Second SLS Mobile Launcher Costs Rise to Almost $1 Billion as Schedule Slips More Than 2 Years

• 2.5 times more expensive than original contract
• Completion delayed at least 2.5 years
• Additional cost overruns and delays likely

by Douglas Messier
Managing Editor

Bechtel’s $383 million project to build a second mobile launcher (ML-2) for NASA’s Artemis moon program has ballooned to at least $960.1 million while completion has slipped more than two years from March 2023 to October 2025, according to a new Office of Inspector General (IG) report. And more delays are highly likely.

The delay means that the earliest NASA could launch the Artemis IV mission to the moon would be pushed back to at least November 2026 due to the need for the agency to conduct testing after construction of the mobile launcher is completed. ML-2 is required for the heavier and more powerful Space Launch System (SLS) Block 1B booster, which is set to debut on the Artemis IV flight.

The audit said additional delays are likely. There is “only a 3.9 percent confidence level” that Bechtel will be able to meet that revised schedule.

“In fact, an Independent Review Team analysis determined the project would require an additional $447 million and 27 months, for a total contract value of $1.5 billion and a launcher delivery date of December 2027—a schedule that would enable an Artemis IV launch no earlier than the end of 2028,” the audit said. “Further, while the Exploration Ground Systems (EGS) Program, which manages the ML-2 project, established a formal Agency Baseline Commitment (ABC) for the overall EGS Program—the cost and schedule baseline against which a project is measured—NASA has not established a separate ABC for the ML-2, a recommendation we made in our March 2020 report.”

The audit put most of the blame on Bechtel.

“We found Bechtel’s poor performance is the main reason for the significant projected cost increases
and schedule delays to the design and development of the ML-2. Specifically, of the $577.1 million total
projected cost increase and over 2.5 years of schedule delay, more than 70 percent ($421.1 million) and
over 1.5 years of delay is related to poor contractor performance, primarily Bechtel’s underestimation of
the ML-2 project’s scope and complexity. According to Bechtel officials, a portion of the projected cost
increase is due to the impacts of Coronavirus Disease 2019 (COVID-19),” the report said.

The IG made five recommendations to NASA to get the program back on track (see below). The space agency concurred and agreed to implement them.

The audit’s Findings in Brief section is reproduced below.

NASA’s Management of Mobile Launcher 2 Contract
Office of Inspector General
Report No. IG22-012
June 9, 2022

Results in Brief

Why We Performed This Audit

Key to NASA’s goals of sustaining a human presence on the Moon and future exploration of Mars is development of the Space Launch System (SLS)—a two-stage, heavy-lift rocket that will launch the Orion Multi-Purpose Crew Vehicle (Orion) into space. NASA is developing two mobile launchers at Kennedy Space Center in Florida that will serve as the ground structure to assemble, process, transport to the pad, and launch various iterations of the integrated SLS/Orion system. The launchers consist of a two-story base structure—the platform to support the SLS—and a tower equipped with connection lines; launch accessories; and a walkway for personnel, equipment, and astronauts.
In March 2020, the NASA Office of Inspector General issued a report examining development efforts for both mobile launchers. Construction of the first mobile launcher was completed in 2010 for the since-canceled Constellation Program’s Ares I launch vehicle with the structure later modified to support the SLS/Orion system’s first three missions known as Artemis. In 2019, NASA awarded a $383 million contract to Bechtel National, Inc. (Bechtel) to design, build, test, and commission a second mobile launcher (ML-2) to support larger variants of the SLS beginning with Artemis IV.
In this audit, we examined the extent to which NASA is meeting cost, schedule, and performance goals for the ML-2 contract. To complete this work, we reviewed budget, contract, acquisition planning, schedule, program status, risk management, and award fee documentation and data from NASA and Bechtel. We also reviewed Earned Value Management System (EVMS) documentation provided by the Defense Contract Management Agency (DCMA) and conducted interviews with NASA, Bechtel, and DCMA officials.

What We Found

NASA is estimated to spend approximately a billion dollars or at least 2.5 times more than initially planned for the ML-2 contract with final delivery of the launcher to NASA expected to take at least 2.5 years longer than initially planned. As of March 2022, NASA had obligated $435.6 million of Bechtel’s current $460.3 million contract value and extended the contract’s performance period 10 months. However, as of May 2022, design work on the ML-2 was still incomplete and Bechtel officials do not expect construction to begin until the first quarter of fiscal year 2023 at the earliest. To complete contract requirements and deliver an operational ML-2, Bechtel estimates it will need an additional $577.1 million, bringing the structure’s total projected cost to $960.1 million coupled with an October 2025 rather than March 2023 delivery date. We expect further cost increases as inevitable technical challenges arise when ML-2 construction begins. Given the time NASA requires for additional testing once the structure is delivered, the earliest the ML-2 will be available for Artemis IV is November 2026.

