The Army expects FCS-equipped brigade combat teams to provide  significant warfighting capabilities to DOD’s overall joint military  operations. The Congress required the Secretary of Defense to review  specific aspects of the program, including the maturity of critical  technologies, program risks, demonstrations of the FCS concept and  software, and a new cost estimate and affordability assessment and to  submit a report of the findings and conclusions of the review to Congress. This statement is based  on work which was conducted between March 2006 and March 2007 and  in accordance with generally accepted government auditing standards. By early 2009, enough knowledge should be  available about the key elements of the FCS business case to make a well- informed decision on whether and how to proceed with the program. Requirements Definition

The Army has made considerable progress in defining system-of-systems  level requirements and allocating those requirements to the individual FCS  systems. This does not assure that these capabilities will actually perform  as needed in a realistic environment, as required by best practices for a  sound business case. Even if  setting requirements and maturing technologies proceed without incident,  FCS design and production maturity are not likely to be demonstrated  until after the production decision is made. While the Army’s current  estimate of $163.7 billion is essentially the same, an independent estimate  from the Office of the Secretary of Defense puts the acquisition cost of  FCS between $203 billion and $234 billion. Based on this estimate, the Army must ensure  that adequate funding exists in its current budget and future years to fully  fund the FCS program of record including the development of the  complementary systems deemed necessary for the FCS as well as to  procure the FCS capabilities planned to be spun out to the current forces. FCS Business Arrangements

To achieve the Army’s goals for the FCS program, in 2003 the Army  decided to employ a lead systems integrator (LSI) to assist in defining,  developing, and integrating FCS. For example, FCS is not the first system-of-systems  program DOD has proposed, but it is arguably the most complex. Army Use of an LSI Framed by Scope of Program and Workforce Limitations

The Army’s decision to employ a lead systems integrator for the FCS  program was framed by two factors: (1) the ambitious goals of the FCS  program and (2) the Army’s capacity to manage it. On the one  hand, the LSI plays the traditional role of developing a product for its  customer, the Army, and on the other hand the LSI acts like a partner to  the Army in ensuring the design, development, and prototype  implementation of the FCS network and family of systems. In forging a  partner-like relationship with the LSI, the Army sought to gain managerial  advantages such as maintaining flexibility to deal with shifting priorities. Depending on the closeness of the working relationship, the government’s  ability to provide oversight can be reduced compared with an arms-length  relationship; more specifically, the government can become increasingly  vested in the results of shared decisions and runs the risk of being less  able to provide oversight compared with an arms-length relationship,  especially when the government is disadvantaged in terms of workforce  and skills. OSD is in a position to provide this oversight, but thus far has largely  accepted the program and its changes as defined by the Army, even when  they are at wide variance from the best practices embodied in OSD’s own  acquisition policies. In the fiscal year 2007  National Defense Authorization Act, Congress mandated that DOD hold a  formal go/no-go decision meeting on the FCS in 2009. Contract Provides Incentives for Best Effort but Cannot Assure Success

The Army has structured the FCS contract consistent with its desire to  incentivize development efforts and make it financially rewarding for the  LSI to make such efforts. As with many cost-reimbursable research and  development contracts, the contractor is responsible for putting forth its  best effort to ensure a successful FCS. By  the time the FCS critical design review is completed in 2011, the Army will  have paid out over 80 percent of the costs of the LSI contract and the LSI  will have had the opportunity to earn more than 80 percent of its total fee.
Why GAO Did This Study

The Army's Future Combat System (FCS) is a program characterized by bold goals and innovative concepts--transformational capabilities, system-of-systems approach, new technologies, a first-of-a-kind information network, and a total investment cost of more than $200 billion. As such, the FCS program is considered high risk and in need of special oversight and review. Today's testimony is based on work conducted over the past year in response to (1) the National Defense Authorization Act for Fiscal Year 2006, which requires GAO to report annually on the FCS acquisition; and (2) the John Warner National Defense Authorization Act for Fiscal Year 2007, which requires GAO to report on the role of the lead systems integrator in the Army's FCS program. Accordingly, this statement discusses (1) the business case for FCS to be successful and (2) the business arrangements for the FCS program.

What GAO Found

The Army has far less knowledge about FCS and its potential for success than is needed to fulfill the basic elements of a business case. Those elements are not new to the Army, nor to the Department of Defense (DOD), which addresses such criteria in its weapon system acquisition policy. The Army has made improvements to the program, such as lengthening time frames for demonstrating capabilities and for providing capabilities to current forces. While the Army has also made progress, what it still lacks in knowledge raises doubts about the soundness of the FCS business case. The Army has yet to fully define FCS requirements; FCS technologies that should have been matured in 2003, when the program started, are still immature; key testing to demonstrate FCS performance will not be completed and maturity of design and product will not be demonstrated until after production starts in 2013; and an independent cost estimate from the Office of the Secretary of Defense is between $203 billion and $234 billion, a far higher figure than the Army's cost estimate. To achieve its goals for the FCS program, the Army decided to employ a lead systems integrator (LSI) to assist in defining, developing, and integrating the FCS. This decision reflected the fact that not only were FCS goals ambitious, but also that the Army had limited capacity to manage the undertaking. Boeing Corporation is the LSI. Its relationship with the Army on FCS breaks new ground for collaboration between the government and a contractor. The close working relationship has advantages and disadvantages. An advantage is that such a relationship allows flexibility in responding to shifting priorities. A disadvantage is an increase in risks to the Army's ability to provide oversight over the long term. The contract itself is structured in such a way as to enable the LSI to be paid over 80 percent of its costs and fees by completion of the critical design review in 2011--a point after which programs typically experience most of their cost growth. This is consistent with the Army's desire to provide incentives for the development effort. On the other hand, this contract, as with many cost-reimbursable research and development contracts, makes the contractor responsible for providing its best efforts, but does not assure a successful FCS. The foregoing underscores the important role of the Office of the Secretary of Defense in providing oversight on the FCS program. To date, the Office of the Secretary of Defense has largely accepted the Army's approach to FCS, even though it runs counter to DOD's policy for weapon system acquisition. GAO believes the Office of the Secretary of Defense needs to hold the FCS program accountable to high standards at the congressionally directed decision in 2009 on whether to proceed with FCS. Financial commitments to production will grow rapidly after that point. The Office of the Secretary of Defense should also be mindful of the department-wide implications of the future use of LSIs as well as the system-of-systems approach to developing weapon acquisitions.