Reality of F-35 Procurement?

The Joint Strike Fighter (JSF) is Department of Defense’s (DOD) most complex and ambitious aircraft acquisition, seeking to simultaneously produce and field three aircraft variants for the Air Force, Navy, Marine Corps, and eight international partners. For the United States, the JSF will need a joint, long-term commitment to very large annual funding requirements and a total investment now approaching $1 trillion dollars—$300 billion to acquire 2,458 aircraft and $650 billion in life-cycle operation and support costs, according to official program estimates. The JSF is critical to our nation’s plans for recapitalizing tactical aircraft and just as important to our allies.

We were not able to review the program office’s updated estimates associated with the fiscal year 2009 budget, which will be reported in the new December 2007 SAR to be released in April 2008. The program office declined to provide updated costs, stating that those figures are sensitive because the new budget request had not been finalized at the time of our review. Every year, this timing disconnect results in us reporting soon-to-be-outdated cost and schedule data. For example, shortly after our last report was issued on March 15, 2007, DOD released new cost estimates that disclosed an increase of more than $23 billion in JSF program costs. On the basis of the evidence we do have and our analysis, we fully expect future cost estimates to be substantially higher than the program estimates in this report.

The recent decision to replenish management reserves by reducing test resources, known as the Mid-Course Risk Reduction Plan, significantly increases the risks of not completing development testing on time and not finding and fixing design and performance problems until late into operational testing and production, when it is more expensive and disruptive to do so. The plan also does not directly address and correct the continuing production and schedule concerns that depleted management reserves. We expect program development and procurement costs to increase substantially and schedule pressures to worsen based on performance to date and the conditions that gave rise to the risk reduction plan. Two-thirds of budgeted funding for the JSF has been spent on the prime development contract, but only about one-half of the work has been completed. The contractor has extended manufacturing schedules several times, but test aircraft delivery dates continue to slip. The flight test program has barely begun, but faces substantial risks with reduced assets as design and manufacturing problems continue to cause delays that further compress the time available to complete development. The Director, Operational Test and Evaluation, and several other prominent defense offices objected to the midcourse plan as too risky because it does not provide adequate resources for development testing or resolve systemic problems that depleted management reserves.

The JSF is entering its most challenging phase as it finalizes three designs, matures manufacturing processes, conducts flight tests, and ramps up production. The first and foremost challenge is affordability. From its outset, the JSF goal was to develop and field an affordable, highly common family of strike aircraft. That goal is threatened by rising unit procurement prices and somewhat lower commonality than expected, raising concerns that the United States and its allies may not be able to buy as many aircraft as currently planned. The program also makes unprecedented demands for funding from the defense budget—an annual average of about $11 billion for the next two decades—and must compete with other defense and non-defense priorities for the shrinking federal discretionary dollar. Further, informed by more knowledge as the program progresses, DOD doubled its projection of JSF life-cycle operating and support costs compared to last year’s estimate and its expected cost per flight hour now exceeds that of the F-16 legacy fighter it is intended to replace.

Procurement cost increases were primarily due to (1) extending the procurement period seven years at lower annual rates, (2) increased future price estimates based on contractor proposals for the first production lot, (3) airframe material cost increases, and (4) increases resulting from design maturation. Offsetting a portion of the procurement cost increases were lower estimates for labor rates and subcontractor costs.

An operational assessment by testers from the Navy, Air Force, and the United Kingdom’s Royal Air Force was accomplished from March 2004 to December 2005 to assess development progress and current JSF mission capability. The February 2006 report concluded that the baseline flight test schedule provided little capability to deal with unforeseen problems and still meet the scheduled start of operational test and evaluation in October 2012. Testing officials said the JSF flight test program was following the historical pattern of legacy programs in making overoptimistic plans and using assumptions not supported by historical data. In legacy aircraft, these practices resulted in capacity constraints, program slips, and reduced testing tasks. We note that these concerns about the JSF were expressed at a time when the test program was expected to have the full complement of 15 test aircraft, not the 13 now planned.

A program as complex and technically challenging as the JSF would be expected to have some setbacks, but we believe that the cause of many cost and schedule problems can be traced to an acquisition strategy and decisions at key junctures that did not adequately follow the best practices we have documented in successful commercial and government programs.7 The JSF started system development before requisite technologies were ready, started manufacturing test aircraft before designs were stable, and moved to production before flight tests have adequately demonstrated that the aircraft design meets performance and operational suitability requirements.

Six years after system development start, only two of the JSF’s eight critical technologies are mature by best practice standards, three are approaching maturity, and three are immature. Maturing critical technologies during system development led to cost growth. For example, development costs for the electric-hydraulic actuation and power thermal management systems have increased by 195 and 93 percent respectively since 2003.

Also, the program began initial low-rate production in 2007 before delivering an aircraft that fully represents the expected design. Efforts to mature production are constrained because the designs are not fully proven and tested, and manufacturing processes are not demonstrated. A fully integrated, capable production aircraft is not expected to enter flight testing until fiscal year 2012, increasing risks that problems found may require redesign, production line changes, and retrofit expenses for aircraft already built.

