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Ballistic Missile Defense: Issues Concerning Acquisition of THAAD Prototype System

(Letter Report, 07/09/96, GAO/NSIAD-96-136)


GAO reviewed the Theater High Altitude Area Defense (THAAD) User
Operational Evaluation System (UOES) program, focusing on whether
planned testing would reasonably demonstrate the capabilities of UOES as
an interim system before funds are committed to interceptor production.

GAO found that: (1) the Army purchased 20 interceptors for demonstration
and validation flight tests, of which only 14 will be used in these
tests; (2) the Army plans to commit funds for UOES production based on
the results of the first 7 of the 14 scheduled flight tests; (3)
transporting UOES interceptors from the United States to a theater of
operations will require significant airlift resources that may not be
available unless UOES is afforded a high priority; (4) the cost estimate
for the 40 UOES interceptors has increased from $80 million to $165
million, and THAAD project officials expect that estimate to rise to
$220 million; and (5) delivery of the 40 UOES interceptors will be
delayed due to increased delivery lead times and reduced fiscal year
(FY) 1997 funding.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-136
     TITLE:  Ballistic Missile Defense: Issues Concerning Acquisition of 
             THAAD Prototype System
      DATE:  07/09/96
   SUBJECT:  Ballistic missiles
             Defense capabilities
             Army procurement
             Nuclear weapons
             Advanced weapons systems
             Testing
             Military airlift operations
             Cost overruns
             Systems evaluation
             Concurrency
IDENTIFIER:  SDI Theater High Altitude Area Defense System
             THAADS
             THAADS User Operational Evaluation System
             
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Cover
================================================================ COVER


Report to Congressional Committees

July 1996

BALLISTIC MISSILE DEFENSE - ISSUES
CONCERNING ACQUISITION OF THAAD
PROTOTYPE SYSTEM

GAO/NSIAD-96-136

Prototype THAAD System

(707114)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  THAAD - Theater High Altitude Area Defense
  UOES - User Operational Evaluation System

Letter
=============================================================== LETTER


B-271560

July 9, 1996

Congressional Committees

The Ballistic Missile Defense Organization and the Army plan to
acquire a Theater High Altitude Area Defense (THAAD) User Operational
Evaluation System (UOES)--an early prototype version of the final
THAAD system.  UOES is intended to (1) allow military users to
influence the THAAD system design, (2) permit an early operational
assessment of the system's capabilities, and (3) provide a system
that could be deployed in a national emergency.  UOES will consist
primarily of refurbished components acquired for the system's
demonstration and validation phase, although the Army plans to
purchase 40 UOES interceptors to provide the deployable system
capability. 

Pursuant to our basic legislative responsibilities, we reviewed the
THAAD UOES program to determine whether planned testing would
reasonably demonstrate the capabilities of UOES as an interim system
before funds are committed to interceptor production.  We are
addressing this report to the committees of jurisdiction because it
identifies problems and calls for corrective action that the
Department of Defense (DOD) has indicated an unwillingness to take. 
We are suggesting that the Congress may wish to take the necessary
action to ensure that DOD addresses the problems we have identified. 
This report does not address the overall value of the THAAD system. 


   BACKGROUND
------------------------------------------------------------ Letter :1

THAAD is a ground-based weapon system being developed by the
Ballistic Missile Defense Organization and the Army to defeat theater
ballistic missiles by colliding with them while in flight.  The
system supports the national objective of protecting U.S.  and allied
deployed forces, population centers, and industrial facilities from
theater missile attacks. 

The total estimated cost for THAAD is $16.7 billion, and the system
is currently in an early phase of development called demonstration
and validation.  A decision on whether to proceed into the
engineering and manufacturing development phase is scheduled for
March 1997.  A production decision is planned for early 2003, and
initial fielding is currently scheduled for 2006.  DOD's budget
submission for fiscal year 1997 requests $481.8 million for the
program. 

