The agency’s  second 2-year block—Block 2006—culminated on December 31, 2007, and  fielded additional BMDS assets. More Capability Fielded but Less than Planned and at Higher Cost

MDA made progress in developing and fielding the BMDS during 2007. Additional assets were fielded and/or upgraded, several tests met planned  objectives, and other development activities were conducted. On the other  hand, fewer assets were fielded than originally planned, the cost of the  block increased, some flight tests were deferred, and the performance of  fielded assets could not be fully evaluated. MDA Does Not Meet Original Goals, but Meets or Exceeds Most Revised Goals

In March 2005, MDA submitted to Congress the number of assets it  planned to field during Block 2006. With the deferral of the work, its cost was no  longer counted as a Block 2004 cost, but as a Block 2006 cost. The cost of Block 2006 was further blurred as MDA found it necessary to  defer some Block 2006 work until a future block. For example, when the  STSS contractor overran its fiscal year 2007 budget because of testing  problems, the program did not have sufficient funds to launch the  demonstration satellites in 2007 as planned. During that event, the program was able to demonstrate that the  Aegis BMD could simultaneously track and intercept a ballistic missile and  an anti-ship cruise missile. Second, too few flight  tests have been completed to ensure the accuracy of the models’ and  simulations’ predictions. 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. MDA has not yet estimated the full cost of a block. At some future date, MDA does expect to  develop a full cost estimate for each committed block and is in discussions  with DOD’s Cost Analysis Improvement Group on having the group verify  each estimate; but documents do not yet include a timeline for estimating  block cost or having that estimate verified. Functions of the New Board

According to its charter, the MDEB is vested with more responsibility than  its predecessor, the MDSG. Because MDA does not follow this cycle, it does not enter System  Development and Demonstration and it does not trigger the statutes  requiring the development of information that the Defense Acquisition  Board uses to inform its decisions. 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. 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. Using  procurement funds will mean that MDA generally will be required to  adhere to congressional policy that assets be fully funded in the year of  their purchase, rather than incrementally funded over several years. The  Congressional Research Service reported in 2006 that “incremental  funding fell out of favor because opponents believed it could make the  total procurement costs of weapons and equipment more difficult for  Congress to understand and track, create a potential for DOD to start  procurement of an item without necessarily stating its total cost to  Congress, permit one Congress to ‘tie the hands’ of future Congresses, and  increase weapon procurement costs by exposing weapons under  construction to uneconomic start-up and stop costs.” Our analysis of  MDA developed costs, which are presented in table 7, also shows that  incremental funding is usually more expensive than full funding, in part,  because inflation decreases the buying power of the dollar each year. Since 2002, MDA has been granted the flexibility to incrementally fund the  fielding of its operational assets with research and development funds. As a result, fielded  capability has increased. On the other hand, some problems continue that  make it difficult to assess how well the BMDS is progressing relative to the  funds it has received and the goals it has set for those funds. Recommendations for Executive Action

To build on efforts to improve the transparency, accountability, and  oversight of the missile defense program, we recommend that the  Secretary of Defense direct:    MDA to develop a full cost for each block and request an independent  verification of that cost;    MDA to clarify the criteria that it will use for reporting unit cost    MDA to examine a contractor’s planning efforts when 20 percent or  more of a contract’s work is proposed as level of effort;    MDA to investigate ways of developing a baseline or some other  standard against which the progress of technology programs may be  assessed; and    MDA and the Director of Operational Test and Evaluation to agree on  criteria and incorporate corresponding scope into developmental tests  that will allow a determination of whether a block of BMDS capability  is suitable and effective for fielding.
Why GAO Did This Study

By law, GAO annually assesses the Missile Defense Agency's (MDA) progress in developing and fielding a Ballistic Missile Defense System (BMDS). Funded at $8 billion to nearly $10 billion per year, it 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. GAO assessed 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. In conducting the assessment, 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

MDA made progress in developing and fielding the BMDS during Block 2006 but fell short of meeting its original goals. Specifically, it fielded additional assets such as land-based interceptors and sea-based missiles and upgraded other assets, including Aegis BMD-equipped ships. It also met most test objectives, with a number of successful tests conducted. As a result, fielded capability has increased. On the other hand, it is difficult to assess how well BMDS is progressing relative to the funds it has received because fewer assets were fielded than originally planned, the cost of the block increased by at least $1 billion, some flight tests were deferred, and the performance of the fielded system remains unverified. In particular, GAO could not determine the full cost of Block 2006 because MDA continued to defer budgeted work into the future, where it is no longer counted as a Block 2006 cost. Also making cost difficult to assess is a work planning method--referred to as level of effort--used by contractors that does not link time and money with what is produced. When not appropriately used, level-of-effort planning can obscure work accomplished, portending additional cost in the future. MDA is working to minimize the use of this planning method--a needed step as contractors overran their fiscal year 2007 budgets. Performance of the fielded system is as yet not verifiable because too few tests have been conducted to validate the models and simulations that predict BMDS performance. Moreover, the tests that are 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 direction from Congress, has taken several 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 board with more BMDS oversight responsibility than its predecessor, although it does not have approval authority for some key decisions made by MDA. Finally, MDA will begin buying certain assets with procurement funds like other programs. This will benefit transparency and accountability, because procurement funding generally requires that assets be fully paid for in the year they are bought. Previously, MDA, with Congressional authorization, was able to pay for assets incrementally over several years. Additional steps could be taken to further improve oversight. For example, MDA has not yet estimated the total cost of a block, and therefore, cannot have its 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.