Space Station: Russian Commitment and Cost Control Problems (Letter
Report, 08/17/1999, GAO/NSIAD-99-175).

Pursuant to a congressional request, GAO reviewed the status of Russian
involvement in the International Space Station (ISS) program, focusing
on: (1) the National Aeronautics and Space Administration's (NASA)
progress in developing contingency plans to mitigate the possibility of
Russian nonperformance and the loss or delay of other critical
components; (2) NASA's efforts to ensure that Russian quality assurance
processes meet the station's safety requirements; and (3) the
effectiveness of cost control efforts regarding the prime contract and
nonprime activities.

GAO noted that: (1) Russia's funding problems have delayed delivery of
the Service Module--the first major Russian-funded component--and raised
questions about its ability to support the station during and after
assembly; (2) NASA is implementing a multi-faceted contingency plan to
mitigate the risk of further delay of the Service Module and the
possibility that the Russians will not provide Progress vehicles for
reboosting the station; (3) the first step of this plan includes the
development of the U.S.-built Interim Control Module and modifications
to the Russian-built and U.S.-financed Functional Cargo Block; (4) in
the second step, NASA is developing its own permanent reboosting
capability; (5) NASA's plan also includes payments to the Russian Space
Agency to complete near-term work on the Service Module, and Progress
and Soyuz space vehicles; (6) although NASA has a contingency plan to
mitigate Russian nonperformance, it does not have an approved overall
contingency plan to address issues such as late delivery or loss of
critical hardware; (7) the agency acknowledges that the lack of such a
plan is a program risk item; (8) according to program officials, the
higher priority risk items will ultimately be costed, and the final
contingency plan should be approved later this year; (9) NASA is
satisfied that Russian quality assurance standards are acceptable; (10)
however, the Service Module's inability to meet debris protection
requirements is a potential safety issue; (11) in addition, NASA and the
Russian Space Agency will have to work together to address other safety
issues such as improving fire protection and reducing noise levels; (12)
the prime contract has had significant cost overruns and schedule
delays; (13) the prime contractor's estimate of overrun at completion
has been increased several times and stands at $986 million; (14) at the
same time, the costs of the nonprime portion of the program--activities
related to science facilities and ground and vehicle operations--are
also increasing, due largely to added scope and schedule slippage; (15)
in 1994, the nonprime component of the program's development budget was
$8.5 billion; today, it is over $12.4 billion; (16) the agency has begun
to subject the nonprime area to increased scrutiny; (17) also,
recognizing the inadequacy of the risk database, the Program Risk
Assessment Board was directed to scrutinize all existing risks for cost
impacts; and (18) these actions could potentially improve the agency's
ability to manage future cost growth.

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

 REPORTNUM:  NSIAD-99-175
     TITLE:  Space Station: Russian Commitment and Cost Control
	     Problems
      DATE:  08/17/1999
   SUBJECT:  Cost control
	     Schedule slippages
	     Prime contractors
	     Space exploration
	     Cost overruns
	     International relations
	     Cost analysis
	     Strategic planning
	     Future budget projections
	     Aerospace contracts
IDENTIFIER:  Russia
	     Progress Space Vehicle
	     NASA Interim Control Module
	     Soyuz Spacecraft
	     NASA Functional Cargo Block
	     NASA International Space Station Alpha Program

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ns99175 GAO United States General Accounting Office

Report to Congressional Requesters

August 1999 SPACE STATION Russian Commitment and Cost Control
Problems

GAO/NSIAD-99-175

  GAO/NSIAD-99-175

Page 1 GAO/NSIAD-99-175 Space Station United States General
Accounting Office

Washington, D. C. 20548 National Security and International
Affairs Division

B-280328 Letter August 17, 1999 The Honorable John McCain
Chairman, Committee on Commerce, Science and Transportation United
States Senate

The Honorable Bill Frist Chairman, Subcommittee on Science,
Technology and Space Committee on Commerce, Science and
Transportation United States Senate

The National Aeronautics and Space Administration (NASA) faces
many challenges in developing and building the International Space
Station (ISS). These challenges, such as Russian difficulty in
completing its components on schedule due to insufficient funding
and continuing U. S. prime contractor cost increases, have
translated into schedule delays and higher program cost estimates
to complete development. As requested, we reviewed the status of
Russian involvement in the ISS program. We also examined the prime
contractor's progress in implementing cost control

measures and NASA's efforts to oversee the program's nonprime
activity. Specifically, we (1) assessed NASA's progress in
developing contingency plans to mitigate the possibility of
Russian nonperformance and the loss or delay of other critical
components, (2) identified NASA's efforts to ensure that Russian
quality assurance processes meet the station's safety
requirements, and (3) determined the effectiveness of cost control
efforts regarding the prime contract and nonprime activities.

