Missile Defense: THAAD Restructure Addresses Problems But Limits Early
Capability (Letter Report, 06/30/1999, GAO/NSIAD-99-142).

Studies done by the military and independent sources cited the following
problems in the Theater High Altitude Area Defense (THAAD) Program:
First, the program's compressed flight-test schedule did not allow for
adequate ground testing, and officials could not spot problems before
flight tests. The schedule also left too little time for preflight
testing, postflight analysis, and corrective measures. Second, the
requirement that an early prototype system be deployed quickly has
diverted attention from the normal interceptor development process and
resulted in interceptors that were not equipped with sufficient
instruments to provide optimum test data. Third, quality assurance
received too little emphasis and resources during component production,
resulting in unreliable components. Fourth, the contract to develop the
interceptor was a cost-plus-fixed-fee contract, which placed all of the
financial risk on the government and did not hold the contractor
accountable for less than optimum performance. The restructure program
addresses each of these four underlying problems. However, the
reliability of current flight-test interceptors remains a concern
because most components were produced when the contractor's quality
assurance system was inadequate. Test failures caused primarily by
manufacturing defects rather than advanced technology problems have
prevented the Army from demonstrating that THAAD can reliably intercept
targets in all required regions. The restructuring of the THAAD program
raised the issue of what the purpose of the User Operational Evaluation
System battalion at Fort Bliss should now be. Whether all or only part
of the battalion would warrant deployment for contingency operations
would depend on the capabilities it could provide to warfighters and the
priority of the need for one or more of those capabilities. However,
there would be little basis for making a deployment determination
because the Defense Department does not plan to conduct an operational
assessment of the User Operational Evaluation System.

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

 REPORTNUM:  NSIAD-99-142
     TITLE:  Missile Defense: THAAD Restructure Addresses Problems But
	     Limits Early Capability
      DATE:  06/30/1999
   SUBJECT:  Ballistic missiles
	     Air defense systems
	     Defense contingency planning
	     Cost plus fixed fee contracts
	     Defense capabilities
	     Operational testing
	     Department of Defense contractors
	     Weapons systems
IDENTIFIER:  THAADS User Operational Evaluation System
	     THAADS
	     SDI Theater High Altitude Area Defense System

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    United States General Accounting Office GAO                 Report
    to the Chairman, Subcommittee on Defense, Committee on
    Appropriations, House of Representatives June 1999
    MISSILE DEFENSE THAAD Restructure Addresses Problems But Limits
    Early Capability GAO/NSIAD-99-142 United States General Accounting
    Office
    National Security and Washington, D.C. 20548
    Letter                                               International
    Affairs Division B-280755
    Letter June 30, 1999 The Honorable Jerry Lewis Chairman,
    Subcommittee on Defense Committee on Appropriations House of
    Representatives Dear Mr. Chairman: The Ballistic Missile Defense
    Organization and the Army are developing the $15.4 billion Theater
    High Altitude Area Defense (THAAD) system to defeat theater
    ballistic missiles. Because of the Subcommittee's concerns about
    repeated test failures and the Department of Defense's (DOD)
    restructuring of the program, the former Chairman of the
    Subcommittee requested that we review the status of the THAAD
    program. Specifically, we (1) identified the underlying problems
    in the program that led to the test failures, (2) assessed whether
    program restructuring efforts address these underlying problems,
    and (3) determined how this restructuring will affect THAAD's User
    Operational Evaluation System.1 Results in Brief
    Studies conducted by both DOD and independent sources identified
    the following underlying problems in the THAAD program: * The
    program's compressed flight-test schedule did not allow for
    adequate ground testing, and as a result officials could not
    detect problems prior to flight tests. The schedule also left
    insufficient time for preflight testing, postflight analysis, and
    corrective actions. * The requirement to be able to quickly deploy
    an early prototype system diverted the contractor and government
    project management's attention away from the normal interceptor
    development process and resulted in interceptors that were not
    equipped with sufficient instruments to provide optimum test data.
* Quality assurance received insufficient emphasis and resources
    during the time of component production, resulting in unreliable
    components. 1Initially, the THAAD program included plans for an
    early prototype system, called the User Operational Evaluation
    System, that could be used in a national emergency. Letter
    Page 1                                          GAO/NSIAD-99-142
    THAAD Program Restructure B-280755 * The contract for developing
    the interceptor was a cost-plus-fixed-fee contract, a contract
    type that placed all of the program's financial risk on the
    government and did not include provisions that could be used to
    hold the contractor accountable for less than optimum performance.
    Flight-test failures have been caused primarily by manufacturing
    defects rather than problems with advanced technology. These
    failures have prevented the Army from demonstrating that it can
    reliably employ the "hit-to-kill" technology critical to THAAD's
    success.2 The restructured program addresses each of the program's
    four underlying problems. It * lengthens the flight-test schedule
    and increases ground testing; * removes the requirement for the
    deployable, early prototype interceptors; * increases the
    contractor's quality emphasis, including its commitment,
    leadership, and quality assurance staffing; and * modifies the
    cost-plus-fixed-fee contract to provide performance-based
    incentives and penalties and introduces a degree of competition
    into the program. Despite these changes, the reliability of the
    remaining flight-test interceptors remains a concern because most
    components were produced when the contractor's quality assurance
    system was inadequate. The program restructuring puts into
    question the need to retain a fully staffed User Operational
    Evaluation System battalion. The battalion will have little or no
    capability to intercept ballistic missiles because interceptors
    will not be available for the prototype system unless interceptors
    intended for tests are diverted to the battalion. According to the
    Army Training and Doctrine Command's system manager for THAAD, the
    THAAD radar could be used for predicting the launch and impact
    points of enemy missiles, but no requirement exists for THAAD to
    perform that mission and no independent assessment of the
    prototype radar's capabilities is planned. The User Operational
    Evaluation System battalion provides input to system designers,
    but according to the THAAD project 2"Hit-to-kill" technology
    allows an interceptor to destroy an attacking missile by colliding
    with it. Letter    Page 2
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 manager, this
    input could be provided with significantly fewer soldiers than the
    295 currently authorized. We provide recommendations in this
    report for the Secretary of Defense concerning (1) the need for
    and capabilities of the User Operational Evaluation System and (2)
    the minimum essential military personnel and equipment required to
    fulfill the defined mission. Background     When operational,
    THAAD will support the national objective of protecting U.S. and
    allied deployed forces, population centers, and industrial
    facilities from theater missile attacks. The THAAD system consists
    of four major components: (1) truck-mounted launchers; (2)
    interceptor missiles; (3) a radar; and (4) the battle
    management/command, control, communications, computers, and
    intelligence system. The launcher is intended to provide rapid
    reloading of interceptors. Each interceptor consists of a single-
    stage booster and a kill vehicle that is designed to autonomously
    home on an enemy missile during the last phase of interceptor
    flight and destroy the missile by colliding with it, a concept
    called "hit-to-kill." The radar is designed to support the full
    range of surveillance, target tracking, and fire control functions
    and to provide a communications link with THAAD interceptors in
    flight. The battle management/command, control, communications,
    computers, and intelligence system is designed to manage and
    integrate all THAAD components and link the THAAD system to other
    missile defense systems to support an interoperable theater
    missile defense architecture. THAAD is currently in the program
    definition and risk reduction phase.3 Through March 1999, the
    system had failed in the first six attempts to intercept a target.
