Input:
	Background

Although most of the Department of Energy’s (DOE) real and personal property is under the control of its contractors, several DOE offices have the responsibility for managing this property. Overall, the office of Field Management is responsible for real property management and field oversight, and the office of Procurement and Assistance Management is responsible for personal property. In addition, the Office of Worker and Community Transition directs various efforts regarding the sale or disposition of surplus assets and compiles reports for the Congress on unneeded real and personal property and pilot projects relative to its overall responsibilities. In addition, DOE’s program offices, such as the office of Defense Programs, are responsible for declaring property excess to their missions’ needs. One program office, Environmental Management, is responsible for the cleanup of contaminated excess property before its disposal. DOE’s field offices oversee the contractors’ efforts to manage the property and maintain the property records.
In its fiscal year 1997 financial statements, DOE reported that it held property, plant, and equipment valued at $20.8 billion—$12.0 billion of real property and $5.2 billion of personal property, with construction work in progress, natural resources, and software accounting for the remaining $3.6 billion. The property amounts include only those items costing $25,000 or more. Items that cost less than $25,000 are expensed for financial statement purposes; DOE contractors held an additional $3.4 billion of such personal property at the end of fiscal year 1997.
In DOE’s fiscal year 1997 Federal Managers’ Financial Integrity Act report accompanying its financial statements, the Department indicated that it had extensive inventories of real and personal property that is no longer necessary and that disposal of this property could save future storage, security, and maintenance costs. In addition, DOE reported problems with the management of personal property. For example, the Rocky Flats Field Office in Colorado identified problems that included a contractor’s inadequate property records systems, incomplete inventory records, and requests made for new work space while comparable space at the site was being designated as excess. (See the bibliography for a list of GAO and Inspector General reports on DOE property management issues.)

	Federal Regulations Provide Guidelines for Real Property but DOE’s Guidance Does Not Include Criteria for Determining When Personal Property Is Excess

The federal property management regulations specify that executive agencies should dispose of real and personal property that is excess to their needs and include guidelines for determining when real property is unneeded or underutilized. However, neither the federal regulations nor DOE’s guidance includes similar specific guidelines for determining when personal property is excess. In the absence of criteria in the federal regulations, it is left up to each agency to develop guidelines. DOE implements the overall federal regulations for its real property and has issued supplemental regulations for managing personal property. However, DOE’s regulations for personal property include no criteria for determining when property is excess.

		Real Property

The federal property management regulations for the utilization and disposal of real property state that each executive agency should survey the real property under its control at least annually to identify property that is not needed, is underutilized, or is not being put to optimum use. The regulations also include a list of 15 guidelines to be used by executive agencies in these annual reviews, including whether operating and maintenance costs are excessive compared with those of other similar facilities, whether all of the property is essential for program requirements, and whether federal use of the property would be justified if a rental charge equivalent to commercial rates were added to the program costs for the occupants. Federal agencies are to maintain their inventory of real property at the absolute minimum consistent with economical and efficient operations and promptly report to the General Services Administration any real property determined to be excess. The regulations then describe the disposal process to be used for any property determined to be excess. At many of DOE’s facilities, the excess property is contaminated by radiation or other hazardous waste and must be cleaned up before the disposal process can begin.
In addition to the federal property management regulations, DOE’s guidance on life cycle asset management requires the Department to use formal planning methods for real property, including a method to declare property excess. The guidance further defines “excess” as physical assets that are not required for DOE’s needs and for carrying out its missions but does not include any additional criteria for making that determination. According to officials in DOE’s office of Field Management, the field and program offices are to use the guidelines in the federal property management regulations in their planning process and in determining when real property is excess to their needs.

		Personal Property

Unlike for real property, neither the federal property management regulations nor DOE’s regulations and guidance include specific criteria for determining when personal property is excess. The federal property management regulations define excess personal property as that which is not required for an agency’s needs and the discharge of its responsibilities. The regulations further state that when property is determined to no longer be required for the “purpose of the appropriation from which it was purchased or for the use to which it has been applied,” an executive agency should reassign the property within its activities.
DOE’s supplemental property management regulations state that management practices are to ensure the best possible use of personal property and that supplies and equipment should generally be limited to those items essential for carrying out DOE’s programs efficiently. DOE’s regulations also state that DOE offices and designated contractors are responsible for continuously surveying property under their control to ensure maximum use and promptly identify property that is excess to their needs. In addition, for laboratory and research equipment, the regulations require a management walk-through of all operating and storage areas at least every 2 years to identify idle and unneeded personal property. Equipment identified as idle and unneeded is to be made available to others or listed as excess. However, there are no guidelines to be used in making these determinations.
After property has been determined to be excess, the regulations state that the property must first be screened for reuse or transfer to others before offering it for sale to the public. Personal property is first screened for reuse within DOE, then for transfers to the Math and Science Education Gift Program (under Executive Order 12821) and to the Community Reuse Organizations/Economic Development program (under P.L. 103-160). Subsequent steps include making property available to educational institutions such as colleges and universities under the Used Energy Related Laboratory Equipment Grant Program (P.L. 101-510) and to other federal agencies and state donation programs. Personal property that remains after the screening process can be sold to the public or discarded.

	DOE’s Property Records Do Not Consistently Reflect When Property Is Excess

DOE’s recently revised guidance on property records requires contractors to record property already identified as excess. For real property, the information contained in the property records could be used to determine when additional real property may be excess. However, for personal property, without further guidance, these records will not provide information to help identify other personal property that is no longer needed.

