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

 (Testimony, 06/24/98,
GAO/T-NSIAD-98-212).
GAO discussed U.S. funding requirements for the National Aeronautics and
Space Administration's (NASA) International Space Station program,
focusing on the station's development, assembly, and operation costs.
GAO also: (1) compared the current cost estimate with the estimate in
its June 1995 report; and (2) provided information on potential cost
increases, current program reserves, the prime contractor's cost and
schedule performance, and the impact of recent revisions to the assembly
sequence.
GAO noted that: (1) based on NASA data and GAO's analysis, it estimated
that the U.S. cost to develop, assemble, and operate the space station
has increased to almost $96 billion; (2) further, GAO identified a
number of program changes that could significantly increase this
estimate, such as the potential for additional schedule slippage and the
need for shuttle launches to test and deliver the crew return vehicle;
(3) as GAO has reported previously, it continues to be concerned about
the adequacy of program reserves to deal with changing program needs;
(4) over three years ago, the space station program had more than $3
billion in financial reserves to cover development contingencies; (5) in
March 1998, with almost 6 years until completion, the net unencumbered
financial reserves were down to about $1.1 billion; (6) after GAO
completed its work and issued its May 1998 report, NASA and its
international partners revised the station assembly sequence again,
resulting in further schedule slippage and one additional shuttle
flight; and (7) additional costs will be incurred as a result of these
changes.
--------------------------- Indexing Terms -----------------------------
 REPORTNUM:  T-NSIAD-98-212
     TITLE:  Space Station: U.S. Life-Cycle Funding Requirements
      DATE:  06/24/98
   SUBJECT:  Contractor performance
             Cost overruns
             Future budget projections
             Space exploration
             Satellites
             Cost control
             Cost analysis
             Aerospace research
             Aerospace contracts
             International cooperation
IDENTIFIER:  Russia
             NASA Space Station Program
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Cover
================================================================ COVER
Before the Committee on Science, House of Representatives
For Release on Delivery
Expected at
10:00 a.m., EDT
Wednesday,
June 24, 1998
SPACE STATION - U.S.  LIFE-CYCLE
FUNDING REQUIREMENTS
Statement of Allen Li, Associate Director, Defense Acquisitions
Issues, National Security and International Affairs Division
GAO/T-NSIAD-98-212
GAO/NSIAD-98-212t
(707364)
Abbreviations
=============================================================== ABBREV
  DOD -
  FTE -
  NASA -
============================================================ Chapter 0
Mr.  Chairman and Members of the Committee: 
We are pleased to be here today to discuss U.S.  funding requirements
for the National Aeronautics and Space Administration's (NASA)
International Space Station program.\1 Our testimony today will
summarize the results of recent work we completed at the request of
the Senate Committee on Commerce, Science, and Transportation
focusing on the station's development, assembly, and operations
costs.\2 Where applicable, we will (1) compare the current estimate
with the estimate in our June 1995 report\3 and (2) provide
information on potential cost increases, current program reserves,
the prime contractor's cost and schedule performance, and the impact
of recent revisions to the assembly sequence.\4
The majority of our analysis is based on NASA's fiscal year 1999
budget submission and the assembly sequence characterized by NASA as
Revision C. 
--------------------
\1 NASA and its international partners--Japan, Canada, the European
Space Agency, and Russia--are building the International Space
Station as a permanently orbiting laboratory to conduct materials and
life sciences research under nearly weightless conditions. 
\2 International Space Station:  U.S.  Life-Cycle Funding
Requirements (GAO/NSIAD-98-147, May 22, 1998). 
\3 Space Station:  Estimated Total U.S.  Funding Requirements
(GAO/NSIAD-95-163, June 12, 1995). 
\4 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). 
