Joint Strike Fighter Acquisition
Managing Competing Pressures Is Critical to Achieving Program Goals Gao ID: GAO-03-1012T July 21, 2003The Joint Strike Fighter (JSF) is a cooperative program between the Department of Defense (DOD) and U.S. allies for developing and producing next generation fighter aircraft to replace aging inventories. As currently planned, the JSF program is DOD's most expensive aircraft program to date, costing an estimated $200 billion to procure about 2,600 aircraft and related support equipment. Many in DOD consider JSF to be a model for future cooperative programs. To determine the implications of the JSF international program structure, GAO identified JSF program relationships and expected benefits, and assessed how DOD is managing challenges associated with partner expectations, technology transfer, and recent technical concerns.
The JSF program is based on a complex set of relationships among governments and industries from the United States and eight partner countries. The program is expected to benefit the United States by reducing its share of program costs, giving it access to foreign industrial capabilities, and improving interoperability with allied militaries. Partner governments expect to benefit financially and technologically through relationships with U.S. aerospace companies and access to JSF program data. Yet international participation also presents a number of challenges. Because of their contributions to the program, partners have significant expectations for financial returns, technology transfer, and information sharing. If these expectations are not met, their support for the program could deteriorate. To realize these financial returns, partners expect their industry to win JSF contracts through competition--a departure from cooperative programs, which directly link contract awards to financial contributions. However, recent actions by the prime contractor could indicate a departure from this competitive approach and a return to directed work share. Technology transfer also presents challenges. Transfers of sensitive U.S. military technologies--which are needed to achieve aircraft commonality and interoperability goals--will push the boundaries of U.S. disclosure policy. In addition, a large number of export authorizations are needed to share project information and execute contracts. These authorizations must be submitted and resolved in a timely manner to maintain program schedules and ensure partner industry has the opportunity to compete for subcontracts. Finally, recent technical challenges threaten program costs and possibly partner participation in the program. While partners can choose to share any future program cost increases, they are not required to do so. Therefore, the burden of any future increases may fall almost entirely on the United States. If efforts to meet any of these partner expectations come into conflict with program cost, schedule, and performance goals, the program office will have to make decisions that balance these potentially competing interests within the JSF program.
GAO-03-1012T, Joint Strike Fighter Acquisition: Managing Competing Pressures Is Critical to Achieving Program Goals
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United States General Accounting Office:
Testimony:
Before the Subcommittee on National Security, Emerging Threats, and
International Relations, Committee on Government Reform, House of
Representatives:
GAO:
For Release on Delivery Expected at 11:00 a.m. EDT:
Monday, July 21, 2003:
Joint Strike Fighter Acquisition:
Managing Competing Pressures Is Critical to Achieving Program Goals:
Statement of Katherine V. Schinasi, Director Acquisition and Sourcing
Management:
Joint Strike Fighter Acquisition:
GAO-03-1012T:
GAO Highlights:
Highlights of GAO-03-1012T, a testimony before the Subcommittee on
National Security, Emerging Threats, and International Relations,
Committee on Government Reform, House of Representatives
Why GAO Did This Study:
The Joint Strike Fighter (JSF) is a cooperative program between the
Department of Defense (DOD) and U.S. allies for developing and
producing next generation fighter aircraft to replace aging
inventories. As currently planned, the JSF program is DOD‘s most
expensive aircraft program to date, costing an estimated $200 billion
to procure about 2,600 aircraft and related support equipment. Many in
DOD consider JSF to be a model for future cooperative programs.
To determine the implications of the JSF international program
structure, GAO identified JSF program relationships and expected
benefits, and assessed how DOD is managing challenges associated with
partner expectations, technology transfer, and recent technical
concerns.
What GAO Found:
The JSF program is based on a complex set of relationships among
governments and industries from the United States and eight partner
countries. The program is expected to benefit the United States by
reducing its share of program costs, giving it access to foreign
industrial capabilities, and improving interoperability with allied
militaries. Partner governments expect to benefit financially and
technologically through relationships with U.S. aerospace companies
and access to JSF program data.
