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E System Cost Methodology SCOPE OF LIFE-CYCLE ESTIMATES Life-cycle costs (LCC) for each of the existing and proposed space-based early warning IR systems, ground- and sea-based radar systems, and defensive layers of intercept systems are defined as consisting of development, production, and sustainment costs with the last named over a 20-yr period. For the purposes of this study, LCC is divided into these three categories to allow assessing the relative costs across the mix of interceptor and sensor system options for improv- ing missile defense. Development costs are the cost of engineering activities needed to design and develop baseline and block upgrades of interceptor boosters, kill vehicles (KVs), early warning sensor and radar systems, and other supporting components and infrastructure, with Missile Defense Agency (MDA) annual budget requests for funds reported as research, development, test, and evaluation (RDT&E) ap- propriations consistent with the military services.1 Procurement costs for the manufacture of missile interceptor KVs, early warning sensor and radar systems, and associated equipment, including, as needed, the purchasing of Aegis-class ships. Construction costs are included as part of procurement and defined as those activities required to build the physical infrastructure, including power generators and maintenance facilities, that sup- ports a given missile defense system or ship-based radar system. Procurement cost also includes the costs of integrating the applicable systems noted above 1 The breakout and definition of the three categories of cost, especially as they relate to the life-cycle cost of ballistic missile interceptors are consistent with recent Congressional Budget Office (CBO) reports on missile defense. 198
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APPENDIX E 199 into the existing infrastructure.2 In addition, the procurement cost of intercep- tors includes the production of the total quantity committed for the inventory to achieve full operational capability (FOC). Sustainment costs are the costs of the routine efforts to operate and maintain the system over a nominal 20-yr lifetime. Depending on the expected service life of the assets, sustainment costs can include the modification, upgrades, and/or replacement costs of procuring new systems as needed. Following development and during the sustainment phase and for the pur- poses of maintaining the necessary operational proficiency, readiness, and train- ing; sustainment costs include costs for conducting engagement exercises and missile tests, which in turn include the costs of procuring test interceptors, target missiles, parts, and so on; and the sustaining engineering costs for performing the tests, assessing the missile’s performance, diagnosing potential success and root causes of failure events as part of the overall integrated system test plans toward achieving the system’s overall operational readiness and training required. 3 RELATIONSHIP OF LIFE-CYCLE COST ESTIMATES TO MDA BUDGET For the purposes of this study, LCC are separated into development, pro- duction, and sustainment costs to enable assessing relative costs across system options for improving missile defense. It should be pointed out that through the DOD FY 2011 President’s Budget (PB), submitted to Congress in February 2010, funding for MDA included funding for production (manufacturing) and sustain- ment operations, all under the single budget category of RDT&E. However, MDA’s most recent budget justification materials for the FY 2012 PB submitted to Congress in February 2011, separated out what were formerly RDT&E pro- gram funds into procurement, military construction (MILCON), and the opera- tions and maintenance (O&M) program element funds. The basis for estimates of 20-yr sustainment costs for the MDA systems and 2 To account for this cost for ground-based interceptor systems similar to the ground-based missile defense (GMD) boost-phase intercept (BPI) systems, the committee applied a factor of 40 percent to account for costs of integrating the interceptor system and subsystems into the existing infrastruc- ture. The integration activities are assumed to include assembly, installation, and integration at the ground-based interceptor launch site comparable to the silos and other infrastructure and the missile fields at Fort Greely, Alaska (FGA). This factor of 40 percent agrees with previous CBO reports on missile defense. 3 Consistent with previous CBO reports, the committee assumed that the additional number of test interceptors that need to be procured is based on one test conducted every 2 years over the 20-yr lifetime of the system. The test plan is assumed to have two purposes: (1) testing out the performance of the current system baseline design of the interceptors, which includes any improvements to the booster stages as well as to the KV propulsion and IR seeker or divert systems, and (2), from an event- driven perspective, demonstrating the capability of intercepting target missiles in scenarios mirroring threats from potential adversaries.
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200 APPENDIX E the associated funds required will consist of both MDA RDT&E (procurement- related) budgets and the military service’s O&M and military personnel (MILP- ERS) funds, with specific sustainment responsibilities identified in system-unique memoranda of agreement (MOAs). As stated by LTG Patrick J. O’Reilly, USA, Director, Missile Defense Agency, operations and support (O&S) responsibilities relate to MDA’s role in material sustainment as well as procuring replacement spares and implementing P3I modifications of fielded systems. Breakout of sus- tainment costs includes training costs, routine maintenance costs, operational tests, and ongoing operational integration. “Should” vs. “Will” Cost Guidance for Bounding the Range Estimates Consistent with the Memorandum for Secretaries of the Military Depart- ments and Directors of the Defense Agencies issued on November 3, 2010, and effective November 15, 2010, the committee made a concerted effort to incor- porate the guidance on developing “should cost” targets as one of its “sound” estimating techniques.4 The committee generated 20-yr LCC range estimates for each of the com- mittee’s recommended systems and those recently initiated by MDA systems based on first assessing the current technical and manufacturing maturity of all the systems and then generating “should cost” estimates as the lower bound (or minimum) costs based on the following: • Scrutinizing every element of program cost, • Assessing whether each element can be reduced by, for example, chal- lenging the learning curves of similar systems, and • Applying other recently implemented or proposed industry productiv- ity improvements as part of reducing the total costs of doing business with the government, including, for example by reducing overhead rates, indirect costs, and other contractor cost-cutting measures. The OSD policy states that the metric of success for “should cost” man- agement is leading to annual productivity increases of a few percent from all ongoing contracted activities as program managers execute at lower cost than budgeted. OSD policy guidance believes industry can succeed in this environ- ment because OSD and the military services will tie better system performance to higher corporate profits and because affordable programs will be less likely to face cancellation. This is in contrast with system costs based on a program’s “will” cost, on which the committee bases its upper bound, or maximum, estimates. These esti- 4 The OSD policy on this subject is based on the guidance described in the “Drive Productivity Growth Through Will Cost/Should Cost Management” article, issued by the Defense Acquisition University (DAU) Acquisition Community Connection.
