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International Space Station: U.S. Life-Cycle Funding Requirements

 (Letter
Report, 05/22/98, GAO/NSIAD-98-147).
Pursuant to a congressional request, GAO reviewed issues associated with
the National Aeronautics and Space Administration's (NASA) International
Space Station program, focusing on: (1) estimates of the station's
development, assembly, and operations costs and comparing this estimate
with the estimate in GAO's June 1995 report; (2) program uncertainties
that may affect those costs; (3) potential debris tracking costs; (4)
the status of program reserves; and (5) recent actions to measure prime
contractor performance based on rebaselined information.
GAO noted that: (1) life-cycle cost is the sum total of direct,
indirect, recurring, and nonrecurring cost of a system over its entire
life through disposal; (2) overall, the estimated U.S. cost to develop,
assemble, and operate the space station is about $96 billion, an
increase of almost $2 billion over GAO's last estimate made in 1995; (3)
development costs represent the largest increase--more than 20 percent;
(4) the development increase is attributable to schedule slippages,
prime contract growth, additional crew return vehicle costs, and the
effects of delays in delivery of the Russian-made Service Module; (5)
overall costs would have been significantly higher had there not been an
offsetting reduction in shuttle support costs; (6) a number of potential
program changes could significantly increase the updated cost estimate;
(7) they include the potential or additional schedule slippage and the
need for shuttle launches to test and deliver the crew return vehicle;
(8) at the current estimated spending rate, the program would incur
additional costs of more than $100 million for every month of schedule
slippage; (9) in addition, NASA may have to incur costs related to
protecting the station from space debris; (10) in August 1997, the
agency updated its overall space debris tracking requirement; (11) the
new requirement, as it relates to supporting the space station, includes
the ability to track and catalog objects as small as 1 centimeter; (12)
the adequacy of the space station program's funding reserves has been a
concern of GAO's; (13) the program has used, or identified potential
uses for, a significant portion of its available reserves, with almost 6
years left before the last assembly flight is scheduled to be launched;
(14) in October 1997, NASA granted approval to Boeing Corporation to
begin tracking cost and schedule performance using a new performance
measurement baseline; (15) the purpose of the change was to incorporate
updated program schedules to reflect the most achievable recovery plans;
(16) for reporting purposes, the change had the effect of resetting cost
and schedule variances to zero; (17) the original baseline shows that
the February 1998 cost variance would have been about $50 million higher
than the $398 million Boeing reported prior to the change; and (18)
while NASA approved the new baseline for reporting purposes, it
continues to use Boeing's estimate of overrun at completion--$600
million--as the basis for calculating the contractor's incentive award
fee.
--------------------------- Indexing Terms -----------------------------
 REPORTNUM:  NSIAD-98-147
     TITLE:  International Space Station: U.S. Life-Cycle Funding 
             Requirements
      DATE:  05/22/98
   SUBJECT:  Satellites
             Aerospace contracts
             Prime contractors
             Contractor performance
             Life cycle costs
             Cost overruns
             Aerospace research
             Budgetary reserves
             Cost analysis
IDENTIFIER:  NASA International Space Station Alpha Program
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Cover
================================================================ COVER
Report to Congressional Requesters
May 1998
INTERNATIONAL SPACE STATION - U.S. 
LIFE-CYCLE FUNDING REQUIREMENTS
GAO/NSIAD-98-147
Space Station Funding
(707342)
Abbreviations
=============================================================== ABBREV
  DOD - Department of Defense
  NASA - National Aeronautics and Space Administration
Letter
=============================================================== LETTER
B-279653
May 22, 1998
The Honorable John McCain
Chairman, Committee on Commerce,
 Science and Transportation
United States Senate
The Honorable William H.  Frist
Chairman, Subcommittee on Science,
 Technology and Space
Committee on Commerce, Science and Transportation
United States Senate
As requested, we reviewed issues associated with the National
Aeronautics and Space Administration's (NASA) International Space
Station program.  As agreed with your office, this report (1)
provides an estimate of the station's development, assembly, and
operations costs and compares this estimate with the estimate in our
June 1995 report;\1
(2) identifies program uncertainties that may affect those costs;\2
(3) discusses potential debris tracking costs; (4) discusses the
status of program reserves; and (5) describes recent actions to
measure prime contractor performance based on rebaselined
information. 
--------------------
\1 Space Station:  Estimated Total U.S.  Funding Requirements
(GAO/NSIAD-95-163, June 12, 1995). 
