oversight

Joint Strike Fighter Acquisition: Managing Competing Pressures Is Critical to Achieving Program Goals

Published by the Government Accountability Office on 2003-07-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office

GAO                          Testimony
                             Before the Subcommittee on National Security,
                             Emerging Threats, and International Relations,
                             Committee on Government Reform, House of
                             Representatives
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




GAO-03-1012T
                                                July 21, 2003


                                                JOINT STRIKE FIGHTER ACQUISITION

                                                Managing Competing Pressures Is
Highlights of GAO-03-1012T, a testimony         Critical to Achieving Program Goals
before the Subcommittee on National
Security, Emerging Threats, and
International Relations, Committee on
Government Reform, House of
Representatives




The Joint Strike Fighter (JSF) is a             The JSF program is based on a complex set of relationships among
cooperative program between the                 governments and industries from the United States and eight partner
Department of Defense (DOD) and                 countries. The program is expected to benefit the United States by reducing
U.S. allies for developing and                  its share of program costs, giving it access to foreign industrial capabilities,
producing next generation fighter               and improving interoperability with allied militaries. Partner governments
aircraft to replace aging
inventories. As currently planned,
                                                expect to benefit financially and technologically through relationships with
the JSF program is DOD’s most                   U.S. aerospace companies and access to JSF program data.
expensive aircraft program to date,
costing an estimated $200 billion to            Yet international participation also presents a number of challenges.
procure about 2,600 aircraft and                Because of their contributions to the program, partners have significant
related support equipment. Many in              expectations for financial returns, technology transfer, and information
DOD consider JSF to be a model                  sharing. If these expectations are not met, their support for the program
for future cooperative programs.                could deteriorate. To realize these financial returns, partners expect their
                                                industry to win JSF contracts through competition—a departure from
To determine the implications of                cooperative programs, which directly link contract awards to financial
the JSF international program                   contributions. However, recent actions by the prime contractor could
structure, GAO identified JSF
program relationships and
                                                indicate a departure from this competitive approach and a return to directed
expected benefits, and assessed                 work share. Technology transfer also presents challenges. Transfers of
how DOD is managing challenges                  sensitive U.S. military technologies—which are needed to achieve aircraft
associated with partner                         commonality and interoperability goals—will push the boundaries of U.S.
expectations, technology transfer,              disclosure policy. In addition, a large number of export authorizations are
and recent technical concerns.                  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
GAO is not making
recommendations in this                         program costs and possibly partner participation in the program. While
testimony. In a report issued                   partners can choose to share any future program cost increases, they are not
concurrently (GAO-03-775), GAO is               required to do so. Therefore, the burden of any future increases may fall
recommending that the Secretary                 almost entirely on the United States. If efforts to meet any of these partner
of Defense direct the JSF program               expectations come into conflict with program cost, schedule, and
office to ensure that international             performance goals, the program office will have to make decisions that
supplier planning anticipates and               balance these potentially competing interests within the JSF program.
mitigates risks associated with
technology transfer and that
                                                Joint Strike Fighter
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.


www.gao.gov/cgi-bin/getrpt?GAO-03-1012T.

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.
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.




Page 1                             GAO-03-1012T Joint Strike Fighter Acquisition
                                      The JSF program is DOD’s largest cooperative program. It is structured on
Background                            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




                                      a
                                      Figure does not reflect relationships that the prime contractors may have with nonpartner countries.




                                      Page 2                                         GAO-03-1012T Joint Strike Fighter Acquisition
                       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.


                       The United States and its partners expect to realize a variety of benefits
United States and      from cooperation on the JSF program. The United States expects to
Partners Expect        benefit from partner contributions and potential future aircraft sales;
                       access to partner industrial capabilities; and improved interoperability
Significant Benefits   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.




                       Page 3                               GAO-03-1012T Joint Strike Fighter Acquisition
United States Benefits     According to DOD and the program office, through its cooperative
from Financial             agreements, the JSF program contributes to armaments cooperation
Contributions and Access   policy in the following four areas:
to Partner Industry        •   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.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.




                           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.



