NASA Inspector General’s Report Criticizes Agency’s Cost and Schedule Practices

NASA’s Space Launch System (SLS) rocket with the Orion spacecraft aboard is seen at sunrise atop a mobile launcher at Launch Complex 39B, Monday, April 4, 2022, as the Artemis I launch team conducts the wet dress rehearsal test at NASA’s Kennedy Space Center in Florida. (Credit: NASA/Joel Kowsky)

Congress is unable to make informed funding decisions about NASA’s multi-mission programs because the space agency is not providing it with federally mandated cost and schedule information, according to a new report from the NASA Office of Inspector General.

“Specifically, for the programs supporting Artemis, the Agency’s return-to-the-Moon and ultimately to Mars effort, NASA is circumventing required cost and schedule controls by categorizing certain production costs as operations costs when, in our opinion, they should be categorized as development costs,” the report said.

The IG made seven recommendations for improving NASA’s cost and scheduling activities.

(1) estimate, track, and report ongoing production costs for all major programs, such as SLS and Orion, as development costs and not as operations costs;

(2) include in the next Major Program Annual Report (MPAR) to Congress the estimated baseline life-cycle cost and schedule for each Artemis mission;

(3) should NASA elect to estimate, track, and report life-cycle costs for major programs or activities by component rather than by mission, include estimates for each component in the MPAR and provide Congress a cost estimate, outside of the MPAR, for each Artemis mission currently planned; and

(4) develop a formal process by which a risk-based probabilistic analysis is conducted to cover the global and interdependency risks of major programs and projects when those individual programs and projects are required for the successful implementation of a mission.

(5) establish procedural requirements to report full life-cycle cost and schedule for all major programs should NASA elect to estimate, track, and report baseline costs for major programs or activities by component rather than by mission;

(6) review NPR 7120.5F and update it as necessary to ensure compliance with laws and regulations and recommendations 1 through 5, as well as ensuring definitions of terms, such as “capability” and “life cycle,” are consistent with those established in federal statutes and other NASA policy documents; and

(7) establish procedural requirements for a risk posture analysis to ensure that major programs supporting multiple missions identify and estimate the cost and schedule impact of global and major interdependency risks.

NASA concurred with Recommendations 3 and 4 and partially concurred with Recommendation 7 and described what actions it would take to address them.

“We consider the proposed actions for these three recommendations responsive and will close them upon completion and verification,” the report said.

“The Agency did not concur with Recommendations 1, 2, 5, and 6, stating that it is meeting the statutory requirements of Title 51 regarding the reporting of major program life-cycle and development costs. We disagree and believe changes NASA has recently incorporated into NPR 7120.5F do not comply with statutory requirements and will further limit transparency and tracking of the costs associated with multi-billion dollar programs and missions. Therefore, these four recommendations remain unresolved pending further discussions with the Agency,” the document added.

The report’s Results in Brief section and other excerpts follow.

NASA’s Cost Estimating and Reporting Practices for Multi-Mission Programs
Office of Inspector General
April 7, 2022

Results in Brief

Why We Performed This Audit

NASA has a long history of groundbreaking accomplishments but has struggled to establish credible cost estimates for some major acquisitions; particularly, human space flight missions, which are comprised of multiple programs with numerous deliverables—like rockets and spacecraft—stretching over many years. As a result, Congress and other stakeholders lack meaningful visibility into the complete costs of NASA’s major acquisitions. Without adequate transparency, it is difficult for stakeholders to hold the Agency accountable for these large, years-long expenditures of taxpayer funds. To its credit, NASA has acknowledged the need for increased transparency of cost and schedule in its deep space exploration missions.

We initiated this audit to assess NASA’s life-cycle cost estimating and reporting practices and policies for major programs with multiple deliverables. Specifically, we examined whether NASA’s program management approach provides the necessary transparency and accountability for performance to the Agency’s external stakeholders, and whether NASA’s processes for estimating, tracking, and reporting life-cycle cost and schedule are adequate for these major program acquisitions. To complete our work, we assessed NASA’s cost and schedule estimating and reporting practices for compliance with federal law and NASA policy; examined the estimates and commitments of certain major human exploration programs; and interviewed numerous Agency officials.

