oversight

Joint Strike Fighter Acquisition: Cooperative Program Needs Greater Oversight to Ensure Goals Are Met

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          Report to the Chairman, Subcommittee
             on National Security, Emerging
             Threats, and International Relations,
             Committee on Government Reform,
             House of Representatives
July 2003
             JOINT STRIKE
             FIGHTER
             ACQUISITION
             Cooperative Program
             Needs Greater
             Oversight to Ensure
             Goals Are Met




GAO-03-775
                                                July 2003


                                                JOINT STRIKE FIGHTER ACQUISITION

                                                Cooperative Program Needs Greater
Highlights of GAO-03-775, a report to           Oversight to Ensure Goals Are Met
the Chairman, 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 international program structure is based on a complex set of
cooperative program between the                 relationships involving both government and industry from the United States
Department of Defense (DOD) and                 and eight partner countries. The program is expected to benefit the United
U.S. allies for developing and                  States by reducing its share of program costs, giving it access to foreign
producing next generation fighter               industrial capabilities, and improving interoperability with allied militaries.
aircraft to replace aging
inventories. As currently planned,
                                                Partner governments expect to benefit from defined influence over aircraft
the JSF program is DOD’s most                   requirements, improved relationships with U.S. aerospace companies, and
expensive aircraft program to date,             access to JSF program data.
costing an estimated $200 billion to
procure about 2,600 aircraft and                Yet international participation also presents a number of challenges. For
related support equipment. Many in              example, while international partners can choose to share any future
DOD consider JSF to be a model                  program cost increases, they are not required to do so under the terms of
for future cooperative programs.                negotiated agreements. Therefore, the burden of any future increases may
                                                fall almost entirely on the United States. Technology transfer also presents
To determine the implications of                challenges. The large number of export authorizations needed to share
the JSF international program                   project information, solicit bids from partner suppliers, and execute
structure, GAO identified JSF
program relationships and
                                                contracts must be submitted and resolved in a timely manner to ensure that
expected benefits and assessed                  partner industry has the opportunity to compete for subcontracts and key
how DOD is managing cost sharing,               contracts can be executed on schedule. Transfers of sensitive U.S. military
technology transfer, and partner                technologies—which are needed to achieve aircraft commonality goals—will
expectations for industrial return.             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.
Information on prime contractor
                                                Finally, if partners’ return-on-investment expectations are not met, support
activities is critical to balancing
program schedule goals with                     within their countries could deteriorate. To realize this return-on-investment,
partner expectations. Therefore,                partners expect their industry to win JSF contracts through competition—a
GAO is recommending that the                    departure from other cooperative programs, which directly link contract
Secretary of Defense direct the JSF             awards to financial contributions. If the prime contractor’s efforts to meet
Program Office to ensure that                   these expectations come into conflict with program cost, schedule, and
international supplier planning                 performance goals, the program office will have to make decisions that
fully anticipates and mitigates risks           balance these potentially competing interests.
associated with technology transfer
and that information concerning
                                                Joint Strike Fighter
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.
Contents


Letter                                                                                         1
               Results in Brief                                                                1
               Background                                                                      4
               International Participation Adds Complexity and Benefits to JSF
                  Acquisition Program                                                          6
               International Participation Complicates JSF Program Efforts to
                  Manage Costs                                                               12
               JSF Technology Transfer Presents Challenges for Program
                  Execution, International Suppliers, and Disclosure Policy                  16
               Managing Industrial Participation Expectations                                20
               Conclusions                                                                   24
               Recommendations for Executive Action                                          25
               Agency Comments and Our Evaluation                                            25

Appendix I     Scope and Methodology                                                         28



Appendix II    JSF International Participant Contributions
               and Benefits                                                                  31



Appendix III   Comments from the Department of Defense                                       34



Appendix IV    Staff Acknowledgments                                                         36
               Acknowledgments                                                               36


Table
               Table 1: JSF Partner Financial Contributions and Estimated
                        Aircraft Purchases                                                   10


Figure
               Figure 1: JSF Program Relationships                                             7




               Page i                                GAO-03-775 Joint Strike Fighter Acquisition
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



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Page ii                                       GAO-03-775 Joint Strike Fighter Acquisition
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.)


                                   The JSF international program structure is based on a complex set of
Results in Brief                   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


                                   Page 1                                  GAO-03-775 Joint Strike Fighter Acquisition
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 not 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


Page 2                                 GAO-03-775 Joint Strike Fighter Acquisition
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.




Page 3                                 GAO-03-775 Joint Strike Fighter Acquisition
             According to DOD policy, the core objectives of armaments cooperation
Background   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.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.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.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.



             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.



             Page 4                                          GAO-03-775 Joint Strike Fighter Acquisition
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.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.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.6 However, this approach
does not always result in the most cost-effective program.




