Space Station: Status of Russian Involvement and Cost Control Efforts

Published by the Government Accountability Office on 1999-04-29.

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
Expected at
10:00 a.m., EDT
                     SPACE STATION
on April 29, 1999

                     Status of Russian
                     Involvement and Cost
                     Control Efforts
                     Statement of Allen Li, Associate Director, National Security
                     and International Affairs Division

                   Mr. Chairman and Members of the Subcommittee:

                   We are pleased to be here today to discuss our ongoing work on the
                   National Aeronautics and Space Administration’s (NASA) International
                   Space Station. We are currently responding to both the committee’s
                   request to review the status of Russian involvement in the program and the
                   subcommittee’s request to address the prime contractor’s progress in
                   implementing cost control measures and NASA’s efforts to oversee the
                   program’s nonprime activity. We plan to finalize our work and report on
                   these issues in the next few months. Today, I will address NASA’s efforts to
                   (1) develop a contingency plan to mitigate the possibility of unforeseen
                   problems, including future Russian nonperformance, (2) ensure that
                   Russian quality assurance and manufacturing processes are acceptable,
                   and (3) control prime contract and nonprime activity costs.

                   Last December, NASA accomplished an important and significant step in its
                   construction of the International Space Station: coupling the first two
                   elements, the Functional Cargo Block and Node 1, on orbit. The
                   subcommittee is well aware of the many challenges NASA has faced in
                   developing and building the International Space Station. These challenges,
                   which include Russia’s difficulties in meeting its commitment to deliver a
                   key component on schedule and continuing U.S. prime contractor cost
                   increases, have translated into schedule delays and higher program cost
                   estimates to complete development. While the on orbit assembly of the
                   first two elements of the space station was a noteworthy achievement, our
                   ongoing work shows no abatement in the number of challenges NASA will
                   face in the years to come.

Results in Brief   Uncertainty regarding future Russian involvement will require NASA to
                   continuously plan and implement contingency initiatives. As an
                   International Space Station 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. However,
                   Russia’s funding problems have delayed delivery of the Service Module—
                   the first major Russian-funded component—and raised concerns about
                   Russia’s ability to support the station during assembly and once it is
                   completed. NASA is implementing a multi-faceted contingency plan to
                   mitigate the risk of further delay of the Service Module and the possibility
                   that Progress vehicles for reboosting the station cannot be provided by the
                   Russians. The first step of this plan includes the development of the U.S.-
                   built Interim Control Module and modifications to the Russian-built and

                   Page 1                                                    GAO/T-NSIAD-99-117
U.S.-financed, Functional Cargo Block. 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 NASA’s plan is uncertain at this time, the agency
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 an overall contingency plan is a
program risk item.

NASA is satisfied that Russian quality assurance and manufacturing
standards are acceptable. However, the Service Module’s inability to meet
current station requirements with regards to debris protection is a potential
safety issue. The module will require improvements after it is launched to
meet the station’s debris protection requirement. Based on the module’s
current launch date, it will be about 3 ½ years after launch before
improvements can be completed.

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 experienced significant cost and
schedule variances between the contract baseline and actual performance.
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 nonprime portion of the program—activities related to science
facilities and ground and vehicle operations—is also experiencing cost
increases. In 1994, the nonprime component of the program’s development
budget was $8.5 billion; today, it is over $12.4 billion. The increase is due
largely to added scope and schedule slippage. The agency has begun to
subject the nonprime area to increased scrutiny, and modifications are
being made to a centralized database of potential risk areas to include the
identification of the cost of such risks. These actions could potentially
improve the agency’s ability to manage future cost growth.

Page 2                                                     GAO/T-NSIAD-99-117
NASA Contingency         Because of Russia’s continuing funding problems, NASA developed a
                         multi-faceted contingency plan to mitigate the risk of further delay of the
Planning                 Service Module and the possibility that a reboost capability cannot be
                         provided by the Russians. Payments to Russia for the completion of the
                         Service Module have also been made. Although NASA has developed 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 would be delayed due to
Multiple Steps
                         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

                         NASA responded by developing a plan to address Russian nonperformance.
                         The first step, which has been underway 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 Functional Cargo Block.

                         The second step includes the development of 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. Key elements of this second step include the
                         development of a propulsion module, shuttle modifications, and
                         construction of logistics carriers at an estimated cost of about $740 million.
                         The propulsion module is the most expensive component of the new
                         hardware. While there has been some uncertainty regarding this
                         component, NASA currently estimates that the propulsion module could
                         cost at least $550 million. The agency estimates that the other
                         components—shuttle modifications to permit reboosting of the station and
                         logistics carriers to carry dry cargo on the shuttle—will cost about $90 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

                         Page 3                                                      GAO/T-NSIAD-99-117
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 and additional funds may be provided in 1999. In return for the $60-
million payment, NASA will receive 4,000 hours of Russian crew research
time and stowage volume in the Russian segment of the station. According
to program officials, the cost of research time on the Mir space station was
used as the basis for the negotiation.

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, if needed, $100 million to the Russian Space
Agency in 1999 in return for goods and services. 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 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 problematic for Russia
to support commitments to both Mir and the International Space Station.

While the ultimate cost of the contingency plan to address Russian
nonperformance is uncertain at this time, NASA currently 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. 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.

Page 4                                                    GAO/T-NSIAD-99-117
Overall Contingency Plan   NASA has identified the lack of an overall contingency plan as a program
Not Yet Approved           risk item. In response, the station program has drafted a plan to address
                           issues such as late delivery or loss of critical hardware, but it has not fully
                           costed out all contingencies.

                           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 a fully costed contingency plan been in place. 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.