What We Found

Congress is not receiving the federally mandated cost and schedule information it needs to make fully informed funding decisions for NASA’s multi-mission programs. Specifically, for the programs supporting Artemis, the Agency’s return-to-the-Moon and ultimately to Mars effort, NASA is circumventing required cost and schedule controls by categorizing certain production costs as operations costs when, in our opinion, they should be categorized as development costs.

When the Constellation Program was cancelled in 2010, Congress directed NASA to continue development of several major components, including the rocket, crew capsule, and ground launch infrastructure. Without clearly defined missions for these major items, NASA only made cost and schedule commitments to Congress to demonstrate the initial capability of each system.

The three separately managed programs —- the Space Launch System (SLS), the Orion Multi-Purpose Crew Vehicle (Orion), and Exploration Ground Systems (EGS) — will provide the primary components for Artemis missions, the first of which is scheduled to launch no earlier than May 2022. Even though NASA has multiple Artemis missions planned, it has not adjusted the three programs’ life-cycle cost estimates or commitments to account for future missions. The result is incomplete cost estimates and commitments for these programs and missions.

We raised questions with the Agency’s recent update to NASA Procedural Requirements (NPR) 7120.5F, NASA Space Flight Program and Project Management Requirements, which establishes the requirements, life-cycle processes, and procedures by which NASA formulates and implements space flight programs and projects. Rather than resolving the major shortcomings with the Agency’s cost estimating and reporting practices, the recent policy amendments formalized known deficiencies as acceptable management practices.

NASA had previously stated that it intended to establish new policies and procedures that would provide additional transparency for major programs with multiple deliverables and unspecified end points. Instead, it codified its poor cost estimating and reporting practices in a new policy that fails to comply with Title 51 of the United States Code, which requires the Agency to annually provide an estimate of the lifecycle cost for major programs, with a detailed breakout of the development cost and program reserves as well as an estimate of the annual costs until development is completed.

The policy also weakens NASA’s ability to account for some risks in programs consisting of multiple projects, a situation that may affect cost and schedule if risks are unidentified in the estimates. Furthermore, the revised policy will not adequately address several open NASA Office of Inspector General (OIG) and Government Accountability Office (GAO) recommendations regarding incomplete and missing cost estimates and the corresponding baseline commitments for programs supporting Artemis missions.

Congress, NASA OIG, and GAO have identified longstanding problems with the completeness and credibility of NASA’s life-cycle cost estimates for major acquisitions. Ultimately, NASA is not providing full visibility into its investments as it begins a multi-decade initiative to transport humans to Mars at a cost that could easily reach into the hundreds of billions of dollars. Because the programs that support these exploration missions are still in their early development stages, it is critical that NASA establish credible and complete cost and schedule estimates.

What We Recommended

In order to ensure that all major programs and activities are reported to Congress in accordance with Title 51 of the United States Code, “National and Commercial Space Programs,” we recommended the Chief Financial Officer, in coordination with the Associate Administrators for the Exploration Systems Development and Space Operations Mission Directorates

(1) estimate, track, and report ongoing production costs for all major programs, such as SLS and Orion, as development costs and not as operations costs;

(2) include in the next Major Program Annual Report (MPAR) to Congress the estimated baseline life-cycle cost and schedule for each Artemis mission;

(3) should NASA elect to estimate, track, and report life-cycle costs for major programs or activities by component rather than by mission, include estimates for each component in the MPAR and provide Congress a cost estimate, outside of the MPAR, for each Artemis mission currently planned; and

(4) develop a formal process by which a risk-based probabilistic analysis is conducted to cover the global and interdependency risks of major programs and projects when those individual programs and projects are required for the successful implementation of a mission.