Yet international participation also presents a number of challenges.
Because of their contributions to the program, partners have
significant expectations for financial returns, technology transfer,
and information sharing. If these expectations are not met, their
support for the program could deteriorate. To realize these financial
returns, partners expect their industry to win JSF contracts through
competition”a departure from cooperative programs, which directly link
contract awards to financial contributions. However, recent actions by
the prime contractor could indicate a departure from this competitive
approach and a return to directed work share. Technology transfer also
presents challenges. Transfers of sensitive U.S. military technologies”
which are needed to achieve aircraft commonality and interoperability
goals”will push the boundaries of U.S. disclosure policy. In addition,
a large number of export authorizations are needed to share project
information and execute contracts. These authorizations must be
submitted and resolved in a timely manner to maintain program
schedules and ensure partner industry has the opportunity to compete
for subcontracts. Finally, recent technical challenges threaten
program costs and possibly partner participation in the program. While
partners can choose to share any future program cost increases, they
are not required to do so. Therefore, the burden of any future
increases may fall almost entirely on the United States. If efforts to
meet any of these partner expectations come into conflict with program
cost, schedule, and performance goals, the program office will have to
make decisions that balance these potentially competing interests
within the JSF program.
What GAO Recommends:
GAO is not making recommendations in this testimony. In a report
issued concurrently (GAO-03-775), GAO is recommending that the
Secretary of Defense direct the JSF program office to ensure that
international supplier planning anticipates and mitigates risks
associated with technology transfer and that information concerning
the selection and management of suppliers is available, closely
monitored, and used to improve program outcomes. In comments on that
report, DOD concurred with the recommendations.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here to discuss the Joint Strike Fighter (JSF)
international acquisition strategy. DOD views the JSF program as
both a model for acquisition reform and an example for the future of
international cooperation. We have previously reported to you on how
the JSF program is being managed relative to best practices for product
development. Central to these best practices is the understanding that
attainment of sufficient knowledge at key program junctures results in
a low-risk path from design to production.
My statement focuses on the structure of the JSF program, the benefits
and challenges cooperative development brings to the overall
acquisition approach, and the opportunity DOD has to achieve critical
program goals. We are also releasing a report today, done at your
request, which addresses many of the issues I am discussing in this
statement.
Because international participation adds complexity to already
challenging acquisition programs, proponents of other DOD acquisition
efforts are assessing the potential benefits of using the JSF model and
incorporating key elements into their program strategies. Choices made
to balance both partner expectations and overall program goals will be
critical not only to the success of this program, but potentially for
many future cooperative development efforts. DOD and the JSF Program
Office need to ensure that sufficient knowledge is available and
appropriately used in making these decisions.
Background:
The JSF program is DOD's largest cooperative program. It is structured
on a multitiered set of relationships involving both government and
industry from the United States and eight allied nations--the United
Kingdom, Italy, the Netherlands, Turkey, Denmark, Norway, Canada, and
Australia. These relationships are shown in figure 1.
Figure 1: JSF Program Relationships:
[See PDF for image]
[A] Figure does not reflect relationships that the prime contractors
may have with nonpartner countries.
[End of figure]
The JSF program structure was established through a framework
memorandum of understanding (MOU) and individual supplemental
MOUs between each of the partner country's defense department or
ministry and DOD, negotiating on behalf of the U.S. government. These
agreements identify the roles, responsibilities, and expected benefits
for all participants. The current negotiated agreement covers only the
system development and demonstration phase, and participation now does
not guarantee participation in future phases.
The program intends to produce three fighter variants to meet
multiservice requirements: conventional flight for the Air Force, short
take-off and vertical landing for the Marine Corps, and carrier
operations for the Navy. As currently planned, the program will cost
about $200 billion to develop and procure about 2,600 aircraft and
related support equipment.
