oversight

T-45 Training System: Navy Should Reduce Risks Before Procuring More Aircraft

Published by the Government Accountability Office on 1990-12-14.

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

                                                                        T-45 TRAINING
                                                                        SYSTEM
                                                                        Navy Should Reduce
                                                                        Risks Before Procuring
                                                                        More Aircraft


                                                                                            II
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                                                                                                                                                                     1L’
National Security and
International Affairs   Division

B-240156

December 14, 1990

The Honorable Richard B. Cheney
The Secretary of Defense

Dear Mr. Secretary:

This report summarizes our review of the Navy’s acquisition of the T-45 Training System. We
found that the program faces significant cost, schedule, and performance risks. Although the
system has been in production for over 2 years, a stable aircraft design has not yet been
demonstrated in operational testing. Important cost and schedule issues also remain
unresolved.

The Congress recently declined to appropriate requested fiscal year 1991 funding for
procurement of another lot of production aircraft. This report recommends that you not
authorize the Navy to procure additional aircraft until sufficient testing is completed. We
also recommend that you direct the Navy to adjust the rate at which it plans to procure
simulators. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a
written statement on actions taken on these recommendations to the Senate Committee on
Governmental Affairs and the House Committee on Government Operations not later than 60
days after the date of the report and to the House and Senate Committees on Appropriations
with the agency’s first request for appropriations made more than 60 days after the date of
this report.

We are also sending copies of this report to the Secretary of the Navy.

Please contact me at (202) 275-6504 if you or your staff have any questions concerning this
report. Other major contributors are listed in appendix II.

Sincerely yours,




Martin M Ferber
Director, Navy Issues


Y
Executive Summary                                                                   I /


                   The T46A Goshawk aircraft is the major component of a $5.9-billion
Purpose            flight training system McDonnell Douglas Corporation is developing for
                   the Navy. After contracting for the first production lot of 12 aircraft
                   before development was complete, the Navy discovered during initial
                   flight tests in 1988 that the aircraft’s design was seriously flawed. The
                   Navy subsequently reported that resolving the aircraft’s deficiencies
                   would delay completion of the T-45 acquisition program by 2 years and,
                   with foreign currency fluctuations, would cost over $1 billion.

                   GAO initiated a review of the T-45 Training System to evaluate cost,
                   schedule, and performance risks and to assess whether an additional
                   production commitment in fiscal year 1991 is warranted.


                   In addition to 300 production aircraft plus 2 flight-test models, the T-45
Background         system is to include 32 flight simulators, instructional materials and
                   equipment, training integration systems, and logistics support. The
                   system’s aircraft, a derivative of the British Aerospace Hawk, will
                   replace the T-2 and TA-4 aircraft currently used for intermediate and
                   advanced jet flight training.

                   After initial testing revealed the aircraft’s design problems, the Office of
                   the Secretary of Defense (0s~) withheld fiscal year 1989 funds that had
                   been appropriated for aircraft. The Navy also canceled its funding
                   request for procurement of 24 additional aircraft in fiscal year 1990.
                   Operational test authorities in OSD and the Navy concluded that correc-
                   tion of the design flaws should be verified through testing before fur-
                   ther production was authorized. Before the corrections were made,
                   however, OSD released the fiscal year 1989 funds for the second produc-
                   tion lot. The Navy requested $306 million to procure a third lot of 12
                   aircraft, 5 simulators, and associated equipment in fiscal year 1991.


                   Cost, schedule, and performance risks are significant for the T-45 pro-
Results in Brief   gram. The Navy and OSD have instituted risk-reduction measures such as
                   slowing production but have continued concurrent development and
                   production. Those measures will do little to resolve many of the uncer-
                   tainties the program now faces. Some actions taken by the Navy and OSD
                   in restructuring the program have actually increased program risks.
                   Under the revised program, critical tests have been postponed and the
                   number of aircraft to be procured during the development phase has
                   increased.