    In June 1999, THAAD successfully intercepted its target during the
    seventh intercept flight test. DOD plans to continue THAAD testing
    and make a decision in the second quarter of 2000 on whether to
    proceed into the next acquisition phase-engineering and
    manufacturing development. A low rate initial production decision
    for the system is planned for the third quarter of 2005, and
    initial fielding is currently scheduled for the third quarter of
    2007. DOD's budget submission for fiscal year 2000 requests $611.6
    million for the program. Primarily because restructuring extended
    THAAD's development schedule by 21 months, the 3DOD's acquisition
    phases are (1) concept exploration, (2) program definition and
    risk reduction, (3) engineering and manufacturing development, and
    (4) production. Page 3
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 program's
    estimated acquisition cost increased to $15.4 billion, an increase
    of $1.3 billion over the December 1997 estimate. Through April
    1999, DOD spent about $3.3 billion on the THAAD program. The Army
    established a THAAD User Operational Evaluation System battalion
    at Fort Bliss, Texas, in 1995. The User Operational Evaluation
    System-an early prototype version of the final THAAD system-was
    intended to (1) allow military users to influence the THAAD system
    design, (2) permit an early operational assessment of the system's
    capabilities, and (3) provide a system that could be deployed in a
    national emergency. The initial plan called for the prototype
    system to have 40 interceptors; 4 launchers; 2 radars; 2 battle
    management/command, control, communications, computers, and
    intelligence units; and associated support equipment. Except for
    the interceptors, these components were acquired and delivered to
    the THAAD battalion under the existing program definition and risk
    reduction contract at little or no additional cost. Under the
    initial plan, the 40 interceptors were to be produced after the
    first successful intercept test at an estimated cost of $225
    million. Underlying Reasons for  Several quality assurance audits
    and other independent reviews have Past Intercept Failures
    highlighted problem areas in the THAAD program. In our review of
    these studies, we identified four underlying reasons for the
    program's difficulties. First, a compressed flight-test schedule
    and inadequate ground testing delayed the program and failed to
    detect problems prior to flight tests. Second, the requirement for
    a high priority but high risk User Operational Evaluation System
    capability using an early prototype interceptor design diverted
    the attention of the contractor and government project management
    and limited the ability to more fully test the interceptor. Third,
    an inadequate quality assurance system failed to detect defective
    components. Fourth, the cost-plus-fixed-fee contract did not
    include provisions to hold the contractor fully accountable or
    provide the government with the ability to directly influence the
    contractor's efforts. Early flight-test failures have prevented
    the Army from determining whether it can reliably employ the "hit-
    to-kill" technology essential to THAAD's success. Page 4
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 Compressed
    Flight-Test      According to Army officials, DOD accepted an
    ambitious flight-test Schedule and Inadequate     schedule with a
    reduced emphasis on ground testing because of the urgent Ground
    Testing              need for improved missile defenses. Several
    studies identified this schedule as a source of the program's
    problems. In September 1994, for example, an independent
    contractor reported that the program's initial schedule- which
    allowed only 30 days between each of the last seven flight tests-
    did not permit adequate time for failure analysis, corrective
    actions, and retest.4 In July 1996, another independent panel
    reported that insufficient time to perform ground testing between
    flights represented an unacceptable technical risk.5 Also,
    according to this panel, problems discovered in one flight test
    were not fully understood before conducting the next test and the
    number of problems being experienced may have indicated a process
    breakdown caused by schedule pressures. According to DOD's
    Director of Operational Test and Evaluation, testing through March
    1997 emphasized schedule over success. The aggressive flight-test
    schedule proved to be overly ambitious; technical problems
    encountered during testing  resulted in program delays. In its
    February 1998 report, the Panel on Reducing Risk in Ballistic
    Missile Defense Flight Test Programs labeled THAAD's aggressive
    schedule and insufficient attention to flight-test failures a
    "rush to failure."6 This group, which had been chartered to study
    risk in the flight testing of Ballistic Missile Defense
    Organization programs, pointed out that THAAD's flight tests were
    conducted without complete component qualification and ground
    testing. THAAD program officials agree that the initial schedule
    was overly optimistic. The contractor's chief engineer for the
    THAAD program told us that if the schedule had allowed for better
    ground testing of the interceptor, at least some of the problems
    that caused flight-test failures would have been caught. The
    Army's initial plans allowed only 1 month between flight tests. In
    hindsight, according to the program manager, additional time to
    test components might have prevented some flight-test failures.
    4THAAD Independent Program Assessment, Final Report, Garber
    International Associates, Inc., September 30, 1994. 5Final Report,
    THAAD Independent Review Panel, July 29, 1996. 6Report of the
    Panel on Reducing Risk in Ballistic Missile Defense Flight Test
    Programs , Institute for Defense Analyses, February 27,  1998.
    Page 5                                           GAO/NSIAD-99-142
    THAAD Program Restructure B-280755 User Operational Evaluation
    The User Operational Evaluation System was intended, in part, to
    provide System Requirement                 an interim defense
    capability that could be used until the final system was Diverted
    Attention and             ready. However, the planning and
    implementation of the User Operational Limited Ability to Test
    Evaluation System diverted THAAD program management to some extent
    from its primary task of developing the interceptor and resulted
    in an Interceptor                        interceptor designed more
    for deployment than for testing. According to the Panel on
    Reducing Risk in Ballistic Missile Defense Flight Test Programs,
    the requirement for an early prototype system capability led
    program management to focus some of its attention on operational
    issues (such as training soldiers) rather than concentrating
    solely on developing and testing the interceptors. The User
    Operational Evaluation System requirement essentially demanded an
    operational capability before the interceptor was fully designed.
