Defense Acquisitions: Missile Defense Agency Fields Initial	 
Capability but Falls Short of Original Goals (15-MAR-06,	 
GAO-06-327).							 
                                                                 
The Department of Defense (DOD) has spent nearly $90 billion	 
since 1985 to develop a Ballistic Missile Defense System (BMDS). 
In the next 6 years, the Missile Defense Agency (MDA), the	 
developer, plans to invest about $58 billion more. MDA's overall 
goal is to produce a system that is capable of defeating enemy	 
missiles launched from any range during any phase of their	 
flight. MDA's approach is to field new capabilities in 2-year	 
blocks. The first--Block 2004--was to provide some protection by 
December 2005 against attacks out of North Korea and the Middle  
East. Congress requires GAO to assess MDA's progress annually.	 
This year's report assesses (1) MDA's progress during fiscal year
2005 and (2) whether capabilities fielded under Block 2004 met	 
goals. To the extent goals were not met, GAO identifies reasons  
for shortfalls and discusses corrective actions that should be	 
taken.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-327 					        
    ACCNO:   A49141						        
  TITLE:     Defense Acquisitions: Missile Defense Agency Fields      
Initial Capability but Falls Short of Original Goals		 
     DATE:   03/15/2006 
  SUBJECT:   Air defense systems				 
	     Ballistic missiles 				 
	     Defense capabilities				 
	     Defense cost control				 
	     Defense procurement				 
	     Performance appraisal				 
	     Performance measures				 
	     Program evaluation 				 
	     Reporting requirements				 
	     Cost overruns					 
	     Command, Control, Battle Management, and		 
	     Communications System				 
                                                                 
	     DOD Space Tracking and Surveillance		 
	     System						 
                                                                 
	     MDA Aegis Ballistic Missile Defense		 
	     Program						 
                                                                 
	     MDA Airborne Laser Program 			 
	     MDA Ballistic Missile Defense System		 
	     MDA Ground-Based Midcourse Defense 		 
	     Program						 
                                                                 
	     MDA Kinetic Energy Interceptor System		 
	     MDA Terminal High Altitude Area Defense		 
	     System						 
                                                                 

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GAO-06-327

     

     * Good Progress Made in the C2BMC and Aegis Elements
     * GMD Program Makes Less Progress
     * Two of Nine Flight Tests Successfully Completed
     * Developmental Elements Progress but Experience Some Setbacks
     * Completed Work Cost More than Expected
     * Significantly Fewer Block 2004 Assets Fielded than Planned
     * Block 2004 Cost Is Understated
     * BMDS Performance Is Unverified
     * Test Officials Suggest Further Aegis BMD Characterization Te
     * Quality Control Issues Raise Additional Performance Question
     * GMD Program Sacrificed Knowledge-Based Approach to Accelerat
     * GMD Management Became Inattentive to Quality Control Risks
     * MDA Has Flexibility in Making and Reporting Program Changes
     * Contracts to Reflect the Importance of Good Quality Assuranc
     * MDA Renews Emphasis on Contractor Surveillance
     * MDA Restructures GMD's Test Plan
     * Corrective Actions May Not Alleviate Pressures Associated wi
     * Aegis BMD
     * Ground-Based Midcourse Defense
     * Command, Control, Battle Management, and Communications
     * Terminal High Altitude Area Defense
     * Airborne Laser
     * Kinetic Energy Interceptor
     * Space Tracking and Surveillance System
     * Aegis BMD Contractors Deliver Good Performance
     * Despite Restructure, ABL Contractor Experiences Cost and Sch
     * Lack of Reporting Limits Knowledge of C2BMC Contractor's Per
     * GMD Contractor's Performance Continues to Decline
     * Kinetic Energy Interceptors
     * STSS Contractor's Performance Declines
     * Overall Performance of THAAD Contractor Declines
     * Order by Mail or Phone

Report to Congressional Committees

United States Government Accountability Office

GAO

March 2006

DEFENSEACQUISITIONS

Missile Defense Agency Fields Initial Capability but Falls Short of
Original Goals

Missile Defense 

GAO-06-327

Contents

Letter 1

Results In Brief 3
Background 6
MDA Makes Progress During Fiscal Year 2005, but Some Activities Not
Completed as Planned 9
Block 2004 Delivers Assets Faster, but With Unverified Performance 18
Schedule Pressures Caused Management to Stray from Knowledge-Based
Practices 28
MDA Is Taking Several Corrective Actions 33
Conclusions 37
Recommendations for Executive Actions 38
Agency Comments and Our Evaluation 39
Appendix I Comments from the Department of Defense 43
Appendix II Block 2004 Element Assessments 46
Appendix III An Assessment of BMDS Prime Contractors' Cost and Schedule
Performance 67
Appendix IV MDA'S Audit of GMD Interceptor Contractors 78
Appendix V Integrated Management Plan 80
Appendix VI Scope and Methodology 82
Appendix VII GAO Contact and Staff Acknowledgment 84

Tables

Table 1: BMDS Elements 8
Table 2: Prime Contractor Fiscal Year 2005 and Cumulative Cost and
Schedule Performance 16
Table 3: Evolution of Block 2004 Quantity Goals versus Fielded Assets 19
Table 4: Composition of the Block 2004 Fielded Configuration Cost Goal,
February 2003 22
Table 5: Composition of the Block 2004 Fielded Configuration Cost Goal,
February 2004 23
Table 6: Expected Cost of Block 2004 Fielded Capability, Including Initial
Sustainment 24
Table 7: C2BMC Risk Areas 55
Table 8: Airborne Laser Technical Issues and Their Potential Impact on
Program 71

Figures

Figure 1: Components of the GMD Element 49
Figure 2: Aegis BMD Weapon System Fiscal Year 2005 Cost and Schedule
Performance 68
Figure 3: Standard Missile 3 Fiscal Year 2005 Cost and Schedule
Performance 69
Figure 4: Airborne Laser Fiscal Year 2005 Cost and Schedule Performance 70
Figure 5: Ground-based Midcourse Defense Fiscal Year 2005 Cost and
Schedule Performance 73
Figure 6: Space Tracking and Surveillance System Fiscal Year 2005 Cost and
Schedule Performance 75
Figure 7: Terminal High Altitude Area Defense Fiscal Year 2005 Cost and
Schedule Performance 77

Abbreviations

ABL Airborne Laser

ASIC application-specific integrated circuit

BMDS Ballistic Missile Defense System

CPR Contract Performance Report

C2BMC Command, Control, Battle Management, and Communications

DCMA Defense Contract Management Agency

DOD Department of Defense

DOT&E Director, Operational Test and Evaluation

EKV exoatmospheric kill vehicle

FBX-T Forward-Based X-Band Transportable

FM Flight Mission

FTM Flight Test Mission

GMD Ground-Based Midcourse Defense

ICBM intercontinental ballistic missile

IFT integrated flight test

KEI Kinetic Energy Interceptor

MAIP Mission Assurance Implementation Plan

MAP Missile Defense System Assurance Provisions

MDA Missile Defense System

NASA National Aeronautics and Space Administration

NFIRE Near Field Infrared Experiment

SAR Selected Acquisition Report

SBX Sea-Based X-Band

SDACS Solid Divert and Attitude Control System

SM-3 Standard Missile-3

SBIRS Space-Based Infrared System

STSS Space tracking and Surveillance System

THAAD Terminal High Altitude Area Defense

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United States Government Accountability Office

Washington, DC 20548

March 15, 2006

For nearly 50 years, the Department of Defense (DOD) has been spending
money to develop a missile defense system capable of protecting the U.S.
homeland and U.S. deployed forces from ballistic missile attacks. Since
1985, DOD has spent almost $90 billion for this purpose, and it plans to
invest an additional $58 billion, or about 14 percent of its research and
development budget, over the next 6 years. The Ballistic Missile Defense
System (BMDS) under development includes a diverse collection of land-,
air-, sea-, and space-based assets located around the globe and founded on
cutting-edge technology. The Missile Defense Agency (MDA)-the component
within DOD responsible for managing the development of the various missile
defense programs-originally focused on developing a test bed in which the
design of the various BMDS assets could be matured and demonstrated.
However, in 2002, the President directed MDA to begin fielding an initial
BMDS capability in the 2004 and 2005 time frame.

MDA is currently developing eight BMDS elements: Ground-Based Midcourse
Defense (GMD); Aegis Ballistic Missile Defense (Aegis BMD); Command,
Control, Battle Management, and Communications (C2BMC); Airborne Laser
(ABL); Kinetic Energy Interceptors (KEI); Space Tracking and Surveillance
System (STSS); Terminal High Altitude Area Defense (THAAD); and BMDS
Sensors.1 MDA has adopted an evolutionary acquisition approach in which
the BMDS will be developed and fielded in 2-year blocks. The first block,
known as Block 2004, ended on December 31, 2005. The block fielded an
initial capability that includes initial versions of GMD; Aegis BMD;
Patriot Advanced Capability-3; and the Command, Control, Battle
Management, and Communications elements. This capability is designed to
provide limited protection of the United States from ballistic missile
attacks out of North Korea and the Middle East and protection of U.S.
forces and critical assets from short- and medium-range ballistic
missiles. Future blocks are expected to enhance this capability. Over
time, MDA expects its block approach to produce an overarching BMDS
capable of protecting the United States, deployed forces, friends, and
allies from ballistic missile attacks of all ranges.

1The BMDS also includes a ninth element, Patriot Advanced Capability-3
(PAC-3), which has been transferred to the Army for production, operation,
and sustainment. This report does not evaluate PAC-3 because its initial
development is complete and it is now being managed by the Army. In
addition, the report does not separately evaluate the BMDS Sensors
program; but with its assessment of GMD, the report includes an assessment
of MDA's progress in developing and fielding the Forward-Based
X-Band-Transportable (FBX-T) radar, the sensor being developed by the
Sensors Program Office.

To facilitate oversight of the ballistic missile defense program, the
Defense Authorization Acts for fiscal years 2002 and 2005 mandated that we
prepare annual assessments of MDA's ongoing progress.2 To date, we have
delivered assessments covering fiscal years 2003 and 2004 to Congress.3
Because our assessment of MDA's fiscal year 2005 progress was ongoing when
Block 2004 ended, we were also able to make observations about the outcome
of the block. Specifically, this report

           1. assesses the progress MDA made during fiscal year 2005 toward
           the fiscal year plans of work established by seven of the BMDS
           elements;
           2. compares the fielded Block 2004 capability with the quantity,
           cost, and performance goals established for that capability;
           3. identifies reasons why the fielded capability fell short of
           goals; and
           4. discusses corrective actions being taken by MDA.

To address our objectives, we looked at the accomplishments of seven BMDS
elements-GMD, Aegis BMD, C2BMC, ABL, KEI, STSS, and THAAD. These elements
collectively account for about 73 percent of MDA's research and
development budget. For each element, we examined documents such as System
Element Reviews, test plans and reports, production plans, and Contract
Performance Reports. We also interviewed officials within each element
program office and within MDA functional offices, such as the Office of
Safety, Quality, and Mission Assurance. In addition, we discussed each
element's test program and the results of tests with DOD's Office of the
Director, Operational Test and Evaluation (DOT&E). We performed our work
from May 2005 to March 2006 in accordance with generally accepted
government auditing standards. Additional details of our scope and
methodology can be found in appendix VI.

2The act for 2002 is the National Defense Authorization Act for Fiscal
Year 2002, Pub. L. No. 107-107, section 232. The act for 2005 is the
Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005,
Pub. L. No. 108-375, section 233.

3GAO, Missile Defense: Actions Are Needed to Enhance Testing and
Accountability, GAO-04-409 (Washington, D.C.: Apr. 23, 2004); GAO, Missile
Defense: Status of Ballistic Missile Defense Program in 2004, GAO-05-243
(Washington, D.C.: Mar. 31, 2005).

Results in Brief

MDA made progress in fiscal year 2005 on seven elements of the BMDS
program, but it did not complete all of the activities scheduled. By
September 30, 2005, MDA planned to develop improved C2BMC software, field
eight Aegis BMD missiles, upgrade seven Aegis destroyers and two Aegis
cruisers for the missile defense mission, emplace 10 GMD interceptors, and
conduct nine flight tests to demonstrate the performance of various
components and elements of the BMDS. At the end of September, MDA had
completed development, but not testing, of improvements to the C2BMC,
delivered all eight Aegis BMD missiles, delivered 4 of 10 GMD
interceptors, upgraded six of seven Aegis destroyers and two Aegis
cruisers, and successfully completed two of nine flight tests. Two
additional tests were completed by the end of calendar year 2005. Some
activities that would have furthered the development of elements planned
for later blocks, such as the THAAD element, slipped into fiscal year
2006, which could potentially delay the elements scheduled integration
into the BMDS. Although MDA did not complete all work scheduled during the
fiscal year, most of MDA's prime contractors reported that the
accomplished work cost more than expected. Collectively, the contractors
overran their fiscal year 2005 budgets by about $458 million, or about 14
percent, with the GMD contractor accounting for most-over $365 million-of
the overrun. The GMD contractor alone overran its fiscal year budget by 25
percent.

By December 31, 2005, when Block 2004 officially ended, MDA had delivered
an initial missile defense capability-composed of the GMD, Aegis BMD,
C2BMC elements-to the field faster than it had originally planned. While
it fielded assets, MDA did not meet its quantity, cost, or performance
goals. Block 2004 delivered fewer components than planned, cost more than
anticipated, and its performance is unverified. Compared to its original
goals set in 2003, MDA fielded 10 fewer GMD interceptors than planned, two
fewer radars, 11 fewer Aegis BMD missiles, and six fewer Aegis ships.
Despite some work being deferred to Block 2006, MDA expected the
cumulative cost of developing and fielding the components to be about $7.7
billion, or about $1 billion more than originally expected. The $7.7
billion cost represents the added cost of sustaining fielded assets as
well as cost reductions from the deferral of some Block 2004
characterization and verification activities into Block 2006. Although it
has successfully tested various functions of the BMDS engagement-such as
launch detection, tracking, interceptor launch, and intercept-MDA cannot
estimate the performance capability of the Block 2004 assets because it
has not successfully completed an end-to-end test of the GMD element using
production representative hardware. Doubts about the rigor of quality
control procedures have also raised additional questions about the
performance of fielded GMD interceptors.

Management compromises made to accelerate fielding prevented MDA from
meeting its Block 2004 goals. In 2002, MDA adopted an acquisition strategy
that includes many of the knowledge-based practices that enable leading
commercial developers to field sophisticated products on time and within
budget. Had MDA followed its original plan, the GMD program would have
moved through a sequence of eight events that included assessing the
maturity of critical technology, designing the element, and demonstrating
the stability of the element's design in an end-to-end test using
production-representative components-all before making a decision to
produce and field the element. At the end of each block, MDA could have
determined whether to continue development in the next block; transfer all
or part of the capability to a military service for operation, production,
and sustainment; or terminate the development effort completely. However,
to place a capability in the field quickly, MDA allowed the GMD program to
accept significant risk by condensing its acquisition cycle. GMD
concurrently matured technology, designed the element, tested the design,
and produced and fielded the system, even though the stability of the
element's design had not been demonstrated in an end-to-end test and
production processes were not mature. Quality control problems occurred
when the program was accelerated. According to MDA's own audits, the
interceptor's design requirements were unclear and sometimes incomplete,
design changes were poorly controlled, and the interceptor's design
resulted in uncertain reliability and service life. MDA does have unique
flexibility to make changes to its strategy-including revising its goals
or making trade-offs among the seven BMDS elements-without necessarily
having to seek prior approval from a higher-level DOD acquisition
executive, as most other major acquisition programs are required to do.
DOD acquisition regulations have been effectively deferred for MDA, and
although the Director confers with the warfighter to define the
performance of the BMDS, MDA works with flexible performance, cost, and
quantity goals that can be changed if they are not achievable with the
time or money available. In addition, there are no criteria to identify
which variances are significant enough to be reported to Congress or when
they should be reported. For example, the Director, by statute, may decide
whether a cost variation is significant enough to be reported to Congress.

MDA is taking several actions to address overall quality control
weaknesses in the BMDS program. Some are simple, such as having the
Director for Safety, Quality, and Mission Assurance report directly to
MDA's Director and establishing toll-free telephone numbers to report
problems. MDA is also taking actions to make contractors aware of the
emphasis being placed on product quality. For example, contract award fees
will be based, in part, on the contractor's implementation of good quality
control procedures and industry best practices. Contracts are also being
modified to implement mission assurance provisions that promote process
improvements, which are expected to reduce costs, improve productivity,
and enhance safety, quality, and mission assurance. MDA is also placing
renewed emphasis on surveillance activities by placing MDA Safety,
Quality, and Mission Assurance personnel in major contractors' facilities;
giving the Office of Safety, Quality, and Mission Assurance unfettered
access to all MDA contractor operations, activities, and documentation;
and strengthening the quality assurance role of the Defense Contract
Management Agency. In addition, MDA also examined the test strategy of the
troubled GMD program and laid out an approach that increases the role of
ground testing, progressively increases the complexity and realism of
flight tests, and ensures that progress through the test process is based
on having requisite knowledge.

While we believe that MDA is taking many of the actions needed to correct
problems within the BMDS program, we believe that others are needed. We
are making recommendations to the Secretary of Defense to ensure that all
of the BMDS elements are put back on a knowledge-based path and to provide
a more transparent basis for reporting changes from the plan. DOD
partially concurred with our recommendations that MDA direct all of its
programs to adapt a knowledge-based acquisition strategy and to assess
whether the agency's plan to improve the BMDS in 2-year blocks is
compatible with such a strategy. DOD stated that MDA's use of knowledge
points remains consistent with DOD acquisition regulations while providing
MDA's Director with the flexibility to determine the regulation's
applicability to the BMDS block development concept. In its comments, DOD
also stated that it believes that MDA's block goals are compatible with a
knowledge-based strategy because knowledge points are used to establish
block goals and make adjustments to the block when necessary. DOD did not
concur with our third recommendation, that MDA adopt more transparent
criteria for identifying and reporting significant changes in quantities,
cost, or performance, because it believes that current reporting
requirements and reviews offer an adequate level of oversight.

Background

A weapon system for ballistic missile defense, even a rudimentary one,
requires the coordinated operation of a diverse collection of components.
For example, the initial capability emplaced in 2004 employs early-warning
satellites for launch detection, ground-based radars in California and
Alaska, and sea-based Aegis radars in the Sea of Japan for surveillance
and tracking of enemy missiles, interceptors at launch sites in Alaska and
California to engage and destroy incoming warheads, and command and
control nodes in Alaska and Colorado to orchestrate the mission.

A typical scenario to engage an intercontinental ballistic missile (ICBM)
would unfold as follows:

           o  Infrared sensors aboard early-warning satellites detect the hot
           plume of a missile launch and alert the command authority of a
           possible attack.

           o  Upon receiving the alert, land- or sea-based radars are
           directed to track the various objects released from the missile
           and, if so designed, to identify the warhead from among spent
           rocket motors, decoys, and debris.

           o  When the trajectory of the missile's warhead has been
           adequately established, an interceptor-consisting of a "kill
           vehicle" mounted atop a booster-is launched to engage the threat.
           The interceptor boosts itself toward a predicted intercept point
           and releases the kill vehicle.

           o  The kill vehicle uses its onboard sensors and divert thrusters
           to detect, identify, and steer itself into the warhead. With a
           combined closing speed on the order of 10 kilometers per second
           (22,000 miles per hour), the warhead is destroyed through a
           "hit-to-kill" collision with the kill vehicle above the
           atmosphere.

           To develop a system capable of carrying out such an engagement,
           MDA is executing an evolutionary acquisition strategy in which the
           development of missile defense capabilities is organized in 2-year
           increments known as blocks. In 2001, when it adopted the block
           strategy, MDA planned to construct a test bed in which new
           sensors, weapon projects, and enhancements to existing
           capabilities could be matured. When assets were considered mature,
           MDA planned to integrate them into the BMDS to increase the
           system's capability to respond to the evolving threat. However,
           with the President's directive to begin fielding an initial BMDS
           capability beginning in 2004, MDA switched its emphasis from
           developing a test bed to developing and fielding an operational
           capability.