                   Page 2                                      GAO/NSIAD-9146 T-46 Training System
        ,              Executive Summary




                       GAO believes that it would be prudent to resolve the program’s cost,
                       schedule, and performance problems before making any additional pro-
                       curement commitments,



GAO’s Analysis

Concurrent Schedule    Foremost among the risk elements in the acquisition strategy was con-
                       currency, a large overlap in aircraft development and production. The
                       Navy did not schedule flight testing before the first production commit-
                       ment, or schedule initial operational test and evaluation to be completed
                       until after commitments had been made for 20 percent (60 aircraft) of
                       the planned procurement.

                       After the extent of the aircraft’s design deficiencies became apparent in
                        1988, additional tests were postponed, development time and costs esca-
                       lated, and the program had to be restructured. Although the procure-
                       ment rate was slowed, the number of aircraft to be bought before
                       development and initial operational testing are completed was increased
                       to 24 percent (72 aircraft) of the planned procurement quantity.

                       Scheduled simulator deliveries are ahead of aircraft deliveries, and at
                       planned procurement rates, the imbalance will increase, at least into
                       fiscal year 1993. According to Navy officials, two simulators a year is
                       the minimum rate required to sustain production.


Performance Problems   The aircraft’s design has not yet been proven effective or suitable for its
                       mission. Correction of the deficiencies found in the 1988 tests entails
                       redesigning the aircraft’s wing, modifying the rudder, replacing the
                       engine, and making other changes.

                       Deficiency corrections are scheduled for testing before a decision is
                       made on the fiscal year 1991 procurement commitment. Tests involving
                       other critical issues (e.g., high angle-of-attack/spin testing), however,
                       have been postponed until after the decision points they originally were
                       scheduled to support.




                       Page 3                                     GAO/NSIAD-9143 T-45 Training System
                             Executive Summary                                                ‘




Undetermined Costs           The actual price the Navy ultimately will pay for T-45A aircraft already
                             under contract is not likely to be agreed upon before April 1991. More-
                             over, according to Navy officials, the contractor has filed an unsettled
                             $293-million claim for price and schedule adjustments under the fixed-
                             price development and initial production contract.


Effects of Deferring         The 12 aircraft in the 1991 budget request are not needed for the Navy
Procurement in Fiscal Year   to attain an initial operational capability and begin training pilots with
                             the T-46 system. According to the Navy, only 12 aircraft are needed to
1991                         achieve that milestone, and the service already has 36 aircraft under
                             contract.

                             Navy officials estimate that deferring the 1991 production commitment
                             will increase procurement costs by about $30 million. According to their
                             estimate, this increase will result if prices have to be renegotiated to
                             compensate the contractor for stretching the delivery schedule for air-
                             craft already under contract. However, the $30-million cost increase
                             estimated by the Navy is not a certainty, especially in light of the
                             evolving nature of the T-45 program.


Recent Congressional         Based largely on GAO'S view that additional commitment to production
Actions                      of this aircraft should be deferred until redesigned models successfully
                             complete certain critical tests that the Navy postponed until fiscal year
                             1992, the Committees on Armed Services and Appropriations cut $147.8
                             million from the Department of Defense’s T-45 request for fiscal year
                             1991.


                             GAO recommends that the Secretary of Defense withhold      authorization
Recommendations              for the Navy to proceed with procurement of any additional T-45A air-
                             craft until (1) operational testing demonstrates that the system can be
                             effective and suitable for its mission and (2) the Navy negotiates a
                             definitized contract price for the aircraft.

                             GAO also recommends that the Secretary of Defense direct the Secretary
                             of the Navy to procure only two simulators in fiscal year 1991.

            Y
                             The’Department of Defense partially concurred with GAO'S findings and
Agency Comments              recommendations. However, the Department expressed confidence that
                             corrections to aircraft deficiencies could be satisfactorily demonstrated


                             Page 4                                     GAO/NSIAD-91-46 T-U Training System
ExwutIve Summary




in operational testing by the spring of 1991. The Department’s detailed
comments are reprinted in appendix I.

GAO  does not believe that testing scheduled for completion in fiscal year
1991 can reduce technical risk sufficiently to warrant an additional
commitment to production. Important tests have been postponed until
1992 after the first aircraft incorporating all major aircraft corrections
is scheduled for delivery.




