Space Station: Status of Russian Involvement and Cost Control Efforts
(Testimony, 04/29/99, GAO/T-NSIAD-99-117).

Pursuant to a congressional request, GAO discussed the National
Aeronautics and Space Administration's (NASA) International Space
Station and the status of Russian involvement in the program, focusing
on NASA's efforts to: (1) develop a contingency plan to mitigate the
possibility of unforeseen problems, including future Russian
nonperformance; (2) ensure that Russian quality assurance and
manufacturing processes are acceptable; and (3) control prime contract
and nonprime activity costs.

GAO noted that: (1) uncertainty regarding future Russian involvement
will require NASA to continuously plan and implement contingency
initiatives; (2) as an International Space Station partner, Russia
agreed to provide certain equipment; (3) however, Russia's funding
problems have delayed delivery of the Service Module (SM) and raised
concerns about Russia's ability to support the station during assembly
and once it is completed; (4) NASA is implementing a multifaceted
contingency plan to mitigate the risk of further delay of the SM and the
possibility that Progress vehicles for reboosting the station cannot be
provided by the Russians; (5) the 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; (6) NASA is developing its own
permanent reboosting capability; (7) NASA's plan includes payments to
the Russian Space Agency to complete near-term work on the SM and the
Progress and Soyuz space vehicles; (8) while the ultimate cost of NASA's
plan is uncertain, the agency estimates that the cost to protect against
Russian nonperformance will be about $1.2 billion; (9) although NASA has
a contingency plan to mitigate Russian nonperformance, it does not have
an approved overall contingency plan to address certain issues; (10)
NASA acknowledges that the lack of an overall contingency plan is a
program risk item; (11) NASA is satisfied that Russian quality assurance
and manufacturing standards are acceptable; (12) however, the SM's
inability to meet station requirements for debris protection is a
potential safety issue; (13) the SM will require improvements after it
is launched to meet the station's debris protection requirement; (14)
based on the module's launch date, it will be about 3 1/2 years after
launch before improvements can be completed; (15) pressures on the
program's budget continue to mount; (16) NASA's cost estimates assume
assembly completion in 2004; (17) the agency acknowledges the difficulty
in maintaining that schedule; (18) if the schedule is not met, total
program costs for the U.S. segment of the station will increase further;
(19) the prime contractor's estimate of overrun at completion has been
increased several times and stands at $986 million; (20) in 1994, the
nonprime component of the program's development budget was $8.5 billion;
today, it is over $12.4 billion; and (21) NASA has begun to subject the
nonprime area to increased scrutiny, and modifications are being made to
a centralized database of potential risk areas to include the
identification of the cost of such risks.

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

 REPORTNUM:  T-NSIAD-99-117
     TITLE:  Space Station: Status of Russian Involvement and Cost 
             Control Efforts
      DATE:  04/29/99
   SUBJECT:  Space exploration
             Future budget projections
             Cost analysis
             Research and development costs
             Aerospace contracts
             Risk management
             International cooperation
             Cost overruns
             Cost control
IDENTIFIER:  NASA Space Station Service Module
             Soyuz Spacecraft
             NASA International Space Station Alpha Program
             Russia
             Progress Space Vehicle
             
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NS99117T.book GAO United States General Accounting Office

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

For Release Expected at 10: 00 a. m., EDT on April 29, 1999

SPACE STATION Status of Russian Involvement and Cost Control
Efforts

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




GAO/T-NSIAD-99-117

  GAO/T-NSIAD-99-117

Page 1 GAO/T-NSIAD-99-117

Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to discuss our ongoing work on the National Aeronautics
and Space Administration's (NASA) International Space Station. We
are currently responding to both the committee's request to review
the status of Russian involvement in the program and the

subcommittee's request to address the prime contractor's progress
in implementing cost control measures and NASA's efforts to
oversee the program's nonprime activity. We plan to finalize our
work and report on these issues in the next few months. Today, I
will address NASA's efforts to (1) develop a contingency plan to
mitigate the possibility of unforeseen problems, including future
Russian nonperformance, (2) ensure that Russian quality assurance
and manufacturing processes are acceptable, and (3) control prime
contract and nonprime activity costs. Last December, NASA
accomplished an important and significant step in its construction
of the International Space Station: coupling the first two
elements, the Functional Cargo Block and Node 1, on orbit. The
subcommittee is well aware of the many challenges NASA has faced
in developing and building the International Space Station. These
challenges, which include Russia's difficulties in meeting its
commitment to deliver a key component on schedule and continuing
U. S. prime contractor cost increases, have translated into
schedule delays and higher program cost estimates to complete
development. While the on orbit assembly of the

first two elements of the space station was a noteworthy
achievement, our ongoing work shows no abatement in the number of
challenges NASA will face in the years to come.