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APPENDIX E 201 mates are focused on business-as-usual costs similar to comparable programs in the past where the requested annual budget was fully obligated and expended over time. The higher “will” cost estimate is also used as the basis of the independent cost estimate (ICE) performed by the OSD Cost Assessment and Policy Evalu- ation (CAPE) office for establishing program budgets that support major acqui- sition milestone reviews. As mentioned, the committee based these maximum cost targets on analogous systems and program expenditures over comparable acquisition phases where reasonable efficiency- and productivity-enhancing ef- forts were undertaken. This approach to estimating a system’s “will” upper bound cost targets is consistent with and similar to the CAPE ICE estimating methods and program budget results expected for all ACAT I programs as they advance through the major milestones of the acquisition process. Observations on System “Should Cost” Comparisons In looking at previously stated $71 million to $85 million average unit pro- curement cost for the current and projected ground-based interceptor all up round, the committee wondered how that cost compared with the cost for other weapons of comparable capabilities and complexity. It extracted costs and quantities from DOD Selected Acquisition Reports (SARs) for several programs that allowed it to compare RDT&E efforts and early unit all up missile round costs. Several of the U.S. Navy’s Trident program SARs provided interesting data. The committee believes the Trident II D-5 and GBI all up rounds are of equal complexity except for the flight tests, which are not separately identified in either RDT&E cost. Table E-1 compares the RDT&E time frame for the GMD inter- TABLE E-1 Comparison of GMI and Trident II Missiles GMD Interceptor System Trident II (D-5) Missiles RDT&E time frame 1998 to 2009a 1978 to 1993b Interceptor AUPC (million $) 71-84c 54d Production lot quantity 52 54 aThe GMD program started with NMD DEM/VAL for the BPI followed by GMD block development. bThe Trident II program includes 3 years of concept definition, 3 years of advanced development, and 10 years of full-scale development (FSD). cMDA provided the committee with this estimate. dThe Trident II D-5 missile AUPC cost estimates were the most recent Program Manager’s esti- mates to completion (ETC) for the first weapons procurement production contracts awarded after FSD to Lockheed-Martin in March 1984 for missiles and to Hughes Aircraft in July 1989 for the electronics packages as reported in “TRIDENT II (D-5) SAR,” December 31, 1990. The AUPC also includes the Program Manager’s ETC for the Kearfott Guidance contract awarded in October 1989 for guidance packages as reported in that same document.
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202 APPENDIX E ceptor system, its average unit procurement cost (AUPC) in FY 2010 constant dollars, and production lot quantity to those of the Trident II D-5 missiles. The Trident II AUPC is for an all-up round for the post-boost vehicles, stel- lar inertial guidance, and test instrumentation for a first production lot quantity of 54 missiles built immediately after FSD. The AUPC range estimate for GBIs is based on a total quantity of 52 missiles, of which 30 interceptors have already been fielded and produced, 20 with the original Capability Enhancement I (CE-I) KV and 10 with the Capability Enhancement II (CE-II) EKV. The remaining 22 missiles are currently being funded through FY 2016. The lower bound, or minimum AUPC estimate for producing 52 three-stage GBIs at $71 million (based on continued funding through FY 2016), is 32 percent higher than the comparable average unit cost of 54 Trident II D-5 missiles (with- out the warheads) at $54 million (both in constant FY 2010 dollars). ASSESSMENT OF MDA ONGOING PROGRAM BUDGETS AND SOURCES OF DISCRETIONARY FUNDS This section provides MDA’s current and projected future years defense plan (FYDP) annual budget ceilings and the level of ongoing budget commitments for all the programs of record. In addition, the level of discretionary funds available that could potentially be redirected to implement changes as early as FY 2012 and the out-years is provided. Figure E-1 provides a top-down breakout of the FY 2011 MDA budget for each of the three major system acquisition phases and costs associated with LCC. The budget for testing is separated from that for sustainment to allow com- parisons with the investment budget earmarked for development for procurement acquisition phases. Table E-2 provides further breakdown of programs considered as part of de- velopment from highest to lowest by percent of the $2.9 billion of FY 2011 funds for MDA programs of record beginning with the Aegis and ending with PTSS. Table E-2 reflects a change from the programs funded in FY 2010. Figure E-2 displays the magnitude of the budget changes contained in the FY 2011 MDA PB submitted in February 2010. On the top bar chart, the boost segment airborne laser program has been terminated (denoted by the red bar). On the bottom bar chart, the land-based SM-3, ABIR, directed energy research, and PTSS all continue (denoted by the green bars). Advanced Technology Programs Of the 13 programs shown in Table E-2, at least three advanced technology programs may be considered part of what is being defined as MDA’s discretion- ary budget, where the investment does not appear to directly lead to a system procurement phase without first having to undergo a next-step system develop-
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APPENDIX E 203 Testing 23% Development 38% Sustainment 10% Procurement 29% FIGURE E-1 MDA budget breakout by LCC phases. The total portfolio investment bud- get depicted in this figure does not include $431 million for RDT&E funds for Pentagon Reserve and MDA management headquarters nor does it include the MILCON budget or BRAC funds. The testing budget includes funds for Joint Warfighter exercises and war games but does not include funds for modeling and simulation, which were considered to be part of the development phase. TABLE E-2 MDA FY 2011 Major Development Programs of Record Ballistic Missile Defense (BMD) Programs Breakdown of Funding of Programs (%)a Aegis 29 BMD enabling programs 14 Aegis SM-3 Block IIA codevelopment 11 Aegis ashore (SM-3 Block IIB) 9 C2BMC 9 GMD midcourse segment 6 Advanced technology 4 Airborne infrared 4 Directed energy research 3 Ground-based radars 3 Terminal segment of THAAD 3 Precision tracking and surveillance system 3 (PTSS) Other 2 NOTE: C2BMC, command and control battle management center; THAAD, Terminal High-Altitude Area Defense. aPortion of $2.9 billion FY 2010 funds for development.