Results in Brief As an ISS partner, Russia agreed to provide
equipment, such as the Service Module, Progress vehicles to
reboost the station, dry cargo, and related launch services
throughout the station's life. 1 However, Russia's funding
problems have delayed delivery of the Service Module the first
major Russian- funded component and raised questions about its
ability to support the station during and after assembly. NASA is
implementing a

1 The Service Module is the primary Russian station contribution
and early living quarters. It will provide life support system
functions to all early elements. In addition, it is to provide
station flight control and propulsion. Although many of its
systems will be supplemented or replaced by later components, it
will always remain the structural and functional center of the
Russian segment. Lett er

B-280328 Page 2 GAO/NSIAD-99-175 Space Station

multi- faceted contingency plan to mitigate the risk of further
delay of the Service Module and the possibility that the Russians
will not provide Progress vehicles for reboosting the station. The
first step of this plan includes the development of the U. S.-
built Interim Control Module and modifications to the Russian-
built and U. S.- financed Functional Cargo Block (Zarya). In the
second step, NASA is developing its own permanent reboosting
capability. NASA's plan also includes payments to the Russian
Space Agency to complete near- term work on the Service Module,
and Progress and Soyuz space vehicles. While the ultimate cost of
its plan is uncertain at this time, NASA currently estimates that
the cost to protect against Russian nonperformance will be about
$1.2 billion. Although NASA has a contingency plan to mitigate
Russian nonperformance, it does not have an approved overall
contingency plan to address issues such as late delivery or loss
of critical hardware. The agency acknowledges that the

lack of such a plan is a program risk item. According to program
officials, the higher priority risk items will ultimately be
costed, and the final contingency plan should be approved later
this year.

NASA is satisfied that Russian quality assurance standards are
acceptable. However, the Service Module's inability to meet debris
protection requirements is a potential safety issue. The module
will require improvements after it is launched to meet this
requirement. Based on the module's current launch date, it will be
about 3  years after launch before improvements can be completed.
In addition, NASA and the Russian Space Agency will have to work
together to address other safety issues such as improving fire
protection and reducing noise levels.

Despite efforts to control cost growth, pressures on the program's
budget continue to mount. NASA's cost estimates assume assembly
completion in 2004. However, the agency acknowledges the
difficulty in maintaining that schedule. If the schedule is not
met, total program costs for the U. S. segment of the station will
increase further. The prime contract has had significant cost
overruns and schedule delays. The prime contractor's estimate of
overrun at completion has been increased several times and

currently stands at $986 million. At the same time, the costs of
the nonprime portion of the program activities related to science
facilities and ground and vehicle operations are also increasing,
due largely to added scope and schedule slippage. In 1994, the
nonprime component of the program's development budget was $8. 5
billion; today, it is over $12.4 billion. The agency has begun to
subject the nonprime area to

increased scrutiny. Also, recognizing the inadequacy of the
current risk database, the Program Risk Assessment Board was
directed to scrutinize

Lett er

B-280328 Page 3 GAO/NSIAD-99-175 Space Station

all existing risks for cost impacts. These actions could
potentially improve the agency's ability to manage future cost
growth.

We recommend that the NASA Administrator direct the station
program manager to finalize the overall ISS contingency plan
before the Service Module is launched. Background NASA and its
international partners Japan, Canada, the European Space

Agency, and Russia are building the space station as a permanently
orbiting laboratory to conduct materials and life sciences
research, earth observation, and commercial utilization, and
related uses under nearly weightless conditions. Each partner is
providing station hardware and crew members and is expected to
share operating costs and use of the station. The NASA space
station program manager is responsible for the cost, schedule, and
technical performance of the total program. The Boeing
Corporation, the prime contractor, is responsible for development,

integration, and assembly of the station. (See fig. 1.)

B-280328 Page 4 GAO/NSIAD-99-175 Space Station

Figure 1: Artist's Conception of Fully Assembled ISS in Orbit

Source: Johnson Space Center.

In December 1998, NASA accomplished an important and significant
step in its construction of the ISS: coupling the first two
elements Zarya and Node 1 (Unity). (See fig. 2.)

B-280328 Page 5 GAO/NSIAD-99-175 Space Station

Figure 2: Zarya and Unity in Orbit

Source: Johnson Space Center.

In May 1998, we reported that the program's development costs had
increased from $17.4 billion to $21. 9 billion. 2 We cited a
schedule slippage of 18 months June 2002 to December 2003 for
completion of assembly as contributing significantly to the
increase. We also identified delays in the

manufacture of the Service Module as contributing to the schedule
slippage, as well as prime contractor cost overruns. NASA now
estimates that development costs will range from $24 billion to
$26 billion, depending on the station's completion date. The
agency attributes this increase to further schedule slippage and
Russian manufacturing delays.