    This resulted in interceptors built for wartime use rather than
    equipped with sufficient instruments to provide optimum test data.
    According to the panel's report, because of the requirement for a
    User Operational Evaluation System, the program used parallel
    testing to save time rather than best practices, such as a
    sequential find-and-fix approach. The panel recommended
    eliminating the requirement for deployable prototype interceptors
    because acquiring such an early operational capability was
    inconsistent with the complexity of the task of developing the
    THAAD system. THAAD program management agreed that the requirement
    for a User Operational Evaluation System was a distraction and
    reduced its ability to test the interceptor. The contractor's
    THAAD chief engineer told us that because of the requirement, the
    developmental interceptors were designed with fewer ways to test
    components and subsystems on the ground and the ground tests were
    made more difficult because test points were less accessible. The
    THAAD project manager also acknowledged that planning for User
    Operational Evaluation System interceptors had been a distraction
    to his team. Inadequate Quality                 Inadequate quality
    assurance allowed problems to go undetected, and test Assurance
    analyses show that those problems caused most, if not all, of
    THAAD's six failures to intercept a target. According to DOD's
    Director of Operational Test and Evaluation, for example, quality
    control deficiencies in the manufacturing of the interceptors were
    a major factor in all but one of the Page 6
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 first five
    flight-test failures.7 Some of the failures were caused by debris
    that was allowed to get into components during the manufacturing
    process. A better quality assurance system could have prevented or
    caught these problems. Although the government identified
    inadequacies in the contractor's quality assurance system, the
    contractor did not make improvements in a timely manner. As early
    as February 1994, the Army's first quality assurance audit of the
    THAAD contractor cited 11 areas in which the contractor did not
    comply with the quality assurance provisions of the contract.
    These included findings that the contractor had not performed
    internal audits or followed approved procedures. In addition, the
    audit team reported that the approved reliability program had not
    been fully implemented. The auditors noted that these deficiencies
    could result in flight-test failures, test program delays, and
    lower hardware reliability. Over 2 years later, in August 1996,
    another quality assurance audit showed that problems had not been
    resolved. That audit report cited quality system weaknesses,
    including a lack of quality assurance resources, and an inadequate
    system for reporting problems and related corrections. Between
    contract award in September 1992 and July 1995, the contractor
    reduced the number of staff performing quality assurance functions
    by two thirds. The audit report recommended a rededication and
    commitment by contractor management to the concept of quality.
    According to some analyses, the contractor's management was not
    sufficiently committed to the program and did not provide the
    leadership to correct the problems and ensure the program's
    success. For example, following the 1996 quality assurance audit,
    the THAAD project manager expressed concerns about the
    contractor's leadership and management. He wrote that (1) the
    failure reporting and corrective action system was neither timely
    nor effective, (2) acceptance test plans and procedures were not
    defined, and (3) both the quality and quantity of quality
    assurance personnel were insufficient. The project manager
    concluded that the contractor's approach to quality assurance was
    not working and that a basic change in the contractor's management
    philosophy was required. The contractor responded with a detailed
    resolution plan in September 1996, but flight-test failures caused
    by quality problems continued. In May 1998, following the fifth
    intercept failure, the government's contracting officer 7According
    to DOD's Director of Operational Test and Evaluation, a software
    processing error caused the other test failure. Page 7
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 notified the
    contractor that its failure to achieve an intercept was
    endangering the contract. Subsequent agreements between the Army
    and the contractor addressing project office concerns were
    incorporated into the restructured THAAD program. Inappropriate
    Contract Type  THAAD's cost-plus-fixed-fee type contract placed
    all of the program's financial risk on the government and, short
    of terminating the contract, did not include provisions that could
    be used to hold the contractor accountable for less than optimum
    performance. According to the May 1992 THAAD acquisition strategy
    report, a fixed-fee contract was used because of the potential for
    cost increases. The THAAD project manager told us that, at the
    time of the development contract award, the risks of schedule
    slips and cost increases were considered high, reducing the
    likelihood that a contractor would accept an incentive fee
    arrangement. No incentive on technical performance was believed to
    be necessary because technical risks were considered to be low.