   SUMMARY
---------------------------------------------------------- Chapter 0:1
Based on NASA data and our analysis, we estimate that the U.S.  cost
to develop, assemble, and operate the space station has increased to
almost $96 billion.\5 Further, we identified a number of program
changes that could significantly increase this estimate, such as the
potential for additional schedule slippage and the need for shuttle
launches to test and deliver the crew return vehicle.  As we have
reported previously, we continue to be concerned about the adequacy
of program reserves to deal with changing program needs.  Over 3
years ago, the space station program had more than $3 billion in
financial reserves to cover development contingencies.  In March
1998, with almost 6 years until completion, the net unencumbered
financial reserves were down to about $1.1 billion. 
After we completed this work and issued our May 1998 report, NASA and
its international partners revised the station assembly sequence
again, resulting in further schedule slippage and one additional
shuttle flight.  Additional costs will be incurred as a result of
these changes. 
--------------------
\5 All dollar estimates in this testimony have been adjusted for
inflation. 
   ESTIMATE OF TOTAL SPACE STATION
   COSTS HAS INCREASED
---------------------------------------------------------- Chapter 0:2
Since June 1995, total space station estimated costs have increased
from $93.9 billion to $95.6 billion.  In particular, the development
cost estimate has increased by more than 20 percent, in-house
personnel costs have more than doubled, and eight shuttle flights
have been added to the development program.  However, shuttle support
costs are lower because NASA is projecting a significant reduction in
the average cost per flight.  Appendix I compares the space station
costs we reported in June 1995 with our latest estimate of April
1998.  Following are key points regarding the life-cycle cost
estimate presented in our latest report: 
  -- 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. 
  -- 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. 
  -- Regarding shuttle support, our 1995 estimate was based on 35
     flights during development and 50 during operations.  However,
     NASA's 1998 estimate was based on 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 adoption of Revision C to the assembly sequence.  NASA
     continues to estimate that 50 flights will be needed during
     operations. 
   PROGRAM COSTS COULD INCREASE
   FURTHER
---------------------------------------------------------- Chapter 0:3
We reported that a number of potential program changes could
significantly increase the current estimate.  First, development
costs would increase if the assembly complete milestone slips beyond
December 2003.\6 Second, it is likely that the program will
ultimately require more shuttle flights than are included in our
analysis.  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.\7
--------------------
\6 Subsequent to our report, NASA revised the space station's
assembly sequence.  Assembly complete is now scheduled for January
2004. 
\7 Our work and that of the independent assessment task force was
performed between November 1997 and April 1998.  Our work focused on
aggregating the various components of the space station's life-cycle
cost, based on NASA's current budget projections.  The assessment
task force 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
-------------------------------------------------------- Chapter 0:3.1
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.  Over 90 launches by
NASA and its international partners will be needed for assembly,
science utilization, resupply, and crew return purposes. 
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 shown 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. 
      ADDITIONAL FLIGHTS
-------------------------------------------------------- Chapter 0:3.2
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
eventual launches and some resupply flights.  Depending on the
ultimate life expectancy of the crew return 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. 
It should be noted that the recent revision to the assembly sequence
added an additional shuttle flight.  However, that flight does not
relate to the crew return vehicle. 
      ADDITIONS SUGGESTED BY
      INDEPENDENT ASSESSMENT
-------------------------------------------------------- Chapter 0:3.3
Between November 1997 and April 1998, NASA's Cost Assessment and
Validation Task Force examined the station 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 task force 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 task force also indicated that the program could
experience 1 to 3 years of schedule growth. 
   FUNDING RESERVES MAY BE
   INADEQUATE
---------------------------------------------------------- Chapter 0:4
We have previously expressed our concern with the adequacy of space
station financial reserves.\8 We continue to be concerned.  The
program has used, or identified specific uses for, a significant
portion of 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.  Since
then, reserve levels have steadily declined.  In March 1998, the net
unencumbered financial reserves available to the program were down to
about $1.1 billion.  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. 
NASA has identified adequacy of reserves as one of the highest
current program risks.  We note that the current reserve status could
be affected by additional schedule slips, contract disputes,
manufacturing problems, or the need for additional testing.  If the
cost to resolve a problem cannot 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. 
