Space Station: Russian Commitment and Cost Control Problems

Published by the Government Accountability Office on 1999-08-17.

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

                   United States General Accounting Office

GAO                Report to Congressional Requesters

August 1999
                   SPACE STATION

                   Russian Commitment
                   and Cost Control

United States General Accounting Office                                                                    National Security and
Washington, D.C. 20548                                                                              International Affairs Division

                                    B-280328                                                                                             Letter

                                    August 17, 1999

                                    The Honorable John McCain
                                    Chairman, Committee on Commerce, Science and Transportation
                                    United States Senate

                                    The Honorable Bill Frist
                                    Chairman, Subcommittee on Science, Technology and Space
                                    Committee on Commerce, Science and Transportation
                                    United States Senate

                                    The National Aeronautics and Space Administration (NASA) faces many
                                    challenges in developing and building the International Space Station (ISS).
                                    These challenges, such as Russian difficulty in completing its components
                                    on schedule due to insufficient funding and continuing U.S. prime
                                    contractor cost increases, have translated into schedule delays and higher
                                    program cost estimates to complete development. As requested, we
                                    reviewed the status of Russian involvement in the ISS program. We also
                                    examined the prime contractor’s progress in implementing cost control
                                    measures and NASA’s efforts to oversee the program’s nonprime activity.
                                    Specifically, we (1) assessed NASA’s progress in developing contingency
                                    plans to mitigate the possibility of Russian nonperformance and the loss or
                                    delay of other critical components, (2) identified NASA’s efforts to ensure
                                    that Russian quality assurance processes meet the station’s safety
                                    requirements, and (3) determined the effectiveness of cost control efforts
                                    regarding the prime contract and nonprime activities.

Results in Brief                    As an ISS partner, Russia agreed to provide equipment, such as the Service
                                    Module, Progress vehicles to reboost the station, dry cargo, and related
                                    launch services throughout the station’s life.1 However, Russia’s funding
                                    problems have delayed delivery of the Service Module—the first major
                                    Russian-funded component—and raised questions about its ability to
                                    support the station during and after assembly. NASA is implementing a

                                     The Service Module is the primary Russian station contribution and early living quarters. It will
                                    provide life support system functions to all early elements. In addition, it is to provide station flight
                                    control and propulsion. Although many of its systems will be supplemented or replaced by later
                                    components, it will always remain the structural and functional center of the Russian segment.

                   Leter            Page 1                                                               GAO/NSIAD-99-175 Space Station

        multi-faceted contingency plan to mitigate the risk of further delay of the
        Service Module and the possibility that the Russians will not provide
        Progress vehicles for reboosting the station. The first step of this plan
        includes the development of the U.S.-built Interim Control Module and
        modifications to the Russian-built and U.S.-financed Functional Cargo
        Block (Zarya). In the second step, NASA is developing its own permanent
        reboosting capability. NASA’s plan also includes payments to the Russian
        Space Agency to complete near-term work on the Service Module, and
        Progress and Soyuz space vehicles. While the ultimate cost of its plan is
        uncertain at this time, NASA currently estimates that the cost to protect
        against Russian nonperformance will be about $1.2 billion. Although NASA
        has a contingency plan to mitigate Russian nonperformance, it does not
        have an approved overall contingency plan to address issues such as late
        delivery or loss of critical hardware. The agency acknowledges that the
        lack of such a plan is a program risk item. According to program officials,
        the higher priority risk items will ultimately be costed, and the final
        contingency plan should be approved later this year.

        NASA is satisfied that Russian quality assurance standards are acceptable.
        However, the Service Module’s inability to meet debris protection
        requirements is a potential safety issue. The module will require
        improvements after it is launched to meet this requirement. Based on the
        module’s current launch date, it will be about 3 ½ years after launch before
        improvements can be completed. In addition, NASA and the Russian Space
        Agency will have to work together to address other safety issues such as
        improving fire protection and reducing noise levels.

