OIG Audit: NASA’s Management of the Space Launch System Stages Contract

To read the full OIG report or view the video, see: https://oig.nasa.gov/docs/IG-19-001.pdf  and https://oig.nasa.gov/videos.html?id=4912

WHY WE PERFORMED THIS AUDIT

Human exploration of Mars has been a long-term goal of the United States for the past five decades. To achieve this goal, NASA is once again pursuing space travel beyond low Earth orbit, and key to this effort is development of the Space Launch System (SLS)—a two-stage, heavy-lift rocket that will launch the Orion Multi-Purpose Crew Vehicle (Orion) into space. This effort represents the largest development of space flight capabilities NASA has attempted since the first Space Shuttle was produced more than 37 years ago.

NASA contracted with The Boeing Company (Boeing) in 2012 to build two SLS Core Stages—that is, the first stage of the rocket consisting of the fuel tanks and supporting infrastructure—and later an Exploration Upper Stage (EUS), a new and more powerful second stage designed to increase the SLS’s upmass capability. Originally, the first uncrewed mission of the combined SLS/Orion system known as Exploration Mission-1 (EM-1) had a launch readiness date of December 2017, while the first crewed mission of the system known as Exploration Mission-2 (EM-2) was projected to launch in mid-2021. However, due to continued production delays with the SLS Core Stage and upcoming critical testing and integration activities, current NASA schedules indicate launch dates of mid-2020 and mid-2022, respectively. With $5.3 billion expended as of August 2018 out of $6.2 billion allocated for the Boeing Stages contract, NASA expects Boeing to reach the contract’s value by early 2019—nearly 3 years before the contract is supposed to end—without final delivery of a single Core Stage or EUS. As a result, the SLS Program will require a major increase in funding and renegotiation of the Boeing Stages contract to meet current launch readiness dates for the two Core Stages and EUS.

In this first in a series of audits examining NASA’s management of the SLS Program, we reviewed the extent to which Boeing is meeting cost, schedule, and performance goals for development of the SLS Core Stages and EUS and the Agency’s compliance with acquisition regulations, policies, and procedures supporting the SLS Program. To complete this audit, we reviewed SLS Program budget and planning documentation, analyzed Boeing contract performance evaluation reports, conducted onsite surveys, and interviewed NASA and Boeing officials.

WHAT WE FOUND

At its current rate, we project Boeing will expend at least $8.9 billion through 2021—double the amount initially planned—while delivery of the first Core Stage has slipped 2 ½ years from June 2017 to December 2019 and may slip further. Between June 2014 and August 2018, Boeing spent over $600 million more than planned on developing Core Stages 1 and 2, and NASA officials have confirmed that in FY 2018 alone Boeing expended $226 million more than planned. Cost increases and schedule delays of Core Stage development can be traced largely to management, technical, and infrastructure issues driven by Boeing’s poor performance. For example, Boeing officials have consistently underestimated the scope of the work to be performed and thus the size and skills of the workforce required. In addition, development of command and control hardware and software necessary for Core Stage testing is 2 years behind schedule, while equipment-related mishaps and an extreme weather event contributed to cost and schedule delays. Individually, each of these issues may have caused only minor cost and schedule problems, but taken as a whole they have resulted in a 2 ½-year slip to the SLS Core Stage delivery schedule and approximately $4 billion in cost increases for development of the first two Core Stages. Furthermore, Boeing’s cost and schedule challenges are likely to worsen given that the SLS has yet to undergo its “Green Run Test”—a major milestone that integrates and tests the Core Stage components.

Based on Boeing’s current expenditure rate, NASA will need to increase the contract value by approximately $800 million to complete the first Core Stage for delivery to the Kennedy Space Center in December 2019. If the EM-1 launch takes place in June 2020, more than $400 million—for a total of $1.2 billion—would need to be added to the contract. This amount would only ensure delivery of Core Stage 1 and would not include the billions more required to complete work on Core Stage 2 and the EUS. Consequently, in light of the Project’s development delays, we have concluded NASA will be unable to meet its EM-1 launch window currently scheduled between December 2019 and June 2020.

We found that several poor contract management practices by NASA contributed to the SLS Program’s cost and schedule overruns. First, contrary to current federal guidance, NASA lacks visibility into the Boeing Stages contract costs because all three of the company’s key activities—development of Core Stages 1 and 2 and the EUS—are co-mingled into the same contract line item number, making it difficult for the Agency to track expenditures. As a result, NASA is unable to determine the cost of a single Core Stage, which will affect the Agency’s ability to determine pricing for future Core Stages. Second, we found flaws in NASA’s evaluation of Boeing’s performance, resulting in NASA inflating the contractor’s scores and leading to overly generous award fees. Specifically, in the six evaluation periods since 2012 in which NASA provided ratings, Agency officials deemed Boeing’s performance “excellent” in three and “very good” in three other periods, resulting in payment of $323 million or 90 percent of the available award and incentive fees. Considering the SLS Program’s cost overages and schedule delays, we question nearly $64 million of the award fees already provided to Boeing. Third, contracting officers approved contract modifications and issued task orders to several contracts without proper authority, exposing NASA to $321.7 million in unauthorized commitments, most of which will require follow-up contract ratification. Finally, as NASA and Boeing struggle with completing the first two SLS Core Stages, the Agency’s plans are on hold for acquiring additional Core Stages. Given that NASA officials estimate needing 52 months of lead time from issuing a contract to delivery, the earliest a third Core Stage can be produced is 2023, jeopardizing planned launch dates for future missions that require the rocket, including EM-2 and potentially a science mission to Europa, one of Jupiter’s moons, in 2022.
To its credit, the SLS Program has taken positive steps to address management and procurement issues related to the Boeing Stages contract, including making key leadership changes; requesting reviews of Boeing’s management, financial, and estimating systems; adding routine, in-depth performance reviews; and changing the procurement process to improve internal controls. However, the impact of these actions on improving Boeing’s future contract performance is uncertain.

WHAT WE RECOMMENDED

To increase the sustainability, accountability, and transparency of NASA’s efforts to develop the SLS Core Stages and EUS, we recommended the Agency (1) develop a corrective action plan for completing the two Core Stages and EUS; (2) direct Boeing to complete delivery of the two Core Stages and the EUS using realistic schedule assumptions and appropriate cost estimates through the end of the contract in 2021; (3) perform a complete review of the Boeing Stages contract, including an independent federal government cost estimate; (4) renegotiate the Boeing Stages contract based on both Boeing and federal government cost estimates; (5) review all SLS Program contracts overseen by the Marshall Office of Procurement; and (6) reinstitute adjectival ratings by the contracting officer representative and technical monitors of Boeing. To minimize delays tied to Core Stage availability for future missions and to obtain the best value to NASA, we recommended the Agency (7) implement, by October 2018, an acquisition strategy for building additional Core Stages beyond Core Stage 2 that includes consideration for awarding the contract as a fixed-price, end-item deliverable contract with each Core Stage separated into unique task orders. NASA management concurred with six of our seven recommendations. We consider management’s comments to Recommendations 2, 3, 4, 5, and 7 responsive; therefore, those recommendations are resolved and will be closed upon completion and verification of the proposed corrective actions. Although management concurred with Recommendation 1, we do not find their comments fully responsive. Finally, NASA management did not concur with Recommendation 6. Accordingly, recommendations 1 and 6 will remain unresolved pending further discussions with Agency officials.