oversight

Defense Budget: Potential Reductions to the Army and Navy Missile Programs

Published by the Government Accountability Office on 1990-09-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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      United States
GAO   General Accounting Office
      Washington, D.C. 20648

      National Security and
      International Affairs Division

      B-205940

      September 27,199O

      The Honorable Daniel K. Inouye
      Chairman, Subcommittee on Defense
      Committee on Appropriations
      United States Senate

      The Honorable John P. Murtha
      Chairman, Subcommittee on Defense
      Committee on Appropriations
      House of Representatives

      As you requested, we reviewed the Army’s justification for its fiscal
      year 1991 budget requests of $2.7 billion for the following 13 missile
      systems: the Follow-On to Lance, the Tube-launched, Optically-tracked,
      Wire-guided (‘mw) missile, the Hellfire, the Advanced Antitank Weapon
      System-Medium, the Patriot, the Air Defense Antitank System, the Non-
      Line-of-Sight missile, the Stinger, the Avenger, the Hawk, the Army Tac-
      tical Missile, the Multiple Launch Rocket System, and the Multiple
      Launch Rocket System-Terminal Guidance Warhead. We also reviewed
      the Marine Corps’ $10.1 million fiscal year 1991 budget request ,to pro-
      cure ?DWmissiles and the Navy’s $42.1 million fiscal year 1991 budget
      request to procure Hellfire missiles. In addition, we examined selected
      segments of prior-year appropriations for some systems to determine
      whether unused funds could be rescinded.

      We identified $887.4 million in potential reductions to the fiscal year
      1991 requests for 6 of the 13 missile systems we reviewed and
      $326.8 million in potential rescissions from the fiscal year 1990 appro-
      priations for 3 missile systems. These reductions result primarily from
      (1) requests for fiscal year 1991 procurement funds that could be
      deferred to future years, (2) questionable requirements, (3) reduced
      requirements, (4) less than anticipated costs, and (5) recalculated
      amounts using more current information. In addition, there may be
      potential to reduce the requests for two other missile systems under cer-
      tain conditions. Table 1 shows the potential reductions for each missile
      system in Army procurement funds, unless otherwise noted. Details
      regarding the potential reductions are provided in appendix I.




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                                               B206940                                                                                                                       ,




Table 1: Potential   Reductions   to Missile
Programs                                       Dollars    in millions
                                                                                                                               Fiscal year
                                               Missile system                                                          1991                    1990                     Total
                                               Follow-On        to Lance                                              $112.2                      $0                  $112.2”
                                               TOW         -~      .-                                                   37.2                       0                       37.2
                                               Hellfire                                                                165.4                       0                   1 65.4b
                                               Advanced         Antitank     Weapon     System-Medium                   15.6                       0                     15.6
                                               Patriot                                                                 285.2                    92.4                   377.6
                                               Air Defense       Antitank      System                                  271.8                   208.9                   480.7
                                               Non-Line-of-Sight           missile                                          0                   25.5                     25.5c
                                                                                                                                d                                                 d
                                               Stinger                                                                                             0
                                               Avenger                                                                          e                  0                              e

                                               Thai ‘-.                                                               $887.4                 $326.8                 $1,214.2
                                               %esearch,     development,        test, and evaluation funds
                                               blncludes $42.1 million in Navy funds.

                                               Clncludes $8.6 millton in research and development             funds
                                               dSome contract savings may occur, but the Army cannot estimate the amount

                                               eA potential reduction of $23.6 million is appropriate          if multiyear contract authority is not granted for the
                                               Avenger.


                                               As requested, we did not obtain written agency comments on this report.
                                               IIowever, we discussed the contents with officials from the Office of the
                                               Secretary of Defense, the Departments of the Army and the Navy, and
                                               the Marine Corps, and we have incorporated their comments where
                                               appropriate. The officials generally agreed with the factual material
                                               presented in this report, but they generally disagreed with any funding
                                               reductions or obligational restrictions. In some instances, they believed
                                               that the funds could be used for other requirements; in other instances,
                                               they believed that the funding requested would contribute to defense
                                               readiness, more efficient acquisition, lower unit costs, or earlier system
                                               fielding. The objectives, scope, and methodology of our work are
                                               described in appendix II.

