Joint Strike Fighter Acquisition
Cooperative Program Needs Greater Oversight to Ensure Goals Are Met Gao ID: GAO-03-775 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 cost sharing, technology transfer, and partner expectations for industrial return.
The JSF international program structure is based on a complex set of relationships involving both government and industry 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 from defined influence over aircraft requirements, improved relationships with U.S. aerospace companies, and access to JSF program data. Yet international participation also presents a number of challenges. For example, while international partners can choose to share any future program cost increases, they are not required to do so under the terms of negotiated agreements. Therefore, the burden of any future increases may fall almost entirely on the United States. Technology transfer also presents challenges. The large number of export authorizations needed to share project information, solicit bids from partner suppliers, and execute contracts must be submitted and resolved in a timely manner to ensure that partner industry has the opportunity to compete for subcontracts and key contracts can be executed on schedule. Transfers of sensitive U.S. military technologies--which are needed to achieve aircraft commonality goals--will push the boundaries of U.S. disclosure policy. While actions have been taken in an attempt to address these challenges, additional actions are needed to control costs and manage technology transfer. Finally, if partners' return-on-investment expectations are not met, support within their countries could deteriorate. To realize this return-on-investment, partners expect their industry to win JSF contracts through competition--a departure from other cooperative programs, which directly link contract awards to financial contributions. If the prime contractor's efforts to meet these 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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-775, Joint Strike Fighter Acquisition: Cooperative Program Needs Greater Oversight to Ensure Goals Are Met
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Report to the Chairman, Subcommittee on National Security, Emerging
Threats, and International Relations, Committee on Government Reform,
House of Representatives:
United States General Accounting Office:
GAO:
July 2003:
Joint Strike Fighter Acquisition:
Cooperative Program Needs Greater Oversight to Ensure Goals Are Met:
GAO-03-775:
GAO Highlights:
Highlights of GAO-03-775, a report to the Chairman, 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 cost sharing, technology
transfer, and partner expectations for industrial return.
What GAO Found:
The JSF international program structure is based on a complex set of
relationships involving both government and industry 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 from defined influence over aircraft requirements, improved
relationships with U.S. aerospace companies, and access to JSF program
data.
Yet international participation also presents a number of challenges.
For example, while international partners can choose to share any
future program cost increases, they are not required to do so under
the terms of negotiated agreements. Therefore, the burden of any
future increases may fall almost entirely on the United States.
Technology transfer also presents challenges. The large number of
export authorizations needed to share project information, solicit
bids from partner suppliers, and execute contracts must be submitted
and resolved in a timely manner to ensure that partner industry has
the opportunity to compete for subcontracts and key contracts can be
executed on schedule. Transfers of sensitive U.S. military
technologies”which are needed to achieve aircraft commonality goals”
will push the boundaries of U.S. disclosure policy. While actions have
been taken in an attempt to address these challenges, additional
actions are needed to control costs and manage technology transfer.
Finally, if partners‘ return-on-investment expectations are not met,
support within their countries could deteriorate. To realize this
return-on-investment, partners expect their industry to win JSF
contracts through competition”a departure from other cooperative
programs, which directly link contract awards to financial
contributions. If the prime contractor‘s efforts to meet these
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.
What GAO Recommends:
Information on prime contractor activities is critical to balancing
program schedule goals with partner expectations. Therefore, GAO is
recommending that the Secretary of Defense direct the JSF Program
Office to ensure that international supplier planning fully
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 its comments on a draft of this report, DOD concurred
with the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-775.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Katherine V. Schinasi
at (202) 512-4841 or schinasik@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
International Participation Adds Complexity and Benefits to JSF
Acquisition Program:
International Participation Complicates JSF Program Efforts to
Manage Costs:
JSF Technology Transfer Presents Challenges for Program Execution,
International Suppliers, and Disclosure Policy:
Managing Industrial Participation Expectations:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: JSF International Participant Contributions and Benefits:
Appendix III: Comments from the Department of Defense:
Appendix IV: Staff Acknowledgments:
Acknowledgments:
Table:
Table 1: JSF Partner Financial Contributions and Estimated Aircraft
Purchases:
Figure:
Figure 1: JSF Program Relationships:
Abbreviations:
AECA: Arms Export Control Act:
ATPRG: Arms Transfer Policy Review Group:
C4I: command, control, communications, computers, and intelligence:
CTOL: conventional take-off and landing:
DOD: Department of Defense:
GPA: global project authorization:
IPT: integrated product team:
JSF: Joint Strike Fighter:
MOU: memorandum of understanding:
NATO: North Atlantic Treaty Organization:
SDD: system development and demonstration:
STOVL: short take-off and vertical landing:
United States General Accounting Office:
Washington, DC 20548:
July 21, 2003:
The Honorable Christopher Shays
Chairman,
Subcommittee on National Security, Emerging Threats, and International
Relations
Committee on Government Reform
House of Representatives:
Dear Mr. Chairman:
The Joint Strike Fighter (JSF) program is viewed by many within the
Department of Defense (DOD) to be a model acquisition program, as well
as a new model for cooperative development and production between DOD
and U.S. allies. As a centerpiece for DOD acquisition, the program is
intended to produce a next generation multirole fighter to replace
aging U.S. aircraft inventories. As currently planned, the program is
DOD's most expensive aircraft program, costing an estimated
$200 billion to develop and procure about 2,600 aircraft and related
support equipment.
By structuring the JSF program to allow for participation by allied
governments during development and production, DOD expects to defray
some development costs and realize other benefits. To ensure that the
challenges of international participation do not negatively affect
overall development and production of the aircraft, you asked us to
review how DOD is managing the integration of partner countries and
suppliers into the program. Specifically, we identified international
relationships and the benefits they are expected to provide and
assessed how DOD is managing cost sharing, technology transfer, and
partner expectations for industrial participation. (See app. I for an
explanation of our scope and methodology.):
Results in Brief:
The JSF international program structure is based on a complex set of
relationships involving both government and industry from the United
States and eight other countries. Through negotiated agreements with
partner countries, which define specific roles and responsibilities for
participants, the United States expects to benefit from sharing program
costs, gaining access to foreign industrial capabilities, and improving
interoperability with allied militaries once the aircraft is fielded.
Partner governments expect to benefit through defined influence over
aircraft requirements and improved industrial relationships with U.S.
aerospace companies through access to JSF contractors and
subcontracting competitions. Finally, a major benefit for partners is
having their personnel physically located within the program office
with access to program information and contractor data.
While the United States expects to realize benefits from partnering
with allies, international participation also presents challenges for
JSF program management. First, while international partners can choose
to share any future program cost increases, they are not required to do
so under the terms of the negotiated agreements. Further, they have
been required to contribute any additional funding despite changes to
the scope of the program. To address unexpected cost increases, DOD and
the international partners can request additional program funding
through their budget processes; however, this funding may not be
provided. DOD can also adjust schedule, procurement quantities, or
aircraft requirements to meet program cost concerns, although these
actions could negatively affect partners' procurement plans. Program
management tools, provisions in agreements with partners, and contract
incentives for Lockheed Martin Aeronautics Company (the JSF prime
contractor) are being used to contain costs, but if costs still
increase, the burden may fall almost entirely on the United States.
Technology transfer issues also present challenges for the JSF program.