        Despite efforts to control cost growth, pressures on the program’s budget
        continue to mount. NASA’s cost estimates assume assembly completion in
        2004. However, the agency acknowledges the difficulty in maintaining that
        schedule. If the schedule is not met, total program costs for the U.S.
        segment of the station will increase further. The prime contract has had
        significant cost overruns and schedule delays. The prime contractor’s
        estimate of overrun at completion has been increased several times and
        currently stands at $986 million. At the same time, the costs of the
        nonprime portion of the program—activities related to science facilities
        and ground and vehicle operations—are also increasing, due largely to
        added scope and schedule slippage. In 1994, the nonprime component of
        the program’s development budget was $8.5 billion; today, it is over
        $12.4 billion. The agency has begun to subject the nonprime area to
        increased scrutiny. Also, recognizing the inadequacy of the current risk
        database, the Program Risk Assessment Board was directed to scrutinize

Leter   Page 2                                          GAO/NSIAD-99-175 Space Station

             all existing risks for cost impacts. These actions could potentially improve
             the agency’s ability to manage future cost growth.

             We recommend that the NASA Administrator direct the station program
             manager to finalize the overall ISS contingency plan before the Service
             Module is launched.

Background   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 assembly of the station. (See fig. 1.)

             Page 3                                          GAO/NSIAD-99-175 Space Station

Figure 1: Artist’s Conception of Fully Assembled ISS in Orbit

                                           Source: Johnson Space Center.

                                           In December 1998, NASA accomplished an important and significant step
                                           in its construction of the ISS: coupling the first two elements—Zarya and
                                           Node 1 (Unity). (See fig. 2.)

                                           Page 4                                         GAO/NSIAD-99-175 Space Station

Figure 2: Zarya and Unity in Orbit

                                     Source: Johnson Space Center.

                                     In May 1998, we reported that the program’s development costs had
                                     increased from $17.4 billion to $21.9 billion.2 We cited a schedule slippage
                                     of 18 months—June 2002 to December 2003—for completion of assembly
                                     as contributing significantly to the increase. We also identified delays in the
                                     manufacture of the Service Module as contributing to the schedule
                                     slippage, as well as prime contractor cost overruns. NASA now estimates
                                     that development costs will range from $24 billion to $26 billion, depending
                                     on the station’s completion date. The agency attributes this increase to
                                     further schedule slippage and Russian manufacturing delays.

                                         International Space Station: U.S. Life-Cycle Funding Requirements (GAO/NSIAD-98-147, May 22, 1998).

                                     Page 5                                                            GAO/NSIAD-99-175 Space Station

NASA Contingency         Because of Russia’s continuing funding problems, NASA developed a
                         multifaceted contingency plan to mitigate the risk of further delay of the
Planning Focuses on      Service Module and the possibility that the Russians cannot provide a
Russian Concerns         reboost capability. Payments to Russia for the completion of the Service
                         Module have also been made. Although NASA has a strategy to deal with
                         Russian nonperformance, it has not completed an overall contingency plan
                         to address a broader range of potential problems.

Russian Nonperformance   Beginning in late 1995, NASA became increasingly concerned about
Contingency Plan Has     Russia’s ability to meet its space station commitments. The greatest
                         concern at the time was that the Service Module (see fig. 3) would be
Multiple Steps
                         delayed due to shortfalls in Russian funding. Later, those delays were
                         acknowledged, and the scheduled delivery of the Service Module slipped
                         by 8 months. Subsequently, Russia’s continued funding problems caused
                         additional slippage.

                         NASA responded by developing a plan to address Russian nonperformance.
                         The first step, which has been under way since early 1997, is designed to
                         protect against further Service Module delays and includes the
                         development of the U.S.-built Interim Control Module and modifications to
                         the Russian-built and U.S.-financed Zarya. According to NASA, the cost to
                         implement this step will be about $261 million.

                         Page 6                                         GAO/NSIAD-99-175 Space Station

Figure 3: Service Module

                           Source: Johnson Space Center.

                           The second step includes developing a U.S. capability to provide
                           permanent reboost and attitude control. Russia is responsible for providing
                           Progress vehicles, dry cargo, and related launch services throughout the
                           station’s life. Because of Russia’s continuing funding problems, NASA
                           began focusing on the development of a U.S. capability to provide similar
                           functions, such as a propulsion module, shuttle and docking module
                           modifications, and the purchase of logistics carriers and services at an
                           estimated cost of about $730 million. The propulsion module is the most
                           expensive component of the new hardware. While there has been some

                           Page 7                                         GAO/NSIAD-99-175 Space Station

uncertainty regarding the cost of this component, NASA currently
estimates that it could cost about $540 million. The agency estimates that
the other components—shuttle modifications to permit reboosting of the
station and logistics carriers designed to safely transport dry cargo on the
shuttle—will cost about $90 million and $100 million, respectively.