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204 APPENDIX E Aegis Terminal segment, THAAD GBI midcourse segment Test and targets Sensors (ground-based radars) Enabling programs BMD Programs C2BMC Aegis SM-3 Block IIA Co-development Israeli cooperative Advanced technology Boost segment airborne laser Sea-based X-band radar (SBX) STSS Other programs Aegis GBI midcourse segment Terminal segment, THAAD Test and targets Sensors (ground-based radars) Enabling programs BMD Programs C2BMC Aegis SM-3 Block IIA Co-development Land-based SM-3 Other programs Sea-based X-band radar (SBX) Advanced technology Israeli cooperative STSS ABIR Directed energy research PTSS FIGURE E-2 MDA program budget changes from FY 2010 to FY 2011. GBI, ground- based interceptor; STSS, space tracking and surveillance system. ment activity proposed by MDA and funded within the FYDP or in the next 5-yr time frame. These three programs—BMD Enabling, Advanced Technology, and Directed-Energy Research—comprise 21 percent, or approximately $600 million, of the total development funds of $2.9 billion (in FY 2010 dollars). Approximately 14 percent of the funds are for BMD Enabling programs, which are focused on developing critical processes needed to integrate stand- alone missile defense systems into a layered BMD system to achieve cost and operational efficiencies by improving protection performance within increased defended areas and minimizing force structure costs.
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APPENDIX E 205 Another 4 percent of MDA’s development budget is allocated for advanced technology efforts as a hedge against future threat uncertainties focused on fund- ing next-generation and game-changing technologies with promising operation- ally cost-effective capabilities and developing and demonstrating the maturity of relevant components for future BMDS architectures. A third development program, directed energy research, consuming 3 per- cent of the total MDA development budget, is focused in the near term on the following: • Using an aircraft test platform in flight, along with ground tests, to characterize high-energy laser beam propagation and the effects of atmospheric (1) propagation and (2) boundary layer and jitter with varying engagement geometries, • Developing and experimenting with diode-pumped gas lasers, fiber la- sers, and solid-state and advanced high-power laser optics, • Investigating lethality, counter-countermeasures, beam propagation, modeling, laser beam combining, and additional innovative areas, and • Analyzing alternatives to select out-year laser investments. Shifting MDA Budget Trends In addition to advanced technology funds being a potential source of future discretionary budget, the MDA’s continuing role in procurement of Aegis systems and material sustainment of deployed THAAD systems in FY 2012 and the out- years has shifted and reduced the percent of total MDA funds earmarked from 38 percent in FY 2011 to 30 percent (proposed) in FY 2012. As displayed in Figure E-3, FY 2012 procurement funding as a portion of the total MDA budget is 10 percent higher than in FY 2011, owing primarily to a 7.5-fold increase in the Aegis FY 2011 program budget. The FY 2012 sustainment portion of the total Testing Testing 19% 23% Development Development 38% 30% Sustainment Sustainment 12% 10% Procurement Procurement 29% 39% FIGURE E-3 Trends in MDA investment budget portfolio (FY 2011, left pie chart; FY 2012, right pie chart).
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206 APPENDIX E MDA budget is 2 percent greater than the FY 2011 budget owing primarily to an increase in THAAD total sustainment funds, which now list a separate O&M budget line item for this system. MAJOR ESTIMATING GROUND RULES AND ASSUMPTIONS All costs in this appendix are expressed as FY 2010 dollars.5 The system LCC for each of the options considered will be displayed as “minimum” (or low) and “maximum” (or high) range estimates. For purposes of this study, the resulting LCC estimates for the minimum or the lower bound of the range estimates represent the projected “should cost” estimates6 and are computed based primarily on the data sources and cost estimating methods de- scribed later in this appendix. Since the system options for improving U.S. missile defense range from new, advanced technology, long-range alternatives to near-term, well-proven technology alternatives, the system cost uncertainty of proposed programs and maximum, or upper bound, cost (system “will cost”) estimates must, from a budgetary perspective, include the potential for “representative” cost growth comparable to that of interceptors, early warning IR sensor systems, and ship- and ground-based radar systems. In addition, maximum cost “estimates for systems that are defined only conceptually or that depend on the development of new technologies [could grow faster than those] for well-defined programs [that are] based on proven technologies.”7 For example, as reported by CBO and assessed by the RAND Corporation, the total development and procurement cost growth 5 Costs were escalated to FY 2010 dollars using inflation rates listed in the Air Force Raw Inflation Indices Base Year (FY) 2010 table by appropriation budget categories (e.g., Total Military Compen- sation (3500), Operations and Maintenance (3400), RDT&E (3600), MILCON (3300), Aircraft and Missile Procurement (3010/20), Other Procurement (3080), and Fuel. The inflation rates are based on OSD Raw Inflation Rates from December 11, 2009 and were issued by the Secretary of the Air Force/FMCEE as the OPR on January 8, 2010. 6 The “should” cost” and the “will” cost estimates are terms commonly used by the OSD CAPE office. “Should cost” estimates are most likely generated by program offices and will include addi- tional contingency costs to account for the inherent uncertainty in the cost-estimating methods used and for mitigating known system-specific risks (e.g., requirements creep, program budget changes, and schedule slips). 7 Congressional Budget Office. 2004. Alternatives for Boost-Phase Missile Defense, Washington, D.C., July.