\2 Space Station:  Cost Control Problems Continue to Worsen
(GAO/T-NSIAD-97-177, June 18, 1997), Space Station:  Cost Control
Problems Are Worsening (GAO/NSIAD-97-213, Sept.  16, 1997), Space
Station:  Deteriorating Cost and Schedule Performance Under the Prime
Contract (GAO/T-NSIAD-97-262, Sept.  18, 1997), and Space Station: 
Cost Control Problems (GAO/T-NSIAD-98-54, Nov.  5, 1997). 
   BACKGROUND
------------------------------------------------------------ Letter :1
NASA and its international partners--Japan, Canada, the European
Space Agency, and Russia--are building the space station as a
permanently orbiting laboratory to conduct materials and life
sciences research, earth observation and commercial utilization, and
related uses under nearly weightless conditions.  Each partner is
providing station hardware and crew members and is expected to share
operating costs and use of the station.  The NASA space station
program manager is responsible for the cost, schedule, and technical
performance of the total program.  The Boeing Corporation, the prime
contractor, is responsible for development, integration, and on-orbit
performance of the station.  By the end of 1997, the United States
and its partners had produced well over 358,000 pounds of space
flight hardware, of which the prime contractor was responsible for
about 260,000 pounds.  According to NASA, by the end of 1998,
virtually all flight hardware for the first six flights will have
been delivered to Russian or American launch sites. 
In June 1995, we reported that the U.S.  funds required to design,
launch, and operate the space station would be about $94
billion--over $48 billion to complete assembly and almost $46 billion
to operate and conduct research.  That total included $17.4 billion
for station development activities, $13 billion for operations, and
$50.5 billion for shuttle launch support during assembly and
operations.  Our report also noted that the program's funding
reserves were limited and that the launch and assembly schedule would
be difficult to achieve. 
   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
Life-cycle cost is the sum total of direct, indirect, recurring, and
nonrecurring cost of a system over its entire life through disposal. 
Overall, the estimated U.S.  cost to develop, assemble, and operate
the space station is about $96 billion, an increase of almost $2
billion over our last estimate made in 1995.\3 Development costs
represent the largest increase--more than 20 percent.  The
development increase is attributable to schedule slippages, prime
contract growth, additional crew return vehicle costs, and the
effects of delays in delivery of the Russian-made Service Module. 
Overall costs would have been significantly higher had there not been
an offsetting reduction in shuttle support costs.  The reduced
shuttle costs have resulted from NASA's estimation that the average
cost per flight throughout the station era will be dramatically lower
than was estimated in 1995. 
A number of potential program changes could significantly increase
the updated cost estimate.  They include the potential for additional
schedule slippage and the need for shuttle launches to test and
deliver the crew return vehicle.  A detailed analysis of cost and
schedule projections by a third party cites many of the same program
changes we identified and suggests that significant cost increases
and schedule slippages are likely.  At the current estimated spending
rate, the program would incur additional costs of more than $100
million for every month of schedule slippage. 
In addition, NASA may have to incur costs related to protecting the
station from space debris.  In August 1997, the agency updated its
overall space debris tracking requirement.  The new requirement, as
it relates to supporting the space station, includes the ability to
track and catalog objects as small as 1 centimeter.  Cost estimates
for achieving the improved tracking capability range into the
billions of dollars.  Since ensuring the safety of all space missions
is a NASA-wide, if not national, responsibility, those potential
costs are institutional in nature and should not be reflected in the
station program's life-cycle estimate. 
The adequacy of the space station program's funding reserves has been
a concern of ours and still is.  The program has used, or identified
potential uses for, a significant portion of its available reserves,
with almost 6 years left before the last assembly flight is scheduled
to be launched.  The current reserve amount could be affected by
additional schedule slips, contract disputes, manufacturing problems,
or the possible need for additional testing. 
In October 1997, NASA granted approval to Boeing to begin tracking
cost and schedule performance using a new performance measurement
baseline.  The purpose of the change was to incorporate updated
program schedules to reflect the most achievable recovery plans.  For
reporting purposes, the change had the effect of resetting cost and
schedule variances to zero.  The original baseline shows that the
February 1998 cost variance would have been about $50 million higher
than the $398 million Boeing reported prior to the change.  While
NASA approved the new baseline for reporting purposes, it continues
to use Boeing's estimate of overrun at completion--$600 million--as
the basis for calculating the contractor's incentive award fee. 
--------------------
\3 All dollar estimates in this report have been adjusted for
inflation.  The updated cost estimates are based on an assembly
complete date of December 2003, followed by a 10-year operations
period. 