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. Export authorizations
must be submitted and resolved in a timely fashion, or the execution of
key contracts and the ability of partner suppliers to bid for
subcontracts could be negatively affected. Increased pressure to
approve export authorizations to support program goals and schedules,
however, could result in unintended consequences, such as inadequate
reviews of license content or broad interpretations of disclosure
authority. In addition, the extent of technology transfers necessary to
achieve program goals related to aircraft commonality will push the
boundaries of U.S. disclosure policy for some of the most sensitive
U.S. military technology. The JSF Program Office and/or Lockheed Martin
have attempted to address these challenges by adding resources to help
prepare license applications, exploring ways to streamline the export
authorization process, and attempting to make decisions on technology
transfer earlier in the program. However, Lockheed Martin has not
completed a long-term plan that provides information on JSF
subcontracting. Such a plan could be used to identify export
authorizations needed for international suppliers; anticipate problems
suppliers could face because of licensing or releasability concerns;
and develop strategies to overcome those problems, such as finding
other qualified suppliers to do the work.
Finally, while the JSF Program Office is responsible for ensuring that
program objectives are met for all participants, Lockheed Martin bears
most of the responsibility for managing partner industrial
expectations. Partners have identified industrial return as vital to
their participation in the program. If return-on-investment
expectations are not met, partners told us the program could lose
political support domestically. To realize this return, partner
industry must win JSF contracts through competition, which is a
departure from other cooperative programs that have tied contract
awards directly to partners' financial contributions. The program
office and the prime contractor have a great deal of responsibility for
providing a level playing field for JSF competitions, including
opportunities for partner industries to bid on subcontracts and
visibility into the subcontracting process. If Lockheed Martin's
efforts to meet partner return-on-investment expectations come into
conflict with program cost, schedule, and performance goals, the
program office will ultimately have to make decisions to balance
expectations and program execution. The award fee in Lockheed Martin's
system development and demonstration contract provides the program
office with a mechanism to focus contractor efforts to achieve both
U.S. and international program goals.
Given these challenges, management attention on the program will need
to be greater than that associated with traditional acquisition
programs. Since DOD and the prime contractor must achieve program cost
and schedule goals that are important to all participants, while
managing potentially competing partner expectations for industrial and
technological cooperation, DOD will need sufficient information about
contractor activities to ensure that it can address these challenges.
Accordingly, we are 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 prime contractor's selection and
management of suppliers is available, closely monitored, and used so
that award fee decisions address potential conflicts between
international and program goals. In its comments on a draft of this
report, DOD concurred with our recommendations.
Background:
According to DOD policy, the core objectives of armaments cooperation
are to increase military effectiveness through standardization and
interoperability and to reduce weapons acquisition costs by avoiding
duplication of development efforts with U.S. allies.[Footnote 1]
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.
The Arms Export Control Act (AECA) provides DOD the authority to enter
into cooperative programs with U.S. allies.[Footnote 2] In March 1997,
the Secretary of Defense directed that DOD engage allies in discussions
as early as possible to determine the parameters of potential
collaboration to meet coalition needs and ensure interoperability
between allied systems. DOD guidance states that the department will
give favorable consideration to transfers of defense articles,
services, and technology consistent with national security interests to
support these international programs.[Footnote 3] Finally, the AECA
further provides that when the United States enters into a cooperative
agreement, there should be no requirement for industrial or commercial
compensation that is not specifically stated in the agreement. The
DOD Arms Transfer Policy Review Group (ATPRG) approved the
JSF international plan and established guidelines for the JSF system
development and demonstration negotiations based on the AECA
requirement that participants contribute an equitable share of the
costs and receive an equitable share of the results of a project.
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 engines
for the JSF aircraft. Currently, this phase will last about 10 years;
cost about $33 billion; and involve large, fixed investments in human
capital, facilities, and materials. The next significant program
milestone will be the final critical design review, currently planned
for July 2005. At that time, the final aircraft design should be mature
and technical problems should be resolved so that the production of
aircraft can begin with minimal changes expected.[Footnote 4]
Unlike other cooperative programs, the JSF program will not guarantee
foreign or domestic suppliers a predetermined level of work based on a
country's financial contribution to the program. Instead, foreign and
domestic suppliers will generally compete for JSF work. DOD and the JSF
Program Office use the term "best value" to describe this competitive
approach.[Footnote 5] By doing this, the program moved away from the
industrial policies of other cooperative programs that have used work
share arrangements for participation in the development of military
items. An example of a work share arrangement would be guaranteeing
that contract awards for suppliers in a participant country are tied
directly to that country's level of investment in the program. The
recipient benefits not only from the value of the contracts placed in
country but also the technology transferred as part of those
contracts.[Footnote 6] However, this approach does not always result in
the most cost-effective program.
International Participation Adds Complexity and Benefits to JSF
Acquisition Program:
International participation in the JSF program adds complexity to an
already challenging acquisition process. However, participation
agreements negotiated between DOD and equivalent partner ministries
or departments do provide potential benefits to all partners. The
United States benefits from financial contributions, increased
potential for international sales of JSF aircraft, and access to
partner industry. Foreign partners benefit from participating in JSF
Program Office activities, accessing JSF technical data, and receiving
waivers of nonrecurring aircraft costs and levies from potential sales
of JSF aircraft. JSF partners also enjoy greater access to program
information than traditional cooperative programs because the JSF
program allowed countries to participate at an earlier stage of the
acquisition process.
JSF International Program Relationships Are Complex:
The JSF program is made up of a complex set of relationships involving
both government and industry from the United States and eight other
countries--the United Kingdom, Italy, the Netherlands, Turkey, Denmark,
Norway, Canada, and Australia (see fig. 1).
Figure 1: JSF Program Relationships:
[See PDF for image]
[A] Figure does not reflect relationships that the prime contractors
may have with suppliers in 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 and are negotiated for each acquisition phase (concept
demonstration, system development and demonstration, and production).
Only the concept demonstration phase and the system development and
demonstration phase agreements have been negotiated to date, and
participation in one phase does not guarantee participation in future
phases. According to DOD officials, the department also contributes to
the implementation of MOUs by acting as a "court of appeals" to address
partner concerns, including industrial participation issues.
Additional documents provide greater detail and clarity:
* Financial management procedures document-describes the financial
management procedures for the MOU supplements, as well as funding
streams, auditing procedures, and other topics.
* Program position description-describes the position title, duties,
qualifications, and other information related to all foreign personnel
located in the JSF Program Office.
* Exchange of letters-series of formal, signed letters, which emphasize
issues of importance to the United States and JSF partners but are not
specifically mentioned or described in the MOU agreements.
Representatives from partner ministries or departments of defense
participate in senior-level management meetings, including chief
executive officer meetings (chaired by the Under Secretary for
Acquisition, Technology, and Logistics); system acquisition executive
meetings; the senior warfighters group; and the configuration steering
board with DOD, JSF Program Office, and contractor officials. These
meetings offer opportunities for partner representatives to gain
insight into and, in some cases, influence over the progress of the JSF
program, in addition to that available from partner staff located in
the program office, in areas such as program management, requirements,
and aircraft configuration. Finally, the system development and
demonstration framework MOU establishes the JSF executive committee,
which includes one representative from the United States and each
partner country. This committee provides executive level oversight for
the program, such as reviewing progress toward program objectives,
ensuring compliance with MOU financial provisions, and resolving
program-related issues identified by the JSF international director.