		Real Property

DOE currently maintains approximately 22,500 facilities, including buildings, production facilities, and other structures. Property records for these facilities are maintained in DOE’s Facilities Information Management System and contain detailed information on each facility. The field offices are responsible for entering all data into the system, which was implemented as DOE’s agencywide database. This database contains information such as the location, size, age, and acquisition cost of the property and the percentage of a facility being used. It also reflects building status as determined by the DOE field offices, such as operational, standby, or shutdown pending decontamination and decommissioning.
In July 1998, DOE added a new requirement to its real property records system by adding an “excess indicator” to show whether a property has been determined to be excess. In addition, there is a new requirement to include “deferred maintenance” costs for each facility, which are those costs necessary to restore a facility to its operating condition. Employing the federal property management guidelines, DOE field offices and program managers can use information in the database, such as the percentage of a facility being used and its deferred maintenance costs, to identify other facilities that may be excess.

		Personal Property

DOE’s contractors hold approximately 95 percent of the Department’s personal property. Of the approximately 744,000 items of personal property held by the contractors, about 89,000 items cost $25,000 or more; the remaining 655,000 items cost less than $25,000 each and are expensed for the purposes of DOE’s financial statements. Contractors are required to maintain property control records for every accountable item of personal property and individual item records for each sensitive item (i.e., those items of personal property considered susceptible to being stolen, such as portable computers or portable power tools).
A contractor’s property records system must be approved by a DOE contracting office. DOE’s May 1998 property management regulations specify the minimum requirements for a property records system. For example, the individual property record for each item should include such information as a description, acquisition cost, physical location, and the status of the item. Status is defined as “active,  storage, excess, etc.,” but no further explanation of these terms is given. However, in the absence of criteria, the information in these records such as date of purchase and cost do not aid in determining what personal property is excess.

	While DOE Faces Challenges, Some Field and Program Offices Have Initiated Local Solutions

According to DOE officials, the Department faces challenges in identifying and disposing of excess property. The challenges cited by DOE officials include a lack of funding for the decontamination and decommissioning of excess real property and the existence of few incentives for program and field offices to identify property as excess. Nevertheless, field and program offices have made some innovative efforts to dispose of excess real and personal property.

		Challenges in the Identification and Disposal of Excess Property

In January 1996, DOE issued a report on 10 categories of nuclear and nonnuclear materials in inventory, including uranium, lead, and chemicals.DOE reported that it had large quantities of the materials that no longer had clearly defined or immediate uses; if left unattended, much of the material could present environmental, safety, and health risks; and maintaining these materials in a safe condition cost millions of dollars annually, although the exact cost was unknown. Although this report specifically addressed materials, the Director of the Office of Policy Analysis, Environmental Management, told us that the concerns about the identification and disposal of excess materials should also be applied to real and personal property. Among the problems noted in the report were that (1) DOE lacks policies and criteria for determining when materials are excess to the Department’s needs and (2) the function of declaring materials excess usually rests with program managers at DOE’s sites, who have little or no incentive to address the problem and who lack the resources and funding to identify and dispose of excess materials. Similarly, other DOE officials with the Office of Contract and Resource Management and the office of Field Management told us that with real and personal property, the Department faces challenges because of a lack of funding and incentives.
Cleaning up excess facilities represents a funding challenge for DOE. Since the Department’s Environmental Management program was created in 1989 to clean up and dispose of contaminated excess facilities, a backlog of over 10,000 facilities has developed. Because of funding concerns, Environmental Management stopped accepting new facilities about 2 years ago and has had to set cleanup priorities based on such criteria as relative risk. According to DOE’s fiscal year 1997 financial report, the cleanup program for Environmental Management facilities and “legacy” wastes represents an unfunded liability of $141 billion. While the Environmental Management program seeks to complete its long-term cleanup strategy for those facilities, DOE anticipates that by the year 2006, up to another 1,500 facilities will be declared excess, almost half of them contaminated.
As with materials, program managers have little or no incentive to identify real and personal property as excess. According to DOE officials in the office of Procurement and Assistance Management and in the Defense Programs, Environmental Management, and Energy Research program offices, managers are reluctant to commit scarce program funding to identify excess property. Program managers do not see all of the costs associated with unneeded property because some of the costs to maintain and store unneeded property are included in overhead costs and are not separately identified. DOE estimates that for its largest Environmental Management sites, it is spending about 20 percent of its overall budget on maintenance and surveillance of facilities and infrastructure. However, without the program managers’ knowing the actual costs to maintain their property, there is little incentive to spend the resources necessary to dispose of it. In addition, DOE noted that declaring property excess may require initiating costly programs to decontaminate or decommission the property. Funds for such programs are not generally available because mission or compliance requirements are funded first.