On the basis of the evidence, we expect JSF program costs to increase and the schedule worsen to the point where the development period will likely need to be extended and Initial Operational Test and Evaluation (IOT&E) and full-rate production delayed. A major program restructure seems inevitable, unless significant elements of the program can be safely eliminated or deferred.

There is no reason to believe that these problems can be easily and quickly fixed. While there have been some assembly line improvements, program officials expect the manufacturing problems to persist for about 2 more years. Officials hope this plan will give them a period of time to better and more fully assess all the issues and reevaluate development costs and schedule requirements. They are depending on the revised test verification plans to maintain the pace and efficacy of development testing, but the test community is dubious. What seem more likely are additional costs and time to overcome inadequate capacity and the elimination or deferral of more test activities. Eliminating development test activities and deferring additional tasks to be completed during operational testing increase the likelihood that design and performance problems will not be identified and resolved until late in the program, when it is more costly and disruptive and could delay the delivery of capabilities to the warfighter.

There are also abundant other indicators that acquisition costs will substantially increase from what is now being reported to Congress. Specifically:
• DOD has identified billions of dollars in unfunded requirements that are not in the program office estimate, including additional tooling and procurement price hikes.
• A new manufacturing schedule in the works indicates continued degradation in the schedule and further extends times for first flights.
• Both the aircraft and engine development contracts have persistent, substantial cost variances that cost analysts believe are too large and too late in the program to resolve without adding to budget.
• The prime contractor and program office are readying a new estimate at completion, which is expected to be much larger than what is now budgeted.
• Three defense organizations independent of the JSF program office have all concluded that the program office’s cost estimate is significantly understated and the current schedule unlikely to be achieved.

The $299.8 billion acquisition cost estimate for the JSF program is not reliable because it is not sufficiently comprehensive, accurate, documented, or credible. GAO’s Cost Assessment Guide outlines best practices used throughout the federal government and industry for producing reliable and valid cost estimates. We assessed the cost-estimating methodologies used by the JSF program office against these best practices and determined that certain key costs were excluded, assumptions used were overly optimistic, documentation was inadequate, and no analysis had been done to state the confidence and certainty the program office had in its cost estimate. As a result of these weaknesses, the JSF program acquisition cost estimate is not reliable for decision making.

The program cost estimate is also considered inaccurate because it relies on data and reports found to be deficient. JSF program office used Lockheed Martin earned value management (EVM) data in estimating development costs.10 However, DCMA determined that the data as being of very poor quality and issued a report in November 2007 stating that it is deficient to the point where the government is not obtaining useful program performance data to manage risks. Among other problem areas, DCMA found that the contractor was using management reserve funds to alter its own and subcontractor performance levels and cost overruns. DCMA officials who conducted the review told us that the poor quality of the data invalidated key performance metrics regarding cost and schedule, as well as the contractor’s estimate of the cost to complete the contract.

The JSF program has not conducted a fully documented independent cost estimate since system development start in 2001. Despite reliability concerns and all the significant events and changes in cost, schedule, and quantity since then—those reported by the program office as well as those identified by other defense organizations and us—DOD does not intend to accomplish another one until required to support the full-rate production decision in 2013. If so, this will mean that the program—DOD’s largest acquisition and vitally important to our allies—will have a 12-year gap between official validated cost estimates. The program may complete development and be 6 years into production before an accurate, up-to-date, and reliable official cost estimate is done.

The JSF is entering its most challenging phase as it finalizes three designs, matures manufacturing processes, conducts flight tests, and ramps up production. The first and foremost challenge is maintaining affordability in three dimensions—reasonable procurement prices, stable annual funding, and economical life-cycle operating and support costs. If affordability is not maintained during the acquisition program, quantities bought by the United States and allies may either decrease or else consume more of the available defense budgets. Over the life cycle of a system, higher costs for maintaining readiness and maintainability drive up annual operating expenses and may limit funds for new investments. Other program challenges could affect future quantities and the mix of aircraft procured by the United States and our allies.

From its outset, the JSF goal has been to develop and field an affordable, highly common family of strike aircraft. Rising unit procurement prices, and somewhat lower commonality than expected, raise concerns that the United States and its allies may not be able to buy as many aircraft as currently planned. Average unit procurement costs are up 27 percent since the 2004 Replan and 51 percent since the start of system development. Rising prices erode buying power, likely resulting in reduced quantities and delays in delivering promised capabilities to the warfighter.