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APPENDIX E 207 for missiles averaged 43.9 percent for six programs. Development cost growth was reported to 40.6 percent with procurement at 58.5 percent. 8 DOD budgets for many past and current programs of record, in particular MDA and military service funds, have already been committed as part of the FY 2011 PB submitted in February 2010 and were waiting for approval in FY 2011. In addition, the PB budget justification for the majority of RDT&E and procurement program budgets contains annual projections in the FYDP through FY 2015. For the purposes of this study and as a ground rule for estimating the cost of potential system options for improving U.S. missile defense, there is a set of system architecture baseline systems and programs of record that are operational and undergoing testing and demonstration, already fielded, or close to providing initial operational capability (IOC) before the end of the FY 2011 FYDP in FY 2015. Since the past annual funds through the approval of FY 2011 budget have already been expended or will soon be committed for these programs of record, the committee considered this portion of the LCC of the following systems as sunk cost and did not include them in their estimates. KEY BALLISTIC MISSILE BENCHMARK DATA SOURCES To the greatest extent possible and where the systems were technically similar to previous systems, development and production cost estimates were based on adjusting analogous costs from data from (1) historical programs of record supplied by MDA, (2) detailed breakout of funds identified in past fiscal year budget justification sheets, and (3) open source contract award prices as documented in Defense Links. Table E-3 is a representative reference list of MDA interceptors the commit- tee used as the key reference data for generating its LCC range estimates along with key cost details listed in tables that follow later in this section and represen- tative sets of parametric data values collected for each. 8 For most components, the cost-risk factors that CBO used were developed by the RAND Corpora- tion and were based on published updates reported in Joseph G. Bolten, Robert S. Leonard, Mark V. Arena, Obaid Younossi, and Jerry M. Sollinger, 2008, Sources of Weapon System Cost Growth Analy- sis of 35 Major Defense: Acquisition Programs, MG-670-AF, Santa Monica, Calif. Total development and procurement cost growth for missiles averaged 43.9 percent for six programs. Development cost growth was reported at 40.6 percent, with the 17.5 percent of the 40.6 percent due to requirements changes, another 4.6 percent due to schedule changes, and the majority of the remainder of 15.2 percent due to cost estimating errors. The procurement cost growth average of 58.5 percent included 13.1 percent for requirements changes, 15.5 percent for schedule changes, and 5.5 percent for quantity changes with most of the remainder of 13.9 percent due to cost estimating errors.
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208 APPENDIX E TABLE E-3 Representative Sources of Cost Data Development (Non- Production Interceptor Recurring (Recurring Unit MILCON Systems Cost) Cost) Annual O&S Cost Cost GMD systemsa GBI NMD and Booster stacks Total GMD system MDA, Missile GBI and test (2 vs. 3 stage), contractor and MILPERS fields, details booster avionics sustainment costs utilities and module (BAM), and unscheduled and mechanical/ EKV, IA&T, long- scheduled maintenance electrical lead parts costs per GBI buildings Silos Part of NMD Missile field Silo ground total 2 estimates, infrastructure allocated on per silo cost basis IFICS data Part of NMD FGA configuration Yes terminal total Ground fire Part of NMD Common to FGA N/A control total and MDIOC Aegisb BMD 3.6.1 SM-3 Block Combined Yes Per missile N/A IA total system Ship Total only Per AWS N/A (AWS) including installation cost BMD 5.1 SM-3 Block Separate total Yes Per missile N/A IB system Ship Separate total Total only Per AWS N/A (AWS) including installation cost BMD 5.1 SM-3 Block Separate total N/A TBD N/A IIA system Ship Separate total Total only TBD N/A (AWS) including installation cost THAADc System Captured Total procurement Beginning in FY 2011, N/A in RDT&E cost only (includes annual O&S cost per budget PSE, systems THAAD battery split documents integration, GSE between MDA and Army and CFE) O&M and MILPERS Interceptors Part of Yes budgetsd N/A system total TFOC Part of Yes N/A system total Launchers Part of Yes N/A system total
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272 APPENDIX E Therefore in order to get a more complete set of support cost estimates for the TM-configured AN/TPY-2 radar, the committee included and computed radar- specific average annual O&S cost estimates per system based on the FY 2010 through FY 2015 annual costs provided by the MDA THAAD project office for the following sustainment activities funded specifically for AN/TPY-2 radar: 60 • Sustaining and logistics support,61 • Repair of GFE and support equipment and procurement of replacement modifications for fielded radar systems, and • Army-funded procurement of additional government-furnished equip- ment, replenishment spares and repair parts, and depot maintenance. The average annual O&S cost for these cost elements over these 6 years is $22.7 million. The average annual cost per THAAD TM radar varies from a mini- mum additional cost of $5.0 million per year for five radars fielded in FY 2014 to a maximum additional cost of $11.0 million per year for two radars fielded in FY 2011 (all in FY 2010 dollars). Finally, the committee included an allocated annual O&S cost for the Army- funded indirect support and military personnel costs portion of the THAAD interceptor system cost for sustaining the fielded TM-configured radar. The aver- age annual O&S cost for these elements over these 6 years is $5.5 million. The average annual cost per THAAD TM radar varies from a minimum additional cost of $1.4 million per year for five radars fielded in FY 2014 to a maximum additional cost of $2.7 million per year for two radars fielded in FY 2011 (all in FY 2010 dollars). In summary, the total annual O&S cost per TM-configured AN/TPY-2 radar varies from a minimum cost of $21.3 million per system to a maximum of $34.4 million per system (in FY 2010 dollars). System Life-Cycle Costs From FY 2010 forward, the AN/TPY-2 radar system LCC range estimates for continuing X-band radar incremental development, the planned procurement of 11 systems through FY 2016, and 20-yr O&S costs of sustaining these forward- based radars is approximately $18 billion to $24 billion (Table E-42). The total estimate from FY 2010 forward includes the following: • The requested funding for FY 2012 FYDP PB from FY 2010 through FY 2016 for the BMD radar development program at approximately $4.0 billion 60 MDA. 2010. “DOE Cost Estimates Supporting NAS: THAAD Cost Team,” February 26. 61 In the THAAD FY-10 Sustainment Plans, Raytheon provided 100 percent of the contractor lo- gistics support (CLS) maintenance of fielded AN/TYP-2 radars. Raytheon under the CLS contract is responsible for engineering support and radar software maintenance services.