2 International Space Station: U. S. Life- Cycle Funding
Requirements (GAO/NSIAD-98-147, May 22, 1998).

B-280328 Page 6 GAO/NSIAD-99-175 Space Station

NASA Contingency Planning Focuses on Russian Concerns

Because of Russia's continuing funding problems, NASA developed a
multifaceted contingency plan to mitigate the risk of further
delay of the Service Module and the possibility that the Russians
cannot provide a reboost capability. Payments to Russia for the
completion of the Service Module have also been made. Although
NASA has a strategy to deal with Russian nonperformance, it has
not completed an overall contingency plan to address a broader
range of potential problems.

Russian Nonperformance Contingency Plan Has Multiple Steps

Beginning in late 1995, NASA became increasingly concerned about
Russia's ability to meet its space station commitments. The
greatest concern at the time was that the Service Module (see fig.
3) would be

delayed due to shortfalls in Russian funding. Later, those delays
were acknowledged, and the scheduled delivery of the Service
Module slipped by 8 months. Subsequently, Russia's continued
funding problems caused additional slippage.

NASA responded by developing a plan to address Russian
nonperformance. The first step, which has been under way since
early 1997, is designed to protect against further Service Module
delays and includes the

development of the U. S.- built Interim Control Module and
modifications to the Russian- built and U. S.- financed Zarya.
According to NASA, the cost to implement this step will be about
$261 million.

B-280328 Page 7 GAO/NSIAD-99-175 Space Station

Figure 3: Service Module

Source: Johnson Space Center.

The second step includes developing a U. S. capability to provide
permanent reboost and attitude control. Russia is responsible for
providing Progress vehicles, dry cargo, and related launch
services throughout the station's life. Because of Russia's
continuing funding problems, NASA began focusing on the
development of a U. S. capability to provide similar functions,
such as a propulsion module, shuttle and docking module
modifications, and the purchase of logistics carriers and services
at an estimated cost of about $730 million. The propulsion module
is the most expensive component of the new hardware. While there
has been some

B-280328 Page 8 GAO/NSIAD-99-175 Space Station

uncertainty regarding the cost of this component, NASA currently
estimates that it could cost about $540 million. The agency
estimates that the other components shuttle modifications to
permit reboosting of the station and logistics carriers designed
to safely transport dry cargo on the shuttle will cost about $90
million and $100 million, respectively.

To mitigate the risk of Russian nonperformance in the near term,
the second step of the plan also includes transfer payments to the
Russian Space Agency to complete near- term work on the Service
Module and

Progress and Soyuz space vehicles. A $60- million payment was made
in 1998, for which the United States will receive 4, 000 hours of
crew time, previously allocated to Russia, to conduct U. S.-
directed research. The United States will also receive storage
space in the Russian segment of the station. According to program
officials, the cost of research time on the Mir space station was
the basis for the negotiation. 3

NASA is monitoring the flow of funds resulting from the transfer.
In October 1998, officials began reviewing Russian contracts
related to the Service Module and launch vehicles to confirm that
purchase orders were in place. In November 1998, NASA officials
began reviewing Russian disbursement documentation to determine
the amount of transferred funds that had been released to
suppliers. NASA officials said they found no

evidence to date of U. S. funds being used for purposes other than
those covered in the terms of the transfer. We did not
independently verify NASA's finding.

NASA also plans to provide $100 million to the Russian Space
Agency in 1999 in return for goods and services. The two agencies
have compiled a list of goods and services that could be provided
in return for the additional payments. That list includes the
potential purchase of a Soyuz crew return vehicle, a space station
virtual reality trainer, and Russian hardware mockups.

NASA has placed conditions on any fund transfers beyond those
already made. In testimony given before the House Science
Committee on February 24, 1999, the NASA Administrator stated that
no decision will be made regarding further transfers without
assessments of progress in the 3 For the purposes of the funding
transfer negotiation, NASA applied a rate of approximately

$11, 000 per hour for crew research time. This was based on the
1994 negotiated rate for research time on the Mir space station.

B-280328 Page 9 GAO/NSIAD-99-175 Space Station

following three areas: (1) Service Module launch schedule, (2) the
future disposition of the Mir space station, and (3) status of
other Russian hardware and launch vehicle commitments. According
to NASA, it is extremely difficult for Russia to support launch
commitments to both Mir and ISS. Russia's unwillingness to deorbit
Mir on schedule would be viewed

as a severe threat to maintaining its support of ISS. While the
ultimate cost of the contingency plan to address Russian
nonperformance regarding their current commitments is uncertain at
this time, NASA estimates that it will be about $1.2 billion.