National deputies act as partner representatives in the JSF Program
Office. They serve as the principal interface between the program
office and the ministries or departments of defense to ensure proper
execution of the system development and demonstration phase MOU and
provide support and guidance on all country-specific program execution
and integration issues. They provide program information to their
ministries or departments of defense and, in some cases, act as an
advocate for industry in their respective countries. National deputies
and other partner staff also serve functional roles on integrated
product teams--multidisciplinary teams that represent a variety of
areas, including systems engineering; logistics; and command, control,
communications, computers, and intelligence.
At an industry level, the prime contractors interact with the JSF
Program Office through activities in support of their system
development and demonstration contracts and participation on both
program office and contractor integrated product teams and work groups.
In addition, the prime contractors interact with partner government
ministries or departments (including defense, industry, and trade) and
JSF partner personnel in the program office to discuss opportunities
for industrial participation and the results of subcontracting
competitions. For example, prior to the negotiation of the MOUs for the
current phase, Lockheed Martin visited many of the partner countries to
provide information on the aircraft and assess potential interest. In
addition, for those countries expected to participate in the system
development and demonstration phase, Lockheed conducted industry
assessments and provided feedback on what areas suppliers might expect
to compete for JSF contracts.
JSF Program Relationships Expected to Benefit Both DOD and Allies:
The JSF program allows foreign countries to become program partners at
one of three participation levels, based on financial contribution. As
shown in table 1, the foreign partners have contributed over
$4.5 billion, or about 14 percent, for the system development and
demonstration phase and are expected to purchase about 722 aircraft
beginning in the 2012-2015 time frame. Israel and Singapore have
recently indicated their intention to participate in the program as
security cooperation participants, a nonpartner arrangement, which
offers limited access to program information, without a program office
presence. According to DOD, foreign military sales to these and other
nonpartner countries could include an additional 1,500 to 3,000
aircraft.
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 AECA project certifications
to Congress.
[A] Chart values do not reflect any nonfinancial contributions from
partners (see app. II).
[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, whereas
$15 million of Denmark's $125 million contribution represented the use
of an F-16 aircraft and related support equipment for future JSF flight
tests and the use of other North Atlantic Treaty Organization (NATO)
command and control assets for a JSF interoperability study. (See app.
II for details on partner contributions and benefits.):
For the agreements negotiated for the system development and
demonstration phase, none of the partner country contribution levels
met the financial targets established in the ATPRG guidelines. In the
case of the United Kingdom, funding was not available to meet the
expected 10 percent contribution. The Under Secretary of Defense for
Acquisition, Technology, and Logistics determined that the lower
contribution amount was justified and, in fact, the United States was
able to negotiate concessions concerning rights for the disposal of
project equipment and third-party transfer and sales. Since the United
Kingdom was the first partner to sign, and the only Level I partner,
contribution targets for other partner negotiations were revised
proportionately.
Lockheed Martin's contracts with aerospace suppliers from partner
countries are expected to improve the program because of those
companies' specific advanced design and manufacturing capabilities.
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.
In return for their contributions, partner countries have
representatives in the program office with access to program data and
technology; membership on the management decision-making bodies;
aircraft delivery priority over future foreign military sales
participants; guaranteed or potential waiver of nonrecurring aircraft
costs;[Footnote 7] potential levies on future foreign military sales
aircraft sold;[Footnote 8] and improved relationships for their
industry with U.S. aerospace companies through JSF subcontracting
opportunities. For example, the United Kingdom - which is committed to
contribute just over $2 billion in the system development and
demonstration phase - is a Level I full collaborative partner, with
benefits such as:
* 10 staff positions within the JSF Program Office, including senior
positions on integrated product teams;
* participation in cost versus performance trade-off and requirement
setting processes, resulting in British military needs being included
in the JSF operational requirements document; and:
* involvement in final source selection process for the system
development and demonstration contract award.
Conversely, the five Level III partners, which are committed to
contribute between $125 million and $175 million, each have one program
office staff member and no direct vote with regard to requirement
decisions.
All partners have benefited from increased access to program and
contractor information by virtue of their early involvement in the
program.[Footnote 9] Specifically, this participation provided
partners with information on the development of aircraft requirements
and program costs and schedules, as well as on design, manufacturing,
and logistics. According to some partner personnel, access to program
information often did not meet their expectations early in the program,
but it has improved. During the concept demonstration phase, data were
available to partner staff based on country-specific projects. In
addition, data were only formally provided through a rigorous, paper-
driven document release process and required authority from JSF senior
management. For the system development and demonstration phase, partner
representatives located in the program office now have access to the
database of unclassified program information, referred to as the JSF
Virtual Environment, which contains the majority of program documents.
Partner program office personnel, regardless of participation level,
have equal access to most information. Some information in the database
is available only to U.S. personnel or through integrated product team
participation. 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.
Lockheed Martin has a separate document database called the Joint Data
Library that includes information on contractor activities, but partner
access is limited by existing technical assistance agreements and
National Disclosure Policy.
International Participation Complicates JSF Program Efforts to
Manage Costs:
Along with the traditional functions of balancing the requirements for
JSF performance against its established cost and schedule targets, the
program office is tasked with integrating partner government and
industry participants into the program. While initial partner
contributions are beneficial, and critical for political support for
the program, there is no guarantee that additional funding will be
available to support future cost increases should they arise. In
addition, even when cost sharing may be justified, funding may not be
available through respective partner budgetary processes. DOD's typical
response to increased program costs often results in requesting
additional funding, delaying production schedules, and reducing
procurement quantities or system capabilities, but such actions may
negatively affect partner countries. DOD expects that specific
provisions in partner MOUs will maximize partner cost sharing when
appropriate and that the use of competitive contracting will minimize
cost increases to the program.
JSF Partners May Not Provide Additional Funding for Program
Cost Increases:
Our past reviews have shown that weapons acquisition programs
frequently encounter increased cost due to questionable requirements,
unrealistic cost estimates, funding instability, and high-risk
acquisition strategies. We reported in October 2001 that the JSF
program entered the system development and demonstration phase with
increased cost risk due to low maturity of critical
technologies.[Footnote 10] Future cost increases, should they arise in
the program, may fall almost entirely on the United States because
there are no provisions in the negotiated agreements requiring partners
to share these increases. Once established, the contributions for the
partners cannot be revised or increased by the United States without
the consent of the partner government as stated in these agreements.
DOD and program office officials told us there could be instances where
the partners would not be expected to share cost increases. 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, increased
knowledge about cost, and more recently, projected decreases in U.S.
program quantities. According to program officials and documents,
partners have not been required to share any of these costs because the
changes were DOD directed and unrelated to partner actions or
requirements.
The MOU framework does require partners to pay for all development
costs related to meeting unique national requirements. For example,
some partners expect to use weapons that may not be included in the
current JSF operational requirements document and fully expect to bear
the cost associated with integrating them into the aircraft's design.
In such a case, the United States and other partners are not required
to share costs associated with meeting unique country requirements,
unless they agree to make these requirements part of the baseline
aircraft configuration and an adjustment is made to the baseline
aircraft price.
