in the original baseline, were
unknown at the time the original baseline was prepared. ERAM, ECG, and
ATOP are generally meeting cost, schedule, and performance targets.

According to FAA officials, funding gaps contributed to problems in one or
more of three areas-cost, schedule, and performance-for 8 of the 12 system
acquisitions. Most major acquisition programs establish a baseline that
describes the programs' estimated annual costs, planned schedules, and
performance expectations, which is approved by FAA's Joint Resources
Council-the agency's executive body responsible for approving and
overseeing major system acquisitions. 3 The estimated cost for a given
year assumes that the program received all funding for prior fiscal years
as described in the baseline. In practice, however, this is not always the
case. For example, when FAA's budget level does not allow all system
acquisitions to be fully funded at the levels approved in their baselines,
FAA may elect to fully fund higher-priority acquisitions and provide less
funding for lower-priority acquisitions than called for in their
baselines. The ASR-11 acquisition, a digital radar system, illustrates how
reduced funding has resulted in cost growth and schedule delays. FAA
officials stated that because of funding reductions and reprogramming, the
program received $46.45 million less than requested for fiscal years 2004
and 2005. According to FAA officials, total costs may escalate and
schedules may slip under such circumstances.

The stories behind cost and schedule increases for WAAS-a satellite
navigation system-and STARS-new controller and maintenance
workstations-demonstrate how the remaining three contributing factors can
interact. For WAAS, FAA underestimated the complexity of the software that
would be needed to support this system when it reduced, by 3 years, its
plans to develop, test, and commission the system. FAA then

The Joint Resources Council is an executive body consisting of associate
and assistant administrators, acquisition executives, the chief financial
officer, the chief information officer, and legal counsel. The council
determines, among other things, whether an acquisition meets a mission
need and should proceed. The council also approves changes to a program's
baseline, budget submissions, and the NAS architecture baseline.

Page 5 GAO-05-485T

tried to accomplish these tasks in 28 months, even though the software
development alone was originally expected to take from 24 to 28 months. In
retrospect, FAA acknowledged that the agency's in-house technical
expertise was not sufficient to address WAAS's technical challenges,
particularly the need to warn pilots in a timely manner when a system may
be giving them potentially misleading and therefore hazardous information.
FAA's efforts to resolve this issue resulted in unplanned work, which
contributed to a $1.5 billion increase over the 1994 baseline costs and to
a 6-year delay in commissioning the system. According to FAA, adding the
cost of satellite leases, formerly listed as an operating cost, to the
capital cost and adding 6 years to the program's life cycle also
contributed to increased costs.

For STARS, a joint FAA/DOD acquisition, not adequately including
stakeholders in development led to unplanned work, cost growth, schedule
delays, and reduced deployment. Because the program's aggressive
development schedule allowed for only limited evaluation by controllers
and maintenance technicians, FAA and the contractor failed to recognize
human-factors concerns that these stakeholders later identified. 4
Restructuring the contract to make up for these oversights contributed to
$500 million in cost growth, a 7-year schedule delay, and a reduction in
deployment from 172 to 47 facilities.

Three of the major ATC system acquisitions are currently operating within
their original cost, schedule, and performance targets, but have exhibited
symptoms of past problems, such as requirements growth or underestimating
the complexity of software requirements. These acquisitions include a
system for processing flight data for oceanic flights (ATOP), a
communications system (gateway) for controlling high-altitude traffic at
20 en route facilities (ECG), and a replacement for the primary computer
system used for controlling air traffic (ERAM). Despite successes to date,
these acquisition programs will require sustained management attention to
help ensure that they remain within their cost, schedule, and performance
targets.

4A human-factors evaluation examines how humans interact with machines and
identifies ways to enhance operators' performance and minimize errors.

Page 6 GAO-05-485T

    ATO Is Taking Some Positive Steps to Address Legacy Acquisition Problems

The ATO has already taken some steps to control the legacy problems
identified with the ATC modernization program. 5 For example, it has begun
to include stakeholders throughout system development, so that they can
provide input in response to technical or financial developments. Reviews
of a precision-landing system augmented by satellites (LAAS), a digital
e-mail-type communication system between controllers and pilots (CPDLC),
and the next generation air/ground communication system (NEXCOM)-each of
which had cost, schedule, and performance problems to varying
degrees-contributed to the ATO's reducing or eliminating funding for these
systems in FAA's budget request for fiscal year 2005. Additionally, the
ATO has established collaborative teams of technical experts and ATC
system users, reorganized air traffic services and the research and
acquisition organization along functional lines of business to bring
stakeholders together and integrate goals, rewarded cooperation by linking
investments to operations, started preparing agency planning documents in
a format consistent with that prescribed by the Office of Management and
Budget, begun implementing portions of a cost accounting system, and
reduced layers of management from 11 to 7 to help address the hierarchical
nature of the organization.

