In our July 1996 report and subsequent testimony, we noted that the cost and schedule performance of the space station’s prime contractor had deteriorated and that the station’s near-term funding included only limited financial reserves. In our July 1996 report, we concluded that, if program costs continued to increase, threats to financial reserves worsened, and the Russian government failed to meet its commitment in a timely manner, NASA would either have to exceed its funding limitation or defer or rephase activities, which could delay the space station’s schedule and would likely increase its overall cost. Over the past several months, NASA has acknowledged that the potential for cost growth in the program has increased. Subsequently, NASA designed a three-step recovery plan. Step 1 focuses on adjusting the station schedule for an 8-month delay in the availability of the Service Module and developing temporary essential capabilities for the station in case the Service Module is further delayed by up to 1 year. NASA will decide later this fall on whether to begin step 2. Prime Contractor’s Cost and Schedule Performance Continues to Deteriorate

The prime contractor’s cost and schedule performance on the space station, which showed signs of deterioration last year, has continued to decline virtually unabated. Since April 1996, the cost overrun has quadrupled, and the schedule slippage has increased by more than 50 percent. So far, the prime contractor has not been able to stop or significantly reverse the continuing decline. Financial reserves have been used to fund additional requirements, overruns, and other authorized changes. To enable it to do so, NASA has implemented or initiated a variety of actions, including those summarized below:
The space station program is negotiating with ESA, Canada, and Brazil to provide station hardware. NASA transferred $200 million in fiscal year 1997 funding to the station program from other NASA programs to cover costs incurred due to Russian manufacturing delays. When NASA redesigned the station in 1993, it estimated that Russia’s inclusion as a partner would reduce program costs by $1.6 billion because the station’s assembly would be completed by June 2002—15 months earlier than previously scheduled.NASA has recently acknowledged that the completion of the station’s assembly will slip into 2003, but it has not yet scheduled the revised assembly completion milestone. NASA estimated the additional hardware costs associated with step 1 of the Russian recovery plan at $250 million. The total of $300 million in additional funding for the space station program in fiscal years 1997 and 1998 includes financial reserves. Conclusions and Recommendation

Some of NASA’s actions to reinforce its financial reserves and keep the program within its funding limitations have involved redefining the portion of the program subject to the limitations. Such actions make the value of the current limitations as a funding control mechanism questionable. After this information is available, the Congress may wish to consider reviewing the program. Comments From the National Aeronautics and Space Administration

The following are GAO’s comments on the National Aeronautics and Space Administration’s (NASA) letter dated September 8, 1997. GAO Comments

1. 2. In the past, NASA claimed the benefits of Russian participation on the program’s cost and schedule, but now that Russian participation is having negative cost and schedule effects, NASA argues that the additional funding needed should be accounted for outside the portion of the program subject to the funding limitation. 3. 4. 5. 7.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the International Space Station (ISS), which is being developed by the United States and others, focusing on: (1) Russia's performance problems and the National Aeronautics and Space Administration's (NASA) reaction to them, including the additional cost and cost risk assumed by NASA; (2) cost and schedule experience under the prime contract; and (3) the status of and outlook for the program's financial reserves. GAO also identified actions taken by NASA to keep the space station program's funding within certain limits through the completion of the station's assembly.

What GAO Found

GAO noted that: (1) in May 1997, NASA revised the space station assembly sequence and schedule to accommodate delays in the production and delivery of the Service Module; (2) this revision occurred after more than a year of speculation regarding Russia's ability to fund its space station manufacturing commitments; (3) to help mitigate the adverse effects of the Russians' performance problems and address the possibility that such problems would continue, NASA developed and began implementing step 1 of a three-step contingency plan; (4) NASA has budgeted an additional $300 million from other NASA activities for the space station program to cover the hardware cost under step 1; (5) NASA will also incur other costs under step 1 that have not yet been estimated; (6) significant additional cost growth could occur in the station program if NASA has to implement steps 2 and 3 of its contingency plan; (7) the cost and schedule performance of the station's prime contractor has continued to steadily worsen; (8) from April 1996 to July 1997, the contract's cost overrun quadrupled to $355 million, and the estimated cost to get the contract back on schedule increased by more than 50 percent to $135 million; (9) so far, NASA and prime contractor efforts have not stopped or significantly reversed the continuing deterioration; (10) the station program's financial reserves have also significantly deteriorated, principally because of program uncertainties and cost overruns; (11) the near-term reserve posture is in particular jeopardy, and the program may require additional funding over and above the remaining reserves before the completion of station assembly; (12) to date, NASA has taken a series of actions to keep the program from exceeding its funding limitations and financial reserves; (13) NASA is accounting for these actions in ways that enable it to report its continuing compliance with the funding limitations; (14) however, to show continuing compliance in some cases, NASA has had to redefine the portion of the program subject to the funding limitations; (15) thus, the value of the current limitations as a funding control mechanism is questionable; (16) since GAO's June 1997 testimony, further cost and schedule problems have materialized and NASA has acknowledged that the potential for cost growth in the program has increased; and (17) GAO believes the program has reached the point where the Congress may wish to review the entire program.