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).




Page 5                                        GAO-03-775 Joint Strike Fighter Acquisition
                        International participation in the JSF program adds complexity to an
International           already challenging acquisition process. However, participation
Participation Adds      agreements negotiated between DOD and equivalent partner ministries
                        or departments do provide potential benefits to all partners. The United
Complexity and          States benefits from financial contributions, increased potential for
Benefits to JSF         international sales of JSF aircraft, and access to partner industry. Foreign
                        partners benefit from participating in JSF Program Office activities,
Acquisition Program     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       The JSF program is made up of a complex set of relationships involving
Program Relationships   both government and industry from the United States and eight other
Are Complex             countries—the United Kingdom, Italy, the Netherlands, Turkey, Denmark,
                        Norway, Canada, and Australia (see fig. 1).




                        Page 6                                 GAO-03-775 Joint Strike Fighter Acquisition
Figure 1: JSF Program Relationships




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


                                      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



                                      Page 7                                              GAO-03-775 Joint Strike Fighter Acquisition
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



Page 8                                 GAO-03-775 Joint Strike Fighter Acquisition
                            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   The JSF program allows foreign countries to become program partners at
Expected to Benefit Both    one of three participation levels, based on financial contribution. As
DOD and Allies              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.




                            Page 9                                 GAO-03-775 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 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.


                                                              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



                                                              Page 10                                              GAO-03-775 Joint Strike Fighter Acquisition
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;7 potential levies on future
foreign military sales aircraft sold;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.




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.




Page 11                                         GAO-03-775 Joint Strike Fighter Acquisition
                     All partners have benefited from increased access to program and
                     contractor information by virtue of their early involvement in the
                     program.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.


                     Along with the traditional functions of balancing the requirements for JSF
International        performance against its established cost and schedule targets, the program
Participation        office is tasked with integrating partner government and industry
                     participants into the program. While initial partner contributions are
Complicates JSF      beneficial, and critical for political support for the program, there is no
Program Efforts to   guarantee that additional funding will be available to support future cost
                     increases should they arise. In addition, even when cost sharing may be
Manage Costs         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



                     9
                      Most partners have been involved in the JSF program since the concept development
                     phase, which began in 1996.




                     Page 12                                     GAO-03-775 Joint Strike Fighter Acquisition
                       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   Our past reviews have shown that weapons acquisition programs
Provide Additional     frequently encounter increased cost due to questionable requirements,
Funding for Program    unrealistic cost estimates, funding instability, and high-risk acquisition
                       strategies. We reported in October 2001 that the JSF program entered the
Cost Increases         system development and demonstration phase with increased cost risk
                       due to low maturity of critical technologies.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 and increased knowledge about
                       cost. 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.



                       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.




                       Page 13                                     GAO-03-775 Joint Strike Fighter Acquisition
                            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.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          To encourage partners to share costs where appropriate, the United States
Encourage Partner Sharing   can consider past cost-sharing behavior when negotiating MOUs for future
and Cost Control            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



                            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.




                            Page 14                                       GAO-03-775 Joint Strike Fighter Acquisition
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 Variable12 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.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.




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).




Page 15                                     GAO-03-775 Joint Strike Fighter Acquisition
                          The transfer of technology on the JSF program presents a number of
JSF Technology            challenges related to program execution, international suppliers, and
Transfer Presents         disclosure policy. The volume of JSF export authorizations has taxed
                          Lockheed Martin’s licensing resources, and any delays in the disposition
Challenges for            of future export authorizations could affect the execution of key contracts
Program Execution,        and the ability of partner suppliers to bid for subcontracts. Further, the
                          transfer of technologies necessary to achieve aircraft commonality goals
International             is expected to far exceed past transfers of advanced military technology
Suppliers, and            and will push the boundaries of U.S. disclosure policy.14 The JSF Program
Disclosure Policy         Office and the prime contractor have taken various steps to mitigate
                          these challenges.


Timing and Volume of      The JSF Program Office and Lockheed Martin told us that there were
Export Authorizations     over 400 export authorizations and amendments granted during the JSF
Could Affect Program      concept demonstration phase, and they expect that the number of
                          export authorizations required for the current phase could exceed 1,000.
Execution and             Lockheed Martin licensing officials have indicated that this volume has
International Suppliers   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.



                          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.




                          Page 16                                        GAO-03-775 Joint Strike Fighter Acquisition
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.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.



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.




Page 17                                       GAO-03-775 Joint Strike Fighter Acquisition
                             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.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    The United States has committed to design, develop, and qualify aircraft
Transfer Will Stretch   for partners that fulfill the JSF operational requirements document and
Current Disclosure      are as common to the U.S. JSF configuration as possible within National
                        Disclosure Policy.17 In some cases, according to DOD, the program has
Boundaries              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


                        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.