A third aspect of affordability is the life-cycle cost of ownership. DOD is recapitalizing its tactical air forces by replacing aging legacy systems with new, more capable systems, like the JSF, that incorporates reliability and maintainability features designed to reduce future operating costs. Recently, DOD sharply increased its projection of JSF operating and support costs compared to previous estimates. The December 2006 SAR projected life-cycle operating and support costs for all three variants at $650.3 billion, almost double the $346.7 billion amount shown in the December 2005 SAR and similar earlier estimates. The operating cost per flying hour for the JSF CTOL is now estimated to be greater than current flying hour cost for the F-16, one of the legacy aircraft to be replaced.
Officials explained that the amounts reported in 2005 and before were early estimates based on very little data, whereas the new estimate is of higher fidelity, informed by more information as JSF development progresses and more knowledge is obtained. Factors responsible for the increased cost estimate included a revised fielding and basing plan, changes in repair plans, revised costs for depot maintenance, increased fuel costs, increased fuel consumption, revised estimates for manpower and mission personnel, and a new estimate of the cost of the JSF’s autonomic logistics system.
Overall, the cost of ownership represents a very large and continuing requirement for the life of fielded aircraft. According to the new estimate, we calculate that DOD will incur about $24 billion per year to operate and support JSF units, assuming the quantities now planned and an 8,000-hour service life for each JSF aircraft fielded over time.

From the inception of the program, DOD has anticipated major cost savings from developing and fielding JSF variants that share many common components and subsystems. While a degree of commonality has been achieved, expectations are now lower than they were at program start. Substantial commonality has been maintained for the mission systems among all three variants and for the propulsion system of the conventional and carrier variants. However, commonality among airframes and vehicle systems has declined overall since the start of system development.

Officials also have some reservations whether they can afford the quantities now planned at peak production rates. Navy and Marine Corps officials told us last year that buying the JSF at the current planned rate—requiring a ramp-up to 50 CV and STOVL aircraft by fiscal year 2015—will be difficult to achieve and to afford, particularly if costs increase and schedules slip. Officials told us that a maximum of 35 per year was probably affordable, given budget plans at that time.11

Weight growth was the most significant challenge faced by the JSF program early in development. Redesign efforts to address weight growth was the single largest factor causing the $10 billion cost increase and 18-month extension in the development schedule since the start of system development.
While the weight increase has been addressed for now, projections are that the aircraft weight will continue to increase during the balance of the development period, consistent with weight increases seen on legacy aircraft programs. According to an OSD official with knowledge of legacy aircraft development efforts, half of all weight growth during the development effort can be typically expected after first flight but prior to initial operational capability, and that additional small but persistent weight increases can be expected during the aircraft’s service life. First flight of a production-representative JSF has not yet occurred, and weight is running very close to the limits as evaluated by engineering analyses and trend extrapolation. As designs continue to mature and flight testing intensifies, maintaining weight within limits to meet warfighter capability requirements will be a continuing challenge and pose a major risk to meeting cost, schedule, and performance goals.

The clear implication from performance to date and the Mid-Course Risk Reduction plan is that additional costs and time will be needed to complete JSF development. The plan to recapitalize management reserve at the expense of test assets is risky with potential major impacts down the road on costs, performance requirements, and fielding schedules. The remaining development effort will be less robust than originally planned and depends on a revised test verification strategy that is still evolving. As a result, the development effort has an increased risk of not fully measuring JSF capabilities and deficiencies prior to operational testing and could result, in the words of one DOD official, in the future operational test period being one of discovery rather than validation of the aircraft’s capabilities and deficiencies. Finding and fixing deficiencies during operational testing and after production has ramped up is costly, disruptive, and delays getting new capabilities to the warfighter.
Because the program cost estimate is not reliable when judged against best standards, the decision making and oversight by Congress, top military leaders, and our allies are diminished. The picture they do have is one where costs continue to rise and schedules slip. The situation will be considerably worsened if the cost estimates of defense offices outside the program are more accurate than the conservative, official in-house estimates. Waiting 12 years between fully documented and validated total program cost estimates is contrary to policy and good management, given all the changes in cost, quantity, schedules, and other events that have occurred since the 2001 estimate. The size of the JSF acquisition, its impact on our and allied tactical air forces, and the unreliability of the current estimate argue for an immediate new and independent cost estimate and uncertainty analysis. This is critical information needed by DOD management to make sound trade-off decisions against competing demands and by Congress to perform oversight and hold DOD accountable.

The department acknowledges the substantial concurrency and risk, but approves of it, hoping to replace aging legacy aircraft with this fifth generation strike aircraft as quickly and efficiently as possible. The department believes that the program is well managed, has the proper amount of oversight, and is well positioned to manage heightened risks and successfully accomplish this mission.

...Problems and delays are largely the residual effects from the late release of engineering drawings, design changes, delays in establishing a supplier base, and parts shortages, which continue to cause delays and force inefficient production line work-arounds where unfinished work is completed out of station.

Tinito_16 wrote:Looks like they're turning it around. Gate's might've drawn the ire of many for capping the F-22 (including mine) but maybe he has a handle on these guys and can make em work on time and on budget, something that has been sorely missing for a LONG time.

At what dilution to the block capabilities though? Won't that further change an already highly complex and ever-changing program's goal-post? Won't that change the calculus then in what Congress should determine and recalculate as the most optimal future fighter recapitalization mix?