Historically, DOD has responded to cost increases by requesting more
funding, extending program schedules, reducing overall program
quantities and aircraft capability, or some combination of these. 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. In the case of the United Kingdom, the Ministry of Defence is
developing a new aircraft carrier, expected for delivery in 2012, which
is planned to carry JSF aircraft. According to United Kingdom
officials, if the aircraft are not delivered as expected, the carrier
might not be able to support mission scenarios. Further, most of the
remaining partners also expect to receive their JSF aircraft beginning
in about the 2012 to 2015 time frame. Potential program delays would
affect the availability of the aircraft for partner governments.
Finally, if the unit cost increases as a result of DOD's actions, the
sales price could be higher than expected, and all partners would be
required to pay that additional amount. Current cost estimates for the
program assume that the United States will purchase 2,443 and
the United Kingdom 150 JSF aircraft.[Footnote 11] DOD and Lockheed
Martin are working with partner countries to determine aircraft needs
for all participants, and they will incorporate this information into
formal production phase planning.
Tools Available to Encourage Partner Sharing and Cost Control:
To encourage partners to share costs where appropriate, the United
States can 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.
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, the continued
affordability of the development program and the final purchase price
are important for partners, and there is no guarantee that they would
automatically contribute to cost overruns, especially if the increase
is attributable to factors outside their control. Some partner
representatives specifically expressed concern over the tendency of
U.S. weapon system requirements to increase over time, which results in
greater risk and higher costs. Several partner representatives also
emphasized that it is important for the JSF Program Office to continue
to use practices such as Cost as an Independent Variable[Footnote 12]
and iterative requirements definition to address these concerns. 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, which could affect their overall support
for the program.
DOD and the JSF Program Office expect that using a competitive
contracting approach, without prescribed work share for partner
countries, will also assist in controlling JSF costs. DOD officials
stated, and our past work has shown, that cooperative programs, such as
the Army's Medium Extended Air Defense System, have experienced cost
and schedule problems because such programs focused on meeting
industrial work share requirements rather than pursuing a cost-
effective acquisition strategy. Coproduction programs, such as the F-16
Multinational Fighter Program, that employ traditional work share
approaches often experience cost premiums to the program in terms of
increased manufacturing costs associated with use of foreign
suppliers.[Footnote 13] In contrast, the JSF approach is expected to
award contracts to the most competitive suppliers, and therefore
Lockheed Martin does not believe there will be cost premiums. However,
Lockheed Martin officials told us that due to limited aerospace
capabilities in some of the partner countries, traditional industrial
arrangements might be used in the JSF production phase.
JSF Technology Transfer Presents Challenges for Program Execution,
International Suppliers, and Disclosure Policy:
The transfer of technology on the JSF program presents a number of
challenges related to program execution, international suppliers, and
disclosure policy. The volume of JSF export authorizations has taxed
Lockheed Martin's licensing resources, and any delays in the
disposition of future export authorizations could affect the execution
of key contracts and the ability of partner suppliers to bid for
subcontracts. Further, the transfer of technologies necessary to
achieve aircraft commonality goals is expected to far exceed past
transfers of advanced military technology and will push the boundaries
of U.S. disclosure policy.[Footnote 14] The JSF Program Office and the
prime contractor have taken various steps to mitigate these challenges.
Timing and Volume of Export Authorizations Could Affect Program
Execution and International Suppliers:
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 licensing officials have indicated that this
volume has strained its JSF program resources. Export authorizations
for critical suppliers need to be planned for, prepared, and resolved
in a timely fashion, to help avoid schedule delays in the program.
Without proper planning, there could be pressure to expedite reviews
and approvals of export authorizations to support program goals and
schedules. This could lead to unintended consequences, such as
inadequate reviews of license content or broad interpretations of
disclosure authority. Lockheed Martin's ability to forecast its export
authorization workload extends out only 3 months because most licensing
resources are already devoted to keeping up with time critical
authorizations. Further, JSF Program Office officials told us that
Lockheed Martin has not yet fulfilled a requirement to complete a long-
term plan that could anticipate the export authorizations and
technology release reviews that will be necessary to execute the
program using international suppliers to design and manufacture key
parts of the aircraft. This plan could also be used to identify
problems suppliers face in executing contracts as a result of licensing
or releasability concerns and develop strategies to overcome those
problems, such as finding other qualified suppliers to do the work.
Timely export authorizations are 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. Further, one partner told us
that export license delays have had a negative effect on the
participation of its companies because some U.S. companies have been
reluctant to undertake the bureaucratic burden to allow the
participation of a foreign company and some partner companies have been
unable to bid due to the time constraints involved in securing an
export license.
DOD, the JSF Program Office, and Lockheed Martin have taken several
actions to mitigate the challenges presented by export authorization
delays:
* The JSF Program Office and Lockheed Martin have established a process
to coordinate export authorization applications before they are
submitted to the Department of State for review. This process is
intended to reduce review times by ensuring that the export request
clearly describes the data or technology that would be transferred and
by addressing potentially contentious issues related to sensitive
transfers. In addition, Lockheed Martin has added resources to its
licensing organization to respond to the volume and schedule demands of
JSF export authorizations.
* 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 unclassified technical
data--from the Department of State.[Footnote 15] The GPA is expected to
lessen the administrative burden and improve the consistency of and
processing times for routine export authorizations. The Departments
of State and Defense and Lockheed Martin agreed to the scope of the
information that could be exported using this authorization and the
conditions for those exports up front. The Department of State expects
to process GPA implementing agreements in 5 days, provided there is no
need to refer them to other agencies or offices for review. 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 implementing agreement between
Lockheed Martin and a company in a partner country was reviewed and
approved in 4 business days.
* Prior to the GPA, Lockheed Martin and 13 other U.S. suppliers were
granted an exemption by the U.S. Air Force from the export
authorization requirements that govern the release of unclassified
technical data to suppliers from NATO and certain other countries,
including Australia, for bid and proposal purposes. This exemption
expires in March 2004. Lockheed Martin also uses a country-specific
exemption to transfer technical data to Canada.[Footnote 16]
* Finally, as a NATO Defense Capabilities Initiative program, partner
countries and companies participating in the program, including
Australia, can take advantage of expedited review processes for certain
types of export licenses. Under these expedited procedures, the
Department of State promises to complete its reviews of license
applications in 10 days, and if it requests comments on a license from
DOD or other government agencies, those reviews should be completed in
10 days as well.
Degree of Technology Transfer Will Stretch Current 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 17] In some cases,
according to DOD, the program has requested exceptions from National
Disclosure Policy to achieve interoperability and aircraft commonality
goals and to avoid additional development costs. Some DOD officials
confirmed 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. However, there have been some initial problems
executing this strategy. An official at the Defense Technology Security
Administration, one of the offices responsible for technical
assessments of disclosure and export authorization requests, stated
that even though the JSF program has a plan to manage releasability
issues and the National Disclosure Policy process, the office does not
always receive information related to these issues in a timely manner.
In addition, one partner has expressed concern about the pace of
information sharing and decision making related to the JSF support
concept. According to several partners, access to technical data is
needed so that they can plan for and develop a sovereign support
infrastructure as expressed in their formal exchange of letters with
the United States. The program office anticipates that in-country
support of JSF aircraft will be an issue for all partners and
will involve both technology transfer and industrial considerations.
The JSF support concept is currently being developed, with input from
the U.S. military services and international partners.
DOD, the JSF Program Office, and Lockheed Martin have taken a number of
actions designed to mitigate the challenges presented by the transfer
of technologies on the program.