                           Page 4                                     GAO-03-1012T Joint Strike Fighter Acquisition
Table 1: JSF Partner Financial Contributions and Estimated Aircraft Purchases

                                                    System development and demonstration                                                Production
                                                                   Financial
                                              Partner         contributions    Percentage of                                 Projected           Percentage of
 Partner country                              level            (in millions)a     total costs                                quantities         total quantities
 United Kingdom                               Level I                             $2,056                   6.2                       150                    4.7
 Italy                                        Level II                            $1,028                   3.1                       131                    4.1
 Netherlands                                  Level II                               $800                  2.4                        85                    2.7
 Turkey                                       Level III                              $175                  0.5                       100                    3.2
 Australia                                    Level III                              $144                  0.4                       100                    3.2
 Norway                                       Level III                              $122                  0.4                        48                    1.5
 Denmark                                      Level III                              $110                  0.3                        48                    1.5
 Canada                                       Level III                              $100                  0.3                        60                    1.9
                                                                                                              b
 Total partner                                                                    $4,535                 13.7                        722                   22.8
 United States                                                                  $28,565                   86.3                     2,443                   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.




                                                                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.




                                                                Page 5                                            GAO-03-1012T Joint Strike Fighter Acquisition
Partners Benefit       Partner governments expect to benefit financially by leveraging significant
Financially and from   U.S. resources and inventory requirements to obtain an advanced tactical
Shared Technology      aircraft they could not afford to develop on their own. From a government
                       perspective, Level I and II partners have been guaranteed waivers of
and Information        nonrecurring aircraft costs; Level III partners will be considered for a
                       similar waiver.2 All partners are also eligible to receive potential levies
                       collected on future foreign military sales of aircraft to nonpartner
                       customers.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.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.




                       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.



                       Page 6                                     GAO-03-1012T Joint Strike Fighter Acquisition
                            International program participants have significant expectations regarding
Program Challenges          government and industry return based on their contributions. As such,
Force JSF Program           the JSF Program Office and Lockheed Martin are faced with balancing
                            these expectations against other program goals. Recent actions by
to Balance Competing        Lockheed Martin to address partner concerns could represent a departure
Pressures                   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       DOD and the JSF Program Office have said that the use of competitive
Approach May be Used to     contracting is central to meeting partner expectations for industrial
Meet Partner Expectations   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.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.



                            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.



                            Page 7                                     GAO-03-1012T Joint Strike Fighter Acquisition
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.6



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).


Page 8                                 GAO-03-1012T Joint Strike Fighter Acquisition
JSF Stretches Disclosure   The United States has committed to design, develop, and qualify aircraft
Boundaries                 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.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



                           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.



                           Page 9                                     GAO-03-1012T Joint Strike Fighter Acquisition
                          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    Authorization for export of JSF information to partners and international
Presents Challenges for   suppliers also present challenges for the program. In addition to the
JSF Program               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



                          Page 10                             GAO-03-1012T Joint Strike Fighter Acquisition
approval times, which affected contractors’ ability to use existing missile
technology and pursue the cheapest technical solution.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.




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).



Page 11                                 GAO-03-1012T Joint Strike Fighter Acquisition
                        The Joint Strike Fighter program, and its implications for acquisition
Technical Concerns      reform and cooperative development, is a good test of whether the
Could Affect            desire for better outcomes can outweigh traditional management
                        pressures. In our 2001 review of JSF technical maturity, we employed
Program Costs and       knowledge standards consistent with best practices and DOD
Partner Participation   acquisition reforms and found that several technologies critical to
                        meeting requirements were not sufficiently mature.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



                        9
                         Joint Strike Fighter Acquisition: Mature Critical Technologies Needed to Reduce Risks,
                        GAO-02-39 (Washington, D.C.: Oct. 19, 2001).



                        Page 12                                  GAO-03-1012T Joint Strike Fighter Acquisition
             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.


             The JSF program is not immune to unpredictable cost growth, schedule
Conclusion   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.




             Page 13                            GAO-03-1012T Joint Strike Fighter Acquisition
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.




Page 14                             GAO-03-1012T Joint Strike Fighter Acquisition
                  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      For future questions regarding this testimony, please contact Katherine
Acknowledgments   Schinasi, (202) 512-4841. Individuals making key contributions to this
                  testimony include Tom Denomme, Brian Mullins, and Ron Schwenn.




(120274)          Page 15                            GAO-03-1012T Joint Strike Fighter Acquisition
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