The fiscal year 1996 National Defense Authorization Act requires a
contingency capability--THAAD UOES--by fiscal year 1998.  UOES will
consist of 40 interceptors; 4 launchers; 2 radars; 2 battle
management/command, control, and intelligence units; and associated
support equipment.  Except for the 40 interceptors, these components
have already been acquired under the existing THAAD demonstration and
validation contract.  The components are to be refurbished for use in
the UOES system.  The 40 interceptors are yet to be acquired under an
option to the demonstration and validation contract.  Figure 1 shows
the principal UOES components. 

   Figure 1:  THAAD--UOES




   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Current plans require the Army to commit funds for producing 40 UOES
interceptors well before testing provides assurance of the UOES
system's capabilities, even though the THAAD program has already
experienced significant cost, schedule, and technical performance
problems.  According to the Army, sufficient data for a limited
assessment of UOES operational effectiveness\1 will not be available
until limited user tests are completed in early 1998.  As a result,
DOD's plan to commit funds in 1996 in order to meet an operational
THAAD UOES capability requirement by fiscal year 1998 risks acquiring
a system that might not be capable enough to warrant its deployment
in an emergency. 

Our review indicated that (1) the contractor's cost estimate for the
THAAD UOES interceptors has more than doubled since 1992 and is
likely to increase further and (2) test schedule slippage, increased
delivery lead times, and funding limitations have delayed the
availability of UOES interceptors by about 2 years.  Further,
airborne deployment of the THAAD UOES may be difficult since it is
ultimately contingent upon successfully competing with other military
hardware for scarce airlift resources. 


--------------------
\1 DOD defines "operational effectiveness" as the overall degree of
mission accomplishment of a system when used by representative
personnel in the environment planned or expected for operational
employment of the system considering organization, doctrine, tactics,
survivability, vulnerability, and threat. 


   PRIMARY PURPOSE OF INTERCEPTORS
   IS DEPLOYMENT CAPABILITY
------------------------------------------------------------ Letter :3

Initially, the Army had no specific plans to test the 40 UOES
interceptors.  However, in 1995, the Ballistic Missile Defense
Organization's general counsel ruled that use of research,
development, test, and evaluation funding to acquire the interceptors
would be justified only if (1) there were a planned intent to use
them in early testing, (2) they were not principally intended for
operational purposes, and (3) they were necessary to provide an
adequate number for testing.  In response to this ruling, the THAAD
Project Office developed a test plan for the interceptors, but
recommended that it not be implemented.  The Ballistic Missile
Defense Organization instructed the Project Office to implement the
test plan. 

Since that time, circumstances have changed.  Part of the test plan
has become obsolete, and other parts can be accomplished with
equipment other than the 40 UOES interceptors.  Five of the UOES
interceptors were to serve as backups in tests that have now been
canceled; another four interceptors were planned as backups for
engineering and manufacturing development tests; and one was planned
as a backup to a limited user test.  As a result of changes in
planned demonstration and validation phase testing, it now appears
that an adequate number of backup interceptors will be available for
engineering and manufacturing development and limited user tests
without the UOES interceptors.\2 The remaining 30 UOES interceptors
were to be used in operational suitability tests that did not involve
firing interceptors.  However, the purposes of those tests can be
accomplished with training rounds or with the backup demonstration
and validation phase interceptors. 


--------------------
\2 The Army purchased 20 interceptors for demonstration and
validation flight tests, but now plans to use only 14 in these tests. 
Of the remaining six interceptors, one is scheduled for a flight test
during the limited user test and the remaining five can be used as
backup to the four engineering and manufacturing development tests
and the limited user test. 


   UOES FUNDING WILL BE COMMITTED
   BEFORE SYSTEM CAPABILITIES ARE
   KNOWN
------------------------------------------------------------ Letter :4

The Army anticipates exercising the contract option for the UOES
interceptors in the 3rd quarter of 1996 based on the results of only
the first 7 of 14 scheduled demonstration and validation flight
tests.  The Under Secretary of Defense (Acquisition and Technology)
established one successful intercept of a target while using the
THAAD radar to guide the interceptor as minimum criteria for
exercising the contract option for UOES interceptors.  Test flight 7,
currently scheduled for about July 1996, will be the first intercept
attempt using the THAAD radar.  Through May 1996, the Army had
conducted five flight tests.  Only two of the five tests were
designed to intercept a target and both intercept attempts failed. 
According to the Ballistic Missile Defense Organization and the Army,
seven tests will not be sufficient to characterize operational
effectiveness in such areas as mission performance and
supportability. 