Page 5
Contents                                                                                       ,



Executive Summary                                                                                   2

Chapter 1                                                                                           8
Introduction           Program History                                                              9
                       Objectives, Scope, and Methodology                                          13

Chapter 2                                                                                          15
Acquisition Risks      Early Risk Assessment Based on Derivative Nature of                         15
                            Aircraft
                       Features That Increased Acquisition Risks                                   16
                       Technical Challenge Was Greater Than Estimated                              17
                       Navy and OSD Response to Program Problems                                   18
                       Restructured Program Postponed Testing and Increased                        19
                            Concurrency Risks
                       Revised Baseline Likely to Be Breached                                      21
                       Cost Risks Remain                                                           22
                       Low Technical Risks Have Not Been Demonstrated                              23

Chapter 3                                                                                          24
Effects of Deferring   Effect of the 1991 Production Lot on the Need for                           24
                            Replacement Aircraft
Fiscal Year 1991       Projected Cost Increase If 1991 Procurement Is Deferred                     25
Procurement            Simulator Procurement Exceeds Aircraft Procurement                          26

Chapter 4                                                                                          27
Conclusions,           Recommendations                                                             29
                       Related Congressional Actions                                               29
Recommendations,       Agency Comments                                                             29
and Agency Comments
Appendixes             Appendix I: Comments From the Department of Defense                         32
                       Appendix II: Major Contributors to This Report                              48

Figure                 Figure 1.1: The Navy’s T-45A Advanced Jet Trainer                            9




                       Page 6                                   GAO/NSIAD-91-46 T-45 Training System
I   Contents




    Abbreviations

    DAB        Defense Acquisition Board
    DOD        Department of Defense
    GAO        General Accounting Office
    Ioc        Initial Operational Capability
    LRIP       Low-Rate Initial Production
    OSD        Office of the Secretary of Defense


    Page 7                                     GAO/NSIAD-91-46 T-46 Trainhg System
Chapter 1

Introduction


               The T-45 Training System is designed to provide undergraduate jet pilot
               training for prospective Navy and Marine Corps aviators, plus a selected
               number of international students, in the 1990s and beyond. The Navy is’
               procuring the $5.9-billion system from McDonnell Douglas Corporation.
               The system includes 300 aircraft, plus 2 research and development
               models for flight tests, 32 flight simulators, instructional materials and
               equipment, training integration systems, and logistics support. Major
               subcontractors are British Aerospace (airframe), Rolls-Royce (engine),
               and Hughes Simulation Systems (simulators).

               The system’s key component is the T-45A Goshawk aircraft, a deriva-
               tive of the British Aerospace Hawk, which is being adapted for carrier
               operations. The T-45A Goshawk will replace the T-2 and TA-4 aircraft
               the Navy presently uses for intermediate and advanced flight training.

               The Navy has already contracted for 36 T-45A aircraft (plus the 2
               flight-test aircraft) and 8 simulators. It requested $306 million in fiscal
               year 1991 for procurement of 12 more aircraft, 5 more simulators, and
               related equipment.




               Page 8                                      GAO/NSlAD-91-46 T-45 Training System
                                           Chapter 1
                                           Introduction




Figure 1.1: The Navy’s T-45A Advanced Jet Trainer




                                           Source: McDonnell Douglas Corporation



                                           In October 1984, the Navy awarded a firm fixed-price contract to
Program History                            Douglas Aircraft Company, a component of McDonnell Douglas Corpora-
                                           tion, for full-scale development of the T-45 system. The contract was
                                           definitized in May 1986 at a price of $511.9 million. It included (1)
                                           delivery of two research and development aircraft for flight tests and
                                           (2) three sequential options for low-rate initial production (LRIP) for a
                                           total of 60 aircraft and associated equipment, at not-to-exceed prices.
                                           These options included expiration dates that were originally expected to
                                           correspond to scheduled events, but expiration would occur even if the
                                           contractor was not achieving the scheduled degree of progress.

                                           The three LRIP options included (1) 12 aircraft in fiscal year 1988, (2) 24
                                           aircraft in 1989, and (3) 24 aircraft in 1990. Full-rate production of 48
                                           aircraft a year was scheduled to begin in 1991. The Navy exercised the
                                           first of the LRIP options in fiscal year 1988, contracting for the 12 air-
                                           craft, plus 2 simulators, a training integration system, and total logistics
                                           support at a firm fixed-price of $429.4 million.