           MDA is completing its Block 2004 program of work. The associated
           military capability of this block is primarily one for defending
           the United States against ICBM attacks from North Korea and the
           Middle East, although the block increases the United States'
           ability to engage short- and medium-range ballistic missiles.4
           Block 2004 is built around the GMD element, augmented by shipboard
           Aegis BMD radars and missiles, and integrated by the system-level
           C2BMC element. In addition, MDA attempted to accelerate the
           fielding of the Forward-Based X-Band-Transportable (FBX-T) radar
           into Block 2004. This radar, being developed by the Sensors
           Program Office, was originally intended for operation during Block
           2006.

           MDA is also carrying out an extensive research and development
           effort to expand its current operational capability into future
           blocks. During fiscal year 2005, MDA funded the development of
           four other major BMDS elements in addition to the four elements
           that were to be fielded as part of the Block 2004 BMDS. These
           elements are the ABL, KEI, STSS, and THAAD. MDA expects to field a
           limited THAAD capability during Block 2008. The other elements,
           which are primarily in technology development, will likely be
           fielded in later blocks. Table 1 provides a brief description of
           all elements being developed by MDA. More information about them
           is provided in appendix II.

4The Patriot Advanced Capability-3 system, which is managed by the Army,
also provides a capability against short-range ballistic missiles.

Table 1: BMDS Elements

Element                  Missile defense role                              
Ground-based Midcourse   GMD is a ground-based missile defense system      
Defense                  designed to destroy ICBMs during the midcourse    
                            phase of their flight. Its mission is to protect  
                            the U.S. homeland against ballistic missile       
                            attacks from North Korea and the Middle East. GMD 
                            is part of the initial capability fielded in      
                            2004-2005 with an inventory of 10 interceptors.   
                            MDA plans to field 26 additional interceptors in  
                            Alaska and California through 2010.               
Aegis Ballistic Missile  Aegis BMD is a ship-based missile defense system  
Defense                  designed to destroy short- and medium-range       
                            ballistic missiles during the midcourse phase of  
                            their flight. Its mission is twofold: to protect  
                            deployed U.S. forces, allies, and friends against 
                            ballistic missile attacks and to serve as a       
                            forward-deployed BMDS sensor, especially in       
                            support of the GMD mission. MDA has plans to      
                            deliver about 100 Aegis BMD missiles-the Standard 
                            Missile 3-and to upgrade 18 ships for the BMD     
                            mission by the end of 2011.                       
Command, Control, Battle C2BMC is the integrating and controlling element  
Management, and          of the BMDS. During 2004-2005, C2BMC's role is to 
Communications           provide deliberate planning, situational          
                            awareness, sensor management and control of the   
                            Forward-Based X-Band-Transportable (FBX-T) radar, 
                            and network support for fire control and          
                            situational awareness.                            
BMDS Sensors             MDA is developing various stand-alone radars for  
                            fielding. In particular, MDA is leveraging the    
                            THAAD radar's hardware design and modifying       
                            existing software to develop the FBX-T. MDA       
                            expects to emplace the first FBX-T in Japan to    
                            augment existing BMD surveillance and tracking    
                            capabilities.                                     
Airborne Laser           ABL is an air-based missile defense system        
                            designed to destroy all classes of ballistic      
                            missiles during their boost phase of flight. ABL  
                            employs a high-energy chemical laser to rupture a 
                            missile's motor casing, causing the missile to    
                            lose thrust or flight control. MDA plans to       
                            demonstrate proof of concept in a system          
                            demonstration no earlier than 2008. The fielding  
                            of a militarily useful ABL capability is not      
                            planned through 2011.                             
Kinetic Energy           KEI is a land-based missile defense system        
Interceptors             designed to destroy medium, intermediate, and     
                            intercontinental ballistic missiles during the    
                            boost phase and all parts of the midcourse phase  
                            of their flight. The agency expects to            
                            demonstrate defensive capability through flight   
                            testing during 2012-2015. This capability could   
                            be expanded to sea-basing in subsequent blocks.   
Space Tracking and       The Block 2006 STSS consists of a constellation   
Surveillance System      of two demonstration satellites. MDA intends to   
                            use these satellites for testing missile warning  
                            and tracking capabilities in the 2007-2009 time   
                            frame. If the demonstration satellites perform    
                            successfully, MDA plans an operational capability 
                            of next-generation satellites that will be        
                            available in the next decade.                     
Terminal High Altitude   THAAD is a ground-based missile defense system    
Area Defense             designed to destroy short- and medium-range       
                            ballistic missiles during the late-midcourse and  
                            terminal phases of flight. Its mission is to      
                            defend deployed U.S. forces and population        
                            centers. MDA plans to field a fire unit,          
                            including 24 missiles, in 2009 and a second unit  
                            in 2010.                                          

Sources: MDA (data); GAO (presentation).

Note: The Patriot Advanced Capability-3 system is also part of the BMDS,
but it is not included in the table because management responsibility for
this element has been transferred to the Army.

Since 2002, missile defense has been seen as a national priority and has
been funded nearly at requested levels. However, DOD's Program Budget
Decision of December 2004 called for MDA to plan for a $5 billion
reduction in funding over fiscal years 2006-2011. In addition, MDA will
continue to compete with hundreds of existing and planned technology
development and acquisition programs for research, development, and
evaluation funding. Cost growth of existing weapon programs is also likely
to affect MDA's share of future DOD budgets.

MDA Made Progress during Fiscal Year 2005, but Some Activities Were Not
Completed as Planned

MDA made progress during fiscal year 2005 in carrying out the fiscal year
plans of work established by the seven BMDS elements, but it was not able
to field all planned components or conduct all scheduled tests. Also, some
activities that would have furthered the development of elements planned
for later blocks slipped into fiscal year 2006, possibly delaying the
elements' scheduled integration into the BMDS. In addition, although MDA
did not complete all work scheduled during the fiscal year, most of MDA's
prime contractors reported that the work accomplished cost more than
expected.

During fiscal year 2005, MDA intended to improve the C2BMC, field eight
Standard Missile-3 (SM-3) missiles, make seven Aegis destroyers capable of
performing long-range surveillance and tracking, upgrade two Aegis
cruisers with a missile defense contingency engagement capability, upgrade
two radars (Beale and Fylingdales early warning radars), and deliver and
emplace 10 GMD interceptors. In addition, MDA planned a number of flight
tests-six GMD flight tests, four of which Aegis BMD would participate in
to detect and track ICBM targets, and three Aegis BMD intercept tests.

Good Progress Made in the C2BMC and Aegis Elements

The C2BMC program completed most activities required to provide
situational awareness of the missile defense battle. The C2BMC element,
whose development is in its early stages, is initially expected to monitor
the operational status of each BMDS component and display threat
information, such as missile trajectories and impact points. In 2005, the
program installed C2BMC suites (communications software and hardware) at
U.S. Strategic Command, U. S. Northern Command, and U.S. Pacific Command.
The additions at U.S. Strategic Command and U.S. Northern Command provide
redundant capability and more flexibility to test, exercise, and maintain
the C2BMC. MDA also planned to install a Web browser in the United
Kingdom, to provide situational awareness for the British government.
However, the Web browser will not be operational until 2006 because DOD
did not complete final policy agreements as scheduled.

Development of two C2BMC software upgrades was also completed during the
fiscal year. The first upgrade gave C2BMC the ability to display GMD
assets on the user's computer monitors, improved the user's ability to
call up BMDS information, reduced the time to transfer force-level
planning files, and installed the software and hardware necessary to
provide an operational capability at U.S. Pacific Command. The final
decision to make the U.S. Pacific Command suite operational has not yet
been made, but a decision is expected in March 2006. Completion of the
second upgrade was a little behind schedule, but it was completed by the
first quarter of calendar year 2006. Development of the upgrade, known as
Spiral 4.5, was completed by the end of September 2005, but all testing is
not expected to be completed until the end of March 2006. Spiral 4.5 gives
C2BMC the capability to receive, distribute, and display information
developed by three new sensors-the FBX-T and Sea-Based X-Band (SBX) radars
and the Fylingdales upgraded early warning radar. It also improves the
consistency between the data displayed by the C2BMC and the GMD fire
control monitors, both of which receive information directly from various
sensors.

The Aegis BMD program made good progress in developing and delivering
missiles and upgrading Aegis ships for the missile defense mission. To
increase the United States' capability to defend against short- and
medium-range ballistic missiles, the program produced and delivered eight
Standard Missile-3s-the "bullet" for the Aegis BMD element. These missiles
will be launched from Aegis cruisers, two of which were upgraded in fiscal
year 2005 to enable them to perform their engagement and long-range
surveillance and tracking missions. Six destroyers, whose ballistic
missile defense mission is to provide long-range surveillance and tracking
of ICBMs for the GMD element, were also upgraded in fiscal year 2005. The
program was unable to upgrade a seventh destroyer during the fiscal year
as scheduled-although assets required to proceed with the upgrade were in
place-because the Navy had scheduled the ship for other activities.
However, the destroyer was upgraded before the end of Block 2004.

GMD Program Makes Less Progress

Although the GMD program made progress during fiscal year 2005, it did not
meet all expectations. The GMD program had planned to field 10 additional
interceptors during the fiscal year, but actually fielded 4. Two
additional GMD interceptors were delivered and fielded at Fort Greely,
Alaska, and the first 2 interceptors were emplaced at Vandenberg Air Force
Base, California. The 2 interceptors installed at Vandenberg provide a
redundant launch site and a better intercept trajectory against some ICBM
threats. MDA also upgraded two early warning radars-one at Beale Air Force
Base, California, and another at Fylingdales in the United Kingdom. In
some scenarios, each of these radars will act as the primary fire control
radar for the GMD element.

Interceptor production slowed as the year progressed primarily because
technical problems were discovered, mostly in the interceptor's
exoatmospheric kill vehicle (EKV). MDA officials explained that these
problems were traced back to poor oversight of subcontractors, too few
qualification tests, and other quality assurance issues. By the end of the
fiscal year, the program had reduced its fiscal year plan for fielding
interceptors from 10 to 6 so that additional interceptors could be made
available for ground tests, but the contractor was only able to emplace
the 2 interceptors at Fort Greely and the 2 at Vandenburg Air Force Base.

Two of Nine Flight Tests Successfully Completed

The GMD and Aegis BMD programs also planned to conduct a number of flight
tests during the fiscal year. The GMD program planned three nonintercept
and three intercept flight tests. However, the program was able to
successfully complete only one of the nonintercept flight tests and none
of the intercept tests. The successful nonintercept test demonstrated that
the upgraded Cobra Dane radar could detect and track a target of
opportunity. However, a second nonintercept flight test that would have
examined upgrades to the Beale upgraded early warning radar was delayed,
when GMD's test plan was restructured to make it less concurrent. Also,
the other nonintercept test (integrated flight test [IFT]-13C) that was to
demonstrate operational aspects of the fielded configuration of GMD's
interceptor could not be completed because the interceptor failed to
launch. Of the three planned intercept tests, the program conducted one
(IFT-14). However, this test was also aborted when the interceptor failed
to launch.5 MDA planned two other intercept tests, but the tests did not
take place because MDA restructured GMD's test plan after the interceptor
failures to implement a less risky test strategy. The first test in the
restructured plan-which was a nonintercept test to assess the
interceptor's operation in space-was successfully completed in December
2005.

5The launch failure was traced back to a quality assurance problem, which
is discussed in more detail later in this report and in appendix IV.

The Aegis BMD Program Office planned to participate in four of the GMD
tests during fiscal year 2005. Aegis BMD did not participate in any of
these tests because weather conditions prevented the ship from
participating in one test, the ship was unavailable during another, and
GMD's test plan was restructured, causing two tests to be canceled.

In addition to participating in GMD tests, the Aegis BMD program planned
three intercept tests during fiscal year 2005. However, only one test was
conducted. The program delayed the two other tests because of budgetary
constraints and technical problems. MDA completed one of the delayed tests
in the first quarter of fiscal year 2006 and canceled the second delayed
test because most of its objectives had been accomplished in the completed
test. In the fiscal year 2006 test, an SM-3 missile successfully engaged a
separating target, that is, a target whose warhead separates from its
booster. In defeating this target, the program demonstrated that the Aegis
BMD element has a capability against a more advanced threat than the
nonseparating targets included in earlier tests.

Developmental Elements Progress but Experience Some Setbacks

MDA made progress in developing the four elements that are expected to
enhance the BMDS during future blocks-THAAD, ABL, STSS, and KEI-but some
planned activities fell behind schedule. The THAAD Program Office
completed numerous ground and component qualification tests that led to a
successful first flight test in the first quarter of fiscal year 2006. The
program also worked to solve technical problems that could have affected
the success of the first flight tests. The ABL program completed the first
major milestones of its restructured program-First Flight and First Light,
completed scheduled activities associated with a series of Beam
Control/Fire Control low-power passive flight tests, and began integrating
the full Beam Control/Fire Control with other laser systems aboard the
aircraft.6 The STSS program tested and integrated spacecraft components
for the demonstration satellites that the program expects to launch and
began testing the first satellite's payload. The KEI program completed the
construction of a shelter to house prototype fire control and
communications equipment and conducted several demonstrations during which
the prototype equipment collected data from overhead nonimaging infrared
satellites in a timeline that, according to program officials, proves a
boost phase intercept is possible. In addition, the program completed
studies of communications equipment-which uplinks information from KEI's
fire control and communications component to its interceptor-that allowed
the program to optimize the equipment's design to operate in a nuclear
environment or against jamming threats.

However, all four programs experienced some setbacks. The THAAD program
delayed the start of flight tests until the first quarter of fiscal year
2006. The ABL Program Office did not complete laboratory testing of the
element's high-energy laser in September 2005, as planned, and the STSS
Program Office rescheduled tests of the first satellite's payload until
the second quarter of fiscal year 2006. The fourth element, KEI, also
delayed some activities related to its Near Field Infrared Experiment
(NFIRE), which is being conducted to gather data on the risk in
identifying the body of a missile from the plume of hot exhaust gases that
can obscure the body while the missile is boosting.

The THAAD Program Office expected to begin flight tests in June 2005.
However, the first test was delayed until November 2005 because of
unexpected integration problems. For example, one delay was caused by a
tear in a filter in the missile's divert attitude control system. Program
officials expect to recover the test schedule and conduct 14 flight tests
before turning the first THAAD fire unit over to the Army in 2009 for
operational use and testing. However, the test schedule is aggressive,
requiring as many as 5 tests in some years. To complete all tests as
planned, the officials told us that there can be no test failures.

6First Flight was the first of a series of planned flight tests with the
Beam Control/Fire Control segment that demonstrated the completion of all
necessary design, safety, and verification activities to ensure flight
worthiness. It also began the process of expanding the flight
envelope-types and combinations of flight conditions-in which ABL can
operate. First Light refers to the first ground test and demonstration of
the integration of six individual laser modules that produced a single
beam of laser energy. Passive flight tests are conducted without the use
of the Beacon Illuminator Laser (BILL) or the Tracking Illuminator Laser
(TILL). The BILL and TILL are part of the laser beam control system used
to mitigate the effects of the atmosphere on beam quality and to focus the
laser beam on the target. In contrast, active flight tests include the use
of the illuminator lasers.

The Airborne Laser Program Office planned to complete tests of the
element's high-energy laser by September 30, 2005. The laser is a
component of the ABL prototype that will be used to demonstrate the
element's lethality as early as the 2008 time frame. Prior to installing
the laser on the prototype aircraft, the program tested the laser in its
System Integration Laboratory at Edwards Air Force Base. Program officials
expected the tests, which began in November 2004, to be completed by the
end of fiscal year 2005. During this time frame, officials wanted to
demonstrate that the laser could generate 100 percent of its design power
and that it could repeatedly operate at that power for periods of about 10
seconds. As of October 2005, the laser had produced 83 percent of the
power it is designed to generate and was able to operate for periods of
about 5  1/4 seconds. After solving technical problems with the laser's
abort system and completing the planned installation of an ammonia cooling
system, the program was able, in December 2005, to extend the laser's
operating time to more than 10 seconds. Although the laser has not reached
100 percent of its design power, officials told us that the 83 percent
obtained thus far is sufficient to achieve 95 percent of maximum lethal
range against all classes of ballistic missiles. The ABL Program Manager
originally told us that he expected the laser to remain in the system
integration laboratory until it produced 100 percent of its design power.
Nonetheless, on December 9, 2005, MDA's Director gave the ABL program
permission to disassemble the System Integration Laboratory and install
the laser on the aircraft. Program officials told us that they would
continue to test the laser, when the aircraft is on the ground, in an
attempt to demonstrate that the laser can produce 100 percent of its
design power.

During fiscal year 2005, the STSS program intended to integrate and test
the spacecraft for two demonstration satellites and integrate and test the
sensor payload, which includes surveillance and tracking sensors, for the
first of the two satellites. The program is constructing the demonstration
satellites from hardware developed by the Space-Based Infrared System-Low
program before it was canceled in 1999 and plans to launch the satellites
in fiscal year 2007, after all hardware has been integrated and tested.
The program did not complete the payload integration and test activities
in fiscal year 2005, as planned, because thermal vacuum testing is taking
longer than expected.7 Hardware issues have emerged as the payload is
being tested in a vacuum and at cold temperatures for the first time. For
example, in a vacuum, the sensors' optics did not cool to the desired
temperature and the power supply to the acquisition sensor's signal
processor failed. The program office believes that repairs will correct
the problems, but program officials are in the process of deciding whether
further tests must be completed after the repairs are made and before the
sensor payload is placed aboard the satellite.

As part of its fiscal year 2005 activities, the KEI program intended to
complete a number of tasks that would have enabled it to conduct the NFIRE
experiment. The experiment places sensors aboard a satellite that will be
launched into space, where the sensors will observe and collect infrared
imagery of boosting intercontinental ballistic missiles. In fiscal year
2005, the KEI program expected to calibrate and deliver the sensor
payload, complete the space vehicle integration and acceptance test,
procure targets, and certify mission operation readiness. However,
anomalies in the sensor payload delayed the delivery of the payload, in
turn delaying the remaining activities. The day-to-day management of all
NFIRE activities has since been transferred to the STSS program, which has
extensive experience with the development of satellites. STSS officials
told us that they do not expect the fiscal year 2005 delays to affect the
experiment's launch date.

Completed Work Cost More than Expected

Although MDA was unable to complete all activities during fiscal year 2005
as planned, the completed work cost more than expected. Collectively,
prime contractors for the various elements overran their budgets by about
$458 million, or about 14 percent, with GMD accounting for approximately
80 percent of the collective overrun. Although the GMD contractor
experienced the largest overrun, exceeding its fiscal year 2005 budget by
approximately 25 percent, it is notable that the ABL contractor overran
its fiscal year budget. The ABL contract had been restructured in 2004 to
provide a more realistic cost estimate for the work planned. It is also
noteworthy that continuing cost growth in the development of the THAAD
missile caused the contractor to overrun its fiscal year budget for the
first time since the contract was awarded.

7A thermal vacuum test verifies that the temperature control design will
maintain the spacecraft and all its elements within allowable flight
temperature ranges while operating over the environmental extremes
expected for the mission.

Table 2 contains our analysis of the contractor's cost and schedule
performance in fiscal year 2005 and the potential overrun or underrun of
each contract at completion. All estimates of the contracts' costs at
completion are based on the contractors' performance through fiscal year
2005. Collectively, the six contracts, for which data were available to
estimate a cost at completion, could overrun their budgets by about $1.3
billion to $2.1 billion. It should be noted that the cost variance at
completion projected for most of the contracts is based on more than one
block of work. For example, the STSS contract covers the contractor's work
on Block 2006 and Block 2010. Appendix III provides further details
regarding the performance of the prime contractors for the seven elements
shown in the table.

Table 2: Prime Contractor Fiscal Year 2005 and Cumulative Cost and
Schedule Performance

                                                     Percentage                  
                FY 05    FY 05 Cumulative Cumulative         of        Estimated 
  BMDS           cost schedule       cost   schedule   contract         contract 
  Element    variance variance   variance   variance  completed underrun/overrun
  ABL                                                             Overrun: $43.8 
              ($29.6)  ($22.0)    ($23.1)    ($23.6)        69%        to $231.7 
  GMD                                                            Overrun: $1,042 
             ($365.1)  ($38.9)   ($713.1)   ($227.9)        75%        to $1,360 
  Aegis BMD                                                                      
  (Weapon                                                         Underrun: $7.1 
  System)        $2.6     $2.0       $6.1          0        67%         to $12.5
  Aegis                                                          Underrun: $11.5 
  BMD(SM-3)a    $10.9   ($9.6)      $10.9     ($9.6)        74%         to $17.8 
  THAAD                                                           Overrun: $16.9 
              ($19.0)   ($4.6)    ($15.0)      $10.1        72%         to $48.2 
  C2BMC                                                           Underrun: $1.8 
                 $1.0     $6.4       $1.7     ($0.9)        87%          to $2.4 
  KEI            $3.0   ($3.9)       $3.0     ($5.9)         4%                b 
  STSS                                                           Overrun: $248.3 
              ($61.5)     $6.8    ($96.9)    ($20.3)        65%       to $479.4c 

Source: Contractors (data); GAO (analysis).