                        Page 18                                       GAO-03-775 Joint Strike Fighter Acquisition
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.



Page 19                                 GAO-03-775 Joint Strike Fighter Acquisition
                      •   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.


                      In the JSF program, the prime contractor is responsible for managing
Managing Industrial   industrial participation. Lockheed Martin provides partners with
Participation         return-on-investment expectations, opportunities for qualified bidders to
                      compete for JSF contracts, and visibility into the subcontracting process
Expectations          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



                      Page 20                                GAO-03-775 Joint Strike Fighter Acquisition
                               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          Partner representatives generally agreed with the JSF competitive
Expectations Is Critical for   approach to contracting, but cautioned that while it is too early to assess
Program Success                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.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



                               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.




                               Page 21                                     GAO-03-775 Joint Strike Fighter Acquisition
    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



Page 22                               GAO-03-775 Joint Strike Fighter Acquisition
     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.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.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.


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.




Page 23                                      GAO-03-775 Joint Strike Fighter Acquisition
              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.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.


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


              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.




              Page 24                                         GAO-03-775 Joint Strike Fighter Acquisition
                      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.


                      To provide greater knowledge, which anticipates decisions needed as the
Recommendations for   JSF program matures, we recommend that the Secretary of Defense direct
Executive Action      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.


                      DOD provided us with written comments on a draft of this report. These
Agency Comments       comments are reprinted in appendix III. DOD provided separate technical
and Our Evaluation    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



                      Page 25                                GAO-03-775 Joint Strike Fighter Acquisition
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.



Page 26                               GAO-03-775 Joint Strike Fighter Acquisition
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




Page 27                                GAO-03-775 Joint Strike Fighter Acquisition
             Appendix I: Scope and Methodology
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


             Page 28                              GAO-03-775 Joint Strike Fighter Acquisition
Appendix I: Scope and Methodology




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



Page 29                               GAO-03-775 Joint Strike Fighter Acquisition
Appendix I: Scope and Methodology




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.




Page 30                             GAO-03-775 Joint Strike Fighter Acquisition
                                        Appendix II: JSF International Participant
Appendix II: JSF International Participant
                                        Contributions and Benefits



Contributions and Benefits


                   Value of              National           JSF Program                                         Benefits during
                   contributions         deputy             Office staff           Data use rights              production
Level I partner
United Kingdom     •   U.S. target:      At the director    Ten fully integrated   JSF purposes: includes       •   Delivery priority
                       approximately     level reports to   staff, including       use for the performance          based on level of
                       10 percent or     the JSF program    the deputy director    of project activities            SDD contributions
                       $2.5 billion      manager            of the systems         under SDD MOUs and           •   Waiver of all non-
                   •   Negotiated                           engineering            future efforts by the            recurring research
                       contribution:                        integrated product     United Kingdom                   and development
                       $2.056 billion                       team                   (either collaboratively,         costs
                                                                                   nationally, or under U.S.    •   Levies from sales
                                                                                   foreign military sales           to nonpartners
                                                                                   arrangements) for the            based on level of
                                                                                   design, development,             SDD contributions
                                                                                   manufacture, operation,
                                                                                   and support of any JSF
                                                                                   aircraft

Level II partner
Italy              •   U.S. target:      Reports to the    Five integrated         Italian Ministry of          •   Delivery priority
                       approximately     JSF international staff, including a      Defense JSF purposes:            based on level of
                       5 percent or      director          logistics manager       includes use for the             SDD contributions
                       $1.25 billion                       on the autonomic        performance of project       •   Waiver of all non-
                   •   Negotiated                          logistics integrated    activities under SDD             recurring research
                       contribution:                       product team            MOUs and future efforts          and development
                       $1.028 billion                                              by the Italian Ministry of       costs
                                                                                   Defense (either              •   Levies from sales
                                                                                   collaboratively,                 to nonpartners
                                                                                   nationally, or under U.S.        based on level of
                                                                                   foreign military sales           SDD contributions
                                                                                   arrangements) for the
                                                                                   design, development,
                                                                                   manufacture, operation,
                                                                                   and support of the JSF
                                                                                   CTOL and STOVL
                                                                                   variants

Netherlands        •   U.S. target:      Reports to the    Three integrated        CTOL purposes:               •   Delivery priority
                       approximately     JSF international staff                   includes use for the             based on level of
                       5 percent or      director                                  performance of project           SDD contributions
                       $1.25 billion                                               activities under SDD         •   Waiver of all non-
                   •   Negotiated                                                  MOUs and future efforts          recurring research
                       contribution:                                               by the Netherlands               and development
                       $800 million                                                (either collaboratively,         costs
                                                                                   nationally, or under U.S.    •   Levies from sales
                                                                                   foreign military sales           to nonpartners
                                                                                   arrangements) for the            based on level of
                                                                                   design, development,             SDD contributions
                                                                                   manufacture, operation,
                                                                                   and support of the JSF
                                                                                   CTOL and F-16 aircraft




