Each block is intended to provide the Ballistic Missile Defense  System with capabilities that will enhance the development and overall  performance of the system. These goals  identify the composition of the block (the elements in development and  those planned for fielding), the type and quantity of assets to be fielded,  the cost associated with element development and fielding (including  operation and sustainment activites), and the performance expected of  fielded assets. To provide a basis for holding  MDA accountable for delivering within estimated resources and to ensure  the success of future MDA development efforts, we recommended that the  Secretary of Defense implement a knowledge-based acquisition strategy  for all the BMDS elements, assess whether the current 2-year block  strategy was compatible with the knowledge-based development strategy,  and adopt more transparent criteria for reporting each element’s  quantities, cost, and performance. Cost Increases Lead to Revised Block 2006 Cost Goal

MDA’s cost goal for Block 2006 has increased by approximately $1 billion. However by March 2006, it had grown by about $1 billion. Increasing Costs Are Causing MDA to Reduce Scope of Block 2006

MDA is making some progress toward achieving its revised Block 2006  goals, but the number of fielded assets and their overall performance will  be less than planned when MDA submitted its Block 2006 goals to  Congress in March 2005. MDA made progress in fielding additional BMDS assets in 2006 and is  generally on track to meet most of its revised block goals. If the agency  reports the cost of deferred work as it has in the past, the cost of Block  2006 will not include all work that benefits the block and the cost of the  future block will be overstated. This  intercept was particularly noteworthy because it was the first successful  intercept attempt for the program since 2002. Also, although the test was  for only one engagement scenario, it was notable because it was GMD’s  first end-to-end test. The program planned to conduct  five flight tests during fiscal year 2006, but was only able to execute four. Although MDA revised its goal downward, insufficient  data exists to assess whether MDA is on track to meet its new goal. On the other hand, MDA operates  with considerable autonomy to change goals and plans, making it difficult  to reconcile outcomes with original expectations and to determine the  actual cost of each block and of individual operational assets. Acquisition Laws Promote Program Transparency

Past Congresses have established a framework of laws that make major  defense acquisition programs accountable for their planned outcomes and  cost, give decision makers a means to conduct oversight, and ensure some  level of independent program review. The BMDS has not  entered into system development and demonstration because it is being  developed outside DOD’s normal acquisition cycle. Once approved,  major acquisition programs are required to measure their program against  the baseline or to obtain approval from a higher-level acquisition executive  before making significant changes. This  has contributed to the difficulty in assessing MDA’s progress toward  expected outcomes. While it is possible  to reconstruct planned unit costs from budget documents, the planned  unit cost of some assets—for example, GMD interceptors—is not easy to  determine because the research and development funds used to buy the  interceptors are spread across 3 to 5 budget years. These efforts include a teaming  approach designed to restore the reliability of MDA’s suppliers, regular  quality inspections to quickly identify and find resolutions for quality  problems, and award fees with an increased emphasis on quality  assurance. According to MDA, by 2005, these changes began  to produce results. The fielding of additional assets, the  ability to put BMDS on alert status, and the first end-to-end test of GMD  were notable accomplishments during fiscal year 2006. The recommendations that follow build upon those we made in last year’s  report on missile defense. Also, if the contractor’s cost performance continues to  decline as it did in fiscal year 2006, we estimate that at completion the  contract could overrun its budget by about $112.1 million to $248.3 million.
Why GAO Did This Study

Over the next 5 years, the Missile Defense Agency (MDA) expects to invest $49 billion in the BMD system's development and fielding. MDA's strategy is to field new capabilities in 2-year blocks. In January 2006, MDA initiated its second block--Block 2006--to protect against attacks from North Korea and the Middle East. Congress requires GAO to assess MDA's progress annually. This year's report addresses MDA's progress during fiscal year 2006 and follows up on program oversight issues and the current status of MDA's quality assurance program. GAO assessed the progress of each element being developed by MDA, examined acquisition laws applicable to major acquisition programs, and reviewed the impact of implemented quality initiatives.

What GAO Found

During fiscal year 2006, MDA fielded additional assets for the Ballistic Missile Defense System (BMDS), enhanced the capability of some assets, and realized several noteworthy testing achievements. For example, the Ground-based Midcourse Defense (GMD) element successfully conducted its first end-to-end test of one engagement scenario, the element's first successful intercept test since 2002. However, MDA will not meet its original Block 2006 cost, fielding, or performance goals because the agency has revised those goals. In March 2006, MDA: reduced its goal for fielded assets to provide funds for technical problems and new and increased operations and sustainment requirements; increased its cost goal by about $1 billion--from $19.3 to $20.3 billion; and reduced its performance goal commensurate with the reduction of assets. MDA may also reduce the scope of the block further by deferring other work until a future block because four elements incurred about $478 million in fiscal year 2006 budget overruns. With the possible exception of GMD interceptors, MDA is generally on track to meet its revised quantity goals. But the deferral of work, both into and out of Block 2006, and inconsistent reporting of costs by some BMDS elements, makes the actual cost of Block 2006 difficult to determine. In addition, GAO cannot assess whether the block will meet its revised performance goals until MDA's models and simulations are anchored by sufficient flight tests to have confidence that predictions of performance are reliable. Because MDA has not entered the Department of Defense (DOD) acquisition cycle, it is not yet required to apply certain laws intended to hold major defense acquisition programs accountable for their planned outcomes and cost, give decision makers a means to conduct oversight, and ensure some level of independent program review. MDA is more agile in its decision-making because it does not have to wait for outside reviews or obtain higher-level approvals of its goals or changes to those goals. Because MDA can revise its baseline, it has the ability to field fewer assets than planned, defer work to a future block, and increase planned cost. All of this makes it hard to reconcile cost and outcomes against original goals and to determine the value of the work accomplished. Also, using research and development funds to purchase operational assets allows costs to be spread over 2 or more years, which makes costs harder to track and commits future budgets. MDA continues to identify quality assurance weaknesses, but the agency's corrective measures are beginning to produce results. Quality deficiencies are declining as MDA implements corrective actions, such as a teaming approach, designed to restore the reliability of key suppliers.