Note: Negative variances are shown with parentheses around the dollar
amounts.

aContract performance reporting data for the Aegis BMD SM-3 element were
not available prior to fiscal year 2005. Therefore, cumulative and fiscal
year 2005 values are the same.

bWe could not estimate the likely outcome of the KEI contract at
completion because a trend cannot be predicted with only 4 percent of the
contract complete.

cThe overrun projected for STSS is based on the contractor's performance
through fiscal year 2005 in carrying out both Block 2006 and Block 2010
work. The STSS Program Office noted that considering the contractor's
performance on Block 2006 alone, a contract overrun of $80 million to $120
million is anticipated. In addition, program officials told us that the
prime contractor's Block 2006 performance has been affected by the poor
performance of a subcontractor whose work effort will be completed in
fiscal year 2006. All remaining work will be performed by the prime
contractor, whose performance has been significantly better.

About $240 million of the GMD overrun can be traced to the interceptor,
with the EKV accounting for more than 42 percent, or $102 million, of that
amount. The EKV's cost growth was caused by poor quality control
procedures and technical problems during development, testing, and
production. The interceptor's cost also grew when the contractor had to
bring a new supplier online to produce the motors for the BV+ booster, one
of the two boosters being developed to carry the EKV into space. A new
supplier was needed because explosions at the old supplier's plant
prevented it from delivering the motors.

As of September 30, 2005, the SBX radar, which is also being developed by
the GMD program, had also overrun its fiscal year budget by about $55
million. The cost of developing this component increased when numerous
unplanned changes were made to the platform that holds the radar,
subcontractor costs could not be negotiated at the expected price, and
additional efforts were required to ensure a functional radome.8

The ABL prime contractor also experienced cost growth during fiscal year
2005, even though the ABL contract had been restructured in 2004. This
action provided a more realistic budget and schedule for remaining
contract activities leading up to a 2008 ABL lethality demonstration. With
the restructure, the contractor was no longer required to report past cost
and schedule growth. However, in fiscal year 2005, the contractor once
again reported that ABL's cost was growing and that some work had been
delayed. Cost grew and schedules slipped as the contractor made software
changes to address problems identified during tests of the Beam
Control/Fire Control, modified the laser's abort system so that it would
not shut down the operation of the laser prematurely, and reprioritized
activities throughout the program. Other costs were attributable to
problems with ABL's Active Ranger System and Beacon Illuminator Laser.9
For example, the contractor's cost grew when it redesigned and replaced
contaminated, damaged, and inefficient optics in the commercial
off-the-shelf Active Ranger System. In addition, the contractor incurred
additional cost because numerous faults in the power supply for the Beacon
Illuminator Laser forced changes in circuit cards and circuit boards.

8The radome is a domelike shell transparent to radio-frequency radiation
that is used to house a radar antenna.

9ABL's Active Ranger System is designed to estimate an enemy missile's
launch and impact point. The Beacon Illuminator Laser measures atmospheric
disturbance so that the high-energy beam can be shaped, preventing the
atmosphere from scattering and weakening the beam's energy.

For the first time since the THAAD contract was awarded, in 2000, the cost
of the work being performed in a given fiscal year was greater than the
funds budgeted for that work. The THAAD Program Office attributed the
contractor's overrun to unanticipated missile integration problems. For
example, the Flight Termination Assembly, which is responsible for
terminating a THAAD missile in flight, failed qualification tests that in
turn delayed qualification of the next larger assembly. In another
instance, work was delayed while engineers determined why telemetry
equipment, which is placed aboard a test missile to report the missile's
condition in flight, sent corrupted data to the test station. Program
officials told us that the program solved all known problems that could
have prevented a successful first flight test. However, the officials said
that the missile still has telemetry problems that prevent the test
station from collecting all of the data that will be generated in the
third flight test. Program officials expect to find solutions for these
problems prior to the third test.

Block 2004 Delivers Assets Faster, but with Unverified Performance

MDA succeeded in fielding an initial missile defense capability by the end
of fiscal year 2004 and in improving that capability by December 31, 2005,
when Block 2004 ended. However, the block included fewer components than
planned, cost more than anticipated, and its performance is unverified. In
February 2003, MDA forwarded to Congress the goals that it had established
for the initial BMDS capability that it planned to develop and field
during Block 2004. The goals included the quantity of components that
would compose the block, the cost of developing and producing those
components, and the performance that the initial BMDS capability was to
deliver. However, over the course of the block, MDA progressively reduced
the number of components that it expected to field and increased its cost
goal, primarily to recognize the cost of sustaining fielded assets. Even
with changes, MDA was unable to meet its quantity goals, and MDA is
reporting that the cost of Block 2004 will be greater than expected
because of additional sustainment costs. However, the Block 2004 cost
being reported by MDA does not include the cost of some activities that
must still be completed. MDA did not change its performance expectations
for the block.

Significantly Fewer Block 2004 Assets Fielded than Planned

Between 2003 and mid-2005, MDA progressively decreased the number of
components it planned to field as part of the Block 2004 capability.
However, even with the reductions, MDA was unable to deliver all
components planned. Table 3 illustrates the evolution of MDA's quantity
goals and compares those goals with the number of assets fielded.

Table 3: Evolution of Block 2004 Quantity Goals versus Fielded Assets

                                                                                          Assets        
                                                                                          available for 
                                                                                          operational   
             Goal as of     Goal as of                                                    use as of     
BMDS Element Feb. 2003      Feb. 2004     Goal as of Feb. 2005    Goal as of mid-2005     Dec. 31, 2005 
GMD             o  Up to 20    o  20         o  18                   o  14                   o  10      
Interceptors                                                                              
Radars          o  Cobra       o  Cobra      o  Cobra Dane           o  Cobra Dane           o  Cobra   
                Dane           Dane          o  2 UEWR               o  2 UEWR               Dane       
                o  2           o  2 UEWR     o  Sea-Based X-Band     o  Sea-Based X-Band     o  1 UEWR  
                Upgraded                     Radar                   Radar                
                early                        o  Forward- Based       o  Forward-Based     
                warning                      X-Band-Transportable    X-Band-Transportable 
                radar                        Radarb                  Radarb               
                (UEWR)a                                                                   
                o                                                                         
                Sea-Based                                                                 
                X-Band                                                                    
                Radar                                                                     
Aegis BMD       o  Up to 20    o  9          o  8                    o  8                    o  9c      
SM-3                                                                                      
Missiles                                                                                  
Aegis BMD       o  15          o  10         o  10 destroyers        o  10 destroyers        o  10      
ships           destroyersd    destroyers    o  2 cruisers           o  2 cruisers           destroyers 
                o  3           o  3                                                          o  2       
                cruisers       cruisers                                                      cruisers   

Sources: MDA (data); GAO (analysis).

aUpgraded early warning radars are located at Beale Air Force Base,
California, and Fylingdales Air Base, United Kingdom.

bThe FBX-T was originally planned as a Block 2006 asset, but MDA
accelerated it to make it available in 2005.

cThe Aegis BMD program planned to field eight SM-3 missiles even though
more than eight missiles were to be produced. The program was able to
field nine SM-3 missiles because one that was planned for testing was
diverted to operational use when it was no longer needed for test
purposes.

dThe Aegis BMD Program Office told us that the goal of upgrading 15
destroyers was based on a capability-defined block, that is, a block that
ended when the final ship was upgraded.

By mid-2005, MDA had reduced its February 2003 goal for operational GMD
interceptors from 20 to 14. The first reduction occurred when MDA
recognized that an explosion at a subcontractor's facility would reduce
the number of boosters available for interceptors slated for fielding.10
Although MDA was developing an alternate source for boosters, the second
developer could not produce all of the boosters needed to field 20
interceptors. Therefore, MDA decided two interceptors would be diverted
for testing. One was used in ground testing, and the second, which will
not be built until calendar year 2006, will be used in a flight test. In
mid-2005, after two unsuccessful flight tests, the GMD Program Office
reduced its goal for operational interceptors further-from 18 to 14-to set
aside more interceptors for ground tests. The test missiles will be
assembled in a later block.

10The interceptor is composed of a booster that carries an EKV into space.
MDA was developing two sources for boosters. One booster, known as the
BV+, was being produced by Lockheed Martin, and the other by the Orbital
Sciences Corporation (OSC). An explosion at the facility of a Lockheed
Martin subcontractor responsible for producing motors for the BV+ booster
stopped the booster's production until an alternate source for the motors
could be found. The first BV+ booster is expected to be produced in
calendar year 2006.

Even with the reductions, MDA failed to meet its quantity goals. By the
end of Block 2004, MDA had delivered 10 GMD interceptors. Production
slowed as the program addressed technical issues and quality control
problems discovered during testing and in quality control audits. Further,
GMD program officials also told us that the SBX radar will not be
operational until 2006 because funds that were to be used to integrate the
radar into the BMDS were used to cover some of the cost of the
restructured test program.

MDA was also unable to place the FBX-T radar and the Fylingdales upgraded
early warning radar in operation before the end of the block. While MDA
did not formally add the FBX-T to its Block 2004 Statement of Goals,
agency officials told congressional committees that they were developing
this radar and expected to have it fully operational by the end of the
block. MDA was able to accelerate this capability by 1 full year and to
ready the radar for deployment within Block 2004. However, negotiations
with Japan, the host nation for the radar, were not completed by December
2005, and site preparation, which will commence once negotiations are
complete, is expected to take 8 to 9 months. Full functionality of the
Fylingdales upgraded early warning radar was also delayed. MDA used the
funds that were needed to make the radar fully functional to cover part of
the cost of the restructured GMD test program.

Over time, MDA also altered the number of SM-3 missiles that it planned to
procure. MDA's goal of producing up to 20 missiles was never reached
because of fiscal constraints and missile parts availability. MDA set
aside funding for 11 SM-3 missiles, 9 of which were to be made available
for operational use. Program officials told us that had MDA funded more
than 11 missiles it would have been necessary to restart some component
production lines, which had been closed. Reopening these lines would have
caused the additional components to be expensive. Also, the production
lines could not have produced the components in a time frame that would
have allowed the Aegis BMD program to meet the President's directed
fielding date. In December 2004, MDA further reduced its operational goal
for SM-3 missiles from 9 to 8 in response to a DOD reduction in MDA's
fiscal year 2005 budget request. However, by the end of 2005, MDA was able
to make 9 missiles available for operational use because 1 missile that
the Aegis BMD program expected to use for testing was not needed for that
purpose.

MDA's February 2003 Statement of Goals also included the planned upgrade
of 15 destroyers and three cruisers for the missile defense mission.
However, the Aegis BMD Program Office told us that the established goals
were based on a capability-defined block, that is, a block that ended when
the final ship was upgraded. In February 2004, MDA corrected Aegis BMD
goals to take into account the agency's definition of a block as a 2-year
time period. In making this correction, MDA reduced the number of
destroyers to be delivered during Block 2004 from 15 to 10. By February
2005, budgetary constraints also caused MDA to reduce its planned Block
2004 upgrade of cruisers from three to two.

Block 2004 Cost Is Understated

MDA is reporting that the cost of Block 2004 will exceed the cost goals
established in 2003 and 2004, but the reported cost does not include the
cost of Block 2004 activities that have been deferred until Block 2006. In
February 2003, when it sent its Statement of Goals for Block 2004 to
Congress, MDA estimated that in addition to the funds received in 2002,
the agency would need $5.5 billion more, or a total of about $6.7 billion,
to field this capability. Table 4 shows how MDA estimated those funds
would be used. A year later, in 2004, the goal had increased to
approximately $7 billion. However, the expected cost of the capability is
now about $7.7 billion, or around $600 million more than the revised goal
and $1 billion, or about 15 percent, more than the original Block 2004
goal. MDA primarily attributes Block 2004's increased cost to the
sustainment of fielded assets, which officials told us they could not
fully estimate until they prepared their fiscal year 2006 budget request.
However, the $7.7 billion cost does not include some work planned for
Block 2004, which the contractor could not complete before December 31,
2005. According to GMD officials, this work has been deferred until Block
2006 and its cost will be recognized as part of that block's cost.

Table 4: Composition of the Block 2004 Fielded Configuration Cost Goal,
February 2003

Dollars in millions        
Program element            FY 2002 FY 2003 FY 2004 FY 2005 FY 2006   Total 
C2BMC                          $21     $80    $114     $79       0    $294 
Hercules Block 2004 Joint        0       0     $18     $27       0     $45 
Warfighter Support                                                 
Test and Evaluation Block      $47     $57     $37     $33       0    $174 
2004                                                               
Targets and                    $75    $104    $197    $170       0    $546 
Countermeasures                                                    
GMD Test Bed Block 2004       $636    $452  $1,205    $868       0  $3,161 
Aegis BMD Test Bed Block      $413    $440    $648    $894     $98  $2,493 
2004                                                               
Total                       $1,192  $1,133  $2,219  $2,071     $98 $6,713a 

Source: MDA budget submission, February 2003.

aThe total cost goal for Block 2004 includes MDA's actual costs for fiscal
year 2002 and its cost goals for 2003 through the first quarter of fiscal
year 2006, which corresponds to the end of Block 2004.

The Aegis BMD element was the only element of the BMDS program that
estimated it would need funds during the first quarter of 2006 to complete
Block 2004 fielding. GMD and C2BMC predicted that all work related to
fielding the Block 2004 capability would be completed by September 30,
2005, when MDA expected to place a limited defensive operational
capability on alert.

In February 2004, MDA revised its estimated cost for fielding a Block 2004
capability to a little over $7 billion, or about $332 million more than
originally projected. Table 5 presents the changes in the composition of
the goal.

Table 5: Composition of the Block 2004 Fielded Configuration Cost Goal,
February 2004

Program element             FY 2002 FY 2003 FY 2004 FY 2005 FY 2006  Total 
C2BMC                           $21     $71    $117    $154       0   $363 
Hercules Block 2004 Joint         0       0     $18       0       0    $18 
Warfighter Support                                                  
Test and Evaluation Block       $47     $46     $37     $39       0   $169 
2004                                                                
Targets and Countermeasures     $75     $95    $224    $233       0   $627 
GMD Test Bed Block 2004        $636    $397   $1343    $861       0 $3,237 
Aegis BMD Test Bed Block       $413    $433    $641    $966    $178 $2,631 
2004                                                                
Total                        $1,192  $1,042  $2,380  $2,253    $178 $7,045 

Source: MDA Budget estimate submission, February 2004.

The cost of fielding the Block 2004 capability will be about $939 million
more than the originally estimated cost of $6.7 billion and approximately
$607 million more than the revised cost goal of $7 billion. Officials
primarily attribute the increased cost to MDA's sustainment of fielded
assets. However, the Block 2004 cost that MDA is reporting does not
include work that the contractor was unable to complete within the block's
time frame. Program officials told us that in fiscal year 2006 the
contractor will conduct additional Block 2004 development and deployment
efforts. This will be followed in fiscal year 2007 with work needed to
characterize and verify the Block 2004 fielded elements. The officials
said that Block 2006 funds will be used to pay for these activities.

Table 6 shows the actual cost incurred between October 1, 2002, and
December 31, 2005, for the Block 2004 fielded capability and the
sustainment cost expected to be incurred in fiscal years 2006 and 2007. It
should be noted that this is not the full cost of the initial capability
because DOD began to spend funds to develop the current missile defense
capability in 1995, and as noted above, additional Block 2004 work will be
completed and funded during Block 2006. 11

11Although DOD began developing a missile defense capability as early as
1958, it was not until 1995 that it began development of the predecessors
of the current BMDS elements. DOD launched development of the Theater
Missile Defense system, the predecessor of Aegis BMD, in 1995; National
Missile Defense System, GMD's predecessor, in 1996; and C2BMC in 2002.
However, it should be noted that initial versions of C2BMC build on
existing Air Force and GMD fire control software.

Table 6: Expected Cost of Block 2004 Fielded Capability, Including Initial
Sustainment

Dollars in millions                                                 
                                          FY                   FY   FY        
Program element             FY 2002  2003 FY 2004 FY 2005 2006 2007  Total
C2BMC                          $ 21  $ 80    $ 92   $ 154 $ 23 $ 16  $ 386 
Hercules Block 2004 Joint                                                  
Warfighter Support                0     0     $ 5       0    0    0    $ 5
Test and Evaluation Block                                                  
2004                           $ 47  $ 57    $ 41   $ 143    0    0  $ 288
Targets and Countermeasures    $ 75 $ 104   $ 183   $ 176    0    0  $ 538 
GMD                           $ 636 $ 369  $1,357   $ 955 $279 $375 $3,971 
Aegis BMD                     $ 413 $ 386   $ 606   $ 943 $101  $15 $2,464 
Total                        $1,192 $ 996  $2,284  $2,371 $404 $406 $7,652 

Source: MDA.

Note: According to MDA officials, all cost incurred in fiscal years 2006
and 2007 are for the sustainment of fielded assets.

BMDS Performance Is Unverified

Because test data are not available to anchor simulations that MDA uses to
predict BMDS performance, the capability of Block 2004 cannot be verified.
MDA has conducted a variety of tests that suggest Block 2004 offers some
protection against ballistic missile attacks. However, MDA cannot be sure
how well the BMDS will perform against ICBMs because tests needed to
characterize the system's performance have not yet been conducted. Test
officials have also suggested that to fully characterize the BMDS's
ability to defeat short- and medium-range ballistic missile threats, more
tests of Aegis BMD are needed. Additionally, the performance of emplaced
GMD interceptors is uncertain because inadequate mission assurance/quality
control procedures may have allowed less reliable or inappropriate parts
to be incorporated into the manufacturing process.

In February 2003, MDA set performance goals12 for Block 2004 that included
a numerical goal for the probability of a successful BMDS engagement, a
defined area from which the BMDS would prevent an enemy from launching a
ballistic missile, and a defined area that the BMDS would protect from
ballistic missile attacks.13 MDA did not alter Block 2004 performance
goals, despite its actions on quantity and cost goals.

12Unlike traditional DOD programs, MDA is not developing the BMDS to meet
firm requirements established by the warfighter. Instead, MDA is using a
capabilities-based approach that establishes goals or objectives that
address a threat identified by the range of parameters within which a
threat ballistic missile is likely to operate and that consider the
capability that the U.S. defense industry can realistically build to
address this threat.

A combination of tests and simulations is necessary to demonstrate whether
the Block 2004 capability can meet its performance goals. Because it does
not always conduct a sufficient number of tests to compute statistical
probabilities of performance, MDA uses models and simulations to measure
the probability that the BMDS will perform as designed. By employing
digital simulations, estimates of system effectiveness are obtained over a
wide range of conditions, scenarios, and system architectures. However, to
ensure that models underlying these simulations are reflective of
real-world operation, the models must be anchored by data collected during
both ground and flight tests.

MDA has completed simulations, ground tests, and flight tests that
demonstrate various functions of the BMDS engagement, such as launch
detection, tracking, interceptor launch, and intercept. However, it has
not successfully completed an end-to-end flight test of the GMD
element-the centerpiece of the BMDS-using production-representative
components. In the absence of these data, MDA's assessment of GMD's Block
2004 performance is based on data derived from a number of sources,
including design specifications, output from high-fidelity simulations,
and integrated ground tests of various components. Officials in DOD's
Office of Operational Test and Evaluation told us that MDA's
computer-based assessments are appropriate for a developmental program but
could present difficulties in interpreting results for operational
considerations.

During fiscal year 2005, MDA planned four integrated flight tests to
demonstrate the ability of the Block 2004 BMDS against ICBMs. Together
these tests were to assess the ability of different radars to detect and
track targets for the GMD element, the ability of GMD's fire control
system to formulate a firing solution from each radar's data, and the
interceptor's ability to hit and kill the target. Two of these tests were
initiated. However, both tests were aborted because, in each, the GMD
interceptor failed to launch. MDA postponed and has not rescheduled the
third and fourth tests because, after the test failures, MDA decided to
restructure its test program to make it less concurrent.

13The specifics of the performance goals are classified.

