Summary

Pursuant to a congressional request, GAO provided information on the Navy's Trident II missile contract reliability incentives and cost-sharing arrangements.

GAO found that: (1) between January 1987 and January 1989, the contractor conducted 19 land-launched development missile flight tests, resulting in 1 aborted test, 2 failures, 1 partial success, and 15 successes; (2) during 1987, Congress reduced the Navy's fiscal year 1988 appropriations request for the missile system by $50 million, resulting in the contractor seeking modification of reliability and program incentive contract specifications; (3) the reliability fee ranged from a positive $138.5 million to a negative $138.5 million; (4) the contractor could obtain the maximum reliability fee even if several failures occurred during the measurement period, and an early missile failure might not ultimately result in any reduction in the total reliability fee; (5) the contractor received a $112-million interim incentive payment in June 1990; (6) with the missile system development effort almost complete, the contractor estimated that the contract would exceed the $3.839-billion development target cost by about $100 million; (7) the contractor's share of the overrun was about $10 million, which would reduce its development target fee from $332 million to $322 million; and (8) the contractor estimated that it would earn an additional $3 million from an estimated $10-million underrun of the $930-million target cost, which would raise its production target fee to $85 million.