		Examples of Innovative Approaches to Identifying and Disposing of Excess Property

Innovative approaches to the identification and disposal of excess property have been developed at the field and program office levels. Examples include requiring a contractor to reduce surplus property at a site, establishing a group to dispose of excess property and funding its efforts through the sale of that property, creating a computer-based system to facilitate the reuse of materials within DOE, and establishing pilot projects that sought to allow the proceeds from property sales to be retained to fund future disposal efforts.
The most recent contract for the management of the Hanford site in Washington State includes provisions for reducing the site’s overall infrastructure to support its current missions and states that the contractor is expected to use innovative approaches to accomplish this objective. In addition, several of the contract’s performance-based incentives required the contractor to increase the utilization of the space in its facilities; reduce inventory management costs, including carrying costs; and dispose of $50 million of excess personal property.
The contractor at the Hanford site established a group to dispose of excess property through donation programs, transfers to other sites or agencies, and public auctions and negotiated sales. In addition, this group opened a retail store that sells such items as surplus computers and office equipment to the public; sales at this store average $5,000 per week. The proceeds from the public auctions, negotiated sales, and retail store must cover the group’s costs of operation; it receives no additional funding from DOE. Any proceeds that exceed the group’s costs are returned to DOE.
The office of Energy Research has developed an innovative system to better reuse materials within DOE. Although the system currently covers only materials, program officials told us they plan to expand it to include a link to the personal property system. This computer-based system, called the Exchange, is accessible to DOE program personnel on the Internet. By sharing information about materials that are excess at various sites or needed by other sites, the Exchange allows materials to be reused more efficiently. For example, the Idaho Falls site needed sturdy packing boxes in Idaho to ship instruments for repair and calibration, and the Pantex site had about 250 excess boxes in Texas that met this need. The Idaho Falls site estimated that using the Exchange saved it about $50,000 over the cost of new boxes.
As part of its responsibility for the disposition of excess assets, the Office of Worker and Community Transition proposed six pilot projects for fiscal year 1998 to dispose of excess real and personal property. Under these pilot projects, DOE sought to overcome its funding constraints by asking for congressional approval to retain the proceeds generated by the pilot projects and to use them to fund further disposal efforts. These projects included the sale of heavy water at the Savannah River site in South Carolina; the sale of precious metals at Oak Ridge in Tennessee; the leasing of facilities at the Hanford and Savannah River sites; the sale of approximately 100,000 pieces of machinery, tools, and equipment at Rocky Flats in Colorado; and a program at Oak Ridge to refurbish and sell excess electronic equipment. Although DOE’s request was denied, the conference report accompanying DOE’s appropriations urged the Department to proceed with implementation under the current guidelines that allow DOE to retain proceeds from the sales and leases to the extent needed to cover the administrative costs associated with the sales or leases. DOE will evaluate these pilot projects at the end of the fiscal year and report the results to the Congress.

	Agency Comments

We sent a draft of this report to the Department of Energy for its review and comment. The Department’s primary comments related to our characterization of the criteria for determining when personal property is no longer needed. DOE generally disagreed with our assessment of the extent to which criteria exist. The Department cited several references to regulations that it believes provide specific criteria for identifying unneeded personal property. However, these regulations are general in nature and do not provide any specific guidance similar to that found in the real property regulations. For example, one of the references cited by DOE states that equipment identified as idle and unneeded should be redeployed or declared excess, as appropriate. However, this does not provide program managers any guidance that defines when an item is to be classified as idle and unneeded. For real property, program managers have 15 guidelines to be used in their annual reviews to help determine when property is not needed, underutilized, or not put to its optimal use. Because the personal property regulations do not provide specific guidance to program managers, we therefore did not revise the report.
DOE also noted that the cleanup of its excess facilities is actually broader in scope than reflected by the $141 billion in its annual report, which represented Environmental Management facilities and legacy wastes. Total environmental liabilities reported in the financial statements were $181 billion. Because our report addresses the environmental cleanup of real property, we did not revise it to reflect the broader environmental costs. DOE also noted a new effort to collect individual facility maintenance and deferred maintenance cost information at the headquarters level that is designed to enable program managers to identify costs to maintain their real property. We did not revise our report because this effort is just getting under way and is not to be completed until fiscal year 2000.
DOE also offered several technical corrections that were incorporated. DOE’s comments are included in appendix I.

	Scope and Methodology

To determine what criteria DOE uses to guide the identification and disposal of excess property and whether DOE’s property records reflect what is no longer needed to carry out its missions, we reviewed the federal property management regulations and DOE’s property management regulations and guidance. In addition, we interviewed officials from DOE’s offices of Worker and Community Transition, Procurement and Assistance Management, Field Management, Environmental Management, Energy Research, and Defense Programs, and we reviewed documentation provided by them. We also interviewed officials from DOE and contractor property management organizations at the Hanford site and reviewed their procedures.
To determine what challenges DOE encounters in identifying excess property and to identify innovative approaches being used to dispose of this property, we reviewed DOE’s fiscal year 1997 Federal Managers’ Financial Integrity Act report and supporting documentation, reports from DOE’s Office of the Inspector General, and the January 1996 materials in inventory report. We interviewed officials from DOE’s offices of Worker and Community Transition, Procurement and Assistance Management, Field Management, Environmental Management, Energy Research, and Defense Programs. We also interviewed officials from DOE and contractor property management organizations at the Hanford site and reviewed documentation they provided.
We performed our review from July 1998 through September 1998 in accordance with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to the Secretary of Energy. We will also make copies available to others on request.
Please call me at (202) 512-7106 if you or your staff have any further questions. Major contributors to this report were Jeffrey E. Heil, Carole J. Blackwell, and Kathleen A. Gilhooly.

Bibliography

	General Accounting Office

Department of Energy: Property Management Has Improved at DOE’s Rocky Flats Site (GAO/RCED-96-39, Dec. 28, 1995).
Energy Downsizing: Criteria for Community Assistance Needed (GAO/RCED-96-36, Dec. 27, 1995).
Managing DOE: Government Property Worth Millions of Dollars Is Missing (GAO/T-RCED-94-309, Sept. 19, 1994).
Department of Energy: Status of DOE’s Property Management Program (GAO/RCED-94-154FS, Apr. 7. 1994).
Department of Energy: The Property Management System at the Rocky Flats Plant Is Inadequate (GAO/RCED-94-77, Mar. 1, 1994).

