	Background

Funded at $8 billion to nearly $10 billion annually, MDA’s BMDS is the  largest research development program in the Department of Defense’s  budget. To develop a system capable of carrying out its mission, MDA, until  December 2007, executed an acquisition strategy in which the  development of missile defense capabilities was organized in 2-year  increments known as blocks. 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. 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 have been developmental in nature and do not provide  sufficient realism for DOD to 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. When work is deferred, its costs are no longer accounted for in the  original block. 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. Another reason why it is difficult to determine the actual cost of Block  2006 is a planning methodology employed by MDA prime contractors that  can obscure the full cost of work. 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. Testing and Performance of Fielded Capability

Most test objectives were achieved during 2007, although several BMDS  programs experienced setbacks in their test schedules. As we reported in March 2007, MDA altered its original Block 2006  performance goals commensurate with the agency’s reductions in the  delivery of fielded assets. For several reasons, information is not  sufficient to assess whether MDA achieved its revised performance goals. First, MDA uses a combination of simulations and flight tests to determine  whether performance goals are met. However, too few flight tests have  been completed to ensure the accuracy of the models and simulations  predictions. 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. These changes should improve the transparency of the BMDS program  and make MDA more accountable for the investment being made in  missile defense. 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. For example, MDA officials told us that the agency does not plan to  estimate the full cost of a block. 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 yet  plan to do so for a block cost estimate. Although the charter of the MDEB  includes the mission to make recommendations to MDA and the Under  Secretary of Defense for 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. Using procurement funds will mean that MDA will be required to  ensure that assets are fully funded in the year of their purchase, rather  than incrementally funded over several years. Upcoming Report

Our annual report on missile defense is in draft and with DOD for  comment.
Why GAO Did This Study

Funded at $8 billion to $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 assessment of 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. We have previously made recommendations to improve oversight in the areas that MDA has recently taken action. We also have a draft report that is currently with DOD for comment that includes additional recommendations.

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. However, 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. We were 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 done to date have been developmental in nature, and do not provide sufficient realism for DOD's test and evaluation Director to determine whether BMDS is suitable and effective for battle. 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, MDA has been able to pay for assets incrementally using research and development funds. Some oversight concerns remain, however. For example, MDA does not plan to estimate the total cost of a block, nor to have a block's costs independently verified--actions required of other programs to inform decisions about affordability and investment choices. 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.