Defense Acquisitions: Actions Needed to Ensure Adequate Funding  
for Operation and Sustainment of the Ballistic Missile Defense	 
System (06-SEP-05, GAO-05-817). 				 
                                                                 
In 2002, the Department of Defense (DOD) implemented a new	 
acquisition model to develop a Ballistic Missile Defense System  
(BMDS) that included all major missile defense acquisitions, some
of which were being developed by the military services. The model
called for the management and funding responsibility for	 
production, operation, and sustainment of a capability to be	 
transferred to a military service when a BMDS element or major	 
component is technically mature and plans for production are well
developed. The Missile Defense Agency (MDA) was given		 
responsibility for developing the BMDS and recommending the	 
transfer of management and funding responsibilities to the	 
services. In 2004, MDA emplaced an initial missile defense	 
capability, but DOD did not transfer management and funding	 
responsibility for that capability. Because a formal transfer did
not occur, GAO was asked to (1) identify DOD's criteria for	 
deciding when a missile defense capability should be transferred 
to a service and (2) determine how DOD is managing the costs of  
fielding a BMDS capability.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-817 					        
    ACCNO:   A35681						        
  TITLE:     Defense Acquisitions: Actions Needed to Ensure Adequate  
Funding for Operation and Sustainment of the Ballistic Missile	 
Defense System							 
     DATE:   09/06/2005 
  SUBJECT:   Ballistic missiles 				 
	     Cost analysis					 
	     Defense procurement				 
	     Financial management				 
	     Military policies					 
	     Policy evaluation					 
	     Technology transfer				 
	     Weapons research and development			 
	     MDA Ballistic Missile Defense System		 
	     Cobra Dane Radar					 
	     MDA Terminal High Altitude Area Defense		 
	     System						 
                                                                 

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GAO-05-817

United States Government Accountability Office

GAO Report to the Subcommittee on Strategic Forces, Committee on Armed Services,
                            House of Representatives

September 2005

DEFENSE ACQUISITIONS

 Actions Needed to Ensure Adequate Funding for Operation and Sustainment of the
                        Ballistic Missile Defense System

GAO-05-817

[IMG]

September 2005

DEFENSE ACQUISITIONS

Actions Needed to Ensure Adequate Funding for Operation and Sustainment of the
Ballistic Missile Defense System

  What GAO Found

There is currently uncertainty as to which assets may eventually be
transferred to each military service and under what conditions those
transfers should occur. This uncertainty makes it difficult for the
services to plan to address the requirements of DOD acquisition
regulations and realign their budgets to support the missile defense
mission. According to MDA and other DOD officials, when transfer criteria
were established in 2002, the Department did not fully understand the
complexity of the BMDS and how it could affect transfer decisions. For
example, it has been difficult to determine whether MDA or a military
service will be responsible for managing and funding some assets, such as
stand-alone missile defense radars, because these assets are not
integrated on service platforms or do not perform core service missions.
MDA officials suggested that these components could be operated by either
contractors or military personnel and MDA might fund their operation and
sustainment. A team that includes representatives from the military
services, the combatant commands, MDA, and other DOD offices was
established early this year to address transfer issues. However, because
MDA and the services have been unable to reach agreement on the transfer
of some missile defense assets, a unit under the Joint Chiefs of Staff was
tasked in July 2005 with recommending revisions to the existing transfer
criteria.

MDA budgeted $1.5 billion of its fiscal year 2005 research and development
funds to acquire interceptors and radars and upgrade various BMDS
components. It expects to continue to acquire and upgrade BMDS assets
through 2011 and beyond. However, MDA and the services disagree as to who
should pay for operating and sustaining the initial defensive capability
after fiscal year 2005. Additionally, although DOD has budgeted $68.5
billion to develop, procure, operate, and sustain a missile defense
capability between 2005 and 2011, it has not completely determined whether
additional operation and sustainment funds will be needed, and it has not
included all known operation and sustainment costs in its budget. Until
DOD decides who will fund these costs, the services will likely continue
to provide only the funding that they have been directed to provide. As a
result, some needs-for which neither MDA nor the services have
planned-will go unfunded. Additionally, if the funds budgeted for some
purposes, such as logistical support for the BMDS, turn out to be
insufficient, DOD will either have to take funds from other programs or
spend less on missile defense.

                 United States Government Accountability Office

Contents

      Letter                                                                1 
                                     Results in Brief                       2 
                                        Background                          3 
                 DOD Established Transfer Criteria But Changes Are Being  
                                        Considered                          8 
                    MDA and the Military Services Disagree on Funding     
                                     Responsibilities                      13 
                                       Conclusions                         21 
                                     Recommendations                       22 
                            Agency Comments and Our Evaluation             22 
    Appendix I   Air Force Officials Concerned with Some MDA              
                                      Funding Plans                        24 
                    Air Force Believes Radar Test Equipment Is Needed      24 
    Appendix II         MDA and the Air Force Disagree as to Which Should 
                               Pay Eareckson Support Costs                
Appendix III          Comments from the Department of Defense          
    Appendix IV           GAO Contacts and Staff Acknowledgments          

  Tables

Table 1: Total Planned Expenditures for Missile Defense, Fiscal Years
2005-2011 14 Table 2: Research, Development, and Test Funds Devoted to
Acquiring Missile Defense Capabilities 14 Table 3: Elements or Components
MDA Plans to Acquire or Upgrade for Fielding between 2004 and 2011 15
Table 4: The Fiscal Year 2005 Cost of MDA's Support Agreements 20

  Figures

Figure 1: Examples of Missile Defense Systems for which MDA Became Fully
Responsible 4

             Figure 2: Intended Model for Each Acquisition Phase 6

Abbreviations

BMDS Ballistic Missile Defense System
DOD Department of Defense
MDA Missile Defense Agency

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separately.

United States Government Accountability Office Washington, DC 20548

September 6, 2005

The Honorable Terry Everett
Chairman
The Honorable Silvestre Reyes
Ranking Minority Member
Subcommittee on Strategic Forces
Committee on Armed Services
House of Representatives

In 2002, the Secretary of Defense directed the Department of Defense
(DOD) to adopt a new acquisition model for acquiring a missile defense
capability.1 This model, which is intended to more quickly place a
capability in the hands of the warfighter, gives the Missile Defense
Agency
(MDA) responsibility for developing the Ballistic Missile Defense System
(BMDS), a system that includes all major missile defense acquisitions,
some of which were being developed by the military services. Once
capabilities useful to the warfighter are developed, the management and
funding responsibility for production, operation, and sustainment of the
capability is to be transferred to a military service.2

In 2004, MDA emplaced an initial missile defense capability, but it did
not
transfer management and funding responsibility for that capability, or any
element or major component of that capability, to a military service.
Because a formal transfer did not occur,3 you asked that we determine
(1) the criteria that DOD is using to decide when a missile defense
capability should be transferred to a military service and (2) how DOD is
allocating the cost of fielding a BMDS capability in fiscal years 2005
through 2011, if fielding costs have been fully identified, and if all
costs
expected to be incurred between 2006 and 2011 are included in DOD's
budget.

