Cost Overrun Is Expected To Trigger Nunn-McCurdy Review

— The U.S. Air Force will formally notify Congress shortly that it is experiencing cost growth on the planned purchase of the fourth spacecraft in a line of secure communications satellites, according to Gary Payton, deputy undersecretary of the Air Force for space programs. Payton said the cost growth is large enough to trigger a mandatory review of potential alternatives.

The cost growth was not caused by any technical problems on the program, the Advanced Extremely High Frequency (AEHF) satellites, but is the result of parts obsolescence that will effect the fourth spacecraft to be built, Payton said.

The Air Force originally planned to buy five satellites when it awarded the AEHF contract to Lockheed Martin Space Systems of Sunnyvale, Calif., in 2001. But as design work began on the Transformational Satellite (T-Sat) communications system, the service subsequently restructured the AEHF program and limited the production run for it to no more than three satellites. However, Congress, concerned about potential delays to the T-Sat program, pushed the Air Force to purchase at least one more AEHF satellite. The Air Force formally included the fourth satellite in its budget planning for 2008.

Payton said in an Aug. 1 interview that the production run for components for the first three satellites ended three and a half years ago, and a recent review of the individual hardware components needed for the fourth satellite found “a lot of obsolescence.” Examples of parts that are no longer available from the original suppliers include gyroscopes and circuits used in a variety of payload components, Payton said.

The service still is determining the cost impact, which will be part of the mandatory Nunn-McCurdy review, he said. The Nunn-McCurdy review takes its name from legislation that requires the Pentagon to justify continuation of a program whose cost has grown by 25 percent or more. The legislation also requires notification to Congress, but not justification for program continuation, following cost growth of 15 percent or more. Payton said the cost growth on the fourth AEHF satellite likely will be at the 25 percent or greater level.

A Nunn-McCurdy review includes an examination of potential alternatives to the program of record. The review of alternatives likely will be confined to the fourth AEHF satellite, not the initial three, Payton said.

The only viable alterative appears to involve forgoing the fourth AEHF satellite, and repositioning the first three to cover the most high priority areas, according to an official familiar with the program. The military then would reposition any Milstar 2 satellites that remain at that time to cover lower-priority areas, the official said. Milstar 2 satellites provide significantly lower data rates and will be well past their design life by that time, the official added.

In addition to parts obsolescence issues, the cost of the fourth AEHF satellite has gone up significantly because of an inefficient acquisition plan, the official said. The first two AEHF satellites were built at the same time, and the fourth satellite would have been far less expensive had it been built at the same time as the third spacecraft, the official said. However, the payload team at Northrop Grumman Space Technology, the primary subcontractor on the effort, has been dispersed throughout the company. Only those who will handle launch support and initial on-orbit testing remain, the official said.

If the Pentagon does purchase a fourth AEHF following the Nunn-McCurdy review, the cost overrun could force the Air Force to delay the first T-Sat launch slated for late 2018, the official said. The service is unlikely to take money away from non-space efforts to pay the bill, and T-Sat, which already has seen its first launch date move out several times, is the most likely candidate, the official said.

The Air Force had originally eyed a launch for the first AEHF spacecraft in 2006. The service now expects to launch it in the second half of 2009, Payton said.

Steve Tatum, a Lockheed Martin spokesman, deferred to the Air Force for comment.