In October 2001, DOD awarded Lockheed Martin Aeronautics Company
a contract for the system development and demonstration phase. Pratt
and Whitney and General Electric were awarded contracts to develop the
aircraft engines. This phase is estimated to last about 10 years and
cost about $33 billion; it will involve large, fixed investments in
human capital, facilities, and materials. The next significant
knowledge point will be a critical design review, currently planned for
July 2005. At that time, the aircraft design should be stable and
engineering drawings should be available to confirm that the design
performs acceptably and can be considered mature.
United States and Partners Expect Significant Benefits:
The United States and its partners expect to realize a variety of
benefits from cooperation on the JSF program. The United States expects
to benefit from partner contributions and potential future aircraft
sales; access to partner industrial capabilities; and improved
interoperability with partner militaries once the aircraft is fielded.
Partner governments expect to benefit financially and obtain an
aircraft they could not afford to develop on their own. Partners also
expect to benefit from increased access to JSF program data, defined
influence over aircraft requirements, and technology transfers to their
industries from U.S. aerospace companies. For the partners, industrial
return, realized through JSF subcontract awards, is critical for their
continued participation in the program.
United States Benefits from Financial Contributions and Access to
Partner Industry:
According to DOD and the program office, through its cooperative
agreements, the JSF program contributes to armaments cooperation policy
in the following four areas:
* Political/military-expanded foreign relations.
* Economic-decreased JSF program costs from partner contributions.
* Technical-increased access to the best technologies of foreign
partners.
* Operational-improved mission capabilities through interoperability
with allied systems.
DOD and the JSF Program Office expect to benefit financially from
direct partner contributions and through aircraft purchased by partners
and other international buyers, which reduces overall unit cost.
Foreign countries become program partners at one of three participation
levels, based on financial contribution, which the United States uses
to defray program costs. For the current system development and
demonstration phase, partner governments have committed to provide over
$4.5 billion to the JSF program and are expected to purchase 722
aircraft once the aircraft enters the production phase.[Footnote 1]
According to DOD, foreign military sales to nonpartner countries could
include an additional 1,500 to 3,000 aircraft. Expected partner
financial contributions and aircraft purchases are detailed in table 1.
Table 1: JSF Partner Financial Contributions and Estimated Aircraft
Purchases:
Partner country: United Kingdom; System development and
demonstration: Partner level: Level I; System development and
demonstration: Financial contributions (in millions)[A]: $2,056;
System development and demonstration: Percentage of total costs: 6.2;
Production: Projected quantities: 150; Production: Percentage
of total quantities: 4.7.
Partner country: Italy; System development and demonstration:
Partner level: Level II; System development and demonstration:
Financial contributions (in millions)[A]: $1,028; System development
and demonstration: Percentage of total costs: 3.1; Production:
Projected quantities: 131; Production: Percentage of total quantities:
4.1.
Partner country: Netherlands; System development and
demonstration: Partner level: Level II; System development and
demonstration: Financial contributions (in millions)[A]: $800; System
development and demonstration: Percentage of total costs: 2.4;
Production: Projected quantities: 85; Production: Percentage of total
quantities: 2.7.
Partner country: Turkey; System development and demonstration:
Partner level: Level III; System development and demonstration:
Financial contributions (in millions)[A]: $175; System development and
demonstration: Percentage of total costs: 0.5; Production:
Projected quantities: 100; Production: Percentage of total quantities:
3.2.
Partner country: Australia; System development and
demonstration: Partner level: Level III; System development and
demonstration: Financial contributions (in millions)[A]: $144; System
development and demonstration: Percentage of total costs: 0.4;
Production: Projected quantities: 100; Production: Percentage of total
quantities: 3.2.
Partner country: Norway; System development and demonstration:
Partner level: Level III; System development and demonstration:
Financial contributions (in millions)[A]: $122; System development and
demonstration: Percentage of total costs: 0.4; Production:
Projected quantities: 48; Production: Percentage of total quantities:
1.5.
Partner country: Denmark; System development and
demonstration: Partner level: Level III; System development and
demonstration: Financial contributions (in millions)[A]: $110; System
development and demonstration: Percentage of total costs: 0.3;
Production: Projected quantities: 48; Production: Percentage of total
quantities: 1.5.