                                           Page 9                                      GAO/NSIAD-91-46 T-Q6Training System
                                Chapter 1
                                rlmoduction




                                In November 1988, nearly a year after that initial production commit-
                                ment, the program suffered a major setback when the Navy conducted
                                its first flight tests. Until that time, according to an official in the Office
                                of the Secretary of Defense (OSD), the T-46 program had been proceeding
                                smoothly and was considered one of the best defense acquisition pro-
                                grams. That situation changed abruptly, however, after the November
                                1088 tests.


Initial Navy Flight Tests       The Naval Air Test Center conducted its first development testing and
                                reported 24 deficiencies which adversely affected either the aircraft’s
                                safety of flight or mission capability, as well as numerous lesser defi-
                                ciencies. The Center concluded that although the aircraft had demon-
                                strated limited potential for its mission, it would be satisfactory after
                                the Navy corrected the 24 deficiencies.

                                The Navy’s Operational Test and Evaluation Force found that the air-
                                craft in the configuration tested (1) was potentially effective in a non-
                                carrier environment, (2) was not effective in a carrier environment, and
                                (3) was not operationally suitable because of safety deficiencies. It con-
                                cluded that these findings did not support a recommendation for limited
                                production until correction of the aircraft’s deficiencies had been veri-
                                fied by additional operational testing. No additional operational testing
                                of the aircraft is scheduled until late 1990. The Navy has categorized
                                what it calls the “Big Five” problem areas revealed during the tests as:

                            9 longitudinal control system,
                            . aircraft performance (engine),
                            l directional/lateral stability,
                            . stall performance, and
                            l abrupt pitch change with speedbrake operation.


Funding Withheld                After the tests, OSD prohibited the Navy from obligating fiscal year 1989
                                procurement funds for the second production lot of 24 aircraft. The
                                Navy also canceled the fiscal year 1990 budget request to fund 24 addi-
                                tional aircraft in the third production lot.

                                The Director of Operational Test and Evaluation in the Department of
                                Defense (DOD) concluded that operational testing of corrections to the
                                major deficiencies should be completed before the Defense Acquisition
                                Board (DAB) considered releasing the withheld 1989 funds. The second



                                Page 10                                       GAO/NSIAD9146   T-46 Training System
                  Chapter 1
                  Introduction




                  and third production options in the development contract expired before
                  the corrections were made.


Baseline Breach   In 1987, OSDdesignated the T-45 as one of 10 Defense Enterprise Pro-
                  grams under an initiative enacted by the Congress to increase manage-
                  ment efficiency for model acquisition programs. Defense Enterprise
                  Programs must adhere to baselines which OSDis statutorily required to
                  submit to the Congress. The T-45 program breached its baseline after
                  the problems revealed in the November 1988 tests caused the schedule
                  to slip and costs to increase. An adverse change in the foreign exchange
                  rate also contributed to the cost increase.

                  The Navy initially estimated that the aircraft’s problems would cause
                  only a 5- to 8-month schedule slip. However, in December 1989, the
                  Navy reported to the DAB that resolving the aircraft’s deficiencies would
                  delay program completion by 2 years and, with foreign currency fluctu-
                  ations, would add more than $1.04 billion in costs.

                  In May 1989, less than 2 months after notifying OSDof the baseline
                  breach, the Navy requested approval of a restructured program to
                  include (1) canceling the 1990 production lot and placing the fiscal year
                  1989 production lot of 24 aircraft on contract, effectively keeping the
                  annual production rate at 12 aircraft through fiscal year 1990, and (2)
                  escalating to a rate of 24 aircraft in 1991 and to the full production rate
                  of 48 in 1992. OSDdenied the Navy’s request, refusing to restructure the
                  program until it had been reviewed by the Conventional Systems Com-
                  mittee and the DAB.

                  The Navy changed its position in July 1989, reporting to OSDthat it was
                  “premature to baseline the T-45A at this time due to technical uncer-
                  tainties.” The Navy recommended that the Conventional Systems Com-
                  mittee’s review, tentatively scheduled for August 1989, be postponed
                  until November 1989.