   U.S.  FUNDING REQUIREMENTS FOR
   THE SPACE STATION
------------------------------------------------------------ Letter :3
Since June 1995, total space station cost estimates have increased
from $93.9 billion to $95.6 billion (see table 1).  In particular,
the development cost estimate has increased by more than 20 percent,
in-house personnel requirements have increased dramatically, and
eight shuttle flights have been added to the development program. 
However, the shuttle support cost, as of April 1998, is less than
that of June 1995 because NASA is projecting a significant reduction
in the average cost per flight. 
                                     Table 1
                          Estimated Space Station Costs
                          (Current dollars in billions)
                                                                    June   April
                                                                    1995    1998
                                                                  estima  estima
Cost category                                                         te      te
----------------------------------------------------------------  ------  ------
U.S. requirements through assembly complete\a
Contract and in-house costs from 1985 through 1993                 $11.2   $11.2
Development cost from 1994 to assembly complete                     17.4  21.9\b
Station-related requirements
In-house personnel                                                   0.9   2.2\c
Principal investigators                                              0.3   0.2\d
Shuttle performance enhancements                                     0.3     0.2
Russian contract                                                     0.4   n/a\e
Shuttle launch support                                              17.8    17.7
Subtotal                                                            48.2    53.4
U.S. requirements after assembly complete
Operations/utilization                                              13.0    13.0
Principal investigators                                           Unavai     0.7
                                                                   lable
In-house personnel                                                Unavai   2.9\f
                                                                   lable
Shuttle launch support                                              32.7    25.6
Station decommissioning\g                                         Unavai  Unavai
                                                                   lable   lable
================================================================================
Total                                                              $93.9   $95.6
--------------------------------------------------------------------------------
Note:  Totals may not add due to rounding. 
\a We define assembly complete as December 2003, when the last
assemly flight is currently scheduled. 
\b Includes station development, operations, and research activities
through December 2003.  Also includes funding reserves and costs
associated with the crew return vehicle and U.S.  missions to the
Russian space station Mir.  Costs associated with activities from
October through December 2003 are prorated, based on the fiscal year
2004 budget planning estimate. 
\c Estimate was derived by dividing total personnel cost by the
number of full-time equivalents (FTE).  We then multiplied that
result by the number of space station program FTEs.  Our current
estimate includes an allocation of all research and program
management costs to the station program. 
\d NASA is continuously adjusting its plans for research as the
availability of space station resources are better defined.  NASA
plans to increase its number of principal investigations consistent
with resources available for space station utilization through
assembly complete.  For the operations period, the estimate assumes a
flat or only slightly declining budget in the out-years. 
\e U.S.  costs associated with the Russian Space Agency contract are
included in the development estimate. 
\f Our estimate was derived by using the cost associated with station
program FTEs in fiscal
year 2003 and escalating that figure by 3 percent a year for 10
years. 
\g NASA plans to attach a propulsion vehicle to the station and
perform a controlled deorbit into the ocean.  The U.S.  share of the
ultimate disposal cost will depend on the propulsion vehicle chosen. 
The higher development costs--$21.9 billion versus $17.4 billion--are
attributable to schedule delays, additional prime contractor effort
not covered by funding reserves, additional crew return vehicle
costs, and costs incurred as a result of delays in the Russian-made
Service Module.  In June 1995, NASA expected to complete assembly in
June 2002.  Partially due to delays in the Russian program, the last
flight in the assembly sequence is now scheduled for December 2003, a
delay of 18 months that has increased development costs by more than
$2 billion.  Also, NASA has undertaken activities such as developing
the Interim Control Module to mitigate delays in the delivery of the
Service Module.  These activities are estimated by NASA to cost more
than $200 million.  It should be noted that our estimate includes the
cost of the Russian Space Agency contract, which NASA does not
include in its portrayal of station development funding needs. 
The increased in-house personnel costs during development--$2.2
billion versus $0.9 billion--are attributable to a longer development
program, higher estimated personnel levels, and a more inclusive
estimating methodology.  Our June 1995 estimate was based on a
development program scheduled to end in June 2002 while our current
estimate includes an additional 18 months of effort.  In addition,
our prior estimate was based on an average of 1,285 civil service
staff annually.  NASA's budget now estimates that about 2,000 staff
per year will be needed during development.  The increased staffing
levels are attributable largely to the inclusion of science and crew
return vehicle personnel into the station budget, which in most cases
were previously covered under the Science, Aeronautics and Technology
budgets.  Finally, our current estimate is based on an allocation of
all research and program management costs to the station program,
while the previous estimate did not include all components of that
budget line. 