Partner country: Canada; System development and demonstration:
Partner level: Level III; System development and demonstration:
Financial contributions (in millions)[A]: $100; System development and
demonstration: Percentage of total costs: 0.3; Production:
Projected quantities: 60; Production: Percentage of total quantities:
1.9.
Partner country: Total partner; System development and
demonstration: Partner level: System development and
demonstration: Financial contributions (in millions)[A]: $4,535;
System development and demonstration: Percentage of total costs:
13.7[B]; Production: Projected quantities: 722; Production:
Percentage of total quantities: 22.8.
Partner country: United States; System development and
demonstration: Partner level: System development and
demonstration: Financial contributions (in millions)[A]: $28,565;
System development and demonstration: Percentage of total costs: 86.3;
Production: Projected quantities: 2,443; Production:
Percentage of total quantities: 77.2.
Sources: DOD and JSF program documents and Arms Export Control Act
project certifications to Congress.
[A] Chart values do not reflect any nonfinancial contributions from
partners.
[B] Percentages do not add due to rounding.
[End of table]
Contributions can be financial or nonfinancial. For example, Turkey's
system development and demonstration contribution was all cash. Denmark
contributed $110 million in cash, and also the use of an F-16 aircraft
and related support equipment for future JSF flight tests and the use
of North Atlantic Treaty Organization command and control assets for a
JSF interoperability study, which were valued to be worth an additional
$15 million to the program.
In addition, U.S. industry cooperation with aerospace suppliers in
partner countries is expected to benefit the JSF program because of the
specific advanced design and manufacturing capabilities available from
those suppliers. For example, British industry has a significant
presence in the program with BAE Systems as a teammate to Lockheed
Martin and Rolls Royce as a major engine subcontractor. In addition,
Fokker Aerostructures in the Netherlands is under contract to develop
composite flight doors for the JSF airframe.
Partners Benefit Financially and from Shared Technology
and Information:
Partner governments expect to benefit financially by leveraging
significant U.S. resources and inventory requirements to obtain an
advanced tactical aircraft they could not afford to develop on their
own. From a government perspective, Level I and II partners have been
guaranteed waivers of nonrecurring aircraft costs; Level III partners
will be considered for a similar waiver.[Footnote 2] All partners are
also eligible to receive potential levies collected on future foreign
military sales of aircraft to nonpartner customers.[Footnote 3] In
addition, and in most cases more importantly, partners have identified
industrial return to in-country suppliers as vital to their
participation in the program. In a recent study assessing the financial
impact of the JSF program on international suppliers, DOD reported that
partners could potentially earn between $5 and $40 of revenue in return
for each dollar contributed to the program.
Through government and industrial participation, partner countries
also expect to benefit from the technology transferred from U.S. to
partner industry through JSF contract awards. Partners expect that
early participation in the JSF program will improve their defense
industrial capability through increased access to design, technical,
and manufacturing data and through the ability to perform advanced
planning for operation and support of the JSF once it is delivered in
their respective countries.[Footnote 4] Involvement in the early phases
of the JSF program has provided partners with information on the
development of aircraft requirements, program costs and schedules, and
logistics concepts. International partners have access to program and
technology information through participation on senior-level
management decision-making bodies, representation in the JSF Program
Office, and involvement on program integrated product teams. Partner
program office personnel, regardless of participation level, have equal
access to most information. Partner staff can request information from
integrated product teams on which they have no membership, as long as
the information is not restricted from being released to
their countries.
Program Challenges Force JSF Program to Balance Competing Pressures:
International program participants have significant expectations
regarding government and industry return based on their contributions.
As such, the JSF Program Office and Lockheed Martin are faced with
balancing these expectations against other program goals. Recent
actions by Lockheed Martin to address partner concerns could represent
a departure from the JSF competitive contracting approach and result in
increased program costs. International participation in the program
also presents a challenge because the transfer of technologies
necessary to achieve DOD's goals for aircraft commonality is expected
to far exceed past transfers of advanced military technology. Further,
export authorizations for critical suppliers need timely planning,
preparation, and disposition to help avoid schedule delays in the
program and ensure partners the opportunity to bid for contracts.