To help pay some of the costs of Russian contingency requirements,
the program transferred $110 million from the space station
research budget with the expectation that the funds would be
replaced in the out- years. According to program officials, recent
assembly sequence delays made it possible to delay planned
research expenditures to later in the development program.
However, according to NASA, station research programs will be
impacted as a consequence. Preliminary assessments show that it
may be necessary to delay the number of flight research

investigators assigned to station work and defer some research
activities. Overall Contingency Plan Not Yet Approved

While NASA has a plan to deal with Russian nonperformance, it does
not yet have an approved overall contingency plan to address
development issues involving all partners. NASA has identified the
lack of an overall contingency plan as a program risk item. In
response, a station program plan to address issues such as late
delivery or loss of critical hardware has been drafted, but the
potential cost of all contingencies has not been

estimated. The absence of cost estimates has already caused some
uncertainty. For example, NASA's recent decision to develop a U.
S. capability to reboost the station requires that it develop a
propulsion module. NASA initially relied on a contractor quote to
estimate the cost of this capability, but subsequently refined its
propulsion module requirement, resulting in a much higher cost
estimate. Some of this uncertainty could have been avoided had the
cost of the contingencies been estimated.

B-280328 Page 10 GAO/NSIAD-99-175 Space Station

NASA's Office of the Inspector General recently issued a report on
space station program contingency planning. 4 It cited similar
concerns, concluding that, in the absence of a completed plan,
NASA cannot fully reduce [space station] risks through advance
planning and the establishment of response plans. The report also
concluded that . . . without estimated costs, [NASA], the
Administration, and the Congress cannot adequately assess the
feasibility of proposed responses or determine budgetary impact.
In response, NASA agreed that cost information is needed, but
stated that it should be maintained separately

from the contingency plan because of its sensitivity. According to
program officials, the higher priority items included in the
overall contingency plan will ultimately be costed, and the final
plan should be approved later this year.

NASA Is Satisfied With Russian Segment Quality Standards but
Design Improvements Are Needed

NASA is satisfied that Russian quality assurance processes are
acceptable. However, NASA and the Russian Space Agency will need
to continue working together to improve Russian hardware to
protect against orbital debris and address other potential safety
issues.

Comparison of Quality Assurance Standards

Agency officials explained that Russian procedures are governed by
contract in the case of Zarya and by bilateral protocols,
agreements, and plans in the case of Russian- funded hardware. In
early 1994, NASA undertook an assessment of Russian quality
standards. Over a 2- year

period, it reviewed over 265 standards and documents and concluded
that the key standards used by Russia were acceptable. Also, when
the U. S.- financed Zarya was being built in Russia, tools were
available to NASA's prime contractor to assess Russian quality,
including technical surveys, test assessments, and on- site
witnessing of tests.

4 Audit Report: Space Station Contingency Planning for
International Partners (IG- 99- 009; Mar. 9, 1999).

B-280328 Page 11 GAO/NSIAD-99-175 Space Station

Safety Improvements Will Require Ongoing U. S./ Russian Commitment

Based on the current schedule, the Service Module will be launched
in November 1999. This component will be necessary to begin
station habitation on a permanent basis. However, it will be
necessary for NASA and the Russian Space Agency to work together
both before and after its assembly to address and mitigate a
number of safety risks associated with the Service Module,
including risks related to potential debris impacts and work
environment issues.

Impact of Inadequate Orbital Debris Protection

NASA defines the space station's requirement to withstand orbital
debris impacts in terms of the likelihood of not being penetrated.
5 When Russia entered the program as a full partner, it assumed
responsibility for a significant amount of hardware. At that time,
space station partners agreed to an 81- percent probability of not
being penetrated by orbital debris, for the 10- year period
beginning on the initial station launch. Subsequently, the
requirement was reduced to 76 percent, in part, because of
configuration changes that increased the station's surface area
and assembly sequence revisions. When the current performance of
Russian- funded hardware is included, the station does not meet
this requirement.

NASA and the Russian Space Agency are working on strategies to
improve Russian components' debris protection performance. This
includes adding shielding to hardware components on orbit,
studying penetration effects, and developing repair techniques and
procedures. The most pressing issue is protecting the Russian-
funded Service Module from debris. Under the current schedule, it
will be launched about 3  years before needed protective shielding
is installed.

In addition, some Service Module design characteristics could
increase its vulnerability in the event of a debris impact. For
example:

 The module was not certified to operate in a depressurized
environment, and its capability to function in that environment
cannot be assured. According to NASA, depressurization could occur
after

impact with orbital debris, requiring the crew's evacuation and
loss of station control functions. This risk can be minimized if
Russia identifies, redesigns, and replaces the Service Module
components that would not 5 The chance of debris colliding with a
spacecraft relates directly to the size and orbital lifetime of
the spacecraft. NASA calculates overall capability to withstand
debris impacts by determining the product of the capabilities of
the individual components. For example, when Russia entered the
program, the resulting overall capability of the combined U. S.
and Russian segments was 81 percent (0. 9 times 0.9).