--------------------
\8 Financial reserves are used to fund unexpected contingencies, such
as cost growth, schedule delays, or changes in project objectives or
scope. 
   NASA/BOEING ADOPT NEW BASELINE
   TO MEASURE COST AND SCHEDULE
   PERFORMANCE
---------------------------------------------------------- Chapter 0:5
In October 1997, NASA granted approval to Boeing to begin tracking
cost and schedule performance using a new baseline.  The revised
ground rules permitted Boeing to reset its cost and schedule baseline
to the actual cost incurred and work performed as of September
1997.\9 For reporting purposes, this had the effect of resetting cost
and schedule variances to zero.  NASA did so to incorporate current
recovery plans into the new baseline.  We asked officials of the
space station program to provide us with an analysis depicting a
crosswalk back to the original baseline to understand the impact on
previously reported overruns.  That analysis shows that the February
1998 overrun would have been about $50 million higher than the $398
million Boeing reported prior to the change.  Boeing's estimate of
overrun at completion remains $600 million, while NASA's budget
projections assume an $817 million prime contractor overrun at
completion. 
--------------------
\9 At the end of September 1997, prior to resetting the baseline,
Boeing reported a cost variance of plus $398 million and a schedule
variance of plus $139 million. 
   POTENTIAL DEBRIS TRACKING COSTS
   ARE NOT INCLUDED
---------------------------------------------------------- Chapter 0:6
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 debris tracking capability and
must rely on the Department of Defense (DOD) to perform this
function. 
NASA recently updated its overall requirement for space debris
tracking to include the ability to track and catalog objects as small
as 1 centimeter.  Studies by NASA and DOD indicate that the cost to
achieve that capability could range from $400 million to about $5
billion.  We reported that the sources of the funding for the system
were undetermined.  Also, while the more stringent requirement is
related to the space station, 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 an appropriate funding arrangement. 
   IMPACT OF RECENTLY ANNOUNCED
   ASSEMBLY SEQUENCE
---------------------------------------------------------- Chapter 0:7
In late May 1998, NASA and its international partners revised the
station assembly sequence.  This new assembly sequence impacts the
life-cycle analysis in our report in a number of ways, including the
effects of schedule slippage, the cost associated with one additional
shuttle flight, and the potential effects of more schedule
compression. 
Regarding schedule slippage, the new sequence shows an assembly
complete date of January 2004, as compared with the previous
completion date of December 2003.  We stated in our report that each
additional month of slippage at the end could result in an added cost
of more than $100 million.  Also, our analysis included a number of
areas of support costs such as for civil service personnel and
principal investigators.  These costs would also be higher because
the assembly complete date is now in the second quarter of fiscal
year 2004. 
The cost of the additional flight would be added to our development
phase estimate.  The ultimate impact would be based on new average
cost per flight calculations. 
The new assembly sequence adds a flight and reduces the time frame to
assemble the station.  Thus, there may be additional stresses on the
shuttle in achieving the new launch schedule.  To that end, the need
to achieve greater shuttle processing efficiencies is now even more
relevant.  If NASA is unable to achieve those efficiencies, there
will be more schedule slippage. 
-------------------------------------------------------- Chapter 0:7.1
Mr.  Chairman, this concludes our statement.  We will be happy to
answer any questions you or Members of the Committee may have. 
ESTIMATED SPACE STATION COSTS
=========================================================== Appendix I
                         ((Current dollars in billions))
                                                         June 1995    April 1998
Cost category                                             estimate      estimate
----------------------------------------------------  ------------  ------------
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                                Unavailable           0.7
In-house personnel                                     Unavailable         2.9\f
Shuttle launch support                                        32.7          25.6
Station decommissioning\g                              Unavailable   Unavailable
================================================================================
Total                                                        $93.9         $95.6
--------------------------------------------------------------------------------
Note:  Totals may not add due to rounding. 
\a We define assembly complete as December 2003, when the last
assembly 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. 
*** End of document. ***





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