The Army also plans to conduct a 7-week limited user test after
completing the 14 demonstration and validation flight tests.  The
limited user test will build on the results of the demonstration and
validation flight tests and focus on operational effectiveness and
suitability issues, including mission performance and system
supportability.  The primary events to be conducted during the
limited user test will be field training exercises, command post
exercises, modeling and simulations, and a flight test using an
interceptor already under contract.  Results from the limited user
test are not scheduled to be available until early 1998. 

According to DOD's Joint Staff, information currently available is
not sufficient to characterize UOES operational effectiveness. 
Representatives of the Joint Staff told us that if a national
emergency occurred, the national command authority would decide
whether to deploy THAAD UOES based on the threat at that time and
whatever data was known about UOES effectiveness.  They agreed,
however, that better data for making a deployment decision would be
available at the completion of the limited user tests.  The Joint
Staff representatives also told us that some theater commanders place
a high priority on THAAD's intended capabilities.  The Joint Staff
expect that at the completion of the demonstration and validation
flight tests and the limited user tests, sufficient information will
be available to characterize UOES operational effectiveness. 
However, under the current plan, results from the limited user tests
are not scheduled to be available until about 1-1/2 years after the
Army exercises the contract option for the 40 UOES interceptors. 


   AIRLIFT FOR UOES WILL BE SCARCE
------------------------------------------------------------ Letter :5

The airlift requirement for UOES will be significant.  The Army
estimates that to transport the full system with 40 interceptors from
the United States to a theater of operation will require up to 18
C-5, 26 C-17, or 40 C-141 flights.  The Army estimates that a UOES
initial force, or "minimum launch capability," including 1 radar, 2
launchers, and 20 interceptors, could be deployed with 7 C-5, 9 C-17,
or 13 C-141 flights.  However, whether for a complete UOES
deployment, or a minimum launch capability, the necessary flights may
not be available unless UOES is afforded a high priority.  In
September 1995, the Ballistic Missile Defense Organization's Annual
Report to the Congress stated that deciding what assets should be
transported in the crucial first days of an overseas campaign will
present a critical challenge and that the need to transport large
inventories of equipment to regional theaters of operations will
stress airlift capabilities.  Representatives from the Joint Staff
told us that THAAD UOES would likely have a high priority for airlift
resources.  However, other systems may also have a high priority. 
For example, the Army plans to begin fielding 1,200 Patriot Advanced
Capability-3 interceptors in 1999, which could compete with the
40-interceptor THAAD UOES for airlift resources. 


   COST ESTIMATE HAS INCREASED
------------------------------------------------------------ Letter :6

Since September 1992, when the THAAD demonstration and validation
contract was awarded, the contractor's cost estimate for the 40 UOES
interceptors has increased by over 100 percent--from $80 million to
$165 million.  According to THAAD project officials, the contractor's
estimate is likely to increase further because funding for the
interceptors has been stretched out over a 4-year period and the
delivery period has been extended from 29 months to 34 months.  The
estimated cost for spares, support equipment, and contractor support
increases the estimated total cost of a UOES deployment option by
another $55 million--to a total of $220 million. 

At our request, THAAD project officials categorized the interceptor
cost increase.  They stated that the increase in interceptor cost is
due to technical, estimating, and schedule changes.  Technical cost
increases result from design changes to the interceptor's seeker,
booster, and divert and attitude control system.  Estimating cost
increases result from correcting errors in the initial cost estimate
and shifting other costs from the contractor to the government. 
Schedule cost increases occurred because the time from exercising the
contract option to final delivery grew from 18 to 29 months. 