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APPENDIX E 273 TABLE E-42 AN/TPY-2 Radar System Total LCC Estimate (FY 2010 billion dollars) Minimum Maximum Developmenta 4.0 5.7 Procurementb 2.0 2.0 Force quantity buy 11 11 MILCON None required None required 20-yr O&Sc 12.1 16.6 Total 20-yr LCC estimate 18.1 24.3 aThe AN/TPY-2 development cost range estimate of $4.0 billion to $5.7 billion includes the FY 2012 MDA BMD radar block development requested budget (excluding FY 2010 sustainment funds) from FY 2010 through FY 2016 of $2.4 billion for transitioning the Block 2010 AN/TPY-2 develop- ment into an X-band basic effort for continuing the incremental releases of software algorithms (CX-1 and CX-2). These releases are for improving discrimination and enhancing the common software that supports AN/TPY-2 radar operations worldwide. The effort also included the development of critical engagement conditions and empirical measurement events where data are obtained from ground and flight tests as input to system models and simulations. Since procurement and delivery of the radar planned in the FY 2012 FYDP time frame will not occur until after FY 2016, the committee estimated an upper bound, or maximum, cost estimate to account for continuing X-band development activities at least through the end of the FY 2020 time frame. The additional cost of $1.7 billion is based on the projecting the same average annual funding, approximately $340 million, forward for another 5 years. bThe AN/TPY-2 radar system procurement cost estimate is based on the budget MDA requested in the FY 2012 FYDP PB of $2.0 billion, for 11 additional systems from FY 2010 through FY 2016 time frame. cThe total O&S cost for sustaining 11 AN/TPY-2 radar systems over a 20-yr service life is based on all the radars operating in a stand-alone, forward-based, mode. The lower bound, or minimum, O&S cost estimated is based on the annual cost for three FBM-configured systems fielded in FY 2011 at $54.8 million per system, and the maximum estimate is based on $75.4 million per system for two FBM-configured operational systems fielded in FY 2010. As part of the Phase Adaptive Approach for the European missile defense system, MDA has proposed that each interceptor site location include a forward-based (FBM) AN/TPY-2 X-band radar system. The current estimate cited by MDA and used in a recent CBO report cited a projected annual sustainment cost of $70 million to operate this configured radar system in FY 2013. This projected annual O&S cost in constant FY 2010 dollars is comparable with the committee’s MDA-based maximum estimate of $75.4 million per system. However it should be noted that CBO increased the previously estimated MDA operations costs by 50 percent to account for the possible growth of these costs. and the AN/TPY-2 procurement program at $2.0 billion for 11 additional AN/ TPY-2 radar systems through FY 2016. • The sustainment funding for operating and maintaining these 11 forward- based X-band radars over a 20-yr service life. GBX (Stacked AN/TPY-2 Array) Radar System The recommended Ground-Based Midcourse Defense-Evolved (GMD-E) deployment described in Chapter 5 takes advantage of the space-based SBIRS
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274 APPENDIX E and DSP satellite systems, as well as currently planned forward-based AN/TPY-2 radars, referred to as standalone X-band radar (FBX), located in Japan and at one or more locations north of Iran. As also described in Chapter 5, the recommended GMD-E provides a sig- nificant enhancement in land-based radars through the introduction of a recom- mended doubling of existing AN/TPY-2 radars, one stacked on top of the other. For the purposes of this report, the recommended doubled AN/TPY-2 radars are designated as GBX radars, and they would be deployed at fixed sites co-located with the UEWR (ballistic missile early warning system (BMEWS)) radars (Cape Cod, Massachusetts; Grand Forks, North Dakota; Thule, Greenland; and Fyling- dales, United Kingdom). Additionally, as a result of its analysis, the committee recommended in Chapter 5 that a fifth GBX radar be added at Clear, Alaska, and that the sea-based X-band (SBX) radar be moved permanently to Adak, Alaska. Each GBX radar consists essentially of two non-mobile AN/TPY-2 radar systems with the two arrays mounted one above the other in a rigid assembly, coherently integrating the beam forming transmit and receive functions in the electronics and software. These double (or stacked) radars would be mounted on azimuth turntables (like the SBX radar) that could be mechanically reoriented (not scanned) through an azimuth sector of ~270 degrees. Since the GBX utilizes existing proven designs and hardware with a now well-defined cost basis, it takes advantage of the learning curve, especially on the transmit/receive (T/R) modules that represent a significant cost of each radar. Table E-43 provides a summary of the 20-year LCC for acquiring and sus- taining the system at the five sites noted above and in Chapter 5. The costing used for the GBX radar is based on AN/TPY-2 and SBX radar cost data. The development cost estimate covers the development and valida- tion of electronics and software modifications and the fixed mount and turntable based on SBX radar estimates. The unit cost for the turntable and installation are derived from the estimated cost of the SBX radar turntable. The GBX radar is configured to provide double the power of the AN/TPY-2 radar and includes an FBX network communication package. All tractor/trailers used in the mobile systems are eliminated in favor of fixed pad mounting. The GBX radar development cost range estimate is based on scaling down the new radar design effort needed by leveraging off of the proven heritage radar designs of the AN/TPY-2 phased array and receiver electronics hardware (at a total sunk development cost through FY 2009 of $2.3 billion), and an SBX analogous radar turntable. The resulting range estimate of between $0.8 and $1.0 billion is based on the reduced level of system development effort needed for designing GBX system-unique electronics and software to coherently integrate the two arrays; packaging and integrating the two stacked AN/TPY-2 phased ar- rays onto a turntable; and interfaces for adding an FBX network communications package of already designed electronics and developed software. The estimate also includes producing two system test articles and performing the end-to-end