MDA's cancelation of the third flight test was particularly problematic
because it prevented MDA from exercising Aegis BMD's long-range
surveillance and tracking capability in a manner consistent with an actual
defensive mission. The Aegis BMD Program Office told us that Aegis BMD can
adequately perform detection and tracking for the GMD element because in
one test Aegis BMD demonstrated the ability to track a real target and in
another test the ability to communicate track data to GMD's fire control.
However, DOT&E officials told us that having Aegis BMD perform long-range
surveillance and tracking in real time would determine the degree to which
errors are introduced when these activities are combined.

MDA also planned to have the third test fulfill a congressional mandate to
test the Block 2004 configuration in an operationally realistic manner.
For the first time, a test would have included production-representative
GMD hardware and software operated by sailors and soldiers. All successful
GMD intercepts, to date, have used surrogate and prototype components.

Test Officials Suggest Further Aegis BMD Characterization Tests Are Needed

DOT&E officials suggested that further tests are needed to fully
characterize Aegis BMD's capability against ballistic missiles. The
officials told us that Aegis BMD is making good progress in incorporating
operational realism into its flight tests. Operational crews execute the
intercept flight missions without advance notice of launch time. However,
in early tests, ship position with respect to the target's trajectory is
still controlled to increase the probability of intercept. In addition,
the tests have been constrained by sea states, time of day, weather,
target dynamics, and the need to baseline Aegis BMD's performance and
concept of operations. The officials are recommending that in future tests
Aegis BMD's tactical mission planner should dictate the ship's position
and the sectors that its radar searches, rather than the program scripting
the ship's locations and its radar's search sectors.

Aegis program officials explained that the need to baseline Aegis BMD's
performance has indeed affected the ship's position during tests. An
intercept attempt in February 2005, for example, that tested a specific
burn sequence for the missile's booster required the ship be placed close
to the target track. Yet another test, in November 2005, placed the ship
relatively far from the target track. The officials emphasized that in
both tests Aegis BMD performed successfully.

Quality Control Issues Raise Additional Performance Questions

Even if MDA had successfully completed flight tests needed to anchor the
models and simulations used to predict the performance of the initial BMDS
capability, the performance of some emplaced GMD interceptors would still
be uncertain. GMD officials told us that before emplacing interceptors at
Fort Greely and at Vandenberg Air Force Base for operational use, the
interceptors undergo various tests. However, quality control procedures
may not have been rigorous enough to ensure that unreliable parts or parts
that were inappropriate for space applications would be removed from the
manufacturing process. Two unsuccessful flight tests have been traced to
poor quality control procedures. GMD officials have recommended that MDA
remove the first nine interceptors emplaced at Fort Greely and Vandenberg
Air Force Base, as the interceptors are scheduled for upgrades, so that
any parts that tests have shown may not be adequately reliable or
appropriate for use in space can be replaced.

One of the two test failures (IFT-10) occurred in December 2002 when the
EKV could not separate from its booster. A team of engineers that
investigated the test failure found that an open circuit occurred in one
part of the interceptor's Laser Firing Unit, which disconnects the EKV
from the booster. The open circuit was caused by a broken pin in an
application-specific integrated circuit (ASIC) that controlled one aspect
of the EKV/booster separation. The pin was fatigued during flight
vibration. According to the test report, the ASIC's design did not allow
for variations in the assembly process and the contractor did not lay out
an adequate process to uniformly produce the part. Additionally, the
contractor did not adequately test to identify the problem. In earlier
tests, the board on which the ASIC was mounted was stabilized with a foam
material so that the board was not as affected by the severe vibrations
that occur at launch. However, to improve producibility and reliability,
the foam was removed prior to IFT-8.

The second flight test (IFT-14) failure occurred in fiscal year 2005. The
interceptor in this test failed to launch because two of the three arms
that support the interceptor within its silo did not fully retract and
lock. MDA's investigation into the test failure found that the arms could
not retract because the surface of one part was significantly corroded,
and crush blocks, which absorb the impact of the arms as they retract and
lock into position, were an earlier design that required more force to
crush. MDA's Deputy Director for Technology and Engineering pointed out
that the corroded part was subjected to a more severe environment than it
was designed to withstand. However, officials in the Office of Safety,
Quality, and Mission Assurance told us that if simple quality assurance
procedures had been in place, the corroded part would have been detected
and the earlier design of the crush blocks would not have been installed.

The GMD program considered four options for dealing with the first nine
interceptors emplaced for operational use (seven at Fort Greely and two at
Vandenberg Air Force Base). The options included (1) leaving the
interceptors in their silos and accepting them as is; (2) using the
interceptors in reliability tests; (3) over time, returning the
interceptors to the contractor's facility for disassembly and
remanufacture; or (4) a combination of the other options. GMD program
officials recently told us that their recommendation to MDA is to replace
questionable parts when the interceptors are upgraded in fiscal year 2007.
The officials said to replace the parts, the interceptors will be removed
from their silos.

Schedule Pressures Caused Management to Stray from Knowledge-Based
Practices

The problems encountered during Block 2004, which ultimately prevented MDA
from achieving all of its goals for the block, were brought about by
management compromises. Time pressures caused MDA to stray from a
knowledge-based acquisition strategy, allowing the GMD program to condense
its acquisition cycle at the expense of cost, quantity, and performance
goals. DOD has given MDA the flexibility to make such changes.

GMD Program Sacrificed Knowledge-Based Approach to Accelerate Schedule

MDA programs follow a structured acquisition plan called the Integrated
Management Plan that is meant to guide the development of elements and
components, as well as their integration into the BMDS. If the plan, which
includes eight events, is completed in an orderly manner, it will increase
the likelihood that programs will attain knowledge at appropriate points
in the acquisition cycle. Successful developers have found that attaining
certain knowledge at specific points decreases the likelihood of cost
growth, schedule slips, or degraded performance. However, because MDA's
plan allows early deployment of a capability well before the eight events
are completed, programs may gain knowledge too late in the process to
prevent such problems. MDA officials told us that because the agency was
directed to field a capability earlier than planned, it accepted
additional risks. The risks were greatest in the GMD program that
concurrently matured technology, designed the system, and produced and
fielded operational assets as it attempted to meet its Block 2004 fielding
dates.

A primary tenet of a knowledge-based approach to product development is to
demonstrate the maturity of critical technologies before starting product
development and to demonstrate design maturity and production process
maturity before committing to production and fielding. MDA's Integrated
Management Plan provided for this orderly progression through the
acquisition cycle. At Event 1, an assessment of all technology critical to
the system's design was to be completed. By the end of Event 2, design
work was to be finished, and at the end of Event 4, the design was to be
demonstrated in developmental tests. By the close of Event 5, an
assessment of the element's operational capability would be complete and
MDA would decide whether the element was ready to be handed over to a
military service for production, operation, and sustainment or whether the
element should be developed further.

However, the Integrated Management Plan also allows a program to depart
from a knowledge-based acquisition strategy if a decision is made to field
all or part of a capability early. At the end of each event from Event 3
on, MDA may elect to accelerate fielding of all or part of a capability by
simultaneously completing all phases of the acquisition cycle. That is, a
program can concurrently mature technology, design its system, and produce
and field assets for operational use-which is contrary to a
knowledge-based acquisition strategy. According to MDA officials, GMD was
at Event 3-the point at which a pilot production line produced its first
components and the components' functionality had been tested- when the
presidential decision was made to deploy an early capability. MDA's
Integrated Management Plan is presented in appendix IV.

Until the President's directive, the GMD program was focused on developing
a test bed. If GMD had serially progressed through all eight events of the
Integrated Management Plan, components would have been matured and
demonstrated in the test bed. At the end of Block 2004, MDA could have (1)
transferred GMD to a military service for production, operation, and
sustainment; (2) developed GMD further in a subsequent block; or (3)
terminated the program altogether. However, to field early, the GMD
program condensed its Block 2004 acquisition cycle. The program attempted
to simultaneously demonstrate technology, design an integrated GMD
element, and produce and emplace assets for operational use-all within 2
years of the President's directive.

The GMD program fielded an initial capability in 2004 and 2005, as it was
directed to do. However, there were consequences of the accelerated
schedule. The fielding schedule for some GMD components slipped, and the
program could not complete an end-to-end test needed to verify GMD's
performance. Production and fielding of GMD interceptors was slowed by
technical problems and the program's need to address quality control
issues. To address these issues, the program restructured its test plan at
a cost of about $115 million; but it funded the plan at the expense of
making the Sea-Based X-Band and Fylingdales upgraded early warning radars
operational. Block 2006 funds will now be used to complete these Block
2004 activities.

Other BMDS elements, whose fielding was not planned as part of Block 2004,
are currently following a knowledge-based acquisition strategy. For
example, the ABL program is concentrating on maturing technologies
critical to the element's design by designing a prototype. If the
prototype successfully demonstrates its lethality in a demonstration
planned no earlier than 2008, it will become the basis for the design of
an operational capability. Similar to ABL, the KEI program is also
concentrating on demonstrating technologies critical to its design. If
these demonstrations are successful, they could be incorporated into KEI's
design.

GMD Management Became Inattentive to Quality Control Risks

GMD officials told us that in the process of accelerating GMD's schedule
they became inattentive to weaknesses in the program's quality control
procedures. The GMD program had realized for some time that its quality
controls needed to be strengthened. However, the program's accelerated
schedule left little time to address the problems. The extent of the
weaknesses was documented in 2005 when MDA's Office of Safety, Quality,
and Mission Assurance conducted audits of the contractor developing the
interceptor's EKV and the Orbital Boost Vehicle.

In its audit of the EKV contractor, the MDA auditors found evidence that

           o  The prime contractor did not correctly communicate all
           essential EKV requirements to its subcontractor and the
           subcontractor did not communicate complete and correct
           requirements to its suppliers.

           o  The EKV subcontractor did not exercise good configuration
           control.

           o  The reliability of the EKV's design cannot be determined, and
           any estimates of its serviceable life are likely unsupportable.

           o  The contractor has no written policy involving qualification
           testing and does not require that its EKV subcontractor follow
           requirements established by industry, civilian, and military users
           of space and launch vehicles.

           o  The contractor's production processes are immature, and the
           contractor cannot build a consistent and reliable product.

           More details on MDA's audit of the EKV contractor can be found in
           appendix IV.

           Similarly, the auditors found that the contractor producing the
           Orbital Boost Vehicle needed to improve quality control processes
           and adherence to those processes. According to deficiency reports,
           the contractor did not always, among other things, flow down
           requirements properly; practice good configuration management to
           ensure that the booster met form, fit, and function requirements;
           implement effective environmental stress screening; or have an
           approved parts, material, and processes management plan.

           Ironically, the pitfalls that result from an accelerated fielding
           had already been learned in the THAAD program. In 2000, we
           reported that pressure on the THAAD program to meet an early
           fielding date nearly resulted in the program's cancelation in
           1998.14 When flight testing began, in 1995, the THAAD missile
           experienced numerous problems. Eight of the first nine flight
           tests revealed problems with software errors, booster separation,
           seeker electronics, flight controls, electrical short circuits,
           foreign object damage, and loss of telemetry. According to several
           expert reviews from both inside and outside the Army, the causes
           of early THAAD flight test failures included inadequate ground
           testing, poor test planning, and shortcomings in preflight
           reviews. One study noted that failures were found in subsystems
           usually considered low-risk. Subsequently, the THAAD program
           manager adopted a knowledge-based strategy, which led to successes
           in later tests.

           Compared with other DOD programs, MDA has greater latitude to make
           changes to the BMDS program without seeking the approval of
           high-level acquisition executives outside the program. In early
           2002, DOD allowed MDA to effectively defer the application of DOD
           acquisition regulations to the BMDS program until a decision is
           made to transfer a BMDS capability to a military service for
           production, operation, and sustainment. This allows MDA to make
           program changes without asking for prior approval.15 For example,
           MDA has the flexibility to make trade-offs between BMDS elements.
           That is, the MDA Director can decide to accelerate one element
           while slowing another down. That is not to say that DOD and
           Congress are not kept informed of MDA's progress or changes, but
           that the MDA Director, by statute, has the discretion to determine
           which variations are significant enough to be reported.
           Accountability has thus become broadly applied as to mean
           delivering some capability within funding allocations.

           Under DOD's acquisition regulations, each BMDS element would
           likely have met the definition of a major acquisition program.
           Major acquisition programs are required by statute (10 U.S.C. S:
           2435) to develop a program baseline when the program begins system
           development and demonstration. The baseline, which includes cost
           and schedule estimates and formal performance requirements
           developed by the warfighter, is considered the initial business
           case for the acquisition effort. Once a baseline is approved,
           major acquisition programs are required to operate within the
           baseline or to obtain approval from a high-level acquisition
           executive outside the program to make cost, schedule, or
           performance changes.16 Changes in any of these baseline parameters
           would reflect a change in the program's business case. Approved
           programs also report program status measured against the baseline
           and any baseline changes to Congress in an annual Selected
           Acquisition Report (SAR). Congress has also established criteria
           to identify significant variations in a weapon system's cost or
           schedule and requires that those changes be reported more often,
           in a quarterly SAR.17

           MDA is not yet required to have an approved program baseline as
           defined by 10 U.S.C. S: 2435 for either the BMDS or its
           elements.18 Instead MDA develops more flexible cost and quantity
           goals and capability-based performance objectives. MDA has a
           separate statutory requirement to establish and report cost,
           schedule, and performance baselines for block configurations of
           the BMDS being fielded.19 But these baselines are more flexible
           than the rigid baselines required of other acquisition programs
           that DOD and Congress use in performing program oversight. While
           MDA reports its cost, quantity, and performance information to
           Congress in an annual Selected Acquisition Report, it is free to
           revise its goals and objectives, as it did during Block 2004, if
           they are not achievable with the time or funds available.20 MDA is
           also required by statute to report significant variations from the
           baselines in its annual SAR.21 However, there are no criteria to
           identify which variations are significant enough to report.
           Instead, MDA's Director, by statute, has the discretion to
           determine which variations will be reported. For example, the
           Director decides whether to report that activities that Congress
           funded in one block are being deferred to a later block and will
           be paid for with the latter block's funding.

           MDA has begun to address the quality control weaknesses in the
           BMDS program. Some actions are as simple as revising reporting
           lines so that MDA's Chief of Safety, Quality, and Mission
           Assurance reports directly to MDA's Director and Deputy Director
           and establishing toll-free telephone numbers for the report of
           safety and quality issues. MDA is also renegotiating some aspects
           of its prime contracts to revise the award fee determination
           process in an effort to place more emphasis on quality control and
           the implementation of industry best practices, and adding mission
           assurance provisions to contracts that promote process
           improvements, improve productivity, and enhance safety, quality,
           and mission assurance. Furthermore, MDA is placing more emphasis
           on the definition and correction of quality control weaknesses by
           conducting audits of major contractors and subcontractors. It has
           also renewed the emphasis on the role of the Defense Contract
           Management Agency in performing quality assurance functions in
           support of MDA programs. Finally, MDA has adopted a more
           conservative test approach for the GMD program that includes
           increased ground tests and an incremental approach to flight
           testing. However, the actions have not gone so far as to ensure
           that all BMDS programs implement knowledge-based practices or to
           ensure that the activities planned to develop, demonstrate, and
           produce the capabilities intended for future blocks are achievable
           within the block time frames without resorting to a concurrent
           schedule.

           MDA plans to revise prime contracts to reflect the importance of
           good quality assurance procedures and the contractor's
           implementation of industry best practices. GMD officials told us
           that in fiscal year 2005 award fee on the GMD contract was
           partially based on a good quality control program. The officials
           said that of the $407 million award fee available for the period
           running from October 1, 2004, through September 30, 2005, $9
           million was based on the contractor's implementation of good
           quality assurance and supplier management procedures. In November
           2005, MDA awarded the contractor $2.1 million of the $9 million
           set aside for the implementation of quality assurance procedures.
           MDA officials also told us that in fiscal year 2006, the
           overarching criteria for the entire award fee pool of $302 million
           will be the contractor's implementation and adherence to industry
           standards and best practices.

           MDA also expects to modify prime contracts to incorporate a
           document referred to as MDA Assurance Provisions (MAP). All prime
           contracts are to include MAP standards, but not all contracts have
           been modified because MDA and some contractors have not reached
           agreement on the cost of implementing the MAP. For example, the
           GMD prime contractor estimates that implementation costs will be
           somewhere around $280 million. However, officials in MDA's Office
           of Safety, Quality, and Mission Assurance told us that at least
           one contractor has agreed to implement the MAP at no additional
           cost.

           The MAP provides a measurable, standardized set of safety,
           quality, and mission assurance requirements to be applied to
           developers for mission- and safety-critical items in support of
           evolutionary acquisition and deployment of MDA systems.22 For
           example, the document includes standards regarding the collection
           and reporting of foreign object damage and debris incidents, a
           requirement for working-level peer reviews throughout design and
           development to identify and resolve technical issues and concerns
           prior to formal system-level reviews, and a requirement for
           ensuring that commercial off-the-shelf items meet all functional
           and interface requirements and are qualified to operate in their
           intended environment.

           In addition to requiring contractors to abide by MAP standards,
           MDA also requires each BMDS element program office to compare its
           mission assurance plan with the MAP. As a result of the
           comparison, the program is expected to identify critical mission
           assurance needs that are not being met. The results are catalogued
           in a Mission Assurance Implementation Plan (MAIP), which element
           program directors are accountable for implementing. Each element
           is to continuously assess MAIP execution so that feedback can be
           used to improve both the MAP and the MAIP.

           So that the quality assurance weaknesses in the BMDS program are
           accurately defined, the MDA Director also gave the Office of
           Safety, Quality, and Mission Assurance unfettered access to all
           MDA contractor operations, activities, and documentation. Under
           this authority, MDA quality personnel have been placed in each
           prime contractor facility to monitor the contractor's quality
           procedures, and the office is auditing major contracts to identify
           quality assurance deficiencies and areas where procedures can be
           improved. As of November 2005, the office had completed audits of
           the Aegis BMD SM-3, GMD EKV, and Orbital Sciences Corporation
           booster, and THAAD contracts.

           MDA is also placing a renewed emphasis on the Defense Contract
           Management Agency's (DCMA) quality assurance role. In a May 2005
           delegation letter, MDA directed DCMA to

           o  perform quality assurance surveillance activities in accordance
           with DCMA policies and directives;

           o  ensure that mandatory government inspections authorized by MDA
           are incorporated into the contractor's manufacturing process plans
           and/or critical suppliers' plans;

           o  report mandatory government inspection test results, missed
           inspections, and requests for permission to waive inspections to
           MDA's Office of Safety, Quality, and Mission Assurance for that
           office's approval; and

           o  support technical surveillance activities by carrying out such
           duties as participating in mission critical item and component
           Material Review Boards and providing insight and recommendations
           on engineering change proposals, requests for waivers, employee
           training, and the contractor's critical manufacturing processes.

           In 2005, the MDA Director established a new position-Director,
           Mission Readiness-whose primary focus during fiscal year 2005 was
           to examine the Ground-Based Midcourse Defense test program. To
           assist in this examination, a small, highly experienced Mission
           Readiness Task Force was established. The goals of the task force
           were to establish confidence in GMD's ability to reliably hit its
           target, establish credibility in setting and meeting test event
           dates, build increasing levels of operationally realistic test
           procedures and scenarios, raise confidence in successful outcomes
           of flight missions, and conduct the next flight test as soon as
           practical within acceptable risk bounds.

           To meet these goals, the task force recommended a knowledge-based
           flight readiness process and flight test program. Before a test is
           held, the GMD program presents evidence that all components are
           ready for test. Program officials explained that senior executives
           from all key stakeholder organizations review the evidence and
           make a recommendation to the MDA Director as to whether the test
           event should proceed. GMD's test plan has also been restructured
           to place more emphasis on successful ground tests prior to each
           flight test. According to MDA program officials, part of the
           evidence for proceeding from one flight test to another is success
           in the preceding ground and flight tests.

           The first flight tests have simple objectives. For example, flight
           test 1, conducted in December 2005, demonstrated the successful
           launch of the GMD interceptor and the separation of the EKV from
           its booster. By flight test 4, MDA expects to be ready to
           demonstrate that the GMD system is capable of hitting an
           operationally representative target. Tests that follow will become
           progressively more difficult.