Quality and Safety of      NASA is satisfied that Russian quality assurance and manufacturing
                           processes are acceptable. However, NASA and the Russian Space Agency
Russian Segment            will need to continue working together to improve Russian hardware to
                           meet orbital debris protection requirements.

Comparison of Quality      NASA believes Russia’s attention to quality is comparable to that of the
Assurance Standards        United States. The agency’s conclusion is based on a combination of
                           review of standards and on-site observations. 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 Functional Cargo Block was being built in Russia, tools
                           available to NASA’s prime contractor to assess Russian manufacturing
                           quality included technical surveys, test assessments, and test witnessing.

                           Page 5                                                       GAO/T-NSIAD-99-117
Safety Impact of Inadequate   NASA defines the space station’s requirement to withstand orbital debris
Orbital Debris Protection     impacts in terms of the likelihood of not being penetrated.1 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 assembly
                              sequence revisions and configuration changes that increased the station’s
                              surface area. When the current performance of Russian-funded hardware
                              is included, the station cannot 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 installation of
                              needed protective shielding can be completed.

                              NASA’s International Space Station Safety Review Panel is assessing debris
                              protection and other Service Module design characteristics. For example,
                              according to NASA, the module will not operate fully in a depressurized
                              environment. Such a situation could occur after impact with orbital debris,
                              and could require the crew’s evacuation. In addition, according to NASA,
                              the Service Module’s windows do not meet the requirements applied to
                              other station components and are more vulnerable in the event of debris
                              impact. Estimated costs to correct these deficiencies have not been fully
                              developed. We will continue to monitor these issues as part of our ongoing

                              Under the current plan, NASA will launch the Service Module by granting a
                              waiver at the time of launch and correcting the debris protection deficiency
                              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

                                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 6                                                                            GAO/T-NSIAD-99-117
                      penetration prior to the planned augmentation is low. 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.

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 some indications of similar problems in the
Costs                 nonprime portion of the program, which includes activities related to
                      science facilities, ground and vehicle operations, and launch processing.
                      This is problematic because nonprime activity comprises more than
                      50 percent of total estimated development costs and about 70 percent of
                      remaining development costs. Program officials have now increased their
                      oversight of nonprime activity, identifying this activity’s potential cost and
                      schedule growth as a program concern. In addition, the program recently
                      addressed deficiencies in its centralized risk management database to
                      better focus on cost issues in both the prime and nonprime areas.

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.2 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 the contractor’s 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 same time
                      as our last cost control report, the contractor undertook a number of
                      initiatives designed to help reverse the trend of ever increasing cost

                       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); and Space
                      Station: Cost Control Problems (GAO/T-NSIAD-98-54, Nov. 5, 1997).

                      Page 7                                                                        GAO/T-NSIAD-99-117
                         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, 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 has identified the retention of critical 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 experience monthly cost and schedule variances. In June
                         1998, the estimate of overrun at completion was $783 million and by April
                         1999, it had increased to $986 million. According to the prime contractor,
                         most of the latest growth was attributable to additional overhead costs,
                         software and hardware development problems, and the need to increase its
                         funding reserves.

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 some 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. 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 recently undertaken a number of initiatives to improve its
                         oversight of nonprime activity. The initiatives include requiring periodic
                         evaluations similar to award fee evaluations of each activity 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

                         Page 8                                                      GAO/T-NSIAD-99-117
                           Space Center Director level, an indication of the attention now being given
                           to this area.

                           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 activities, meaning that the
                           budgetary impact of unforeseen cost growth could be significant. NASA
                           considers the resolution of nonprime issues a top concern. We will
                           continue to monitor nonprime activity status as part of our ongoing work.

                           Cost estimates assume that assembly of the station will be completed in
                           2004. NASA has acknowledged the difficulty in maintaining that schedule.
                           If the schedule is not met, total program costs will increase further.

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. As a result, the database fails to give program
                           managers sufficient insight and early warning into many emerging problem
                           areas. 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.

                           Recognizing the inadequacy of the current database, the former station
                           program manager directed the Program Risk Assessment Board to
                           scrutinize all existing risks for cost impacts. He emphasized the importance
                           of early identification of risk. We will continue to monitor progress in this
                           area during our ongoing work.

Conclusions                NASA and its partners have successfully begun the International Space
                           Station assembly, a noteworthy achievement. However, many of the
                           program’s greatest challenges lie ahead. NASA’s most immediate challenge

                           Page 9                                                     GAO/T-NSIAD-99-117
                   is to protect against Russian nonperformance. To do so, the agency is
                   implementing a contingency plan that provides financial assistance to the
                   Russian Space Agency and develops additional U.S. hardware. The total
                   cost of this plan is estimated at about $1.2 billion. In addition, when NASA
                   finalizes its overall contingency plan and identifies how it will address
                   issues such as late delivery or loss of critical hardware, additional costs
                   may be identified.

                   NASA and the Russian Space Agency will have to work together to resolve
                   potential safety issues involving the Service Module. These issues relate to
                   protection against orbital debris. Estimated costs of the improvements that
                   must be made after the Service Module is on orbit have not been fully

                   The estimated cost of completing the U.S. segment continues to rise. The
                   current estimated overrun under the prime contract is $986 million and
                   nonprime costs have increased by $3.9 billion due primarily to schedule
                   slippage and increased scope of work. To its credit, NASA has now begun
                   to refine and improve its mechanisms for identifying and mitigating costs
                   risks in the program. However, given the uncertainties and risks remaining
                   through assembly completion, cost control will remain a tremendous

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

(707418)   Leter   Page 10                                                   GAO/T-NSIAD-99-117
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