Regarding shuttle support, our 1995 estimate was based on 35 flights
during development and 50 during operations.  However, NASA now
estimates 43 flights during development, including 2 additional
flights to the Russian space station Mir, 1 flight to test the crew
return vehicle, and flights required by changes to the assembly
sequence.  NASA continues to estimate that 50 flights will be needed
during operations.  However, NASA's estimate of average cost per
flight is now lower, resulting in a shuttle launch support cost of
$17.7 billion during assembly, essentially the same cost as estimated
in 1995, despite the increased number of flights.  During operations,
the estimated cost for shuttle support is now significantly
less--$25.6 billion versus $32.7 billion--based on the same number of
flights.  NASA's estimated reduction in the average cost per flight
is based on its expectation that program efficiencies and other cost
savings will be achieved and sustained throughout the operating life
of the space station.  If that expectation is not realized, the cost
for shuttle support will increase. 
   POTENTIAL ADDED PROGRAM COSTS
------------------------------------------------------------ Letter :4
A number of potential program changes could significantly increase
the current estimate.  First, the development costs shown in table 1
would increase if the assembly complete milestone slips beyond
December 2003.  Second, it is likely that the program will ultimately
require more shuttle flights than are included in our analysis. 
Finally, NASA is now considering modifying space shuttle Columbia to
permit its use for some station missions.  A recent independent
assessment by NASA's Cost Assessment and Validation Task Force
suggests that the program's schedule will likely experience further
delays and require additional funding.\4
--------------------
\4 Our work and that of the independent assessment team was performed
in the same time frame.  Our work focused on aggregating the various
components of space station life-cycle cost, based on NASA's current
budget projections.  The assessment team focused on evaluating the
program in terms of potential cost and schedule growth primarily for
the program's development portion.  Report of the Cost Assessment and
Validation Task Force on the International Space Station, April 21,
1998. 
      SCHEDULE CHANGES
---------------------------------------------------------- Letter :4.1
We believe NASA and its partners face a formidable challenge in
meeting the launch schedules necessary to complete assembly.  Those
schedules depend on the launch capacity in the United States and
Russia and the program's ability to meet all manufacturing, testing,
and software and hardware integration deadlines. 
Through December 2003, over 90 launches by NASA and its international
partners will be needed for assembly, science utilization, resupply,
and crew return vehicle purposes.  During this period, NASA's
shuttles are currently scheduled to be flown up to 9 times a year for
both station and nonstation needs, and Russia will have to average 9
to 10 launches a year to accommodate its station commitment.  While
these rates have been achieved in the past, a January 1998 NASA study
of personnel reductions at Kennedy Space Center concluded that,
without additional processing efficiencies, the required shuttle
flight rate may not be supportable.\5 If NASA is unable to maintain
the planned flight rate, the station assembly schedule could
experience further slippage.  Also, recent Russian annual flight
rates to support the Mir space station have been significantly lower
than the required rate to support space station assembly. 
The assembly schedule also assumes that further critical
manufacturing delays will not occur.  According to NASA's Aerospace
Safety Advisory Panel's 1997 annual report, the program's schedule is
at risk due to software, hardware, and testing issues.\6 The report
states, in part, that the ".  .  .  software development schedule is
almost impossibly tight.  If something else does not cause a further
delay in (station) deployment, software development may very well do
so." Further, the report pointed out that the crew return vehicle
development schedule is "extremely optimistic," noting that any
delays in the availability of the vehicle could constrain station
operations.  In addition, the panel stated that, while integrated
testing is a "very positive step for safety," there is no room in the
current schedule for required changes that may be discovered during
this testing. 
Delays in the development program would increase costs because, at a
minimum, fixed costs such as salaries, contractor overhead, and
sustaining engineering would continue for a longer period than
planned.  Assuming NASA would continue to spend at the rate assumed
in its current estimate for fiscal year 2003, the program would incur
additional costs of more than $100 million for every month of
schedule slippage. 
--------------------
\5 Assessment of the Space Flight Operations Contract/United Space
Alliance Risk Management Process for Determining Proposed Staff
Reductions, January 16, 1998. 
\6 Annual Report for 1997, Aerospace Safety Advisory Panel, February
1998. 
      ADDITIONAL FLIGHTS
---------------------------------------------------------- Letter :4.2
The program could require more shuttle flights than are baselined in
our estimate.  For example, the baseline does not include additional
flights that may be needed for crew return vehicle testing and
launches and some resupply flights.  While some of these
possibilities are subject to program changes that have not been
adopted, it appears that the costs associated with launching the crew
return vehicle are not included.  Depending on the ultimate life
expectancy of that vehicle, two additional flights could be needed. 