                                               We are sending copies of the report to various congressional committees;
                                               the Secretaries of Defense, the Army, and the Navy; the Commandant of
                                               the Marine Corps; the Director, Office of Management and Budget; and
                                               other interested parties.




                                               Page 2                                             GAO/NSIAD90-302BR                 Army and Navy Missile           Programs
B-206940




This report was prepared under the direction of Richard Davis, Director,
Army Issues, who may be reached on (202) 275-4141 if you or your
staff have any questions. Other major contributors are listed in
appendix III.




Frank C. Conahan
Assistant Comptroller General




Page 8                       GAO/NSIAD-90902BR   Army and Navy Missile   Programs
contents


Letter
Appendix I
Potential Reductions     Follow-On to Lance
to Missile Programs      Eyfire
                         Advanced Antitank Weapon System-Medium                                           8
                         Patriot                                                                          9
                         Air Defense Antitank System                                                     12
                         Non-Line-of-Sight Missile                                                       13
                         Stinger                                                                         14
                         Avenger                                                                         15

Appendix II                                                                                              17
Objectives, Scope, and
Methodology
Appendix III                                                                                             19
Major Contributors to
This Report
Table                    Table 1: Potential Reductions to Missile Programs




                         Abbreviations

                         AAWS-M     Advanced Antitank Weapon System-Medium
                         ADATS      Air Defense Antitank System
                         NIDS       Non-Line-of-Sight
                         ‘IOW       Tube-launched, Optically-tracked, Wire-guided


                         Page 4                        GAO/NSUD-90-302BR   Army and Navy Missile   Programs
Page 6   GAO/NSIALb90-302BR   Army and Navy Missile   Programs
                                                                                                      ,
Appendix I                                                                                        .       i

Potent&l Reductions to Missile Programs                                                                       +’


                      We identified potential reductions of $1,214.2 million from the Army’s,
                      the Navy’s, and the Marine Corps’ budgets for 7 of 13 selected missile
                      systems: $887.4 million from the fiscal year 1991 request and $326.8
                      million from the fiscal year 1990 appropriations, In addition, there may
                      be potential to reduce the fiscal year 1991 requests for two other missile
                      systems under certain conditions.

                      The following sections provide a brief description of the nine missile
                      systems and the results of our analysis of each system.


                      The Follow-On to Lance missile system was designed to be a mobile,
Follow-On to Lance    surface-to-surface nuclear weapon system. It was intended to engage
                      tanks and other arms of attacking Soviet and Warsaw Pact forces. The
                      system included two missiles carried on a Multiple Launch Rocket
                      System launcher.


Results of Analysis   The Army requested $112.2 million in research, development, test, and
                      evaluation funding for the Follow-On to Lance missile system for fiscal
                      year 1991. The request could be denied because on May 3,1990, the
                      President announced that the Follow-On to Lance program had been
                      canceled because of the diminished Soviet presence in Eastern Europe.


                      The TOW missile system is a heavy, antitank and assault weapon system
                      consisting of a missile, a launcher, and ground support equipment. The
                      missile is connected to its launcher by wire. After firing, the gunner
                      keeps the sight’s crosshairs on the target, and the launcher automati-
                      cally transmits course corrections through the wire to the missile. TOW
                      can be employed from a ground mount or from vehicles, including the
                      Bradley Fighting Vehicle, the High-Mobility Multipurpose Wheeled
                      Vehicle, and the Cobra Helicopter. The Army is currently producing and
                      fielding the ‘mw-2A missiles, and it plans to begin producing ~ow-2B mis-
                      siles in late October 1990 using fiscal year 1990 appropriations.


Results of Analysis   For fiscal year 1991, the Army and the Marine Corps requested a total
                      of $229.6 million to buy 13,946 TOWmissiles and related equipment and
                      the Army requested $45.4 million for TOWmissile modifications, which
              ”       included $37.2 million for 3,488 retrofit kits designed to improve the
                      lethality of ‘row-2 missiles. The TOWproject manager told us that the
                      Army does not plan to buy the retrofit kits during fiscal year 1991.


