GAO Blasts NASA For Understating Cost Growth on SLS/Orion, NASA Shoots Back

The Government Accountability Office (GAO) issued its latest report on NASA’s Space Launch System (SLS), Orion crew spacecraft, and associated ground systems today.  The congressional watchdog agency minced no words in criticizing NASA for understating cost growth, lack of transparency, and paying contractors hundreds of millions of dollars in award fees despite overruns and schedule delays.  NASA was equally blunt in response, complaining about the report’s negative tone and lack of acknowledgement of the progress that has been made in developing these complex systems.

NASA is understating SLS cost growth by shifting some of the scope of the program into future missions without reducing the program’s baseline cost accordingly per GAO.  Although NASA concedes the SLS cost has grown by $1 billion, GAO calculates it at $1.8 billion, raising the overrun from 14.7 percent to 29.0 percent.

GAO found the agency also is understating the cost growth for Orion.  NASA says cost has grown 5.6 percent, but GAO found that estimate is based on a launch date 7  months earlier than the program’s baseline and therefore incomplete.

Updating baselines [for SLS and Orion] to reflect current mission scope and providing complete cost estimates would provide NASA management and Congress with a more transparent assessment of where NASA is having difficulty controlling costs. — GAO

The baseline cost and schedule for SLS and associated Exploration Ground Systems (EGS) were set by NASA in 2014 using the first launch, Exploration Mission-1 (EM-1, recently renamed Artemis-1), as the milestone.  At the time, first launch was anticipated in November 2018, but it slipped to December 2019-June 2020.  NASA since has concluded that is not achievable.  NASA officials now talk about the first launch occurring sometime before the end of 2020 or early 2021.  GAO cautions it may not occur until June 2021 because certain risks are not factored into NASA’s date.

The baseline cost and schedule for Orion is tagged to the first crewed launch of the spacecraft — EM-2 (Artemis-2).  No one will be aboard the Orion capsule launched on EM-1/Artemis-1.  In 2015, EM-2/Artemis-2 was baselined for April 2023 (although NASA officials said for years it had an internal target of a 2021 launch instead).  NASA told GAO that the current planned launch date is September 2022, however, so GAO considers the cost estimate incomplete because it does not account for Orion costs in those intervening 7 months.

Boeing is the prime contractor for SLS and Lockheed Martin for Orion.  GAO criticizes NASA for paying the companies $200 million in award fees despite the delays and overruns.

Award fees are one of several types of financial incentives paid to government contractors and is the only one based on subjective determinations, GAO explains. By comparison, milestone award fees, performance incentive fees and period of performance fees use objective criteria.

NASA has paid Boeing 81 percent (about $146 million) and Lockheed Martin 93 percent (about $88 million) of available award fees for SLS and Orion respectively.

GAO concedes that the government and the contractors share responsibility for the cost growth and delays, but suggests that as NASA renegotiates the contracts with both companies, it change its approach to incentives and rely on those that use objective criteria instead of award fees.

GAO recommended that NASA Administrator Jim Bridenstine ensure the Associate Administrator for Human Exploration and Operations (Bill Gerstenmaier) —

1. direct the SLS program to calculate its development cost growth using a baseline that is appropriately adjusted for scope and costs NASA has determined are not associated with the first flight, and determine if the development cost growth has increased by 30 percent or more.
2. direct the Orion program to update its cost estimate to reflect its committed EM-2 baseline date of April 2023.
3. direct the EGS program to demonstrate design maturity by completing 3D product modeling of the basic and functional design of the second Mobile Launcher prior to construction start.
4. direct the SLS and Orion programs to reevaluate their strategies for incentivizing contractors and determine whether they could more effectively incentivize contractors to achieve the outcomes intended as part of ongoing and planned contract negotiations.

Although NASA concurred with three of the four GAO recommendations (1, 3 and 4), and partially concurred in the other (2), the agency and GAO engage in a tense exchange of views in Appendix 2 over the tone more than the substance of the report.

NASA’s eight-page response is signed by Gerstenmaier on behalf of NASA.  The agency complains that GAO “does not acknowledge NASA is constructing some of the most sophisticated hardware ever built” that will send people to the Moon and Mars.

Like all other development programs, the challenges we have experienced are significant, but not insurmountable. The issues are commensurate with first-time production programs on a large scale and should not be unexpected. NASA is concerned focusing only on cost and schedule discounts the importance of proper technical resolution that is essential for long-term commitment to operating a deep space system. — NASA’s Bill Gerstenmaier in letter response to GAO report

NASA criticizes GAO because it “repeatedly projects the worst-case schedule outcome” and objects to the “unnecessarily negative language” in the title and section headings and lack of acknowledgement by GAO of the progress that has been made.  It also disagrees that the agency is not transparent in reporting costs. Despite frequent Continuing Resolutions and changes in program direction that complicate program planning and execution, “NASA has done its best to maintain transparency.”

Gerstenmaier’s letter is followed by GAO’s reaction to it wherein GAO insists that it does acknowledge the complexity of these systems and further explains how and why it made the conclusions and recommendations it did.