Audit Says NASA Hid $17 Billion in Orion-related Costs

Orion undergoing testing at Plum Brook Station. (Credit: NASA–Marvin Smith)

by Douglas Messier
Managing Editor

A new audit of the Orion lunar crew vehicle has found that NASA has excluded $17 billion in program‐related costs from its budget estimate, and the space agency has paid “overly generous” performance awards to prime contractor Lockheed Martin despite the program being over budget and behind schedule.

The $17 billion in excluded costs resulted from NASA’s decision to deviate from the Life Cycle Cost estimate required for all major space programs costing more than $250 million. The deviation covers fiscal years 2006-2030 for the crewed spacecraft, which will be used in the Artemis lunar program.

“NASA tailored the [Agency Baseline Commitment] (ABC) to only include costs related to Artemis I and II and a schedule based on the proposed Artemis II launch date,” the audit said. “Based on these limitations, in 2015 the Agency set the program’s ABC at $11.3 billion, split between $4.5 billion in formulation costs and $6.8 billion in development costs, with Artemis II launch readiness expected by April 2023.

Credit: NASA OIG

“This tailored approach meant that cost increases or schedule delays not directly attributable to Artemis I and II activities would not be tracked or reported to Congress and OMB through the ABC process,” the document added.

“Although these exclusions have been approved, the tailoring of cost reporting requirements significantly limits visibility into the total amount spent on development and production efforts,” the report said.

Costs not included in NASA’s tailored approach include:

Constellation Program Costs. The Orion Program does not currently include in its cost reporting any of the $6.3 billion expended on the Orion Crew Exploration Vehicle under the Constellation Program even though the work performed under that contract from 2006 to 2011 served as the foundation for the current program.

Post-Artemis II Development. The program is planning for an additional $819.6 million in development costs not included in the baseline related to missions beyond Artemis II.

The Orion spacecraft for Artemis missions III to V will cost on average nearly $900 million each—a cost that does not include the expense for development of the docking system or additional per-mission pricing for docking hardware.

Other “Non-Life Cycle” Costs. The program has excluded approximately $181.5 million in other costs (summarized in Appendix E) that are also not reported as part of the program’s Life Cycle Cost.

Production Costs for Missions Beyond the Artemis II Mission. These costs are excluded from ABC cost reporting, and are instead reported through the annual budget process. This approach understates the overall Life Cycle Cost of Orion by approximately $10 billion through FY 2030.

The audit found the Orion project has gone $900 million over budget since the cost and schedule baseline was established in 2015. The overrun is expected to rise to at least $1.4 billion through 2023.

Despite the budget increase, NASA has been “overly generous” in awarding $740.9 million in performance fees to prime contractor Lockheed Martin.

“We attribute these overly generous award fees to the subjective nature of award fee evaluations coupled with nebulous and dated criteria used by the program,” the report said. “The result, for both the Orion Program and frequently other NASA programs, is that adjectival ratings such as ‘Excellent’ given to the contractor often do not accurately reflect performance shortfalls.”

The audit questioned “at minimum” $27.8 million in fees between September 2006 to April 2015.

“In addition, we found the continued use of the ‘Award Fee for End-Item Contracts’ clause can serve as a disincentive to contractor performance because of the second opportunity to collect unearned fees once the end-item (in this case, the Orion capsule) is delivered,” the report stated.

The audit’s findings in brief follow.

NASA’S Management of the
Orion Multi-Purpose Crew Vehicle Program

Office of Inspector General
July 16, 2020

FINDINGS IN BRIEF

Why We Performed this Audit

Since 2006, NASA has been developing the Orion Multi‐Purpose Crew Vehicle (Orion) to transport astronauts beyond low Earth orbit. With the announcement of the Artemis Program in May 2019, NASA set the ambitious goal of using Orion to return humans to the Moon by 2024. As of July 2020 Orion has flown three test flights but none with astronauts on board.

The Orion Program is one‐third of NASA’s Exploration System Development Division, which is also overseeing development of a heavy‐lift rocket known as the Space Launch System (SLS) and a ground and launch support program known as Exploration Ground Systems.

The Orion vehicle is being built by prime contractor Lockheed Martin Corporation (Lockheed). In addition, a portion of the vehicle is being provided by the European Space Agency (ESA).

Artemis I—the first launch of the combined SLS‐Orion system—is a planned 22‐ to 25‐day uncrewed mission anticipated for November 2021, over 3 years later than initially scheduled.

Artemis II will be the first crewed flight of the combined system and NASA has committed to a launch readiness date of no later than April 2023, but slippage in the Artemis I launch date likely will result in a delay of the Artemis II launch to August 2023.

According to our estimates, by the time Artemis II launches the Agency will have spent $19 billion in development costs on Orion ($6.3 billion of which was spent on development of the crew vehicle under the predecessor Constellation Program).

NASA plans to spend an additional $3 billion in production costs on the Orion Program by the time Artemis II launches, $2.2 billion of which will fall under a new contract with Lockheed for future Artemis missions signed in September 2019.

Artemis III, which is included in this new production contract, will support the return of humans to the Moon in 2024. The total projected Life Cycle Cost for the Orion spacecraft through FY 2030 is $29.5 billion.