Furthermore, in order to ensure that all major programs or activities are reported to Congress in accordance with Title 51, we recommended the Chief Engineer

(5) establish procedural requirements to report full life-cycle cost and schedule for all major programs should NASA elect to estimate, track, and report baseline costs for major programs or activities by component rather than by mission;

(6) review NPR 7120.5F and update it as necessary to ensure compliance with laws and regulations and recommendations 1 through 5, as well as ensuring definitions of terms, such as “capability” and “life cycle,” are consistent with those established in federal statutes and other NASA policy documents; and

(7) establish procedural requirements for a risk posture analysis to ensure that major programs supporting multiple missions identify and estimate the cost and schedule impact of global and major interdependency risks.

We provided a draft of this report to NASA management, who concurred with Recommendations 3 and 4 and partially concurred with Recommendation 7 and described planned actions to address them. We consider the proposed actions for these three recommendations responsive and will close them upon completion and verification.

The Agency did not concur with Recommendations 1, 2, 5, and 6, stating that it is meeting the statutory requirements of Title 51 regarding the reporting of major program life-cycle and development costs. We disagree and believe changes NASA has recently incorporated into NPR 7120.5F do not comply with statutory requirements and will further limit transparency and tracking of the costs associated with multi-billion dollar programs and missions. Therefore, these four recommendations remain unresolved pending further discussions with the Agency.

NASA did not concur with Recommendation 1, stating that it does not consider on-going production activities beyond the initial capability commitment (e.g., the first SLS rocket) to be development activities. However, including on-going production of major development activities in Phase E is an approach that NASA only recently implemented for subsequent builds of SLS and Orion vehicle iterations. This exception for additional major program production units did not exist until recent changes incorporated in NPR 7120.5F.

It is the OIG’s position that the cost of additional production units in the operations phase conflicts with Title 51 and NPR 7120.5F, both of which define “development cost” as all costs from the beginning of implementation through the achievement of operational readiness. Since an SLS launch vehicle in production, whether it is the first or tenth unit, has not yet reached operational readiness, we believe that those costs fit within the definition of—and must be considered—development costs. NASA’s new categorization of costs allows the Agency to circumvent the established cost and schedule requirement in Title 51 for all ongoing and future production units.

NASA did not concur with Recommendations 2 and 5, stating that the Agency is committed to providing transparent and accountable communication to Congress and that its reporting is compliant with Title 51. Management highlighted the new methodology implemented in NPR 7120.5F whereby NASA has decided to commit to only initial capability and major upgrade costs in the MPAR for programs with “unspecified Phase E end points.” According to NASA officials, the Agency intends to report—but not commit to—all future production costs as Phase E operations costs in future MPARs; this has not yet been implemented.

We do not agree that this new methodology meets statutory requirements. As specified in Title 51, the first MPAR for each major program shall at a minimum include “an estimate of the life-cycle cost for the program,” which Title 51 defines as “the total of the direct, indirect, recurring, and nonrecurring costs, including the construction of facilities and civil servant costs, and other related expenses incurred or estimated to be incurred in the design, development, verification, production, operation, maintenance, support, and retirement of a program over its planned lifespan, without regard to funding source or management control.”

Title 51 does not provide a waiver for programs with an “unspecified Phase E end point,” nor does it exclude production or operations activities from its definition of “life-cycle cost,” as NASA has recently inserted in NPR 7120.5F. Therefore, we do not believe NASA is complying with the statutory requirements, nor do we believe this methodology will provide the necessary transparency of program or mission costs.

NASA did not concur with Recommendation 6 to review and update NPR 7120.5F, stating that the Agency is already fully compliant with applicable laws and Agency procedural requirements and policy directives, adding that there are no other applicable NASA procedural requirements or policy directives that dictate the term “capability.”

We disagree. NPD 8600.1 defines the term “capability,” as “the ability of a system comprising workforce (Full-Time Equivalent (FTE)/Work-Year Equivalent (WYE)), competencies, assets, equipment, processes, and technologies to provide products and services to achieve objectives or meet requirements.” We believe that this definition is sufficient to describe a capability for the purposes of developing policy requirements, including cost estimates for multi-mission programs. In its commitments to Congress, NASA is inappropriately using a definition of capability in NPR 7120.5F that does not apply to major acquisitions; the Agency is substituting the cost of only the first operational SLS and Orion vehicles (and capability upgrades) for the full life-cycle costs of the SLS and Orion programs.