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                      Appendix    I
                      Potential   Reductions   to Missile   Programs    .




                      Therefore, the Army’s TOWmodification request could be reduced by
                      $37.2 million.

                      The TOWproject manager did not agree with the $37.2 million reduction.
                      The manager said that the requested funds could be used to improve the
                      TUWmissile’s effectiveness and to modify the missile’s sight. However,
                      he agreed that (1) the modification to improve the missile’s effective-
                      ness would not improve the level of effectiveness to that planned in the
                      original modification request and (2) funding was appropriated for the
                      missile sight modification in fiscal year 1990; but the funds were
                      reprogrammed for another use. This action casts some doubt on the pri-
                      ority of the missile sight modification.

                      Although we did not identify any specific budget reduction for pro-
                      curing low missiles in fiscal year 1991, we noted that the how-2B’s esti-
                      mated unit price has increased by about 100 percent since the fiscal
                      year 1990 budget request. The TOWproject manager expects the unit
                      price to decrease in later years when (1) the procurement quantity
                      increases and (2) the Army procures more components directly from the
                      vendors who produce the components. However, the Army has not
                      reevaluated whether the TOWis affordable at that price in light of the
                      present fiscal constraints. Also, recent and continuing developments in
                      Europe and the Middle East have altered many of the basic assumptions
                      on which U.S. security policy and military strategy have been based.

                      The project manager stated that there is an inadequate number of ‘IUW
                      missiles capable of defeating reactive armor. However, the Army cur-
                      rently does not plan to buy TDWmissiles beyond fiscal year 199 1. The
                      Department of Defense is reevaluating this decision.


                      The Hellfire missile system is the main armament on the Army’s Apache
Hellfire              helicopter and the Marine Corps’ Cobra helicopter. It is designed to
                      defeat stationary or moving tanks with minimal exposure of the
                      delivery helicopter to enemy fire. The missile is guided by laser energy
                      reflected from a target that has been illuminated by a laser designator.
                      The target can be illuminated by ground observers, the attack helicop-
                      ters, or other helicopters.


Results of An&lysis   The Army and the Navy requested $165.4 million for fiscal year 199 1 to
                      buy Hellfire missiles and related support equipment-$123.3   million for
                      3,002 Army missiles and $42.1 million for 1,198 Navy missiles. The


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                    Appendix    I
                    Potential   Reductions   to Missile   Programs




                    entire $165.4 million requested for the fiscal year 1991 Hellfire missiles
                    and related support equipment could be deferred for the reasons dis-
                    cussed in a separate report that we are preparing for the Chairman,
                    Subcommittee on Defense, Senate Committee on Appropriations, on the
                    status of Hellfire missile system improvements.

                    The deputy project manager expressed concern that readiness might be
                    diminished and said that the Army would not have a production base
                    for Hellfire missiles if the fiscal year 1991 request is deferred. In addi-
                    tion, a Hellfire program management official said that about $9.9 million
                    would be required if the production were terminated-$4         million for
                    equipment disposal and $5.5 million for fiscal year 1992 government
                    engineering. However, we believe that it is prudent to procure more
                    capable missiles.

                    If the request is not deferred, the Army’s Hellfire funding request could
                    be reduced by $29.8 million. The potential reduction is attributable pri-
                    marily to a unit cost reduction in a recently awarded contract-the
                    Army budgeted $32,970 per missile in its fiscal year 1991 request but
                    recently awarded a contract with an option to procure the missiles at a
                    unit cost of $24,983. After submitting the budget request and receiving
                    the reduced price, the Hellfire Project Office recalculated its fiscal year
                    1991 budget estimate, and during the process added several items that
                    had not been included in the original estimate. The Army’s revised
                    budget estimate remains at $123.3 million; but, based on discussions
                    with a program management official, it includes $4.2 million for an
                    unapproved program (dummy and training missiles for the OH-58D heli-
                    copter program) and $25.6 million in support costs that will not be
                    incurred during fiscal year 1991 ($13.7 million for government engi-
                    neering and $11.9 million for test program sets). The official also said
                    that if Hellfire production is funded in fiscal year 1991 but not during
                    fiscal years 1992 and 1993, $13.7 million will be required for govern-
                    ment engineering for those years-$8.2 million for fiscal year 1992 and
                    $5.5 million for fiscal year 1993.