1Secretary of Defense Memorandum, Missile Defense Program Direction,
January 2, 2002.

2Sustainment costs include all costs incurred from initial system
deployment through the end of system operations, including the costs of
operating, maintaining, and supporting a fielded system.

3A formal transfer decision is made when MDA recommends and DOD's Senior
Executive Council approves the transfer of acquisition responsibility for
an element or major component from MDA to a military service.

  Results in Brief

To conduct our work, we examined relevant documents, such as directives
issued by the Secretary of Defense and the Under Secretary of Defense for
Acquisition, Technology and Logistics; installation support and services
agreements between MDA and the Army and the Air Force; Integrated Product
Team briefing charts and minutes; and fiscal year 2006 budget documents.
We also held discussions with the Office of the Under Secretary of Defense
for Acquisition, Technology and Logistics; Office of the Under Secretary
of Defense for Policy; Office of the Under Secretary of Defense
(Comptroller); the Joint Theater Air and Missile Defense Organization; the
Missile Defense Agency; and the Departments of the Army, Air Force, and
Navy. We conducted our review from October 2004 to August 2005 in
accordance with generally accepted government auditing standards.

DOD is in the process of considering revisions to the criteria that it
will use to decide when and under what conditions elements and components
will be transferred from MDA to the military services. Criteria
established by the Under Secretary of Defense for Acquisition, Technology
and Logistics in December 2002 called for a transfer when an element or
component was technically mature, plans for production were well
developed, and funds had been allocated to carry out the production plans.
However, officials across the department now recognize that the transfer
criteria are neither complete nor clear given the BMDS's complexity. For
example, it has been difficult to determine whether MDA or a military
service will be responsible for managing and funding some assets, such as
stand-alone missile defense radars, because these assets are not
integrated on service platforms or do not perform core service missions.
MDA officials suggested that these components could be operated by either
contractors or military personnel and MDA might fund their operation and
sustainment. Early this year, a team that includes representatives from
the Missile Defense Agency, the Office of the Secretary of Defense, the
military services, and the U.S. Strategic and Northern Commands was
established to develop individual transfer plans for each BMDS element or
major component. However, because MDA and the services have been unable to
reach agreement on the transfer of some missile defense assets, a unit
under the Joint Chiefs of Staff was tasked in July 2005 with recommending
revisions to the existing transfer criteria.

In providing direction on the implementation of the 2002 acquisition
model, the Secretary of Defense directed the military services to budget
the resources to procure and operate the planned force structure for
fielding the BMDS. However, MDA and the military services continue to
disagree as to which organization should pay for operating and sustaining

the initial missile defense capability, which remains under MDA's
management, after fiscal year 2005. Additionally, DOD has not yet
determined the full cost of procuring, operating, and sustaining the
initial capability from 2006 through 2011, and it has not included all
known costs in its budget. While the military services do not object to
funding the operation and sustainment costs of elements or major
components transferred to them, the military services do not believe that
they should pay these costs for developmental assets even though the
assets may be available for operational use. It is likely that until DOD
decides which organization will fund these costs, the military services
will continue to provide only the funding that they were directed to
provide in a 2003 Program Decision Memorandum and some needs, for which
neither MDA nor the military services have planned, will go unfunded.
Additionally, if the funds budgeted for some purposes, such as logistical
support for the BMDS, turn out to be insufficient, DOD will either have to
take funds from other programs or spend less on missile defense.

We are making recommendations to DOD that will assist in clarifying the
roles and responsibilities of MDA and the military services for managing
and funding missile defense assets. In commenting on a draft of this
report, DOD agreed to implement our recommendations.

Background 	In 2001, DOD conducted missile defense reviews to determine
how best to fulfill the nation's need to defend the United States,
deployed forces, allies, and friends from ballistic missile attacks. The
findings of these reviews led the Secretary of Defense to declare the need
for a new strategy to acquire and deploy missile defenses and to issue
direction in January 2002 to improve the leadership, management, and
organization of missile defense activities.

Specifically, the Secretary delegated to MDA the authority to manage all
ballistic missile defense systems under development and shifted programs
being executed or developed by the military services to MDA. Figure 1
below describes some of the missile defense programs whose execution or
development was transferred from the military services into MDA.

Figure 1: Examples of Missile Defense Systems for which MDA Became Fully
Responsible

National Missile Defense-a system now known as Ground-based Midcourse
Defense that is designed to protect the U.S. homeland by destroying
intercontinental ballistic missiles. The program was originally executed
by the Army.

Terminal High Altitude Area Defense-a ground-based system designed to
intercept short- and medium-range ballistic missiles. The program was
formerly executed by the Army.

Aegis Ballistic Missile Defense-a ship-based system designed to intercept
short- and medium-range ballistic missiles. The program was formerly
executed by the Navy.

Airborne Laser-an air-based system designed to intercept ballistic
missiles early in their flight through directed-energy (laser) intercepts.
The program transferred into MDA from the Air Force.

Space Tracking and Surveillance System-a constellation of low-orbiting
satellites designed to track missiles throughout their entire flight. The
program transferred from the Air Force.

Source: GAO.

The Secretary also instructed MDA to develop a single integrated system,
to be called the Ballistic Missile Defense System, capable of intercepting
enemy missiles launched from all ranges and in all phases of their flight.
The systems transferred from or executed by the services and new systems
whose development MDA initiates are considered to be elements of the BMDS
and are managed by MDA. In 2002, drawing on research and development
efforts that were ongoing for years, MDA established the Command, Control,
Battle Management, and Communications system as an element to provide
connectivity between other BMDS elements and to manage their operation as
an integrated, layered missile defense system.

In his direction to MDA and the military services, the Secretary called
for a capabilities-based requirements process and an evolutionary
development program. In a capabilities-based program, the system
developer-MDA- designs a system based on the technology available, rather
than designing a system to meet requirements established by those that
will use the system. Additionally, in an evolutionary program, a baseline
capability is developed that is improved over time. Therefore, the BMDS
has no fixed design or final architecture. Each evolution, or block, as
MDA calls such increments, is meant to take advantage of advancing
technology so that

over time the BMDS is enhanced. MDA's capabilities-based evolutionary
approach to development is meant to provide a capability to the users as
quickly as possible while also maintaining flexibility. MDA is in the
process of developing the first BMDS block, which is known as Block 2004.
This block consists of the Ground-Based Midcourse Defense, Aegis Ballistic
Missile Defense, Patriot Advanced Capability-3, and Command, Control,
Battle Management, and Communications elements, as well as the

4

Forward-Based X-Band Radar.