To mitigate the risk of Russian nonperformance in the near term, the
second step of the plan also includes transfer payments to the Russian
Space Agency to complete near-term work on the Service Module and
Progress and Soyuz space vehicles. A $60-million payment was made in
1998, for which the United States will receive 4,000 hours of crew time,
previously allocated to Russia, to conduct U.S.-directed research. The
United States will also receive storage space in the Russian segment of the
station. According to program officials, the cost of research time on the Mir
space station was the basis for the negotiation.3

NASA is monitoring the flow of funds resulting from the transfer. In
October 1998, officials began reviewing Russian contracts related to the
Service Module and launch vehicles to confirm that purchase orders were
in place. In November 1998, NASA officials began reviewing Russian
disbursement documentation to determine the amount of transferred funds
that had been released to suppliers. NASA officials said they found no
evidence to date of U.S. funds being used for purposes other than those
covered in the terms of the transfer. We did not independently verify
NASA’s finding.

NASA also plans to provide $100 million to the Russian Space Agency in
1999 in return for goods and services. The two agencies have compiled a
list of goods and services that could be provided in return for the additional
payments. That list includes the potential purchase of a Soyuz crew return
vehicle, a space station virtual reality trainer, and Russian hardware

NASA has placed conditions on any fund transfers beyond those already
made. In testimony given before the House Science Committee on
February 24, 1999, the NASA Administrator stated that no decision will be
made regarding further transfers without assessments of progress in the

 For the purposes of the funding transfer negotiation, NASA applied a rate of approximately
$11, 000 per hour for crew research time. This was based on the 1994 negotiated rate for research time
on the Mir space station.

Page 8                                                           GAO/NSIAD-99-175 Space Station

                           following three areas: (1) Service Module launch schedule, (2) the future
                           disposition of the Mir space station, and (3) status of other Russian
                           hardware and launch vehicle commitments. According to NASA, it is
                           extremely difficult for Russia to support launch commitments to both Mir
                           and ISS. Russia’s unwillingness to deorbit Mir on schedule would be viewed
                           as a severe threat to maintaining its support of ISS.

                           While the ultimate cost of the contingency plan to address Russian
                           nonperformance regarding their current commitments is uncertain at this
                           time, NASA estimates that it will be about $1.2 billion.

                           To help pay some of the costs of Russian contingency requirements, the
                           program transferred $110 million from the space station research budget
                           with the expectation that the funds would be replaced in the out-years.
                           According to program officials, recent assembly sequence delays made it
                           possible to delay planned research expenditures to later in the
                           development program. However, according to NASA, station research
                           programs will be impacted as a consequence. Preliminary assessments
                           show that it may be necessary to delay the number of flight research
                           investigators assigned to station work and defer some research activities.

Overall Contingency Plan   While NASA has a plan to deal with Russian nonperformance, it does not
Not Yet Approved           yet have an approved overall contingency plan to address development
                           issues involving all partners. NASA has identified the lack of an overall
                           contingency plan as a program risk item. In response, a station program
                           plan to address issues such as late delivery or loss of critical hardware has
                           been drafted, but the potential cost of all contingencies has not been

                           The absence of cost estimates has already caused some uncertainty. For
                           example, NASA’s recent decision to develop a U.S. capability to reboost the
                           station requires that it develop a propulsion module. NASA initially relied
                           on a contractor quote to estimate the cost of this capability, but
                           subsequently refined its propulsion module requirement, resulting in a
                           much higher cost estimate. Some of this uncertainty could have been
                           avoided had the cost of the contingencies been estimated.

                           Page 9                                           GAO/NSIAD-99-175 Space Station

                         NASA’s Office of the Inspector General recently issued a report on space
                         station program contingency planning.4 It cited similar concerns,
                         concluding that, in the absence of a completed plan, “NASA cannot fully
                         reduce [space station] risks through advance planning and the
                         establishment of response plans.” The report also concluded that “. . .
                         without estimated costs, [NASA], the Administration, and the Congress
                         cannot adequately assess the feasibility of proposed responses or
                         determine budgetary impact.” In response, NASA agreed that cost
                         information is needed, but stated that it should be maintained separately
                         from the contingency plan because of its sensitivity.

                         According to program officials, the higher priority items included in the
                         overall contingency plan will ultimately be costed, and the final plan should
                         be approved later this year.