On the basis of NASA's estimate of average cost per flight for the
shuttle, this could add about $1 billion to the total estimate. 
According to NASA, sustaining engineering costs associated with the
crew return vehicle will have to be absorbed by the program's
operations budget. 
Also, NASA is reviewing alternatives for making Columbia capable of
supporting the station.  A modified Columbia could be used as a
backup (in the event one of the other orbiters is out of service) or
as a delivery vehicle for cargo.\7
--------------------
\7 According to NASA, due to high structural weight the orbiter
Columbia cannot be used for station assembly flights, but, as
modified, it could be used for logistics flights. 
      ADDITIONS SUGGESTED BY
      INDEPENDENT ASSESSMENT
---------------------------------------------------------- Letter :4.3
Between November 1997 and April 1998, an independent cost assessment
and validation team examined the program's past and projected
performance and made quantitative determinations regarding the
potential for additional cost and schedule growth.  Reflecting many
of the same areas we identified, the team cited complex assembly
requirements and potential schedule problems associated with
remaining hardware and software development and concluded that the
program could require an additional $130 million to $250 million in
annual funding.  The team also indicated that the program could
experience 1 to 3 years of schedule growth beyond the currently
anticipated completion date of December 2003. 
   POTENTIAL DEBRIS TRACKING COSTS
------------------------------------------------------------ Letter :5
The estimate we derived in 1995 and our latest estimate include those
costs related to the space station's development, assembly, and
operations.  They do not include potential costs that may be incurred
to satisfy NASA's space debris tracking requirement. 
Due to its large size and long operational lifetime, the space
station will face a risk of being struck by orbital debris.  NASA
plans to provide shielding against smaller objects and maneuver the
station to avoid collisions with large objects. 
The National Space Policy requires NASA to ensure the safety of all
space flight missions involving the space station and shuttle,
including protection against the threat of collisions from orbiting
space debris.  However, NASA has no surveillance capability and must
rely on the Department of Defense (DOD) to perform this function. 
As mentioned previously, NASA updated its overall requirement for
space debris tracking as it relates to supporting the space station,
to include the ability to track and catalog objects as small as 1
centimeter.  NASA recognized that such a capability could require
sensor facility upgrades and the addition of new sensors to DOD's
surveillance network.  However, DOD maintains that the upgrade is not
feasible within current budget constraints.\8 A NASA study suggested
that developing a system to satisfy NASA's needs could cost about $1
billion.  A DOD study suggested that the cost of a space-based system
satisfying all DOD and NASA needs could exceed $5 billion and noted
that the cost to maintain a system that provides 24-hour a day
tracking of 1-centimeter-sized space debris could be "prohibitively
expensive."
More recently, the Senate Committee on Armed Services, in its report
on the National Defense Authorization Act for Fiscal Year 1998,
directed the Secretary of the Air Force to undertake a design study
for a 1-centimeter debris tracking system.  The study was to be
coordinated with a number of national laboratories.  The resulting
report, which was transmitted to congressional committees on April 2,
1998, identified three possible designs that range in estimated cost
from about $400 million to $2.5 billion. 
The sources of funding for the system are undetermined at this time. 
Also, while the more stringent requirement is related to the space
station, all other space activities would benefit from the ability to
track 1-centimeter-sized debris.  Since debris tracking is a
NASA-wide requirement, and the agency relies on DOD to provide the
service, the two agencies will have to work together to determine how
to provide the capability. 
--------------------
\8 Space Surveillance:  DOD and NASA Need Consolidated Requirements
and a Coordinated Plan (GAO/NSIAD-98-42, Dec.  1, 1997). 
   STATUS OF FUNDING RESERVES
------------------------------------------------------------ Letter :6
We have previously expressed our concern with the adequacy of space
station financial reserves.\9 We continue to be concerned.  The
program has used, or identified specific uses for a significant
portion of its available reserves, with almost 6 years left before
the last assembly flight is scheduled to be launched. 
In January 1995, the space station program had more than $3 billion
in financial reserves to cover development contingencies.  In March
1998, the financial reserves available to the program were down to
about $2.1 billion, and NASA had identified over $1 billion in
potential funding requirements against those reserves.  In the past,
reserves have been used to fund additional requirements, overruns,
and other authorized changes.  Some of the potential funding needs
include those related to NASA's decision to add a third node to the
station's design and unforeseen costs associated with the development
of an Interim Control Module. 