    Under the cost-plus-fixed-fee arrangement, the government agreed
    to reimburse all of the contractor's allowable costs and pay a
    fixed fee. Because the contractor's fee was fixed at the
    beginning, it was not tied to accomplishment of cost, schedule,
    and performance objectives. In November 1993, the Army Audit
    Agency cited THAAD as an example of an acquisition that did not
    use the proper contract type and did not provide appropriate
    incentives.8 The audit pointed out that the Army structured
    contracts for the THAAD system's radar and interceptor
    differently. Although both components were in the program
    definition and risk reduction phase, the radar contract included
    both award and incentive fees, while the interceptor contract did
    not make use of incentives. The audit agency's report concluded
    that the approach taken in regard to the THAAD interceptor
    contract did not comply with sound contracting principles because
    it did not tie financial incentives to cost, schedule, and
    performance goals. The THAAD project office expressed concern that
    the contractor was not taking the lead in identifying and fixing
    problems. The purpose of including 8Research and Development
    Contracting, U.S. Army Audit Agency Report No. 94-700, November
    20, 1993. Page 8                                       GAO/NSIAD-
    99-142 THAAD Program Restructure B-280755 incentives and/or
    penalty provisions is to provide a means of motivating the
    contractor to proactively identify and fix problems. Award fee
    contracts, for example, provide the government more control in
    terms of directly influencing the contractor's efforts. Army Has
    Not                       To date, THAAD test failures have been
    caused primarily by manufacturing Demonstrated Reliability of
    defects rather than advanced technology problems. For example, a
    short in THAAD Hit-to-Kill                  an electrical circuit
    caused one failure. Other failures resulted because Technology
    debris was allowed to contaminate components such as infrared
    seeker parts during the manufacturing process. Despite the flight-
    test failures, independent reviews have concluded that the
    interceptor design should be capable of accomplishing its mission.
    However, according to the independent Panel on Reducing Risk in
    Ballistic Missile Defense Flight Test Programs, DOD initially
    underestimated the difficulty of performing "hit-to-kill"
    intercepts. Only 8 of the 24 hit-to-kill intercept attempts
    conducted since the early 1980s in various missile defense
    programs have been successful. Although the Army demonstrated
    THAAD's ability to hit another missile in June 1999, it has not
    shown that this technology can be reliably employed under all
    necessary conditions. For example, THAAD is required to intercept
    targets both inside and outside the atmosphere and under a variety
    of conditions, such as when targets employ countermeasures. The
    June 1999 intercept was in the higher regions of the atmosphere
    and the target did not use countermeasures. Future tests are
    planned for intercepts lower in the atmosphere and outside the
    atmosphere. Each region presents unique challenges; for instance,
    it may be more difficult for THAAD to distinguish between
    attacking warheads and debris and other objects during intercept
    attempts outside the atmosphere. Restructured Program  After the
    fifth successive test failure in May 1998, DOD restructured the
    Addresses Underlying  THAAD program. The restructured program
    addresses each of the four underlying problems. However, because
    most interceptor components Problems, but
    were produced before DOD restructured the program, their
    reliability Reliability Remains a              remains a concern
    for future tests. Concern Page 9
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 Restructured
    Program     THAAD's compressed flight-test schedule and inadequate
    ground testing Addresses Underlying     were addressed by
    extending the schedule for the current phase of flight Problems
    testing and adding ground tests. The THAAD project office allowed
    about 10 months between the fifth intercept failure in May 1998
    and the sixth attempt in March 1999 in order to retest and
    recertify components. In addition, more extensive interceptor
    ground testing was implemented at the assembly facility prior to
    shipment to the test range and at the test range just prior to
    flight testing. Following these actions, THAAD failed its sixth
    intercept attempt in March 1999, but it successfully intercepted
    the target in its seventh attempt in June 1999. The remaining
    three flights of the current test phase are scheduled through
    December 1999 using the re- tested components. If two of the three
    intercept attempts are successful, THAAD will enter the
    engineering and manufacturing development acquisition phase; in
    this phase, flight tests are scheduled about 3 months apart to
    allow sufficient time for preflight testing, postflight analysis,
    and corrective actions. Under the restructured program, the Army
    no longer plans to produce THAAD User Operational Evaluation
    System interceptors. As indicated previously, the requirement for
    these interceptors distracted contractor and government program
    management from its primary tasks of developing and testing the
    interceptor and resulted in a less testable design. Removing the
    requirement should eliminate this distraction, but because the
    design of the interceptor currently being flight-tested is little
    changed, limits remain on the ability to test it. THAAD's
    restructuring also improved the quality assurance program. In
    September 1996, prior to the restructuring, the contractor issued
    a detailed plan to resolve concerns about its quality assurance
    program. That plan called for improvements such as (1)
    implementing a system for auditing and evaluating the
    effectiveness and performance of quality assurance contractual
    requirements, (2) dedicating personnel to support failure
    reporting analysis and corrective actions, and (3) performing all
    component acceptance procedures with trained quality assurance
    representatives. Under restructuring, the contractor reorganized
    and added a Vice President for THAAD Flight Testing, who,
    according to the THAAD project manager, has provided the
    leadership and commitment that was lacking. In April 1999, this
    official became responsible for the contractor's entire THAAD
    program. In addition, as shown in figure 1, the contractor has
    significantly increased the quality assurance staffing levels.
