Nobody is thrilled with the seemingly inexhaustible supply of troubled Federal programs that are both behind schedule and over budget.  In current environment of severe budgetary pressure, with a threatened taxpayer revolt just a nut-case away from reality, nobody wants to hear about acquisition mismanagement and/or program execution failures.  Yet the Government Accountability Office (GAO) seems to be having no trouble finding such programs to review.

We have reported, many times, on problems with DOD programs.  (See, for example, this article.)  We have reported a few times on problems with NASA programs.  (See, for example, this article.)  But we rarely report on issues with Department of Homeland Security (DHS) programs, with only one article on the topic to date.  Well, all that changes today, dear readers, as we now turn out attention to DHS and discuss a recent GAO report addressing fifteen (15) ongoing programs—of which all but one were experiencing cost and/or schedule problems.

(The numbers will get confusing in a second.  Let’s clarify:  GAO examined eighteen (18) “major” DHS programs and 2 “nonmajor” programs, for a total of 20 programs reviewed.  One of the 20 was found to be in a “pre-acquisition” phase and was excluded from further analysis.  Two of the 15 major programs were found to have “incomplete schedule data” and were excluded from certain analyses.  Of the 15 major programs reviewed, only one (1) was found to have zero cost growth or schedule delays.)

What did GAO find?  We looked at the 92-page report and immediately discounted the weak pats on the agency’s back, such as “DHS continues to develop its acquisition oversight function,” and that the agency “has begun to implement a revised acquisition management directive that includes more detailed guidance for programs to use when informing component and departmental decision making.”  That’s the kind of stuff auditors write just before they add “BUT” and stick the knife in deep.  We skipped the platitudes and went for the good stuff.  Here’s the bottom-line—

GAO found that of the 15 major programs that had started acquisition activities, 12 reported cost growth, and almost all programs reported schedule delays. DHS policy requires acquisition oversight officials to assess the accuracy of life-cycle cost estimates for all major programs estimated to exceed $1 billion and provides guidance for programs to develop life-cycle cost estimates. The responsible DHS acquisition oversight officials have raised concerns about the accuracy of cost estimates for most major programs, making it difficult to assess the significance of the reported cost growth. Further, over half of the programs GAO reviewed initiated acquisition activities without approved key planning documents that set operational requirements and establish program baselines. Programs also experienced other acquisition planning challenges, such as staffing shortages, and lack of sustainment planning, as well as execution challenges related to technical capability, partner dependence, and funding issues. … Of the 11 programs with acquisition cost growth, 8 programs reported cost growth of over 25 percent. … Fifteen of the [eighteen] major programs we reviewed reported estimated or actual schedule delays in delivery of initial operating capability of an average of 12 months, and eight programs reported delays of a year or more. Thirteen programs reporting data on delivery of full operating capability indicated estimated delays of over 2 years on average. None of the selected programs reported delivering full operating capability for all increments.

Following are two examples of the detailed program assessments found in the GAO report—

• Automated Commercial Environment (ACE) (Customs and Border Protection) – ACE is intended to “facilitate the movement of legitimate trade, strengthen border security, and serve as the single point of collection and access for trade data among federal agencies.”  Unfortunately, “the initial software releases delivered between 2003 and 2005 significantly exceeded their estimated costs” and “three remaining software releases will not be completed as initially planned.”  Moreover, GAO reported that “program officials do not expect ACE to deliver all initially planned capabilities.”  What’s going on here?  GAO noted that the number of lines of software code increased from 1.26 million to 4.26 million.  Hello, that’s an increase of 338 percent!  How did that happen?  “Program officials said requirements growth and lack of requirements definition contributed to the schedule delays and contract cost overruns.”  GAO reported that the future of the program is in doubt.

• Electronic Baggage Screening Program (EBSP) (Transportation Security Administration – EBSP is responsible for “screening all checked airline baggage in the United States.”  The program relies on Explosive Detection System and Explosives Trace Detector devices as its primary screening technologies.  GAO reported that the program’s total acquisition cost has increased from $11.36 billion to $15.32 billion, and that the program’s total life-cycle cost estimate has increased from $19.93 billion to $23.7 billion, an increase of nearly 20 percent.  The program recently received $700 million in ARRA (Recovery Act) funds.  Despite the cost growth, “a substantial portion of legacy equipment is now nearing the projected end of its useful life” and needs to be replaced. Thus, the program will likely be funded and will continue.

GAO didn’t stop there.  The report also discussed the issues that led to the cost and schedule impacts.  GAO opined that the following problems contributed to DHS program problems—

• The responsible officials have raised concerns that many programs used cost estimation methods that did not follow established best practices, such as fully defining program requirements, accounting for sustainment costs, and including costs for the full life cycle of a program. As a result, officials have doubts about the credibility, comprehensiveness, and accuracy of most program cost estimates.

• Inaccurate or incomplete cost estimates were likely a factor in cost growth for the programs we reviewed, according to DHS officials. In some cases, programs reported that changes in scope or requirements contributed to cost growth. Further, initial cost estimates for most programs were developed after the start of acquisition activities, so they do not capture earlier cost changes.

• The major acquisition programs we assessed experienced similar planning challenges affecting cost and schedule outcomes: unapproved or unstable baseline requirements; program office workforce shortages; long-term support, and acquisition cost planning. 