These are positive steps. We believe the ATO should continue the phased
approach to acquiring new systems, and involving stakeholders throughout a
system's development should help avoid the types of problems that led to
cost growth and delays for STARS. Additionally, we view the decision to
cut major systems as an indication that the ATO is willing to make
difficult decisions to suspend major ATC system acquisitions that are not
achieving their intended goals-even after a substantial investment of
agency resources.

FAA has made progress in addressing long-standing problems with managing
the risks associated with acquiring major ATC systems, many of which are
software-intensive, but further improvement is possible. For example, FAA
has established some discipline for acquiring these systems through the
Acquisition Management System that it began implementing after Congress
exempted the agency from federal acquisition regulations in 1995. Also,
FAA has begun basing funding decisions for system acquisitions, in part,
on their contribution to reducing the agency's operating costs while
maintaining safety. Currently, FTI, a new

5

The improvements spanned the period when FAA created the ATO. In the
future, the ATO will have the primary responsibility for making further
improvements in these areas.

Page 7 GAO-05-485T

telecommunications system, is the only acquisition that will reduce FAA's
operating costs. Most of FAA's major system acquisitions are aimed at
increasing NAS capacity and delivering benefits to users.

However, as we reported last fall, the Acquisition Management System still
does not ensure that FAA uses a knowledge-based approach to acquisition
that is characteristic of the best procurement practices used in
commercial entities or by DOD. Capturing specific knowledge and using it
to determine whether a product has reached a level of development (product
maturity) sufficient to demonstrate its readiness to move forward in the
acquisition process helps to avoid cost overruns, schedule slips, and
performance shortfalls that can occur if decision-makers commit to a
system design before acquiring critical technology, design, or
manufacturing knowledge.

FAA has reported that it met its annual acquisition performance goal for
fiscal year 2004-to meet 80 percent of designated milestones and maintain
80 percent of critical program costs within 10 percent of the budget, as
published in its Capital Investment Plan. In our opinion, having and
meeting such performance goals is commendable, but it is important to note
that these goals are updated program milestones and cost targets, not
those set at the program's inception. 6 Consequently, they do not provide
a consistent benchmark for assessing progress over time. Moreover, as
indicators of annual progress, they cannot be used in isolation to measure
progress in meeting cost and schedule goals over the life of an
acquisition. Finally, given the problems FAA has had in acquiring major
ATC systems for over two decades, it is too soon to tell whether meeting
these annual performance goals will ultimately improve the agency's
ability to deliver system acquisitions as promised.

Our statements about cost, schedule, and performance in this testimony and
in our past reports are based on original targets that FAA established and
approved at the start of its acquisition programs.

Page 8 GAO-05-485T

FAA has made considerable progress in managing its information technology
investments. 7 FAA recently informed us that it has taken a number of
steps aimed at achieving a higher maturity level, including establishing
service-level mission need statements and service-level reviews, which
address operational systems to ensure they are achieving the expected
level of performance. While these steps could resolve some of the
deficiencies that we previously reported, we have not yet performed our
own evaluation of these steps. FAA could realize considerable savings if
these reviews result in the discontinuation of some investments, since
operating systems beyond their second year of service accounted for 37
percent of FAA's total investment in information technology in fiscal year
2004.

Finally, FAA has made progress in improving its process for acquiring
software-intensive systems. The quality of these systems and software,
which are essential to FAA's ATC modernization program, depends on the
value and maturity of the process used to acquire, develop, manage, and
maintain them. In response to our previous recommendations, FAA developed
an FAA-integrated capability maturity model (iCMM). 8 Since FAA
implemented the model, a growing number of system acquisitions have
adopted the model, and its use has paid off in enhanced productivity,
higher quality, greater ability to predict schedules and resources, better
morale, and improved communication and teamwork. However, while FAA has
encouraged process improvement through iCMM, use of the model has remained
voluntary, and the agency's future commitment to this

7

GAO, Information Technology: FAA has Many Investment Management
Capabilities in Place, but More Oversight of Operational Systems Is
Needed, GAO-04-822 (Washington, D.C.: Aug. 20, 2004). This report
evaluates how FAA's information technology investment management for NAS
systems and other systems compares to our Information Technology
Investment Management Framework. Information technology systems used in
air traffic control are the principal technology component of the NAS. The
framework is a maturity model composed of five progressive stages, based
on our research and the practices of leading private- and public-sector
organizations. For more information on the Information Technology
Investment Management Framework, see GAO, Information Technology
Investment Management: A Framework for Assessing and Improving Process
Maturity, GAO-04-394G (Washington, D.C.: Mar. 1, 2004).

