Ballistic Missile Defense: Improvements Needed in Navy Area Acquisition
Planning (Letter Report, 11/14/97, GAO/NSIAD-98-34).

GAO reviewed the Navy Area Theater Ballistic Missile Defense program to
determine whether: (1) the program has met its milestones to date and
its remaining schedule appears realistic; and (2) the tests being
conducted or planned will be adequate to demonstrate the system's
capabilities before production begins.

GAO noted that: (1) the Area program has experienced schedule slips
totalling about 14 months due to several reasons, including technical
problems in the two flight tests conducted prior to the engineering and
manufacturing development phase; (2) further schedule slips are possible
because of the acquisition plan's highly optimistic schedule for
conducting operational tests; (3) slippages in completing these tests
could result in the system remaining in a low-rate production phase
longer than planned; (4) the Navy plans to begin production of Area
program missiles before conducting any operational tests of the systems;
(5) according to the Navy, it needs to begin low-rate initial production
of the missiles in June 2000--5 months before system level developmental
and operational tests are scheduled to begin--because of the urgent need
for the system and to maintain an efficient flow in missile production;
and (6) in GAO's opinion, two factors raise some questions about the
Navy's rationale for the criticality of initiating low-rate initial
production, namely: (a) a prototype system capability consisting of two
cruisers equipped with User Operational Evaluation System missiles will
be in service at that time; and (b) an earlier version of the Standard
missile will still be in production, diminishing the need for low-rate
production of the Block IVA missile to avoid a production gap.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-34
     TITLE:  Ballistic Missile Defense: Improvements Needed in Navy Area 
             Acquisition Planning
      DATE:  11/14/97
   SUBJECT:  Navy procurement
             Advanced weapons systems
             Concurrency
             Testing
             Defense capabilities
             Weapons research
             Military cost control
             Military systems analysis
             Defense contingency planning
IDENTIFIER:  Navy Theater Ballistic Missile Defense Program
             Navy Theater Ballistic Missile Defense User Operational 
             Evaluation System Missile
             Standard Missile II Block IVA System
             Aegis Weapon System
             Standard Missile II Block IV System
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

November 1997

BALLISTIC MISSILE DEFENSE -
IMPROVEMENTS NEEDED IN NAVY AREA
ACQUISITION PLANNING

GAO/NSIAD-98-34

Navy Area TBMD Program

(707197)


Abbreviations
=============================================================== ABBREV

  AEGIS -
  BMDO - Ballistic Missile Defense Organization
  DOD - Department of Defense
  UOES - User Operational Evaluation System

Letter
=============================================================== LETTER


B-274679

November 14, 1997

The Honorable William S.  Cohen
The Secretary of Defense

Dear Mr.  Secretary: 

We reviewed the Navy Area Theater Ballistic Missile Defense program
to determine whether (1) the program has met its milestones to date
and its remaining schedule appears realistic and (2) the tests being
conducted or planned will be adequate to demonstrate the system's
capabilities before production begins.  We are addressing this report
to you at this time because the program is now entering the phase
during which developmental and operational testing is conducted and
low-rate initial production is to begin. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Area program is a sea-based weapon system being developed by the
Ballistic Missile Defense Organization (BMDO) and the Navy to defeat
theater ballistic missiles.  The system is considered a high-priority
"core" theater missile defense program by BMDO and the Congress.  It
supports the national objective of protecting U.S.  and allied
deployed forces, population centers, and industrial facilities from
theater missile attacks. 

The mission of the Navy Area program is to provide a near-term,
short-range tactical ballistic missile defense capability until
ground forces, including other ballistic missile defense systems, can
be set up.  The Navy Area system is part of a "family of missile
defense systems" that also includes the Army's Patriot PAC-3 system
to help defend against short-range missiles and the Navy's
Theater-wide and the Army's Theater High Altitude Area Defense
systems for defending against long-range missiles. 

According to proponents, the advantages of Navy missile defense
systems over ground-based systems are that Navy ships (1) are likely
to be relatively close to any areas of potential conflict and (2) do
not require host nation agreement to be deployed to the area.  As a
result, the Navy systems can be deployed more readily than other
systems. 