• Over half of the programs we reviewed awarded contracts to initiate acquisition activities without component or department approval of documents essential to planning acquisitions, setting operational requirements, and establishing acquisition program baselines. … 7 of 15 programs in our review did not have approved baselines until 2 years or more after program start. For example, the Secure Flight program did not have an approved program baseline until over 4 years after program start, and the TECS Modernization program did not have a component or department approved baseline after more than 6 years.  Most of the programs that had established baseline requirements changed or plan to change them. For example, seven programs with an approved program baseline changed key requirements after their initial approval. An additional three programs were revising baseline requirements, pending APB approval, at the time we completed our review.

• Almost half of all programs reported concerns over funding, although the nature and cause of those concerns varied among programs. … For example, after DHS approved and funded the Automated Commercial Environment program, program officials found that they did not have a full understanding of all requirements and have experienced cost growth. Program officials said the future of the program is dependent on departmental funding decisions.  [In addition] the Electronic Baggage Screening Program reported that annual compliance costs and recapitalization expenses, when combined with recurring programwide costs, have sometimes exceeded the budget. In future years, program costs could grow significantly as cost estimates are reassessed to include new requirements.

So it turns out that DHS can’t manage its programs for the generally the same reasons that NASA and DOD can’t manage their programs—i.e., a lack of rigorous initial definition of requirements leading to scope expansion, a lack of executive approvals and/or buy-in for program business cases and budget baselines, and uncertainty over long-term funding.  Sounds like the normal program management environment to us.

And as we noted at the beginning of this article, the current environment is unforgiving to the typical excuses for “suboptimal outcomes”.  We hope DHS gets its act together, soon.

When last we looked at this problem-plagued plane procurement, President Obama and his Pentagon “indicated it would welcome” a bid from a foreign manufacturer—which at the time everybody thought would be EADS.  But then a wildcard was introduced into the game, as a Russian aircraft firm reportedly was gearing-up to offer a variant of the Illyushin-96 widebody jetliner, to be designated Il-98.  We smirked, picturing the face of Boeing executives, who had worked so hard to turn the competition into a “low-price, technically acceptable” game in which there was almost no chance for the other side to win—and forcing Northrop Grumman to concede.  Given the huge gap in labor and material costs between the two entities, we opined that there was essentially no chance for Boeing to beat the Russians on price.  The only way for Boeing to beat the Russians, and to secure what has been called the largest Pentagon contract ever, would be to change the game and, if that happened, there were many European nations prepared to cry “foul”.

But almost immediately the reports were denied, and the competition settled down to Boeing versus EADS.  But quite recently (July, 2010) reports surfaced that yet another bidder had entered the field—and this time it was Antonov out of the Ukraine.  Employing a strategy similar to that reported for Illyushin, Antonov has executed an agreement to sell through a Southern California.-based defense contractor, U.S. Aerospace, Inc.  According to the article at AirForceTimes (link above)—

Under terms of a “strategic cooperation agreement” signed July 1 in Kiev, Ukraine, “final assembly” of an U.S. Aerospace-Antonov tanker would take place on U.S. soil. Defense News obtained a copy of the agreement. The American company would oversee that stage of production.

U.S. Aerospace would coordinate the bidding process, negotiate with the Air Force, coordinate with subcontractors, ensure conformity of aircraft to requirements of RFP for KC-X Tanker Modernization Program,” according to the agreement.

Antonov would integrate components into the aircraft, work with its U.S. partner on preparing the aircraft for certification and testing, and “manufacturing and delivering to [U.S. Aerospace] specified aircraft and components,” states the pact.

What is Antonov offering the U.S. Air Force?  According to that same article—

The source said U.S. Aerospace and Antonov plan to enter the four-engine AN-124-100, and a two-engine variant of that airframe known as the AN-122.  In a further twist, the U.S.-Ukrainian team plans to enter “a new plane designed to meet the [KC-X] specs, dubbed the AN-112,” the source told Defense News.  The AN-112 would be, if eventually entered, the only plane in the race designed specifically for the Air Force’s tanker requirements.

Bids were due to be submitted by July 9, 2010.  But at least one source has reported that the new bidder has requested a 60-day extension in order to prepare its bid.  As of this date, it is not clear whether the Pentagon will agree to the extension.

This Reuters article notes that—

John Kirkland, a Los Angeles-based attorney for U.S. Aerospace, [said] the [Antonov] team would offer the Pentagon a ‘dramatically’ lower price for a far more capable plane.

Kirkland said Antonov, maker of the world's largest cargo planes, had modified an existing military cargo plane to meet U.S. specifications. Unlike the commercial derivative planes offered by rival bidders, the plane had a rear cargo door, a more stable airframe, and could land on dirt runways.

(We should note that Mr. Kirkland was also involved in the Illyushin bid as well.)

Some commenters dismissed the tardy bid as a “waste of time” (according to the Reuters article) because of various issues—among them the financial troubles of U.S. Aerospace, Inc.  The company, which trades over-the-counter (as USAE), “reported a net loss of $14 million in 2009,” according to Reuters.  The article also had this to say about the U.S. face of the Antonov team—

The company told investors in May it was in default on several notes and had an accumulated deficit of $28 million, which raised substantial concerns about its future unless it was able to secure additional debt and equity financing.

It’s an old adage that, if the RFP is the first time a bidder learns of an opportunity, it shouldn’t bother bidding—because it has already lost.  We wonder if the Antonov team (including Mr. Kirkland) has heard of that adage, or believes it applies to this situation.  Time will tell.