B-280328 Page 12 GAO/NSIAD-99-175 Space Station

operate in a depressurized environment. In the interim, NASA
believes the risk of flight control loss will be mitigated when U.
S. guidance, navigation, and control software is installed on a
later assembly flight. Under the current schedule, that backup
capability will not be available until more than 1 year after the
Service Module is deployed. Thus, the

full resolution of this issue will require ongoing NASA and
Russian Space Agency cooperation.  The Service Module's windows do
not have the same protection against debris as the windows on
other station components and are not

designed to be replaceable on orbit. The windows in the Russian
module have two layers while the U. S.- designed windows will have
four layers. 6 The additional layers are to provide protection
against debris on the

outside of the window and scratches caused by working inside the
station. Under existing plans, if a window in the Service Module
is damaged, it will have to be covered with a metal shield.

According to NASA officials, these Service Module issues are
largely the result of (1) differing manufacturing philosophies,
(2) the fact that the Russian hardware is based on designs applied
to the Mir station, and (3) the Russian position that its lengthy
Mir experience demonstrates the robustness of its design
characteristics. However, the ISS will be significantly larger
than Mir and will therefore be more exposed to orbital debris; the
ISS will have about eight times more total surface area than the
Mir station.

Under the current plan, NASA will grant a waiver at the time of
the Service Module launch and the debris protection deficiency
will be corrected on orbit. NASA believes it is appropriate to
maintain the Service Module's launch schedule because (1) the
module adds capabilities that would otherwise be unavailable and
(2) the risk is acceptable. NASA's analysis shows that the
estimated probability of a Service Module debris penetration prior
to the planned augmentation is less than 10 percent. Also,

due to the relatively small surface area of the windows, NASA
believes the likelihood of a problem caused by a window puncture
is very small.

Risks Associated With the Working Environment

NASA and the Russian Space Agency are also working to reduce risks
associated with the working environment in the Service Module.
These initiatives include modifications to the Solid Fuel Oxygen
Generator to reduce the risk of an on- board fire and improved
acoustics to reduce noise 6 All station partners except Russia
will use U. S.- designed windows.

B-280328 Page 13 GAO/NSIAD-99-175 Space Station

levels and the risk of hearing loss. These issues surfaced during
the Mir- Shuttle program. 7

The Russian Solid Fuel Oxygen Generator will be used as a backup
method to generate oxygen for the space station and will be
located in the Service Module. While in use on the Mir space
station, it caught fire, resulting in a near catastrophic event in
February 1997. A Russian investigation

identified several possible causes, the most likely of which was a
misaligned or damaged igniter. NASA and the Russian Space Agency
have agreed to some changes to help contain the spread of fire in
the ISS. However, a redesign to reduce the likelihood of a fire
will have to be incorporated on orbit. This issue continues to be
a major topic in technical

interchange meetings between NASA and the Russian Space Agency. In
addition, during the Mir- Shuttle program, NASA became aware of
the fact that some Russian cosmonauts had permanent hearing loss
due to Mir's interior noise. U. S. astronauts visiting Mir also
complained about the noise. The ISS program, in order to prevent
these problems experienced on Mir, instituted noise level
requirements for the Russian and U. S. on- orbit segments. Noise
levels in the Service Module exceed station requirements and,
without mitigating measures, could cause some short- or long- term

hearing loss in crew members. NASA and the Russian contractor have
jointly developed an acoustic mitigation plan to reduce noise
levels, but cannot fully implement the plan until after the
Service Module is launched.

Prime Contract and Nonprime Activity Costs Continue to Increase

Difficulties in maintaining cost and schedule performance under
the prime contract have prompted substantial contractor and
program office attention. There are now indications of problems in
the nonprime portion of the program, which includes activities
related to science facilities, ground and vehicle operations, and
launch processing. This is difficult because nonprime activity
comprises more than 50 percent of total estimated development
costs and about 70 percent of remaining

development costs. The program has increased its oversight of
nonprime activity and, according to officials, is attempting to
incorporate a system to improve its ability to track performance
trends. In addition, the program

7 To prepare for the ISS assembly, NASA and the Russian Space
Agency undertook a cooperative effort involving the space shuttle
and the Mir space station. During the Mir- Shuttle program, seven
U. S. astronauts visited Mir between 1995 and 1998 to conduct
experiments and gain operational experience on long- duration
missions.

B-280328 Page 14 GAO/NSIAD-99-175 Space Station

recently addressed deficiencies in its centralized risk management
database to better focus on cost issues in both the prime and
nonprime areas.