According to the Navy, its Area program also takes advantage of
existing infrastructure.  It is to be incorporated into existing
AEGIS weapon systems\1

and consists of a modified AEGIS combat system and modified Navy
command and control systems to enable detection, tracking, and
engagement of theater ballistic missiles.  Changes needed to give the
AEGIS system ballistic missile defense capabilities primarily involve
software changes and increased computer capability.  Modifications
are also to be made to the existing Standard Missile-2, Block IV, and
are to include adding an infrared seeker and a radio-frequency
adjunct sensor to enable the missile to home and fuze on attacking
ballistic missiles.  This modified missile is designated as the
Standard Missile-2, Block IVA.  Modifications are also to be made to
the ship's vertical launching system.  These modifications are
intended to provide AEGIS ships with a theater ballistic missile
defense capability while allowing them to maintain their ability to
conduct anti-air warfare against aircraft and cruise missiles. 

To equip 57 AEGIS destroyers and 22 AEGIS cruisers with theater
missile defense capability between fiscal year 1998 and 2011, the
Navy plans to buy 1,500 Standard Missile-2, Block IVAs.  The Navy
also plans to field a prototype system--the User Operational
Evaluation System (UOES)--beginning in September 1999.  UOES provides
for an interim ballistic missile defense capability and allows for
fleet personnel to evaluate the system.  The Navy plans to equip 2
cruisers with a total of
35 UOES missiles available for testing and/or use in a national
emergency. 

The total cost of the Navy Area program is projected to be $8.98
billion, including $2.05 billion for development, $4.18 billion for
procurement, and $2.76 billion for operation and support.  As of the
end of fiscal year 1997, more than $900 million has been appropriated
for system development.  The Department of Defense (DOD) requested
about $283 million in fiscal year 1998--$267.8 million for
development and $15.4 million for production. 

Figure 1 shows the concept of the Navy Area program. 

   Figure 1:  Navy Area program

   (See figure in printed
   edition.)

Source:  U.S.  Navy. 


--------------------
\1 The AEGIS weapon system allows the ship to perform search, track,
and missile guidance functions using (1) the SPY-1 radar, which is an
advanced, automatic, detection and track, multi-function,
phased-array radar; (2) computer equipment; and (3) advanced
software. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The Area program has experienced schedule slips totaling about
14 months due to several reasons, including technical problems in the
two flight tests conducted prior to the engineering and manufacturing
development phase.  Our review indicates that further schedule slips
are possible because of the acquisition plan's highly optimistic
schedule for conducting operational tests.  Slippages in completing
these tests could result in the system remaining in a low-rate
production phase longer than currently planned. 

The Navy plans to begin production of Area program missiles before
conducting any operational tests of the system.  According to the
Navy, it needs to begin low-rate initial production of the missiles
in June 2000--
5 months before system level developmental and operational tests are
scheduled to begin--because of the urgent need for the system and to
maintain an efficient flow in missile production.  In our opinion,
two factors raise some questions about the Navy's rationale for the
criticality of initiating low-rate initial production, namely (1) a
prototype system capability consisting of two cruisers equipped with
UOES missiles will be in service at that time and (2) an earlier
version of the Standard missile will still be in production,
diminishing the need for low-rate production of the Block IVA missile
to avoid a production gap. 


   SCHEDULE SLIPS HAVE OCCURRED
   AND THE PLANNED TEST SCHEDULE
   IS OPTIMISTIC
------------------------------------------------------------ Letter :3

The Area program entered the engineering and manufacturing
development phase of the DOD weapon systems acquisition process
earlier this year, but the activities that had to be accomplished
before the engineering and manufacturing development phase could
begin took about 14 months longer than expected.  The initial Area
program schedule projected that the engineering and manufacturing
development phase would begin in December 1995 and that full-rate
production would begin in September 1999.  Engineering and
manufacturing development actually began in February 1997 and the
current schedule shows that full-rate production will begin in August
2001.  According to program officials, this delay was due to the
following reasons: 

  -- The Standard Missile Company--a joint venture between the
     Raytheon Company and the Hughes Missile Systems Company--took
     longer than expected to establish, which delayed the Area
     program in obtaining test missiles. 

  -- A congressional budget cut for fiscal year 1995 and DOD
     accounting changes slowed the progress of the program. 

  -- Technical problems that occurred in the two flight tests prior
     to the engineering and manufacturing development phase caused
     about a 6-month delay.\2

  -- Concurrent with the flight test delay, there was also a delay
     related to the completion of the Standard missile preliminary
     design, due to additional time being required to complete cost
     performance tradeoffs. 