           Although MDA is taking many actions to address quality assurance
           problems, it has not taken any steps to ensure that all elements
           follow a knowledge-based acquisition strategy or to ensure that
           the time is available to follow such a strategy. For example, a
           number of activities planned for the GMD element during Block 2004
           have been deferred to Block 2006. Also, developmental efforts for
           other elements did not progress as planned, leaving more work to
           be completed during Block 2006 and, perhaps, later blocks.

           Missile defense is one of the largest weapon system investments
           DOD is making. To date, around $90 billion has been spent, and
           over the next 6 years, DOD expects that it will need about $58
           billion more to enhance the BMDS. Beyond that, more funding will
           be required if DOD is to reach its ultimate goal of developing a
           system capable of countering ballistic missile launches from any
           range during all phases of flight. By driving to a fielding date
           during Block 2004, MDA placed assets in the field faster than
           originally planned. However, in doing so, MDA strayed from the
           knowledge-based approach that allows successful developers to
           deliver, within budget, a product whose performance has been
           demonstrated. Instead, MDA fielded assets before their capability
           was known. In addition, the full cost of this capability is not
           transparent to decision makers because MDA has deferred the cost
           of some Block 2004 activities into the next block.

           The fielding of the Block 2004 capability provides an opportunity
           for DOD to take stock of the approach it has taken thus far on
           missile defense and determine whether changes are warranted for
           its approach to future blocks. We believe they are. The concurrent
           development approach dictated by the directed fielding date and
           enabled by considerable flexibility to lower goals and defer
           capability has resulted in delivering fewer assets than planned.
           Accountability has been very broadly applied as to mean delivering
           some capability within funding allocations. While recognizing this
           approach did successfully accelerate fielding, to the extent it
           continues to feature concurrency as a means for acceleration, it
           may not be affordable for the considerable amount of capability
           that is yet to be developed and fielded. While the effects of this
           approach were perhaps most keenly felt with the Block 2004
           capability, signs of its continuance can be seen in the
           developmental activities that were deferred during fiscal year
           2005.

           It is possible for MDA to return to a knowledge-based approach to
           development while still fielding capability in blocks. To its
           credit, MDA instituted its own audits and is heeding the results
           of those audits in taking a number of steps to correct the quality
           assurance and testing problems encountered thus far. Yet these
           corrective actions have not gone far enough to put all of the BMDS
           elements on a knowledge-based approach to development and
           fielding. MDA's experience during Block 2004 shows that it may not
           always be possible to deliver a capability in a 2-year time frame.
           Clearly, a block or stepped approach to fielding a new system is
           preferable to attempting a single step to full capability.
           However, a primary tenet of a knowledge-based acquisition strategy
           is that a program should be event- rather than schedule-driven.
           This philosophy is consistent with the evolutionary acquisition
           approach preferred by DOD in its acquisition regulations. It also
           provides a better basis for holding MDA accountable for what it
           can deliver within estimated resources.

           To better ensure the success of future MDA development efforts, we
           recommend that the Secretary of Defense direct the Director, MDA,
           to take the following three actions.

           o  Direct all BMDS elements to implement a knowledge-based
           acquisition strategy that provides for demonstrating knowledge
           points for major events or steps leading up to those events. These
           knowledge points should be consistent with those called for in
           DOD's acquisition regulations. For example, markers could be
           established that would demonstrate that programs have the
           knowledge to meet design review standards and are ready to hold
           those reviews.

           o  Assess whether the current 2-year block strategy is compatible
           with the knowledge-based development strategy recommended above.
           If not, the Secretary should develop event-driven time frames for
           future blocks. Events could represent demonstrated increases in
           capability, such as the addition of software upgrades, stand-alone
           components, or elements.

           o  Adopt more transparent criteria for identifying and reporting
           on significant changes in each element's quantities, cost, or
           performance, such as those that are found in DOD's acquisition
           regulations. Coupled with a more knowledge-based acquisition
           strategy, such criteria would enable MDA to be more accountable
           for delivering promised capability within estimated resources.

           DOD's comments on our draft report are reprinted in appendix I.
           DOD partially concurred with our first recommendation. DOD stated
           that MDA has implemented a knowledge-based acquisition strategy
           that relies upon discrete activities to produce data that can be
           used to judge an element's progress. DOD noted that unlike the
           knowledge points discussed in DOD acquisition regulations, the
           knowledge points used by MDA are discrete points, not reviews.
           According to DOD, MDA's strategy is consistent with the principles
           of DOD acquisition regulations while providing MDA's Director with
           the flexibility to determine their applicability to the BMDS block
           development concept. We agree that knowledge is obtained through
           discrete events, such as a successful test or the completion of a
           cost/benefit analysis, but we define knowledge points as meaning
           more than discrete events. Rather, knowledge must be looked at in
           the aggregate. For example, the knowledge gained from a number of
           discrete events must be considered collectively to confirm that
           the design of a system is stable. It is these aggregations that we
           consider to be the knowledge points that should form the basis for
           investment decisions. For example, the GMD program's successful
           demonstration of various functions of the BMDS engagement may have
           been sufficient to continue funding of the element's development,
           but the discrete events were not sufficient to demonstrate that
           the element's design and production processes were sufficiently
           mature to begin production and fielding. We also note that the
           knowledge points discussed in DOD acquisition regulations do
           represent measurable, demonstrated knowledge, such as technology
           and design maturity, that then become the basis for reviews. They
           are not the reviews themselves, as reviews can take place
           regardless of the level of knowledge available.

           DOD also partially concurred with our recommendation that MDA
           assess whether the 2-year block strategy is compatible with a
           knowledge-based acquisition strategy. DOD stated that MDA uses
           knowledge points to establish block goals and makes adjustments to
           those goals when necessary. DOD noted that the 2-year block
           strategy is compatible with this approach. We have not seen the
           decisions made on Block 2004 as being consistent with knowledge
           points. During Block 2004, MDA allowed the GMD program to complete
           all phases of the acquisition cycle-technology development,
           product design, production, and fielding-simultaneously to enable
           the program to field a capability within the 2-year time frame. If
           MDA is to be truly knowledge-based, it must be dedicated to taking
           the time to gather the knowledge needed to be successful in the
           next acquisition phase. Because MDA did not follow this strategy
           in Block 2004, we still believe that MDA should assess future
           blocks to determine whether those blocks can be developed within
           the 2-year time frame without resorting to a concurrent schedule.

           DOD did not concur with our third recommendation to adopt more
           transparent criteria for identifying and reporting program
           changes. In responding to this recommendation, DOD responded that
           MDA in 2005, by statute, began submitting fielding baselines to
           Congress and must report significant cost, schedule, or
           performance variances to these baselines in future reports. DOD
           believes that these reports and the quarterly reviews conducted by
           DOD staff provide an adequate level of oversight. We agree that
           MDA is required to report significant variances to established
           baselines to Congress and that MDA keeps DOD informed about the
           Ballistic Missile Defense program. However, given the management
           flexibilities accorded MDA and the large amount of resources (more
           than $50 billion) that DOD currently plans for missile defense,
           more transparent criteria is needed for better program management
           and oversight.

           DOD provided technical comments to our draft report, which we
           considered and incorporated as appropriate. In its technical
           comments, for example, DOD expressed concern that our draft report
           measured Block 2004 against goals established in February 2003
           rather than the fielded baseline goals established in 2005. We
           chose the 2003 goals as a baseline because the goals were MDA's
           official notification to Congress of the agency's expectations for
           the block. In addition, goals are meant to be a result that an
           organization strives to achieve. If goals are changed over time to
           more closely reflect actual performance, they lose their validity.
           We have included in the report a discussion of the changes that
           MDA made in its Block 2004 goals from 2003 through 2005 and the
           reasons for those changes.

           We are sending copies of this report to the Secretary of Defense
           and to the Director, MDA. 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 concerning this report,
           please contact me at (202) 512-4841. Contact points for our
           offices of Congressional Relations and Public Affairs may be found
           on the last page of this report. The major contributors to this
           report are listed in appendix VII.

           Paul Francis Director, Acquisition and Sourcing Management

           List of Congressional Committees

           The Honorable John Warner Chairman The Honorable Carl Levin
           Ranking Minority Member Committee on Armed Services United States
           Senate

           The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye
           Ranking Minority Member Subcommittee on Defense Committee on
           Appropriations United States Senate

           The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton
           Ranking Minority Member Committee on Armed Services House of
           Representatives

           The Honorable C.W. Bill Young Chairman The Honorable John P.
           Murtha Ranking Minority Member Subcommittee on Defense Committee
           on Appropriations House of Representatives

           The Missile Defense Agency (MDA) developed and fielded in Block
           2004 three Ballistic Missile Defense System (BMDS) elements for
           operational use in the event of an emergency. These elements are
           the Aegis Ballistic Missile Defense (Aegis BMD); Ground-Based
           Midcourse Defense (GMD); and the Command, Control, Battle
           Management, and Communications (C2BMC) elements. MDA also
           attempted to accelerate the fielding of the Forward-Based X-Band
           Transportable (FBX-T) radar being developed by the Sensors Program
           Office into Block 2004. Although the agency was able to complete
           the radar's development, DOD did not complete negotiations with
           Japan, the host nation, in time to make the FBX-T operational
           during the block.

           During Block 2004, MDA also carried out development efforts for
           other elements that are expected to be incorporated into the BMDS
           during later blocks to enhance the system's capability. These
           elements include the Airborne Laser (ABL), Kinetic Energy
           Interceptor (KEI), Terminal High Altitude Area Defense (THAAD),
           and Space Tracking and Surveillance System (STSS). Development of
           the THAAD element, which is being designed to attack short- and
           medium-range ballistic missiles during the terminal stage of their
           flight, is further along than the other developmental elements,
           and MDA expects to make one THAAD fire unit available for
           operational use in fiscal year 2009. The other three developmental
           elements are at an early stage. The ABL element, which is to
           attack missiles during the boost phase of their flight, is
           developing a prototype to demonstrate technologies critical to the
           system's design. MDA expects to demonstrate the technologies no
           earlier than 2008, when the program will test the element's
           lethality against a short-range ballistic missile. Similarly, the
           KEI program's work during Block 2004 is focused on technology
           demonstration. MDA will assess KEI's progress in 2008 and decide
           the future of its effort to develop a mobile, multi-use system
           capable of intercepting ballistic missiles during the boost and
           midcourse phases of flight. During Block 2004, the STSS program
           readied demonstration satellite and sensor hardware for launch.
           MDA expects the STSS to provide surveillance and tracking of enemy
           ballistic missiles for other BMDS elements. If the two STSS
           satellites being launched in 2007 successfully demonstrate this
           function, a constellation of STSS satellites could be launched
           beginning in 2013.

           The Aegis BMD element is a sea-based missile defense system
           designed to defeat short- and medium-range ballistic missiles in
           the midcourse phase of flight. Its mission is to protect deployed
           U.S. forces, allies, and friends from such attacks, and to employ
           its shipboard radar as a forward-deployed Ballistic Missile
           Defense System sensor to support intercontinental ballistic
           missile (ICBM) engagements.1

           The Aegis BMD element builds upon the existing capabilities of
           Aegis-equipped Navy cruisers and destroyers. Planned hardware and
           software upgrades to these ships will enable them to carry out the
           missile defense mission in addition to their current role of
           protecting U.S. Navy ships from air, surface, and subsurface
           threats. The program is also developing the Standard Missile-3
           (SM-3)-the system's "bullet"-which is designed to destroy enemy
           warheads through hit-to-kill collisions above the atmosphere. The
           SM-3 is composed of a kinetic warhead (kill vehicle) mounted atop
           a three-stage booster.

           The program fielded Block 2004 assets mostly on schedule. Nine
           (Block I) SM-3 missiles were ready for operational use by December
           2005, as planned. In addition, two Aegis BMD cruisers received
           system upgrades making them capable of launching missiles to
           engage ballistic missile targets. Ten Aegis BMD destroyers were
           equipped with long-range surveillance and tracking software during
           Block 2004.

           Aegis BMD conducted the most realistic tests of all the BMDS
           elements, but further tests are needed to fully characterize the
           element's missile defense performance. The program has
           successfully tested Aegis BMD's engagement capability in six
           intercept attempts since 1999 using variants of the SM-3 missile.
           One of these successful intercepts, Flight Test Mission (FTM)
           04-1, was conducted in fiscal year 2005. Operational test
           officials reported that the test incorporated many operational
           characteristics. For example, the warfighter had no preknowledge
           of the target launch time, the target was representative of a
           real-world threat, and the fielded missile configuration was used.
           However, the officials said that in early tests, including FTM
           04-1, ship position with respect to the target's trajectory was
           controlled to increase the probability of intercept. The officials
           are recommending that in future tests Aegis BMD's tactical mission
           planner should dictate the ship's position and the sectors that
           its radar searches, rather than the program scripting the ship's
           locations and its radar's search sectors.

           Additional tests are also needed to demonstrate that the program
           has resolved problems that limit the SM-3 missile's ability to
           divert to its target. Although the current configuration is
           adequate for the current threat, the missile will require more
           divert capability if it is to hit more complex targets and targets
           with more challenging trajectories than were seen in early tests.
           For example, the missile's Solid Divert and Attitude Control
           System (SDACS) needs to operate in a pulse mode, rather than its
           current sustain mode, to increase the missile's ability to
           maneuver toward its target. Performance problems with the SDACS's
           pulse mode of operation were first noticed in a June 2003 flight
           test, Flight Mission (FM)-5, and have remained a concern to the
           program. Program officials modified the SDACS's design in fiscal
           year 2005, and they believe that the root cause of the problem is
           understood. However, ground and flight tests, planned for fiscal
           year 2006, are needed to verify that the SDACS will perform as
           designed. If the tests are successful, the pulsed SDACS could be
           incorporated into the missile in fiscal year 2007. Although the
           earliest fielded missiles will not be capable of pulse mode
           operation, which will reduce their divert capability, program
           officials believe that these missiles will provide a credible
           defense against a large population of the threat. A test (FTM
           04-2) successfully conducted in November 2005 against a
           "separating" target-a target whose warhead separates from its
           booster rocket-also showed that the SM-3 has some capability
           against a more advanced target than the nonseparating targets used
           in prior tests.

           The program has also flight-tested Aegis BMD's long-range
           surveillance and tracking capability, but further verification of
           fielded system upgrades is needed. In fiscal year 2005, the
           program successfully used the system upgrade (Ballistic Missile
           Defense 3.0E) to track live ICBM targets of opportunity in two
           separate events. However, because GMD did not participate in these
           tests, track data developed from the live target were not used to
           formulate a task plan for a GMD interceptor, as it would need to
           do in an actual defensive mission. Although track data have been
           passed to the fire control unit in a separate event, this has not
           been demonstrated in real time. MDA expected to test Aegis BMD's
           long-range surveillance and tracking capability in several fiscal
           year 2005 flight tests, but it was unable to do so, mostly because
           of delays in the GMD test program. Aegis BMD was unable to
           participate in Integrated Flight Test (IFT)-13C because of weather
           conditions and in IFT-14 because of fleet scheduling conflicts.
           Other GMD tests were put on hold and later folded into a new test
           schedule to begin in fiscal year 2006. MDA has not yet rescheduled
           a GMD flight test that uses Aegis BMD in its long-range
           surveillance and tracking role.

           The GMD element is a missile defense system being developed to
           protect the United States against ICBM attacks launched from
           Northeast Asia and the Middle East. The GMD element relies on a
           broad array of components, including (1) space- and ground-based
           sensors to provide early warning of missile launches, (2) ground-
           and sea-based radars to track and identify threatening objects,
           (3) ground-based interceptors to destroy enemy missiles through
           hit-to-kill impacts above the atmosphere, and (4) fire control and
           communications nodes for battle management and execution of the
           GMD mission. Figure 1 illustrates the various GMD components,
           which are situated at several locations within and outside the
           United States.

           Figure 1: Components of the GMD Element

           GMD's progress toward meeting Block 2004 goals was less than
           expected. Silos and other construction at GMD facilities were
           completed on schedule, but the program was unable to meet its
           fielding goals for ground-based interceptors. Most of the GMD
           radars are fielded and could be used for defensive operations if
           needed. However, some radar upgrades were delayed, and none of the
           radars have been tested in integrated flight tests. In addition,
           an operational flight test and other key tests needed to
           characterize GMD's performance were delayed into fiscal year 2006.

           The infrastructure for the missile defense complex is complete,
           but MDA was unable to deliver almost half of the interceptors
           initially planned for the Block 2004 inventory. MDA completed, on
           schedule, construction of all facilities needed to place the GMD
           system on alert, including the construction of the first missile
           field at the missile defense complex at Fort Greely, Alaska.
           However, the GMD program emplaced only 10 of the 20 interceptors
           originally planned for Block 2004. In fiscal year 2004, the
           program designated 2 of the 20 interceptors as test assets after
           an explosion at a plant producing motors for the interceptor's
           booster caused the interceptor's delivery schedule to slip. In
           fiscal year 2005, the program diverted 4 more interceptors to the
           test program in response to a MDA task force recommendation for a
           revised test plan. According to GMD officials, delivery of five of
           the six test assets and the remaining four missiles for
           operational use were delayed beyond December 2005.

           MDA has two radars ready for operation, Cobra Dane and the Beale
           upgraded early warning radar. However, tests have identified a
           Cobra Dane shortcoming, and neither radar's capability has been
           verified in system-level flight tests. The Cobra Dane radar has
           been ready for limited defensive operations since September 2004.
           It has participated in ground tests and successfully tracked
           several targets of opportunity. Because the radar's location
           prevents it from participating in integrated flight tests, an
           air-launched target was used in a September 2005 flight test (FT
           04-5). The test was designed to assess the radar's ability to
           transmit track data, in real time, to the missile defense fire
           control system. Cobra Dane performed as expected in these test
           events, but officials in the office of the Director, Operational
           Test and Evaluation (DOT&E) are concerned that the radar's
           software, as currently written, could cause the GMD element to
           waste inventory. The Beale radar is also ready to conduct the
           missile defense mission, but software deficiencies and lack of
           testing are still a concern. While Beale radar hardware and
           communications upgrades are complete, software deficiencies caused
           software upgrades planned for Block 2004 to fall slightly behind
           schedule. The program planned to resolve the deficiencies, which
           could cause some degradation in the radar's performance, in early
           2006. However, officials consider Beale ready to perform its basic
           missile defense mission should the BMDS be placed on alert prior
           to the resolution of the deficiencies because the radar has
           successfully tracked several targets of opportunity. A test to
           certify all radar upgrades is currently scheduled for fiscal year
           2006. In early fiscal year 2007, MDA also plans to test Beale's
           operational capability as the fire control radar in an intercept
           attempt. In this test, for the first time, Beale will track a live
           target and provide track data to the GMD fire control component
           that will use the data to develop a weapon system task plan.

           Full functionality of two additional early warning radars was
           delayed into later blocks. Fylingdales upgraded early warning
           radar was delayed slightly to cover some of the cost of additional
           flight tests added to the GMD program. Its missile defense
           capability will be available in early Block 2006, after a
           distributed ground test scheduled for the second quarter of fiscal
           year 2006. Full radar functionality, which will allow the radar to
           perform both its missile defense mission and its legacy Air Force
           mission, is expected in October 2006. Likewise, deployment of the
           Thule upgraded early warning radar, which MDA had planned to
           upgrade incrementally, was postponed to Block 2008 so that the
           radar could be fully upgraded before taking on its missile defense
           mission.

           The Sea-Based X-Band radar (SBX) is also slightly behind schedule.
           Additional funding needs for new flight tests prevented the GMD
           program from integrating the Sea-Based X-Band radar into the BMDS
           by December 31, 2005, as planned. The radar is able to track
           targets but will not be able to pass track data to the fire
           control center until it is integrated with the GMD system during
           the distributed ground test scheduled for April 2006. The radar is
           expected to be transported to its home port at Adak, Alaska, by
           the third quarter of calendar year 2006 where it will be available
           in the event of an emergency. However, MDA does not plan to verify
           the performance of the radar in a system-level flight test until
           late in 2007.

           The GMD program was unable to demonstrate the Block 2004 GMD
           system in flight tests. The program attempted two integrated
           flight tests in fiscal year 2005, IFT-13C in December 2004 and
           IFT-14 in February 2005. In both tests, interceptors failed to
           launch from their silos. In IFT-13C, a timing problem with the
           interceptor's flight computer caused the interceptor to abort its
           launch. In IFT-14, the first intercept attempt since 2002, the
           interceptor was unable to lift off because the arms inside the
           silo failed to fully retract and lock out of the way. Program
           officials traced the root cause of this failure to poor quality
           control procedures.