* In February 2002, the program office modified Lockheed Martin's
system development and demonstration contract to include a study on the
expected commonality between U.S. and partner JSF aircraft. The
objective of this study is to develop a partner JSF aircraft
specification that is as common to the U.S. specification as possible
under National Disclosure Policy. This effort allows the program to
pursue early releasability decisions, which mitigates the risk of
putting undue schedule pressure on the process. Lockheed Martin did not
deliver the partner specification to the program office as planned in
March 2003, and it now expects to deliver the specification in August
2003.
* To identify and resolve expected technical, security, and policy
issues for the overseas sale and cooperative development of JSF
aircraft, the program chartered an international development work
group. The core of this group consists of program office and contractor
personnel, as well as individuals from the Air Force's Office of
International Affairs and Special Programs, Marine Corps Requirements,
and Navy International Programs. The group was chartered 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.
* In February 2003, the JSF Program Office received direction from the
Low Observables/Counter Low Observables Executive Committee to appoint
a JSF export compliance officer. The purpose of this position is to
ensure that releasability decisions and export licensing provisos or
conditions are fully implemented and adhered to by the program and
applied to JSF configurations as required.
* As required by DOD acquisition regulations, the JSF program has
identified critical program information, and Lockheed Martin is
developing a plan to prevent unauthorized disclosure or inadvertent
transfer of leading-edge technologies and sensitive data or systems. To
reduce cost and integrate appropriate measures into the JSF design,
this effort is being undertaken as a systems engineering activity.
During this phase of the program, technology protection measures have
to be demonstrated, operationally tested, and made ready for
production. DOD officials have stated that the program's progress on
this plan has been slow. Given that releasability decisions should
consider the measures mentioned above, timely completion of this plan
is important for long-term program planning.
* Finally, the JSF Program Office established an exchange of letters
work group with participation from selected program office and Lockheed
Martin integrated product teams, and partner representatives when
appropriate. The current focus of this group is to address partner
goals related to in-country support of the aircraft. In addition, the
JSF autonomic logistics integrated product team is conducting trade
studies to further define a global support solution for worldwide
support to start to address these issues. According to program
officials, this strategy will identify the best approach for
maintaining JSF aircraft, and 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.
Managing Industrial Participation Expectations:
In the JSF program, the prime contractor is responsible for managing
industrial participation. Lockheed Martin provides partners with
return-on-investment expectations, opportunities for qualified bidders
to compete for JSF contracts, and visibility into the subcontracting
process for the program. Partners have identified industrial return as
one of the primary reasons for their participation in the program. If
partners do not realize their expectations, they can choose to leave
the program and/or not purchase the aircraft--both negative
consequences for DOD. But, if Lockheed Martin's efforts to meet partner
return-on-investment expectations come into conflict with program cost,
schedule, and performance goals, this could have a negative effect as
well. Therefore, the JSF Program Office will ultimately have to make
decisions to balance partner expectations and program execution.
Management of Partner Expectations Is Critical for Program Success:
Partner representatives generally agreed with the JSF competitive
approach to contracting, but cautioned that while it is too early to
assess results, their industries' ability to win JSF contracts and
participate in design and development is vital to their continued
involvement in the program. In addition, some partners stated that
retaining political support for the program in their countries will
depend, in large part, on winning contracts whose total value
approaches or exceeds their financial contributions for the JSF system
development and demonstration phase. In addition to the amount of work
placed in a partner country, partners have expectations about the
timing of contracts and/or which companies in their countries win
contracts. If return-on-investment and other expectations are not met,
partners could decide to leave the program and not purchase the
aircraft.[Footnote 18] If a partner decided to leave the program, DOD
would be deprived of anticipated development funding and an opportunity
to improve interoperability among U.S. allies, while Lockheed Martin
could be faced with lower than projected international sales.
Other cooperative programs provide for industrial participation
commensurate with the financial contributions of the partners. In
contrast, the JSF MOU provides that, to achieve "best value for money,"
DOD will require contractors to select subcontractors on a competitive
basis to the maximum practical extent. To support this approach,
Lockheed Martin has taken the following steps to manage partner return-
on-investment expectations, identify opportunities for qualified
bidders to compete for JSF contracts, and provide visibility into the
subcontracting process for the program:
* To manage partner return-on-investment expectations, Lockheed Martin
sent teams of engineers and business development personnel to partner
countries and assessed suppliers' ability to compete for JSF contracts.
In some cases, Lockheed Martin 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 program office officials told us that these
agreements were necessary to secure political support in certain
countries because the U.S. government does not guarantee that the
partners will recoup their investment in the program through contracts
with their industry. 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 these agreements, DOD
was supportive of their use during partner negotiations. DOD officials
conceded that the agreements contained in these documents departed from
the competitive approach, but expressed the hope that the use of these
agreements would not be widespread.
* In response to partner concerns about the slow pace of contract
awards, Lockheed Martin has stated that the bulk of the remaining
subcontracting with partner industry will come later in the current
phase or during the production phase, especially in countries where the
aerospace industry is less developed and contracts are more likely to
be awarded for build-to-print or second-source manufacturing.
* To provide visibility into the subcontracting process, Lockheed
Martin, the JSF program manager, DOD, or a combination of the three
have provided explanations of how sourcing decisions were made after
partner governments raised concerns on behalf of suppliers about the
results of competitions. These governments were told that suppliers
submitted bids far above the competitive range and thus were not
selected. In addition, DOD, JSF Program Office, and Lockheed Martin
personnel provided feedback to the partners concerning how to approach
future competitions.
* The award fee structure of Lockheed Martin's contract permits the
JSF Program Office to establish focus criteria applicable to specific
evaluation periods. To help ensure partner industries are provided
opportunities to compete for JSF subcontracts, the program office
established focus criteria concerning subcontract competition for the
evaluation period between November 1, 2002, and April 30, 2003.
Lockheed Martin was judged on its ability to (1) provide partners
regular insight into subcontracting opportunities, (2) encourage its
major suppliers to consider partner suppliers on a competitive basis,
and (3) acquire needed export authorizations in a timely manner to
support competitions. In response, Lockheed Martin has developed a
database to track contract opportunities, especially for international
suppliers and U.S. small businesses, and provides monthly summaries of
industrial participation to partner personnel in the program office.
These summaries include the names of suppliers, contracts for which
they will be eligible to bid, bid and proposal dates, status of
contracts awarded, and the status of supplier export authorizations.
This database will assist DOD in meeting MOU requirements to provide
visibility into JSF subcontracting efforts.
Further, some partners have concerns about some aspects of the
competition, including delays in getting U.S. export licenses and
reluctance by a major supplier to provide opportunities to industry in
a partner country. If competition for contracts is not implemented in a
manner consistent with partner expectations, partners' continued
support for the program could be jeopardized.
JSF industrial relationships are solely developed between U.S.
contractors and partner country industry. After deciding to award work
to foreign and domestic companies based on competition, instead of the
share of program costs contributed, DOD and the JSF Program Office have
left implementation of this competitive approach to Lockheed Martin
under the standard Federal Acquisition Regulation clause related to
competition in subcontracting.[Footnote 19] Lockheed Martin officials
told us their approach for supplier selection is based on factors such
as a supplier's ability to incorporate a management approach that is
responsive to maintaining JSF schedules, reducing design and production
cost within acceptable risk levels, developing a solid technical
approach with opportunities for technology improvements, reducing
aircraft size and weight, and increasing aircraft performance. They
further told us that this approach is being implemented without regard
to a supplier's country of origin, with U.S. and international
suppliers competing equally.[Footnote 20] Lockheed Martin concluded
that awarding subcontracts in this manner would help achieve program
affordability goals and avoid pressure from partners to guarantee
contract awards consistent with their monetary contributions to the
program.