NASA Is Satisfied With   NASA is satisfied that Russian quality assurance processes are acceptable.
                         However, NASA and the Russian Space Agency will need to continue
Russian Segment          working together to improve Russian hardware to protect against orbital
Quality Standards but    debris and address other potential safety issues.
Design Improvements
Are Needed

Comparison of Quality    Agency officials explained that Russian procedures are governed by
Assurance Standards      contract in the case of Zarya and by bilateral protocols, agreements, and
                         plans in the case of Russian-funded hardware. In early 1994, NASA
                         undertook an assessment of Russian quality standards. Over a 2-year
                         period, it reviewed over 265 standards and documents and concluded that
                         the key standards used by Russia were acceptable. Also, when the
                         U.S.-financed Zarya was being built in Russia, tools were available to
                         NASA’s prime contractor to assess Russian quality, including technical
                         surveys, test assessments, and on-site witnessing of tests.

                             Audit Report: Space Station Contingency Planning for International Partners (IG-99-009; Mar. 9, 1999).

                         Page 10                                                             GAO/NSIAD-99-175 Space Station

Safety Improvements Will       Based on the current schedule, the Service Module will be launched in
Require Ongoing                November 1999. This component will be necessary to begin station
                               habitation on a permanent basis. However, it will be necessary for NASA
U.S./Russian Commitment
                               and the Russian Space Agency to work together both before and after its
                               assembly to address and mitigate a number of safety risks associated with
                               the Service Module, including risks related to potential debris impacts and
                               work environment issues.

Impact of Inadequate Orbital   NASA defines the space station’s requirement to withstand orbital debris
Debris Protection              impacts in terms of the likelihood of not being penetrated.5 When Russia
                               entered the program as a full partner, it assumed responsibility for a
                               significant amount of hardware. At that time, space station partners agreed
                               to an 81-percent probability of not being penetrated by orbital debris, for
                               the 10-year period beginning on the initial station launch. Subsequently, the
                               requirement was reduced to 76 percent, in part, because of configuration
                               changes that increased the station’s surface area and assembly sequence
                               revisions. When the current performance of Russian-funded hardware is
                               included, the station does not meet this requirement.

                               NASA and the Russian Space Agency are working on strategies to improve
                               Russian components’ debris protection performance. This includes adding
                               shielding to hardware components on orbit, studying penetration effects,
                               and developing repair techniques and procedures. The most pressing issue
                               is protecting the Russian-funded Service Module from debris. Under the
                               current schedule, it will be launched about 3 ½ years before needed
                               protective shielding is installed.

                               In addition, some Service Module design characteristics could increase its
                               vulnerability in the event of a debris impact. For example:

                               • The module was not certified to operate in a depressurized
                                 environment, and its capability to function in that environment cannot
                                 be assured. According to NASA, depressurization could occur after
                                 impact with orbital debris, requiring the crew’s evacuation and loss of
                                 station control functions. This risk can be minimized if Russia identifies,
                                 redesigns, and replaces the Service Module components that would not

                                 The chance of debris colliding with a spacecraft relates directly to the size and orbital lifetime of the
                               spacecraft. NASA calculates overall capability to withstand debris impacts by determining the product
                               of the capabilities of the individual components. For example, when Russia entered the program, the
                               resulting overall capability of the combined U.S. and Russian segments was 81 percent (0.9 times 0.9).

                               Page 11                                                             GAO/NSIAD-99-175 Space Station

                              operate in a depressurized environment. In the interim, NASA believes
                              the risk of flight control loss will be mitigated when U.S. guidance,
                              navigation, and control software is installed on a later assembly flight.
                              Under the current schedule, that backup capability will not be available
                              until more than 1 year after the Service Module is deployed. Thus, the
                              full resolution of this issue will require ongoing NASA and Russian
                              Space Agency cooperation.
                            • The Service Module’s windows do not have the same protection against
                              debris as the windows on other station components and are not
                              designed to be replaceable on orbit. The windows in the Russian module
                              have two layers while the U.S.-designed windows will have four layers.6
                              The additional layers are to provide protection against debris on the
                              outside of the window and scratches caused by working inside the
                              station. Under existing plans, if a window in the Service Module is
                              damaged, it will have to be covered with a metal shield.

                            According to NASA officials, these Service Module issues are largely the
                            result of (1) differing manufacturing philosophies, (2) the fact that the
                            Russian hardware is based on designs applied to the Mir station, and
                            (3) the Russian position that its lengthy Mir experience demonstrates the
                            robustness of its design characteristics. However, the ISS will be
                            significantly larger than Mir and will therefore be more exposed to orbital
                            debris; the ISS will have about eight times more total surface area than the
                            Mir station.