Given Orion’s importance to NASA’s human exploration plans, we examined the Agency’s management of the program. Specifically, we assessed

(1) the extent to which NASA is tracking and appropriately reporting overall cost goals;

(2) whether NASA has met cost, schedule, and performance goals in readying Orion for Artemis I and Artemis II;

(3) NASA’s success in managing its development contract with Lockheed to control program costs; and

(4) the program’s efforts to increase affordability and efficiency.

To conduct this audit, we observed on‐going testing and assembly efforts at various locations; reviewed program information on cost and budget, management decisions, and contracts; and interviewed NASA and Lockheed personnel.

What We Found

We found that NASA’s exclusion of more than $17 billion in Orion‐related costs has hindered the overall transparency of the vehicle’s complete costs. Both federal law and NASA policy call for a Life Cycle Cost estimate for all major science and space programs costing more than $250 million, and for the Agency Baseline Commitment (ABC) to be based on all formulation and development costs.

The Orion Program received approval from the NASA Associate Administrator to deviate from those requirements, resulting in exclusion of $17.5 billion in Orion‐related costs from fiscal year (FY) 2006 to FY 2030 due to the Agency’s tailored approach to program management and cost reporting.

Although these exclusions have been approved, the tailoring of these cost reporting requirements significantly limits visibility into the total amount spent on development and production efforts.

We also found that Orion has continued to experience cost increases and schedule delays. Since the cost and schedule baseline was set in 2015, the program has experienced over $900 million in cost growth through 2019, a figure expected to rise to at least $1.4 billion through 2023.

At the same time, the program’s schedule for Artemis I has slipped more than 3 years, while the schedule for Artemis II has slipped 2 years. Additional delays are likely as both Orion and SLS complete development efforts for Artemis I in the next 16 months and prepare for Artemis II.

Meanwhile, Orion is proceeding with production of crew capsules for future Artemis missions before completing key development activities, increasing the risk of additional cost growth and schedule delays as issues are discovered late in the development effort, potentially requiring costly rework.

Further, NASA’s award fee practices have hindered the program’s control of contract costs. Given the Orion Program’s significant cost increases and schedule delays, we found that NASA has been overly generous with award fees provided to Lockheed.

From contract inception in 2006 through January 2020, Lockheed received $740.9 million in award fees. We attribute these overly generous award fees to the subjective nature of award fee evaluations coupled with nebulous and dated criteria used by the program.

The result, for both the Orion Program and frequently other NASA programs, is that adjectival ratings such as “Excellent” given to the contractor often do not accurately reflect performance shortfalls.

At a minimum, we question $27.8 million in fees awarded to Lockheed from September 2006 to April 2015. In addition, we found the continued use of the “Award Fee for End-Item Contracts” clause can serve as a disincentive to contractor performance because of the second opportunity to collect unearned fees once the end-item (in this case, the Orion capsule) is delivered.

Finally, NASA has undertaken a series of development, production, and infrastructure initiatives aimed at reducing or controlling costs. These actions include modifications to the contract, award fee restrictions, new software development and cost data tracking initiatives, the use of incentive-fee and firm-fixed-price contracts, batch ordering, spacecraft component reuse, updated facilities, and reduction and consolidation of offices as development ends and production begins.

While we view these initiatives as positive steps, most are in the early stages and the extent to which these initiatives will appreciably decrease Orion’s costs is unclear.

What We Recommended

To increase the sustainability, accountability, and transparency of the Orion Program as it pursues the goal of landing astronauts on the moon by 2024, we recommended the Associate Administrator for Human Exploration and Operations Mission Directorate and the Deputy Associate Administrator for Exploration Systems Development, in conjunction with the Johnson Center Director, Johnson Office of Procurement, and Orion Program,

(1) ensure total development and production contract costs currently not reported as part of the ABC baseline are included in quarterly financial status reporting to the Office of the Chief Financial Officer, OMB, and Congress, and

(2) to the extent practicable, adjust the production schedules for Artemis IV and V to better align with the successful demonstration of Artemis II to reduce schedule delays associated with potential rework.

To improve NASA’s management of award fees, we recommended the Assistant Administrator for Procurement

(3) ensure procurement officials minimize the availability of award fees when contract modifications and value increases are the result of shortcomings in contractor performance, and require documentation of the rationale for any award fees granted.

We provided a draft of this report to NASA management who concurred with each of our recommendations. We consider management’s comments responsive for two of the three recommendations; as such, those recommendations will be closed upon completion and verification of the proposed corrective actions.

In its response to Recommendation 1, management stated Orion will include ABC, production and operations, and post-Artemis II costs in regular OCFO reporting starting with the first quarter of fiscal year 2021.

However, we find this action only partially responsive because management further stated that it will only include in its financial reporting costs pertaining to the current Orion Program of Record, which excludes Constellation Program costs incurred under the same development contract.

We acknowledge that it may not be practicable to include the $6.3 billion in sunk costs associated with Orion development under the Constellation Program when evaluating the program’s tracking of ABC costs against the Congressional notification thresholds.

However, in our judgment a complete picture of Orion’s Life Cycle Costs should include all costs related to the program regardless of funding source or management control over its planned lifespan. Therefore, this recommendation is unresolved pending further discussions with the Agency.