Program officials told us that since the award fee emphasizes overall
affordability, program management, technical progress, and development
cost control, it should incentivize Lockheed Martin to perform
subcontracting activities on a competitive basis. If, during its
regular monitoring of contract execution, the program office identifies
the need for more emphasis in a certain area--such as reducing aircraft
weight or providing opportunities to international suppliers--it can
address this concern through the contract's award fee process.[Footnote
21] While the program office has used an award fee focus letter to
encourage Lockheed Martin to provide a competitive environment, it has
not evaluated whether competitive results have been achieved.
Conclusions:
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 will 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
the key in 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 steps have been
taken to position the program for success, given the size and
importance of the program, additional attention on the part of DOD and
the program office would help minimize the risks associated with
implementing the international program. 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.
Recommendations for Executive Action:
To provide greater knowledge, which anticipates decisions needed as the
JSF program matures, we recommend that the Secretary of Defense direct
the JSF Program Office to ensure that the Lockheed Martin international
industrial plan:
* identifies current and potential contracts involving the transfer of
sensitive data and technology to partner suppliers;
* evaluates the risks that unfavorable export decisions could pose for
the program; and:
* develops alternatives to mitigate those risks, such as using
U.S. suppliers.
We also recommend that the Secretary direct the JSF Program Office to
ensure that information concerning the prime contractor's selection and
management of suppliers be collected, closely monitored, and used for
program oversight. This oversight should include identifying potential
conflicts between partner expectations and program goals, developing
focus letters that encourage Lockheed Martin to resolve these
conflicts, and making award fee determinations accordingly.
Agency Comments and Our Evaluation:
DOD provided us with written comments on a draft of this report. These
comments are reprinted in appendix III. DOD provided separate technical
comments, which we incorporated as appropriate.
DOD concurred with our recommendation that the Secretary of Defense
direct the JSF Program Office to ensure that the Lockheed Martin
international industrial plan identifies current and potential
contracts involving the transfer of sensitive data and technology to
partner suppliers, evaluates the risks that unfavorable export
decisions could pose for the program, and develops alternatives to
mitigate those risks. DOD did raise a concern about our suggestion that
using U.S. suppliers was one way to avoid the risks that unfavorable
export decisions could pose for the program. In particular, DOD stated
it could undermine the program's affordability goals. However, we
believe that due to the level of advanced technology on the JSF
program, affordability goals must be considered in the context of
protecting some of the most sensitive U.S. technologies--those vital to
maintaining U.S. technical superiority. This means that technology
transfer considerations must be part of the sourcing process. If
contracts are awarded without identifying and addressing technology
transfer issues, the protection of sensitive technology or the
execution of those contracts could be compromised. For example, if a
contract is awarded to a partner supplier, an export decision that
subsequently prohibits or places conditions on the transfer of
controlled data or technology to that company could adversely affect
its ability to execute the contract. If mitigation options have not
been identified, the likely outcome is pressure on the export control
system to approve broader export authorizations in support of program
goals. In other cases where technology transfer concerns have not been
anticipated or addressed, JSF contractors could be forced to re-source
work, which could also undermine not only affordability but other
goals, such as meeting program schedule.
The international industrial plan referenced in our recommendation can
help alleviate these potential pressures by identifying alternatives,
one of which would be identifying potential U.S. suppliers in cases
where technology transfer is a concern. In its comments, DOD states
that mitigating risk in this manner could require the dual sourcing of
specific JSF contracts. This is not necessarily the case. Again,
ideally, these technology transfer issues would be anticipated before a
development or production contract is competed or awarded. With this
knowledge, the JSF Program Office and Lockheed Martin could suggest
adjustments to work packages or bidders' lists if the technology or
companies in question are likely to raise export control concerns.
Regardless, the end result could still be the selection of a single
source--one that advances affordability and protects sensitive U.S.
technology.
DOD also concurred with our recommendation that the Secretary of
Defense direct the JSF Program Office to ensure that information
concerning the prime contractors' selection and management of suppliers
is collected, closely monitored, and used for program oversight. In its
comments, DOD stated that the JSF Program Office would work closely
with Lockheed Martin to achieve effective program oversight with regard
to partner expectations and program goals. However, DOD did not specify
how it plans to collect and monitor this information or elaborate on
other steps the JSF Program Office would take to identify and resolve
potential conflicts between partner expectations and program goals.
We are sending copies of this report to interested congressional
committees; the Secretary of Defense; the Secretaries of the Navy and
the Air Force; the Commandant of the Marine Corps; and the Director,
Office of Management and Budget. We will also make copies available to
others upon request. In addition, this report will be available at no
charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please
contact me at (202) 512-4841. Key contributors to this report are
listed in appendix IV.
Sincerely yours,
Katherine V. Schinasi,
Director Acquisition and Sourcing Management:
Signed by Katherine V. Schinasi:
[End of section]
Appendix I: Scope and Methodology:
Our objective was to review how the Department of Defense (DOD) is
managing the integration of partner countries and suppliers into the
Joint Strike Fighter (JSF) program. Specifically, we identified
international relationships and the benefits they are expected to
provide and assessed how DOD is managing cost sharing, technology
transfer, and partner expectations for industrial return. To conduct
our work, we reviewed various guidance and agreements related to the
JSF program. We also interviewed cognizant government officials and
industry experts, including those in several JSF partner countries.
To determine what relationships are necessary to integrate
international partners into the program, we identified and examined
documents related to JSF international arrangements and agreements,
including information from DOD; the JSF Program Office in Arlington,
Virginia; and the Lockheed Martin Aeronautics Company in Fort Worth,
Texas. Specifically, we obtained documents from the Office of the Under
Secretary of Defense (Acquisition, Technology, and Logistics), the
Department of State (Office of Defense Trade Controls), the Secretary
of the Air Force (International Affairs), the Navy International
Programs Office, and the Department of Commerce (Bureau of Industry and
Security). We discussed the guidance and processes for developing and
negotiating agreements for international participation with officials
from each of these offices. We also obtained and reviewed signed copies
of the memoranda of understanding (MOU) and other documents that
outline the agreed upon conditions between the United States and each
partner nation. To understand the JSF international program structure
in the context of other DOD cooperative development programs, we
reviewed reports and documentation on programs such as the F-16
Multinational Fighter Program, the Medium Extended Air Defense System,
and the Multiple Launch Rocket System and discussed this information
with DOD, contractor, and international personnel with experience on
those programs.
For specific information on cost sharing within the program, we
reviewed MOUs and related documents and discussed this issue with the
Office of the Under Secretary of Defense (Acquisition, Technology, and
Logistics) - International Cooperation, JSF Program Office
international directorate and contracts; and Lockheed Martin
international program officials.