	Inspector General, Department of Energy

The U.S. Department of Energy’s Facility Reuse at the Rocky Flats Environmental Technology Site (DOE/IG-0425, Aug. 20, 1998).
Personal Property at the Oak Ridge Operations Office and the Office of Scientific and Technical Information (ER-B-98-07, Apr. 6, 1998).
Audit of the Deactivation, Decontamination, and Disposal of Surplus Facilities at the Savannah River Site (ER-B-98-01, Oct. 23, 1997).
Audit of the Use of Hanford Site Railroad System (WR-B-97-04, Mar. 20, 1997).
Audit of the U.S. Department of Energy’s Identification and Disposal of Nonessential Land (DOE/IG-0399, Jan. 8, 1997).
Special Audit Report on the Department of Energy’s Arms and Military-Type Equipment (DOE/IG-0385, Feb. 1996).
Audit of Light Vehicle Fleet Management in the Department of Energy (DOE/IG-0362, Dec. 1994).
Audit of the Transfer of Government-Owned Property at the Mound and Pinellas Plants (DOE/IG-0360, Nov. 1994).
Summary Report on DOE’s Management of Personal Property (DOE/IG-0344, Mar. 1994).
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Output:
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) efforts to identify and dispose of property that is excess to its needs, focusing on the: (1) criteria the Department uses to guide the identification and disposal of excess property; (2) extent to which the Department's property records reflect what is no longer needed to carry out its missions; and (3) challenges the Department believes exist in identifying excess property and the innovative approaches being used to dispose of this property.

What GAO Found

GAO noted that: (1) federal property management regulations include criteria to determine when real property is excess to an agency's needs; (2) however, neither federal property management regulations nor DOE's regulations and guidance include specific criteria to determine when personal property is no longer needed; (3) when property has been identified as excess, guidelines for the disposal process are well defined for both real and personal property; (4) DOE's property records do not consistently provide information that would help identify property that is no longer needed; (5) recent changes to DOE's regulations require that property records identify property that has already been determined to be excess; (6) in July 1998, DOE modified its real property records system to identify property that has been determined to be excess; (7) this system also provides additional information, such as the percentage of a facility currently in use, that could be used to identify other property that is no longer needed; (8) similarly, in May 1998, DOE revised its personal property management regulations to require that contractors' records include information on current usage, such as categorizing property as active, in storage, or excess; (9) however, these regulations do not provide criteria for determining when personal property should be placed in these categories; (10) DOE acknowledges problems with its identification and disposal of excess real and personal property; (11) Department officials cited, for example, a lack of funding for the environmental cleanup of the current inventory of excess real property and a lack of incentives to identify property as excess; (12) because the costs associated with the maintenance and storage of unneeded property are generally not separately identified, little incentive exists to spend the resources necessary to dispose of it; and (13) regardless of the problems, field and program offices have developed some innovative approaches to dispose of property, such as including a performance-based incentive in the site management contract to encourage the contractor operating the site to dispose of excess property during the fiscal year.


Input:
	Background

As the principal component of the NAS, FAA’s ATC system must operate continuously—24 hours a day, 365 days a year. Under federal law, FAA has primary responsibility for operating a common ATC system—a vast network of radars; automated data processing, navigation, and communications equipment; and traffic control facilities. FAA meets this responsibility by providing such services as controlling takeoffs and landings and managing the flow of air traffic between airports. Users of FAA’s services include the military, other government users, private pilots, and commercial aircraft operators.
Projects in FAA’s modernization program are primarily organized around seven functional areas—automation, communications, facilities, navigation and landing, surveillance, weather, and mission support.
Over the past 16 years, FAA’s modernization projects have experienced substantial cost overruns, lengthy schedule delays, and significant performance shortfalls. To illustrate, the centerpiece of that modernization program—the Advanced Automation System (AAS)—was restructured in 1994 after estimated costs to develop the system tripled from $2.5 billion to $7.6 billion and delays in putting significantly less-than-promised system capabilities into operation were expected to run 8 years or more over original estimates.

	FAA Has Fielded Some Equipment but Key Projects Continue to Experience Cost and Schedule Problems

The Congress has appropriated over $25 billion for ATC modernization between fiscal years 1982 and 1998. FAA estimates that it plans to spend an additional $11 billion through fiscal year 2003 on projects in the modernization program.
Of the over $25 billion appropriated to date, FAA has reported spending about $5.3 billion on 81 completed projects and $15.7 billion on about 130 ongoing projects. Of the remaining funds, FAA has reported spending about $2.8 billion on projects that have been cancelled or restructured and $1.6 billion for personnel-related expenses associated with systems acquisition. (See app. I for a list of completed projects.) FAA has fielded some equipment, most recently a new voice communications system. However, delays in other projects have caused the agency to implement costly interim projects. Furthermore, the agency is still having difficulties in acquiring new systems within agreed-to schedule and cost parameters.

		New Equipment Is Being Fielded

FAA has been fielding new ATC systems. For example, in February 1997, FAA commissioned the last of 21 Voice Switching and Control System (VSCS) units.  As one of the original projects in the 1983 modernization plan, the VSCS project encountered many difficulties during its early years. Since the project was restructured in 1992, FAA has been successful in completing the first phase of the project—installing the equipment into existing en route controller workstations. The second phase is now underway—making VSCS interface with the new display replacement equipment that is being installed in the en route centers.
During the past year, FAA has commissioned 183 additional systems or units of systems. For example, FAA commissioned an additional 97 units for its Automated Surface Observing System, which brings the total of commissioned units to 230 out of 597 that are planned. (See app. II for details on the implementation status of 17 major ongoing modernization projects and app. III for data on changes in their cost and schedules.)