Prime Contract Cost Growth

On a number of occasions in the past several years, we have
reported and testified on the cost and schedule status of the
prime contract. 8 We have pointed out that cost growth began
almost immediately after the contract was awarded and that it
posed an ongoing challenge to program managers from a budgetary
standpoint. We noted that the program had penalized the prime
contractor in terms of both award and incentive fee largely
because

of problems in controlling and reporting costs. Cost variances
were eventually reflected in the prime contractor's estimate of
overrun at completion, although its reluctance to do so in a
timely fashion was criticized by NASA program managers. At about
the time of

our last cost control report in September 1997, the contractor
undertook a number of initiatives designed to help reverse the
trend of ever increasing cost growth. Cost control initiatives
implemented by the prime contractor included organizational
restructuring and staff reductions. The organizational changes
involved consolidating subcontractor activities and streamlining

the managerial oversight of the program's three geographic
manufacturing bases. The staff reduction initiative involved
establishing target personnel levels based on the achievement of
hardware delivery milestones.

In February 1997, the prime contractor reported a peak staffing
level of 7,040 equivalent personnel. In March 1999, the prime
contractor reported a level of 4,396 personnel, a 38- percent
drop. However, NASA has cited problems with the current skill mix.
For example, according to NASA, the lack of adequate skills has
adversely affected both assembly and qualification testing
schedules. NASA identifies the retention of critical

8 Space Station: Cost Control Difficulties Continue (GAO/NSIAD-96-
135, July 17, 1996); Space Station: Cost Control Difficulties
Continue (GAO/T-NSIAD-96-210, July 24, 1996); Space Station: Cost
Control Problems Continue to Worsen (GAO/T-NSIAD-97-177, June 18,
1997); Space Station: Cost Control Problems Are Worsening
(GAO/NSIAD-97-213, Sept. 16, 1997); Space Station: Deteriorating
Cost and Schedule Performance Under the Prime Contract (GAO/T-
NSIAD-97-262, Sept. 18, 1997); Space Station: Cost Control
Problems (GAO/T-NSIAD-98-54, Nov. 5, 1997); and Space Station:
Status of Russian

Involvement and Cost Control Efforts (GAO/T-NSIAD-99-117, Apr. 29,
1999).

B-280328 Page 15 GAO/NSIAD-99-175 Space Station

skills, such as software engineers, as a top program risk that is
worsening over time.

Despite the implementation of cost control initiatives, the prime
contract continues to have monthly cost and schedule variances. In
June 1998, the estimate of overrun at completion was $783 million;
by March 1999, it had increased to $986 million. 9 The new
estimate exceeds the program's current budget for prime contract
overrun by about $140 million, which

means funding reserves will be needed to cover the difference.
According to the prime contractor, most of the latest growth in
the estimate was attributable to additional overhead costs,
software and hardware development problems, and the need to
increase its funding reserves.

Figure 4 shows the trend of estimated cost overruns for the prime
contract portion of the development program and NASA's budget for
overruns.

Figure 4: Estimates of Prime Contract Overruns at Completion

Shortly after the prime contractor announced its March 1999
overrun estimate, NASA's Administrator requested that the agency's
Office of the Inspector General evaluate prime contract
performance management. In a letter dated April 8, 1999, NASA's
Assistant Inspector General for Auditing

9 The prime contractor first reported the overrun increase in a
March 1999 quarterly review. It was formally reported to NASA in
April 1999 in a monthly Performance Measurement System Report.

Dollars in millions 0 200

400 600

800 1000

1200 Dec- 95

Mar- 96 Jun- 96

Sept- 96 Dec- 96

Mar- 97 Jun- 97

Sept- 97 Dec- 97

Mar- 98 Jun- 98

Sept- 98 Dec- 98

Mar- 99 Jun- 99

Boeing NASA

B-280328 Page 16 GAO/NSIAD-99-175 Space Station

announced a review to include assessments of the timeliness of the
prime contractor's reports to NASA management and the
reasonableness of overhead rates applied. The Inspector General
plans to issue the report by

late August 1999. Increased Oversight of Nonprime Activities

Since 1995, the prime contract effort has received considerable
attention and oversight from program managers. Recently, the
agency has begun to subject the nonprime area to increased
scrutiny, and problem areas are

being identified. In 1994, the nonprime component of the program's
development budget was $8.5 billion. By early 1999, it had
increased to over $12. 4 billion. 10 According to NASA officials,
much of that increase is attributable to schedule slippage. In
addition, the program has increased in scope. For example, since
1994, the program has added $1.2 billion to address the
consequences of Russian fiscal problems. NASA has undertaken a
number of initiatives to improve its oversight of nonprime
activity. The initiatives include requiring periodic evaluations
and increasing visibility through high- level reviews. In October
1998, station