           In response to these test failures, MDA delayed upcoming plans for
           future tests and chartered the Mission Readiness Task Force to
           review the program and propose changes. The task force found that
           MDA's problems were primarily linked to inadequate quality
           assurance processes. An independent review team attributed these
           problems to the urgency of the fielding schedule, which drove
           decision making and program planning. The task force provided
           guidance for improving the test program by significantly
           restructuring the focus of upcoming test events. MDA adopted the
           recommended test strategy at an additional cost of $115 million.

           Although early tests in the restructured plan have simple
           objectives, the tests get progressively more difficult, and DOT&E
           is concerned that MDA cannot meet its schedule to conduct the
           first four tests between November 2005 and November 2006. The
           first flight test (FT-1) was successfully conducted in December
           2005, 1 month later than planned. The objective of the test was
           not to intercept a live target, but to verify that an interceptor,
           representative of the configuration being fielded, could be
           successfully launched and to evaluate its booster's delivery
           performance. The next intercept attempt, FT-4, is not scheduled
           until late calendar year 2006.

           One consequence of restructuring the GMD test program was MDA's
           inability to fulfill the statutory mandate that required DOD to
           conduct an operationally realistic test of the BMDS by October 1,
           2005. MDA had planned to conduct this test in the third quarter of
           fiscal year 2005. However, after the two flight test failures, the
           task force recommended that MDA spend additional time addressing
           mission readiness before attempting an operational test of the BMD
           system. FT-4, scheduled for November 2006, is the first test that
           has the potential to fulfill the mandated objectives. FT-4 is
           planned as an intercept attempt using the Beale radar as the fire
           control radar. This will be the GMD program's first intercept
           attempt to use a nonsurrogate fire control radar.

           While the GMD program has proved the concept of destroying ICBMs
           during the midcourse of their flight, the program has not proved
           GMD's design will deliver the performance desired. The GMD
           program, the centerpiece of the BMDS Block 2004 defensive
           capability, has demonstrated its ability to intercept target
           warheads in flight tests since 1999. The program has conducted
           five successful intercept attempts, the last one in 2002. While
           the program maintains that each piece of the engagement sequence
           has been demonstrated by flight and ground tests, the program has
           been unable to verify that the integrated system, using
           production-representative components, will work in an end-to-end
           operation. Until further testing is done, MDA will not know for
           sure that the integrated system using operational interceptors and
           fire control radars will perform as expected, or that technical
           problems with the kill vehicle and its booster have been fixed.

           Quality control weaknesses also raise concerns about the
           performance of GMD interceptors. Quality control procedures may
           not have been rigorous enough to ensure that unreliable parts, or
           parts that were inappropriate for space applications, would be
           removed from the manufacturing process. For example, a leak in an
           attitude control system regulator was traced to unauthorized
           rework. Although production has slowed as the program introduces
           initiatives to strengthen quality controls, interceptors are still
           being emplaced in silos before all initiatives are in place.
           Additionally, the first nine interceptors emplaced for operational
           use-seven at Fort Greely and two at Vandenberg Air Force
           Base-could include questionable parts that were not detected
           during the interceptor's acceptance tests. Program officials told
           us that they are recommending that such parts be replaced in 2007,
           when the interceptors are scheduled to be upgraded. Making the
           replacements will require that the interceptors be removed from
           their silos.

           The C2BMC element is being developed as the integrating and
           controlling entity of the BMDS. Leveraging existing
           infrastructure, it is initially designed to provide connectivity
           between the various BMDS components and in later blocks will
           manage their operations as part of an integrated, layered missile
           defense system. Over time, C2BMC will not only provide planning
           tools to assist the command structure in formulating defensive
           actions, it will also generate detailed instructions for executing
           various missile defense functions, such as tracking enemy
           missiles, discriminating the warhead from decoys and associated
           objects, and directing the launch of interceptors. It will also
           manage the exchange and dissemination of information necessary for
           carrying out the missile defense mission.

           The Block 2004 C2BMC element provides situational awareness by
           monitoring the operational status of each BMDS component, and it
           displays threat information such as missile trajectories and
           impact points. When the FBX-T becomes operational, C2BMC will also
           provide sensor control, sensor tasking, and sensor monitoring of
           the radar and forward the data to GMD.

           The incorporation of battle management capabilities into the C2BMC
           element begins with Block 2006. In the 2006-2007 time frame, the
           element is expected to track a ballistic missile threat throughout
           its entire trajectory and select the appropriate element to engage
           the threat. For example, the Block 2006 C2BMC configuration would
           be able to generate a single, precise track from multiple radars
           and transmit it to the other elements. This allows elements to
           launch interceptors earlier, providing more opportunity to engage
           incoming ballistic missiles.

           Block 2006 is also expected to enhance C2BMC's communications with
           each BMDS component. C2BMC program officials will work to
           establish communications with all elements of the BMDS, overcome
           limitations of legacy satellite communications protocols, and
           establish redundant communications links to enhance robustness.
           Such upgrades will improve operational availability and
           situational awareness.

           The C2BMC team executed all of its planned fiscal year 2005
           activities as scheduled and nearly all of the activities needed to
           complete the Block 2004 capability. Program officials completed
           software development and testing, and integration activities, and
           enhanced the system's robustness. Additional suites were also
           installed at command centers to provide the warfighter with the
           capability to plan and monitor the missile defense mission. 2 A
           number of activities in preparation for Block 2006 were also
           completed during fiscal year 2005. For example, design and
           planning requirements for Block 2006 software upgrades (Spirals
           6.1 and 6.2), along with a Block 2006 system requirements review,
           were completed in June and July of 2005 respectively.

           During fiscal year 2005, program officials completed the
           development of the final two upgrades (Spirals 4.4 and 4.5) to
           Block 2004 C2BMC element software. The first upgrade (Spiral 4.4)
           added the ability to display GMD assets on users' computer
           monitors, improved the user's ability to call up BMDS information,
           and reduced the time to transfer force-level planning files. The
           second upgrade (Spiral 4.5) gave C2BMC the capability to receive,
           distribute, and display information developed by three new
           sensors-the Forward-Based X-Band and Sea-Based X-Band radars and
           the Fylingdales upgraded early warning radar. It also improved the
           consistency between the data displayed by the C2BMC and the GMD
           fire control monitor, which also receives information directly
           from various sensors.

           The program office installed a suite at the U.S. Pacific Command
           during fiscal year 2005, and it is waiting on policy agreements to
           turn on a Web browser- providing summary screens of the unfolding
           battle-in the United Kingdom. Additionally, second suites were
           added at the U.S. Strategic Command (STRATCOM) and the U.S.
           Northern Command (NORTHCOM) to allow for concurrent operations and
           system upgrades as well as to make the C2BMC a more robust system.

           The C2BMC program also completed most of the activities needed to
           verify its Block 2004 capability. In August 2005, the program
           completed testing that proved the readiness of Spiral 4.4 software
           for operations. The program also participated in demonstrations
           with other elements to practice transitioning the BMDS to alert.
           By the end of Block 2004, the final software upgrade (Spiral 4.5)
           was tested to verify that the C2BMC could interface with each BMDS
           element and that the improved software was ready for operational
           use. However, further testing is needed to verify that Spiral 4.5
           can provide planning and situational awareness at U.S. Northern
           Command, U.S. Strategic Command, U.S. Pacific Command, and the
           Department of Defense's Cheyenne Mountain Operations Center.
           Program officials told us that they expect to complete the
           verification tests by the end of March 2006.

           The C2BMC program successfully demonstrated its ability to
           maintain situational awareness during several ground- and
           flight-testing activities. Program officials were able to monitor
           the operational status of BMDS components and display threat
           information, such as missile trajectories and impact points.
           However, during tests, program officials discovered three primary
           risk items that have the potential to affect C2BMC's performance.
           Table 7 identifies these risks, the possible impact on program
           performance, and the actions being taken to address each.

MDA Has Flexibility in Making and Reporting Program Changes

14GAO, Best Practices: : A More Constructive Test Approach Is Key to
Better Weapon System Outcomes, GAO/NSIAD-00-199 (Washington, D.C.: July
31, 2000).

15MDA is subject to overall direction and guidance, however, from the
Under Secretary of Defense for Acquisition, Technology, and Logistics, and
the Senior Executive Council, chaired by the Deputy Secretary of Defense.

16For major defense acquisition programs, this executive, known as the
Milestone Decision Authority, is typically the Under Secretary of Defense
for Acquisition, Technology, and Logistics; the component head; or the
component's acquisition executive.

1710 U.S.C. S: 2432(b)(2); 10 U.S.C. S: 2433(e)(1).

MDA Is Taking Several Corrective Actions

18The BMDS as a whole meets the definition of a major acquisition program
and is treated as such. However, MDA does not divide research,
development, test, and evaluation of the BMDS or its elements into the
acquisition phases defined by DOD acquisition regulations, and thus
neither the BMDS nor its elements will enter system development and
demonstration. Accordingly, the baseline required by 10 U.S.C. S: 2435
will not be required of the BMDS or its elements until they enter the
formal DOD acquisition cycle (i.e., while being transferred to the
warfighter for production and deployment).

19Section 234(e) of the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005 (Pub. L. No. 108-375) established the requirement
for MDA's cost, schedule, and performance baselines and the reporting of
those baselines in the Selected Acquisition Report.

20However, MDA must report any modifications to its cost, schedule, and
performance baselines to the congressional defense committees, with the
rationale for the modification. Pub. L. No. 108-375 S: 234(g).

21Pub. L. No. 108-375 S: 234(f).

Contracts to Reflect the Importance of Good Quality Assurance Strategy

MDA Renews Emphasis on Contractor Surveillance

22Mission- and safety-critical items are those items whose failure would
directly affect system or personnel safety, mission success, or
operational readiness.

MDA Restructures GMD's Test Plan

Corrective Actions May Not Alleviate Pressures Associated with Schedule-Driven
Block Approach

Conclusions

Recommendations for Executive Action

Agency Comments and Our Evaluation

Appendix I: Comments from the Department of Defense Appendix I: Comments
from the Department of Defense

A Appendix II: Block 2004 Element Assessments

Aegis BMD

Program Accomplishes Fielding Plan

Test Results Are Good, but Further Tests Are Needed

1The terms "intercontinental ballistic missile" and "long-range ballistic
missile" are used interchangeably. They are, by definition, ballistic
missiles with ranges greater than 5,500 kilometers (3,400 miles).

Ground-Based Midcourse Defense

Progress during Block Falls Short of Expectations

Program Did Not Meet Scheduled Deliveries

GMD Unable to Carry Out Flight Test Plan

Program Proves GMD Concept, but Not Its Design

Command, Control, Battle Management, and Communications

Most Block 2004 Activities Completed on Schedule

2The C2BMC element includes hardware, such as workstations and
communications equipment.

Performance Mostly on Track

Table 7: C2BMC Risk Areas

Program risks          Impact of risk            Corrective actions        
Track association from Significant riska: If the    o  Implemented         
multiple new Block     sensor tracks are            improvements to        
2004 sensors           unidentified, the            algorithms to handle   
                          situational awareness        new Block 2004         
                          displays are degraded by     sensors-initial        
                          overstating or               testing results are    
                          understating the number      meeting requirements.  
                          of lethal objects            o  Continue to         
                          impacting in a certain       participate in and     
                          region.                      analyze results of     
                                                       various live and       
                                                       simulated tests with   
                                                       the other MDA          
                                                       elements.              
High-availability      Extensive riskb: If          o  First network nodes 
communications network high-availability design     have been upgraded     
equipment design       does not function            with high-availability 
                          properly, the reliability    system-nodes have been 
                          of the second set of         tested and are         
                          communications network       operating as designed. 
                          equipment at each         
                          controlling command and   
                          regional gateway is       
                          degraded.                 
Integration of new     Significant risk: If         o  Developed interface 
Block 2004 interfaces  C2BMC cannot transmit or     documents to allocate  
(Ground-based          receive messages from GFC    functionality, define  
Midcourse Fire Control and FBX-T, then ability      work, and clearly      
and FBX-T)             to control FBX-T radar,      articulate interfaces. 
                          forward track messages       o  Holding weekly      
                          from FBX-T to GFC, and       technical interchange  
                          display GFC sensor track     meetings to identify   
                          data, engagement data,       and resolve issues.    
                          and health and status        o  Completed pair-wise 
                          data is degraded.            testing, as well as    
                                                       integration testing to 
                                                       identify and resolve   
                                                       problems quickly.      

Source: MDA (data); GAO (analysis).

aSignificant risk: can meet requirements with about a month's time or cost
to develop work-arounds or alternatives.

bExtensive risk: severe issues and items that cause program officials to
be unable to meet requirements without about a quarter of a year `s time
or cost to develop alternatives.

Terminal High Altitude Area Defense

The THAAD element is being developed as a mobile, ground-based missile
defense system to protect forward-deployed military forces, population
centers, and civilian assets from short- and medium-range ballistic
missile attacks. A THAAD unit consists of a THAAD fire control component
for controlling and executing a defensive mission, truck-mounted
launchers, ground-based radars, interceptor missiles, and ground support
equipment. The THAAD missile is composed of a kill vehicle mounted atop a
single-stage booster and is designed to destroy enemy warheads through
hit-to-kill collisions.

Assessment of Element Progress

The THAAD program is not expected to deliver an initial capability until
2009, when a fire unit and 24 missiles will be handed over to the Army for
concurrent test and operation. Fiscal year 2005 activities focused on
developing and ground-testing THAAD components in preparation for the
initiation of THAAD's flight test program. While several of these
preparatory activities were completed on schedule, others were deferred,
causing a further delay in the flight test program. According to program
officials, unanticipated missile integration issues caused the delay.

Integration Problems Delay Flight Tests

During fiscal year 2005, the THAAD program accomplished several key
activities in preparation for flight tests, but flight tests began later
in the block than planned. Program officials successfully integrated
software upgrades into the launcher and radar and completed missile
qualification tests that lead to flight readiness certification. However,
a flight test delay that we reported last year has lengthened. 3 Two
explosions in the summer of 2003 at a subcontractor's propellant mixing
facility delayed the start of flight testing from December 2004 to March
2005 and led to revisions of the program's flight test plan. However,
because of unanticipated integration issues, the first flight test, which
validated missile performance in a high endoatmospheric flight
environment, was further delayed from March to November 2005.4 The delay
occurred because program officials found problems with THAAD's Laser
Initiated Ordnance System and its telemetry system during ground tests and
assembly operations.5 The discovery of these problems delayed other ground
tests and the assembly of the THAAD missile being manufactured for the
first THAAD flight test.

3GAO, Defense Acquisitions: Status of Ballistic Missile Defense Program in
2004, GAO-05-243 (Washington, D.C.: March 2005).

4MDA successfully completed the first THAAD flight test on November 22,
2005.

Tests identified two problems in the Laser Initiated Ordnance System. A
design issue caused one subcomponent to fail during testing, delaying the
Laser Initiated Ordnance System's qualification test. Also, during
assembly operations, the program identified a change in the Laser
Initiated Ordnance System's power output that required the program to
improve the design robustness of a fiber optic cable assembly. Additional
qualification testing was then required to obtain range safety approval.
Both of these problems, which were discovered during ground and
qualification tests, were solved, but not before they affected the flight
test schedule.

The program also identified a problem with the missile's telemetry system,
which transmits flight test data to ground stations for observation during
testing. During integration testing, transmission errors occurred between
the missile's telemetry system and the ground test station. Program
officials told us that a solution was found that eliminated transmission
errors in the first flight test. However, the telemetry system is not
providing as much information as wanted in one mode of operation.
According to the officials, this does not present a problem until flight
test 3, which is scheduled for July 2006, and a solution is expected by
that time.

The THAAD program also had to address a number of range safety
requirements prior to the initiation of flight testing. In September, the
officials told us that they had addressed all requirements related to the
first flight test, which did not involve an intercept attempt, and the
majority of the requirements related to the second flight test. Officials
do not expect any range safety requirements to delay future flight tests.

THAAD program officials plan to conduct 14 more flight tests between April
2006 and December 2008. To complete these tests prior to handing the first
THAAD fire unit over to the Army for concurrent operation and tests in
2009, the program will have to successfully conduct as many as 5 flight
tests in each fiscal year. Program officials told us that if all tests are
successful, they can meet this schedule. However, a failure will cause
delays.

5The Laser Initiated Ordnance System initiates THAAD missile artillery
events such as boost motor ignition, separation, and flight termination.
THAAD's telemetry system transmits flight test data to ground stations for
observation during tests.

THAAD's Performance Remains Uncertain

THAAD's performance and effectiveness remain uncertain until the program
conducts flight tests with updated hardware and software. Data from flight
testing are needed to anchor simulations of THAAD's performance and to
more confidently predict the element's effectiveness.

Airborne Laser

The ABL element is a missile defense system designed to shoot down enemy
missiles during the boost phase of flight, the period after launch when
the missile's rocket motors are thrusting. The concept involves the
coordinated operation of a high-energy laser and a beam control system
that focuses the laser on a target missile. By rupturing the missile's
fuel or oxidizer tank, the laser causes the missile to lose thrust or
flight control, and the missile cannot reach its intended target.

The ABL element consists of three major components integrated onboard a
highly modified Boeing 747 aircraft-a high-energy chemical oxygen-iodine
laser; a beam control/fire control component to focus the laser's energy
on a targeted spot of the enemy missile; and a battle management/command
control, computers, communications, and intelligence component to plan and
execute the element's defensive engagements. In addition, the element
includes ground support infrastructure for storing, mixing, and handling
chemicals used in the laser.

Most Fiscal Year 2005 Activities Completed on Schedule

Commensurate with its fiscal year 2004 restructuring effort, the ABL
program continued to focus on near-term milestones. By accomplishing its
near-term goals, the program expects to increase confidence in its
longer-term program objectives of demonstrating ABL's lethality against a
short-range ballistic missile target.6 During fiscal year 2005, the
program focused its efforts on testing ABL's Beam Control/ Fire Control
and its high-energy laser. Nearly all activities related to these
milestones were completed on schedule. Program officials noted that the
program's progress over the past 18 months caused Congress to appropriate
an additional $7 million for ABL's fiscal year 2006 budget.

6In January 2004, MDA restructured the ABL program to focus on near-term
milestones and to improve confidence in longer-term schedule and cost
projections.

Both First Flight and First Light-the first major milestones of the
restructured program-were achieved during the first quarter of fiscal year
2005.7 First Flight was the first of a series of planned flight tests with
the Beam Control/ Fire Control segment. The test demonstrated that all
necessary design, safety, and verification activities to ensure flight
worthiness had been completed. It also began the process of expanding the
flight envelope-types and combinations of flight conditions-in which ABL
can operate. The program also completed scheduled activities associated
with a series of Beam Control/ Fire Control low-power passive flight
tests.8 The program is currently integrating the full Beam Control/ Fire
Control with the Beacon Illuminator Laser, which helps mitigate the
effects of the atmosphere on the laser beam's quality and with the
Tracking Illuminator Laser, which helps focus the laser beam on its
target. Once integration is complete, the program plans to conduct a
series of active flight tests planned for summer 2006.9

First Light, which integrated six individual laser modules to demonstrate
that the combined modules can produce a single beam of laser energy, was
completed in November 2004. Further tests to extend the duration of the
laser's operation were scheduled for completion in September 2005.
However, the tests were not completed until fiscal year 2006.

The program plans to conduct its lethality demonstration-a flight test in
which the ABL aircraft will attempt to shoot down a short-range ballistic
missile-no earlier than 2008. If this test is successful, MDA believes it
will prove the concept of using directed energy for missile defense.

Program Moves Forward with Testing

As previously noted, the ABL's fiscal year 2005 test program was centered
on its Beam Control/ Fire Control passive flight test series and its
high-energy laser ground tests. The flight test series included 28 tests
that enabled the program to

7"First Light" refers to the first ground test and demonstration of the
integration of six individual laser modules that produced a single beam of
laser energy.

8Passive flight tests are conducted without the use of the Beacon
Illuminator Laser (BILL) or the Tracking Illuminator Laser (TILL). The
BILL and TILL are part of the laser-beam control system used to mitigate
the effects of the atmosphere on beam quality and to focus the laser beam
on the target. In contrast, active flight tests include the use of the
illuminator lasers.