Results in Brief Uncertainty regarding future Russian involvement
will require NASA to continuously plan and implement contingency
initiatives. As an International Space Station 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.
However, Russia's funding problems have delayed delivery of the
Service Module the first major Russian- funded component and
raised concerns about Russia's ability to support the station
during assembly and once it is completed. NASA is implementing a
multi- faceted contingency plan to mitigate the risk of further
delay of the Service Module and the possibility that Progress
vehicles for reboosting the station cannot be provided by the

Russians. The first step of this plan includes the development of
the U. S. built Interim Control Module and modifications to the
Russian- built and

Page 2 GAO/T-NSIAD-99-117

U. S.- financed, Functional Cargo Block. 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 NASA's plan is
uncertain at this time, the agency 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 an overall
contingency plan is a program risk item.

NASA is satisfied that Russian quality assurance and manufacturing
standards are acceptable. However, the Service Module's inability
to meet current station requirements with regards to debris
protection is a potential safety issue. The module will require
improvements after it is launched to meet the station's debris
protection requirement. Based on the module's

current launch date, it will be about 3  years after launch before
improvements can be completed.

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
experienced significant cost and

schedule variances between the contract baseline and actual
performance. 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 nonprime portion of the
program activities related to science facilities and ground and
vehicle operations is also experiencing cost increases. In 1994,
the nonprime component of the program's development budget was
$8.5 billion; today, it is over $12. 4 billion. The increase is
due largely to added scope and schedule slippage. The agency has
begun to subject the nonprime area to increased scrutiny, and
modifications are being made to a centralized database of
potential risk areas to include the identification of the cost of
such risks. These actions could potentially improve the agency's
ability to manage future cost growth.

Page 3 GAO/T-NSIAD-99-117

NASA Contingency Planning

Because of Russia's continuing funding problems, NASA developed a
multi- faceted contingency plan to mitigate the risk of further
delay of the Service Module and the possibility that a reboost
capability cannot be provided by the Russians. Payments to Russia
for the completion of the Service Module have also been made.
Although NASA has developed 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 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 underway 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
Functional Cargo Block.

The second step includes the development of 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.
Key elements of this second step include the

development of a propulsion module, shuttle modifications, and
construction of logistics carriers at an estimated cost of about
$740 million. The propulsion module is the most expensive
component of the new hardware. While there has been some
uncertainty regarding this component, NASA currently estimates
that the propulsion module could cost at least $550 million. The
agency estimates that the other components shuttle modifications
to permit reboosting of the station and logistics carriers to
carry dry cargo on the shuttle will cost about $90 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

Page 4 GAO/T-NSIAD-99-117

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 and additional funds may be provided in 1999. In return
for the $60-

million payment, NASA will receive 4, 000 hours of Russian crew
research time and stowage volume in the Russian segment of the
station. According to program officials, the cost of research time
on the Mir space station was used as the basis for the
negotiation.

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,
if needed, $100 million to the Russian Space

Agency in 1999 in return for goods and services. 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 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 problematic for Russia to support
commitments to both Mir and the International Space Station. While
the ultimate cost of the contingency plan to address Russian
nonperformance is uncertain at this time, NASA currently 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. 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.

Page 5 GAO/T-NSIAD-99-117

Overall Contingency Plan Not Yet Approved

NASA has identified the lack of an overall contingency plan as a
program risk item. In response, the station program has drafted a
plan to address issues such as late delivery or loss of critical
hardware, but it has not fully costed out all contingencies.

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 a fully costed contingency plan been in place.
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. Quality and Safety
of Russian Segment

NASA is satisfied that Russian quality assurance and manufacturing
processes are acceptable. However, NASA and the Russian Space
Agency will need to continue working together to improve Russian
hardware to meet orbital debris protection requirements.

Comparison of Quality Assurance Standards

NASA believes Russia's attention to quality is comparable to that
of the United States. The agency's conclusion is based on a
combination of review of standards and on- site observations. 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 Functional Cargo Block was being built in Russia,
tools available to NASA's prime contractor to assess Russian
manufacturing quality included technical surveys, test
assessments, and test witnessing.