We recognize that NASA identifies adequacy of reserves as one of the
highest current program risks.  We also note that the current reserve
status could be affected by additional schedule slips, contract
disputes, manufacturing problems, or the need for additional testing. 
Inadequate reserves hinder program managers' ability to cope with
unanticipated problems.  If a problem could not be covered by
available reserves, program managers could be faced with deferring or
rephasing other activities, thus possibly delaying the space
station's development schedule or increasing future costs. 
--------------------
\9 Financial reserves are used to fund unexpected contingencies, such
as cost growth, schedule delays, or changes in project objectives or
scope. 
   NEW BASELINE TO MEASURE COST
   AND SCHEDULE PERFORMANCE
------------------------------------------------------------ Letter :7
In the summer of 1997, after many months of estimating that the total
cost growth at the completion of the contract would not exceed $278
million, Boeing more than doubled its estimate--to $600 million. 
Through September 1997, $398 million in cost growth had already
accumulated. 
On September 30, 1997, Boeing formally asked NASA to consider
rebaselining the program using a more "meaningful program baseline
against which performance measurements (could) be taken." In October
1997, NASA granted approval to Boeing to begin tracking cost and
schedule performance using a new performance measurement baseline. 
The revised baseline permitted Boeing to reset its budgeted cost of
work scheduled and performed equal to the actual cost of work
performed as of September 1997.\10 According to Boeing, this change
provides the program with the most accurate cost information and
incorporates updated program schedules to reflect the most achievable
recovery plans.  For reporting purposes, the change had the effect of
resetting cost and schedule variances to zero. 
We asked the program officials to provide us with an analysis
depicting a crosswalk back to the original baseline.  That analysis
shows that, as of February 1998, the total variance was $448 million. 
Of that amount, about $50 million was incurred in the first 5 months
of fiscal year 1998.  While NASA approved the new baseline for
reporting purposes, it continues to use Boeing's estimate of overrun
at completion--$600 million--as the basis for calculating the
contractor's incentive award fee. 
NASA's estimate of total cost growth at completion, which had been in
general accord with Boeing's $600 million estimate, has been
increased to $817 million, and is the basis for its fiscal year 1999
budget request.  This higher estimate is based on its assessment of
trends and its belief that Boeing's cost control strategy will not be
fully successful. 
--------------------
\10 At the end of September 1997, prior to resetting the baseline,
Boeing reported a cost variance of $398 million and a schedule
variance of $139 million. 
   CONCLUSIONS
------------------------------------------------------------ Letter :8
Since our last cost estimate was completed in June 1995, U.S. 
life-cycle funding requirements for building and operating the
International Space Station have increased--from $93.9 billion to
$95.6 billion.  Many of the reasons for this increase were not
foreseen by NASA in 1995.  Reasons include schedule delays by Russia
and prime contractor difficulties. 
In light of our analysis and that by an independent team, additional
costs could materialize.  Potential program changes, such as
additional schedule slippage and more shuttle flights, could increase
our latest cost estimate.  Also, NASA's updated requirement for
tracking space debris may require DOD to upgrade its surveillance
network.  NASA's potential share of this cost has not yet been
determined. 
When the station is fully assembled, funding requirements for
operational activities, such as shuttle launches, the crew return
vehicle, principal investigator work, and in-house personnel support,
will need to be fully defined.  During the station's projected
10-year utilization period, U.S.  funding requirements are estimated
to total over $42 billion, or about an average of $4.2 billion per
year.  Therefore, station-related funding needs will continue be a
major portion of NASA's future budgets. 
   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9
In commenting on a draft of this report, NASA raised three major
concerns:  (1) our use of average cost per flight to estimate shuttle
launch support costs, (2) the inclusion of certain program costs in
the station development estimate, and (3) the inclusion of references
to the requirement for improved orbital debris tracking capability. 
NASA also provided a number of technical and clarifying comments,
which have been incorporated where appropriate. 
NASA believes that marginal cost, rather than average cost per
flight, is a more accurate estimate of shuttle launch support costs. 
NASA defines marginal cost per flight as those costs incurred or
avoided as a result of adding or deleting one flight to or from the
shuttle manifest in a given fiscal year.  Marginal cost does not
include any fixed costs that NASA says are required to maintain the
capability to launch the shuttle a specific number of times during a
given year.  Average cost per flight as defined by NASA is the total
cost to operate the space shuttle on a recurring and sustained basis
for a given fiscal year divided by the number of flights planned for
that year.  Its calculation of average cost per flight captures most
costs in the shuttle operations budget line, as well as prorations of
civil service personnel, space communications network costs, and
recurring costs for shuttle improvements.  We believe our use of
average cost per flight is appropriate because more than 70 percent
of shuttle flights during fiscal years 1999 through 2003 will be
devoted to the space station. 