                            Under the current plan, NASA will grant a waiver at the time of the Service
                            Module launch and the debris protection deficiency will be corrected on
                            orbit. NASA believes it is appropriate to maintain the Service Module’s
                            launch schedule because (1) the module adds capabilities that would
                            otherwise be unavailable and (2) the risk is acceptable. NASA’s analysis
                            shows that the estimated probability of a Service Module debris
                            penetration prior to the planned augmentation is less than 10 percent. Also,
                            due to the relatively small surface area of the windows, NASA believes the
                            likelihood of a problem caused by a window puncture is very small.

Risks Associated With the   NASA and the Russian Space Agency are also working to reduce risks
Working Environment         associated with the working environment in the Service Module. These
                            initiatives include modifications to the Solid Fuel Oxygen Generator to
                            reduce the risk of an on-board fire and improved acoustics to reduce noise

                                All station partners except Russia will use U.S.-designed windows.

                            Page 12                                                             GAO/NSIAD-99-175 Space Station

                     levels and the risk of hearing loss. These issues surfaced during the
                     Mir-Shuttle program.7

                     The Russian Solid Fuel Oxygen Generator will be used as a backup method
                     to generate oxygen for the space station and will be located in the Service
                     Module. While in use on the Mir space station, it caught fire, resulting in a
                     near catastrophic event in February 1997. A Russian investigation
                     identified several possible causes, the most likely of which was a
                     misaligned or damaged igniter. NASA and the Russian Space Agency have
                     agreed to some changes to help contain the spread of fire in the ISS.
                     However, a redesign to reduce the likelihood of a fire will have to be
                     incorporated on orbit. This issue continues to be a major topic in technical
                     interchange meetings between NASA and the Russian Space Agency.

                     In addition, during the Mir-Shuttle program, NASA became aware of the
                     fact that some Russian cosmonauts had permanent hearing loss due to
                     Mir’s interior noise. U.S. astronauts visiting Mir also complained about the
                     noise. The ISS program, in order to prevent these problems experienced on
                     Mir, instituted noise level requirements for the Russian and U.S. on-orbit
                     segments. Noise levels in the Service Module exceed station requirements
                     and, without mitigating measures, could cause some short- or long-term
                     hearing loss in crew members. NASA and the Russian contractor have
                     jointly developed an acoustic mitigation plan to reduce noise levels, but
                     cannot fully implement the plan until after the Service Module is launched.

Prime Contract and   Difficulties in maintaining cost and schedule performance under the prime
                     contract have prompted substantial contractor and program office
Nonprime Activity    attention. There are now indications of problems in the nonprime portion
Costs Continue to    of the program, which includes activities related to science facilities,
                     ground and vehicle operations, and launch processing. This is difficult
Increase             because nonprime activity comprises more than 50 percent of total
                     estimated development costs and about 70 percent of remaining
                     development costs. The program has increased its oversight of nonprime
                     activity and, according to officials, is attempting to incorporate a system to
                     improve its ability to track performance trends. In addition, the program

                      To prepare for the ISS assembly, NASA and the Russian Space Agency undertook a cooperative effort
                     involving the space shuttle and the Mir space station. During the Mir-Shuttle program, seven U.S.
                     astronauts visited Mir between 1995 and 1998 to conduct experiments and gain operational experience
                     on long-duration missions.

                     Page 13                                                        GAO/NSIAD-99-175 Space Station

                      recently addressed deficiencies in its centralized risk management
                      database to better focus on cost issues in both the prime and nonprime

Prime Contract Cost   On a number of occasions in the past several years, we have reported and
Growth                testified on the cost and schedule status of the prime contract.8 We have
                      pointed out that cost growth began almost immediately after the contract
                      was awarded and that it posed an ongoing challenge to program managers
                      from a budgetary standpoint. We noted that the program had penalized the
                      prime contractor in terms of both award and incentive fee largely because
                      of problems in controlling and reporting costs.

                      Cost variances were eventually reflected in the prime contractor’s estimate
                      of overrun at completion, although its reluctance to do so in a timely
                      fashion was criticized by NASA program managers. At about the time of
                      our last cost control report in September 1997, the contractor undertook a
                      number of initiatives designed to help reverse the trend of ever increasing
                      cost growth.

                      Cost control initiatives implemented by the prime contractor included
                      organizational restructuring and staff reductions. The organizational
                      changes involved consolidating subcontractor activities and streamlining
                      the managerial oversight of the program’s three geographic manufacturing
                      bases. The staff reduction initiative involved establishing target personnel
                      levels based on the achievement of hardware delivery milestones.