The Area program acquisition plan has an optimistic schedule for
conducting operational tests, which could result in the system
remaining in a low-rate initial production phase longer than
currently planned if the test program experiences serious problems. 
Between November 2000 and March 2001, the Navy plans to conduct
developmental and operational tests at the Pacific Missile Range
Facility that will involve intercept attempts with a total of 32
missiles, an average rate of about 8 test firings a month. 

Program officials told us that such a test schedule is not unusual in
Navy testing, which is typically conducted based upon range
availability and ship operational commitments.  According to these
officials, test programs for earlier versions of the Standard missile
were also compressed.  For example, they indicated that the Block
IIIB program conducted
14 operational test intercepts in 3 days and the Block IV program
conducted 7 developmental/operational intercept tests in 2 days. 
However, according to DOD officials, these tests were anti-air
warfare tests, with which the Navy has a great deal of experience,
and not theater missile defense tests.  Navy test officials agreed
that the Area system's test schedule is ambitious, but said that it
was "doable." They said that some of the testing will involve
multiple simultaneous engagements, which will use several missiles in
a brief period of time. 

Despite the program office's optimism, some DOD testing and program
analysis officials expressed skepticism that the Navy could complete
the planned test program on schedule.  One DOD official said that it
was not realistic for the Navy to maintain this test schedule, citing
delays with other test programs such as tests of the Army's Patriot
PAC-3 system as well as problems with the Area system's earlier
flight demonstration tests.  An internal DOD analysis noted that DOD
"has yet to demonstrate the feasibility of such an aggressive test
schedule for a [theater ballistic missile defense] program."
According to the analysis, the best demonstrated program schedule
experience to date was about 11 weeks between successful intercepts
of theater ballistic missile targets.  Testing officials agreed that
if the test program experiences serious problems, it will cause
schedule delays. 


--------------------
\2 The delay was due to two test issues.  Neither of these test
issues was related to the Block IVA missile design.  The first was
the failure of an electronic component in the booster.  The booster
was designed as part of the Block IV program and is a
nondevelopmental item for Block IVA development.  The second test
issue resulted from a telemetry problem resulting in range control
personnel not being able to receive target data. 


   NAVY PLANS TO BEGIN LOW-RATE
   INITIAL PRODUCTION BEFORE
   CONDUCTING REALISTIC TESTING
------------------------------------------------------------ Letter :4

The Navy plans to begin low-rate initial production of Area program
missiles in June 2000 before conducting any operational tests of the
system.  The combined developmental and operational tests\3 scheduled
to begin in November 2000 are the first fully integrated shipboard
system tests planned for this program.  Figure 2 displays the current
testing and production schedule. 

   Figure 2:  Schedule of Navy
   Area System Operational Testing
   and Production

   (See figure in printed
   edition.)

The Navy indicated that it intends to use the results of the
operational assessment in the June 2000 decision to begin low-rate
production of the missiles.  However, operational assessments will be
based on developmental tests conducted by the contractor at White
Sands Missile Range rather than on the results of realistic field
testing.  It will not provide a comparable quality of information for
decisionmakers that can be obtained from independent operational
tests.  For example, according to the Area program's Test and
Evaluation Master Plan, "no critical operational issues will be
resolved" during the White Sands testing.  According to Navy test
officials, critical operational issues can only be resolved during
tests at sea such as the operational tests to be conducted at the
Pacific Missile Range Facility between November 2000 and March 2001. 
Tests at White Sands are limited because the system is not subjected
to conditions found at sea such as salt water and the movement of the
ship and because they will not use the AEGIS SPY-1 radar. 

According to Navy officials, the program needs to begin low-rate
production in June 2000--5 months before system level developmental
and operational tests are scheduled to begin--because of the urgent
need for the system and to maintain an efficient flow in Standard
missile production. 

Our review indicated that the following two factors raise some
question about the criticality that the Navy attributes to initiating
low-rate initial production. 

  -- The Navy's stated urgent need for the Area program may be met in
     part by the UOES system.  The UOES prototype system is scheduled
     to be available in September 1999.  If the UOES meets it
     objectives, it will provide some operational capability until
     the more capable system is available.  The Navy plans to provide
     two cruisers with a UOES capability, and the ships are to be
     initially equipped with a total of 35 UOES missiles.  Although
     many of these missiles are to be expended in tests, a small
     number will remain. 