Alternate Contracting Approach May be Used to Meet Partner
Expectations:
DOD and the JSF Program Office have said that the use of competitive
contracting is central to meeting partner expectations for industrial
return and will assist in controlling program costs. JSF officials use
the term "best value" to describe this approach, which is a departure
from other cooperative development programs that guarantee
pre-determined levels of works based on contribution.[Footnote 5]
Partner representatives generally agree with the JSF competitive
approach to contracting, but some emphasize that their industries'
ability to win JSF contracts whose total value approaches or exceeds
their financial contributions for the JSF system development and
demonstration phase is important for their continued involvement in the
program. The program office and the prime contractor have a great deal
of responsibility for providing a level playing field for JSF
competitions, including visibility into the subcontracting process and
opportunities for partner industries to bid on subcontracts. To that
end, Lockheed Martin performed assessments for many of the partners to
determine the ability of their industries to compete for JSF contracts.
The results of these assessments in some cases showed potential return
that far exceeded country contribution levels. In some cases, Lockheed
Martin then signed agreements with partner governments and suppliers to
document the opportunities they would have to bid for JSF contracts, as
well as the potential value of those contracts.
DOD and the JSF Program Office have left implementation of the
competitive contracting approach to Lockheed Martin whose decisions
will therefore largely determine how partner expectations are balanced
against program goals. In at least one case, Lockheed Martin has
promised an international contractor predetermined work that satisfies
a major portion of that country's expected return-on-investment. While
disavowing knowledge of the specific contents of any such agreement,
DOD was supportive of their use during partner negotiations. DOD
officials conceded that the agreements contained in these documents
departed from the competitive approach. However, the agreements
were necessary to secure political support in some countries, since the
U.S. government does not guarantee that the partners will recoup their
investment through industry contracts on the JSF program. In addition,
Lockheed Martin has recently developed a plan to use "strategic best
value sourcing" to supplement its original competitive approach.
According to DOD, this plan will allow for a limited number of work
packages to be directly awarded to industry in partner countries where
contract awards to date have not met expectations. While there are
predetermined cost goals under these strategic awards, there are
concerns from some partners that this is a departure from the
competitive approach and, in fact, a move toward prescribed work share.
Because Lockheed Martin makes the subcontracting decisions, it bears
the primary responsibility for managing partner expectations--in
addition to duties associated with designing, developing, and producing
the aircraft. Lockheed Martin's actions seem to indicate a response to
partner concerns about return-on-investment expectations and a desire
to ensure continued partner participation. Most partners have a clause
in their agreements that allow for withdrawal from this phase of the
program if industrial participation is not satisfactory. If a partner
decided to leave the program, DOD would be deprived of the additional
development funding expected from that partner. Lockheed Martin could
be faced with lower than projected international sales, resulting in
fewer units sold. At the same time, directed work share often results
in less than optimal program results. For example, other coproduction
programs such as the F-16 Multinational Fighter, which employ the
traditional work share approach, often pay cost premiums in terms of
increased manufacturing costs associated with use of
foreign suppliers.[Footnote 6]
JSF Stretches Disclosure Boundaries:
The United States has committed to design, develop, and qualify
aircraft for partners that fulfill the JSF operational requirements
document and are as common to the U.S. JSF configuration as possible
within National Disclosure Policy.[Footnote 7] DOD and the JSF Program
Office must balance partner expectations for commonality against the
transfer of U.S. military technology. Decisions in this area will be
critical because the extent of technology transfers necessary to
achieve program goals will push the boundaries of U.S. disclosure
policy for some of the most sensitive U.S. military technology. To
address these issues, Lockheed Martin has a contract requirement to
conduct a study to develop a partner JSF specification that fulfills
commonality goals. Due to issues related to the disclosure review
process, the contractor expects to deliver the study to the program
office in August 2003, 5 months later than originally planned.
According to DOD, the program has requested exceptions from National
Disclosure Policy in some cases to achieve aircraft commonality goals
and avoid additional development costs. Some DOD officials told us that
technology transfer decisions have been influenced by JSF program
goals, rather than adjusting program goals to meet current disclosure
policy.