		Delays Have Led to Costly Interim Projects

Problems with modernization projects have caused delays in replacing FAA’s aging equipment, especially the automation equipment in the en route and terminal facilities. We found that FAA has added four interim projects—three for the TRACONs and one for the en route centers—reported to cost about $655 million—to sustain and enhance current automated air traffic control equipment. FAA began its first program for the TRACONs in 1987 and expects to complete its third program in 2000. In general, these programs provide new displays and software and upgrade hardware and data-processing equipment to allow TRACONs to handle increased traffic. One program for the en route centers—the Display Complex Channel Rehost—was completed in 1997. Under this program, FAA transferred existing software from obsolete display channel computers to new more reliable and maintainable computers at five en route centers.
The cost for interim projects could go even higher if FAA decides to implement an interim solution to overcome hardware problems and resolve year 2000 date requirements with the Host computer system. FAA is assessing the Host computer’s microcode—low-level machine instructions used to service the main computer—with a plan to resolve any identified year 2000 date issues, while at the same time preparing to purchase and implement new hardware—Interim Host—for each of its 20 en route centers before January 1, 2000. FAA expects to incur costs of about $160 million during fiscal years 1998 and 1999 for the Interim Host.

		Major Acquisitions Continue to Face Delays and Cost Increases

Two key components of the modernization effort—the Wide Area Augmentation System (WAAS) and the Standard Terminal Automation Replacement System (STARS)—have encountered delays and cost increases.
In September 1997, FAA estimated total life cycle costs for WAAS at $2.4 billion ($900 million for facilities and equipment and $1.5 billion for operations). In January 1998, the estimate had increased by $600 million to $3 billion ($1 billion for facilities and equipment and $2 billion for operations). The increased costs for facilities and equipment are attributable to FAA’s including previously overlooked costs for periodically updating WAAS’ equipment. The revised cost estimate for operations and maintenance is largely attributable to higher than expected costs to lease geostationary satellites.
In developing WAAS, FAA has also encountered delays. When signing the original development contract with Wilcox Electric in August 1995, FAA planned for the initial system to be operational by December 1997. Because of concerns about the contractor’s performance, however, FAA terminated the original contract and signed a development contract with Raytheon (formerly Hughes Aircraft) in October 1996 that called for the initial system to be operational by April 1999. The 16-month schedule slippage was caused by problems with the original contractor’s performance, design changes, and increased software development.
Last year, we reported that the implementation of STARS—particularly at the three facilities targeted for operating the system before fiscal year 2000—will likely be delayed if FAA and its contractor experience any difficulties in developing the software. These difficulties have materialized. In January 1998, FAA reported that more delays are likely because software requirements could increase to resolve air traffic controllers’ dissatisfaction with the system’s computer-human interface.
FAA also reported an unexpected cost increase of $35 million for STARS during fiscal year 1998. It attributed the increase to such factors as adding resources to maintain the program’s schedule and the effects of any design changes to address new computer-human interface concerns. Also, the estimated size of software development—measured in source lines of code—is now 50 percent larger than the original November 1996 estimate. FAA has requested a reprogramming of fiscal year 1998 funds to address this cost increase.

	FAA Has Begun to Implement Recommendations to Correct Root Causes of Modernization Problems

Our reviews have identified some of the root causes of long-standing problems with FAA’s modernization and have recommended solutions to them. Among the causes of these problems were the lack of a complete and enforced systems architecture, unreliable cost information, lack of mature software acquisition processes, and an organizational culture that did not always act in the agency’s long-term best interest. While FAA has begun to implement many of our recommendations, it will need to stay focused on continued improvement.

		A Complete Systems Architecture Is Key to Guiding and Constraining ATC Modernization Investments

FAA has proceeded to modernize its many ATC systems without the benefits of a complete systems architecture, or overall blueprint, to guide their development and evolution. In February 1997, we reported that FAA has been doing a good job of defining one piece of its architecture—the logical architecture. That architecture describes FAA’s concept of operations, business functions, high-level descriptions of information systems and their interrelationships, and information flows among systems. This high-level architecture will guide the modernization of FAA’s ATC systems over the next 20 years. We identified shortcomings in two main areas. FAA’s system modernization lacked a technical architecture and an effective enforcement mechanism.
FAA generally agreed with the recommendation in our February 1997 report to develop a technical architecture and has begun the task. We will continue to monitor FAA’s efforts. Also, to be effective, the architecture must be enforced consistently. FAA has no organizational entity responsible for enforcing architectural consistency. Until FAA defines and enforces a complete ATC systems architecture, the agency cannot ensure compatibility among its existing and future programs.
We also recommended in the February 1997 report that FAA develop a management structure for enforcing the architecture that is similar to the provisions of the Clinger-Cohen Act of 1996 for department-level Chief Information Officers (CIO). FAA disagrees with this recommendation because it believes that the current location of its CIO, within the research and acquisition line of business, is effective. We continue to believe that such a structure is necessary. FAA’s CIO does not report directly to the Administrator and does not have organizational or budgetary authority over those who develop ATC systems or the units that operate and maintain them. Furthermore, the agency’s long history of problems in managing information technology projects reflects weaknesses in its current structure.

