Unmanned Aerial Vehicles: Progress Toward Meeting High Altitude Endurance
Aircraft Price Goals (Letter Report, 12/15/98, GAO/NSIAD-99-29).

GAO reviewed the high altitude endurance unmanned aerial vehicle program
and found that the Defense Department (DOD) does not expect to produce
the Darkstar or Global Hawk aircraft within its goal of $10 million per
plane. DOD's price projections are now $13.7 million for Darkstar and
$14.8 million for Global Hawk. In addition, these projections may
understate the actual amount by which the vehicles' unit price will
exceed the $10 million threshold because DOD officials, in their
agreements with contractors, used a definition of unit flyaway price
that excludes several cost categories that are traditionally included in
determining unit flyaway cost. Including these costs will increase the
average unit price of each plane.

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

 REPORTNUM:  NSIAD-99-29
     TITLE:  Unmanned Aerial Vehicles: Progress Toward Meeting High 
             Altitude Endurance Aircraft Price Goals
      DATE:  12/15/98
   SUBJECT:  Military aircraft
             Future budget projections
             Department of Defense contractors
             Defense cost control
             Defense procurement
             Defense budgets
             Defense capabilities
IDENTIFIER:  DOD High Altitude Endurance Unmanned Aerial Vehicle Program
             DarkStar Unmanned Aerial Vehicle
             Global Hawk Unmanned Aerial Vehicle
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to Congressional Committees

December 1998

UNMANNED AERIAL VEHICLES -
PROGRESS TOWARD MEETING HIGH
ALTITUDE ENDURANCE AIRCRAFT PRICE
GOALS

GAO/NSIAD-99-29

Unmanned Aerial Vehicles

(707340)


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

  DARPA -
  DOD -
  HAE -
  UAV -

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


B-280126

December 15, 1998

Congressional Committees

Section 216 of the National Defense Authorization Act for Fiscal Year
1998 directed us to review the Department of Defense's (DOD) High
Altitude Endurance (HAE) Unmanned Aerial Vehicle (UAV) program to
determine whether the average flyaway cost for the Global Hawk and
DarkStar HAE air vehicles will be within DOD's cost goal of $10
million.\1 As agreed with your office, this report addresses the
status of DOD's progress toward meeting its goal as the HAE program
proceeds through its ongoing demonstration phase. 


--------------------
\1 As provided for in the legislation, the term "flyaway cost" refers
to a firm unit cost.  Though not defined in the legislation, the
standard definition of unit flyaway cost used by DOD is found in the
DOD Financial Management Regulations.  However, for purposes of this
program, DOD has established what it calls a unit flyaway price,
which is defined in its agreements with the Global Hawk and DarkStar
HAE contractors.  As provided in those agreements, flyaway price
includes some, but not all, of the cost categories included in the
standard definition of unit flyaway cost, plus the contractor's fee. 
DOD's goal is stated as a $10 million average unit flyaway price in
fiscal year 1994 dollars for (1) DarkStar vehicles numbered 11
through 20 and (2) the first production lot of 10 Global Hawk air
vehicles.  Thus, for purposes of our reporting, we have used DOD's
stated goal as criteria. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOD does not expect to be able to produce DarkStar or Global Hawk HAE
vehicles within its goal of $10 million per unit in fiscal year 1994
dollars.  DOD's price projections, which updated the original
estimates of $10 million, are currently $13.7 million for DarkStar
and $14.8 million for Global Hawk.  In addition, these projections
may understate the actual amount by which the UAV's unit price will
exceed $10 million because in their agreements with the HAE
contractors, program officials used a definition of unit flyaway
price that excludes several cost categories that are traditionally
included in determining unit flyaway cost.  Including these costs
will increase the average unit price of each air vehicle. 


   BACKGROUND
------------------------------------------------------------ Letter :2

DOD's HAE program, originally managed by the Defense Advanced
Research Projects Agency (DARPA), is currently managed by the Air
Force.\2 Two types of HAE vehicles are being developed, Global Hawk
and DarkStar, as advanced concept technology demonstration projects
rather than as a traditional defense acquisition program.\3 Global
Hawk is a conventional aircraft design and DarkStar is a "stealth,"
or low observable, design.  Both are projected to augment DOD's
current high altitude manned reconnaissance aircraft, the U-2. 