DOD, JSF Program Office, and Lockheed Martin officials agreed that
technology transfer issues should be resolved as early as possible in
order to meet program schedules without placing undue pressure on the
release process. The program has taken steps to address potential
concerns, including chartering a working group to review how past
export decisions apply to the JSF program; identify contentious items
in advance; and provide workable resolutions that minimize the impact
to the program cost, schedule, or performance. However, partners have
expressed concern about the pace of information sharing and decision
making related to the JSF support concept. For example, according to
several partners, greater access to technical data is needed so that
they can plan for and develop a sovereign support infrastructure as
expressed in formal exchanges of letters with the United States. The
JSF program is conducting trade studies to further define the concept
for how the JSF will be maintained and supported worldwide so that it
can start to address these issues. According to program officials, this
strategy will identify the best approach for maintaining JSF aircraft,
and it may include logistics centers in partner countries. Follow-on
trade studies would determine the cost of developing additional
maintenance locations. The implementation of the global support
solution and the options identified in follow-on trade studies will
have to be in full compliance with the National Disclosure Policy, or
the program will need to request exceptions.
Export Control Process Presents Challenges for JSF Program:
Authorization for export of JSF information to partners and
international suppliers also present challenges for the program. In
addition to the U.S. government determining the level of disclosure for
partners and technology areas, JSF contractors must receive
authorization to transfer data and technology through the export
control process. Due to the degree of international participation at
both a government and an industry level, a large number of export
authorizations are necessary to share project information with
governments, solicit bids from partner suppliers, and execute
contracts. The JSF Program Office and Lockheed Martin told us that
there were over 400 export authorizations and amendments granted during
the JSF concept demonstration phase, and they expect that the number of
export authorizations required for the current phase could exceed
1,000. Lockheed Martin officials told us that an increased level of
resources has been required to address licensing and other export
concerns for the program.
Export authorizations for critical suppliers need to have timely
planning, preparation, and disposition to help avoid schedule delays
and cost increases in the program. Without proper planning, there could
be pressure to expedite reviews and approvals of export authorizations
to support program goals and schedules. In addition, advanced
identification of potential alternative sources for critical contracts
could be an appropriate action to prevent schedule delays in the event
of unfavorable approval decisions. Although it is required to do so,
Lockheed Martin has not completed a long-term industrial participation
plan that provides information on JSF subcontracting. Such a plan could
be used to anticipate export authorizations needed for international
suppliers and identify potential licensing concerns far enough in
advance to avoid program disruption or accelerated licensing reviews.
Our work has shown that past cooperative programs have experienced cost
and schedule problems as a result of poor planning for licenses. For
example, like the JSF, the Army's Medium Extended Air Defense System
program involves several sensitive technologies critical to preserving
the U.S. military advantage. That program failed to adequately plan for
release requirements related to those technologies and saw dramatic
increases in approval times, which affected contractors' ability to use
existing missile technology and pursue the cheapest technical
solution.[Footnote 8]
Timely disposition of export authorizations is also necessary to avoid
excluding partner industries from competitions. While Lockheed Martin
has stated that no foreign supplier has been excluded from any of its
competitions or denied a contract because of fear of export
authorization processing times or the conditions that might be placed
on an authorization, the company is concerned this could happen. In
fact, one partner told us that export license delays have had a
negative effect on the participation of its companies because some U.S.
subcontractors have been reluctant to take on the added burden of the
license process. The U.S. subcontractors must apply for the export
authorization on behalf of the foreign supplier, which can add time and
expense to their contracts. Further, we were told that some partner
companies have been unable to bid due to the time constraints involved
in securing an export license.
The JSF program has attempted to address the additional administrative
tasks associated with export authorizations by adding resources to help
prepare applications and exploring ways to streamline the process.