		Reliable Cost Information Is Needed to Effectively Manage Modernization Projects

In January 1997, we reported that FAA lacks reliable cost-estimating processes and cost-accounting practices needed to effectively manage investments in information technology, which leaves it at risk of making ill-informed decisions on critical multimillion, even billion, dollar air traffic control systems. Without reliable cost information, the likelihood of poor investment decisions is increased, not only when a project is initiated, but also throughout its life cycle. We recommended that FAA improve its cost-estimating processes and fully implement a cost-accounting system.
Our recent review of the reliability of FAA’s reported financial information and the possible program and budgetary effects of reported financial statement deficiencies again highlights the need for reliable cost information. The audit of FAA’s 1996 financial statement disclosed many problems in reporting of operating materials and supplies and property and equipment. Many of these problems resulted from the lack of a reliable system for accumulating project cost accounting information. Although FAA has begun to institutionalize defined cost-estimating processes and to acquire a cost-accounting system, it will be awhile before FAA and other decisionmakers have accurate information to determine and control costs.

		A Mature Software Acquisition Capability Is Important to the Success of FAA’s ATC Modernization Program

In March 1997, we reported that FAA’s processes for acquiring software—the most costly and complex component of ATC systems—are ad hoc, sometimes chaotic, and not repeatable across projects. As a result, FAA is at great risk of acquiring software that does not perform as intended and is not delivered on time and within budget. Furthermore, FAA lacks an effective approach for improving its processes for acquiring software.
In the March 1997 report, we recommended that FAA improve its software acquisition capabilities by institutionalizing mature acquisition processes and reiterated our prior recommendation that FAA establish a management structure similar to the department-level CIOs to instill process discipline. FAA concurred with part of our recommendation and has initiated efforts to improve its software acquisition processes. These efforts, however, are not comprehensive, are not complete, and have not yet been implemented agencywide. Furthermore, FAA disagrees with our recommendation related to its management structure. Without establishing strong software acquisition processes and an effective management structure, FAA risks making the same mistakes it did on failed systems acquisition projects.

		Continued Management Attention Is Critical to Comprehensive Cultural Change

In August 1996, we reported that an underlying cause of FAA’s ATC acquisition problems is its organizational culture—the beliefs, the values, and the attitudes and expectations shared by an organization’s members that affect their behavior and the behavior of the organization as a whole.We found that FAA’s acquisitions were impaired when employees acted in ways that did not reflect a strong commitment to mission focus, accountability, coordination, and adaptability. We recommended that FAA develop a comprehensive strategy for cultural change that (1) addresses specific responsibilities and performance measures for all stakeholders throughout FAA and (2) provides the incentives needed to promote the desired behaviors and achieve agencywide cultural change.
In response to our recommendations, FAA issued a report outlining its overall strategy for changing its acquisition culture and describing its ongoing actions to influence organizational culture and improve its life cycle acquisition management processes. For example, the Acquisition and Research (ARA) organization has proposed restructuring its personnel system to tie pay to performance based on 15 measurable goals, each with its own performance plan. ARA’s proposed personnel system is under consideration by the Administrator.
In our August 1996 report, we also noted that the Integrated Product Development System, based on integrated teams, was a major FAA initiative to address the shortcomings with its organizational culture. According to an ARA program official, FAA has 15 integrated product teams, the majority of which have approved plans. The official indicated that all team members have received training to prepare them for their roles and that ARA is developing a set of standards to measure the performance of the integrated teams. However, the official also acknowledged that FAA has had difficulty in gaining commitment to the integrated team concept throughout the agency because offices outside of ARA have been resistant to integrated teams.
To help overcome institutional cultural barriers, FAA and external stakeholders have been discussing the establishment of a special program office responsible for the acquisition of free flight systems. Although, the details of how such an office would operate have not been put forward, one option would be for this office to have its own budget and the authority to make certifications and regulations and to determine system requirements. Such an office could be viewed as the evolutionary successor to the integrated product team system. Another approach being considered by FAA is the establishment of a single NAS manager at the level of associate administrator to eliminate traditional “stovepipes” between the acquisition and air traffic organizations.
As FAA considers recommendations to create a new structure, we believe that it would be advantageous for FAA to implement our recommendation to create a management structure similar to the department-level CIO as called for in the Clinger-Cohen Act. Having an effective CIO, with the organizational and budgetary authority to implement and enforce a complete, agencywide systems architecture would go a long way towards eliminating traditional “stovepipes” between integrated product teams, as well as between the acquisition and air traffic organizations. Furthermore, the agency could gain valuable insight from the experiences of other organizations that have implemented similar structures. Regardless of future direction, FAA recognizes that considerable work is needed to modify behaviors and create comprehensive cultural change. A continued focus on cultural change initiatives will be critical in the years ahead.

	FAA Is Revising the Modernization Program and Implementing Acquisition Reform but Faces New Challenges

While FAA is involving external and internal stakeholders in revising its approach to the modernization program, it will need to stay focused on implementing solutions to the root causes of past problems, ensure that all aspects of its acquisition management system are effectively implemented, and quickly address the looming crisis with the year 2000 date requirements.