                  Only 4 days later, however, the Navy informed OSDthat the contractor
                  was considering stopping work on the fiscal year 1989 production lot.
                  The Navy explained that Douglas Aircraft had already expended about
                  $28 million in advance procurement funds and, therefore, had been pro-
                  ceeding at its own financial risk since early in fiscal year 1989. The
                  Navy reported that in view of the Douglas Aircraft liabilities to contrac-
                  tors that would accrue by the time the DAB met late in calendar year
                  1989 to consider release of additional funding, the company had


                  Page 11                                     GAO/NSLAD-91-46 T-46 Training System
                        Chapter 1
                        Introduction




                        directed its subcontractors to estimate the cost of stopping work until
                        January 1990.

                        The Navy concluded that the production break would be a “major dis-
                        ruption,” increasing costs by about $30 million and causing a 6-month
                        slip in the program. To avoid this disruption, the Navy requested that
                        $72 million of the deferred fiscal year 1989 procurement funds be
                        released, even before the Conventional Systems Committee and DAB
                        reviews. OSDreleased the $72 million.


Contract Modification   In an August 1989 contract modification that obligated the $72 million,
                        the Navy and the contractor agreed on a not-to-exceed price of $557 mil-
                        lion for the second production lot, which included 24 aircraft and 6 sim-
                        ulators. Although all of the aircraft were to be financed with fiscal year
                        1989 funds, other system costs were designated as fiscal year 1990 pro-
                        curement. This action effectively continued production at the rate of 12
                        aircraft a year through 1990.

                        The contract modification did not resolve the issue of liability for
                        replacing the aircraft engine. It merely acknowledged that the Navy and
                        the contractor disagreed about (1) whether the original engine met per-
                        formance specifications and (2) the extent to which the government par-
                        ticipated in selection of the engine. The modification also stipulated that
                        the not-to-exceed price for the second production lot of 24 aircraft
                        excluded recurring costs associated with three other deficiency correc-
                        tions then under consideration: a new wing, relocated speed brakes, and
                        a powered rudder.

                        In commenting on a draft of this report, DOD said a revised aircraft
                        design was approved after our field work ended which incorporates
                        only one of the three modifications excluded from the not-to-exceed
                        price: the new wing. The revised design includes modification of the
                        speed brakes and rudder but does not include relocation of the speed
                        brakes and a powered rudder-both     of which an independent assess-
                        ment team employed by the Navy said were needed for “robust” solu-
                        tions to the aircraft’s problems.

                        The target date for definitizing the contract modification covering the
                        1989/1990 production lot was July 30, 1990. However, that date was
                        predicated on the contractor submitting cost and pricing data to the
                        Navy in December 1989. Navy officials said they did not receive the cost



                        Page 12                                    GAO/NSIAD-91-49 T-45 Training System
                        Chapter 1
                        Introduction




                        and pricing data until September 1990 and, therefore, will not be able to
                        definitize the contract until April 1991,


DAB Review and          The DAB convened to consider release of the fiscal year 1989 procure-
Subsequent Program      ment funds before the aircraft’s deficiencies were corrected-contrary
                        to the previously reported positions of operational test and evaluation
Changes                 authorities. In December 1989, following the Conventional Systems
                        Committee’s review, the DAB approved (1) proposed corrections to the
                        aircraft’s deficiencies, (2) proposed restructuring of the program base-
                        line, and (3) release of the remaining fiscal year 1989 procurement
                        funds, including advance procurement funds for the fiscal year 1991
                        production lot.

                        Less than a month after the DAB'S decision, however, the revised
                        schedule became obsolete when the contractor formally notified the
                        Navy that responsibility for the T-45 contract would be transferred
                        from Douglas Aircraft Company to McDonnell Aircraft Company.
                        According to program officials, this change (1) required that scheduled
                        aircraft deliveries be delayed to accommodate the relocation of
                        assembly operations from the Douglas facilities in California to the
                        McDonnell Aircraft facilities in St. Louis, but also (2) reduced the costs
                        of retrofitting new wings on delivered aircraft. The schedule that has
                        been adopted since the McDonnell Douglas announcement calls for the
                        first two aircraft to be delivered in October and December 1990, respec-
                        tively, with no additional deliveries until January 1992. The first air-
                        craft fitted with wings of the new design is scheduled for delivery in
                        January 1992.

