Raytheon’s GPS III Ground Network Triggers Review on Costs

  • Air Force declares network in breach of Nunn-McCurdy cost law
  • Network’s cost projected to increase 25% more, U.S. says

The U.S. Air Force said development costs for Raytheon Co.’s network of ground stations for the newest Global Positioning System satellites are expected to increase more than 25 percent over current estimates, triggering a legal requirement to review whether the program should be canceled.

The rare declaration Thursday by Air Force Secretary Deborah James, citing burgeoning costs for the Next Generation Operational Control System, or OCX, is a major setback for Raytheon. It starts a top-level review on the project’s future that the service said is expected to be completed in October.

Raytheon’s network of 20 ground stations and antennas worldwide is needed to take full advantage of new GPS III satellites being built by Lockheed Martin Corp. The Air Force in February awarded Lockheed a $96 million contract to provide contingency control operations for the first GPS III satellites when they’re launched because the Raytheon system won’t be fully ready.

The satellites also are behind schedule. The first is 28 months behind its original delivery date and won’t be launched until mid-2017 at the earliest, according to the Air Force.

Nunn-McCurdy Law

Defense programs are evaluated for compliance with the 1982 law known as the Nunn-McCurdy Act, intended to curb runaway costs for major weapon systems. It measures projected costs against several baselines, including original estimates and current estimates. The Pentagon disclosed in March that the OCX program had increased to $4.18 billion from $3.6 billion, an increased of about 16 percent.

Among reasons for the soaring costs, the Air Force said Thursday, were “inadequate systems engineering at program inception,” software with high defect rates and designs “requiring significant rework.” Additionally, the complexity of cybersecurity requirements” and “impact of those requirements on the development caused multiple delays.”

“The corrective actions to resolve these problems took much longer than anticipated to implement,” the service said.

Michael Doble, a Raytheon spokesman, referred all questions to the Air Force.

The Senate Armed Services Committee withheld all $394 million that the Pentagon requested for the system for fiscal 2017 when it approved its version of the annual defense authorization bill. The committee said the funds shouldn’t be released until the Defense Department certifies that the ground network is vital to national security and shouldn’t be canceled.

‘No. 1 Troubled Program’

The network from Waltham, Massachusetts-based Raytheon was called the Pentagon’s “No. 1 troubled program” this year by the service’s head of space systems acquisition.

The projected 25 percent increase was calculated from the project’s most recent baseline cost from October.

Raytheon hasn’t received any fees on the OCX contract since August 2013, according to the Air Force. The company had reaped $43.9 million in award and incentive fee payments up to that point. The total of such fees lost since the contract’s inception is $48.3 million.

About $64.8 million in fees remain available on the contract, and all remaining potential fees are being restructured to be earned only upon delivery of the first two milestones of capability for the system’s software, the service said.

In a press release in April, Raytheon said OCX “successfully passed the first formal qualification test milestone” needed to check out the system and for the early monitoring of satellites in orbit.

That “validates the maturity of the OCX launch and checkout system," Bill Sullivan, Raytheon’s OCX program director, said in the release. “We were able to demonstrate the system’s performance and increase confidence in the program’s path ahead.”

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