The Secretary also established a procedure for making developmental assets
available for operational use. On the basis of assessments of the BMDS's
military utility, progress in development, and a recommendation by the
Director, MDA, and the military services, the Secretary, with input from
the DOD Senior Executive Council, decides whether assets whose development
is ongoing should be fielded.5 When such a decision is made, the Secretary
directed that the military departments provide forces to support the early
fielding and budget resources to procure and operate the planned force
structure. In December 2002, the President directed DOD to begin fielding
an initial set of missile defense capabilities to meet the nearterm
ballistic missile threat to our nation. MDA responded by emplacing Block
2004 developmental assets for use against limited attacks. However, the
Secretary has not yet activated this capability by placing it on alert.

The Secretary's 2002 direction intended that acquisition of missile
defense elements and components be completed in three phases. In the first
phase, MDA develops ballistic missile defense elements and components
using research, development, test, and evaluation funds. When appropriate,
the MDA Director recommends and the Senior Executive Council approves the
entry of an element or major component into the second phase, known as the
transition phase. This phase allows the military services to prepare for
the element's or component's transfer. During the third phase, a military
service-using procurement, operation and maintenance, and personnel
funds-procures, operates, and sustains the element or component. Figure 2
includes some of the activities, such as those carried

4Block 2004 began in January 2004 and ends in December 2005.

5The Senior Executive Council is a committee established at the direction
of the Secretary of Defense to provide policy, planning, and programming
guidance; oversee DOD's missile defense activities; and approve BMDS
fielding recommendations. The council is chaired by the Deputy Secretary
of Defense.

out by the Joint Air and Missile Defense Organization (JTAMDO) 6 that DOD
envisioned taking place during each of the three phases.

              Figure 2: Intended Model for Each Acquisition Phase

Source: GAO.

Finally, the Secretary's 2002 direction effectively allowed MDA to defer
application of many of the requirements that are generally applied to the
development of major systems under DOD's traditional acquisition system
regulations.7 For example, the requirements for acquisition program
baselines and independent cost estimates, generally applicable by statute
to major defense acquisition programs and implemented by the DOD
regulations, will not be applied until a BMDS element or component is

6The Joint Air and Missile Defense Organization, which reports to the
Joint Chiefs of Staff, is chartered to plan, coordinate, and oversee Joint
Air and Missile Defense requirements, joint operational concepts, and
operational architectures.

7DOD Directive 5000.1, The Defense Acquisition System; DOD Instruction
5000.2, Operation of the Defense Acquisition System, May 12, 2003.

transferred to a military service concurrent with Milestone C.8 Milestone
C, the point at which a decision is made to begin initial production, is
the point at which the service is to assume management and funding
responsibility for an element or component of the BMDS.

Once elements or components are transferred, the Secretary directed MDA to
continue to fund modifications to fielded systems and to manage
development activities for new missile defense capabilities.9 The
Secretary also gave MDA approval authority over any engineering changes
that the military services might want to make to transferred BMDS
elements. This process, known as configuration control, is meant to ensure
that changes do not degrade the interoperability of the BMDS.

MDA has recommended and DOD approved the transfer of one missile defense
element to a military service since 2002. DOD transferred the Patriot
Advanced Capability-3 program to the Army in 2003. MDA continues to
exercise configuration control and provide funding for the development of
Patriot Advanced Capability-3 missile defense-related upgrades.10

8Baseline descriptions and independent cost estimates, as well as other
management and oversight requirements, are normally first required for
Milestone B, the decision to enter system development and demonstration.
However, because BMDS elements will not enter DOD's acquisition cycle
until Milestone C, these requirements may not be applied to the BMDS until
the transition phase that leads to the transfer to a military service. We
note that in the absence of the baselines required by DOD's acquisition
system regulations, Congress has required MDA to separately establish
cost, schedule, and performance baselines for each block of the BMDS being
fielded, including full life cycle costs. Ronald W. Reagan National
Defense Authorization Act for Fiscal Year 2005 (P.L 108-375), sec. 234(e).

9MDA Business Management officials told us that MDA only expects to fund
modifications that are directly attributable to the missile defense
mission.

10MDA is required by Section 232 of the 2005 Defense Authorization Act to
maintain configuration control of the Patriot Advanced Capability-3/Medium
Extended Air Defense System program as an element of the BMDS.

  DOD Established Transfer Criteria But Changes Are Being Considered

In December 2002, the Under Secretary of Defense for Acquisition,
Technology and Logistics established criteria for deciding when to
transfer acquisition responsibility from MDA to the military services. The
specified criteria are (1) testing demonstrates that an element or
component is mature, (2) plans and resources are in place to ensure that
facilities are available to support production, and (3) funds are
programmed in DOD's Future Years Defense Program to carry out production
plans.11 After the Under Secretary established these criteria, one BMDS
element-the Patriot Advanced Capability-3-was transferred to a military
service.

However, officials across DOD now recognize that the transfer criteria are
neither complete nor clear and believe that revised criteria are needed
for deciding to move an element or component into the transition phase.
These officials told us that when the Under Secretary established transfer
criteria in 2002, DOD did not fully understand the complexity of the BMDS
and how it could affect transfer decisions.

MDA's Director testified earlier this year that MDA will use several
models to transfer system elements to the military services and that it
may not be appropriate to transfer some elements or components.12 In such
cases, he envisions the services and MDA sharing responsibilities for the
assets. Further, he said that MDA will continue to work with the Secretary
of Defense, the military services, and the Combatant Commanders to arrange
appropriate transfers on a case-by-case basis.

    MDA Contemplates a Revised Acquisition Model

There is currently uncertainty as to when and under what conditions DOD
will transfer management and funding responsibility for elements and major
components from MDA to the military services. The acquisition model
directed by the Secretary in 2002 is now viewed by many in DOD as

11DOD's Future Years Defense Program is a massive DOD database and
internal accounting system that summarizes forces and resources associated
with programs approved by the Secretary of Defense. The program is
required by statute to be submitted to Congress each year with the
President's budget. It reflects the estimated expenditures and proposed
appropriations included in that budget and also covers at least the four
succeeding fiscal years.

12Lieutenant General Henry A. Obering III, USAF, Director, Missile Defense
Agency, presented this information in his statement before the Senate
Committee on Appropriations, Subcommittee on Defense, regarding the Fiscal
Year 2006 Defense Appropriations for Ballistic Missile Defense, May 11,
2005.

needing modifications to meet the evolving needs of a complex ballistic
missile defense system.