                        Under the restructured program, the DAB established June 1991 as the
                        target date for the system’s initial operational capability (lot)-that is,
                        the point at which the first training unit was to be equipped and capable
                        of effectively employing the system. Under the schedule adopted since
                        the DAR met, IOCwill slip to November 1992, according to Navy officials.


                        Our objectives were to evaluate cost, schedule, and performance risks
Objectives, Scope,and   and to assess whether additional production is warranted in fiscal year
Methodology             1991. Our review included all system components, but our emphasis was
           1            on the T-45A Goshawk aircraft.

                        We did not assess the validity of the Navy’s requirement for the T-45
                        system, because the Naval Audit Service is conducting a review. We did


                        Page 13                                    GAO/NSIAD-91-46 T-45 Training System
Chapter 1
Introduction




discuss the Navy’s training requirements and the general condition of
existing trainer aircraft with officials in the Navy’s Air Training Com-
mand and Air Systems Command.

We reviewed program documents and related materials, and interviewed
OSD, Navy, and contractor officials in Washington, D.C., including the
T-45 program office; the Navy training and testing commands in Corpus
Christi, Texas; Patuxent River, Maryland; and Norfolk, Virginia; and the
Douglas Aircraft Company in Long Beach and Palmdale, California, and
Hughes Simulation Systems, Inc., in Herndon, Virginia.

Our purpose was to determine both the background and the current
status of the program. We compared the program’s acquisition strategy
with DOD policy, compared earlier schedules and test plans with revised
schedules and a March 1990 draft of the program’s revised test plan,
and identified and assessed program risks.

We performed our review between August 1989 and September 1990 in
accordance with generally accepted government auditing standards.

DOD  provided us with comments on a draft of this report which are
reprinted in appendix I. As a result of the comments, we have made
changes in the text of the report to improve accuracy, clarity, and time-
liness. A residual point of contention is addressed in chapter 4.




Page 14                                    GAO/NSLAD-91-46 T-46 Training System
Chapter 2

Akquisition Ride


                        At the outset of development, the Navy adopted a T-46 acquisition
                        strategy which reflected what proved to be an overly optimistic assess-
                        ment of risk. As prescribed by DOD policy, the Navy tailored the strategy
                        to the program’s unique circumstances. These circumstances included
                        (1) technical risks that were assessed as only low to moderate and (2) a
                        stated requirement to have the system operational no later than fiscal
                        year 199 1. Reflecting those views, the T-45 strategy offered opportuni-
                        ties to reduce development time and costs but deemphasized safeguards
                        against technical uncertainties. If development of the derivative aircraft
                        went smoothly, production and deployment of the system would be
                        expedited. If major technical problems surfaced, development time and
                        costs were almost certain to escalate.

                        Adapting the Hawk design to the T-45 mission proved more challenging
                        than either the Navy or the contractor envisioned. Major design flaws
                        became apparent when the Navy conducted its initial tests, about a year
                        after production was first authorized. The aircraft deficiencies the Navy
                        found during those tests led to disrupted schedules, increased costs, and
                        the 1989 breach of the program’s baseline.

                        The Navy and OSD responded to the program’s problems by instituting a
                        number of measures intended to reduce risks. By themselves, however,
                        those measures will not reduce all of the risks that have evolved since
                        the aircraft’s deficiencies became apparent. Moreover, recent restruc-
                        turing of the program has heightened risks by postponing key tests and
                        increasing the number of aircraft to be bought before development is
                        completed and before operational testing has demonstrated that a pro-
                        duction representative model of the aircraft is effective and suitable for
                        its mission.


                        The key to the T-45 program is successfully adapting the Hawk design
Early Risk Assessment   to provide the carrier-capable aircraft needed for the Navy’s training
Based on Derivative     mission. Success with such adaptations has proven elusive in the era of
Nature of Aircraft      modern jet aircraft. Nevertheless, the Navy was confident early in the
                        program that developing a derivative of the British Aerospace Hawk
                        would be a straightforward task with less technical risk than would be
                        encountered in developing a completely new aircraft.