  -- The need to maintain Standard missile production is not solely
     dependent on the initial production of missiles for the Area
     program.  Even without low-rate production of the Area program's
     Block IVA missile, Standard missile production will continue. 
     Production of an earlier version of the missile--the Block
     IIIB--began in fiscal year 1997 and is scheduled to continue at
     least through fiscal year 2003.  Navy officials acknowledge that
     even though the configurations of the Block IIIB and Block IVA
     missiles are different, a high degree of commonality exists
     between the missiles both at the section level and at lower
     assembly levels.  The Navy and the Standard Missile Company have
     identified minimum sustaining rates for major sections of the
     Standard missile.  In most of the cases we examined, the minimum
     sustaining rate is met or almost met without production of the
     Block IVA low-rate initial production missiles.  For example,
     the minimum sustaining rate for the warhead in fiscal year 1999
     is 96 units.  Total production that year is expected to be 251
     units, of which only 34 are Block IVA units.  The primary
     exception is the Block IVA booster, which is not a component of
     the Block IIIB missile, and thus cannot meet its minimum
     sustaining rate without Block IVA units. 

Figure 3 shows planned production of the various configurations of
the Standard missile. 

   Figure 3:  Standard Missile
   Production

   (See figure in printed
   edition.)

The Navy plans to produce 185 Block IVA missiles--12 percent of its
total planned production quantity--during low-rate production.  The
estimated cost for these 185 missiles is $568.2 million.  Scheduling
low-rate initial production concurrent with testing increases risk. 
A DOD analysis concluded that planning low-rate production concurrent
with the Navy Area test program was risky, noting that if problems
are uncovered during the test phase, the program may need to acquire
additional hardware and incur redesign costs.  Testing problems could
also cause the missile to remain in low-rate production longer than
currently planned. 


--------------------
\3 Developmental tests are conducted by program officials with the
help of contractors.  Operational tests are conducted by an
independent Navy testing organization, without contractors present,
in conditions that simulate actual operational conditions. 


   CONCLUSIONS AND RECOMMENDATIONS
------------------------------------------------------------ Letter :5

Slippage in the development of the Navy Area program has already
occurred and the planned test schedule is optimistic.  Unless the
acquisition plan and/or the testing schedule is revised, the Navy
will not have reasonable assurance that the system will adequately
perform before the Navy commits itself to the production of the Block
IVA interceptor missiles. 

The Navy currently plans to contract for the low-rate initial
production of 185 Block IVA missiles, at an estimated cost of about
$568.2 million, prior to the completion of any realistic operational
testing.  The Navy intends to rely on assessments that do not provide
the quality of data that realistic field testing provides.  We are
concerned that the Navy will make a premature commitment to the
production of unproven missiles. 

The Navy acknowledges that risks are involved but believes it must
maintain the existing schedule because of the urgent need for the
system and to maintain an efficient flow in Standard missile
production.  Our review indicates that if the initial production
decision on the Block IVA was delayed, the contractor could still
generally maintain minimum sustaining rates of production by
continuing to work on an earlier version of the Standard missile that
will still be in production and has a high degree of commonality with
the Block IVA missile.  Moreover, the Navy would also have UOES to
provide some intercept capability until the fully operational Navy
Area program demonstrates its expected capability. 

Therefore, we recommend that you direct BMDO to revise the Navy Area
Theater Ballistic Missile Defense program's acquisition plan and/or
its operational testing schedule to ensure that the low-rate initial
production decision on the 185 Block IVA missiles is made contingent
on the Director, Operational Test and Evaluation, certifying, based
on sufficient independent testing in an operational environment, that
the system has the potential to meet its key performance
requirements. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of this report, DOD disagreed with our
recommendation.  First, DOD stated that postponing acquisition is
contrary to the purpose of low-rate initial production as codified in
title 10 of the U.S.  Code.  Second, DOD said that complying with our
recommendation would cause a delay in low-rate initial production
missile deliveries, resulting in an inventory of seven UOES
missiles--too few to respond to any contingency.  Third, DOD said
implementing our recommendation would impact the production of key
Standard missile components, resulting in substantial restart costs
and risks. 

We recognize that title 10 specifies the purposes for low-rate
initial production.  The statutes, however, do not include specific
standards on when programs should begin low-rate initial production,
or the type and amount of testing to be done before production
begins.  The thrust of our recommendation is that conducting
realistic testing prior to the production of system components
reduces risk and minimizes the procurement of unproven equipment. 
Further, implementing our recommendation could also reduce the number
of Area systems that may have to be modified based on the results of
operational testing. 