For example, Lockheed Martin received a global project authorization
(GPA)--an "umbrella" export authorization that allows Lockheed Martin
and other U.S. suppliers on the program to enter into agreements with
over 200 partner suppliers to transfer certain technical data--from the
Department of State. Approved in October 2002, implementation of the
GPA was delayed until March 2003 because of supplier concerns related
to liability and compliance requirements. In March 2003, the first GPA
implementing agreement between Lockheed Martin and a company in a
partner country was submitted and approved in 4 business days. JSF
partners have expressed dissatisfaction with the time it has taken to
finalize the conditions under which the GPA can be used and
disappointment that the authorization may not realize their
expectations in terms of reducing the licensing burdens of the program.
As currently structured, the GPA does not cover the transfer of any
classified information or certain unclassified, export-controlled
information in sensitive technology areas such as stealth, radar, and
propulsion.
Technical Concerns Could Affect Program Costs and Partner
Participation:
The Joint Strike Fighter program, and its implications for acquisition
reform and cooperative development, is a good test of whether the
desire for better outcomes can outweigh traditional management
pressures. In our 2001 review of JSF technical maturity, we employed
knowledge standards consistent with best practices and DOD
acquisition reforms and found thatseveral technologies critical to
meeting requirements were not sufficiently mature.[Footnote 9] The best
practice for such a decision is to have a match between technologies
and weapon requirements. At its recent preliminary design review, the
JSF program uncovered significant problems with regard to various
issues, including aircraft weight, design maturity, and weapons
integration. Such problems have historically resulted in increased
program costs, longer development schedules, or a reduction in system
capabilities. While such actions can negatively affect the U.S.
military services, the impact may be more substantial for partners
because they have less control over program decisions and less ability
to adjust to these changes. This may affect partners' participation in
the program in a variety of ways.
First, the continued affordability of the development program and the
final purchase price are important for partners--both of which could be
affected by recent technical problems. There is no guarantee that
partners will automatically contribute to cost overruns, especially if
the increase is attributable to factors outside their control.
Therefore, future cost increases in the JSF program may fall almost
entirely on the United States because there are no provisions in the
negotiated agreements requiring partners to share these increases.
Partner representatives indicated that they intend to cooperate with
the JSF Program Office and Lockheed Martin in terms of sharing
increased program costs when justified. However, some partner officials
expressed concern over the tendency of U.S. weapon system requirements
to increase over time, which results in greater risk and higher costs.
While some partners could fund portions of cost overruns from military
budgets if requested, others told us that even if they were willing to
support such increases, these decisions would have to be made through
their parliamentary process.
DOD has not required any of the partners to share cost program
increases to date. For example, cost estimates for the system
development and demonstration phase have increased on multiple
occasions since the program started in 1996. During that time, the
expected cost for this phase went from $21.2 billion to $33.1 billion
as a result of scope changes and increased knowledge about cost.
According to DOD, partners have not been required to share any of these
costs because the changes were DOD directed and unrelated to partner
actions or requirements. To encourage partners to share costs where
appropriate, the United States has said it will consider past cost
sharing behavior when negotiating MOUs for future phases of the
program. If a partner refuses to share legitimate costs during the
system development and demonstration phase, the United States can use
future phase negotiations to recoup all or part of those costs. In
these instances, the United States could reduce levies from future
sales, refuse to waive portions of the nonrecurring cost charges for
Level III partners, or in a worst case, choose not to allow further
participation in the program. However, DOD officials have not committed
to using these mechanisms to encourage cost sharing. Therefore, DOD may
be forced to choose between accepting the additional cost burden and
asking for additional partner contributions--which could jeopardize
partner support for the program.
Conclusion:
The JSF program is not immune to unpredictable cost growth, schedule
delays, and other management challenges that have historically plagued
DOD's systems acquisition programs. International participation in the
program, while providing benefits, makes managing these challenges
more difficult and places additional risk on DOD and the prime
contractor. While DOD expects international cooperation in systems
acquisition to benefit future military coalition engagements, this may
come at the expense of U.S. technological and industrial advantages or
the overall affordability of the JSF aircraft. Over the next 2 years,
DOD will make decisions that critically affect the cost, schedule, and
performance of the program. Because Lockheed Martin bears the
responsibility for managing partner industrial expectations, it will be
forced to balance its ability to meet program milestones and collect
program award fees against meeting these expectations--which could be
key to securing future sales of the JSF for the company. In turn, DOD
must be prepared to assess and mitigate any risks resulting from these
contractor decisions as it fulfills national obligations set forth in
agreements with partner governments. While some steps have been taken
to position the JSF program for success, given its size and importance,
additional attention from DOD and the program office would help
decrease the risks associated with implementing the international
program.