DOD is currently building nine prototype HAE aircraft, five Global
Hawks and four DarkStars, for use in an HAE military utility
assessment scheduled to begin in April 1999.\4 In March 2000,
military users are scheduled to complete their assessment report of
the prototype aircraft.  At that time, the Air Combat Command, the
operating command, expects to have its HAE operational requirements
document approved.  With the performance data available, DOD will
then determine if these vehicles satisfy the user's requirements and
decide whether it should acquire production versions of one or both
aircraft.  In a preliminary assessment made in October 1996, the
Command concluded that it would require 20 Global Hawks and 7
DarkStar vehicles, plus an undetermined number for backup and
attrition. 

Global Hawk is being designed by Teledyne Ryan Aeronautical to fly
3,000 nautical miles, conduct reconnaissance for 24 hours, and return
to base.  Because of its conventional design (i.e., large radar
cross-section), Global Hawk will operate in areas where the enemy
threat is considered low to medium.  DarkStar, with its stealth
design (i.e., small radar cross-section), will operate in high-threat
areas.  It is being designed by Lockheed Martin to fly over 500
nautical miles, conduct reconnaissance during an 8-hour period, and
return to base. 


--------------------
\2 The Air Force assumed program management responsibility from DARPA
on October 1, 1998. 

\3 An advanced concept technology demonstration program does not
follow DOD's formal approval process for its acquisition programs. 
It is designed to enhance the military's capability by successfully
demonstrating mature and cost-effective technologies to the user
before a formal decision to acquire them is made. 

\4 Public Law 103-160, section 845, provides DOD with the authority
to enter into transactions, other than procurement contracts, to
acquire prototypes without requiring compliance with all elements of
federal acquisition regulations.  Both the Global Hawk and DarkStar
efforts are using this authority. 


   HAE AIRCRAFT AS CURRENTLY
   DESIGNED WILL EXCEED PRICE GOAL
------------------------------------------------------------ Letter :3

DOD estimates indicate that, as currently designed and configured,
production versions of its DarkStar and Global Hawk prototype
aircraft will exceed DOD's $10 million unit flyaway price goal. 
Furthermore, DOD's price estimates do not include estimates of system
modification costs to the aircraft that are typically included in
traditional acquisition programs. 


      DOD-DEVELOPED PRICE
      PROJECTIONS FOR HAE VEHICLES
      EXCEED $10 MILLION UNIT
      FLYAWAY PRICE GOAL
---------------------------------------------------------- Letter :3.1

DOD has not yet requested authority to build HAE production vehicles. 
The decision to begin production will be based on the results of the
ongoing HAE demonstration effort that will be reported in March 2000. 
For planning purposes, though, DARPA HAE program officials developed
price projections using current vehicle designs and configurations to
update the original program estimates.  Based on these price
projections, DOD does not expect to be able to produce DarkStar or
Global Hawk HAE vehicles within the $10 million goal (fiscal year
1994 dollars).  These updated estimates indicate that the first 10
production Global Hawk vehicles and DarkStar unmanned aerial vehicles
11 through 20, as currently designed and configured, will be priced
at $14.8 million and $13.7 million, respectively. 

The original and updated estimates (as of July 1998) for the average
unit flyaway prices for the first 10 Global Hawk production vehicles
and vehicles 11 through 20 for DarkStar are shown in tables 1 and 2. 
The single largest increase for Global Hawk, $3.5 million per unit,
is in the aircraft structure, with $1.9 million of that due to
modifying the wings to provide the lift needed to meet range and
endurance goals.  The largest increases for DarkStar are in the areas
of avionics - $1.3 million, and payloads - $1.2 million. 



                                Table 1
                
                   Original and Updated Estimates for
                 Average Unit Flyaway Price for Global
                 Hawk Production Vehicles Numbered 1 to
                     10 (FY 94 Millions of Dollars)

                                  Original       Updated
Category                          estimate      estimate    Difference
----------------------------  ------------  ------------  ------------
Structure                             $2.6         $ 6.1          $3.5
Avionics                               0.4           0.5           0.1
Payloads                               4.1           5.2           1.1
Propulsion                             1.6           1.6           0.0
Fee                                    1.3           1.4           0.1
======================================================================
Total                                $10.0         $14.8          $4.8
----------------------------------------------------------------------
Source:  DARPA HAE Program Office. 