                      In February 1997, the prime contractor reported a peak staffing level of
                      7,040 equivalent personnel. In March 1999, the prime contractor reported a
                      level of 4,396 personnel, a 38-percent drop. However, NASA has cited
                      problems with the current skill mix. For example, according to NASA, the
                      lack of adequate skills has adversely affected both assembly and
                      qualification testing schedules. NASA identifies the retention of critical

                       Space Station: Cost Control Difficulties Continue (GAO/NSIAD-96-135, July 17, 1996); Space Station:
                      Cost Control Difficulties Continue (GAO/T-NSIAD-96-210, July 24, 1996); 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); Space Station:
                      Cost Control Problems (GAO/T-NSIAD-98-54, Nov. 5, 1997); and Space Station: Status of Russian
                      Involvement and Cost Control Efforts (GAO/T-NSIAD-99-117, Apr. 29, 1999).

                      Page 14                                                        GAO/NSIAD-99-175 Space Station

skills, such as software engineers, as a top program risk that is worsening
over time.

Despite the implementation of cost control initiatives, the prime contract
continues to have monthly cost and schedule variances. In June 1998, the
estimate of overrun at completion was $783 million; by March 1999, it had
increased to $986 million.9 The new estimate exceeds the program’s
current budget for prime contract overrun by about $140 million, which
means funding reserves will be needed to cover the difference. According
to the prime contractor, most of the latest growth in the estimate was
attributable to additional overhead costs, software and hardware
development problems, and the need to increase its funding reserves.
Figure 4 shows the trend of estimated cost overruns for the prime contract
portion of the development program and NASA’s budget for overruns.

Figure 4: Estimates of Prime Contract Overruns at Completion
Dollars in millions







              Se 6

              Se 7

              Se 8








































                                              Boeing         NASA

Shortly after the prime contractor announced its March 1999 overrun
estimate, NASA’s Administrator requested that the agency’s Office of the
Inspector General evaluate prime contract performance management. In a
letter dated April 8, 1999, NASA’s Assistant Inspector General for Auditing

 The prime contractor first reported the overrun increase in a March 1999 quarterly review. It was
formally reported to NASA in April 1999 in a monthly Performance Measurement System Report.

Page 15                                                          GAO/NSIAD-99-175 Space Station

                         announced a review to include assessments of the timeliness of the prime
                         contractor’s reports to NASA management and the reasonableness of
                         overhead rates applied. The Inspector General plans to issue the report by
                         late August 1999.

Increased Oversight of   Since 1995, the prime contract effort has received considerable attention
Nonprime Activities      and oversight from program managers. Recently, the agency has begun to
                         subject the nonprime area to increased scrutiny, and problem areas are
                         being identified.

                         In 1994, the nonprime component of the program’s development budget
                         was $8.5 billion. By early 1999, it had increased to over $12.4 billion.10
                         According to NASA officials, much of that increase is attributable to
                         schedule slippage. In addition, the program has increased in scope. For
                         example, since 1994, the program has added $1.2 billion to address the
                         consequences of Russian fiscal problems.

                         NASA has undertaken a number of initiatives to improve its oversight of
                         nonprime activity. The initiatives include requiring periodic evaluations and
                         increasing visibility through high-level reviews. In October 1998, station
                         officials held a formal review of activities funded outside the prime
                         contract. This review was held at the program level and involved
                         representatives from nonprime activities. Subsequent reviews were
                         elevated to the Johnson Space Center Director level, an indication of the
                         attention now being given to this area.

                         More recently, the program has undertaken an initiative designed to
                         provide nonprime status in a format that will permit improved tracking of
                         performance trends. The station’s nonprime area is comprised of hundreds
                         of individual activities. The program’s strategy is to establish integrated
                         cost and schedule baselines, which will permit assessments of actual work
                         performed measured against the budget. Program managers believe such a
                         system, if successful, would enable them to quantify cost and schedule
                         variances in nonprime problem areas. The establishment of valid baselines
                         is fundamental to this approach. As of May 1999, the baselines had not been

                          For comparison purposes, both estimates include research costs. In 1994, the research budget was
                         managed separately from the station development budget.

