NASA management agreed with the prior audit findings. However, after issuance of Report KE-06-001, management conducted further studies. Due to the complexity of planned modification work and scheduling conflicts, NASA management determined the next two OMDP's should be at Palmdale. (A list of OMDP-related reports is in Appendix 4.)

The purpose of the followup audit was to evaluate NASA's decisions to continue using the Palmdale facility for OMDP's and to determine whether the award of the single prime contract affects future decisions about OMDP location. We evaluated cost factors and programmatic impacts at the following OMDP locations:

• Palmdale, California,
• existing KSC facilities, and
• a new KSC modification facility.

Palmdale. NASA would pay more by scheduling OMDP's at Palmdale rather than at KSC, but risk would be greatly reduced compared to using existing KSC facilities. Locating OMDP's at Palmdale, at least until deployment of critical ISS components, would provide KSC with more flexibility to address and correct anomalies while processing the vehicles for ISS launches. Further, scheduling OMDP's at Palmdale takes advantage of the organizational structure and workforce that are in place for orbiter inspections and major modifications. The Palmdale facility can also support large-scale orbiter restorations or re-manufacture of an orbiter that may be required as scheduled service life proceeds beyond 2012 to 2030. Loss of such capability introduces risk by reducing options available to NASA management in Shuttle operations.

Existing KSC Facilities. NASA could save $7.6 million per OMDP (or $5.7 million annually) if OMDP's were scheduled in existing KSC facilities rather than at Palmdale. Existing facilities and infrastructure would support a KSC OMDP. However, significant risk is associated with performing OMDP and orbiter processing in the existing three orbiter processing facilities (OPF's). Major modifications have not been performed in the KSC facilities, and significant difficulties could arise in doing so in support of the more aggressive manifest schedule warranted by ISS. Delays in the ISS resulting from Shuttle nonavailability would have a significant cost and schedule impact on the ISS program because the Shuttle is the primary means to deploy space station components. We believe this risk outweighs the potential cost savings.

A New KSC Modification Facility. NASA could save $3.9 million per OMDP (or $2.9 million annually) if a new facility is built. A new facility would reduce risk to the current manifest, but the cost recovery period does not warrant its construction. The total investment would cost NASA about $49.7 million.

The savings identified in Report KE-96-001 were based primarily on eliminating duplicate facility and infrastructure costs. The prior audit concluded that KSC could perform OMDP's based on the assumption that Palmdale would close. Also, the prior audit compared incremental costs at KSC with the full-cost for OMDP's at Palmdale. Since Report KE-96-001 was issued, conditions have changed:

• The KSC workforce has been significantly reduced.
• Boeing North American (BNA) transferred its manufacturing operations to Palmdale. The Palmdale facility is unlikely to close if OMDP's are at KSC because other contract work is completed in the facility.

The single prime contract for Shuttle operations contains the OMDP requirement but is not specific as to location. Therefore, there is no contractual requirement governing the location of OMDP performance. When OMDP's are at Palmdale, United Space Alliance (USA) subcontracts the work to BNA. If OMDP's are located at KSC, USA would perform the work.