NASA expressed concern with our inclusion of certain costs in the
development estimate, particularly the Russian Space Agency contract
cost.  We chose to include all costs that we believe directly support
station development and construction activities to more completely
portray that portion of the life-cycle cost estimate.  However, we
revised the report to recognize the way NASA treats those costs. 
NASA also expressed concern that our discussion of the costs
associated with orbital debris tracking could be misunderstood.  We
believe our discussion is clear.  We agree that debris tracking costs
should not be considered part of the space station's life-cycle cost
estimate, and benefits would accrue to programs other than the space
station.  However, it is a potential cost that is related to space
station support because the requirement to track and catalog
1-centimeter-sized debris was established to support the station.  As
stated in the report, since debris tracking is a NASA-wide
responsibility and the agency relies on DOD to provide the service,
the two agencies will have to work together to achieve the improved
capability. 
We provide additional details on NASA's comments in appendix I. 
   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10
To estimate station costs, identify program uncertainties, examine
program reserves, and assess the prime contractor's cost and schedule
reporting system, we reviewed NASA's program planning and budgeting
documents, internal cost reports, independent program assessments,
and contracts relating to space station development.  We interviewed
NASA officials in the Space Station Program Office, the Space Shuttle
Program Office, the Office of Human Space Flight, the Office of Life
and Microgravity Sciences and Applications, the Office of the
Comptroller, and the X-38 development program.  We also met with
officials from NASA's space station Cost Assessment and Validation
Task Force to discuss the scope and results of their work, and the
National Research Council to discuss ongoing work related to station
disposal.  To examine potential impacts of satisfying NASA's debris
tracking requirement, we discussed a recent Air Force study with
cognizant officials and reviewed previous debris tracking studies. 
We used NASA budget data to depict certain costs and to derive other
costs.  We used cost reports and independent assessments to test the
reliability of NASA's estimates and to identify cost risks to the
program.  We did not, however, attempt to independently validate
NASA's budget data. 
We performed our work from December 1997 to April 1998 in accordance
with generally accepted government auditing standards. 
--------------------------------------------------------- Letter :10.1
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 15 days from its issue date.  At
that time, we will send copies to appropriate congressional
committees, the NASA Administrator, and the Director of the Office of
Management and Budget.  We will also make copies available to others
on request. 
Please contact me at (202) 512-4841 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in
appendix II. 
Allen Li
Associate Director,
Defense Acquisitions Issues
(See figure in printed edition.)Appendix I
COMMENTS FROM THE NATIONAL
AERONAUTICS AND SPACE
ADMINISTRATION
============================================================== Letter 
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's comments on the National Aeronautics and
Space Administration's (NASA) letter dated April 27, 1998. 
GAO COMMENTS
1.  According to NASA, shuttle support costs for the space station
would be $3.1 billion during development and $5.5 billion during
operations if marginal cost per flight is used to estimate those
costs.  However, we believe that it is more appropriate to use
average cost per flight to estimate shuttle support. 
NASA defines marginal cost per flight as those costs incurred or
avoided as a result of adding or deleting one flight to or from the
shuttle manifest in a given fiscal year.  Marginal cost does not
include any fixed costs that NASA says are required to maintain the
capability to launch the shuttle a specific number of times during a
given year.  According to NASA officials, eliminating or adding a
single flight in a given year has no effect on these fixed costs. 
Marginal cost per flight includes costs of personnel and any
consumable hardware and materials, such as propellant, that can be
added or removed with only temporary adjustment in the flight rate. 
NASA defines average cost per flight as the total cost to operate the
space shuttle on a recurring and sustained basis for a given fiscal
year divided by the number of flights planned for that year.  Its
calculation of average cost per flight captures most costs in the
shuttle operations budget line, as well as prorations of civil
service personnel, space communications network costs, and recurring
costs for shuttle improvements.  The calculation does not include
capital-type costs, such as those required to develop the system, and
construct and modify government-owned facilities or nonrecurring
costs associated with system improvements. 
During its assembly, station elements will be almost the exclusive
payload on the shuttle, and there is no alternative means of
transportation for the station.  Also, during the operations period,
the station will be a major user of the shuttle.  Since the station
will be the predominant user of the shuttle for many years, we
believe the use of average cost per flight is more appropriate than
the use of marginal cost per flight to estimate shuttle launch
support costs. 
