Space Station: Deteriorating Cost and Schedule Performance Under the
Prime Contract (Testimony, 09/18/97, GAO/T-NSIAD-97-262).

Pursuant to a congressional request, GAO examined the cost and schedule
status of the International Space Station.

GAO noted that: (1) in its June 1997 testimony, GAO noted that the cost
and schedule performance under the prime contract had been consistently
worsening for some time; (2) GAO pointed out that between January 1995
and April 1997, the costs associated with the schedule slippage had
increased from a value of $43 million to $129 million; (3) during that
same period, the variance between the actual cost to complete specific
work and the budget for that work had gone from a cost underrun of $27
million to a cost overrun of $291 million; (4) as of July 1997, the
costs associated with the schedule slippage had increased further to
$135 million and the cost overrun had increased to $355 million; (5) the
rate of decline for the cost variance is especially worrisome because it
has shown no particular inclination to lessen; (6) the schedule
deterioration has been much less severe, with minor upticks in the
variance in April and July; (7) the relative difference is at least
partly explained by the National Aeronautics and Space Administration's
(NASA) statement that much of the cost growth is due to overtime and
additional staff being used in an effort to maintain schedule; (8) the
prime contractor's estimate of the cost overrun at completion was
recently increased from $278 million to $600 million; (9) NASA's concern
about the prime contractor's performance is evident in its award fee
decision for the 6 month period that ended March 1997; (10) although the
prime contractor was eligible for nearly $34 million in award fee, NASA
concluded that the contractor's performance did not warrant any award
fee; (11) the recent increase in the estimated cost overrun at
completion has also potentially reduced the prime contractor's incentive
award by $48 million over the remainder of the contract; (12) the prime
contractor is implementing a corrective action plan that it believes
will improve the performance of the entire contractor team, including
changes in personnel, hiring additional software engineers and managers,
committing funds for a software integration test facility, and
presenting a cost control strategy to NASA that includes organizational
streamlining and transferring some roles to NASA; and (13) NASA and the
prime contractor agree that costs are going to continue to increase
beyond the current variance.

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

 REPORTNUM:  T-NSIAD-97-262
     TITLE:  Space Station: Deteriorating Cost and Schedule Performance 
             Under the Prime Contract
      DATE:  09/18/97
   SUBJECT:  Prime contractors
             Contract costs
             Contractor performance
             Space exploration
             Cost control
             Future budget projections
             Cost overruns
             Aerospace research
IDENTIFIER:  NASA International Space Station Alpha Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Science, Technology, and Space, Committee
on Commerce, Science, and Transportation, U.S.  Senate

For Release on Delivery
Expected at
2:00 p.m., EDT
Thursday,
September 18, 1997

SPACE STATION - DETERIORATING COST
AND SCHEDULE PERFORMANCE UNDER THE
PRIME CONTRACT

Statement of Allen Li, Associate Director, Defense Acquisitions
Issues, National Security and International Affairs Division

GAO/T-NSIAD-97-262

GAO/NSIAD-97-262T


(707304)


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

  ISS - International Space Station
  NASA - National Aeronautics and Space Administration

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to provide you with an updated status
of the prime contractor's cost and schedule performance on the
International Space Station (ISS).  Just 3 months ago, we testified
before this Subcommittee on the continuing cost control difficulties
in the ISS program.\1 That testimony was based on ongoing work being
done for Senator Bumpers and Representative Dingell.  Early this
week, we issued our final report to those requesters.\2 At the
request of the Subcommittee, our testimony today draws from that
report and focuses on the cost and schedule status of the ISS prime
contract. 

In our June testimony, we noted that the cost and schedule
performance under the prime contract had been consistently worsening
for some time.  We pointed out that between January 1995 and April
1997, the costs associated with the schedule slippage; that is, the
estimated cost of work to get back on schedule, had increased from a
value of $43 million to $129 million.  During that same period, the
variance between the actual cost to complete specific work and the
budget for that work had gone from a cost underrun of $27 million to
a cost overrun of $291 million.  The situation has continued to
worsen since April 1997.  Figure 1 shows that as of July 1997, the
costs associated with the schedule slippage had increased further to
$135 million and the cost overrun had increased to $355 million. 

   Figure 1:  Cost and Schedule
   Variances on the Space Station
   Prime Contract (Jan.  1995 to
   July 1997)

   (See figure in printed
   edition.)

Note:  The zero line represents meeting planned cost and schedule. 
Negative schedule variances are the estimated cost of work to get
back on schedule. 

Figure 2 shows the cumulative cost and schedule variances from
January through July of this year.  The figure shows the relatively
consistent downward slope of the cost line and highlights the fact
that the current situation is considerably more serious for cost than
for schedule.  The rate of decline for the cost variance is
especially worrisome because it has shown no particular inclination
to lessen.  On the other hand, the schedule deterioration has been
much less severe, with minor "upticks" in the variance in April and
July.  The relative difference is at least partly explained by NASA's
statement that much of the cost growth is due to overtime and
additional staff being used in an effort to maintain schedule. 

   Figure 2:  Cumulative Monthly
   Cost and Schedule Variances on
   the Space Station Prime
   Contract (Jan.  1997 to July
   1997)

   (See figure in printed
   edition.)

Principally because the difference between the actual and budgeted
cost of work has been increasing steadily, estimates of the total
cost overrun at contract completion have also been increasing.  For
example, last year's estimates of the contract overrun at completion
ranged from $240 million to $372 million.  They currently range from
$514 million to $610 million.  The prime contractor's estimate of the
cost overrun at completion was recently increased from $278 million
to $600 million. 

NASA's concern about the prime contractor's performance is evident in
its award fee decision for the 6-month period that ended March 1997. 
The prime contractor was eligible for nearly $34 million in award
fee.  Citing significant problems in program planning, cost
estimating, and hardware manufacturing, NASA concluded that the
contractor's performance did not warrant any award fee.\3 The recent
increase in the estimated cost overrun at completion has also
potentially reduced the prime contractor's incentive award by $48
million over the remainder of the contract. 

In response, the prime contractor is implementing a corrective action
plan that it believes will improve the performance of the entire
contractor team.  The announced strategy includes changes in
personnel, hiring additional software engineers and managers, and
committing funds for a software integration test facility.  The prime
contractor has also presented a cost control strategy to NASA. 
According to NASA, the strategy includes organizational streamlining
and transferring some roles to NASA. 

In summary, ISS cost and schedule problems have worsened.  Currently,
NASA and the prime contractor agree that costs are going to continue
to increase beyond the current variance.  Their challenge is to at
least slow the rate of growth so that their current estimates of the
total cost overrun will not be exceeded.  The extent to which the
current efforts will enable them to do so remains to be seen. 


--------------------
\1 Space Station:  Cost Control Problems Continue to Worsen
(GAO/T-NSIAD-97-177, June 18, 1997). 

\2 Space Station:  Cost Control Problems Are Worsening
(GAO/NSIAD-97-213, Sept.  16, 1997). 

\3 The prime contractor may eventually receive some or all of this
award fee because, under the terms of the contract, the prime
contractor could receive a previously denied award fee after NASA's
final assessment at the end of the contract. 


-------------------------------------------------------- Chapter 0:0.1

Mr.  Chairman, this concludes my statement.  We will be happy to
answer any questions you or the members of the Subcommittee may have. 

*** End of document. ***