8

GAO, Air Traffic Control: System Management Capabilities Improved, but
More Can be Done to Institutionalize Improvements, GAO-04-901,
(Washington, D.C.: Aug. 20, 2004). iCMM is similar to the Capability
Maturity Model(R) (CMM) Integration (CMMISM) developed by Carnegie Mellon
University's Software Engineering Institute, but crafted to include
international standards. CMM(R), Capability Maturity Model, and Capability
Maturity Modeling are registered in the U.S. Patent and Trademark Office.
CMMISM is a service mark of Carnegie Mellon University. For a detailed
description of these models, see GAO-04-901.

    ATO Recognizes the Importance of Organizational Culture for Facilitating
    Transition

initiative is not certain. Unless FAA demonstrates a strong commitment to
process improvement and establishes a consistent, institutional approach
to implementing and evaluating this process improvement, the agency risks
taking a major step backwards in its capabilities for ATC systems and
software.

FAA has also continued to develop an enterprise architecture-a blueprint
of the agency's current and target operations and infrastructure. However,
this architecture is still not complete and compliance is not yet
enforced. We have ongoing work evaluating what the agency needs to do to
develop and enforce its enterprise architecture.

Recognizing that cultural factors can play a critical role in an
organization's success, the ATO has initiated organizational changes that
are designed to create a foundation for cultural change in the
acquisitions and operations workforces, which FAA combined to form the new
organization. For example, the ATO is giving high priority to changing its
leadership model by linking top management more closely to operations in
the field and by replacing "command and control" with communication across
organizational levels. In the past, according to the chief operating
officer, FAA's management culture was "intensely hierarchical, risk
averse," and "reactionary." But now, he said, FAA is attempting to foster
"results-focused, proactive and innovative behavior." Changing the
agency's leadership model is also designed, he said, to replace a
"personality-driven culture" with a viable, stable, and sustainable
organization that can make rational decisions that transcend changes in
leadership.

To further support cultural change, the ATO is emphasizing accountability
and other core values. For example, it is holding managers accountable for
managing their budgets and in fiscal year 2006, it plans to include
financial management among the pay-for-performance criteria for its
managers. Additionally, the ATO is using the results of the most recent
Employee Attitude Survey 9 to set a baseline for cultural improvement in
five core areas-(1) integrity and honesty, (2) accountability and
responsibility, (3) commitment to excellence, (4) commitment to people,
and (5) fiscal responsibility. FAA's Civil Aerospace Medical Institute
analyzed the survey

9

The most recent survey was administered in September 2003, before the ATO
was formed. FAA organized the responses by suborganization to be
consistent with the new ATO.

Page 10 GAO-05-485T

  To Address the Challenges of Modernizing and Expanding the NAS While Living
  within Its Means, the ATO Has a Number of Options

results by grouping three to seven survey items under each of these areas.
For example, FAA placed the survey item "We are encouraged to express our
concerns openly" with four other items under the Integrity and Honesty
core value. For many items, across all core values, fewer than 40 percent
of ATO employees indicated agreement or strong agreement. We are comparing
the results of FAA's Employee Attitude Survey with our 1996 findings
identifying culture as a problem in the acquisition workforce, which is
now within the ATO. 10 We plan to report our findings later this year.

It is incumbent upon the ATO, as it moves forward, to follow through with
its commitment to transform the culture of its component organizations.
Our studies suggest that transformations need focused, full-time attention
from a dedicated team. The team must have vested authority and resources
from top management to set priorities, make timely decisions, and move
quickly to implement decisions. Such a team provides a visible signal that
the transition is being undertaken with the utmost seriousness and
commitment. Having a dedicated transition team is just one of several
practices that we have identified, such as setting implementation goals
and a timeline and establishing a communication strategy, that are key to
successful mergers and organizational transformations. (See app. III for a
complete list.)

The ATO faces multiple challenges: (1) expanding and modernizing the NAS
to accommodate an expected 25-percent increase in the volume of air
traffic over the next 10 years; (2) hiring thousands of air traffic
controllers to replace those expected to retire over the next decade; (3)
working with the new JPDO to coordinate the research efforts of diverse
federal agencies to transform the NAS to meet potential air travel needs
of 2025; and (4) addressing aging infrastructure. The ATO faces the
additional challenge of accomplishing these tasks with less funding than
it has received in the past. A number of options are available for the ATO
to consider in addressing these challenges.