In the report we are releasing today, we recommend that DOD ensure
that the JSF Program Office and its prime contractors have sufficient
information on international supplier planning to fully anticipate and
mitigate risk associated with technology transfer and that information
concerning the selection and management of suppliers is available,
closely monitored, and used to improve program outcomes. Toward this
end, DOD and the JSF Program Office need to maintain a significant
knowledge base to enable adequate oversight and control over an
acquisition strategy that effectively designs, develops, and produces
the aircraft while ensuring that the strategy is carried out to the
satisfaction of the U.S. services and the international partners. Tools
are in place to provide this oversight and management, but they must be
fully utilized to achieve program goals.
DOD concurred with our report recommendations, agreeing to (1) ensure
that Lockheed Martin's JSF international industrial plans are
continually reviewed for technology control, export control, and risk
mitigation issues and (2) work with Lockheed Martin to achieve
effective program oversight when it comes to partner expectations and
program goals. While we commend this proactive response, we note that
DOD did not provide any detail as to the criteria to be employed for
reviewing industrial plans. In addition, DOD did not specify how it
plans to collect and monitor information in suppliers or elaborate on
other steps the JSF Program Office would take to identify and resolve
potential conflicts between partner expectations and program goals.
Through decisions made on the Joint Strike Fighter program today, DOD
will also influence other acquisition programs like the Missile Defense
Agency's suite of land, sea, air, and space defense systems and the
Army's Future Combat System. These programs will potentially shape
budgetary and strategic military policy for the long term, and as such,
need to use every tool available for success. Adopting knowledge-based
policies and practices with regard to these critical acquisition
programs is an important first step to ensuring that success.
Mr. Chairman, that concludes my statement. I will be happy to respond
to any questions you or other Members of the Subcommittee may have.
Contacts and Acknowledgments:
For future questions regarding this testimony, please contact Katherine
Schinasi, (202) 512-4841. Individuals making key contributions to this
testimony include Tom Denomme, Brian Mullins, and Ron Schwenn.
FOOTNOTES
[1] Israel and Singapore have recently indicated their intention to
participate in the program as security cooperation participants, a
nonpartner arrangement, that offers limited access to program
information, without a program office presence.
[2] The President of the United States may reduce or waive cooperative
project nonrecurring costs in accordance with the Arms Export Control
Act (22 U.S.C. 2761 and 2767).
[3] According to DOD, final disposition of levies and nonrecurring
costs for partners will be decided in production phase MOU
negotiations.
[4] Most partners have been involved in the JSF program since the
concept development phase, which began in 1996.
[5] This is not necessarily the same as best value under the Federal
Acquisition Regulation, which is an acquisition that provides the
greatest overall benefit in response to the requirement and can be
obtained by using one or a combination of multiple source selection
approaches.
[6] U.S. General Accounting Office, F-16 Program: Reasonably
Competitive Premiums for European Coproduction, GAO/NSIAD-90-181
(Washington, D.C.: May 14, 1990).
[7] Releasability reviews, such as the low observable/counter low
observable review process for stealth technology, are necessary to
transfer certain sensitive technologies and related design and
manufacturing data to foreign countries and suppliers.
[8] U.S. General Accounting Office, Defense Acquisition: Decision Nears
on Medium Extended Air Defense System, GAO/NSIAD-98-145 (Washington,
D.C.: June 9, 1998).
[9] Joint Strike Fighter Acquisition: Mature Critical Technologies
Needed to Reduce Risks, GAO-02-39 (Washington, D.C.: Oct. 19, 2001).