Although MDA began to emplace Block 2004 developmental assets for the
warfighters' potential use, it is not ready to transfer management
responsibility for some of these assets to the military services.
According to officials in MDA's Business Management Office, continued
management of some system elements and components by MDA may be necessary
to fully develop the overall effectiveness of the BMDS. For example, if
the missile-tracking capability of the Space Tracking and Surveillance
System is going to be added to the BMDS, MDA will need to test it with
other BMDS elements to determine how to make all elements work together
most effectively. To do this, MDA believes it must have the authority to
pull back elements or components that are fielded so that the elements and
components can be utilized in developmental efforts.

The MDA officials also indicated that full transfer of elements and
components could threaten the priority that the President and DOD have
given to missile defense. The officials told us that the military services
could subordinate missile defense missions to service missions, funding
service programs at the expense of the missile defense program. Service
acquisition officials and officials in the Office of the Secretary of
Defense agreed that the military services have many competing priorities
and that should missile defense programs be transferred to a service,
those programs would likely have to compete with service programs for
procurement, operations, and sustainment funds.

Officials in MDA's transition office offered examples of how management
and funding responsibility of elements and components currently in
development might be handled.

o  	Management responsibility for some elements and components might never
be transferred to a military service because these assets are not
integrated on service platforms or do not perform core service missions.
Examples include the Cobra Dane radar, the Forward-Based X-Band radars,
and the Sea-Based X-Band radar. MDA officials suggested that these
components could be operated by either contractors or military
personnel,13 and MDA might fund their operation and sustainment.

13We did not discuss with these officials potential legal issues
associated with contractor operation of a component of a deployed weapons
system.

However, discussions are still ongoing as to whether these components will
eventually be transferred to the military services.

o  	MDA and a military service might be collaboratively involved in the
management of other assets, such as the Airborne Laser, the Kinetic Energy
Interceptor, the Space Tracking and Surveillance System, and Terminal High
Altitude Area Defense because these elements are not yet technically
mature and MDA needs to manage their development.14 The services will
remain closely involved to provide feedback on the development process. As
the capability of these elements is ready to be demonstrated, MDA will
acquire them in limited quantities. For example, MDA plans to acquire two
Terminal High Altitude Area Defense fire units, which include 48 missiles.
If early tests are successful, MDA will turn the first fire unit over to
the Army in 2009. The Army will operate it and provide feedback on its
performance. Once any of these assets are available for operational use,
MDA believes that the services should accept some responsibility for
funding their operation and sustainment costs.

Officials in MDA's transition office told us that management
responsibility for assets in this group may eventually be handed over to a
military service. The officials said that the transition status of an
element is a function of technical maturity, programmatic achievement,
time, and relative stakeholder involvement.

o  	Management and funding responsibility for other systems already have
or likely will be transitioned to a military service because they have
reached or are nearing technical maturity. As mentioned above, MDA
transferred responsibility for the Patriot Advanced Capability-3 to the
Army in 2003, and it is likely that in the future MDA will transfer
responsibility for Aegis Ballistic Missile Defense to the Navy. Officials
in MDA's transition office told us that Aegis Ballistic Missile Defense is
reaching technical maturity, as demonstrated by its being fielded
operationally on Navy ships. The Navy is almost certain to accept
responsibility for the Aegis missile defense capability because it is
mounted on the Aegis ships.

14MDA initiated development of the Kinetic Energy Interceptor element in
fiscal year 2003. It is being designed to attack ballistic missiles in the
boost phase of their flight, while their motors are thrusting.

    Service Officials Emphasize Need for Sufficient Advance Notice of Transfers

Service acquisition officials told us that they need sufficient notice to
prepare for a transfer and enough time to ensure that funds are available
to produce, operate, and sustain the system. Several things have to be
done for a service to operate and maintain a system. For example,
personnel have to be assigned and trained, a command structure has to be
organized, and facilities may have to be provided for the system and its
operators. Also, because transferred elements of the BMDS will enter DOD's
acquisition cycle at Milestone C, other activities have to be completed in
advance of the milestone to ensure compliance with DOD acquisition
regulations. For example, the documentation required by the Chairman of
the Joint Chiefs of Staff Capabilities Integration and Development System
must be completed and an independent cost estimate must be obtained.
Service officials estimated that it takes at least a year and a half to
complete all of the tasks needed to meet Milestone C requirements of the
DOD acquisition regulations.

Sufficient advance notice is also needed for budgeting purposes. One DOD
official said that until responsibilities are established and transition
plans are in place, it is difficult for the services to plan their
budgets. If transfers take place with little advance notice, DOD will
either have to provide the services with additional funds for the
production, operation, and sustainment of BMDS elements or direct the
services to support the BMDS assets with funds reserved for service
missions. In written comments on a draft of this report, DOD said that
there is no basis to presume that programs will transfer from MDA to the
services with insufficient notice because of the process established by
the Secretary and described above.

    Work Begun to Develop Transfer Plans and Revise Criteria

Early in 2005, an Integrated Product Team was established to develop
transition plans. The team's mission is to

o  	specify management and funding responsibilities for MDA and the
military services;

o  	work out a strategy for establishing doctrine, planning an
organizational structure and its leadership, developing training and
materiel, and providing personnel and facilities;

o  provide appropriate notification for service budget requirements;

o  establish configuration control procedures; and

o  ensure mission success.

The team has conducted three meetings to date at the colonel and captain
level and two at the general officer level. The inaugural meeting of
colonels and captains was held on January 21, 2005. It was attended by
almost 80 people who represented MDA, the Office of the Secretary of
Defense, the military services, the U.S. Strategic Command, and the U.S.
Northern Command. An MDA executive official chairs the team. Two more
meetings (one at each level) are planned, along with numerous meetings of
support working groups.

Officials in MDA's transition office told us that the team will draw up a
broad plan, but it will include annexes tailored for each individual
element or component. These annexes will specify the likely date that the
element or component under consideration will be transferred; identify how
MDA, the affected military service, and the combatant commander will share
responsibilities; provide the status of existing contracts; identify
funding requirements; and lay out tasks and milestones in the transfer
process. MDA transition office officials also told us that the annexes may
propose handovers from MDA to the services that are not as formal as the
transfers originally envisioned by the Secretary of Defense.

Each individual transition plan will be cosigned by MDA's Director and a
military service representative. However, DOD officials noted that the
team will likely have disputes that can only be decided by officials in
the Office of the Secretary of Defense. DOD and service acquisition
officials expressed concern that although the Integrated Product Team
members may be able to plan transition details, they likely will not be
empowered to make major decisions or resolve major impasses. However, MDA
transition office officials told us that the team's objective is to secure
agreement of transition and transfer plans at the lowest level possible.