The ATO plans to continue modernizing and expanding the capacity of the
NAS to accommodate an expected 25-percent increase in air traffic volume
over the next 10 years. Even after cuts to the LAAS, CPDLC, and NEXCOM

10

GAO, Aviation Acquisition: A Comprehensive Strategy Is Needed for Cultural
Change at FAA, GAO/RCED-96-159 (Washington, D.C.: Aug. 22, 1996).

Page 11 GAO-05-485T

budgets, the remaining major ATC systems would consume $4.4 billion, or 45
percent of FAA's total planned funding (excluding personnel and travel)
for fiscal years 2005 through 2009. The funding situation is further
exacerbated by the ATO's need to hire and train thousands of air traffic
controllers to replace those reaching retirement eligibility over the next
decade. (See fig. 1.)

    Figure 1: Projected Controller Retirements, Fiscal Years 2005-2014

Number of retirees 1,500

      1,200

900

600

300

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

      Fiscal years

Source: FAA.

Additionally, as the ATO works with the JPDO to address the NAS's
potential needs 20 years into the future, it will need to ensure linkage
to and continuity with its own 10-year plans. The JPDO is responsible for
developing a national vision and plan that will prepare the NAS to meet an
assumed tripling of air traffic demand by 2025. In its first report, in
December 2004, the JPDO concluded that meeting this demand would require a
complete transformation of the NAS. It also predicted that fossil fuels
would become less available and more costly, and global travel and
commerce would become more interdependent. As one senior JPDO official
suggested, if we fail to consider these issues now, future passengers may
not be able to fly to their destinations in a single day and overnight
package delivery may become a thing of the past. While the JPDO's plan did
not discuss costs, the Vision 100-Century of Aviation

    Continued Reductions in Funding Levels Will Challenge the ATO's Ability to
    Live within Its Means

Reauthorization Act authorized $50 million annually for fiscal years 2004
through 2010 for the JPDO.

The ATO will be challenged to harness the efforts of the diverse agencies
that participate in the JDPO, including DOD, the Department of Homeland
Security and the National Aeronautics and Space Administration, and to
align these efforts with the goals of the national plan. Although a
relatively new organization, the JPDO has defined eight interdependent
strategies to guide its work towards transforming the NAS and has
established integrated product teams, each led by a participating federal
agency, to address each of these strategies. These agencies have
historically "gone their own way," with little thought given to
coordinating with other agencies and moving toward a common goal. Aviation
experts told us that within FAA, there is resistance to having outside
organizations, rather than FAA, develop new procedures and systems for FAA
to approve and institute. This will have to change under the JPDO
paradigm.

Additionally, the ATO has cited the need to renew its aging
infrastructure. The ATO estimates that such renewal will require an annual
investment of $2.5 billion, assuming a $30-billion value of its assets and
7-to 12-year useful lives. According to the ATO, much of its physical
infrastructure, including the buildings and towers that house costly ATC
systems, is over 30 years old on average. 11 (See table 2.)

Table 2: Age of NAS Facilities                
Facility                                                       Average age 
En route traffic control facilities                               40 years 
Air traffic control towers                                        30 years 
Terminal approach control centers                                 34 years 

                                  Source: FAA.

Because Office of Management and Budget funding targets for fiscal years
2005 through 2009 are lower than those for recent fiscal years, the chief
operating officer predicts a cumulative $5-billion gap in operations
funding and a $3.2-billion gap in capital funding. He said that, in
effect, remaining within these lower targets would require a 21-percent
reduction in costs and a 9-percent increase in productivity. The chief
operating officer also

11

We have not verified the ATO's reported refurbishment and replacement
needs.

predicts that currently planned cost-saving measures would produce only
half of the needed savings. One aviation expert predicted that the gaps
would more likely have a gradual effect, rather than an immediately
catastrophic effect, manifested by a slow but sure increase in air traffic
delays.

To provide the $4.4 billion needed for its major system acquisitions while
remaining within its budget targets through fiscal year 2009, the ATO has
made significant cuts elsewhere in its capital funding plans. For example,
the ATO eliminated all of the $1.4 billion that it had set aside for what
it calls the "architecture segment." (See fig. 2.) These funds would have
been used to perform about 2 years' worth of early research on new
programs before they are mature enough to receive formal Joint Resources
Council approval. The ATO also made significant reductions in planned
investments for facilities-an action that runs counter to its reported
need to refurbish or replace its physical infrastructure.

unicationsacilities

veillance

                                 vigationather

                                Mission support

                                     sonnel

tomation

hitecture

                                       e

                                       W

                                      Per

F

                                       Na

                                      Sur

u

                                     CommA

Ar

      Category

Source: GAO presentation of FAA data.