                    The Army’s Advanced Antitank Weapon System (AAWS-M) is designed to
Advanced Antitank   be a medium-range, one-person portable anti-armor system for use in
Weapon System-      rapid deployment operations, rough terrain, and air assault operations.
Medium    ”
                    It is intended to defeat tanks and other targets expected on the battle-
                    field of the 199Os, and it will replace the Dragon weapon system in the
                    Army and the Marine Corps inventories. The system will consist of a



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                      Appendh     I
                      potential   Reductions   to   Mi88fle   Programs




                      missile; an expendable container and launch tube, which houses the mis-
                      sile; and a reusable command and launch unit for target acquisition and
                      surveillance.


Results of Analysis   The Army requested $92.4 million for the AAWS-M in fiscal year 1991:
                      (1) $76.8 million in research, development, test, and evaluation funds to
                      continue program development and (2) $15.6 million advanced procure-
                      ment funding for long-lead items.

                      The Army’s $15.6 million request for advanced procurement funds to
                      support fiscal year 1992 AAWS-M production could be denied. According
                      to its production schedule, the Army is planning to procure the long-lead
                      items in June 1991 to support awarding the initial production contract
                      in June 1992. However, the full-scale development contract stipulates
                      that advanced materials must be procured a minimum of 6 months
                      before the production contract is awarded or in this case, December
                       1991. Therefore, the Army’s request is premature and can be deferred to
                      fiscal year 1992.

                      AAWS-M   program management officials and an Army Missile Command
                      contracting official acknowledged that the contract requires a minimum
                      of 6 months lead time. However, they believed that a <June199 1 award
                      (i.e., a 12-month lead time) would better protect the Army’s production
                      schedule, but did not have a specific listing of items that might require
                      longer than the 6-month lead time.


                      The Patriot is a surface-to-air missile capable of engaging multiple high-
Patriot               performance aircraft. The system consists of a radar, ground support
                      equipment, missile launchers, and missiles. It is intended for use prima-
                      rily against enemy aircraft flying at high-to-medium altitudes, and it is
                      designed to protect ground forces and other high-value targets such as
                      air bases in rear combat areas.

                      In the mid-1980s, a joint U.S. and Italian study team outlined air defense
                      requirements for both countries. On the basis of the study, the countries
                      negotiated a weapons agreement which, if fully implemented, will cost
                      the United States $496.5 million over a 2-year period ($248.3 million for
                      fiscal year 1990 and $248.2 million for fiscal year 1991). The agreement
                      involves exchanging U.S. Patriot ground support equipment for Italian-
                      procured and operated air defense systems for four IJS. military bases



                      Page 9                                         GAO/NSIAD-90-302BR   Army and Navy Missile   Programs
                                       Appendix    I
                                       Potential   Reductions   to Missile   Programs




_..-...”-._-. .” .. ..-_._.*--_-
                                       in Italy. In addition, the United States agreed to license Italy to produce
                                       up to 160 Patriot launchers and 1,280 Patriot missiles.


Results of Analysis                    The Army requested $883.2 million for fiscal year 1991 to buy 817
                                       Patriot missiles and ground support equipment. The request includes
                                       $248.2 million to fund the second year of a $496.5 million weapons
                                       agreement with Italy. The fiscal year 1991 request could be reduced by
                                       $286.2 million as follows:

                                   l   $248.2 million by deleting or deferring purchases to satisfy the weapons
                                       agreement with Italy,
                                   l   $11.2 million by deleting funding for decoys the Army does not plan to
                                       buy, and
                                   l   $25.8 million by funding engineering services in fiscal year 1991 at the
                                       fiscal year 1990 level.