The Deputy for Ballistic Missile Defense, Missile Warfare Division, within
the Office of the Under Secretary of Defense for Acquisition, Technology
and Logistics, said that the current plan is to have the Missile Defense
Support Group recommend solutions for impasses to the Under Secretary of
Defense for Acquisition, Technology and Logistics. 15 The Under Secretary
would then consider the support group's recommendations,

15The Missile Defense Support Group includes representatives from the
Joint Air and Missile Defense Organization; the DOD Comptroller's Office;
the Office of the Director, Operational Test and Evaluation; and other
units across DOD. Its purpose is to advise MDA's Director on such subjects
as policy, operations, testing, acquisition, and resources.

  MDA and the Military Services Disagree on Funding Responsibilities

make any needed changes, and forward all transition/transfer plans to the
Secretary of Defense for approval. According to the Deputy, the goal is to
have DOD approve all transfer plans by December 31, 2005, so that
direction is available to the appropriate DOD components as they begin
preparing their 2008-2013 budgets.

In July 2005, the Director, Joint Staff, directed the Joint Staff's Deputy
for Force Protection to establish a team to recommend revised criteria for
making transfer decisions. The team members told us that the impetus for
their study was the Integrated Product Team's difficulties in determining
when and under what conditions military services should take
responsibility for some BMDS components. They said that the military
services are not eager to receive components, such as the Sea-Based X-Band
Radar, Forward-Based X-Band Radar, and the Cobra Dane Radar, that do not
provide a capability that furthers the military services' core missions.
The team, which expects to complete its work by December 31, 2005, expects
to work with the Integrated Product Team and the Missile Defense Support
Group.

In 2002, the Secretary of Defense directed the military services to budget
the resources to procure and operate the planned force structure for an
early missile defense capability. However, MDA and the military services
continue to disagree as to which organization should pay, after 2005, for
operating and sustaining developmental assets even though the assets may
be available for operational use. Additionally, DOD has not yet determined
the full cost of procuring, operating, and sustaining the BMDS from 2006
through 2011, and it has not included all known costs in its budget. Until
DOD decides which organization will fund these costs, the services will
likely continue to provide only the funding that they are directed to make
available, and some needs, which neither MDA nor the services have planned
for, will probably go unfunded. Additionally, if the funds budgeted for
some purposes, such as logistical support for the BMDS, turn out to be
insufficient, DOD will either have to take funds from other programs or
spend less on missile defense.

DOD reports that it will spend $68.5 billion between fiscal years 2005 and
2011 to develop, acquire, and support missile defense capabilities,
including an initial capability emplaced in 2004-2005 that can be used in
the event of an emergency. MDA has been authorized by statute to use
research and development funds for this purpose. Table 1 identifies the

DOD components that have budgeted funds for missile defense activities
through 2011.

Table 1: Total Planned Expenditures for Missile Defense, Fiscal Years 2005-2011

                        In millions of then-year dollars

          Research,                    Operation       Military Military  
          development,test             and                                
DOD        & evaluation Procurement maintenance construction personnel   Total 
component                                                                 
MDA             $66,458                                  $69           $66,527 
Air Force                          $59        $174                    $46    $279 
  Army                                        $475                           $475 
  Army                                                                            
National                                      $941                $165     $1,106
  Guard                                                                   
  Navy                                        $144                           $144 
  Total            $66,458         $59      $1,734          $69   $211    $68,531 

Source: DOD Fiscal Year 2006/2007 Budget Estimates, Research, Development,
Test, and Evaluation, Defense-Wide, Volume 2, Missile Defense Agency.

MDA Is Using RDT&E In fiscal year 2005, MDA budgeted $1.5 billion of its
research and Funds to Acquire BMDS development funds to acquire
interceptors and radars and to upgrade Components various BMDS elements or
components. It expects to continue to acquire

and upgrade BMDS assets through 2011. Table 2 shows planned funding by

fiscal year.

Table 2: Research, Development, and Test Funds Devoted to Acquiring
Missile Defense Capabilities

                        In billions of then-year dollars

             FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Total

               $1.055 $1.754 $2.490 $2.085 $1.987 $1.201 $10.572

Source: MDA, Fiscal Year 2006 Staffer Day Overview.

A complete list of all assets that MDA is acquiring during Block 2004 and
plans to acquire or enhance from 2006-2011 is provided in table 3.

Table 3: Elements or Components MDA Plans to Acquire or Upgrade for
Fielding between 2004 and 2011

Element or component being acquired or Quantity to be acquired or upgraded
Quantity to be acquired or upgraded for upgraded for fielding for fielding
during Block 2004 fielding from 2006 to 2011

    Terminal High Altitude Area Defense   0        2 fire units, each with an 
                  Element                                     inventory of 24 
                                                                     missiles 
     Aegis Ballistic Missile Defense's    8                       93 missiles 
                 Standard                   
                 Missile-3                  
      Ground-Based Midcourse Defense     14                                   
                 Element's                                    30 interceptors
                Interceptor                 
          Sea-Based X-Band Radar          1 
        Forward-Based X-Band Radar        1 
      Upgrades to Early Warning Radar     2 
                located at                  
               various sites                
        Discrimination X-Band Radar       0 
     Upgrade of Aegis Cruiser to allow    2 
     engagement of ballistic missiles       
Upgrade of Aegis Destroyers to allow   0 
     engagement of ballistic missiles       

Source: MDA and the military services.

Although the elements or components shown in table 3 will be available to
provide an increased missile defense capability, officials within MDA's
transition office told us that responsibility for acquiring them will not
be transferred to a military service. For example, MDA is acquiring two
Terminal High Altitude Area Defense fire units, including 48 missiles. The
fire units will be made available to the Army so that soldiers can operate
Terminal High Altitude Area Defense to provide feedback on its development
and to defend against short-and medium-range ballistic missiles in the
event of an emergency. Should the Army, or any other military service that
has received a developmental asset, need additional units of an element or
larger quantities of some components-for example, should the Army need
more Terminal High Altitude Area Defense fire units or missiles-the
officials suggested that the military service should be responsible for
acquiring them. In addition, MDA would expect the services to budget funds
for any common support equipment required for the elements that MDA is
acquiring. For example, according to MDA's Terminal High Altitude Area
Defense Program Office, it expects the Army to purchase trucks needed to
move the two Terminal High Altitude Area Defense fire units' radar,
launchers, and generators.

However, no military service has budgeted funds for procurement of
elements or components, and only the Air Force has included funds in its

budget for support equipment. An official in the Air Force's Missile
Warning and Defense Office within the Office of the Deputy Chief of Staff
for Air and Space Operations told us that the Air Force included
approximately $59 million in its fiscal year 2006-2011 budgets to acquire
and sustain devices that detect incursions at Vandenberg Air Force Base
and to improve test equipment for upgraded early-warning radars located at
Beale (California) Air Force Base and at Fylingdales Air Force Station in
the United Kingdom. However, the official told us that the cost of
acquiring and sustaining the detection devices and the test equipment is
expected to exceed planned funding. Further information on Air Force
officials' concerns with MDA's plan for funding procurements is discussed
in appendix 1.