Such reductions reflect the end result of difficult decisions about which
programs to fund and which to cut in order to remain within the
administration's budget targets. However, when forwarding its budget
submission for administration and congressional review, the ATO does not
highlight the programs slated for increased or reduced funding and does
not identify the impact of these decisions on ATC and NAS modernization.
Such information would make clear how constrained budgets will affect NAS
modernization and how the ATO is working to live within its means.

    The ATO Has Options to Increase Its Prospects for Success

Contracting out more services and proposing legislation to provide
borrowing authority are two options proposed by aviation experts 12 to
improve the ATO's chances of success. A third option, providing more
clarity in budget submissions, is supported by our work and some experts.

First, some members of our expert panel suggested that the analysis
performed on contracting out flight service stations could be extended to
other functions, such as oceanic or en route air traffic control, or
nighttime operations. Under this option, experts said that ongoing
government oversight could ensure the safety of contracted operations, and
such a "staged outsourcing" of the NAS's functions might build confidence
in the private sector's ability to provide air traffic services safely and
efficiently. We view the agency's decision to study the contracting out of
flight services as a significant step towards cost reduction and one that
could be selectively expanded to other services if the current experience
proves positive.

Second, some experts suggested that the ATO finance its capital
investments by incurring debt through private capital markets, rather than
relying on annual appropriations. While we have consistently maintained
that Congress should control new funding sources through the budget and
appropriations processes, these experts believed that debt financing would
increase the ATO's flexibility by providing a dedicated, multiyear source
of funds that it could manage as program needs dictate, thereby allowing
it to modernize more efficiently. A legislative change would be required
to give the ATO borrowing authority.

Our preliminary work shows, and some aviation experts maintain, that the
ATO needs to prioritize its capital investments, as well as its
investments in operating systems, with affordability in mind. These
experts believe that the ATO needs to review all of its spending plans for
modernization, determine which programs can realistically be funded, and
select programs to cut. They also indicated that the ATO should have a
mechanism to explain to Congress the implications that cutting the funding
for one system has on other systems. Indeed, the ATO appears to

12

As part of our research, we sought the perspective of an international
group of experts. One of the issues that we asked these experts to address
was how the ATO can improve its chances of achieving its mission. The
options presented were identified by one or more members of our expert
panel and do not necessarily reflect the views of GAO or of the panel as a
whole. We expect to present additional options in our forthcoming report
on the status of NAS modernization.

Page 16 GAO-05-485T

be prioritizing its investments, as indicated by the varying percentage
reductions in various planned capital investments. We believe that the ATO
could clarify how these trade-offs affect progress in modernizing the ATC
system and related components of the NAS in the near, mid-, and longer
term. Such transparency would provide senior agency officials and Congress
with a clear view of how the ATO is working to live within its means.

In summary, we believe that the ATO has taken a number of positive steps.
With continued management attention and focus to carry the momentum
forward, the ATO has an opportunity to address its heretofore intractable
problems with ATC modernization.

This concludes my statement. I would be pleased to respond to any
questions that you or other Members of the Subcommittee may have at this
time.

For further information on this testimony, please contact Dr. Gerald L.

  Contact and

Dillingham, at (202) 512-2834 or by e-mail at [email protected].

Acknowledgements Individuals making key contributions to this testimony
include Tamera Dorland, Seth Dykes, Bess Eisenstadt, Maren McAvoy, Edmond
Menoche, and Beverly Norwood.

                   Appendix I: Major ATC System Acquisitions

Air Traffic Control Radar Beacon Interrogator - Replacement (ATCBI-6)

ATCBI-6 is a replacement radar capable of determining both range and
direction to and from the aircraft. It can also forward this information
to the appropriate air route traffic control centers. It will replace
radars that have exceeded their life expectancy and have proved extremely
vulnerable to outages and critical-parts shortages.

Advanced Technologies and Oceanic Procedures (ATOP)

ATOP is an integrated system of new controller workstations,
data-processing equipment, and software that will enhance the control and
flow of oceanic air traffic to and from the United States. ATOP is planned
for the three sites that control oceanic air traffic: Anchorage, Alaska;
New York, New York; and Oakland, California.

Airport Surface Detection System - Model X (ASDE-X)

ASDE-X is an airport surveillance system that enables air traffic
controllers to track the surface movement of aircraft and vehicles. The
detection system automatically predicts potential conflicts and seamlessly
covers airport runways, taxiways, and other areas.