Compounding Bechtel’s projected cost increases and schedule delays, an ML-2 project analysis provided only a 3.9 percent confidence level that the nearly $1 billion cost and October 2025 delivery estimates were accurate. NASA requires projects to develop budgets and schedules consistent with a 70 percent joint cost and schedule confidence level (JCL), meaning a 70 percent likelihood the project will finish equal to or less than the planned costs and schedule. In fact, an Independent Review Team analysis determined the project would require an additional $447 million and 27 months, for a total contract value of $1.5 billion and a launcher delivery date of December 2027—a schedule that would enable an Artemis IV launch no earlier than the end of 2028. Further, while the Exploration Ground Systems (EGS) Program, which manages the ML-2 project, established a formal Agency Baseline Commitment (ABC) for the overall EGS Program—the cost and schedule baseline against which a project is measured—NASA has not established a separate ABC for the ML-2, a recommendation we made in our March 2020 report.

The ML-2’s substantial cost increases and schedule delays can be attributed primarily to Bechtel’s poor performance on the contract, with more than 70 percent ($421.1 million) of the contract’s cost increases and over 1.5 years of delays related to its performance. For example, Bechtel underestimated the ML-2 project’s scope and complexity, experienced ML-2 weight management challenges, and experienced staffing turnover and retention issues. Additionally, Bechtel’s lack of a certified EVMS since inception of the ML-2 contract—a contractually required tool for measuring and assessing project performance—has limited NASA’s insight into the project’s cost and schedule issues. Bechtel’s performance notwithstanding, NASA’s management practices contributed to the project’s cost increases and schedule delays. NASA awarded the ML-2 contract while the Exploration Upper Stage—the primary reason NASA needed a second mobile launcher—lacked final requirements, impacting the ML-2 design. With respect to contract management, while NASA withheld award fees for a 6-month performance period in spring 2021 due to Bechtel’s poor performance, the Agency did not continue this practice despite the contractor’s continued poor performance in the subsequent award period. Therefore, we question nearly $3 million in award fees NASA awarded to Bechtel for this period.
During this audit, we urged NASA to take immediate corrective action given the substantial concerns surrounding Bechtel’s performance. Bechtel has developed a recovery plan focused on addressing weight concerns and updating the project’s cost and schedule, while NASA is assessing whether to transition to a fixed-price contract in the construction phase. It is too early to tell what impact, if any, these efforts will have on improving the trajectory of the project.

Subsequent to completion of our audit work, we learned the Agency rated Bechtel’s performance for the award fee period ending in March 2022 as “unsatisfactory,” resulting in no award fee for this period. Additionally, Bechtel developed a revised interim cost and schedule estimate that projected even higher contract costs and delivery of the ML-2 to NASA in late 2026—more than 3.5 years later than originally promised. While we did not evaluate Bechtel’s revised cost and schedule estimate or the award fee rating as part of this audit, we will examine both as we continue to monitor NASA’s management of the ML-2 contract.

What We Recommended

To improve NASA’s management of the ML-2 contract and Bechtel’s performance, we recommended the Associate Administrator for Exploration Systems Development Mission Directorate: (1) evaluate Bechtel’s support for the updated estimate of cost and schedule at project completion and finalize negotiations for Bechtel’s currently proposed cost increases and NASA’s government-driven changes; (2) before completing and finalizing the ML-2 project-level ABC, update the JCL analysis to reflect realistic life-cycle cost and schedule estimates to ensure effective budgeting and management of the project; (3) to the extent that some or all of the Bechtel contract is converted to a fixed-price contract, ensure the Critical Design Review has been completed in accordance with NASA’s life-cycle policies prior to conversion and an independent government cost estimate is established before entering into any new contractual agreements; and (4) ensure acquisition officials minimize the availability of award fees when contract modifications and value increases are the result of shortcomings in contractor performance and require documentation of the rationale for any award fees granted. To increase accountability and improve future selection and management of contracts, we recommended the Assistant Administrator for Procurement (5) issue policy guidance to reinforce current Federal Acquisition Regulation (FAR) and NASA FAR Supplement regulatory guidance for stopping or withholding payments to a contractor for significant deficiencies in business systems, such as the EVMS.

We provided a draft of this report to NASA management who concurred with our recommendations and described their planned actions. We consider the proposed actions responsive and will close the recommendations upon completion and verification.