While the Army has not budgeted funds for support equipment, it has
provided equipment from inventory to support the Ground-based Midcourse
Defense element that MDA has emplaced at Fort Greely. An official from the
Army's Air and Missile Defense/Space Division within the Office of the
Assistant Secretary for Acquisition, Logistics and Technology told us that
the Army, Army National Guard, and National Guard Bureau provided
equipment, such as trucks, radios, and machine guns, from inventory to
support the Ground-Based Midcourse Defense element. Additionally, pending
Terminal High Altitude Area Defense test results and Senior Executive
Council decisions, the official told us that the Army expects to include
funds in its fiscal year 2008-2013 budgets for Terminal High Altitude Area
Defense common support equipment.

    Military Services Fund Costs for Most Personnel Operating BMDS Assets

The military services are currently paying for most of the personnel who
operate the missile defense assets. For example, an Army National Guard
unit operates Ground-Based Midcourse Defense components located at Fort
Greely, and Navy sailors operate the Aegis Ballistic Missile Defense
element. The cost to the military services of operating these missile
defense elements is not easily discernable because it is intermingled with
other operation and sustainment costs. However, Army officials told us
that the Army is providing about $2.4 million for missile defense
operations in fiscal year 2005 and expects to incur an additional cost of
$23.3 million for this purpose between fiscal years 2006 and 2011. Navy
officials told us that at this time the missile defense mission does not
create additional personnel cost because the same sailors who stand watch
in the combat information center to support conventional anti-air warfare
missions also support the ballistic missile defense mission. Additionally,
the Air Force has not identified any additional personnel cost

between 2006 and 2011 to operate upgraded early warning radar for the
missile defense mission.

Officials in MDA's transition office told us that in the future MDA may
use some of its research and development funds to operate major components
that are bought in small quantities. The officials suggested that
components such as the Forward-Based X-Band and Sea-Based X-Band radar,
which may never be transferred to a military service, could be operated by
contractor personnel who, at least through 2011, would be paid from funds
set aside for contractor logistics support.

    MDA and Military Services Are Presently Sharing Sustainment Costs

Contractors to Provide Logistics Support

In fiscal year 2005, MDA and the military services shared sustainment
costs. These costs are incurred for (1) logistics support, which includes
the services and materiel needed to support the fielded BMDS; (2)
installation support and services costs, which are all of the additional
costs incurred by an installation (or base) to support a resident tenant;
and (3) other supplies, such as fuel and lubricants.

Sustainment costs are generally one of the largest contributors to a
weapon's life-cycle cost because weapon systems are usually in the field
for years and require support during this time. Together, operation,
maintenance, and disposal costs typically account for about 72 percent of
the total cost of a weapon system.16 However, MDA does not believe that
this percentage can be used to estimate the sustainment cost of BMDS
elements or components because MDA Program Officials expect fielded assets
will be updated and improved more quickly than standard DOD weapon
systems. If this proves true, an element or component may be in the field
for only a few years before it is replaced with an enhanced configuration.
But regardless of the length of time each configuration is in use, DOD
will incur sustainment cost because each configuration must be sustained.

In December 2003, DOD's Program Decision Memorandum III directed MDA to
assume all fiscal year 2005 and 2006 costs for materials and services
needed to support the operation of primary BMDS mission equipment,
critical spares, and standard military equipment. MDA is paying prime
contractors, who are developing the elements that will be

16GAO, Best Practices: Setting Requirements Differently Could Reduce
Weapon Systems' Total Ownership Costs, GAO-03-57 (Washington, D.C.: Feb.
11, 2003).

MDA and the Services Are Jointly Funding Installation Support and Services
Costs

available for limited use, to provide this support in fiscal year 2005.
For example, MDA has contracted with the Boeing Company to provide
logistics support for the Ground-Based Midcourse Defense element.
Transition office officials told us that they plan to continue this
arrangement through 2011.

However, MDA cannot be sure that the funds set aside for logistics support
will provide all of the material and services needed. Reliability and
maintainability are key factors in the design of affordable and
supportable systems. Generally reliability growth is the result of an
iterative design, build, test, analyze, and fix process.17 However,
officials in MDA's Business Management Office told us that because they
have limited experience with the systems being fielded, they cannot
estimate how often parts will break or how much repairs will cost.
Additionally, as noted in table 3, MDA plans to add assets to its limited
capability during this time frame, and as the quantity of assets
increases, the cost of logistics support can be expected to grow.

By 2007, MDA hopes to better understand the cost of logistics support. To
gain this understanding, MDA has directed the contractors to collect and
report reliability data, including data on the frequency of breakdowns and
the cost of repairs.

In fiscal year 2005, MDA and the military services are sharing the
additional cost that the military services are incurring because BMDS
elements or components and the personnel who work with them have been
placed on military bases. Generally, a tenant on a military base is
expected to reimburse its host (the military service whose base the tenant
is occupying) for additional base support costs incurred because the
tenant is in residence.18 For example, the tenant is expected to reimburse
the host for the additional cost of communications services, lodging, and
utilities. However, DOD's Program Decision Memorandum III directed the
Army and Air Force to assume some installation costs related to missile
defense. The Memorandum directed the Army to provide funds for Fort

17GAO, Best Practices: Capturing Design and Manufacturing Knowledge Early
Improves Acquisition Outcomes, GAO-02-701 (Washington, D.C.: July 15,
2002).

18DOD Instruction 4000.19 provides that a DOD activity requesting support
from an interservice host reimburse the host for the incremental direct
cost of the services provided.

MDA Pays Most Installation Services and Support Costs in 2005

Greely installation costs and training, and the Air Force to fund
additional security forces and infrastructure at Vandenberg Air Force
Base.19

To address the DOD memorandum's directions, the Army is supporting
soldiers stationed at Fort Greely to operate deployed missile defense
assets. This support includes providing mail services, health and food
services, and chaplain services. The Army budgeted $42 million in fiscal
year 2005 for these purposes and estimates that it will need about $402.7
million more between fiscal years 2006 and 2011.