		FAA Is Seeking Consensus From Stakeholders on an Achievable Modernization Program

The FAA Administrator has begun an outreach effort with the aviation community to build consensus on and seek commitment to the future direction of the agency’s modernization program. Similar to our findings on the logical architecture, a review of this program by the NAS Modernization Task Force concluded that the architecture under development builds on the concept of operations for the NAS and identifies the programs needed to meet the needs of the user community. However, the task force found that the architecture is not realistic because of (1) an insufficient budget; (2) the preponderance of risks associated primarily with certifying and deploying new equipment and with users’ cost to acquire equipment; and (3) unresolved institutional issues and a lack of user commitment.
The task force recommended a revised approach that would be less costly and would be focused more on providing near-term user benefits. Under this revised approach, FAA would (1) implement a set of core technologies to provide immediate user benefits; (2) modify the Flight 2000 initiative to address critical risk areas associated with key communications, navigation, and surveillance programs; and (3) proceed with implementing critical time-driven activities related to the Host computer and the year 2000 problems and with implementing such systems as STARS, surveillance radars, and en route displays to replace aging infrastructure.
The details on how FAA intends to implement the task force’s recommendations are not yet known. However, from our discussions with task force officials, their practical effect would be that the development and the deployment of some current programs would be accelerated while others would be slowed down. Meanwhile, FAA would continue developing programs like STARS and the Display System Replacement and work to ensure that its computers recognize the year 2000. For example, under the revised approach, the WAAS program would be slowed down after Phase I, which is scheduled to provide initial satellite navigation capabilities by 1999, to enable FAA to resolve technical issues and explore how costs could be reduced. Further development would be subject to review and risk mitigation under the expanded Flight 2000 initiative.
FAA faces both opportunities and challenges as it revises the modernization program. On the one hand, FAA has an opportunity to regain user confidence by delivering systems that benefit them. On the other hand, FAA is challenged to follow through with its investment management process improvements. We urge FAA to proceed cautiously as it attempts to expedite the deployment of key technologies to avoid repeating past practices, such as undue concern for schedules at the expense of disciplined systems development and careful, thorough testing. FAA will need to resist this temptation, as the results are typically systems that cost more than expected, are of low quality, and are late as well.

		FAA Will Need to Continue Improving Its Acquisition Management Process

Concerned that burdensome procurement rules were a primary contributor to FAA’s acquisition problems, the Congress exempted FAA from many procurement rules. In response, the agency implemented its Acquisition Management System (AMS) on April 1, 1996, to improve its acquisition of new technology.
AMS is intended to provide high-level acquisition policy and guidance and to establish rigorous investment management practices. We are currently reviewing FAA’s investment management approach, including its practices and processes for selecting, controlling, and evaluating projects, and expect to report later this year. As FAA continues to implement AMS and embarks on a revised modernization approach, it will need to establish baselines for individual projects and performance measurements to track key goals.
Under AMS, an acquisition project should have a baseline, which establishes the performance, life-cycle cost, schedule, and benefit boundaries within which the program is authorized to operate. Having an effective investment analysis capability is important in developing these baselines. In its May 1997 report on AMS, FAA noted that it has focused more attention on investment management analyses. The agency reported that it has established several investment analysis teams of individuals with expertise in such areas as cost estimating, market analysis, and risk assessment to help prepare program baselines to use in determining the best way to satisfy mission needs.
Although FAA has begun efforts to establish new baselines for projects that were underway prior to AMS, program evaluation officials question the availability and the quality of operations and maintenance data that are being used to estimate life-cycle project costs. FAA’s history of unplanned cost increases, most recently seen with its STARS and WAAS programs, coupled with past deficiencies in cost estimating processes and practices point to the need to use reliable and complete data to establish realistic baselines.
As for performance measurements, FAA does not have a unified effort underway to effectively measure progress toward achieving acquisition goals. FAA has established a goal to reduce the time to field systems by 50 percent and to reduce the cost of acquisitions by 20 percent during the first 3 years under AMS. FAA also plans to measure performance in such other critical areas as customer satisfaction and the quality of products and services. According to FAA’s evaluation, while individual organizations are attempting to measure progress in meeting the two goals, a coordinated agencywide measurement effort is lacking.
FAA’s failure to field systems on time and within cost indicates the need for a comprehensive system of performance measurements that can help provide systematic feedback about accomplishments and progress in meeting mission objectives. The need for such measurements will become even more critical as FAA expedites the deployment of some projects.
Clearly identified performance measurements will help FAA, the Congress, and system users assess how well the agency achieves its goals.

		Urgent Action Needed to Ensure Computers Recognize the Year 2000

On January 1, 2000, computer systems worldwide could malfunction or produce inaccurate information simply because the century has changed. Unless corrected, such failures could have a costly, widespread impact. The problem is rooted in how dates are recorded and computed. For the past several decades, systems have typically used two digits to represent the year, such as “97” for 1997, to save electronic storage space and reduce operating costs. This practice, however, makes 2000 indistinguishable from 1900, and the ambiguity could cause systems to malfunction in unforeseen ways or to fail completely.
FAA’s challenge is great. Correcting this problem will be difficult and expensive, and must be done while such systems continue to operate. In less than 2 years, hundreds of computer systems that are critical to FAA’s operations, such as monitoring and controlling air traffic, could fail to perform as needed unless proper date-related calculations can be made.
FAA’s progress in making its systems ready for the year 2000 has been too slow. We have reported that, at its current pace, it will not make it in time. The agency has been severely behind schedule in completing basic awareness and assessment activities—critical first and second phases in an effective year 2000 program. For example, just this month FAA appointed a program manager who reports to the Administrator.
Delays in completing the first two phases have left FAA little time for critical renovation, validation, and implementation activities—the final three phases in an effective year 2000 program. With less than 2 years left, FAA is quickly running out of time, making contingency planning for continuity of operations even more critical.
If critical FAA systems are not year 2000 compliant and ready for reliable operation on January 1 of that year, the agency’s capability in several areas—including the monitoring and controlling of air traffic—could be severely compromised. The potential serious consequences could include degraded safety, grounded or delayed flights, increased airline costs, and customer inconvenience. We have made a number of recommendations aimed at expediting the completion of overdue awareness and assessment activities.
Mr. Chairman, this concludes my statement. We will be happy to answer any questions from you or any Member of the Subcommittee.