9Active flight tests include the use of a functioning BILL and TILL.

           o  demonstrate the performance of the aircraft's turret, laser
           optics, and initial integration of Beam Control/ Fire Control
           software;

           o  verify the structural performance of the Active Ranger System-a
           system that helps ABL predict a missile's launch point;

           o  complete flights under various combinations of flight
           conditions;

           o  collect data critical for readying the aircraft for laser
           installation; and

           o  demonstrate the performance of Link-16-a communications
           component that ABL uses to interact with other elements of the
           BMDS.

           The demonstration of First Light proved that individual laser
           modules, which have the fit and function needed to be placed on
           the aircraft, could be successfully integrated to produce a single
           laser beam for a fraction of a second. The program planned a
           series of tests during fiscal year 2005 that would gradually
           increase the length and power of the laser's operation. However,
           problems encountered during testing limited the duration of lasing
           to less than 1 second and affected the program's ability to
           determine the laser's maximum power output. Program officials told
           us that two of the laser's individual laser modules experienced
           alignment issues that prompted the system to shut down prior to
           completing extended lase times. The alignment problem was
           rectified and the program was able to conduct additional tests at
           longer durations. Over the fiscal year, the program operated the
           high-energy laser 51 times for a total of 23.5 seconds, with the
           longest duration being 5.25 seconds. On December 6, 2005, the
           program conducted a longer-duration test of the high-energy laser
           and was able to sustain the beam for more than 10 seconds. The ABL
           also produced approximately 83 percent of its design power.

           Although the ABL has not reached 100 percent of its design power,
           program officials told us that the 83 percent power is sufficient
           to achieve 95 percent of maximum lethal range against all classes
           of ballistic missiles. Prior to the longer-duration test, program
           officials told us that the laser would not be installed on the
           aircraft until it produced 100 percent of its specified power.
           However, on December 9, 2005, the Director, MDA, gave the program
           permission to disassemble the System Integration Laboratory and
           begin installation of the laser on the aircraft. Program officials
           said that the program will continue to test the laser when the
           aircraft is on the ground in an effort to demonstrate that the
           laser can produce 100 percent of its design power.

           The program continues to characterize jitter as a risk to the ABL
           system's overall performance. Jitter is a phenomenon pertaining to
           the technology of controlling and stabilizing the high-energy
           laser beam so that vibration unique to the aircraft does not
           degrade the laser's aim point. Jitter control is crucial to the
           operation of the laser because the laser beam must be stable
           enough to focus sufficient energy on a fixed spot of the target
           missile to rupture its fuel or oxidizer tank. Program officials
           told us that they will not be fully confident that jitter can be
           controlled until it is demonstrated in an operational environment
           during the lethality demonstration, but data on the two major
           components that cause jitter were collected in ABL's System
           Integration Laboratory. These data were fed into simulations and
           models that help the program understand the effects of jitter and
           how components can be designed to reduce jitter. According to
           program officials, data obtained during recent laser and flight
           tests increased the program's understanding of the phenomenon.

           The KEI element is being designed as a mobile, multi-use
           land-based system designed to destroy medium, intermediate, and
           intercontinental ballistic missiles during boost and all midcourse
           phases of flight. MDA originally planned to develop KEI to defeat
           threat missiles during the boost phase of their flight. However,
           in 2005 MDA directed the KEI program to incorporate the capability
           to engage missiles during both the ascent and the descent portions
           of the midcourse phase of flight, as well as the boost phase.

           The KEI program is currently focused on developing a mobile,
           land-based system that according to program officials is expected
           to be available in the Block 2014 time frame. The land-based
           system will be a deployable unit consisting of a fire control and
           communications unit, mobile launchers, and interceptors. The KEI
           element has no sensor component, such as radars, for detecting and
           tracking boosting missiles. Instead, it will rely on external
           ballistic missile defense system sensors, such as space-based
           infrared sensors and forward-deployed radars.

           A sea-based capability is planned in subsequent blocks.
           Preliminary work will also begin on a space-based interceptor in
           fiscal year 2008. If MDA should decide to go forward with a
           space-based interceptor, it would not be deployed until the next
           decade.

           Although the KEI program completed many planned activities on
           schedule, the program continued to progress slower than
           anticipated. KEI officials were forced to replan several
           activities and reduce the scope of others after both Congress and
           MDA reduced program funding.

           The activities completed during the fiscal year included
           constructing a shelter to house prototype fire control and
           communications equipment and conducting several demonstrations.
           According to program officials, the demonstrations showed the
           prototype equipment could collect data from overhead nonimaging
           infrared satellites in a time frame that would make a boost phase
           intercept possible. In addition, the program completed studies
           that allowed it to optimize the design of communications equipment
           that uplinks information from KEI's fire control and
           communications component to its interceptor so that there is a
           decreased likelihood that communications will be jammed. The
           studies also allowed the program to optimize the equipment's
           design to operate in a nuclear environment.

           Other activities scheduled to be completed during fiscal year 2004
           were deferred into fiscal year 2005 and have now been further
           delayed. For example, the System Requirements Review, which
           documents mission objectives, identifies critical components, and
           establishes a program plan, was delayed from fiscal year 2004 to
           2005 and then to fiscal year 2007. Program officials noted that
           funding shortfalls also forced the program to eliminate some of
           its initial risk reduction activities. For instance, the program
           originally planned to develop a two-color seeker, which would aid
           in plume-to-hardbody handover.10 However, because of a reduced
           program budget, program officials now plan to take advantage of
           the Aegis Ballistic Missile Defense program's development of a
           two-color seeker and to work on a KEI-specific two-color seeker
           later in the program.

           In fiscal year 2005, the KEI program office planned to continue
           work on its Near Field Infrared Experiment (NFIRE), an
           experimental satellite that will collect infrared imagery of
           boosting intercontinental ballistic missiles. In 2004, the KEI
           program office signed a memorandum of agreement and transitioned
           day-to-day management and execution of NFIRE to the Space Tracking
           and Surveillance System program. The STSS Program Office has
           experience with satellite development and can leverage its
           resources to manage the experiment. STSS expects to launch NFIRE
           in September 2006, the launch date established by the KEI Program
           Office.

           At this early stage of element development, data are not available
           to evaluate element performance. However, the program office
           identified areas of high risk that could affect performance.11 The
           interceptor's booster motors, which demand high performance for
           KEI engagements, and the algorithm enabling the kill vehicle to
           identify a target missile's body from its luminous exhaust plume,
           are high-risk technologies. Initially, program officials were
           focused on designing KEI and maturing these technologies
           concurrently. However, the program has adopted an approach that
           lets it proceed with less risk. KEI is now focused on maturing the
           high-risk technologies before integrating them into the land-based
           capability.

           In 2008, KEI is scheduled to participate in its first booster
           flight test. According to program officials, at that time a
           decision will be made on the program's future. In spite of program
           uncertainties, program officials are working to extend the prime
           contract. Currently, KEI's contract, which was awarded in December
           2003, has a term that extends through January 2012 (98 months).
           Program officials are now working to extend this period until
           September 2015 (143 months).

           MDA is developing STSS as a space-based sensor element of the
           BMDS. It is currently working on the first increment of STSS,
           which is focused on the preparation and launch of two technology
           demonstration satellites partially built under the former
           Space-Based Infrared System-Low (SBIRS-Low) program.12 Each
           satellite making up the program's "space segment" includes a space
           vehicle and a payload of two infrared sensors-an acquisition
           sensor to watch for the bright plumes (hot exhaust gas) of
           boosting missiles, and a tracking sensor to follow the missile
           through midcourse and reentry. The STSS element also has
           supporting ground infrastructure, known as the ground segment,
           which includes a ground station and mission software to support
           the processing and communication of data from the satellites to
           the BMDS.

           MDA plans to launch these satellites in 2007, in tandem, in an
           effort to assess how well they perform surveillance and tracking
           functions. Using data collected by the satellites, MDA will
           determine what capabilities are needed and what goals should be
           set for the next generation of STSS satellites. The first
           operational constellation of satellites is expected to be
           available in the 2012 time frame.

           The STSS program accomplished many of the activities planned for
           completion in fiscal year 2005. Both spacecraft buses have been
           integrated and tested, the first of two ground software builds has
           successfully completed acceptance testing, and the second software
           build is progressing on schedule. However, one key activity,
           delivering the payload for the first satellite, was delayed
           because of problems in testing of the payload. By contract, the
           payload for the first satellite was supposed to be delivered in
           January 2005, but delivery has been delayed twice, with the last
           delaying delivery until early 2006. The delays are affecting
           scheduled work on the second satellite's payload, potentially
           delaying the satellites' launch date.

           During our last assessment of STSS, the program office expected
           the satellites to be launched in February 2007, earlier than the
           contract date of July 2007. However, the more recent problems and
           delays may result in the launch being later than February 2007,
           but still before the required launch date of July 2007. The
           program office is so confident that it will launch on time that it
           has placed an order through the National Aeronautics and Space
           Administration (NASA) for the Delta II launch vehicle, with a
           requested launch date during the second quarter of fiscal year
           2007.

           The first satellite payload is being delayed because problems
           occurred during thermal vacuum testing. Hardware issues emerged
           when the payload was tested in a vacuum and at cold temperatures
           for the first time. Although the significance of the problems is
           not yet clear, repairs will have to be made. The program office
           and contractors plan to make the repairs and then decide if
           further testing is needed to ensure that all problems have been
           corrected. Several options for testing the payload are being
           considered. They include (1) retesting the payload in the thermal
           vacuum chamber without making repairs; (2) taking the payload out
           of the chamber, completing the repairs, and then retesting; (3)
           taking the payload out of the chamber and conducting tests at
           ambient (room) temperatures; or (4) shipping the payload as is to
           the prime contractor for retest at the contractor's facility.
           However, if the program decides to return the payload to the
           contractor's facility, the contractor could not test as
           specifically as could be done in the vacuum chamber, making it
           challenging to isolate problems. If further testing is completed
           before returning the payload to the prime contractor, several
           weeks will be added to the schedule because the payload will have
           to be removed from the vacuum chamber, disassembled, repaired,
           reassembled, and placed back in the chamber. The chamber will then
           have to be returned to the right vacuum and temperature conditions
           and the payload retested.

           The program office is having an independent team review the
           situation with the first payload to determine how much more
           testing should be conducted. The program manager does not believe
           any of the thermal vacuum testing problems are mission assurance
           or performance issues.

           In addition to the thermal vacuum issues, integration issues have
           been discovered as the subcontractor continues to integrate and
           test the payload at successively higher levels of integration. The
           payload ambient-level testing took nearly 3 months longer than
           expected to complete. This was due to the large number of software
           and hardware integration issues discovered when the flight
           hardware and software were tested together for the first time.
           Most software issues are due to the configuration differences
           between the pathfinder hardware that served as the test bed for
           the payload software and the actual flight hardware.

           The quality and workmanship problems with the payload
           subcontractor have continued to persist. These problems have been
           ongoing for the last 2 years and have contributed to a schedule
           delay in delivering the payload. According to program officials,
           the quality and workmanship problems are the result of the
           subcontractor's lack of experience. Examples of the quality and
           workmanship issues include the initial failure of the second
           satellite's track sensor during vibration testing. The failure
           occurred because fasteners were not tightened according to
           specifications and because payload cables were poorly manufactured
           by a third-tier vendor. Although neither of these issues resulted
           in damage to the flight hardware, both have taken substantial
           management attention and considerable effort to correct. In
           response to the quality and workmanship issues, quality control at
           the subcontractor's site has undergone significant restructuring.
           In addition, the prime contractor's on-site quality organization
           at the subcontractor's site stepped up its inspection and
           supervision of all processes and is providing mentoring. A
           reeducation effort was also undertaken to ensure that all
           personnel on the program knew and understood the program
           instructions.

           The program office expects that the quality improvements the
           payload subcontractor has implemented will reduce the probability
           of additional quality-related issues in the future. According to
           the program office, the integration issues that have been
           discovered are not unusual for a first-time integration effort,
           but are taking more time than planned to work through. However,
           the second satellite's hardware is consistently moving through
           integration and testing much more efficiently than the first
           satellite's hardware.

           Prime contractors typically receive most of the funds that MDA
           requests from Congress each fiscal year to develop elements of the
           BMDS. To determine if it is receiving a dollar of value for each
           dollar it spends, each BMDS program office requires its prime
           contractor to provide monthly reports detailing cost and schedule
           performance. In these reports, which are known as Contract
           Performance Reports (CPR), the prime contractor makes comparisons
           that inform the program as to whether the contractor is completing
           work at the cost budgeted and whether the work scheduled is being
           completed on time.1 If the contractor does not spend all funds
           budgeted or completes more work than planned, the CPR shows
           positive cost and/or schedule variances. Similarly, if the
           contractor spends more than planned or cannot complete all of the
           work scheduled, the CPR shows negative cost and/or schedule
           variances. Using data from the CPR, a program manager can assess
           trends in cost and schedule performance, information that is
           useful because trends tend to persist. Studies have shown that
           once a contract is 15 percent complete, performance metrics are
           indicative of the contract's final outcome.

           We used CPR data to assess the fiscal year 2005 cost and schedule
           performance of prime contractors for seven BMDS elements. When
           possible, we also predicted the likely cost of each prime contract
           at completion. Our predictions of final contract cost are based on
           the assumption that the contractor will continue to perform in the
           future as it has in the past. An assessment of each element is
           provided in this appendix.

           The Aegis BMD program has a prime contract for each of its two
           major components-the Aegis BMD Weapon System and the Standard
           Missile-3. During fiscal year 2005, both contractors completed
           most of their planned activities on time and at or less than
           budgeted costs. Based on the weapon system contractor's
           performance through fiscal year 2005, the contractor could
           underrun the budgeted cost of the contract by about $7.1 million
           to $12.5 million, while the SM-3 contractor could underrun its
           budgeted costs for the contract by about $11.5 million to $17.8
           million.

           Weapon System CPRs show that the contractor underran its budgeted
           costs for the prime contract and was able to complete all of its
           planned work on schedule. The weapon system contract's cumulative
           cost and schedule variances-variances that take into account all
           work completed on the contract since its award-are highlighted in
           figure 2.

           Figure 2: Aegis BMD Weapon System Fiscal Year 2005 Cost and
           Schedule Performance

           According to program officials, the minimal schedule variance
           during the fiscal year was driven by ship availability and
           changing test event schedules. Additionally, the contractor
           incurred a $6 million positive cost variance as a result of
           underruns for Block 2004 and Block 2006 efforts. In September
           2005, work tasks were replanned for the Block 2004 completion
           effort to reflect funding impacts.

           The prime contractor for the SM-3 missile component performed
           within its budgeted costs, but was slightly behind schedule. By
           the end of fiscal year 2005, the contractor reported a positive
           cost variance of $10.9 million and a negative schedule variance of
           $9.6 million. Figure 3 illustrates the cumulative cost and
           schedule performance for the SM-3 prime contractor.

           Figure 3: Standard Missile 3 Fiscal Year 2005 Cost and Schedule
           Performance

           Our analysis of CPR data shows that the contractor spent less than
           budgeted because it did not need all staff originally planned to
           conduct test events; these events were delayed because of ship
           availability and fleet priorities. Program officials told us that
           the tests were rescheduled when the contractor was unable to meet
           the planned test dates. The funds budgeted for these tests will be
           used to conduct the tests at the rescheduled dates.

           The delayed test events also caused the contractor to fall
           slightly behind schedule. In addition, the contractor could not
           complete some planned work because hardware deliveries were late,
           delaying related integration activities. Despite these delays, the
           program asserts that the contractor has met most of its
           contractual delivery dates thus far, and the program expects the
           contractor to meet future delivery obligations.

           Our analysis of ABL CPRs indicates that the prime contractor's
           cost and schedule performance declined during fiscal year 2005
           despite the program's restructuring efforts in the spring of 2004.
           The program restructured the contract to give the contractor a
           more realistic budget and schedule to do work that is needed to
           get ready for and complete a lethality demonstration of the ABL
           element. Despite these adjustments, the contractor was unable to
           complete fiscal year 2005 activities within budget or on schedule.
           As illustrated in figure 4, the ABL contractor incurred a negative
           cost variance of $23.1 million and a negative schedule variance of
           $23.6 million during fiscal year 2005.

           Figure 4: Airborne Laser Fiscal Year 2005 Cost and Schedule
           Performance

           Note: As agreed to by both the contractor and the ABL System
           Program Office, August 2005 CPR data included actual costs only.
           Therefore, the data point for August 2005 is not included.

           The program planned to complete two major activities during fiscal
           year 2005-passive flight tests of ABL's Beam Control/Fire Control
           component and duration tests of the system's high-energy laser. 2
           However, technical challenges associated with these activities
           increased costs and delayed scheduled work. Changes had to be made
           to Beam Control/Fire Control software, and additional work was
           needed on the Beam Control/Fire Control Hard Wire Abort System to
           support test activities. In addition, the program also
           reprioritized activities throughout the program. Furthermore, the
           contractor informed the ABL program office that negative cost
           variances caused by technical problems related to the element's
           Active Ranger System and Beacon Illuminator Laser components
           cannot be recovered.3 These problems and their potential impact on
           the program are outlined in table 8.

Jitter Continues to Threaten ABL Performance

Kinetic Energy Interceptor

KEI Progresses Slowly

NFIRE Management Transferred To STSS

10"Plume-to-hardbody" handover refers to the identification of the actual
missile from among the plume of hot exhaust gas that obscures the body of
the boosting missile.

Too Early to Assess KEI's Performance

Contract Extended despite Uncertain Future

Space Tracking and Surveillance System

11"High-risk" means that the program will not meet its objectives without
priority management actions and risk reduction activities.

12The two technology demonstration satellites were called the Flight
Demonstration System. The satellites are expected to assume low-earth
orbits at an altitude much less than satellites in geosynchronous orbit.

Progress on Demonstration Satellites Slows

Vacuum Tests Delay Delivery of Payload

Program Continues to Address Quality Problems

Appendix III: An AssessContractors' Cost and S Appendix III: An Assessment
of BMDS Prime Contractors' Cost and Schedule Performance

Aegis BMD Contractors Deliver Good Performance

Aegis BMD Weapon System Contractor Mostly on Track

1In March 2005, DOD directed that CPRs be named Contract Performance
Reports. Formerly, CPRs were known as Cost Performance Reports.

Standard Missile-3 Contractor's Cost Performance Is Mostly Good

Despite Restructure, ABL Contractor Experiences Cost and Schedule Growth

Table 8: Airborne Laser Technical Issues and Their Potential Impact on
Program

Component     Technical issue        Potential impact                      
Active Ranger    o  Laser range         o  Schedule delays-the program     
System (ARS)     receiver cannot        currently anticipates that the ARS 
                    consistently           will not be delivered until after  
                    perform as expected    ABL's lethal demonstration, which  
                    o  Contaminated,       is scheduled to be completed no    
                    damaged, and           earlier than 2008. According to    
                    inefficient optics     program officials, the ARS is not  
                    must be redesigned     required for lethal demonstration. 
                    and replaced           o  Decrease in expected            
                    o  The ARS does not    performance-without the ARS, the   
                    meet all design        ABL has reduced ability to         
                    requirements           estimate missile launch and impact 
                                           points. ABL's ability to respond   
                                           to simultaneous missiles may also  
                                           be reduced.                        
Beacon           o  Rapid               o  Delays in completing            
Illuminator      prototyping led to     performance testing of the         
Laser            numerous faults in     component                          
                    power supplies      

Source: MDA.

According to program officials, the late delivery of the Active Ranger
System will not affect ABL's planned 2008 lethality demonstration because
the test will not require ABL to estimate the target missile's launch or
impact point. Neither will the test include more than one target. However,
the delay could affect the contract's schedule and cost because planned
work related to the Active Ranger System may not be completed and the cost
of unplanned work needed to resolve the technical problems was not
included in the contractor's budget.

2The Beam Control/Fire Control component's primary function is to maintain
the beam's quality as it travels through the aircraft and into the
atmosphere. Passive flight tests of this component are tests conducted
without ABL lasers that measure atmospheric disturbance and that track the
target.

3The Active Ranger System is the laser that sits atop the aircraft and
provides preliminary range and tracking of a target missile. The Beacon
Illuminator Laser is the laser that bounces a beam off the target missile
back to the aircraft and thus measures the amount of atmospheric
disturbance between the aircraft and the target.

Despite program challenges, program officials noted that the contractor
still believes it can complete the contract within the current contract
ceiling. However, based on our analysis of the program's fiscal year 2005
performance, we estimate a contract overrun of between $43.8 million and
$231.7 million.