                                       In addition, $92.4 million could be rescinded from the fiscal year 1990
                                       appropriation because the Army does not plan to procure three Patriot
                                       fire units.

Weapons Agreement Funding              The weapons agreement funding request for fiscal year 1991 could be
                                       deleted or deferred by $248.2 million. The Congress appropriated fiscal
                                       year 1990 funds for the first year of the weapons agreement. In imple-
                                       menting the weapons agreement with Italy, the Army decided to buy the
                                       ground support equipment under the existing Patriot multiyear con-
                                       tract. Therefore, it included the equipment in a contract option that was
                                       scheduled to be exercised in November 1989; and it obtained funding
                                       approval beginning in fiscal year 1990. However, Italy was not prepared
                                       to sign the agreement in time for a November contract award. Citing
                                       conflicting budgetary demands and concerns with securing internal
                                       financial commitments, the Italian government delayed its final
                                       approval until April 1990. The Army exercised the contract option to
                                       procure the equipment on May 18,199O.

                                       According to a Department of Defense International Programs official,
                                       the Italian government will have to pass special legislation, outside its
                                       normal budgetary process, to fully fund its part of the agreement. As of
                                       September 4, 1990, the legislation had not been submitted for the Parlia-
                                       ment’s consideration. Since substantial Italian budgetary commitment to
                                       the agreement cannot occur until about 1 year later than the first U.S.
                                       commitment, the Army’s fiscal year 1991 request could be deferred by
                                       1 year to (1) permit the U.S. and Italian funding commitments to more


                                       Page 10                                      GAO/NSL4D-9O-302BR   Army and Navy Missile   Programs
 .                        Appendix I
                          Potential Reductiona to Mfeeile Programs




                          closely coincide and (2) minimize U.S. risk if Italy does not proceed with
                          the agreement. In addition, the Congress may wish to deny the request
                          based on previously reported classified information. If the requested
                          fiscal year 1991 funding is appropriated, the Congress might want to
                          restrict obligational authority until after the Italian government makes
                          its budgetary commitment.

                          Project management officials believe that a l-year deferral would cause
                          a significant cost increase, but a deferral of 6 to 7 months would result
                          in a much more modest increase.

DecoyFunding              The Army’s $11.2 million budget request for 72 anti-radiation missile
                          decoys can be denied because in February 1990, the Army decided not to
                          procure the decoys. Instead, the Army chose to complete development
                          but defer production until its priority and funding needs are clearly
                          defined.

                          Program management officials agreed that the Army is not planning to
                          buy decoys during fiscal year 1991. These officials would like to use the
                          funds for program shortfalls, but that is not the purpose for which the
                          funds were justified.

Support Services          The fiscal year 1991 budget request for support services could be
                          reduced by $25.8 million. The Patriot fiscal year 1991 request includes
                          $126 million for contractor, integrated logistics, and software engi-
                          neering services-$25.8 million more than appropriated in fiscal year
                          1990 to support approximately the same amount of equipment. In addi-
                          tion, the amount requested for these support services in fiscal year 1990
                          is about the same as amounts requested in fiscal years 1989 and 1988.

                          Program management officials stated that the increase for support ser-
                          vices is necessary to provide 3 years of support for the fiscal year 1991
                          hardware purchases. However, the fiscal year 1990 and earlier hard-
                          ware purchases also had to be supported for 3 years. Therefore, we
                          believe that the Army has not adequately justified the higher funding
                          level.

Fiscal Year 1990 Excess   Our review indicated that $92.4 million could be rescinded from the
                          fiscal year 1990 appropriation because the Army does not plan to buy
                          three Patriot fire units. The Department of Defense has withdrawn
                          $75 million of obligational authority and plans to request reprogram-
                          ming for other uses. However, according to a Department of the Army
                          budget official, as of July 1990, it had not obtained reprogramming


                          Page 11                               GAO/NSIAD-90-302BR   Army and Navy Missile   Programs
                       Appendix    I
                       Potential   Reductions   to Missile   Programs




                       approval, nor had it identified a specific need for the funds. Regarding
                       the remaining $17.4 million, the Patriot project office wants to (1) use
                       the funds to cover a $9 million increase in the Italian fire unit cost
                       caused by canceling the three units and (2) fund existing program
                       shortfalls. However, on the basis of the project office’s estimates, funds
                       already appropriated or requested are sufficient to cover the cost of the
                       agreement, including the contract price increase.