    Defense Contract Management Command representatives told us that,
    in their view, the contractor's current quality assurance staffing
    is sufficient. Page 10                              GAO/NSIAD-99-
    142 THAAD Program Restructure B-280755 Figure 1:  Contractor
    Staffing Levels Dedicated to THAAD Quality Assurance Staffing
    levels 50 40 30 20 10 0     Start      July-95    July-96
    July-97     Jan.-98 Source: THAAD Project Office. The
    restructuring also added financial incentives to the development
    contract and introduced a degree of competition into the program,
    which may provide even more incentive for a successful program. As
    part of the THAAD restructuring, the Army and the contractor
    signed a contract modification in July 1998 that provides cost-
    plus-incentive-fee and award- fee elements to the original cost-
    plus-fixed-fee contract. The incentive provisions require the
    contractor to absorb up to $75 million of development costs based
    on flight-test results. The contractor incurred the first $15
    million penalty following the failed intercept attempt on March
    29, 1999. Under the remaining incentive-fee provisions, the
    contractor would also absorb (1) $20 million if two intercepts
    have not occurred by July 16, 1999;9 (2) $20 million more if three
    intercepts have not occurred by October 16, 1999; and (3) yet
    another $20 million if three intercepts have not occurred by
    January 16, 2000. However, if the contractor incurs initial
    penalties followed by successful intercepts, some of the penalties
    could be reimbursed. The contractor can be reimbursed up to $35
    million for three successful intercepts by January 16, 2000. In
    addition, the contractor could be awarded up to an additional $20
    million in reimbursement based on the contracting officer's
    subjective determination of the contractor's cost performance.
    9One of the two intercepts was successfully conducted on June 10,
    1999. Page 11                                        GAO/NSIAD-99-
    142 THAAD Program Restructure B-280755 DOD also introduced a
    degree of competition into the restructured program. DOD has
    proposed that THAAD and the Navy's Theater Wide system10 compete
    for funding beginning in fiscal year 2002.11 In December 2000, the
    Ballistic Missile Defense Organization plans to review the two
    programs in terms of cost, schedule, performance, and risk. It
    then plans to select one of the systems for enhanced funding in
    order to field that system by fiscal year 2007. The other program
    would continue in development, but at a slower pace. Regardless of
    which is chosen, the Army would continue development of the THAAD
    radar and battle management/command, control, communications,
    computers, and intelligence system for use in the overall theater
    air and missile defense mission. Reliability Remains a     The
    reliability of the interceptors that are planned for use during
    the Concern                   current phase of flight-testing is
    an ongoing concern because most components were produced under
    inadequate quality assurance conditions. With the exception of the
    seeker (the component that locates and tracks the target and
    provides that information to the interceptor's computer), all
    components and subsystems were produced by 1996, before quality
    assurance improvements were made. After the fifth failed intercept
    attempt in May 1998, all existing interceptor components were
    subjected to reevaluation and/or retesting. However, according to
    DOD's Director of Operational Test and Evaluation, retesting is
    not a substitute for initial production under adequate quality
    assurance processes. The Director also observed that hardware for
    the remaining THAAD interceptors was built several years ago, and
    only minor changes or upgrades can be made to this existing
    hardware.12According to the Director, until new hardware is built
    that incorporates improved manufacturing, quality assurance, and
    test processes, there is no reason to expect any significant
    improvement in the THAAD interceptor's 10The sea-based Navy
    Theater Wide system is being designed to complement THAAD and help
    protect U.S. and allied forces against medium- to long-range
    theater ballistic missiles. 11The Senate's version of the fiscal
    year 2000 Defense Authorization Act (Senate bill 1059, section
    221) if enacted into law would effectively bar this planned
    competition by requiring that the Secretary of Defense establish
    an acquisition strategy that bases funding and schedule decisions
    on the performance of each system independent of the other system.