Modernization Projects Completed Through August 1998

Automated Radar Terminal System (ARTS) IIIA Assembler (22-02)
Additional ARTS IIIA at FAA Technical Center (22-05)
Consolidated Notice to Airmen System (23-03)
Visual Flight Rules Air Traffic Control Tower Closures (22-14)
Altitude Reporting Mode of Secondary Radar (Mode-C) (21-10)
Enhanced Target Generator Displays (ARTS III) (22-03)
National Airspace Data Interchange Network IA (25-06)
Hazardous In Flight Weather Advisory Service (23-08) (continued)
En Route Automated Radar Tracking System Enhancements (21-04)
Sustain New York Terminal Radar Approach Control (TRACON) (22-18)
National Radio Communication System (26-14)
Direct Access Radar Channel System (21-03)
National Airspace Data Interchange Network II (25-07)
Modernization of Unmanned FAA Buildings and Equipment (26-08)
Large Airport Cable Loop Systems (26-05)
Interfacility Data Transfer System for Edwards Air Force Base Radar Approach Control (35-20)
Acquisition of Flight Service Facilities (26-10) (continued)
Radar Pedestal Vibration Analysis (44-43)
Low-Level Wind Shear Alert System (23-12)
Brite Radar Indicator Tower Equipment (22-16)
National Implementation of the “Imaging” Aid for Dependent Converging Runway Approaches (62-24)
Integrated Communications Switching System (23-13)
System Engineering and Integration Contract (26-13)
National Airspace Data Interchange Network II Continuation (35-07)
Instrument Landing System and Visual Navaids Engineering and Sparing (44-24)
Oceanic Display and Planning System (21-05)
Integrated Communications Switching System Logistics Support (43-14)
Replacement of Controllers Chairs (42-24)
ARTS IIIA-Expand 1 Capacity and Provide Mode C Intruder Capability (32-20) (continued)
Civil Aviation Registry Modernization (56-24)
Precision Automated Tracking System (56-16)
National Airspace Integrated Logistic Support (56-58)
Long Range Radar Radome Replacement (44-42)
Installed at en route centers to allow processing of existing air traffic control software on new equipment.
Project comprised a variety of tower and terminal replacement and modernization projects. Project was continued in the Capital Investment Plan under projects 42-13 and 42-14.
Also known as the Radio Communications Link project, it was designed to convert aging “special purpose” Radar Microwave Link System into a “general purpose” system for data, voice, and radar communications among en route centers and other major FAA facilities.
Project was activated to sustain and upgrade air traffic control operations and acquire eight terminal radars awaiting the full implementation of the Advanced Automation System.
Project comprised a variety of diverse support projects and has been continued in the Capital Investment Plan under Continued General Support (46-16).

Status of FAA’s Major Modernization Projects

Over the past decade, we have reported on FAA’s progress in meeting schedule commitments for last-site implementation, which signals completion of the project. Prior to this year, we have used the dates from the 1983 NAS modernization plan. This year, after discussions with FAA officials, we are measuring FAA’s progress against an interim date—which in most cases represents the date of contract award or investment decision. We will continue to show the original date, but will only measure progress against the interim date.
57 TDLS I57 TDLS IIStage 0: 21 Stage 1 and 2: 21 0 TDLS is the Tower Data Link Services. TDLS I (Predeparture Clearance/Flight Data Input/Output CRT/Rank Emulation) has been commissioned at all 57 sites; TDLS II (Digital-Automatic Terminal Information Service) has been installed at all 57 sites and commissioned at 48 sites.
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Output:
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the Federal Aviation Administration's (FAA) program to modernize its National Airspace System (NAS), focusing on: (1) the status of key modernization projects; (2) FAA's actions to implement recommendations to correct modernization problems; and (3) the opportunities and challenges facing FAA as it embarks upon its new modernization approach.

What GAO Found

GAO noted that: (1) since 1982, Congress has appropriated over $25 billion to the modernization program; (2) while FAA has fielded some equipment, historically, the agency has experienced considerable difficulty in delivering systems with promised cost and schedule parameters; (3) as a result, FAA has been forced to implement costly interim projects; (4) meanwhile, two key systems--the Wide Area Augmentation System and the Standard Terminal Automation Replacement System--have encountered cost increases and schedule delays; (5) GAO's work has pinpointed the root causes of FAA's modernization problems and has recommended actions to overcome them; (6) most recently, GAO found shortcomings in the areas of systems architecture or the overall modernization blueprint, cost estimating and accounting, software acquisition, and organizational culture; (7) although FAA has begun to implement many of GAO's recommendations, sustained management attention is required to improve the management of the modernization program; (8) FAA is collaborating with and seeking commitment from users in developing a new approach to make the modernization less costly and to provide earlier user benefits; (9) the challenge for FAA is to have disciplined processes in place in order to deliver projects as promised; and (10) FAA will also need to quickly address the looming year 2000 computer crisis to ensure that critical air traffic control systems do not malfunction or produce inaccurate information simply because the date has changed.