                         Page 16                                                        GAO/NSIAD-99-175 Space Station

                             Based on available information to date, the program has identified and is
                             currently assessing a number of nonprime activities in which cost,
                             schedule, or technical problems are possible. These areas include research,
                             operations, and vehicle facilities. Nonprime activities now account for a
                             larger portion of the station’s development budget than the prime
                             contractor’s activities, meaning that the budgetary impact of unforeseen
                             cost growth could be significant. NASA considers the resolution of
                             nonprime issues a top concern.

Risk Management Database     One mechanism that can help managers deal with cost risks is a thorough
Inadequacies                 risk management plan. Ideally, such a plan forces managers to identify and
                             cost out all major program risks and then develop remedies for risk areas.

                             We found that the station program’s centralized database of potential risk
                             areas did not capture all risk items or quantify the impacts of cost-driving
                             risk items it did capture. For example, the current database, while
                             identifying retention of critical skills as a major program risk, does not
                             identify the potential cost impact of losing key personnel. Regarding
                             nonprime risk, the database included government-furnished equipment
                             integration as a major risk item, but did not provide cost impact
                             information. As a result, the database fails to give program managers
                             sufficient insight and early warning into many emerging problem areas.
                             Recognizing the inadequacy of the current database, the Program Risk
                             Assessment Board was directed to scrutinize all existing risks for cost
                             impacts, emphasizing the importance of early identification of risk.

NASA Planning Document       In January 1999, we reported on major performance and management
and the Administration’s     issues facing NASA, as part of a series of similar reports covering 20 federal
                             agencies.11 At that time, we identified space station cost control as one of
Budget Submittal Reference
                             NASA’s foremost challenges. In March 1999, NASA identified specific space
Importance of ISS Issues     station program objectives for fiscal year 2000 in its fiscal year 2000
                             Performance Plan.12 These include deploying the U.S. Lab, completing

                             11Major Management Challenges and Program Risks: National Aeronautics and Space Administration
                             (GAO/OGC-99-18, Jan. 1999).

                               As required by the Government Performance and Results Act of 1993, NASA issued its annual
                             Performance Plan, titled NASA Fiscal Year 2000 Performance Plan, in March 1999. Along with other
                             requirements, the act requires agencies of the federal government to prepare an annual performance
                             plan to describe (1) the agency’s performance goals and measures, (2) the strategies and resources to
                             achieve these goals, and (3) procedures to verify and validate reported performance.

                             Page 17                                                          GAO/NSIAD-99-175 Space Station

              preparations for initial research capability, and conducting operations with
              a three-person crew.

              The Administration has recognized the challenge of building the space
              station. The management risk associated with building the space station is
              identified in the President’s fiscal year 2000 budget submittal as 1 of the top
              24 government management challenges.

Conclusions   NASA and its partners have successfully begun ISS assembly, a noteworthy
              achievement. However, many of the program’s greatest challenges lie
              ahead. NASA’s most immediate challenge is to protect against Russian
              nonperformance. To do so, it is implementing a contingency plan that
              provides financial assistance to the Russian Space Agency and develops
              additional U.S. hardware. The total cost of the plan is estimated at about
              $1.2 billion.

              In addition, resolving potential safety issues involving the Service Module
              will require cooperation between NASA and the Russian Space Agency.
              These issues include fortifying the module to protect it from orbital debris
              impacts, ensuring continuing operations should it become depressurized,
              reducing the risk of an on-board fire, and lowering noise levels. Most of
              these improvements will be made after the Service Module is on orbit.
              Based on the current schedule, this will require several years to complete.

              At the same time, the cost of completing the U.S. segment continues to rise.
              The current estimated overrun under the prime contract is $986 million.
              NASA has now begun to refine and improve its mechanisms for identifying
              and mitigating costs risks in the program. In addition, the agency is
              undertaking initiatives to improve its oversight of nonprime activities,
              which are now estimated to total $12.4 billion. These actions could
              potentially improve the agency’s ability to manage future cost growth.

              The space station program recognizes the need to adopt an overall
              contingency plan to identify and cost out the impacts from potential loss or
              delay of critical components. However, as of June 1999, its plan was still
              being drafted, even though the first two station components had already
              been assembled in orbit. Under the current schedule, several major
              components will be added within the next year, including the Service
              Module and the U.S. Lab. We believe completion of such a plan is critical if
              potential disruptions and related cost increases are to be minimized.

              Page 18                                           GAO/NSIAD-99-175 Space Station

Recommendation    To minimize the potential of further schedule disruptions and related cost
                  increases, we recommend that the NASA Administrator direct the station
                  program manager to finalize the overall ISS contingency plan before the
                  Service Module is launched.