    12Fiscal Year 1998 Annual Report, Director, Operational Test and
    Evaluation, February 1999. Page 12
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 performance.
    After extensive review, however, DOD decided to continue the
    current test program. THAAD failed its sixth intercept attempt in
    March 1999 because of an unreliable component, but it successfully
    intercepted the target during its seventh attempt in June 1999.
    The restructured program also provides for redesigning the
    interceptor with a view toward producing 20 interceptors for
    testing early in the engineering and manufacturing development
    phase. Restructured Program  Because the restructured THAAD
    program does not include prototype Significantly Alters
    interceptors intended for early deployment, the THAAD User
    Operational Evaluation System battalion will have little or no
    capability for intercepting User Operational               enemy
    theater ballistic missiles. The restructured program includes a
    plan Evaluation System              to produce 20 redesigned
    interceptors, called "risk reduction/contingency" Concept and
    interceptors, but unlike the 40 interceptors initially planned for
    the User Operational Evaluation System, all 20 of these
    interceptors are planned for Capabilities
    testing in THAAD's next development phase. The risk reduction/
    contingency interceptors will (1) be designed to incorporate
    lessons learned from the current development phase, (2) have
    improved test instrumentation, and (3) consist of all new hardware
    to improve reliability and performance. Under the restructured
    THAAD program, the first of these interceptors would be delivered
    in 2003. In addition to an interim system that could be deployed
    to intercept theater ballistic missiles, the User Operational
    Evaluation System was originally intended to (1) allow military
    users to influence the system design and (2) permit an early
    operational assessment of the system's capabilities. The THAAD
    battalion has provided feedback to influence the system's design,
    but according to the THAAD project manager, the battalion could
    accomplish this objective with significantly fewer soldiers than
    the 295 currently authorized. Restructuring the THAAD program
    removed the requirement for an early operational assessment of the
    User Operational Evaluation System. The Army Training and Doctrine
    Command's system manager for THAAD has identified two potential
    military capabilities of the User Operational Evaluation System
    that might be of value to U. S. warfighters. First, risk
    reduction/contingency program interceptors planned for testing
    could be diverted to the User Operational Evaluation System
    battalion if military operations commence. However, the first of
    the risk reduction/contingency interceptors will not be available
    until 2003. Because most, if not all, risk reduction/contingency
    interceptors will be consumed soon after delivery Page 13
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 by ground- and
    flight-testing, few, if any, of them would be available for
    contingency deployment. Up to 18 months could be needed to produce
    additional interceptors in excess of the 20 currently planned. The
    second use postulated for the THAAD battalion is to use the THAAD
    radars to predict the launch and impact point of enemy missiles.
    However, DOD has not established a formal requirement for the
    THAAD radars to perform launch and impact point predictions. Also,
    DOD does not plan an independent assessment of the radar's
    operational capabilities for this mission. Both a formal
    requirement and an assessment of capabilities would be needed for
    a decision to deploy the User Operational Evaluation System radars
    because a wartime commander would have to use five or six C-5
    aircraft that might be needed for other purposes.13 Conclusions
    The restructured program addresses each of the THAAD program's
    four underlying problems. However, the reliability of current
    flight-test interceptors remains a concern because most components
    were produced when the contractor's quality assurance system was
    inadequate. Test failures caused primarily by manufacturing
    defects, rather than advanced technology problems, have prevented
    the Army from demonstrating that THAAD can reliably intercept
    targets in all required regions. The restructuring of the THAAD
    program raises the issue of what the purpose of the User
    Operational Evaluation System battalion at Fort Bliss should now
    be. Whether all or only part of the battalion would warrant
    deployment for contingency operations would depend on the
    capabilities it could provide to warfighters and the priority of
    the need for one or more of those capabilities. However, there
    would be little basis for making a deployment determination
    because DOD does not plan to conduct an operational assessment of
    the User Operational Evaluation System. Recommendations    We
    recommend that the Secretary of Defense determine and define
    which, if any, potential capabilities of the restructured THAAD
    User Operational Evaluation System are needed by the warfighter
    community. If warranted by that determination, we further
    recommend that the Secretary (1) direct 13The Army estimates that
    25 C-5, 37 C-17, or 67 C-141 fights would be needed to deploy the
    entire battalion, including launchers and missiles. Page 14
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 that an
    independent operational assessment of the needed THAAD User
    Operational Evaluation System capabilities be conducted and (2)
    require the Army to determine the minimum essential military
    personnel and equipment required to fulfill the defined mission.