                                Table 2
                
                   Original and Updated Estimates for
                Average Unit Flyaway Price for DarkStar
                   Vehicles numbered 11 to 20 (FY 94
                          Millions of Dollars)

                                  Original       Updated
Category                          estimate      estimate    Difference
----------------------------  ------------  ------------  ------------
Structure                            $ 4.8         $ 5.5         $ 0.7
Avionics                               2.8           4.1           1.3
Payloads                               1.2           2.4           1.2
Propulsion                             0.5           0.6           0.1
Fee                                    0.8           1.1           0.3
======================================================================
Total                                $10.1         $13.7         $ 3.6
----------------------------------------------------------------------
Source:  DARPA HAE Program Office. 

DOD and the HAE contractors are continuing to try to identify ways to
reduce the costs of producing HAE vehicles in the event they are
eventually authorized to build them.  According to HAE program
officials, however, DOD will not consider failure to meet the $10
million unit flyaway price goal an automatic failure of its HAE
efforts.  As of November 1998, two Global Hawks and two DarkStars had
been completed.  One DarkStar was destroyed in a crash during its
second flight. 


      DEFINITION OF UNIT FLYAWAY
      COST USED BY DOD
---------------------------------------------------------- Letter :3.2

The standard definition of aircraft unit flyaway cost is found in the
DOD Financial Management Regulations.\5 Standard unit flyaway cost
elements include the costs of procuring airframes; engines; avionics;
armaments; engineering change orders; nonrecurring costs including
production tooling, software, and other costs (if funded from
aircraft procurement appropriations); divided by the procurement
quantity.  Flyaway cost does not include research and development,
support equipment, training equipment, technical data, or spares. 

DARPA, in its HAE agreements, incorporated a definition of unit
flyaway price that included some, but not all, of the standard
elements described above plus the contractors' fees.  (See tables 1
and 2.) DARPA officials did so because they assumed the future
production units would be identical to the prototype units being
built in the demonstration phase.  The cost categories they did not
include are associated with system modifications, which they reasoned
would not be incurred if the vehicles were the same.  Cost categories
not included in the HAE agreements that are otherwise typically
included are costs such as engineering change orders, software
changes, system test, and nonrecurring costs, including tooling
costs. 

Because projections of what these other costs might be were not
calculated by DARPA when it developed the original estimates for
average unit flyaway price, the updated estimates shown in tables 1
and 2 also do not include these other cost categories.  The Air Force
program office, in order to have a realistic assessment of this newly
transitioned program, is developing total program production cost
estimates that include these costs.  The addition of these cost
categories will increase the unit flyaway price for the Global Hawk
and Dark Star above the DARPA updated estimates of $14.8 million and
$13.7 million, respectively. 


--------------------
\5 Volume 2B, Chapter 4 - Procurement Appropriations, Exhibit P-5 -
Cost Analysis. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :4

In commenting on a draft of this report, DOD concurred with our
findings.  Technical comments have been incorporated as appropriate. 
DOD's comments are reprinted in appendix I. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :5

To determine DOD's progress toward its price goal, we met with DOD,
DARPA and contractor officials, and analyzed HAE program and cost
data.  To determine whether DOD used a standard definition for unit
flyaway cost, we compared cost categories included in DARPA's
analysis for its HAE vehicles to those included in DOD's Financial
Management Regulations and weapon system management regulations.  We
conducted our work at the Defense Airborne Reconnaissance Office (now
the Division of Intelligence, Surveillance, and Reconnaissance
Systems), Office of the Secretary of Defense, Washington, D.C.; the
Defense Advanced Research Projects Agency, Arlington, Virginia; and
the Air Force Reconnaissance Mission Area Group, Wright-Patterson Air
Force Base, Ohio. 

We conducted our work from May 1998 through November 1998 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :5.1

We are sending copies of this report to the Secretaries of Defense
and the Air Force, and the Director of the Office of Management and
Budget.  We will also provide copies to others upon request. 

If you or your staff have any questions, please contact me at (202)
512-4841.  Principal contributors to this report were Stephanie May,
Richard Strittmatter, and Charles Ward. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Richard C.  Shelby
Chairman
The Honorable Robert Kerrey
Ranking Minority Member
Select Committee on Intelligence
United States Senate

The Honorable Floyd D.  Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable Porter J.  Goss
Chairman
The Honorable Norman Dicks
Ranking Minority Member
Permanent Select Committee on Intelligence
House of Representatives




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


The following is GAO's comment on the Department of Defense's letter
dated December 8, 1998. 


   GAO COMMENT
------------------------------------------------------------ Letter :6

To more clearly reflect the objective of our work, we have modified
the report title. 


*** End of document. ***