ES, IG-99-005, Space Station Correction Action Plans

SPACE STATION
CORRECTIVE ACTION PLANS
IG-99-007

Executive Summary

Background
In January 1995, the Lyndon B. Johnson Space Center (Johnson) signed a $5.638 billion contract⁽¹⁾ with The Boeing Company (Boeing) for the International Space Station (Space Station). The Space Station contract includes requirements for the design, development, manufacture, integration, test, verification, and delivery to NASA of the U.S. On-Orbit Segment⁽²⁾ of the Space Station. In accordance with the terms of the contract, Boeing prepares a monthly Performance Measurement System Report (PMSR), which provides cost and schedule performance data.⁽³⁾ The Space Station Program Office (Program Office) uses the PMSR to help manage the Space Station Program, to assess performance trends, and to provide data on areas that need management attention. Part of the PMSR is the Variance Analysis Report, which Boeing uses to identify problems, monitor progress, record corrective action plans, and report results to management. Appendix B contains the requirements for the Variance Analysis Report.

Objectives
Our objectives were to assess the adequacy of corrective action plans by Boeing and Boeing Development Sites, as identified in the PMSR, for addressing Space Station cost and schedule variances and to assess the Government's oversight of the plans. Appendix A contains additional details on objectives, scope, and methodology.

Results of Audit
Boeing's corrective action plans and Johnson's oversight of the plans need improvement. The Space Station Program has experienced a continued deterioration in cost and schedule performance after a September 1997 adjustment of the contract cost baseline,⁽⁴⁾ but variance analyses and corrective action plans have not been effectively utilized to control the negative variances. Additionally, Johnson did not provide effective oversight of Government surveillance of the Earned Value Management System, including the verification of corrective actions related to cost and schedule variances. As a result, the Space Station Program lacked assurance that negative variances were identified and corrective actions were taken to reduce associated risk (see Finding A). Further, Johnson did not ensure that Boeing took corrective actions on conditions noted since at least March 1997 to properly prepare and submit Variance Analysis Reports. As a result, Variance Analysis Reports may not adequately identify cost and schedule risks (see Finding B).

Other Matters of Interest
Boeing Huntington Beach did not properly classify in its March 1998 PMSR $64.4 million of the $76.9 million estimated cost variance (overrun) at contract completion. As a result, Boeing did not prepare corrective action plans to include identifying the risks associated with the $64.4 million in estimated overruns. In September 1998, we discussed our audit results with Program Office officials. They took prompt corrective action to direct Boeing to properly classify estimated variance at contract completion. Additional details are in Appendix C.

Recommendations
NASA should ensure effective surveillance of the Earned Value Management System and direct Boeing to improve the quality of corrective action plans identified in Variance Analysis Reports.

Management's Response
Management concurred with the recommendations and stated it was taking action to correct the reported weaknesses. Management reported that personnel were in place at Johnson and at Defense Contract Management Command (DCMC), Boeing Huntington Beach, to ensure that reporting requirements are achieved and to provide adequate surveillance of the Earned Value Management System.

Evaluation of Management's Response
Management's planned and completed actions are responsive except for the requirement for DCMC, Boeing Huntington Beach, to provide adequate surveillance of the Earned Value Management System by personnel who have attained the required competencies and have completed the required courses. Specifically, management has not requested that DCMC provide an Earned Value Management System Surveillance Monitor who has attained Level II Certification and has completed courses in Contractor Performance Management Fundamentals and Intermediate Contractor Performance Management. We request that management further review its position on this matter and provide additional comments.

FOOTNOTES

1. As of December 2, 1998, the value of contract NAS15-10000 was $7.227 billion.

2. The U.S. On-Orbit Segment of the Space Station includes several U.S. elements to be deployed.

3. In addition to Boeing Houston, Texas (the prime contractor), the Boeing Development Sites that prepare a PMSR and contribute to the summary PMSR for the Space Station Program are Boeing Canoga Park, California; Boeing Huntington Beach, California; and Boeing Huntsville, Alabama.

4. The adjustment of the contract baseline eliminated all cost and schedule variances (see Appendixes C and D).

Background	In January 1995, the Lyndon B. Johnson Space Center (Johnson) signed a $5.638 billion contract⁽¹⁾ with The Boeing Company (Boeing) for the International Space Station (Space Station). The Space Station contract includes requirements for the design, development, manufacture, integration, test, verification, and delivery to NASA of the U.S. On-Orbit Segment⁽²⁾ of the Space Station. In accordance with the terms of the contract, Boeing prepares a monthly Performance Measurement System Report (PMSR), which provides cost and schedule performance data.⁽³⁾ The Space Station Program Office (Program Office) uses the PMSR to help manage the Space Station Program, to assess performance trends, and to provide data on areas that need management attention. Part of the PMSR is the Variance Analysis Report, which Boeing uses to identify problems, monitor progress, record corrective action plans, and report results to management. Appendix B contains the requirements for the Variance Analysis Report.
Objectives	Our objectives were to assess the adequacy of corrective action plans by Boeing and Boeing Development Sites, as identified in the PMSR, for addressing Space Station cost and schedule variances and to assess the Government's oversight of the plans. Appendix A contains additional details on objectives, scope, and methodology.
Results of Audit	Boeing's corrective action plans and Johnson's oversight of the plans need improvement. The Space Station Program has experienced a continued deterioration in cost and schedule performance after a September 1997 adjustment of the contract cost baseline,⁽⁴⁾ but variance analyses and corrective action plans have not been effectively utilized to control the negative variances. Additionally, Johnson did not provide effective oversight of Government surveillance of the Earned Value Management System, including the verification of corrective actions related to cost and schedule variances. As a result, the Space Station Program lacked assurance that negative variances were identified and corrective actions were taken to reduce associated risk (see Finding A). Further, Johnson did not ensure that Boeing took corrective actions on conditions noted since at least March 1997 to properly prepare and submit Variance Analysis Reports. As a result, Variance Analysis Reports may not adequately identify cost and schedule risks (see Finding B).
Other Matters of Interest	Boeing Huntington Beach did not properly classify in its March 1998 PMSR $64.4 million of the $76.9 million estimated cost variance (overrun) at contract completion. As a result, Boeing did not prepare corrective action plans to include identifying the risks associated with the $64.4 million in estimated overruns. In September 1998, we discussed our audit results with Program Office officials. They took prompt corrective action to direct Boeing to properly classify estimated variance at contract completion. Additional details are in Appendix C.
Recommendations	NASA should ensure effective surveillance of the Earned Value Management System and direct Boeing to improve the quality of corrective action plans identified in Variance Analysis Reports.
Management's Response	Management concurred with the recommendations and stated it was taking action to correct the reported weaknesses. Management reported that personnel were in place at Johnson and at Defense Contract Management Command (DCMC), Boeing Huntington Beach, to ensure that reporting requirements are achieved and to provide adequate surveillance of the Earned Value Management System.
Evaluation of Management's Response	Management's planned and completed actions are responsive except for the requirement for DCMC, Boeing Huntington Beach, to provide adequate surveillance of the Earned Value Management System by personnel who have attained the required competencies and have completed the required courses. Specifically, management has not requested that DCMC provide an Earned Value Management System Surveillance Monitor who has attained Level II Certification and has completed courses in Contractor Performance Management Fundamentals and Intermediate Contractor Performance Management. We request that management further review its position on this matter and provide additional comments.