                                        Page 31                                        GAO-03-775 Joint Strike Fighter Acquisition
                                           Appendix II: JSF International Participant
                                           Contributions and Benefits




                    Value of                National           JSF Program                                   Benefits during
                    contributions           deputy             Office staff         Data use rights          production
Level III Partner
Turkey              •   U.S. target:        Reports to the    One integrated        Project purposes:        •   Delivery priority
                        approximately       JSF international staff, who performs   includes use for the         based on level of
                        1-2 percent or      director          both national         performance of project       SDD contributions
                        $250-500 million                      deputy duties and     activities under SDD     •   Consideration for
                    •   Negotiated                            participates on the   MOUs                         waiver of all non-
                        contribution:                         C4I IPT                                            recurring research
                        $175 million                                                                             and development
                                                                                                                 costs
                                                                                                             •   Levies from sales
                                                                                                                 to nonpartners
                                                                                                                 based on level of
                                                                                                                 SDD contributions

Australia           •   U.S. target:        Same as above      One integrated      Same as above             Same as above
                        approximately                          staff, who performs
                        1-2 percent or                         both national
                        $250-500 million                       deputy duties and
                    •   Negotiated                             participates on the
                        contribution:                          C4I IPT
                        $150 million

Canada              •   U.S. target:        Same as above      One integrated      Same as above             Same as above
                        approximately                          staff, who performs
                        1-2 percent or                         both national
                        $250-500 million                       deputy duties and
                    •   Negotiated                             participates on the
                        contribution:                          C4I IPT
                        $150 million

Denmark             •   U.S. target:        Same as above      One integrated      Same as above             Same as above
                        approximately                          staff, who performs
                        1-2 percent or                         both national
                        $250-500 million                       deputy duties and
                    •   Negotiated                             participates on the
                        contribution:                          C4I IPT
                        $125 million

Norway              •   U.S. target:        Same as above      One integrated      Same as above             Same as above
                        approximately                          staff, who performs
                        1-2 percent or                         both national
                        $250-500 million                       deputy duties and
                    •   Negotiated                             participates on the
                        contribution:                          C4I IPT
                        $125 million




                                           Page 32                                      GAO-03-775 Joint Strike Fighter Acquisition
                                                           Appendix II: JSF International Participant
                                                           Contributions and Benefits




                               Value of                     National              JSF Program                                          Benefits during
                               contributions                deputy                Office staff           Data use rights               production
 Security
 Cooperation
 Participant
 Israel                        Approximately                None                  None                   •   Assessment of JSF’s       •   Opportunity to
                               $50 million spread                                                            ability to meet Israeli       request purchase
                               over two phases                                                               Ministry of Defense           of a version of the
                                                                                                             requirements                  JSF aircraft
                                                                                                         •   Studies on                •   Delivery priority
                                                                                                             incorporation of              based on level of
                                                                                                             unique Israeli                SDD contributions
                                                                                                             systems
                                                                                                         •   Program updates on
                                                                                                             the design,
                                                                                                             development, and
                                                                                                             qualification of the
                                                                                                             JSF aircraft

 Singapore                     Approximately                None                  None                   •   Assessment of JSF’s       •   Opportunity to
                               $50 million spread                                                            ability to meet the           request purchase
                               over two phases                                                               requirements of the           of a version of the
                                                                                                             Singapore Ministry of         JSF aircraft
                                                                                                             Defense                   •   Delivery priority
                                                                                                         •   Studies on                    based on level of
                                                                                                             incorporation of              SDD contributions
                                                                                                             unique requirements
                                                                                                             of the Singapore
                                                                                                             Ministry of Defense
                                                                                                         •   Program updates on
                                                                                                             the design,
                                                                                                             development, and
                                                                                                             qualification of the
                                                                                                             JSF aircraft

                                                           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.




                                                           Page 33                                            GAO-03-775 Joint Strike Fighter Acquisition
              Appendix III: Comments from the Department
Appendix III: Comments from the
              of Defense



Department of Defense




              Page 34                                      GAO-03-775 Joint Strike Fighter Acquisition
Appendix III: Comments from the Department
of Defense




Page 35                                      GAO-03-775 Joint Strike Fighter Acquisition
                            Appendix IV: Staff
Appendix IV: Staff Acknowledgments
                            Acknowledgments




                  Tom Denomme, Brian Mullins, Ron Schwenn, Anne Howe, Delores Cohen,
Acknowledgments   Karen Sloan, and Robert Ackley made key contributions to this report.




(120120)
                  Page 36                            GAO-03-775 Joint Strike Fighter Acquisition
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