   AVAILABILITY OF THE UOES
   INTERCEPTORS HAS BEEN DELAYED
------------------------------------------------------------ Letter :7

Final delivery of the 40 UOES interceptors has been delayed about
2 years--from the 2nd quarter of 1997 until the 2nd quarter of 1999. 
Under the current schedule, UOES interceptor deliveries would begin
in 1998.  At the end of fiscal year 1998 when the 1996 Defense
Authorization Act requires the UOES capability, only 14 interceptors
will be available.  Exercising the option for the UOES interceptors
has been delayed about 10 months, from October 1995 until about August
1996, and the time from exercising the option to final delivery has
increased 16 months. 

The 10-month delay results from slips in the demonstration and
validation flight test schedule.  These slips occurred largely
because of scheduling difficulties at the test range and the failure
to intercept the target during test flights 4 and 5--the first two
tests designed for target intercept.  The Army maintains that a
successful intercept using a test range radar to guide the
interceptor should occur before attempting an intercept with the
THAAD radar.  The Under Secretary of Defense (Acquisition and
Technology) is requiring the Army to conduct a successful intercept
using the THAAD radar before it can exercise the option for UOES
interceptors.  The first intercept attempt relying on the THAAD radar
is now planned during test flight 7 in the July 1996 time frame. 

The 16-month delay in delivery results from (1) extended lead
times--from 18 to 29 months--in delivery of some interceptor
components and (2) reduced fiscal year 1997 funding that further
extended final deliveries from 29 to 34 months. 


   CONCLUSION AND RECOMMENDATION
------------------------------------------------------------ Letter :8

The current plan for acquiring THAAD UOES interceptors commits funds
for interceptor production in about August 1996, well before testing
in early 1998 provides some assurance of the system's effectiveness. 
In view of the risks associated with producing UOES interceptors
before testing, we believe the Army should delay contracting for them
until the testing is completed.  Using 34 months as the time required
from contract award to final interceptor delivery, UOES would still
be available as an interim system in late 2000.  This is about 1-1/2
years later than currently planned but well before fielding of the
final THAAD begins in the 2006 time frame. 

Accordingly, to avoid committing over $200 million for a system that
may not have adequate operational effectiveness, we recommend that
the Secretary of Defense (1) restrict obligational authority for UOES
interceptors until the Chairman of the Joint Chiefs of Staff
certifies that UOES has adequate effectiveness to merit deployment as
an interim system and (2) seek legislative relief from the
requirements of the 1996 National Defense Authorization Act in
regards to acquiring THAAD UOES by fiscal year 1998. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

In commenting on a draft of this report, DOD disagreed with our
recommendations, stating that THAAD UOES will serve three functions
in priority order:  (1) providing soldiers an opportunity to
influence the system's design; (2) conducting early operational
assessments of the system; and (3) if directed by the National
Command Authority, providing a theater commander in chief with a
limited missile defense capability.  We do not disagree with these
purposes and would point out that the two primary purposes of UOES
set forth by DOD--early user influence on the design and system
operation assessment--can be accomplished without contracting for the
40 interceptors.  Moreover, the thrust of our report deals with the
risks inherent in the Army's accelerated approach of contracting for
interceptors to be deployed before testing provides assurance of the
interceptor's effectiveness. 

DOD stated that the requirement for successful hardware-in-the-loop
testing of kill vehicle subsystems and one successful intercept using
the THAAD radar will reduce the risk associated with contracting for
the
40 interceptors.  However, we note that these minimal criteria are
even less than the three successful intercepts required for entering
the engineering and manufacturing development phase.  Our work has
repeatedly shown that when production of weapon systems began on the
basis of schedule or other considerations rather than on the basis of
technical maturity, major design changes were often needed to correct
problems.  The design changes frequently led to additional testing
and costly retrofit of units already produced.\3

DOD stated that implementing our recommendation would cause a gap in
production of interceptors between demonstration and validation and
engineering and manufacturing development.  However, DOD failed to
point out that the current schedule already includes a production gap
between demonstration and validation and engineering development and
an even larger gap between completing production of interceptors for
engineering development tests and the beginning of low-rate initial
production.  Implementing our recommendation would widen the gap
between demonstration and validation and engineering development but
decrease the gap between engineering development and low-rate initial
production. 