DOD also says that delaying low-rate initial production missile
deliveries beyond operational testing would result in an inventory of
seven UOES missiles-- too few to respond to any contingency.  DOD's
comments suggest that implementing our recommendation would mean
delaying low-rate initial production until all operational testing is
completed in March 2001.  We are not suggesting such a delay in the
program schedule, but rather that the schedule be adjusted so that
some operational testing be conducted prior to the low-rate initial
production decision currently planned for June 2000.  While DOD says
that a delay could reduce the number of missiles available for
contingency operations for a short period, the current schedule
already includes a period of reduced availability.  Under the current
schedule, only seven missiles will be available for contingency
operations from the completion of operational testing in March 2001
until the first low-rate initial production missile delivery begins
in June 2001.  In addition, under the current schedule, by the time
operational testing begins in November 2000, the Navy will have
already committed to low-rate initial production at a cost of $568.2
million.  Furthermore, DOD notes that the low-rate initial production
missiles are required to respond to a national emergency.  Therefore,
we believe it is important that the Navy be able to demonstrate the
missile system's operational capability to respond in such an
emergency. 

DOD also notes that Block IIIB missile production will not meet
minimum sustaining rate quantities for all components.  According to
DOD, delaying low-rate initial production of Block IVA missiles would
shut down booster production and cause the guidance section to fall
below minimum sustaining rates for a 2-year period.  DOD's comments
indicate that restart costs and risks associated with restarting
would be substantial. 

We recognize that the minimum sustaining rate for the booster will
not be met without production of boosters for the Block IVA missile. 
However, even without the Block IVA missile, expected production of
the guidance section would equal 96 percent of the minimum sustaining
rate in both fiscal years 1999 and 2000.  We asked Navy officials for
an estimate of the restart costs and they told us that a minimum of
$9.1 million in restart costs would be incurred for the booster and a
component of the guidance section.  According to these officials,
cost risks associated with requalification of unique Block IVA
component sub-vendors are not included in this estimate.  Given that
each Block IVA missile is expected to cost an average of about $2
million, it could easily cost more to fix already produced missiles
if problems are revealed during subsequent testing, than it could
cost to restart production.  We believe it may be more cost-effective
to incur some restart costs, rather than enter production without
adequate testing.  Consequently, we believe our recommendation is
still appropriate. 

DOD's comments are reprinted in appendix I.  We have incorporated
DOD's technical comments as appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To determine whether the Navy Area Theater Ballistic Missile Defense
program has met its milestones to date and its remaining schedule
appears realistic, we interviewed agency officials and analyzed
pertinent program cost, schedule, and requirements documentation.  We
analyzed the status of the program, the various factors that led to
the 2-year slippage in the program schedule, and the technical risks
that remain. 

To determine whether the tests being conducted or planned will be
adequate to demonstrate the system's capabilities before production
begins, we interviewed agency officials and analyzed pertinent test
plans and schedules.  We examined how many flight tests will be
conducted before deployment of the UOES system, whether planned tests
would realistically measure the system's performance, the risks
associated with a compressed operational test schedule, and the risks
associated with beginning low-rate initial production before
conducting any system level operational tests. 

We interviewed responsible agency officials at the following
locations:  the Office of the Secretary of Defense, Headquarters,
BMDO, and the Office of the Director, Operational Test and
Evaluation, in Washington, D.C.; the Navy's Program Executive Office
(Theater Air Defense), Program Office for Standard Missile and
Vertical Launching Systems, and Program Office for the AEGIS Weapon
System, in Washington, D.C.; and the Navy's Operational Test and
Evaluation Force in Norfolk, Virginia. 

We conducted our work from September 1996 to August 1997 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

As you know, the head of a federal agency is required by 31 U.S.C. 
720 to submit a written statement of actions taken on our
recommendations to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight not later than
60 days after the date of this report.  A written statement also must
be submitted to the Senate and House Committees on Appropriations
with the agency's first request for appropriations made more than 60
days after the date of the report. 

We are sending copies of this report to appropriate congressional
committees; the Director of the BMDO; and the Secretaries of the
Army, the Navy, and the Air Force.  We will also make copies
available to others on request. 

If you or your staff have any questions concerning this report,
please contact me on (202) 512-4841.  Major contributors to this
report were Tom Schulz, Lee Edwards, David Hand, and Judy Lasley. 

Sincerely yours,

Allen Li
Associate Director, Defense Acquisitions Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)

*** End of document. ***