officials held a formal review of activities funded outside the
prime contract. This review was held at the program level and
involved representatives from nonprime activities. Subsequent
reviews were elevated to the Johnson Space Center Director level,
an indication of the

attention now being given to this area. More recently, the program
has undertaken an initiative designed to provide nonprime status
in a format that will permit improved tracking of performance
trends. The station's nonprime area is comprised of hundreds of
individual activities. The program's strategy is to establish
integrated cost and schedule baselines, which will permit
assessments of actual work performed measured against the budget.
Program managers believe such a system, if successful, would
enable them to quantify cost and schedule

variances in nonprime problem areas. The establishment of valid
baselines is fundamental to this approach. As of May 1999, the
baselines had not been completed. 10 For comparison purposes, both
estimates include research costs. In 1994, the research budget was
managed separately from the station development budget.

B-280328 Page 17 GAO/NSIAD-99-175 Space Station

Based on available information to date, the program has identified
and is currently assessing a number of nonprime activities in
which cost, schedule, or technical problems are possible. These
areas include research, operations, and vehicle facilities.
Nonprime activities now account for a larger portion of the
station's development budget than the prime contractor's
activities, meaning that the budgetary impact of unforeseen

cost growth could be significant. NASA considers the resolution of
nonprime issues a top concern.

Risk Management Database Inadequacies

One mechanism that can help managers deal with cost risks is a
thorough risk management plan. Ideally, such a plan forces
managers to identify and cost out all major program risks and then
develop remedies for risk areas.

We found that the station program's centralized database of
potential risk areas did not capture all risk items or quantify
the impacts of cost- driving risk items it did capture. For
example, the current database, while identifying retention of
critical skills as a major program risk, does not identify the
potential cost impact of losing key personnel. Regarding nonprime
risk, the database included government- furnished equipment
integration as a major risk item, but did not provide cost impact
information. As a result, the database fails to give program
managers sufficient insight and early warning into many emerging
problem areas. Recognizing the inadequacy of the current database,
the Program Risk Assessment Board was directed to scrutinize all
existing risks for cost impacts, emphasizing the importance of
early identification of risk.

NASA Planning Document and the Administration's Budget Submittal
Reference Importance of ISS Issues

In January 1999, we reported on major performance and management
issues facing NASA, as part of a series of similar reports
covering 20 federal agencies. 11 At that time, we identified space
station cost control as one of NASA's foremost challenges. In
March 1999, NASA identified specific space

station program objectives for fiscal year 2000 in its fiscal year
2000 Performance Plan. 12 These include deploying the U. S. Lab,
completing 11 Major Management Challenges and Program Risks:
National Aeronautics and Space Administration (GAO/OGC-99-18, Jan.
1999). 12 As required by the Government Performance and Results
Act of 1993, NASA issued its annual Performance Plan, titled NASA
Fiscal Year 2000 Performance Plan, in March 1999. Along with other
requirements, the act requires agencies of the federal government
to prepare an annual performance plan to describe (1) the agency's
performance goals and measures, (2) the strategies and resources
to achieve these goals, and (3) procedures to verify and validate
reported performance.

B-280328 Page 18 GAO/NSIAD-99-175 Space Station

preparations for initial research capability, and conducting
operations with a three- person crew.

The Administration has recognized the challenge of building the
space station. The management risk associated with building the
space station is identified in the President's fiscal year 2000
budget submittal as 1 of the top

24 government management challenges. Conclusions NASA and its
partners have successfully begun ISS assembly, a noteworthy

achievement. However, many of the program's greatest challenges
lie ahead. NASA's most immediate challenge is to protect against
Russian nonperformance. To do so, it is implementing a contingency
plan that provides financial assistance to the Russian Space
Agency and develops additional U. S. hardware. The total cost of
the plan is estimated at about $1. 2 billion.

In addition, resolving potential safety issues involving the
Service Module will require cooperation between NASA and the
Russian Space Agency. These issues include fortifying the module
to protect it from orbital debris impacts, ensuring continuing
operations should it become depressurized, reducing the risk of an
on- board fire, and lowering noise levels. Most of these
improvements will be made after the Service Module is on orbit.
Based on the current schedule, this will require several years to
complete.

At the same time, the cost of completing the U. S. segment
continues to rise. The current estimated overrun under the prime
contract is $986 million. NASA has now begun to refine and improve
its mechanisms for identifying and mitigating costs risks in the
program. In addition, the agency is undertaking initiatives to
improve its oversight of nonprime activities, which are now
estimated to total $12.4 billion. These actions could

potentially improve the agency's ability to manage future cost
growth. The space station program recognizes the need to adopt an
overall contingency plan to identify and cost out the impacts from
potential loss or delay of critical components. However, as of
June 1999, its plan was still being drafted, even though the first
two station components had already

been assembled in orbit. Under the current schedule, several major
components will be added within the next year, including the
Service Module and the U. S. Lab. We believe completion of such a
plan is critical if potential disruptions and related cost
increases are to be minimized.