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APPENDIX E 275 TABLE E-43 GBX Radar System Total LCC Estimate (FY 2010 billion dollars) Minimum Maximum Development 0.8 1.0 Procurement 1.6 1.6 Force quantity buy 5 5 MILCON 0.1 0.2 20-yr O&S 5.5 7.5 Total 20-yr LCC estimate 8.0 10.3 NOTE: These estimates do not include flight test costs as they are covered as separate line items for ongoing system validation in MDA’s budget. radar testing needed to meet the expected system’s higher power and radar cover- age and tracking performance requirements to support MDA’s Integrated Master Test Plan. The GBX radar procurement cost estimate is based on continuing production using the same AN/TPY-2 radar manufacturing assembly “warm” line currently in place for producing the MDA-funded 11 AN/TPY-2 radar systems needed, and avoiding the nonrecurring production costs of restarting the AN/TPY-2 radar production line and incurring any production start-up tooling, testing, and line requalification costs. The average unit cost estimate of MDA’s procurement of 11 AN/TPY-2 radars is $181 million with the eleventh and last unit at $175 million. This buildup of the unit recurring cost is based on first extending the AN/TPY-2 production line and applying the same realized manufacturing assembly labor learning cost improvement curve efficiencies for assembling an additional 10 dismounted antenna units, cooling equipment units, diesel generator power units, and 5 modified electronic equipment units, including material cost unit price discounts in buying the quantity of T/R modules and other common parts from the same vendors at the higher total production lot quantities needed. The GBX radar average unit cost for a quantity of five systems is estimated to be $320 million—approximately $139 million higher than the average unit cost estimate of MDA’s procurement of 11 AN/TPY-2 radars. The GBX unit costs provide: • Two antenna units without trailers, two cooling equipment units, and two prime power supply units; • One electronics equipment unit modified to integrate the beam forming and receiving functions of the two antenna units; • The turntable, its control and associated mounted interface hardware; • An FBX network communication package; and • Relatively more complex, additional system integration and end-to-end checkout cost over the AN/TPY-2. The GBX-specific MILCON costs needed before deploying and operating the five new GBX radars was estimated by scaling down the previous costs in-
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276 APPENDIX E curred for constructing the infrastructure facility for the forward-based AN/TPY-2 radar operating in Israel based on assuming each GBX radar will be able to use existing co-located ground radar facilities at the current UEWR (BMEWS) sites noted above. Finally, the GBX annual O&S estimates were based on adjusting the ex- penditures MDA provided to the committee for sustaining AN/TPY-2 radars in Israel to reflect use of the operating sites’ consolidation of government base security and early warning radar operations and support personnel as well as available standby power from the local electrical grid system already in place at the government sites. SBX Radar System Relevant System Investment Costs The SBX radar as a midcourse defense sensor is capable of providing weapons task plans, in-flight target updates, TOMs, and kill assessments. The MDA investment in development of the SBX radar began in FY 2002 with an X-band radar technology development effort focused on providing high- resolution tracking and discrimination data to significantly enhance the GMD fire control and, subsequently, the EKV. The RDT&E funds also covered the development of software algorithms to enhance target discrimination, along with material component enhancements to improve output power and sensitiv- ity. Concurrent with this radar development effort, the SBX program was also initiated, with long-lead parts procurement beginning in FY 2002; procurement of the sea-based platform, main radar structure, radar electronic components, and support equipment and construction of support structures and facilities began the following year. The plan was for delivery of one SBX radar test ar- ticle for FY 2005. The RDT&E budget also included funds for an IFICS data terminal. The sea-based platform where the SBX was mounted was envisioned to be a modified seagoing, semisubmersible platform similar to the operational oil drilling platforms in use. Table E-44 summarizes the total investment in the SBX system acquisition costs of $1.7 billion from FY 2002 through FY 2009. System O&S Costs The annual costs for operations and sustainment of the SBX radar and the vessel as an overall system are based on implementing a flexible support strategy with Pearl Harbor, San Diego, and Dutch Harbor as forward-support ports. The sustainment costs include XBR software maintenance, shipyard maintenance and certifications, and sustainment activities for the radar, vessel, and support
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APPENDIX E 277 TABLE E-44 SBX Radar System Investment Costs Through FY 2009 (FY 2010 dollars) Program Total Investment Average Annual Investment Time Frame (billions) (millions) Sea-based X-band (SBX) radar 2002-2005 0.4 100 developmenta SBX radar system procurementb 2002-2005 1.0 245 SBX radar enhancementsb 2006-2009 0.3 75 Total investment 1.7 aOver a 4-yr period from FY 2002 through FY 2005, $1.4 billion of the $1.7 billion was associated with the SBX-specific X-band advanced technology development effort and concurrent procurement of the SBX radar system test article, modified the sea-based vessel platform, and IDT estimated at system unit cost of $980.5 million. As noted, the annual development funds identified for the X-band advanced technology effort explicitly earmarked for the SBX radar program were allocated as part of the BMD Midcourse Defense Segment program budget from FY 2002 through FY 2005. To the extent possible, the committee’s total development cost estimates generated from the MDA RDT&E budget from FY 2002 through FY 2009 were relatively consistent with the total sunk costs and with FYDP development cost estimates provided by MDA. SOURCE: MDA. 2010. “SBX Joint Cost Estimates Supporting MDA Cost Presentations to NAS,” February 28. bThe development cost estimated during this 4-yr period is based on funds explicitly identified for the sea-based X-band radar development portion of the BMD Midcourse Defense Segment program’s annual MDA RDT&E budgets from FY 2007 through FY 2008 budgets and the FY 2009 sea-based X-band radar program. The SBX radar enhancement from FY 2006 through FY 2009 focused on the following: (1) developing algorithms for discrimination of more complex threat sets and targets; (2) designing material and electronic component enhancements to improve the radar’s output power; (3) updating and integrating the SBX software for improving the radar’s sensitivity; and (4) performing system integration and ground and flight testing activities. v essel. The MDA O&S costs provided to the committee do not include the costs of MDA’s transition to the Navy planned for FY 2012 and beyond. 