Space Station: Deteriorating Cost and Schedule Performance Under the Prime Contract

Published by the Government Accountability Office on 1997-09-18.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Science, Technology, and
                          Space, Committee on Commerce, Science, and
                          Transportation, U.S. Senate

For Release on Delivery
Expected at
2:00 p.m., EDT
                          SPACE STATION
September 18, 1997

                          Deteriorating Cost and
                          Schedule Performance
                          Under the Prime Contract
                          Statement of Allen Li, Associate Director, Defense
                          Acquisitions Issues, National Security and International
                          Affairs Division

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to provide you with an updated status of
the prime contractor’s cost and schedule performance on the International
Space Station (ISS). Just 3 months ago, we testified before this
Subcommittee on the continuing cost control difficulties in the ISS
program.1 That testimony was based on ongoing work being done for
Senator Bumpers and Representative Dingell. Early this week, we issued
our final report to those requesters.2 At the request of the Subcommittee,
our testimony today draws from that report and focuses on the cost and
schedule status of the ISS prime contract.

In our June testimony, we noted that the cost and schedule performance
under the prime contract had been consistently worsening for some time.
We pointed out that between January 1995 and April 1997, the costs
associated with the schedule slippage; that is, the estimated cost of work
to get back on schedule, had increased from a value of $43 million to
$129 million. During that same period, the variance between the actual
cost to complete specific work and the budget for that work had gone
from a cost underrun of $27 million to a cost overrun of $291 million. The
situation has continued to worsen since April 1997. Figure 1 shows that as
of July 1997, the costs associated with the schedule slippage had increased
further to $135 million and the cost overrun had increased to $355 million.

 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).

Page 1                                                                     GAO/T-NSIAD-97-262
Figure 1: Cost and Schedule Variances
on the Space Station Prime Contract        Dollars in millions
(Jan. 1995 to July 1997)






                                                         1/95 4/95 7/95 10/95 1/96 4/96 7/96 10/96 1/97 4/97 7/97
                                        Cost              27 -16 -19 -48 -62 -89 -123 -163 -223 -291 -355
                                        Schedule         -43 -45 -46 -55 -77 -88 -105 -107 -118 -129 -135

                                        Note: The zero line represents meeting planned cost and schedule. Negative schedule variances
                                        are the estimated cost of work to get back on schedule.

                                        Figure 2 shows the cumulative cost and schedule variances from January
                                        through July of this year. The figure shows the relatively consistent
                                        downward slope of the cost line and highlights the fact that the current
                                        situation is considerably more serious for cost than for schedule. The rate
                                        of decline for the cost variance is especially worrisome because it has
                                        shown no particular inclination to lessen. On the other hand, the schedule
                                        deterioration has been much less severe, with minor “upticks” in the
                                        variance in April and July. The relative difference is at least partly
                                        explained by NASA’s statement that much of the cost growth is due to
                                        overtime and additional staff being used in an effort to maintain schedule.

                                        Page 2                                                                    GAO/T-NSIAD-97-262
Figure 2: Cumulative Monthly Cost and
Schedule Variances on the Space
Station Prime Contract (Jan. 1997 to         Dollars in millions
July 1997)                                           -100







                                                            1/97      2/97         3/97        4/97         5/97        6/97         7/97
                                        Cost                -223      -241         -263        -291         -310        -327         -355
                                        Schedule            -118      -128         -132        -129         -131        -136         -135

                                        Principally because the difference between the actual and budgeted cost
                                        of work has been increasing steadily, estimates of the total cost overrun at
                                        contract completion have also been increasing. For example, last year’s
                                        estimates of the contract overrun at completion ranged from $240 million
                                        to $372 million. They currently range from $514 million to $610 million.
                                        The prime contractor’s estimate of the cost overrun at completion was
                                        recently increased from $278 million to $600 million.

                                        NASA’s concern about the prime contractor’s performance is evident in its
                                        award fee decision for the 6-month period that ended March 1997. The
                                        prime contractor was eligible for nearly $34 million in award fee. Citing
                                        significant problems in program planning, cost estimating, and hardware
                                        manufacturing, NASA concluded that the contractor’s performance did not
                                        warrant any award fee.3 The recent increase in the estimated cost overrun

                                         The prime contractor may eventually receive some or all of this award fee because, under the terms of
                                        the contract, the prime contractor could receive a previously denied award fee after NASA’s final
                                        assessment at the end of the contract.

                                        Page 3                                                                        GAO/T-NSIAD-97-262
           at completion has also potentially reduced the prime contractor’s
           incentive award by $48 million over the remainder of the contract.

           In response, the prime contractor is implementing a corrective action plan
           that it believes will improve the performance of the entire contractor team.
           The announced strategy includes changes in personnel, hiring additional
           software engineers and managers, and committing funds for a software
           integration test facility. The prime contractor has also presented a cost
           control strategy to NASA. According to NASA, the strategy includes
           organizational streamlining and transferring some roles to NASA.

           In summary, ISS cost and schedule problems have worsened. Currently,
           NASA  and the prime contractor agree that costs are going to continue to
           increase beyond the current variance. Their challenge is to at least slow
           the rate of growth so that their current estimates of the total cost overrun
           will not be exceeded. The extent to which the current efforts will enable
           them to do so remains to be seen.

           Mr. Chairman, this concludes my statement. We will be happy to answer
           any questions you or the members of the Subcommittee may have.

(707304)   Page 4                                                     GAO/T-NSIAD-97-262
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:


or visit GAO’s World Wide Web Home Page at:


United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested