GAO Assesses BMDS

The Government Accountability Office released an annual report today evaluating the Missile Defense Agency's progress in improving the way the agency handles cost, schedule, testing and performance in developing the various components of the Ballistic Missile Defense System.

The 124-page report includes 10 recommendations for MDA "to strengthen its baselines, facilitate external and independent reviews of those baselines, ensure effective oversight of the BMDS, and further improve transparency and accountability of its efforts."

To make the baselines MDA reports to Congress clearer, more consistent and complete, GAO recommends the agency take the following actions:

1. For resource baselines:

a) Provide more detailed explanations and definitions of information included in resource baselines; particularly operations and support costs and unit cost calculations.

b) Label cost estimates to appropriately reflect the content reported and explain any exclusions.

c) Include all sunk costs in all of its cost estimates and baselines.

d) Obtain independent cost estimates for each baseline.

e) In meeting new statutory requirements to include a cost estimate in each acquisition baseline for a program element, take steps to ensure these cost estimates are high quality, reliable cost estimates that are documented to facilitate external review.

2. For schedule baselines:

a) In meeting new statutory requirements to report on an acquisition baseline including a comprehensive schedule, include a comprehensive list of actual versus planned quantities of assets that are or were to be delivered each fiscal year.

b) In meeting new requirements to report variances on acquisition baselines, report on variances of these quantities by fiscal year and the reasons for these differences.

3. For test baselines:

a) In meeting new statutory requirements to report variances between reported acquisition baselines, also report variances between the test plan as presented in the previous acquisition baseline and the test plan as executed that explain the reason for any changes.

b) Report the cost effects of those test changes in either the BAR or the budget justification documentation.

In order to stabilize the test plan and ensure the test baseline can absorb test failures and test delays and remains executable, the Secretary of Defense should ensure that the Missile Defense Agency:

4. Includes sufficient schedule and resource margin, including spare test assets and targets, based on recent test experience and forecasted testing demands.

The GAO report also notes the Pentagon's responses to the recommendations in an earlier draft of the report:

DOD fully concurred with 7 of our 10 recommendations, including our recommendations to take steps to ensure its cost estimates are high-quality, reliable cost estimates that are documented to facilitate external review. In response to this recommendation, DOD stated that MDA will follow the GAO Cost Estimating and Assessment Guide for each program reported in the [BMDS Accountability Report]. In doing so, MDA Cost Estimating and Analysis Directorate plans to form a cost assessment group to formally assess each cost estimate to ensure they are well documented, comprehensive, accurate, and credible. DOD also fully concurred with our recommendation to report the cost effects of its test changes in either the BAR or budget justification documentation, stating that MDA will provide the cost effects as part of the individual program resource baselines starting in the 2012 BAR.

DOD partially concurred with our recommendation that the Secretary of Defense direct MDA to include all sunk costs in all of its cost estimates and baselines. DOD stated that MDA will continue to report sunk costs in most of its acquisition programs except targets, where it will continue to report unit costs in the same manner as the 2010 and 2011 BARs. According to DOD, because each target is inherently a test article and no two are identical, there are always variable non-recurring costs associated with each article. Also, due to the extensive reuse of previous strategic missile components in the targets program, including all sunk costs does not reflect MDA program costs accurately. Accordingly, MDA will use the costs incurred/planned during the future years defense plan to calculate unit costs. These unit costs will not include any sunk costs. We continue to believe that all costs, including all sunk costs incurred for individual target efforts, should be reported to the maximum extent possible, regardless of the agency or service that originally incurred those costs. To the extent that a sunk cost, such as the original cost of previous strategic missile components, can not be calculated, that fact should be explained when the costs are reported. Moreover, DOD’s method of reporting and baselining target unit costs will not reflect even MDA program costs accurately because it excludes MDA-incurred sunk costs. Excluding these costs, which can run into the hundreds of millions of dollars, precludes understanding of the full investment required to develop and procure targets, as well as limiting insight into developmental progress. In addition, the incomplete costs reported will be changed every two years because, as DOD noted, MDA uses only the costs for the future years defense plan to calculate the target unit cost baselines. The future years defense plan covers a six year period of time, but changes every two years to a new six year period of time. Calculating unit costs this way provides neither the full cost nor the full quantities of targets as it removes any costs or quantities prior to fiscal year 2010. We therefore continue to believe that including these costs will aid departmental and congressional decision makers as they make difficult choices of where to invest limited resources.