Since accepting the ASDS in June 2003, SOCOM has continued to  invest millions of dollars to fix both old and new problems. The prime  contractor has had little incentive to control costs given the Navy’s choice  of certain cost-reimbursable contract types. Much of the funding has been for efforts to correct  design deficiencies and to improve ASDS’s reliability. While the Navy officials acknowledged that it was too early  to quantify the results of these approaches, preliminary indications are  that the contractor’s performance has improved and that the arrangements  are providing sufficient risk sharing and monetary incentives to motivate  contractor performance. Authorizing Work before Reaching Agreement on Key Terms and Conditions Increased the Navy’s Risk

Our analysis also found that the Navy often initiated work using  undefinitized contract actions; that is, before the Navy and contractor had  reached agreement on key terms and conditions of the delivery order,  such as the scope of the work to be performed and the price of that work. The existing boat is currently available only for limited operational  use. In April 2006, DOD canceled plans to procure follow-on ASDS boats and  directed the Navy and SOCOM to (1) establish an ASDS-1 improvement  program to increase the performance of the existing boat to the required  level, to insert technologies to avoid obsolescence, and to complete  operational testing and (2) assess alternate material solutions to fulfill  remaining operational requirements. In May 2006, DOD reported to the  congressional defense committees that the first ASDS would be  maintained as an operational asset, and that an ASDS improvement  program was planned through fiscal year 2008. DOD Expects to Make a Program Decision in mid-2008

DOD also directed the Navy and SOCOM to conduct an assessment of  alternate material solutions to fulfill remaining operational requirements. An independent cost and capability trade study is under way for the  purpose of developing models for both the ASDS and a hybrid combatant  submersible to support concept design-level trade studies. A program decision is planned in mid-2008, after the ASDS improvement  program and alternate material solutions analysis are completed. According to SOCOM and Navy officials, the results of the alternate  material solutions analysis, in conjunction with the operational testing of  the changes made in response to the reliability improvement program,  should provide DOD by mid-2008 with sufficient information to make an  informed decision on the direction DOD should take to meet its  operational needs. Require the Navy to include provisions in the ASDS contracting  strategy chosen when the existing BOA expires that (1) appropriately  balance risk between the government and the contractor through the  contract types selected, (2) incentivize the contractor’s performance  and promote accountability for achieving desired outcomes by properly  structuring the award and incentive fees, and (3) provide the kind of  management and oversight of the program necessary to hold the  contractor accountable for performance. To determine the status of major ASDS technical  issues and program restructuring, we examined program status documents  and briefings, test results, technical reports, and various memos and  guidance. We did not assess the appropriateness of accepting the first  ASDS boat in an “as is” condition. Appendix II: Comments from the Department of Defense
Why GAO Did This Study

The Advanced SEAL Delivery System (ASDS) is a hybrid combatant submersible providing clandestine delivery and extraction of Navy SEALs and equipment in high-threat environments. The first ASDS has had significant performance issues and has cost, to date, over $885 million. In May 2006, Congress requested that GAO review ASDS. This report examines (1) how the Navy managed ASDS risks through its contracts and (2) the status of major technical issues and program restructuring.

What GAO Found

The Navy did not effectively oversee the contracts to maintain, repair, and upgrade the ASDS and failed to hold the prime contractor accountable for results. The Navy took responsibility for correcting the boat's deficiencies while continuing to pay the costs and fees of the prime contractor under cost reimbursable contracts to execute the corrections. Before accepting the boat, the Navy went to sources other than the prime contractor to obtain better designs for the propeller and battery and then paid the prime contractor to install them. When the Navy accepted the ASDS in 2003 in an "as is" condition, it relieved the contractor from having to take any additional actions to correct known problems. Since then, the U.S. Special Operations Command has continued to invest millions of dollars to fix existing problems and address new ones in an attempt to make the boat operational. In making this additional investment, the Navy entered into contracts with the prime contractor that provided little incentive to control costs, authorized work before reaching agreement on the scope and price of the work to be performed, and failed to finalize the terms of the work within required time frames. Meanwhile, the contractor's performance continued to be poor, often exceeding initial estimates for the time and cost required to perform the work. ASDS officials took actions over the past 2 years to address these issues, but acknowledge that it is too early to determine the effectiveness of more recent actions to incentivize the contractor's performance. Continuing problems with the existing ASDS led to the Department of Defense's (DOD) April 2006 decision to cancel plans to buy additional ASDS boats, establish an improvement program for the in-service ASDS, and conduct an assessment of alternative material solutions to fulfill remaining operational requirements. The problems have seriously degraded the boat's reliability and performance, and the boat is only available for limited operational use. The results of these improvement and assessment efforts are expected to provide DOD the knowledge needed to determine whether ASDS's reliability can be improved cost-effectively to make ASDS an operational asset and whether an alternative development program is needed to meet the remaining operational requirements. A program decision is planned in mid-2008, after the ASDS improvement program and assessment of alternate material solutions are completed.