                       The Air Defense Antitank System (ADATS) is a part of the Forward Area
Air Defense Antitank   Air Defense System. It is intended to detect and engage low-flying,
System                 fixed-wing aircraft and helicopters well beyond the range of the Chap-
                       arral and Stinger missile systems. The system currently consists of a
                       launcher with eight missiles mounted on a modified Bradley Fighting
                       Vehicle chassis. The Army plans to later add an air defense gun, which
                       it considers necessary for close ranges. The system is to be located in the
                       forward area of the battlefield and is expected to operate during the
                       day, at night, and in adverse weather.


Results of Analysis    The Army requested $27 1.8 million for the ADATS in fiscal year 1991-
                       $235.6 million to procure 16 fire units and 220 missiles and $36.2 mil-
                       lion in advanced procurement funds. The entire $271.8 million request
                       could be denied because the Army recently canceled its fiscal year 1991
                       procurement plans.

                       According to the deputy project manager, the cancellation was caused
                       by unacceptable performance in operational testing. During these tests,
                       the ADATS did not meet the required criteria for availability-demon-
                       strating 38 percent versus the requirement of 55 percent. Also, the
                       system’s reliability performance is currently far below goals with pre-
                       liminary operational test results showing failure about every 7 hours
                       compared to a reliability goal of 38 hours between failures. We attended
                       some technical tests and the majority of operational tests performed
                       between ,January and May 1990 and are preparing a separate report on
                       the results.’

                       In addition, $208.9 million could be rescinded from the fiscal year 1990
                       appropriation because none of the fiscal year 1990 funds for ADATS have
                       been obligated and the Army no longer plans to procure ADATS in fiscal

                       ‘The Fiscal Year 1989 Defense Authorization Act required us to evaluate the performance of ADATS
                       during operational tests.



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                      Appendix    I
                      Potential   Reductions   to Missile   Programs




-
                      year 1990. The budget included $167.2 million in procurement, $31.7
                      million in advanced procurement funds, and $10 million in spares.

                      On August 24, 1990, the Army decided to conduct additional develop-
                      ment work on ADATS during fiscal years 1991 and 1992. The Army esti-
                      mates that $92 million will be required in research and development
                      funding for fiscal year 199 1. Since this decision was made after we com-
                      pleted our fieldwork, we did not evaluate the Army’s revised plan.


                      The Non-Line-of-Sight (NILS) missile is a component of the Forward Area
Non-Line-of-Sight     Air Defense System. It is intended to protect ground troops and vehicles
Missile               against enemy helicopters in the forward area of the battlefield; but it
                      will operate from concealed positions, out of direct enemy view. The
                      system consists of the missile and launcher and gunner station. Upon
                      launch, the gunner locates targets through a video display, which por-
                      trays the missile seeker’s view as the missile cruises at low altitudes.
                      These images pass through a fiber optic link to the gunner’s console. The
                      system will be deployed on a derivative of the Multiple Launch Rocket
                      System vehicle or on the High Mobility Multipurpose Wheeled Vehicle.


Results of Analysis   The Army requested $99.1 million in research and development funds
                      for fiscal year 1991 to continue full-scale development of the NIDS mis-
                      sile. We did not identify potential reductions to this request. However,
                      $25.5 million included in the fiscal year 1990 appropriations could be
                      rescinded because the Army does not plan to use the funds for the NILE.

                      The fiscal year 1991 request included amounts for conducting live fire
                      tests and for production related funds which should not be required
                      during fiscal year 1991. However, the Army recently restructured the
                      program because production was delayed for 3 years. The current base-
                      line cost estimate shows that the funds will be needed for the restruc-
                      tured program even though some of the funding will not be used for the
                      tasks requested.