62 MDA gave the committee an annual O&S cost breakdown for FY 2012 to FY 2017 consisting of overall SBX vessel and radar system estimates for unit personnel, operations, maintenance, sustaining support, and continuing system improvements.63 Because the estimates were not transparent with respect to the sustainment costs of the SBX vessel and the offshore support vessel and the SBX radar system itself, the committee summarized the specific annual O&S costs 62 MDA provided the committee with the SBX program schedule as of February 2010. The schedule identified plans for transition of the Navy as the mission integrator and operator of the offshore SBX support vessel to the Marine Corps as the operator for the SBX vessel. It also identified transferring responsibility from MDA to the Navy as being responsible for funding the X-band radar CLS and system security activities. 63 For its purposes, the committee accounted for MDA’s estimates for continuing system improve- ment of approximately $0.5 million (in then-year dollars) as part of the ongoing development cost estimates for FY 2010 through FY 2015.
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278 APPENDIX E TABLE E-45 SBX Vessel and Radar System Annual O&S Costs (FY 2010 million dollars) Fiscal Year Vessel O&S Costsa SBX Radar System O&S Costsb 2010 106 44 2011 107 46 2012c 108 47 2013 111 51 2014 109 51 2015 129 63 Average 112 50 aThe SBX vessel O&S costs include the costs of the SBX and crews for the offshore motor sup- port vessel (the Dove), spare parts provisioning, and the lease of the Dove for continuing to support ongoing SBX shipboard operations, maintenance, and logistical support activities. These activities include galley and starboard crane upgrades, liquid condition and cooling system modifications, and so on. The activities also include participating in BMDS ground and flight tests. The O&S costs also include activities to support vessel maintenance certifications and the planned procurement of any parts due to the obsolescence of current onboard processors, controls, or displays. In addition, the costs also include onboard system force protection for the SBX and portside security for the SBX and the Dove. bThe SBX radar O&S costs include costs for sustainment activities for operating and maintaining the X-band radar and associated equipment including the onboard IDT. The O&S costs have included the recent enhancements to the onboard operations control center and installation of the Emergency Radome Pressurization System. The costs include CLS to maintain the onboard primary mission equipment and support to the operation crews. As part of the estimates for FY 2010 and FY 2011, the committee has included the annual cost of providing sustaining engineering and logistics support (i.e., repairs and spares) for the fielded suite of onboard SBX communications hardware and software for providing 24/7 SATCOM operations. cSince the MDA RDT&E FY 2011 PB did not provide the funding projections for the vessel and SBX radar system for FY 2012 through FY 2015, the committee used the total annual O&S costs provided by MDA for those fiscal years and allocated the costs for each category based on the percent- ages computed for the FY 2011 funds cited in the budget justification sheets for the SBX sustainment program budgets. (The MDA O&S cost estimates on which the allocations were based were provided in MDA, 2010, “SBX Joint Cost Estimates Supporting MDA Cost Presentations to NAS,” February 28. The committee assumed the funds allocated and reported in the budget for FY 2011 closely ap- proximate the projected split of sustainment costs going forward from FY 2012 through FY2015.) in Table E-45. The FY 2010 and FY 2011 O&S costs listed are based on funds earmarked for these two sustainment activities, as listed in the MDA RDT&E FY 2011 PB and identified in the sea-based X-band radar sustainment program budget justification details. System Life-Cycle Costs From FY 2010 forward, the SBX radar system LCC range estimates for continuing X-band radar development and 20-yr O&S costs of sustaining this
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APPENDIX E 279 TABLE E-46 SBX Ship-Based Radar System Total LCC Estimate (FY 2010 billion dollars) Minimum Maximum Developmenta 1.1 1.9 Procurementb Not applicable Not applicable Force quantity buy 1 1 MILCON None required None required 20-yr O&Sc 1.0 1.0 Total 20-yr LCC estimate 2.1 2.9 aThe SBX system development lower bound, or minimum, cost estimate of $1.1 million accounts for the efforts from FY 2010 through FY 2016 for MDA funds focused on (1) developing and pro- viding system engineering and X-band radar advanced discrimination algorithms and software build releases for SBX system integration and testing and (2) demonstrating this SBX target tracking capa- bility on planned flight interceptor tests by acquiring the targets of opportunity and sending tracking reports to the GMD fire control. The upper bound, or maximum, development cost estimate of $1.9 billion adds $0.8 billion for continuing this SBX-specific radar development effort based on extending the average annual FY 2012 FYDP budget request of $160 million for at least 5 more years through FY 2020. bProcurement cost is not separately identified from the development cost. cThe total O&S cost for sustaining the ship-based SBX radar systems over a 20-yr service life is estimated at $1.0 billion based on applying an average sustainment cost estimate of $50 million over the 20-yr service life of this system. The SBX radar O&S estimate includes costs for operating and maintaining the X-band radar and associated equipment for the onboard IDT. ship-based radar system are estimated at between $2.1 billion and $2.9 billion (Table E-46). The total estimate from FY 2010 forward includes the following: • Requested funding of approximately $1.1 billion for FY 2012 FYDP PB from FY 2010 through FY 2016 for the SBX development and support program, and • Sustainment funding for operating and maintaining the SBS radar sys- tem over a 20-yr service life. INTERCEPTOR UNIT PRODUCTION COST DETAILS Aegis SM-2 Even though the first 71 SM-3 Block 1A interceptors were produced us- ing RDT&E funds, the average missile unit costs are based on reported annual procurement budgets and lot quantity buys beginning in FY 2009. By the end of FY 2010, 41 SM-3 Block IAs were expected to be in inventory. The cumulative average unit cost of the last two lots of the SM-3 Block IA missiles is estimated at $9.6 million in FY 2010 dollars.