Airport Surveillance Radar Model-11 (ASR-11)

ASR-11 is a digital radar that replaces aging analog radars, such as ASR-7
and ASR-8, with a single, integrated digital radar system. ASR-11 reduces
operational costs, improves safety, and can accommodate future capacity
increases.

Controller-Pilot Data Link Communications (CPDLC)

CPDLC is a communication system that will allow pilots and controllers to
transmit digital data messages directly between FAA automated ground
computers and aircraft.

En Route Automation Modernization (ERAM)

ERAM will replace software and hardware in the host computers at FAA's 20
en route air traffic control centers, which provide separation, routing,
and advisory information. It provides a flexible and expandable base to
facilitate further national airspace system (NAS) modernization
initiatives.

En route Communications Gateway (ECG)

ECG provides a communications interface between radar sites and en route
centers, and is a precursor to ERAM. The system has an open and expandable
platform that allows for new connectivity and functionality as the NAS
evolves. It replaces the interim Peripheral Adapter Module Replacement
Item that has been operating for 10 years and has exceeded its life
expectancy.

FAA Telecommunications Infrastructure (FTI)

FTI is FAA's new telecommunications system. It will replace costly
networks of separately managed systems and services-both leased and
owned-by integrating advanced telecommunications services within FAA's NAS
and non-NAS infrastructures.

Free Flight Phase 2 (FFP2)

FFP2 is a suite of air traffic control tools and subsystems that allows
air traffic controllers to move gradually from a highly structured system,
based on elaborate rules and procedures, to a more flexible system wherein
pilots, within limits, can change their route, speed, and altitude while
keeping air traffic controllers informed of such changes. It includes the
Traffic Management Advisor, Collaborative Decisionmaking, User Request
Evaluation Tool, and the Surface Management Advisor.

Integrated Terminal Weather System (ITWS)

ITWS is a weather information system that furnishes air traffic
controllers and supervisors with full-color graphic displays of weather
conditions that need no meteorological interpretation. It provides a
comprehensive representation of the current weather situation and precise
20 minute forecasts (to be increased to 60 minutes in 2006) of convective
weather conditions.

Local Area Augmentation System (LAAS)

LAAS is a landing guidance system that would use global positioning
satellites and would be installed at airports to allow aircraft to execute
precision instrument approaches and landings in all weather conditions.
LAAS would eliminate the need for multiple instrument landing systems at
airports where it is installed.

NAS Infrastructure Management System-Phase 2 (NIMS-2)

NIMS is a centralized system to help manage and schedule maintenance on
the NAS infrastructure, including its facilities, systems, and equipment.
NIMS will decrease the number of en route delays by reducing the time
required to restore systems to full operation following maintenance. NIMS
Phase 1, already complete, provides initial Operational Control Center
capability, along with remote monitoring and control functionality, to
3,700 NAS facilities and 5,800 deployed maintenance data terminals. 1
Phase 2 will fully implement resource management and enterprise management
software and focus on increasing workers' productivity in receiving orders
and managing resources.

Next Generation Air/Ground Communications (NEXCOM)

NEXCOM is a digital communications system, consisting of multimodal
digital radios, avionics, and ground stations, which will improve air
traffic control communications by replacing old analog communication
systems. Segment 1A will replace 30- to 40-year-old radios, deploying
6,000 new radio sets that use analog and digital communications with
aircraft. Segment 1B will create ground stations to communicate with
aircraft equipped with digital capability.

Operational and Supportability Implementation System (OASIS)

OASIS a system used at flight service stations to assist general aviation
pilots with flight planning. The system provides up-to-the-minute weather
graphics by integrating real-time weather and flight planning data with
overlays of flight routes. It replaces the Flight Services Automation
system for which spare parts and hardware support have been difficult for
FAA to obtain.

Operational Control Center capability, established in 2001, was a standard
set of tools and procedures needed to open the control centers. The tools
provide the initial enterprise management and resource management
technical capabilities needed at Operational Control Centers.

Page 20 GAO-05-485T

Standard Terminal Automation Replacement System (STARS)

STARS is workstation to allow civilian and military air traffic
controllers to direct aircraft near major U.S. airports and will replace
aging workstations at certain facilities. It has an open and expandable
terminal automation platform that can accommodate air traffic growth, as
well as new hardware and software that is designed to promote safety,
maximize operational efficiency, and improve controllers' productivity.

Wide Area Augmentation System (WAAS)

WAAS is a navigation and landing guidance system that uses global
positioning satellites to provide precise navigation and landing guidance
at all airports, including thousands that have no ground-based instrument
landing capability.