                      The Army’s fiscal year 1990 appropriations include $25.5 million, which
                      the Army does not plan to use for the NIDS system-$8.6 million in the
                      research and development appropriation and $16.9 million in the
                      advanced procurement appropriation. These amounts have not been
                      reprogrammed and are therefore available for rescission.




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                      Appendix    I
                      Potential   Reductions   to Missile   Programs




                      The Army’s fiscal year 1990 research and development appropriation
                      can be reduced by $8.6 million because, according to a Department of
                      Army budget official, the Army has withheld $8.6 million, and it does
                      not intend to use the funding for the NIB. In addition, the Army budget
                      official said that the Department of Defense has withdrawn the entire
                      $32.5 million fiscal year 1990 advanced procurement appropriation for
                      the NILS. The Department of Defense has obtained approval to
                      reprogram $15.6 million, but as of September 1990, $16.9 million still
                      remains. The remaining $16.9 million is therefore available for
                      rescission.


                      Stinger is a portable guided missile system used to defend against low-
Stinger               flying enemy airplanes and helicopters. It is stored in a disposable
                      launch tube and launched by using a reusable gripstock. The current
                      system includes a reprogrammable microprocessor to counter more
                      advanced threats.


Results of Analysis   The Army requested $252.4 million for fiscal year 1991 to buy 6,922
                      Stinger missiles and related support equipment. If all Stinger missiles
                      are purchased from one source, some contract savings should occur; but
                      the Army could not estimate those savings.

                      According to Army and Department of Defense officials, current Army
                      planning indicates that fiscal year 1991 will be the last year for Stinger
                      procurement. Therefore, contract savings could occur if the Army
                      awarded the entire missile quantity to one contractor, rather than split-
                      ting between the prime contractor and the second source.

                      Stinger procurement officials agreed that some savings should occur,
                      but they could not estimate the amount of those savings. However, they
                      said the administrative lead time for awarding contracts would not
                      permit changing the acquisition strategy without causing a break in pro-
                      duction, which could cost more than realized through contract savings.
                      In addition, project management officials believe that production should
                      be continued because the inventories are well short of the acquisition
                      objective. Therefore, they are asking that Army planning reinstate
                      Stinger production after fiscal year 1991. However, at this time, the
                      Army is currently planning to stop production after fiscal year 199 1.




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 L

                          Appendix    I
                          Potential   Reduction6   to Missile   Programs




                          The Avenger is a part of the Forward Area Air Defense System. It is a
Avenger                   transportable surface-to-air missile and gun weapon system mounted on
                          the High-Mobility Multipurpose Wheeled Vehicle. Each vehicle includes
                          (1) a .50-caliber machine gun and (2) eight Stinger missiles with a stan-
                          dard vehicle-mounted launcher and associated equipment. The Avenger,
                          which fires all versions of the Stinger missile, is to defend convoys, com-
                          mand posts, bridges and so forth, against low-flying, fixed-wing aircraft
                          and helicopters.


Results of Analysis       The Army requested $123.1 million for Avenger in fiscal year 1991-
                          $97.4 million for 88 fire units and $25.7 million to provide advanced
                          materials for later procurements under a multiyear contract. The Army
                          also requested congressional authorization to award an Avenger multi-
                          year contract.

                          We analyzed the proposed multiyear contract2 and concluded the
                          following:

                      . The Army does not have a reliable cost estimate for the proposed multi-
                        year contract. Roth the contractor and Stinger project officials stated
                        that the annual and multiyear contract estimates for the proposed pro-
                        curement, made in late 1988 and based on data generated for the initial
                        production contract awarded in 1987, were too low. The contractor’s
                        May 1990 proposal for additional quantities supports their statements
                        that prices have increased.
                      . Funding for the Avenger has been stable to date and the latest Five-Year
                        Defense Program includes funding for the multiyear contract. However,
                        the Department of Defense is reevaluating its requirements in view of
                        recent world events and support for the Avenger could change. In addi-
                        tion, recent contractor proposals and revised estimates indicate higher
                        unit prices than those estimated by the Army and included in the
                        budget. Thus, the amounts provided in the budget may not be enough to
                        procure the number of units planned.
                      l Since the Avenger has not been integrated with other Forward Area Air
                        Defense System components, design stability has not been established
                        and it is uncertain how the total system will operate,

                          If the multiyear contract authority is not approved, the Army’s fiscal
                          year 1991 budget request could be reduced by a net $23.8 million-a

                          ‘I’rocurement: Assessment of DOD’s Multiyear Contract Candidates for Fiscal Year 1991
                          (GAO/NSIAD-90-270BR, Aug. 31, 1990).