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280 APPENDIX E SM-3 Block IA provides [greater] capability over [Block I] to engage short- to intermediate-range ballistic missiles. [The design] incorporates rocket motor upgrades and computer program modifications to improve sensor performance, and missile guidance and control. . . . It . . . includes producibility and maintain- ability features required to qualify the missile as a tactical fleet asset. 64 Even though the first 34 SM-3 Block IB interceptors were produced using RDT&E funds, the average missile unit costs are based on reported annual pro- curement budgets and lot quantity buys beginning in FY 2011 and going forward through FY 2015. The projected cumulative average unit cost for the total quan- tity buy of 290 missiles over the 5-yr production is estimated at $9.3 million. SM-3 Block IB incorporates a two-color, all-reflective IR seeker, enabling longer range acquisition and increased threat discrimination. The missile is con- figured with a throttleable DACS (TDACS) to provide a more flexible and lower cost alternative to the solid DACS. Table E-47, a repeat of Table E-31, provides the detailed estimates by fiscal year for these two blocks of Aegis missile interceptors. Figure E-8 plots cumulative average unit procurement cost as a function of production quantity for the SM-3 Block IA missiles along with the computed best-fit learning, or CIC slope for this missile block build extended forward for a total buy quantity of 134. The CIC slope is computed at 94.5 percent, with a first unit or T1 cost of $13.7 million in FY 2010 dollars. TABLE E-47 SM-3 Average Unit Procurement Cost Summary (FY 2010 million dollars) Cumulative Total Fiscal Annual Lot Average Unit Average Unit Cost Quantity Year Quantities Cost per Lot SM-3 Block IA 9.6 41 FY 2009 23 9.3 (last two lots) FY 2010 18 10.0 SM-3 Block IB 9.3 290 FY 2011 8 11.6 FY 2012 66 10.3 FY 2013 72 9.4 FY 2014 72 8.8 FY 2015 72 8.5 64 See Raytheon news release: “Raytheon Missiles Engage Ballistic Missile and Airborne Targets Over the Pacific Ocean,” April 26, 2007.
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APPENDIX E 281 $14 $13.7 T 1 Unit Cost Cumulative Average Unit Cost (FY-10 M$) Actual FYDP-based annual Procurement QTY & Costs $13 Best Fit Learning Curve at 94.5% Rate with T1 = $13.7M SM-3 Block 1A $12 $11.6 $11.6 $11 $10.3 By Comparison, SM-3 Block 1A $9.6 at Cum QTY = 134 for FY-10 $10 Final Lot QTY of 18 $9.8 $9.4 $8.5 at Cum QTY = $8.8 290 for FY-15 Lot QTY $9 $9.2 of 72 $8 0 50 100 150 200 250 300 350 Cumulative Quantity FIGURE E-8 Aegis SM-3 Block IA missile. Cumulative average unit cost learning curve. Terminal High-Altitude Area Defense Each THAAD battery consists of a basic load of 48 interceptors, 6 launchers, TFCC housed in 2 TSGs, and peculiar and common support equipment. Even though the first 50 THAAD interceptors were produced using RDT&E funds, the average missile unit costs are based on reported annual procurement budgets and lot quantity buys beginning in FY 2010 and continuing at the rate of 72 per year from FY 2013 through FY 2015. The FY 2011 budget plans were based on having 26 THAAD (operational) interceptors in inventory by the end of FY 2010. Table E-48 provides detailed estimates by fiscal year for the THAAD missile interceptors. Figure E-9 plots cumulative average unit procurement cost as a function of production quantity for the THAAD missile, along with the best-fit CIC slope for the missiles block build extended forward for a total buy quantity of 134. The CIC slope is computed at 94.5 percent with a first unit, or T 1, cost of $13.7 million in FY 2010 dollars.
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282 APPENDIX E TABLE E-48 THAAD Missile Average Unit Procurement Cost Summary (FY 2010 million dollars) Cumulative Total Fiscal Annual Lot Average Unit Average Unit Cost Quantity Year Quantities Cost per Lot THAAD interceptor 9.2 161 FY 2010 26 10.5 FY 2011 63 9.3 FY 2012 72 8.6 $15 $14.3 Actual FYDP-based annual Procurement QTY & Costs Thru FY-12 T1 Unit Cost Cumulative Average Unit Cost (FY-10 M$) $14 Best Fit Learning Curve at 93.0% Rate with T1 = $14.3M $13 $12 $11 $10.7 $10.5 $10 $10.0 $9.3 $9 Estimated Cost of $7.7 at Cum QTY = 377 $9.3 $8.6 for FY-15 Lot QTY of 72 $8 $8.6 $8.0 $7 0 50 100 150 200 250 300 350 400 Cumulative Quantity FIGURE E-9 THAAD missile. Cumulative average unit cost learning curve.