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Senate Kills GPS OCX Funding Due to Cost Overruns — Now $5.3 Billion and Rising

May 17, 2016
Inside GNSS, May/June 2016

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The Senate Armed Services Committee zeroed out the Pentagon's $393 funding request for the new GPS ground control system during its May 11 markup, asserting that the program's cost overruns — with a total cost that may reach $5.3 billion, up from an original $1.5 billion — had breached the Nunn-McCurdy Act.

Under the act, such a breach could result in termination of the Next Generation Operational Control System or OCX unless the Secretary of Defense goes through an in-depth review of the program and personally certifies its critical importance.

The Senate is withholding the funds until it receives a Nunn-McCurdy certification, confirmed an expert familiar with the issue, who spoke on condition of anonymity in order discuss the matter.

By law the certification must state that the program is essential to the national security, is more important than other programs that will have to be cut to accommodate cost overruns and that there are no acceptable alternatives. The certification also must include new cost estimates that have been determined by the director of cost assessment and program evaluation to be reasonable.

Exactly how much the Air Force believes the program is going to cost, however, remains unclear. The project is already five years behind schedule and may slip further.

Raytheon won the OCX contract, originally valued at slightly more than $1.5 billion with options, when awarded in 2010. The program was rebaselined in 2014 and was expected to have its budget adjusted again in 2015. After a December 4 Deep Dive review last year the Air Force announced that it was extending the program by two years and would work to develop a new cost estimate.

However, given the end-of-year timing of the Deep Dive review and the need to submit a budget to Congress, the service put in a fiscal year 2017 budget request for $393 million as part of an overall program cost of $4.82 billion — a figure described by officials as a placeholder until a better estimate could be devised. Within that number, according to the FY17 budget materials, was a total cost of $3.70 billion to complete the Phase B OCX Block 1 and 2 development.

Project Cost a Moving Target
According to a Bloomberg news report published today (May 16, 2016), however, the total cost for the program may have jumped to as much as $5.3 billion as of early March. Frank Kendall, the Department of Defense (DoD) under secretary of defense for acquisition, technology and logistics (AT&L) held a second Deep Dive review in early March.

An Air Force spokesman said, however, that the $5.3 billion figure did not reflect contractor performance information that Raytheon, the OCX contractor, must still collect over the next few months to support a new, official cost determination called a Service Cost Position.

"This estimate is identified as a 24-month cost excursion, not a Service Cost Position," said Air Force spokesperson Capt. AnnMarie Annicelli in a statement referring to the $5.3 billion number. Moreover, she noted, the Air Force had only a 25 percent confidence in the 24-month “cost excursion.”

"Given the low confidence of the cost excursion, [the Air Force] doesn't consider the estimate to be representative of a program will-cost and recommended the program not baseline to the cost excursion at this time," she wrote.

The new cost estimate doesn’t include a $96 million contract awarded to Lockheed Martin last December to modify the current GPS control segment to operate all GPS III satellites that are launched prior to the transition to OCX.

Todd Harrison, director of defense budget analysis at the Center for Strategic and International Studies, said he believed the cost excursion was a short-term estimate as opposed to "the Service Cost Position, which is what they have signed off that they believe is a true and accurate reflection of what the system will cost."

It is interesting, added Harrison, "that the cost estimate that they've got is such a low confidence, and they recognize that, and they're not using it as their Service Cost Position. Things with a confidence level of 25 percent — that's pretty terrible."

What the ultimate cost ultimately will be remains to be seen and it could, indeed, rise further. Kendall has made it clear he may cancel the program if Raytheon cannot perform as promised.

"They're kind of backed into a corner here," said Harrison, noting that DoD needs the new ground system to be able to use the new features of the GPS III satellites, including capabilities that could help warfighters deal with the sort of GPS jamming already being used by North Korea and allegedly used by Russia.

"This is an important capability, they can't just do without it," said Harrison. "They've got to find a way to upgrade the GPS ground system."

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