                          Page 16                                      GAO/NSIAD40302BR   hy   and Navy Missile   Programs
Appendix    I                                                                                 .’J
Potential   Reductions   to Missile   Programs




reduction of the $25.7 million advanced materials request offset by a
$1.9 million cost increase for an annual contract. As of June 1990, the
project office estimated that a fiscal year 1991 annual contract would
cost $1.9 million more than the multiyear.




Page 16                                     GAO/NSIAD-90-302BR   Army and Navy Missile   Programs
Ppc

b<f&ves,   Scope, and Methodology


               This review is one of a series that examines defense budget issues. Our
               objectives for this review were to (1) review DOD’s fiscal year 199 1
               budget requests for selected Army missile systems to determine whether
               the missile programs should be funded in the amounts requested and
               (2) examine selected segments of prior-year appropriations for some
               systems to determine whether unused funds could be rescinded.

               At the 1J.S.Army Missile Command, Huntsville, Alabama, we examined
               selected aspects of the budget justifications for procurement and
               research and development funding for 13 Army missile systems: the
               Follow-On to Lance, the TOW,the Hellfire, the AAWS-M, the Patriot, the
               ADATS, the NIDS missile, the Stinger, the Avenger, the Hawk, the Army
               Tactical Missile, the Multiple Launch Rocket System, and the Multiple
               Launch Rocket System-Terminal Guidance Warhead. We also examined
               the Navy’s request for the Hellfire and the Marine Corps’ request for
               ‘IDW*

               In evaluating the budget requests, we examined (1) production plans,
               delivery plans, improvement plans, and effectiveness analyses to deter-
               mine whether planned production is warranted; (2) test reports and mis-
               sile delivery status to evaluate the effect of production problems on
               missile delivery; and (3) the requirements for selected missiles and sup-
               port equipment. In addition, we reviewed selected aspects of missile
               costs by (1) examining the services’ methodology in arriving at those
               costs, (2) determining the most recently experienced costs, and
               (3) examining recently awarded contracts. Also, for selected systems, we
               reviewed the status of obligations for previously appropriated funds
               and the plans to obligate these funds. However, we did not examine each
               of these aspects for all weapon systems. Rather, we tailored our review
               of each system to those items that appeared to have the most potential
               for reduction, and we identified potential reductions for missile systems.

               In many instances we relied on testimonial evidence because it was the
               only evidence available. However, when practicable, we corroborated
               this evidence with other sources or verified the evidence a second time
               with the same source.

               As requested, we did not obtain agency comments on this report. How-
               ever, we discussed its contents with officials from the Office of the Sec-
               retary of Defense; the Departments of the Army and the Navy; the
               Marine Corps; and the US. Army Missile Command and we have incor-
               porated their comments where appropriate.



               Page 17                       GAO/NSIAD-90-302BR   Army and Navy Missile   Programs
Appendix II
Objectives, Scope, and Methodology




We conducted our review from October 1989 through July 1990 in
accordance with generally accepted government auditing standards.




Page 18                              GA0/NSL4D-!@-302BR   Army and Navy Missile   Programs
     zi Contributors to This Report


National Security and   Raymond Dunham, Assistant Director
International Affairs
Division,
Washington, D.C.

                        Thomas W. Gilliam, Senior Evaluator-in-charge
Atlanta Regional        John T. Gilchrist, Site Senior
Office                  Walter C. Christian, Evaluator
                        Christopher A. Keisling, Evaluator
                        Terry D. Wyatt, Evaluator
                        Sharon Y. Kirby, Evaluator




                        Page 19                       GAO/NSIAD-90302BR   Army and Navy Missile   Programs
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