	Background

Funded at $8 billion to nearly $10 billion annually, MDA’s BMDS is the  largest research development program in DOD’s budget. In addition, we  reviewed pertinent sections of the U.S. Code to compare MDA’s current  level of accountability with federal acquisition laws. Fielded Capability Increased, but Less than Planned at Higher Cost

MDA made progress in developing and fielding the BMDS during 2007. On the other  hand, fewer assets were fielded than originally planned, some tests were  delayed, and the cost of the block increased by approximately $1 billion. Such deferrals,  coupled with a planning methodology too often used by some contractors  that could obscure cost reporting, prevent us from determining the full  cost of Block 2006. An evaluation of aggregate  performance would also have to consider that (1) some parts in fielded  interceptors identified as potentially problematic have not been replaced  yet, and (2) tests done to date do not provide enough information for  DOD’s independent test organization to fully determine if the BMDS is  suitable and effective for battle. Fielding of Assets and Cost

During Block 2006, MDA increased its inventory of BMDS assets while  enhancing the system’s performance. In March 2006, MDA made reductions to its block 2006 goals. Because MDA did not track the cost of the deferred work, the  agency could not make an adjustment that would have matched the cost  with the correct block. Earned value management does not recognize such variances  in completing scheduled work and to the extent more work has to be done  to complete the product, additional costs could be incurred that are not  yet recognized.of their work as level of effort. Testing and Performance of Fielded Capability

Most test objectives were achieved during 2007, although several BMDS  programs experienced setbacks in their test schedules. BMDS  performance goals included a numerical goal for the probability of a successful BMDS  engagement, a defined area from which the BMDS would prevent an enemy from launching  a ballistic missile, and a defined area that the BMDS would protect from ballistic missile  attacks. Key Steps Taken to Enhance BMDS Oversight, but More Can Be Done

Since its initiation in 2002, MDA has been given a significant amount of  flexibility. In the past  year, MDA has begun implementing two initiatives—a new block construct  and a new executive board—to improve transparency, accountability, and  oversight. In  addition, Congress has directed that MDA begin buying certain assets with  procurement funds like other programs, which should promote  accountability for and transparency of the BMDS. For example, the actual cost of each block can be tracked  because MDA will no longer defer work planned for one block, along with  its cost, to a future block. MDA has not addressed whether it will transfer assets produced during a  block to a military service for production and operation at the block’s  completion. The MDEB appears to be vested with more authority than its predecessor,  the Missile Defense Support Group. Independent life-cycle cost estimates provide confidence that  a program is executable within estimated cost. Although MDA plans to  develop unit cost for selected block assets and to request that DOD’s Cost  Analysis Improvement Group verify the unit costs, the agency does not  initially plan to develop a block cost estimate and therefore, cannot seek  an independent verification of that cost. As noted  earlier, the limited amount of testing completed, which has been primarily  developmental in nature, and the lack of verified, validated, and accredited  models and simulations prevent the Director of Operational Test and  Evaluation from fully assessing the effectiveness,  suitability, and  survivability of the BMDS in annual assessments. Although the charter of the MDEB  includes making recommendations to MDA and the Under Secretary of  Defense (Acquisition, Technology and Logistics) on investment options,  program priorities, and MDA’s strategy for developing and fielding an  operational missile defense capability, the MDEB will not necessarily have  the opportunity to review and recommend changes to BMDS blocks. This is generally true for technology development programs in  DOD because they are in a period of discovery, which makes schedule and  cost difficult to estimate. MDA Directed to Use Procurement Funding

In an effort to further improve the transparency of MDA’s acquisition  processes, Congress has directed that MDA’s budget materials delineate  between funds needed for research, development, test and evaluation;  procurement; operations and maintenance; and military construction.Congress gave MDA the flexibility to field certain assets using research,  development, test and evaluation funding which allowed MDA to fund the  purchase of assets over multiple years. Actions Recommended in Our Recent Report

The National Defense Authorization Act for Fiscal Year 2008, Pub.
Why GAO Did This Study

Funded at $8 billion to nearly $10 billion per year, the Missile Defense Agency's (MDA) effort to develop and field a Ballistic Missile Defense System (BMDS) is the largest research and development program in the Department of Defense (DOD). The program has been managed in 2-year increments, known as blocks. Block 2006, the second BMDS block, was completed in December 2007. By law, GAO annually assesses MDA's progress. This testimony is based on GAO's March 2008 report that addressed MDA's progress in (1) meeting Block 2006 goals for fielding assets, completing work within estimated cost, conducting tests, and demonstrating the performance of the overall system in the field, and (2) making managerial improvements to transparency, accountability, and oversight. GAO reviewed the assets fielded; contractor cost, schedule, and performance; and tests completed during 2007. GAO also reviewed pertinent sections of the U.S. Code, acquisition policy, and the charter of a new missile defense board.

What GAO Found

In the past year, MDA has fielded additional and new assets, enhanced the capability of some existing assets, and achieved most test objectives. MDA did not meet the goals it originally set for the block. Ultimately, MDA fielded fewer assets, increased costs by about $1 billion and conducted fewer tests. Even with the cost increase, MDA deferred work to keep costs from increasing further, as some contractors overran their fiscal year 2007 budgets. Deferring work obscures the cost of the block because such work is no longer counted as part of Block 2006. The cost of the block may have been further obscured by a way of planning work used by several contractors that could underestimate the actual work completed. If more work has to be done, MDA could incur additional costs that are not yet recognized. MDA also sets goals for determining the overall performance of the BMDS. Similar to other DOD programs, MDA uses models and simulations to predict BMDS performance. GAO was unable to assess whether MDA met its overall performance goal because there have not been enough flight tests to provide a high confidence that the models and simulations accurately predict BMDS performance. Moreover, the tests that have been done do not provide enough information for DOD's independent test organization to fully assess the BMDS' suitability and effectiveness. GAO has previously reported that MDA has been given unprecedented funding and decision-making flexibility. While this flexibility has expedited BMDS fielding, it has also made MDA less accountable and transparent in its decisions than other major programs, making oversight more challenging. MDA, with some direction from Congress, has taken significant steps to address these concerns. MDA implemented a new way of defining blocks--its construct for developing and fielding BMDS increments--that should make costs more transparent. For example, under the newly-defined blocks, MDA will no longer defer work from one block to another. Accountability should also be improved as MDA will, for the first time, estimate unit costs for selected assets and report variances from those estimates. DOD also chartered a new executive board with more BMDS oversight responsibility than its predecessor. Finally, MDA will begin buying certain assets with procurement funds like other programs. This will benefit transparency and accountability, because to use procurement funding generally means that assets must be fully paid for in the year they are bought. Previously, Congress authorized MDA to pay for assets incrementally using research and development funds. Some oversight concerns remain, however. For example, MDA has not yet estimated the total cost of a block, and therefore, cannot have a block's costs independently verified--actions required of other programs to inform decisions about affordability and investment choices. However, MDA does plan to estimate block costs and have them verified at some future date. Also, the executive board faces a challenge in overseeing MDA's large technology development efforts and does not have approval authority for some key decisions made by MDA.