Lack of Reporting Limits Knowledge of C2BMC Contractor's Performance

Our analysis of the performance of the contractor developing the C2BMC
element was limited because the program did not deliver CPRs for 6 months
during fiscal year 2005. Program officials cited the dynamics of the
program as the primary reason for the suspension. In 2004, the C2BMC
program office directed the contractor to add requirements to integrate a
Forward-Based X-band-Transportable radar into the program's architecture,
adjust its schedule to absorb funding reductions, and make several
high-priority engineering changes. The contractor was unable to update its
work plan and realign its budget quickly enough to reflect these changes.
Without changes, CPRs would have compared the work under way with an
outdated schedule and budget and would not have reflected the contractor's
true performance. The contractor completed all activities needed to replan
its work in May 2005 and began to deliver CPRs in June 2005. By the close
of fiscal year 2005, the contractor reported that it was performing work
within budget and slightly behind schedule. The cumulative cost and
schedule variances for the contract were approximately positive $1.7
million and negative $ 0.9 million, respectively. Our analysis shows that
based on its performance so far, the contractor should be able to complete
all scheduled contract work within the contract's negotiated cost.

GMD Contractor's Performance Continues to Decline

The GMD prime contractor's cost and schedule performance continued to
erode during fiscal year 2005. By September 2005, the cumulative cost of
all work completed was $713 million more than expected, and the contractor
had incurred a cumulative negative schedule variance of $228 million. In
fiscal year 2005 alone, work cost about $365 million more than budgeted.
Furthermore, CPRs show that the contractor incurred a negative schedule
variance of approximately $39 million during the fiscal year. However,
officials in MDA's Office of Business Management told us that the schedule
variance does not capture some work planned for fiscal year 2005 that was
deferred. The officials said that if the contractor deferred fiscal year
2005 work to another fiscal year before the work was begun, the CPR would
not show that the contractor was behind schedule in completing that work.

Judging from the contractor's cost and schedule performance in fiscal year
2005, we estimate that at the contract's completion, the contractor will
have overrun the budgeted cost of the contract by between $1.0 billion and
$1.4 billion. Figure 5 shows the unfavorable trend in GMD fiscal year 2005
performance.

Figure 5: Ground-based Midcourse Defense Fiscal Year 2005 Cost and
Schedule Performance

Developmental issues with the interceptor continue to be the leading
contributor to cost overruns and schedule slips for the GMD program.
Interceptor-related work cost $240 million more than budgeted in fiscal
year 2005, with the kill vehicle accounting for more than 42 percent of
this overrun. Poor quality control has led to a number of technical
problems with the kill vehicle-such as foreign object debris in wiring
harnesses and leaks in thermal batteries-that have increased manpower and
rework costs. Additionally, the contractor for the BV+ booster incurred
increased costs as a result of inefficiencies related to its transition to
a new supplier. New requirements and redesign efforts related to the BV+
booster also contributed to the prime contractor's negative cost
performance.

The program's schedule variance grew as flight and ground tests were
delayed. During fiscal year 2005, several flight tests were deferred after
the interceptors in two flight tests failed to launch. The GMD program has
restructured its test plan, and the first flight test was successfully
conducted in December 2005. Program officials noted that the contractor
expects to reduce its schedule variance in fiscal year 2006. However, the
program's negative performance forced the program to restructure its
future work efforts and extend its prime contract by 1 year.

Kinetic Energy Interceptors

In March 2005, we reported that plans to restructure the KEI contract
prompted program office officials to suspend CPRs.4 The contract has since
been restructured, and the contractor began delivering CPRs in March 2005.
As of September 2005, the KEI prime contractor had completed approximately
4 percent of its planned work and was performing within its budgeted
costs, but slightly behind schedule. The program incurred a positive cost
variance of $3.0 million and a negative schedule variance of $3.9 million
during the fiscal year. Because the contractor has completed a small
percentage of the work required by the contract, the contractor's
performance to date cannot be used to estimate whether the contract can be
completed within its estimated cost.

The KEI program is undergoing several contract modifications to address
additional requirements. In July 2005, the program modified the contract
to require that KEI be capable of intercepting enemy missiles in the
midcourse of their flight. Consequently, the program plans to extend the
prime contract to better align its cost and schedule objectives with the
new work content. Future CPRs will compare the contractor's performance
with the new cost and schedule objectives. Program officials plan to begin
work on the midcourse capability in fiscal year 2008 and will continue to
develop this capability through the end of the contract, which is expected
to be September 2015.

4GAO, Defense Acquisitions: Status of Ballistic Missile Defense Program in
2004, GAO-05-243 (Washington, D.C.: Mar. 31, 2005).

STSS Contractor's Performance Declines

Our analysis of contractor performance reports shows that the STSS program
continued to experience a decline in contractor performance during fiscal
year 2005. As depicted in figure 6, the contractor incurred cumulative
negative cost and schedule variances of $97 million and $20 million,
respectively. If the contractor's performance continues to decline, we
estimate that at its completion the contract will exceed budgeted cost by
between $248 million and $479 million. However, program officials noted
that more than 90 percent of the contractor's past performance can be
attributed to a subcontractor whose work will be completed in fiscal year
2006.

Figure 6: Space Tracking and Surveillance System Fiscal Year 2005 Cost and
Schedule Performance

Quality issues with the subcontractor were the primary reason that the
STSS prime contractor overran its fiscal year 2005 budget. For example,
poor workmanship caused a satellite's sensor payload to fail a vibration
test because fasteners-designed to hold the sensor steady-were not
tightened according to specifications. Additionally, poor workmanship at a
third-tier vendor led to difficulties in manufacturing payload cables.

Program officials told us that the prime contractor had to direct
management attention and considerable effort to rectify the effects of the
subcontractor's poor quality control procedures. In addition to citing
quality issues, program officials told us that they continue to encounter
integration-related problems as the program progresses with testing the
payload at successively higher levels of integration.

Program officials noted that the subcontractor has made some improvements
to its quality control program that should minimize future quality-related
problems. For example, the subcontractor instituted an on-site Quality
Assurance Council to develop improvements to the quality process at all
levels of the organization. Additionally, quality personnel increased the
number of inspections and supervision of all processes to ensure quality
control.

Overall Performance of THAAD Contractor Declines

During fiscal year 2005, the THAAD program incurred cumulative cost
overruns on its prime contract. As of September 2005, the contractor was
overrunning its budgeted costs for the fiscal year by approximately $19
million, but it was still ahead of schedule. Because the cost performance
of the contractor prior to fiscal year 2005 was positive, the cumulative
overrun through September 2005 was about $15 million. Figure 7 illustrates
the cumulative cost and schedule variances incurred by the program during
the fiscal year. Judging from the contractor's cost performance to date,
we estimate that the contract could exceed its budgeted cost by about $48
million.

Figure 7: Terminal High Altitude Area Defense Fiscal Year 2005 Cost and
Schedule Performance

During fiscal year 2005, the missile component continued to be the lead
cause of the contractor's negative performance. Major factors contributing
to the missile's cost variance include delays in activating a test
facility at the Air Force Research Laboratory, redesign of faulty valves,
performance issues related to vibration and shock testing, and unplanned
hardware fabrication, assembly, and support costs. Redesign, material
growth, and integration issues related to the missile also contributed to
the program's unfavorable cost performance.

Appendix IV: MDA'S Audit of GMD Interceptor Contractors Appendix IV: MDA'S
Audit of GMD Interceptor Contractors

In 2005, MDA's Office of Safety, Quality, and Mission Assurance conducted
audits of the contractor developing the interceptor's exoatmospheric kill
vehicle and the Orbital Boost Vehicle. In its audit of the EKV contractor,
a number of quality control weaknesses were documented. First, the MDA
auditors found evidence that the prime contractor had not correctly
communicated all essential EKV requirements to its subcontractor and the
subcontractor had not communicated complete and correct requirements to
its suppliers. For example, the prime contractor did not require the EKV
contractor to use space-qualified parts-parts that have been proven to
reliably withstand the harsh environment of space. Similarly, the auditors
found that the subcontractor had not always provided its suppliers with
correct parts, materials, and processes requirements. For example, the
auditors found multiple incidents in which the subcontractor required one
supplier to abide by incorrect or outdated compliance documents.

The audit also identified numerous instances in which the EKV
subcontractor had not exercised good configuration control. In some cases,
drawings did not reflect current changes. In others, assembly records did
not agree with build records. For example, the assembly record for one
component showed that it included a different part from the one recorded
in its build record. In another, the assembly tag showed that a component
was not built in the same configuration shown in the build record.

Auditors found that the reliability of the EKV's design cannot be
determined and any estimates of its serviceable life are likely
unsupportable. The audit team established that the results from a March
2004 failure modes effects and criticality analysis were not fully used to
influence the design of the EKV and that the contractor has not planned or
performed a reliability demonstration, a maintainability analysis or
demonstration, and does not plan reliability growth testing. Additionally,
major requirements waivers approved on the basis of a short-term,
limited-life mission significantly limit service life and have not been
fully vetted, accepted, and mitigated for longer-term operational use.

Further, auditors determined that the contractor has no written policy
involving qualification testing and does not require that its EKV
subcontractor follow requirements established by industry, civilian, and
military users of space and launch vehicles. For this reason, tests of the
EKV under thermal vacuum conditions representative of those found in space
are not being conducted. The auditors also identified numerous issues with
EKV shock and vibration testing and found that the contractor performs no
formal qualification or acceptance tests on the EKV.

Finally, the audit showed that because the contractor's production
processes are immature, the contractor cannot build a consistent and
reliable product. For example, auditors found instances where work
instructions were not followed and a number of deficiencies in the build
books that lay out the plans and processes for manufacturing the EKV.

Similarly, the auditors found that the contractor producing the Orbital
Boost Vehicle needed to improve quality control processes and adherence to
those processes. According to deficiency reports, the contractor, did not
always, among other things, flow down requirements properly; practice good
configuration management to ensure that the booster met form, fit, and
function requirements; implement effective environmental stress screening;
or have an approved parts, material, and processes management plan.

Appendix V: Integrated Management Plan Appendix V: Integrated Management
Plan

Event 0 - Block Capability Alternative

           o  Block planning process completed
           o  Long lead targets, tests and exercises identified
           o  Affordability analysis completed
           o  Acquisition strategy approved
           o  Preliminary block plan approved

           Event 1 - Preliminary block definition

           o  Block performance assessments updated
           o  Detailed cost estimates/estimates at completions (EAC)
           available
           o  Costs/benefit analysis updated
           o  Risks assessed and mitigation programs established
           o  Preliminary operational concept and operations architecture
           drafted
           o  Integration test objectives defined
           o  Preliminary designs for all elements/components/targets
           completed
           o  Required funding identified for development
           o  Integrated master schedule created
           o  Preliminary block definition approved

           Event 2 - Final block definition

           o  Performance assessments updated
           o  Detailed cost estimates/EACs available
           o  Risks assessed and mitigation programs updated
           o  Military utility characterized and operational concept refined
           o  Preliminary integration test plan available
           o  Final design for all elements/components/targets completed
           o  Funding available for development
           o  Integrated master schedule updated
           o  Block activation plan available
           o  Block definition updated

           Event 3 - First complete development article

           o  Detailed cost estimates/EACs available
           o  Operational concept defined and operations architecture
           available
           o  Test range and support planning completed
           o  Military utility assessment completed
           o  First development article/targets built and initial tests
           completed

           Event 4 - Element/Component development complete

           o  Detailed cost estimates/EACs available
           o  Block integration test planning completed
           o  Element/component/targets development and testing complete
           o  Support systems defined
           o  Training systems defined
           o  Fielding readiness assessed (initial defensive operations)

           Event 5 - Interim block integration and capability assessment

           o  Detailed cost estimates/EACs available
           o  Initial operational characterization completed
           o  Interim block capability performance assessment
           o  Initial transition planning completed

           Event 6 - Fielding completed

           o  Detailed cost estimate/EACs available
           o  Transition plans completed and funded
           o  Operational characterization and certification completed
           o  System/element/component performance assessment completed
           o  Support systems planned, budgeted and approved
           o  Training systems planned, budgeted and approved
           o  Production plans available
           o  Updated block definition available
           o  Combatant commander and service memorandum of agreements
           coordinated
           o  MDA capability declaration

           Event 7 - Block capability activation

           o  Combatant commander planning complete
           o  Equipment introduction and checkout
           o  Unit level training, qualification, and certification complete
           o  Integrated BMDS level training, qualification, and
           certification compete

           To examine the progress MDA made in fiscal year 2005 toward its
           Block 2004 goals, we examined the efforts of individual programs
           that are developing BMDS elements under the management of MDA,
           such as the GMD program. The elements included in our review
           collectively accounted for 73 percent of MDA's fiscal year 2005
           research and development budget requests. We compared each
           element's completed activities, test results, demonstrated
           performance, and actual cost achieved in fiscal year 2005 with
           those planned for fiscal year 2005. In making this comparison, we
           examined System Element Reviews, test schedules, test reports, and
           MDA briefing charts. To assess each element's progress toward its
           cost goals, we reviewed Contract Performance Reports and Defense
           Contract Management Agency's analyses of these reports (if
           available). We applied established earned value management
           techniques to data captured in Contract Performance Reports to
           determine trends and used established earned value management
           formulas to project the likely costs of prime contracts at
           completion. We also developed data collection instruments, which
           were submitted to MDA and each element program office, to gather
           detailed information on completed program activities, including
           tests, design reviews, prime contracts, and estimates of element
           performance. In addition, we discussed fiscal year 2005 progress
           with officials in MDA's Business Management Office and each
           element program office, as well as the office of DOD's Director,
           Operational Test and Evaluation.

           To determine whether MDA achieved the quantity, cost, and
           performance goals it set for Block 2004 in February 2003, we
           examined fielding schedules, System Element Reviews, test reports,
           budget estimate submissions, and the U.S. Strategic Command's
           Military Utility Assessment. We also held discussions with the
           Aegis BMD, GMD, and C2BMC program offices; MDA's Office of Safety,
           Quality and Assurance; and the Office of the Director, Operational
           Test and Evaluation.

           We determined the conditions that prevented MDA from achieving its
           Block 2004 goals by examining MDA's implementation of its
           Integrated Management Plan, the Secretary of Defense 2002 memo
           establishing the Ballistic Missile Defense Program, and audits
           conducted by MDA's Office of Safety, Quality, and Mission
           Assurance. We also held discussions with MDA's Offices of Business
           Management and Safety, Quality, and Mission Assurance and the GMD
           Program Office.

           In determining the actions MDA is taking to address problems that
           affected the outcome of Block 2004, we reviewed MDA Assurance
           Provisions, recommendations of the Mission Return to Flight Task
           Force, memorandums of agreement between MDA and the Defense
           Contract Management Agency and MDA and the National Aeronautics
           and Space Administration, GMD award fee letters, and directives
           issued by MDA's Director. We also discussed MDA's plans with
           members of the Mission Readiness Task Force and officials in the
           agency's Office of Safety, Quality, and Mission Assurance.

           To ensure that MDA-generated data used in our assessment are
           reliable, we evaluated the agency's management control processes.
           We discussed these processes extensively with MDA upper
           management. In addition, we confirmed the accuracy of
           MDA-generated data with multiple sources within MDA and, when
           possible, with independent experts. To assess the validity and
           reliability of prime contractors' earned value management systems
           and reports, we analyzed audit reports prepared by the Defense
           Contract Audit Agency. Finally, we assessed MDA's internal
           accounting and administrative management controls by reviewing
           MDA's Federal Manager's Financial Integrity Report for Fiscal
           Years 2003, 2004, and 2005.

           Our work was performed primarily at MDA headquarters in Arlington,
           Virginia. At this location, we met with officials from the Kinetic
           Energy Interceptors Program Office; Aegis Ballistic Missile
           Defense Program Office; Airborne Laser Program Office; Command,
           Control, Battle Management, and Communications Program Office;
           Business Management Office; and Office of Safety, Quality, and
           Mission Assurance. In addition, we met with officials from the
           Space Tracking and Surveillance System Program Office, El Segundo,
           California; and the Ground-based Midcourse Defense Program Office
           and Terminal High Altitude Area Defense Project Office,
           Huntsville, Alabama. We also interviewed officials from the office
           of the Director, Operational Test and Evaluation, Arlington,
           Virginia.

           We conducted our review from May 2005 through March 2006 in
           accordance with generally accepted government auditing standards.

           Paul Francis (202) 512-4841 or [email protected]

           In addition to the individual named above, Barbara Haynes,
           Assistant Director, Ivy Hu:bler, LaTonya Miller, Karen Richey,
           Adam Vodraska, and Jonathan Watkins made key contributions to this
           report.

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Appendix VI: Scope and Methodology Appendix VI: Scope and Methodology

Appendix VII: A Appendix VII: GAO Contact and Staff Acknowledgments

GAO Contact

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Highlights of GAO-06-327 , a report to congressional committees

March 2006

DEFENSE ACQUISITIONS

Missile Defense Agency Fields Initial Capability but Falls Short of
Original Goals

The Department of Defense (DOD) has spent nearly $90 billion since 1985 to
develop a Ballistic Missile Defense System (BMDS). In the next 6 years,
the Missile Defense Agency (MDA), the developer, plans to invest about $58
billion more. MDA's overall goal is to produce a system that is capable of
defeating enemy missiles launched from any range during any phase of their
flight. MDA's approach is to field new capabilities in 2-year blocks. The
first-Block 2004-was to provide some protection by December 2005 against
attacks out of North Korea and the Middle East.

Congress requires GAO to assess MDA's progress annually. This year's
report assesses (1) MDA's progress during fiscal year 2005 and (2) whether
capabilities fielded under Block 2004 met goals. To the extent goals were
not met, GAO identifies reasons for shortfalls and discusses corrective
actions that should be taken.

What GAO Recommends

To better ensure the success of future development efforts, GAO recommends
that MDA implement a knowledge-based acquisition strategy for future
missile defense efforts, assess whether such a strategy is compatible with
a 2-year block strategy, and adopt more transparent criteria for reporting
significant departures from plans. DOD did not agree to take any of the
actions we recommended.

MDA made good progress during fiscal year 2005 in the development and
fielding of two of the seven elements reviewed. Most of the others
encountered problems that slowed progress. Meanwhile, contractors for the
seven elements exceeded their fiscal year budget by about $458 million, or
about 14 percent, most of which was attributable to cost overruns in
developing the Ground-based Midcourse Defense (GMD) element.

Accelerating Block 2004 allowed MDA to successfully field missile defense
assets faster than planned. But, MDA delivered fewer quantities than
planned and exceeded the cost goal of $6.7 billion by about $1 billion.
The increased cost is primarily the added cost of sustaining fielded
assets. However, the increase would have been greater if some development
and other activities had not been deferred into Block 2006. Also, MDA has
been unable to verify actual system performance because of flight test
delays.

Block 2004 Goals, as of February 2003, Compared with Fielded Assets, as of
December 2005

Activities                          Planned             Fielded            
Ground-based Midcourse Defense      20 interceptors     10 interceptors    
interceptors                                            
Aegis missiles                      Up to 20 missiles   9 missiles         
Aegis destroyer upgrade             15 destroyers       10 destroyers      
Aegis cruiser upgrade               3 cruisers          2 cruisers         
Command, control, battle            Development and     Testing of final   
management, and communications      testing of upgrades upgrade incomplete 
software                                                

Source: MDA (data); GAO (presentation and analysis).

Time pressures caused MDA to stray from a knowledge-based acquisition
strategy. Key aspects of product knowledge, such as technology maturity,
are proven in a knowledge-based strategy before committing to more
development. MDA followed a knowledge-based strategy with elements not
being fielded, such as Airborne Laser and Kinetic Energy Interceptor. But
it allowed the GMD program to concurrently mature technology, complete
design activities, and produce and field assets before end-to-end testing
of the system-all at the expense of cost, quantity, and performance goals.
For example, the performance of some GMD interceptors is questionable
because the program was inattentive to quality assurance. If the block
approach continues to feature concurrency as a means of acceleration,
MDA's approach may not be affordable for the considerable amount of
capability that is yet to be developed and fielded. MDA has unusual
flexibility to modify its strategies and goals, make trade-offs, and
report on its progress. For example, MDA's Director may determine when
cost variations are significant enough to report to Congress.

MDA is taking actions to strengthen quality control. These actions are
notable, but they do not address the schedule-induced pressures of
fielding or enhancing a capability in a 2-year time frame or the need to
fully implement a knowledge-based acquisition approach.
*** End of document. ***