Agency Comments   In commenting on a draft of this report, NASA stated that it was in
                  agreement with the content and data in the report, with one exception.
                  NASA recommended that, in our discussion of nonprime cost increases, we
                  state the reasons for the increases at the beginning of the relevant sections.
                  We revised the report language in the results in brief section to make it
                  clear that much of the nonprime increase was attributable to added scope
                  and schedule slippage. We did not revise the section in the report body
                  because we believe that section adequately delineates that added scope
                  and schedule slippage were the reasons for much of the nonprime cost
                  growth. NASA’s response is reprinted in full in appendix I.

Scope and         To assess the extent to which NASA has studied options to minimize the
                  possibility of future Russian nonperformance and the loss or delay of other
Methodology       critical components, we reviewed contingency plans to determine the
                  scope and evolution of NASA’s efforts. We also reviewed contract
                  documentation and protocols to understand the formal governing
                  arrangements between NASA and the Russian Space Agency and budget
                  information to assess the potential impact on NASA’s funding requirements.
                  In addition, we reviewed internal briefings and interviewed officials in the
                  Space Station Program Office to gain further insights.

                  To identify NASA’s efforts to monitor Russian quality assurance, we
                  reviewed internal quality assurance records, governing agreements, and
                  briefings. To assess the space station’s vulnerability to orbital debris, we
                  reviewed performance requirements, risk reports, engineering analyses,
                  and independent assessments. For example, we compared the design
                  parameters of U.S. and Russian-built windows. We also interviewed
                  officials in NASA’s Office of Space and Life Sciences, the station program’s
                  Office of Safety and Mission Assurance, and the Space Station Independent
                  Assessment Office.

                  To determine the effectiveness of prime contract and nonprime activity
                  cost control efforts, we reviewed contractor cost reports to determine the
                  current estimate of cost overrun at contract completion, and budget

                  Page 19                                          GAO/NSIAD-99-175 Space Station

information to compare the contractor’s overrun estimate to NASA’s
current funding profiles. In addition, we reviewed nonprime activity
technical task agreements and internal assessments to identify the scope of
the nonprime effort. We also assessed the program office’s efforts to
monitor and control nonprime cost growth. In addition, we interviewed
officials with the space station program, the prime contractor, and NASA’s
Cost Assessment and Validation Task Force to gain their perspectives on
NASA’s overall cost control efforts.

We conducted our review from June 1998 to May 1999 in accordance with
generally accepted government auditing standards.

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 7 days from its issue date. At that time, we
will send copies to Senator Ernest Hollings, Ranking Minority Member,
Senate Committee on Commerce, Science and Transportation; Senator
John Breaux, Ranking Minority Member, Subcommittee on Science,
Technology and Space, Senate Committee on Commerce, Science and
Transportation; the Honorable Daniel Goldin, NASA Administrator; the
Honorable Jacob Lew, Director, Office of Management and Budget; and
other interested parties. We will also make copies available to others on

Please contact me at (202) 512-4841 if you or your staff have any questions
about this report. Other key contributors to this report are acknowledged
in appendix II

Allen Li
Associate Director,
Defense Acquisitions Issues

Page 20                                           GAO/NSIAD-99-175 Space Station
Page 21   GAO/NSIAD-99-175 Space Station

Letter                                                                                           1

Appendix I                                                                                      24

Comments From the
National Aeronautics
and Space

Appendix II                                                                                     25

GAO Staff

Figures                Figure 1: Artist’s Conception of Fully Assembled ISS in Orbit
                       Figure 2: Zarya and Unity in Orbit
                       Figure 3: Service Module                                                  7
                       Figure 4: Estimates of Prime Contract Overruns at Completion             15


                       ISS        International Space Station
                       NASA       National Aeronautics and Space Administration

                       Page 22                                       GAO/NSIAD-99-175 Space Station
Page 23   GAO/NSIAD-99-175 Space Station
Appendix I

Comments From the National Aeronautics
and Space Administration                                    AppeIx

 See p. 19.

              Page 24          GAO/NSIAD-99-175 Space Station
Appendix II

GAO Staff Acknowledgments                                                                         ApIpexndi

Acknowledgments       Jerry Herley, John Gilchrist, James Beard, Fred Felder, and Marcus
                      Ferguson made key contributions to this report

(707357)      L
              ertet   Page 25                                        GAO/NSIAD-99-175 Space Station
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