To determine how the program is responding to technology transfer
concerns, we reviewed documentation on U.S. National Disclosure Policy
and related guidance. In addition, we spoke to officials in DOD, the
Departments of State and Commerce, the JSF Program Office, and Lockheed
Martin. Within DOD, we collected data on sensitive technology areas and
spoke to representatives from the Defense Technology Security
Administration, the Office of the Under Secretary of Defense
(Acquisition, Technology, and Logistics) Directorate of Special
Programs, and the Office of the Air Force Under Secretary for
International Affairs (Foreign Disclosure and Technology Transfer
Division) to determine the extent to which the JSF program considered
these concerns in its approach. We reviewed the JSF program protection
plan and spoke with Lockheed Martin and program office security
personnel to determine how the program implements this plan and other
mechanisms related to foreign disclosure and technology transfer.
To assess the JSF approach to managing international partner
expectations, we reviewed various sources of information on other
U.S. cooperative development programs, including our past reports,
to determine potential challenges for the international program and
discussed these challenges with officials from the Office of the
Secretary of Defense, the JSF Program Office, Lockheed Martin, and
other personnel as necessary. We reviewed program documentation and
procedures for addressing these challenges and spoke with key staff
from the Office of the Secretary of Defense, the JSF Program Office
International Directorate, and Lockheed Martin JSF International
Programs on issues regarding implementation of their management
approach.
To determine and assess the position of international participants in
the program, we obtained the direct views of officials from the partner
countries. First, we conducted structured interviews with the National
Deputies from the partner countries represented in the JSF Program
Office. These officials were both civilian and military personnel and
provided information in areas related to their countries' involvement
in the program, including expected benefits, experience with other
cooperative programs, presence in the JSF Program Office and contractor
locations, industry participation in the program, cost sharing,
experience with the U.S. export licensing process, and technology
transfer. The results of interviews were documented and verified with
each of the national deputies and their respective governments for
accuracy. One country elected to provide written responses to the
interview questions we submitted. In addition, we visited government
and industry representatives in London and Bristol, United Kingdom;
Rome, Italy; and The Hague, Netherlands. We discussed JSF program
participation with senior defense officials in each of these three
countries to assess their views on the overall progress and success of
the program to date. Finally, we visited and discussed our review
objectives with officials from BAE Systems and Rolls Royce in the
United Kingdom, who are major suppliers to the JSF prime contractors.
We performed our work from February 2002 to May 2003 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: JSF International Participant Contributions and Benefits:
Level I partner:
United Kingdom; Value of contributions: Level I partner: * U.S. target:
approximately 10 percent or $2.5 billion; * Negotiated contribution:
$2.056 billion; National deputy: Level I partner: At the director level
reports to the JSF program manager; JSF Program Office staff: Level I
partner: Ten fully integrated staff, including the deputy director of
the systems engineering integrated product team; Data use rights: Level
I partner: JSF purposes: includes use for the performance of project
activities under SDD MOUs and future efforts by the United Kingdom
(either collaboratively, nationally, or under U.S. foreign military
sales arrangements) for the design, development, manufacture,
operation, and support of any JSF aircraft; Benefits during production:
Level I partner: * Delivery priority based on level of SDD
contributions; * Waiver of all non-recurring research and development
costs; * Levies from sales to nonpartners based on level of SDD
contributions.
Level II partner:
Italy; Value of contributions: Level I partner: * U.S. target:
approximately 5 percent or $1.25 billion; * Negotiated contribution:
$1.028 billion; National deputy: Level I partner: Reports to the JSF
international director; JSF Program Office staff: Level I partner: Five
integrated staff, including a logistics manager on the autonomic
logistics integrated product team; Data use rights: Level I partner:
Italian Ministry of Defense JSF purposes: includes use for the
performance of project activities under SDD MOUs and future efforts by
the Italian Ministry of Defense (either collaboratively, nationally, or
under U.S. foreign military sales arrangements) for the design,
development, manufacture, operation, and support of the JSF CTOL and
STOVL variants; Benefits during production: Level I partner: * Delivery
priority based on level of SDD contributions; * Waiver of all non-
recurring research and development costs; * Levies from sales to
nonpartners based on level of SDD contributions.
Netherlands; Value of contributions: Level I partner: * U.S. target:
approximately 5 percent or $1.25 billion; * Negotiated contribution:
$800 million; National deputy: Level I partner: Reports to the JSF
international director; JSF Program Office staff: Level I partner:
Three integrated staff; Data use rights: Level I partner: CTOL
purposes: includes use for the performance of project activities under
SDD MOUs and future efforts by the Netherlands (either collaboratively,
nationally, or under U.S. foreign military sales arrangements) for the
design, development, manufacture, operation, and support of the JSF
CTOL and F-16 aircraft; Benefits during production: Level I partner: *
Delivery priority based on level of SDD contributions; * Waiver of all
non-recurring research and development costs; * Levies from sales to
nonpartners based on level of SDD contributions.
Level III Partner:
Turkey; Value of contributions: Level I partner: * U.S. target:
approximately 1-2 percent or $250-500 million; * Negotiated
contribution: $175 million; National deputy: Level I partner: Reports
to the JSF international director; JSF Program Office staff: Level I
partner: One integrated staff, who performs both national deputy duties
and participates on the C4I IPT; Data use rights: Level I partner:
Project purposes: includes use for the performance of project
activities under SDD MOUs; Benefits during production: Level I partner:
* Delivery priority based on level of SDD contributions; *
Consideration for waiver of all non-recurring research and development
costs; * Levies from sales to nonpartners based on level of SDD
contributions.
Australia; Value of contributions: Level I partner: * U.S. target:
approximately 1-2 percent or $250-500 million; * Negotiated
contribution: $150 million; National deputy: Level I partner: Same as
above; JSF Program Office staff: Level I partner: One integrated staff,
who performs both national deputy duties and participates on the C4I
IPT; Data use rights: Level I partner: Same as above; Benefits during
production: Level I partner: * Same as above.
Canada; Value of contributions: Level I partner: * U.S. target:
approximately 1-2 percent or $250-500 million; * Negotiated
contribution: $150 million; National deputy: Level I partner: Same as
above; JSF Program Office staff: Level I partner: One integrated staff,
who performs both national deputy duties and participates on the C4I
IPT; Data use rights: Level I partner: Same as above; Benefits during
production: Level I partner: * Same as above.
Denmark; Value of contributions: Level I partner: * U.S. target:
approximately 1-2 percent or $250-500 million; * Negotiated
contribution: $125 million; National deputy: Level I partner: Same as
above; JSF Program Office staff: Level I partner: One integrated staff,
who performs both national deputy duties and participates on the C4I
IPT; Data use rights: Level I partner: Same as above; Benefits during
production: Level I partner: * Same as above.
Norway; Value of contributions: Level I partner: * U.S. target:
approximately 1-2 percent or $250-500 million; * Negotiated
contribution: $125 million; National deputy: Level I partner: Same as
above; JSF Program Office staff: Level I partner: One integrated staff,
who performs both national deputy duties and participates on the C4I
IPT; Data use rights: Level I partner: Same as above; Benefits during
production: Level I partner: * Same as above.
Security Cooperation Participant:
Israel; Value of contributions: Level I partner: Approximately $50
million spread over two phases; National deputy: Level I partner: None;
JSF Program Office staff: Level I partner: None; Data use rights: Level
I partner: * Assessment of JSF's ability to meet Israeli Ministry of
Defense requirements; * Studies on incorporation of unique Israeli
systems; * Program updates on the design, development, and
qualification of the JSF aircraft; Benefits during production: Level I
partner: * Opportunity to request purchase of a version of the JSF
aircraft; * Delivery priority based on level of SDD contributions.