Page 6 GAO/T-NSIAD-99-117

Safety 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. 1 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 assembly sequence
revisions and configuration changes that increased the station's

surface area. When the current performance of Russian- funded
hardware is included, the station cannot 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 installation of needed
protective shielding can be completed.

NASA's International Space Station Safety Review Panel is
assessing debris protection and other Service Module design
characteristics. For example, according to NASA, the module will
not operate fully in a depressurized environment. Such a situation
could occur after impact with orbital debris, and could require
the crew's evacuation. In addition, according to NASA, the Service
Module's windows do not meet the requirements applied to

other station components and are more vulnerable in the event of
debris impact. Estimated costs to correct these deficiencies have
not been fully developed. We will continue to monitor these issues
as part of our ongoing work.

Under the current plan, NASA will launch the Service Module by
granting a waiver at the time of launch and correcting the debris
protection deficiency 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 1 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).

Page 7 GAO/T-NSIAD-99-117

penetration prior to the planned augmentation is low. 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.

Prime Contract and Nonprime Activity Costs

Difficulties in maintaining cost and schedule performance under
the prime contract have prompted substantial contractor and
program office attention. There are now some indications of
similar problems in the nonprime portion of the program, which
includes activities related to science facilities, ground and
vehicle operations, and launch processing.

This is problematic because nonprime activity comprises more than
50 percent of total estimated development costs and about 70
percent of remaining development costs. Program officials have now
increased their oversight of nonprime activity, identifying this
activity's potential cost and schedule growth as a program
concern. In addition, the program 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. 2 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 the contractor's 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 same time

as our last cost control report, the contractor undertook a number
of initiatives designed to help reverse the trend of ever
increasing cost growth. 2 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); and Space Station:
Cost Control Problems (GAO/T-NSIAD-98-54, Nov. 5, 1997).

Page 8 GAO/T-NSIAD-99-117

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, 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 has identified the retention of critical
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 experience monthly
cost and schedule variances. In June 1998, the estimate of overrun
at completion was $783 million and by April 1999, it had increased
to $986 million. According to the prime contractor, most of the
latest growth was attributable to additional overhead costs,
software and hardware development problems, and the need to
increase its

funding reserves. 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 some 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. 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 recently undertaken a number of initiatives to improve
its oversight of nonprime activity. The initiatives include
requiring periodic evaluations similar to award fee evaluations of
each activity 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

Page 9 GAO/T-NSIAD-99-117

Space Center Director level, an indication of the attention now
being given to this area. 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 activities, meaning that the

budgetary impact of unforeseen cost growth could be significant.
NASA considers the resolution of nonprime issues a top concern. We
will continue to monitor nonprime activity status as part of our
ongoing work.

Cost estimates assume that assembly of the station will be
completed in 2004. NASA has acknowledged the difficulty in
maintaining that schedule. If the schedule is not met, total
program costs will increase further. 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. As a
result, the database fails to give program managers sufficient
insight and early warning into many emerging problem areas. 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.

Recognizing the inadequacy of the current database, the former
station program manager directed the Program Risk Assessment Board
to scrutinize all existing risks for cost impacts. He emphasized
the importance

of early identification of risk. We will continue to monitor
progress in this area during our ongoing work. Conclusions NASA
and its partners have successfully begun the International Space

Station assembly, a noteworthy achievement. However, many of the
program's greatest challenges lie ahead. NASA's most immediate
challenge

Page 10 GAO/T-NSIAD-99-117

is to protect against Russian nonperformance. To do so, the agency
is implementing a contingency plan that provides financial
assistance to the Russian Space Agency and develops additional U.
S. hardware. The total cost of this plan is estimated at about
$1.2 billion. In addition, when NASA finalizes its overall
contingency plan and identifies how it will address

issues such as late delivery or loss of critical hardware,
additional costs may be identified.

NASA and the Russian Space Agency will have to work together to
resolve potential safety issues involving the Service Module.
These issues relate to protection against orbital debris.
Estimated costs of the improvements that must be made after the
Service Module is on orbit have not been fully

developed. The estimated cost of completing the U. S. segment
continues to rise. The current estimated overrun under the prime
contract is $986 million and nonprime costs have increased by $3.9
billion due primarily to schedule slippage and increased scope of
work. To its credit, NASA has now begun to refine and improve its
mechanisms for identifying and mitigating costs risks in the
program. However, given the uncertainties and risks remaining

through assembly completion, cost control will remain a tremendous
challenge.

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

(707418) Lett er

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