Appendix II: Changes in Cost and Schedule Targets for 16 Major ATC System
                                  Acquisitions

Dollars in millions
ATC system                             Cost targets       Last site implementation targets
                                            Current 
                                        cost (as of 
                   Original                   March            Original  Current    Change
                                                                                       (in
                   date       Original cost   2005)  Change         date     date   years)
Airport Surface                                                           2009b      
Detection          September          $424.3 $510.2    $85.9a       2007                 2
Equipment                                                                         
- Model X (ASDE-X) 2001                                                           
Airport                                                                              
Surveillance Radar November             $743   $916      $173       2005     2013        8
Model -                                                                           
11 (ASR-11)        1997                                                           
Air Traffic                                                                          
Control Radar      August             $281.8 $282.9     $1.10       2004     2008        4
Beacon                                                                            
Interrogator -     1997                                                           
Replacement (ATCBI                                                                
6)                                                  
Advanced                                                                                
Technologies and   June 2001         $548.2  $548.2    None         2006      2006    None
Oceanic                                                                              
Procedures (ATOP)                                   
Controller-Pilot   1999                  $166.7  To         Not    June      To        Not
Data Link                                        be                          be applicable
Communications                          determined  applicable  2005 determined      
(CPDLC)                                                                              
En Route                                                                                
Communications     March         $245.2      $245.2    None     2005      2005        None
Gateway                                                                              
(ECG)              2002                                                              
En Route                                                                                
Automation         June 2003         $2,150  $2,150      None December December       None
Modernization                                                                        
(ERAM)                                                            2010     2010      
Free Flight Phase  June 2002         $546.2  $546.2    None         2006      2007       1
2 (FFP2)                                                                             
FAA                July 1999         $205.7  $310.2   $104.5c       2008      2008    None
Telecommunications                                                                   
Infrastructure                                      
(FTI)                                               
Integrated                                                                               
Terminal Weather   June 1997         $276.1  $286.1      $10 July 2003    2009+         6+
System                                                                                  
(ITWS)                                              
Local Area                                                                             Not
Augmentation       January          $530.1   $696.1    $166     2006      To be applicable
System                                                                          
(LAAS)             1998                                              determined 
Next Generation    September        $405.7   $986.4   $580.7    2008      To be        Not
Air/Ground                                                                      applicable
Communications     1998      (First          (First                  determined 
(NEXCOM)                     segment                                            
                                     only)  segment                             
                                              only) 
NAS Infrastructure May 2000           $172.9 $172.9    None        2005    2010d         5 
Management                                                                               
System - Phase 2                                    
(NIMS - 2)                                          
Operational and    April 1997        $174.7 $155.50   ($19.2)       2001     2004        3 
Supportability                                                                           
Implementation                                      
System (OASIS)                                      
Standard Terminal  February          $940    $1,460    $520         2005     2008        3 
Automation                                                                               
Replacement System 1996                    (Phase 1                                      
(STARS)                                                                                  
                                              only) 
Wide Area                                                                                
Augmentation       1994                 $509 $2,036 $1,527e December            2013    13
System                                                                                  
(WAAS)                                                            2000                  
                   Source: GAO presentation of FAA  
                                data.               

a

FAA plans to extend ASDE-X's current deployment target from 2007 to 2009
because the project's budgets were cut in fiscal years 2004 and 2005.

b

According to FAA officials, the change in cost target for ASDE-X was due
to an increase in the scope of the project.

c

The increased costs were for requirements which, while included in the
original baseline, were unknown at the time the original baseline was
prepared.

dIn light of reduced funding, FAA is revising NIMS-2's targets; a Joint
Resources Council decision is planned for May 2005.

e

According to FAA, adding the cost of satellite leases, formerly listed as
an operating cost, to the capital cost and adding 6 years to the program's
life cycle contributed to increased costs.

      Appendix III: Key Practices and Implementation Steps for Mergers and
                         Organizational Transformations

                         Practice Implementation steps

Ensure top leadership drives the transformation. Define and articulate a
succinct and compelling reason for change.

Balance continued delivery of services with merger and transformation
activities.

Establish a coherent mission and integrated strategic goals to Adopt
leading practices for results-oriented strategic planning and guide the
transformation. reporting.

Focus on a key set of principles and priorities at the outset of Embed
core values in every aspect of the organization to reinforce the
transformation. the new culture.

