RESULTS IN BRIEF
WHY WE PERFORMED THIS AUDIT
To facilitate its lunar ambitions, NASA is adapting heritage hardware from the Space Shuttle era, including solid rocket boosters and RS-25 rocket engines, to power the Artemis campaign’s Space Launch System (SLS) that will launch the Orion crew capsule to the Moon. From fiscal years 2012 through 2025, NASA’s overall Artemis investment is projected to reach $93 billion, of which the SLS Program costs represent $23.8 billion spent through 2022. For SLS launches, NASA entered into two booster contracts with Northrop Grumman and two RS-25 engine contracts with Aerojet Rocketdyne.
The four contracts, performance periods, and values are: Boosters-April 2006 to December 2023, $4.4 billion; Booster Production and Operations Contract (BPOC)-June 2020 to December 2031, $3.2 billion; Adaptation (RS-25 engines) – June 2006 to September 2020, $2.1 billion; and RS-25 Restart and Production-November 2015 to September 2029, $3.6 billion.
Given the enormous cost of the Artemis campaign, NASA is exploring ways to make the SLS-which requires two boosters and four RS-25 engines per launch-more affordable by moving towards a fixed-price contract structure for booster production and establishing cost reduction targets on the production of new RS-25 engines. While these efforts may result in savings over the long term, ongoing schedule delays and cost increases raise questions about the Agency’s ability to meaningfully reduce booster- and engine-related Artemis costs.
In this audit, we examined the extent to which NASA is meeting cost, schedule, and performance goals for the Boosters and Adaptation contracts, and whether BPOC and RS-25 Restart and Production, the follow-on production contracts, reduce the government’s financial risk and promote affordability. To complete this work, we conducted interviews with NASA, Northrop Grumman, and Aerojet Rocketdyne officials. We also examined contract files; contractors’ financial reports and schedules; acquisition data; NASA’s integrated Artemis master schedule; budget and risk management documentation; and award fee evaluation plans, performance reports, and other related data.
WHAT WE FOUND
NASA continues to experience significant scope growth, cost increases, and schedule delays on its booster and RS-25 engine contracts, resulting in approximately $6 billion in cost increases and over 6 years in schedule delays above NASA’s original projections. These increases are caused by long-standing, interrelated issues such as assumptions that the use of heritage technologies from the Space Shuttle and Constellation Programs were expected to result in significant cost and schedule savings compared to developing new systems for the SLS. However, the complexity of developing, updating, and integrating new systems along with heritage components proved to be much greater than anticipated, resulting in the completion of only 5 of 16 engines under the Adaptation contract and added scope and cost increases to the Boosters contract. While NASA requirements and best practices emphasize that technology development and design work should be completed before the start of production activities, the Agency is concurrently developing and producing both its engines and boosters, increasing the risk of additional cost and schedule increases.
Additionally, Marshall Space Flight Center procurement officials who oversee all four contracts are challenged by inadequate staff, their lack of experience, and limited opportunities to review contract documentation. Specifically, inadequate procurement management led us to question $24.5 million in payments to Northrop Grumman to resolve a disputed request for equitable adjustment (REA) of award fee payments. Marshall procurement officials also encountered significant issues with the award of BPOC, the follow-on booster contract, which started as an undefinitized letter contract in which terms, specifications, and price were not agreed upon before performance began. We found NASA took 499 days to definitize the letter contract, which is far outside the 180-day federal guidance. At definitization, BPOC also lacked scope details, omitted key contract clauses, underwent a limited legal review, and is at risk of making duplicate payments for overlapping work performed under BPOC and the upcoming Exploration Production and Operations Contract. We also questioned an additional $5.6 million payment NASA made to Northrop Grumman related to the Agency’s improper liquidation of funds.
Further, NASA used cost-plus contracts at times where we believe fixed-price contracts should have been considered to potentially reduce costs, including the addition of 18 new production engines under the RS-25 Restart and Production contract and acquisition of Artemis IV booster long-lead materials under the BPOC letter contract. In addition, contractors did not receive accurate performance ratings in accordance with federal requirements, such as the “very good” rating awarded to Aerojet Rocketdyne on the end-item Adaptation contract despite only finishing 5 of 16 engines. As a result, we question $19.8 million in award fees it received for the 11 unfinished engines which were subsequently moved to the RS-25 Restart and Production contract and may now be eligible to receive additional award fees.
Faced with continuing cost and schedule increases, NASA is undertaking efforts to make the SLS more affordable. Under the RS-25 Restart and Production contract, NASA and Aerojet Rocketdyne are projecting manufacturing cost savings of 30 percent per engine starting with production of the seventh of 24 new engines. However, those savings do not capture overhead and other costs, which we currently estimate at $2.3 billion. Moreover, NASA currently cannot track per-engine costs to assess whether they are meeting these projected saving targets.
WHAT WE RECOMMENDED
To increase transparency, accountability, and oversight of the SLS booster and engine contracts and NASA’s affordability efforts, and ensure duplicative award fees are not earned, we recommended NASA senior leadership: (1) assess whether the 18 new RS-25 production engines under the RS-25 Restart and Production contract can be adjusted to fixed price; (2) identify procurement needs and resources available to address staff shortages at Marshall; 3) ensure Marshall officials comply with best practices for establishing and maintaining internal controls related to REAs, fiscal law, and appropriate internal and external engagement; (4) ensure appropriate separation of program and procurement actions and compliance with federal requirements for use of letter contracts, proper definitization, overpayments, and duplicative payments of award fees for modified scope and contracts; (5) update RS-25 production per engine cost estimates to include investments in production restart; (6) review and update BPOC’s scope of work and technical requirements needed to complete the respective periods of performance; (7) review BPOC’s definitization to ensure proper liquidation of funds paid under the letter contract; and (8) develop a separate non-fee bearing contract line item for completion of the 11 unfinished heritage RS-25 adaptation engines.
We provided a draft of this report to NASA management, who concurred with Recommendations 1, 2, 3, 6, and 7, and partially concurred with Recommendations 4, 5, and 8. We consider management’s comments responsive to all eight recommendations, and therefore the recommendations are resolved and will be closed upon completion and verification of the proposed corrective actions. Despite concurring and partially concurring with all eight recommendations, the Associate Administrator for Exploration Systems Development Mission Directorate’s and Assistant Administrator for Procurement’s response to the draft of this report stated that the directorate and program do not concur with the facts as presented in the body of the report. We take issue with this summary characterization and are disappointed that the Agency’s formal response failed to specify the facts with which it disagrees. Consistent with professional standards, we carefully considered management’s technical comments to our draft and, when sufficiently supported, incorporated that information in the final report.