Singapore; Value of contributions: Level I partner: Approximately
$50 million spread over two phases; National deputy: Level I partner:
None; JSF Program Office staff: Level I partner: None; Data use rights:
Level I partner: * Assessment of JSF's ability to meet the requirements
of the Singapore Ministry of Defense; * Studies on incorporation of
unique requirements of the Singapore Ministry of Defense; * Program
updates on the design, development, and qualification of the JSF
aircraft; Benefits during production: Level I partner: * Opportunity to
request purchase of a version of the JSF aircraft; * Delivery priority
based on level of SDD contributions.
Legend:
C4I IPT = command, control, communications, computers, and intelligence
integrated product team:
CTOL = conventional take-off and landing:
JSF = Joint Strike Fighter:
LOA = letter of offer and acceptance:
MOU= memorandum of understanding:
SDD = system development and demonstration:
STOVL = short take-off and vertical landing:
Source: GAO's summary of JSF MOUs and letters of intent.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:
ACQUISITION, TECHNOLOGY AND LOGISTICS:
Ms. Katherine V. Schinasi:
Director, Acquisition and Sourcing Management U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
JUN 30 2003:
Dear Ms. Schinasi:
This is the Department of Defense (DoD) response to the GAO Draft
Report GAO-03-775, "JOINT STRIKE FIGHTER ACQUISITION: Cooperative
Program Needs Greater Oversight to Ensure Goals Are Met," dated June 9,
2003 (GAO Code 120120).
The Department concurs with the GAO report. DoD Comments to the GAO
Recommendations are provided as an enclosure. Additionally, proposed
corrections for technical accuracy have been provided separately.
Sincerely,
Signed for: Alfred G. Volkman
Director
International Cooperation:
Enclosure:
GAO DRAFT REPORT - DATED JUNE 9, 2003 GAO CODE 120120/GAO-03-775:
"JOINT STRIKE FIGHTER ACQUISITION: Cooperative Program Needs Greater
Oversight to Ensure Goals Are Met":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: To provide greater knowledge, which anticipates
decisions needed as the JSF program matures, the GAO recommended that
the Secretary of Defense direct the JSF program office to ensure that
the Lockheed Martin international industrial plan:
* identifies current and potential contracts involving the transfer of
sensitive data and technology to partner suppliers;
* evaluates the risks that unfavorable export decisions could pose for
the program; and
* develops alternatives to mitigate those risks, such
as using U.S. suppliers. (p. 25/GAO Draft Report):
DOD RESPONSE: Concur. The report states the need for risk mitigation
plans that might include more use of U.S. suppliers. While this is one
possible course of action to mitigate risk, such an approach could also
undermine the JSF program's "best value" affordability precepts. Dual
sourcing is often not the best way to mitigate risk. The JSF program
office will ensure that Lockheed Martin's international industrial plan
is continually reviewed for technology transfer, export control, and
risk mitigation issues.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the JSF program office to ensure that information concerning the
prime contractors' selection and management of suppliers be collected,
closely monitored, and used for program oversight. This oversight
should include identifying potential conflicts between partner
expectations and program goals, developing focus letters that encourage
Lockheed Martin to resolve these conflicts, and making award fee
determinations accordingly. (p. 25/GAO Draft Report):
DOD RESPONSE: Concur. The JSF program office will work closely with
Lockheed Martin to achieve effective program oversight when it comes to
partner expectations and program goals.
[End of section]
Appendix IV: Staff Acknowledgments:
Acknowledgments:
Tom Denomme, Brian Mullins, Ron Schwenn, Anne Howe, Delores Cohen,
Karen Sloan, and Robert Ackley made key contributions to this report.
FOOTNOTES
[1] Office of the Deputy Under Secretary of Defense (International and
Commercial Programs), International Armaments Cooperation Handbook
(Washington, D.C.: June 1996).
[2] Arms Export Control Act (22 U.S.C. sec. 2767).
[3] Even before the 1997 guidance, the JSF program and predecessors
such as the AV-8B tactical aircraft and Joint Advanced Strike
Technology programs had heavy involvement from the government of the
United Kingdom and its defense suppliers.
[4] The design should include precision schematics of the aircraft and
components, based on the results of testing and a description of
material and manufacturing processes to be used.
[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, Defense Trade: U.S. Contractors
Employ Diverse Activities to Meet Offset Obligations, GAO/NSIAD-99-35
(Washington, D.C.: Dec. 18, 1998).
[7] The President of the United States may reduce or waive cooperative
project nonrecurring costs in accordance with the AECA (22 U.S.C. 2761
and 2767). For the JSF program, the Level I and II partners have been
granted a full waiver of these costs; Level III participants will
receive consideration for this waiver.
[8] According to DOD, final disposition of levies and nonrecurring
costs for partners will be decided in production phase MOU
negotiations.
[9] Most partners have been involved in the JSF program since the
concept development phase, which began in 1996.
[10] U.S. General Accounting Office, Joint Strike Fighter Acquisition:
Mature Critical Technologies Needed to Reduce Risks, GAO-02-39
(Washington, D.C.: Oct. 19, 2001). The JSF Program Office now tracks 23
program level risks--3 are low risks, 19 are moderate, and 1 is high.
The high risk carried by the program is related to aircraft weight.
[11] United Kingdom officials told us that for planning purpose it
assumes a JSF buy of up to 150 aircraft. This assumption has not been
formalized in a production MOU with the United States.
[12] A process by which performance requirements are considered in
terms of the established cost targets so that trade-offs in performance
capabilities can be made as necessary.
[13] U.S. General Accounting Office, F-16 Program: Reasonably
Competitive Premiums for European Coproduction, GAO/NSIAD-90-181
(Washington, D.C.: May 14, 1990) and 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).
[14] National Disclosure Policy establishes procedures and criteria for
releasing classified or controlled unclassified military information
to other countries. In addition, there are special release processes
for technology, such as stealth. U.S. policy on the release of stealth-
related data and technology is contained in DOD Instruction S5230.28.
[15] The JSF global project authorization 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.
[16] U.S. General Accounting Office, Defense Trade: Lessons to Be
Learned from the Country Export Exemption, GAO-02-63 (Washington, D.C.:
Mar. 29, 2002).
[17] 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.
[18] Most partners have a clause in their supplement MOUs that allows
for withdrawal from this phase of the program if industrial
participation is not satisfactory.
[19] Federal Acquisition Regulation 52.244-5, Competition in
Subcontracting. This clause requires contractors to select
subcontractors on a competitive basis to the maximum practical extent
consistent with the objectives and requirements of the contract.
[20] Lockheed Martin officials told us that in some cases competitions
would be waived for "heritage" suppliers--suppliers with whom Lockheed
Martin has had a long-standing industrial relationship.
[21] Lockheed Martin's contract for the current JSF phase provides no
base fee; instead, it calls for a potential award fee of almost
$2.5 billion, or 15 percent of the total contract value. The exact
amount of the fee is determined by the program office, based on
subjective criteria related to Lockheed Martin's ability to achieve
development and unit cost control, program management, and technical
development goals and milestones.
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