Set implementation goals and a time line to build momentum Make public
implementation goals and time line.

and show progress from day one. Seek and monitor employee attitudes and
take appropriate follow-up actions. Identify cultural features of merging
organizations to increase

understanding of former work environments. Attract and retain key talent.
Establish an organizationwide knowledge and skills inventory to

allow knowledge exchange among merging organizations.

Dedicate an implementation team to manage the transformation Establish
networks to support the implementation team. process. Select
high-performing team members.

Use the performance management system to define Adopt leading practices to
implement effective performance responsibility and ensure accountability
for change. management systems with adequate safeguards.

Establish a communication strategy to create shared Communicate early and
often to build trust. expectations and report related progress. Ensure
consistency of message. Encourage two-way communication. Provide
information to meet specific needs of employees.

Involve employees to obtain their ideas and gain ownership for Use
employee teams.

the transformation. Involve employees in planning and sharing performance
information. Incorporate employee feedback into new policies and
procedures. Delegate authority to appropriate organizational levels.

Build a world-class organization. Adopt leading practices to build a world-class
                                 organization.

                                  Source: GAO.

                              Related GAO Products

High Risk Series: An Update, GAO-05-207. Washington, D.C.: January 2005.

Air Traffic Control: FAA Needs to Ensure Better Coordination When
Approving Air Traffic Control Systems. GAO-05-11. Washington, D.C.:
November 17, 2004.

Air Traffic Control: FAA's Acquisition Management Has Improved, but
Policies and Oversight Need Strengthening to Help Ensure Results. GAO-
05-23. Washington, D.C.: November 12, 2004.

Information Technology: FAA Has Many Investment Management Capabilities in
Place, but More Oversight of Operational Systems Is Needed. GAO-04-822.
Washington, D.C.: August 20, 2004.

Air Traffic Control: System Management Capabilities Improved, but More Can
Be Done to Institutionalize Improvements. GAO-04-901. Washington, D.C.:
August 20, 2004.

FAA Budget Policies and Practices, GAO-04-841R. Washington, D.C.: July 2,
2004.

Federal Aviation Administration: Challenges for Transforming into a
High-Performing Organization. GAO-04-770T. Washington, D.C.: May 18, 2004.

Air Traffic Control: FAA's Modernization Efforts-Past, Present, and
Future. GAO-04-227T. Washington, D.C.: October 30, 2003.

Aviation Safety: Information on FAA's Data on Operational Errors at Air
Traffic Control Towers. GAO-03-1175R. Washington, D.C.: September 23,
2003.

National Airspace System: Current Efforts and Proposed Changes to Improve
Performance of FAA's Air Traffic Control System. GAO-03-542. Washington,
D.C.: May 30, 2003

National Airspace System: Reauthorizing FAA Provides Opportunities and
Options to Address Challenges. GAO-03-473T. Washington, D.C.: February 12,
2003.

National Airspace System: Better Cost Data Could Improve FAA's Management
of the Standard Terminal Automation Replacement System. GAO-03-343.
Washington, D.C.: January 31, 2003.

Air Traffic Control: Impact of Revised Personnel Relocation Policies Is
Uncertain. GAO-03-141. Washington, D.C.: October 31, 2002.

National Airspace System: Status of FAA's Standard Terminal Automation
Replacement System. GAO-02-1071. Washington, D.C.: September 17, 2002.

Air Traffic Control: FAA Needs to Better Prepare for Impending Wave of
Controller Attrition. GAO-02-591. Washington, D.C.: June 14, 2002.

National Airspace System: Long-Term Capacity Planning Needed Despite
Recent Reduction in Flight Delays. GAO-02-185. Washington, D.C.: December
14, 2001.

National Airspace System: Free Flight Tools Show Promise, but
Implementation Challenges Remain. GAO-01-932. Washington, D.C.: August 31,
2001.

Air Traffic Control: Role of FAA's Modernization Program in Reducing
Delays and Congestion. GAO-01-725T. Washington, D.C.: May 10, 2001.

National Airspace System: Problems Plaguing the Wide Area Augmentation
System and FAA's Actions to Address Them. GAO/T-RCED-00-229. Washington,
D.C.: June 29, 2000.

National Airspace System: Persistent Problems in FAA's New Navigation
System Highlight Need for Periodic Reevaluation.

GAO/RCED/AIMD-00-130. Washington, D.C.: June 12, 2000.

Air Traffic Control: Status of FAA's Implementation of the Display System
Replacement Project. GAO/T-RCED-00-19. Washington, D.C.: October 11, 1999.

Air Traffic Control: FAA's Modernization Investment Management Approach
Could Be Strengthened. GAO/RCED/AIMD-99-88. Washington, D.C.: April 30,
1999.

(540097)

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