2.  The time frames for the cost estimates were clearly portrayed in
the life-cycle cost table.  We added a footnote in the Results in
Brief section to cite those dates earlier in the report. 
3.  We changed the heading in the table from "development budget" to
"development cost".  We chose to aggregate all costs related directly
to space station development and construction. 
4.  We revised the report to refer to earth observation and
commercial utilization and related uses. 
5.  We revised the report to read ".  .  .  development, integration,
and on-orbit performance."
6.  We recognize that we have included some costs in our development
total that were not included in 1995, such as the Russian Space
Agency contract and crew return vehicle development costs.  In
calculating the percentage increase, we excluded those costs from our
total in order to make a proper comparison.  Using NASA's own
figures, the increase is more than 22 percent--$17.4 billion vs. 
$21.3 billion. 
7.  We recognize that the NASA Administrator initiated the idea of
conducting an independent cost review.  However, we note that the
Congress specifically requested such an analysis in Conference Report
105-297.  The report specified a number of preconditions to the
release of some space station funding.  One of those requirements was
"a detailed analysis by a third party of (space station) cost and
schedule
projections .  .  ." For brevity, we have deleted references to this
sequence of events. 
8.  We agree that debris tracking costs should not be considered part
of the space station's life-cycle cost estimate.  We believe we have
made that clear by (1) excluding any reference to debris tracking
from the life-cycle cost table and (2) stating that debris tracking
is a NASA-wide responsibility.  However, we believe it is important
to identify this potential cost because NASA established the
requirement to catalog and track objects as small as
1 centimeter, in part, to support the International Space Station,
and funding to achieve that capability is not yet available.  As
stated in the report, since debris tracking is a NASA-wide
responsibility and the agency relies on the Department of Defense to
provide the service, the two agencies will have to work together to
determine how to move ahead on this challenge. 
9.  We do not imply that the program has spent $2 billion of
reserves.  However, according to program documentation, the net
unencumbered reserve posture, as of March 1998, was about $1.1
billion.  This compared with a starting point of about $3.1 billion
in January 1995. 
10.  We believe the sentence, as written, accurately reflects the
status of cost variance under the prime contract. 
11.  We revised our terminology. 
12.  We changed the life-cycle cost table category to read
"development cost from 1994 to assembly complete" and added language
in the report narrative to recognize NASA's position.  We note that
in testimony on April 23, 1998, the NASA Administrator pointed out
the relevance of the activities under the Russian contract to the
development and construction of the space station. 
13.  The shuttle was incapable of supporting space station assembly
without incorporating certain enhancements.  We believe these
nonrecurring costs are completely relevant to the discussion of space
station life-cycle cost estimates. 
14.  We changed the footnote to read "U.S.  missions to .  .  . 
Mir."
15.  We changed the footnote to read "Russian Space Agency contract."
16.  We did not change the order of reasons for contract growth.  See
comment 12 for discussion of Russian Space Agency contract. 
17.  Our estimate of civil service personnel costs includes an
allocation of all elements of the research and program management
budget--personnel and related costs, travel, and research operations
support--to the station program.  According to a NASA official, the
agency's estimate only allocates personnel and related costs to the
station program.  Since the station program benefits from all
elements of the research and program management budget, we believe
that it is appropriate to allocate all of those costs to the program. 
18.  We modified the report to incorporate this suggestion. 
19.  A crew return vehicle is required for space station operations. 
The X-38 program is focused on demonstrating a concept for station
crew return.  Therefore, we believe those costs are directly related
to station development. 
20.  We changed the report to reflect NASA's current plans for
modifying space shuttle Columbia. 
21.  We modified the report to read ".  .  .  Over 90 launches by
NASA and its international partners."
22.  We disagree.  We believe a "delay" in the seven person
operational capability is a constraint to the station program. 
23.  See comment 20. 
24.  We revised the report to reflect information in the final Cost
Assessment and Validation Task Force report. 
25.  See comment 8. 
26.  See comment 9. 
27.  We believe report language accurately reflects the rebaselining
of the prime contract performance measurement reporting system. 
28.  We modified the report to incorporate NASA's suggestion. 
29.  We modified the report to incorporate NASA's suggestion. 
30.  We identified the independent cost team as NASA's Cost
Assessment and Validation Task Force earlier in the report. 
31.  See comment 8. 
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 
Jerry Herley
ATLANTA FIELD OFFICE
John Gilchrist
James Beard
Fred Felder
DALLAS FIELD OFFICE
Vijay Barnabas
*** End of document. ***



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