DOD also stated that implementing our recommendation would permit a
UOES capability no sooner than fiscal year 2000, 2 years later than
required by law.  We recognize that implementing our recommendation
would not allow DOD to provide a THAAD UOES capability by fiscal year
1998 as required by the 1996 National Defense Authorization Act.  For
that reason, we recommended that the Secretary of Defense seek relief
from the act's requirement.  However, under the current THAAD
schedule, only
14 interceptors will be available at the end of fiscal year 1998. 
The Army's definition of "minimum launch capability" includes 20
interceptors or
6 more than will be available in fiscal year 1998.  The full
40-interceptor capability will not be available until the 3rd quarter
of fiscal year 1999, even if no additional schedule slips occur. 


--------------------
\3 See Weapons Acquisition:  Low-Rate Initial Production Used to Buy
Weapon Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994). 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
----------------------------------------------------------- Letter :10

Because DOD has clearly indicated its intention to commit over $200
million for UOES interceptors that may have inadequate operational
effectiveness and because the current schedule will provide only 14
of the 40 interceptors by fiscal year 1998, the Congress may wish to
consider delaying the timetable for acquiring THAAD UOES set forth in
the 1996 Defense Authorization Act.  The Congress may also wish to
restrict obligational authority for acquiring UOES until the
Secretary of Defense certifies that the system has adequate
operational effectiveness to merit its deployment in a national
emergency. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :11

We performed our work at the Office of the Chairman of the Joint
Chiefs of Staff, Office of the Secretary of Defense, Headquarters of
the Ballistic Missile Defense Organization; the Department of the
Army in Washington, D.C.; and the THAAD Project Office in Huntsville,
Alabama.  At these locations, we interviewed responsible agency
officials and analyzed pertinent documents.  We obtained comments on
a draft of this report from DOD.  Those comments are discussed above
and reprinted in appendix I. 

We conducted our work from June 1995 to May 1996 in accordance with
generally accepted government auditing standards. 


--------------------------------------------------------- Letter :11.1

We are sending copies of this report to the Secretaries of Defense
and the Army; the Director of the Ballistic Missile Defense
Organization; and the Director, Office of Management and Budget.  We
will make copies available to others upon request. 

This report was prepared under the direction of Thomas J.  Schulz,
Associate Director, Defense Acquisitions Issues.  If you or your
staff have any questions concerning the observations expressed in
this report, please contact him on (202) 512-4841.  Major
contributors to this report were
Lee Edwards, Leon Gill, Stan Lipscomb, and J.  Klein Spencer. 

Henry L.  Hinton, Jr.
Assistant Comptroller General

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Sam Nunn
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd D.  Spence
Chairman
The Honorable Ronald V.  Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C.W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's (DOD)
letter dated May 13, 1996. 


   GAO'S COMMENTS
----------------------------------------------------------- Letter :12

1.  We recognize that the Theater High Altitude Area Defense (THAAD)
User Operational Evaluation System (UOES) has three purposes--(1)
providing soldiers an opportunity to influence the system's design;
(2) conducting early operational assessments of the system; and (3)
if directed by the National Command Authority, providing a theater
commander in chief with a more robust theater missile defense
architecture than exists today.  The two primary purposes of UOES set
forth by DOD--early user influence on the design and system operation
assessment--can be accomplished without contracting for the 40
interceptors.  The thrust of our report deals with the risks inherent
in the Army's accelerated approach of contracting for interceptors to
be deployed before testing provides assurance of the system's
effectiveness. 

2.  The current THAAD UOES schedule provides only 14 of the
40 interceptors by fiscal year 1998--the date the 1996 Defense
Authorization Act calls for a UOES capability.  Delivery of the
40 interceptors will not be completed until the 3rd quarter of fiscal
year 1999. 


*** End of document. ***