    Agency Comments and  In commenting on a draft of this report, DOD
    concurred with our Our Evaluation                 recommendations.
    DOD said that the Army is currently assessing how the User
    Operational Evaluation System's capabilities can help meet near-
    term warfighting requirements. According to DOD, this review might
    change the battalion's force structure because interceptor
    missiles for test or possible deployment will not be available
    until fiscal year 2003. Until then, THAAD's potential contribution
    will be limited to enhancing surveillance and launch and ground
    impact point predictions and to providing data to other missile
    defense systems. The Army is working to determine the minimum
    number of military personnel and equipment needed to support the
    User Operational Evaluation System until interceptors are
    available. DOD also said that it will conduct an early operational
    assessment of the User Operational Evaluation System's
    capabilities before beginning THAAD engineering and manufacturing
    development in fiscal year 2000. DOD also provided additional
    technical comments and suggested changes, which we incorporated.
    DOD's comments are included in appendix I. Scope and
    To identify underlying reasons for the program's difficulties, we
    reviewed Methodology                    pertinent government and
    contractor documentation, including contract files, audit reports,
    schedules, briefings, cost reports, integrated product team
    minutes, and contractor resolution plans and training plans. We
    also reviewed independent studies and discussed the studies'
    findings with knowledgeable officials. We compared the results of
    our review to the findings of the independent studies. To assess
    the latest plans for restructuring the program and the impact of
    the restructuring on problems identified earlier, we reviewed
    revised program plans, integrated product team meeting minutes,
    and other planning documents. We also discussed elements of the
    restructured program with THAAD program officials, contractor
    representatives, representatives of the Army's user element, and
    independent test officials. Page 15
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 To determine
    the impact of changes on the THAAD User Operational Evaluation
    System, we interviewed appropriate government and contractor
    officials (including user representatives) and reviewed pertinent
    contractor documents and government planning documents. We
    analyzed how the changes would affect the project office and
    potential users. In Washington, D.C., we interviewed
    representatives from the Office of the Secretary of Defense; Joint
    Staff; Office of the Director, Operational, Test, and Evaluation,
    Ballistic Missile Defense Organization; and the Office of the
    Army's Deputy Chief of Staff for Operations. We also interviewed
    representatives from THAAD Battalion and Air Defense Artillery
    School, Fort Bliss, Texas; Raytheon Corporation and THAAD
    Battalion, White Sands Missile Range, New Mexico; Lockheed Martin
    Missiles and Space and Defense Contract Management Command,
    Sunnyvale, California; and THAAD project office and U.S. Army
    Space and Missile Defense Command, Huntsville, Alabama. We
    conducted our work from August 1998 to June 1999 in accordance
    with generally accepted government auditing standards. At the end
    of our review, we updated our work to reflect the successful
    intercept test on June 10, 1999. As arranged with your staff,
    unless you publicly announce its contents earlier, we plan no
    further distribution of this report until 30 days from its issue
    date. At that time, we plan to provide copies of this report to
    the Honorable William Cohen, Secretary of Defense; the Honorable
    Lewis Caldera, Secretary of the Army; Lieutenant General Lester
    Lyles, Director, Ballistic Missile Defense Organization; the
    Honorable Jacob Lew, Director, Office of Management and Budget;
    and key committees of the Congress. We will make copies available
    to others upon request. Page 16
    GAO/NSIAD-99-142 THAAD Program Restructure B-280755 If you or your
    staff have questions concerning this report, please contact me at
    (202) 512-4841. The major contributors to this report were Lee
    Edwards, Stan Lipscomb, and Tom Gordon. Sincerely yours, Allen Li
    Associate Director, Defense Acquisitions Issues Page 17
    GAO/NSIAD-99-142 THAAD Program Restructure Appendix I Comments
    From the Department of Defense Appendix I Page 18
    GAO/NSIAD-99-142 THAAD Program Restructure Appendix I Comments
    From the Department of Defense Now on pp. 3 and 14. Now on pp. 3
    and 14. (707376)                Letter    Page 19
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