B-280328 Page 19 GAO/NSIAD-99-175 Space Station

Recommendation To minimize the potential of further schedule
disruptions and related cost increases, we recommend that the NASA
Administrator direct the station program manager to finalize the
overall ISS contingency plan before the Service Module is
launched.

Agency Comments In commenting on a draft of this report, NASA
stated that it was in agreement with the content and data in the
report, with one exception. NASA recommended that, in our
discussion of nonprime cost increases, we state the reasons for
the increases at the beginning of the relevant sections. We
revised the report language in the results in brief section to
make it clear that much of the nonprime increase was attributable
to added scope

and schedule slippage. We did not revise the section in the report
body because we believe that section adequately delineates that
added scope and schedule slippage were the reasons for much of the
nonprime cost

growth. NASA's response is reprinted in full in appendix I. Scope
and Methodology

To assess the extent to which NASA has studied options to minimize
the possibility of future Russian nonperformance and the loss or
delay of other critical components, we reviewed contingency plans
to determine the scope and evolution of NASA's efforts. We also
reviewed contract documentation and protocols to understand the
formal governing arrangements between NASA and the Russian Space
Agency and budget information to assess the potential impact on
NASA's funding requirements.

In addition, we reviewed internal briefings and interviewed
officials in the Space Station Program Office to gain further
insights.

To identify NASA's efforts to monitor Russian quality assurance,
we reviewed internal quality assurance records, governing
agreements, and briefings. To assess the space station's
vulnerability to orbital debris, we reviewed performance
requirements, risk reports, engineering analyses, and independent
assessments. For example, we compared the design

parameters of U. S. and Russian- built windows. We also
interviewed officials in NASA's Office of Space and Life Sciences,
the station program's Office of Safety and Mission Assurance, and
the Space Station Independent Assessment Office.

To determine the effectiveness of prime contract and nonprime
activity cost control efforts, we reviewed contractor cost reports
to determine the current estimate of cost overrun at contract
completion, and budget

B-280328 Page 20 GAO/NSIAD-99-175 Space Station

information to compare the contractor's overrun estimate to NASA's
current funding profiles. In addition, we reviewed nonprime
activity technical task agreements and internal assessments to
identify the scope of the nonprime effort. We also assessed the
program office's efforts to monitor and control nonprime cost
growth. In addition, we interviewed

officials with the space station program, the prime contractor,
and NASA's Cost Assessment and Validation Task Force to gain their
perspectives on NASA's overall cost control efforts.

We conducted our review from June 1998 to May 1999 in accordance
with generally accepted government auditing standards.

Unless you publicly announce its contents earlier, we plan no
further distribution of this report until 7 days from its issue
date. At that time, we will send copies to Senator Ernest
Hollings, Ranking Minority Member, Senate Committee on Commerce,
Science and Transportation; Senator John Breaux, Ranking Minority
Member, Subcommittee on Science, Technology and Space, Senate
Committee on Commerce, Science and Transportation; the Honorable
Daniel Goldin, NASA Administrator; the Honorable Jacob Lew,
Director, Office of Management and Budget; and

other interested parties. We will also make copies available to
others on request.

Please contact me at (202) 512- 4841 if you or your staff have any
questions about this report. Other key contributors to this report
are acknowledged in appendix II

Allen Li Associate Director, Defense Acquisitions Issues

Page 21 GAO/NSIAD-99-175 Space Station

Page 22 GAO/NSIAD-99-175 Space Station

Contents Letter 1 Appendix I Comments From the National
Aeronautics and Space Administration

24 Appendix II GAO Staff Acknowledgments

25 Figures Figure 1: Artist's Conception of Fully Assembled ISS in
Orbit 4

Figure 2: Zarya and Unity in Orbit 5 Figure 3: Service Module 7
Figure 4: Estimates of Prime Contract Overruns at Completion 15

Abbreviations

ISS International Space Station NASA National Aeronautics and
Space Administration

Page 23 GAO/NSIAD-99-175 Space Station

Page 24 GAO/NSIAD-99-175 Space Station

Appendix I Comments From the National Aeronautics and Space
Administration Appendi x I

See p. 19.

Page 25 GAO/NSIAD-99-175 Space Station

Appendix II GAO Staff Acknowledgments Appendi x I I

Acknowledgments Jerry Herley, John Gilchrist, James Beard, Fred
Felder, and Marcus Ferguson made key contributions to this report

(707357) Let t er

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