According to an official in the Air Force Missile Warning and Defense
Office, the Air Force included some funds in its fiscal year 2006 budget
to procure and install detection devices at Vandenberg Air Force Base as
directed by the memorandum. The official said funds were also included in
the budgets for the following fiscal years (2007-2011) to sustain the
devices. However, the official told us that a new cost estimate shows that
it is likely to cost more to procure and install the devices than first
estimated. Without the detection devices, Air Force officials estimate
that additional security personnel will be needed, but funds for these
personnel are not included in the Air Force's budget. Because the Air
Force has not added all security forces needed, the security at Vandenberg
is not at the level directed by U.S. Strategic Command. Additionally,
because the Air Force had no funds set aside in fiscal year 2005 for
missile defense active duty security personnel, the Air Force is mostly
relying upon Air Reserve volunteers to provide some additional security
for missile defense assets located at Vandenberg and Schriever Air Force
Bases.20

MDA is paying for other installation services and support costs that the
DOD memorandum did not direct the military services to fund. Agreements
have been finalized with the Army for installation services and support at
Fort Greely and with the Air Force for services and support at Vandenberg
and Schriever Air Force Bases and Eareckson Air Station. Table 4 exhibits
the costs MDA has agreed to pay at each of the bases in fiscal year 2005.

19Program Decision Memorandum III also directed the Navy to provide funds
for additional ship operations, training, and contractor support. The Navy
addressed the Memorandum's direction by programming funds for maintenance
of missile defense software and the ships' fuel when it conducts missile
defense missions. It is also conducting training to certify crews for this
new mission.

20Schriever Air Force Base houses a missile defense command and control
suite.

         Table 4: The Fiscal Year 2005 Cost of MDA's Support Agreements

                              Dollars in millions

                                                         Cost to be recovered 
                            Installation         Host                from MDA 
                             Fort Greely         Army                   $5.53 
               Vandenberg Air Force Base    Air Force                   $1.89 
                   Eareckson Air Station    Air Force                  $9.80a 
              Other Air Force facilities    Air Force                   $2.21 

MDA and the Services Disagree On Responsibility for Operation and
Sustainment Costs

o

Source: MDA.

aAppendix II provides information on the disagreement between MDA and the
Air Force as to which organization should pay support costs at Eareckson
Air Station.

The 2003 Program Decision Memorandum directed the military services,
combatant commands, and MDA to continue to refine fiscal years 20062011
missile defense operation and support requirements and costs. The
memorandum also directed MDA and the military services to budget for those
costs, but it did not clarify which costs would be assumed by each
organization. An official in MDA's transition office told us that MDA
included funds in its 2006-2011 budgets for costs similar to those paid in
fiscal year 2005. However, the official pointed out that the Military
Service Deputies for Operations are examining whether MDA should pay any
operations and sustainment costs, other than contractor logistics costs,
after fiscal year 2005. Additionally, MDA proposes that the military
services assume contractor logistics costs beginning in 2012.

However, in February 2005, the Deputies for Operations from the three
military services involved met to develop a coordinated position on the
services' roles and missions for missile defense. The Deputies concluded
that the services should not incur operation and support costs for fielded
missile defense elements or components until a transition plan for those
elements or components is successfully executed.

We talked to acquisition officials in each of the three services involved
in operating the BMDS about their services' views on paying future
operation and sustainment costs for assets that have not been transferred.

Navy officials believe that ongoing transition discussions will determine
which Aegis Ballistic Missile Defense components are sufficiently mature
for the Navy to assume the cost of their operation and sustainment. The
officials pointed out that the Navy addressed the Program Decision
Memorandum III. However, it is the Navy's position that a transfer
decision should precede the Navy's assumption of future operation and

sustainment costs. The Navy expects MDA to maintain the Standard Missile-3
until it is transferred to the Navy and to procure all Aegis Ballistic
Missile Defense equipment, including any support equipment, through 2011.
Additionally, the officials told us that the Navy does not expect to incur
any support costs for the Sea-Based X-Band radar that will support the
Ground-Based Midcourse Defense element when it is fielded.

o  	Air Force officials told us that the Air Force should not incur any
operation and sustainment costs after 2005 unless a decision is made to
transfer an element or component to the Air Force. An official in the Air
Force's Missile Warning and Defense Office said that only MDA, which is
developing and deploying the elements and components, can control or plan
for operations and sustainment costs. Furthermore, the official said that
transition plans can best be made after assets have been deployed, costs
are known, military utility is verified, and capabilities have been
evaluated. He told us that this approach would provide programming
structure and cost transparency.

o  	The Army is willing to assume some costs associated with supporting
the initial missile defense capability. An official in the Army's Air and
Missile Defense/Space Division told us that the Army is willing to
continue to budget for the cost of operating this capability, supporting
soldiers that perform a missile defense mission, and for common support
equipment for fielded assets. However, the official said that the Army
would not want to assume the maintenance costs of elements or major
components until those assets are transferred to the Army. The official
said that the Army usually maintains its own equipment and that as long as
an asset is in development the Army would not have an inventory of spare
parts to make repairs. Neither would it have engineers, or maintenance
personnel with an equivalent level of expertise, to make the repairs.

Conclusions 	The military services are uncertain as to which missile
defense assets may eventually be transferred to them and under what
conditions those transfers may occur. This uncertainty makes it difficult
for the services to plan the activities that are necessary to apply the
requirements of DOD acquisition system regulations and to consider how to
best realign their budgets to support the missile defense mission. DOD
needs to establish clear and complete transfer criteria to better guide
those making the difficult decisions for allocating management and funding
responsibilities for missile defense assets.

DOD also needs to clarify whether MDA or the services will be responsible
for sustaining missile defense capabilities that have not been transferred

to the services. The Secretary's direction did not clearly spell out
whether MDA or the military departments would be responsible for
sustaining the early capability, and it is this cost that has become most
contentious. If sustainment costs are much higher than expected and the
number of assets being made available to the warfighter grows, as MDA
expects, the use of research and development dollars to procure and
sustain a missile defense capability will begin to affect MDA's primary
mission of developing new capabilities and enhancing existing ones. On the
other hand, the military services will not want to fund the operation and
sustainment of a missile defense capability if its cost cannot be
accurately estimated. Nor will they want to fund the capability if they
are not given the time to determine how to do so with the least impact on
service missions. While the team established by MDA to develop transition
plans includes working-level representatives from MDA, the military
services, and the combatant commands, it will be difficult to reach full
agreement as to who should pay sustainment costs for these assets because
the representatives do not have the authority to make binding financial
decisions for their organizations. MDA and the services may continue to
disagree as to which component will bear sustainment costs for the early
capability until DOD directs one or the other to do so. Because the
services and MDA will begin to plan their 2008-2013 budgets in 2006, a
decision as to who will fund these costs should be made in time for the
budget deliberations.

Recommendations

Agency Comments and Our Evaluation

We recommend that the Under Secretary of Defense for Acquisition,
Technology and Logistics revise the criteria for deciding when management
and funding responsibility for missile defense assets should be
transferred from MDA to a military service so that those criteria are
clear and complete.

We also recommend that the Secretary of Defense ensure that a decision is
made as to which DOD organization will fund the operation and sustainment
of missile defense assets that are part of the initial defensive
capability but have not been transferred from MDA to a military service
and direct that organization, or those organizations, to budget for those
costs.

In written comments on a draft of this report (see app. III), DOD agreed
that the criteria for making decisions to transfer missile defense assets
from MDA to the services must be clear. Our draft report had recommended
that the Secretary of Defense direct the Under Secretary of

Defense for Acquisition, Technology, and Logistics to revise the criteria.
In its comments, DOD stated that the Secretary of Defense did not need to
provide additional direction to the Under Secretary. We accepted this view
and, accordingly, revised the recommendation's wording in the final
report.

DOD also agreed with the need to settle, as soon as possible, the issue as
to which component will fund the operation and sustainment of missile
defense assets that are part of the initial defensive capability. DOD said
this issue would soon be resolved without the Secretary taking additional
action. We continued to address our final report's recommendation to the
Secretary because if the services and MDA can not agree about which
organization(s) should pay for these costs, the decision may have to be
elevated to the Secretary's level.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Armed Services; the Senate Committee on
Appropriations, Subcommittee on Defense; the House Committee on Armed
Services; and the House Committee on Appropriations, Subcommittee on
Defense; the Secretary of Defense; and the Director, Missile Defense
Agency. We will make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-4841 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix IV.

Robert E. Levin Director, Acquisition and

Sourcing Management

Appendix I: Air Force Officials Concerned with Some MDA Funding Plans

  Air Force Believes Radar Test Equipment Is Needed

Air Force Space Command officials are concerned that the Missile Defense
Agency (MDA) is not providing funds to purchase test equipment for
upgraded early-warning radars. According to the officials, without the
test equipment, the operation of upgraded early-warning radars could be
degraded.

Air Force Space Command officials told us that a system programming agency
is needed to support software and hardware changes to the Beale and
Fylingdales early-warning radars once they are upgraded. A system
programming agency consists of multiple strings of computers and
peripherals that can emulate the unique aspects of the radar's operating
system and is used to maintain, modify, and test software and hardware
changes prior to those changes being made to the operational radar. The
Air Force currently has a system programming agency in place to support
hardware and software development for the early-warning radar. However,
neither MDA nor the Air Force has included funds in their budgets to
establish a system programming agency for the upgraded Beale and
Fylingdales radars.

Space Command officials told us that a system programming agency is of
particular importance because the upgraded early-warning radar is very
dependent on commercial off-the-shelf equipment that often has a short
life cycle. If a computer or radar replacement part is needed, there is no
certainty that the part available will be compatible with other parts
installed in the radar or its operating system. The officials said that if
a replacement part operates nanoseconds faster or slower than the old
part, the radar could fail or possibly generate false missile reports.

An official in the Air Force's Missile Warning and Defense Office told us
that the Air Force included funds in its 2008-2011 budgets to upgrade the
system programming agency so that its hardware and software would always
be identical to the software and hardware in the operational radar.
However, the official said that the Air Force believed that MDA planned to
pay for the system programming agency's development cost and that the
funds budgeted by the Air Force are not sufficient to both create and
sustain an upgraded early-warning radar system programming agency. Space
Command officials told us that the system programming agency could cost as
much as $88 million. Without the system programming agency, the officials
said changes will be made directly to the operational radar, decreasing
its operational availability and increasing operational risks. In a
written response to a draft of this report, MDA officials said that

Appendix I: Air Force Officials Concerned with Some MDA Funding Plans

MDA has not agreed to fund a system programming agency for upgraded
early-warning radar as the Air Force has requested.

Appendix II: MDA and the Air Force Disagree as to Which Should Pay Eareckson
Support Costs

During much of fiscal year 2005, MDA and the Air Force disagreed as to
which organization should pay the additional costs being incurred at
Eareckson Air Station in support of the missile defense mission. While MDA
eventually agreed to pay all fiscal year 2005 costs, no agreement has been
reached for subsequent fiscal years. Both MDA and the Air Force predict
that costs at Eareckson will again be a contentious issue in fiscal year
2006.

The Air Force maintains that Program Decision Memorandum III did not
direct the Air Force to provide security forces and infrastructure for the
missile defense mission at Eareckson. Therefore, the Air Force's position
is that the additional costs being incurred at Eareckson should be paid by
MDA. Officials in the Air Force's Missile Warning and Defense Office told
us that Eareckson is populated entirely with contractor personnel who
operate and maintain the Cobra Dane radar in its intelligence-gathering
role. The Air Force maintains a small diversionary air strip at the base,
but it does not have any military personnel located there. The officials
said that the Air Force is the administrator for the Eareckson Air Station
contract, but the intelligence community reimburses the Air Force for the
station's operations costs. The officials said that MDA should pay the
costs incurred at Eareckson that are directly attributable to the missile
defense mission, just as the intelligence community pays all costs
attributable to its mission.

Conversely, MDA maintains that omitting Eareckson from the Program
Decision Memorandum was an oversight. However, an official in the
Department of Defense's (DOD) Comptroller's Office told us that DOD always
intended that MDA pay normal installation support and services cost at
Eareckson. DOD recognized that Eareckson is an unusual base because the
Air Force does not maintain a presence there. For the first two quarters
of fiscal year 2005, MDA paid the additional costs that the Air Force
incurred because missile defense contract personnel were located on the
base and because the number of security personnel was increased to protect
the missile defense mission. However, for the first 7 months of fiscal
year 2005, MDA and the Air Force continued to disagree as to which party
would pay installation support and services cost for the last two quarters
of fiscal year 2005. In May 2005, MDA agreed to assume these costs. MDA
transition office officials said that the issue of Eareckson support costs
would be raised again in fiscal year 2006.

MDA officials told us that Eareckson installation support and services
cost will continue to be an issue because MDA is being asked to pay costs
that are normally paid by the installation's host and that MDA is not
paying at

Appendix II: MDA and the Air Force Disagree as to Which Should Pay
Eareckson Support Costs

other bases with which it has agreements. For example, the host typically
provides fire protection for the base and the tenant would only pay the
additional cost created by the tenant's residency. However, at Eareckson,
MDA is being asked to pay a portion of the cost that the Air Force is
incurring to provide a basic fire protection capability. The officials
said that they fear the Eareckson installation support and services
agreement could establish a precedent that the military services could
insist on following at other bases where missile defense assets are
located. Should this happen, MDA officials contend that MDA would, in
effect, be supplementing the military services' operation and maintenance
budget.

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contacts and Staff Acknowledgments

GAO Contacts Robert E. Levin (202) 512-4841 or [email protected]

Acknowledgments 	In addition to the contact named above, Barbara Haynes,
Assistant Director; David Hand; Mary Quinlan; Adam Vodraska, and Karen
Sloan made key contributions to this report.

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