                        A report by DoD’S Product Engineering Services Office challenged the
                        Navy’s assessment, even before full-scale development began. The Sep-
                        tember 1984 report acknowledged that “on the surface, the [T-45] pro-
                        gram may appear to be low risk....” However, the report cited the major


                        Page 15                                    GAO/NSL4D914   T-45 Training System
                           Chapter 2
                           Acquisition Risks




                           changes that would be required to adapt the Hawk design for carrier
                           operations and concluded: “This redesign effort is certainly no minimal
                           task and may in fact be more complex than designing from scratch.” The
                           report also concluded that “cost, schedule, and performance all have to
                           be considered high risk when making a decision whether or not to pro-
                           ceed” into full-scale development.


Difficulty of Adapting     We recently reported that studies have shown the difficulty of accom-
Land-Based Aircraft to     modating Navy missions and carrier-basing with an airframe originally
                           designed for Air Force missions and land-basing.1 The Navy and Air
Carrier Roles              Force have successfully shared aircraft components, and they have had
                           limited success with common aircraft initially designed for carrier oper-
                           ations. Since World War II, no U.S. fighter or attack aircraft bought by
                           both of the services has been initially developed to operate from land
                           bases and then been successfully adapted to operate from carriers.

                           The problem is that aircraft which fly on and off of carriers have spe-
                           cial design requirements. They must be equipped with tail hooks and
                           with reinforced structures to withstand the stresses of catapult takeoffs
                           and arrested landings, both of which add weight and alter aerodynamic
                           qualities when retrofitted onto land-based aircraft. Aircraft that land on
                           carriers also must be capable of slower approach speeds, as well as more
                           precise flight control during approaches. This is especially critical when,
                           as in the case of the T-45A, the aircraft will be piloted by student avia-
                           tors making their first landings on the pitching and rolling deck of a
                           carrier.


                           The T-45 acquisition strategy adopted in 1984 included a number of fea-
Features That              tures that could have reduced development costs and expedited produc-
Increased Acquisition      tion. However, these features also increased the risk that problems
Risks                      would develop and compound if adapting the Hawk design proved to be
                           more difficult than estimated. Features that made the strategy a greater
                           risk were:

                         . A firm fixed-price development contract: this type of contract is suited
                           to acquisition of commercial products whose uncertainties and costs can
                           be identified but is inappropriate for risky development efforts.


                           ‘Aircraft Development: Navy’s Participation in Air Force’s Advanced Tactical Fighter Program
                           (GAO/NSIAD-90-54, Mar. 7, 1990).



                           Page 16                                                  GAO/NSL4D-91-46 T-6 Training System
                          Chapter 2
                          Acquisition Ricks




                      l A scaled-down development program: funding development at well
                        below original cost estimates of about $810 million caused, among other
                        reductions, a 212-hour (34 percent) cut in the contractor’s flight-test
                        hours with an “increased reliance on existing Hawk test data” and a
                        $29.5-million (60 percent) cut in the Navy’s in-house management of the
                        program.
                      l Time-based production options: option periods specified in the contract
                        were not directly related to the system’s maturity, the contractor’s per-
                        formance, or test results that demonstrated the system was ready for
                        production.
                      . A high degree of concurrent production: the large overlap in develop-
                        ment and production schedules, called concurrency, precluded Navy
                        flight tests before the first production commitment and deferred comple-
                        tion of operational testing until after commitments had been made for
                        20 percent of the aircraft procurement quantity.


                          The Navy’s initial tests in 1988 revealed that adapting the Hawk design
Technical Challenge       to the T-45 mission was more technically challenging than had been esti-
Was Greater Than          mated. The aircraft the contractor delivered to the Navy for testing
Estimated                 proved to be ineffective and unsafe for training student aviators in a
                          carrier environment. The engine lacked thrust and responsiveness, and
                          the aircraft lacked the lateral and longitudinal stability needed for car-
                          rier operations. Major design changes needed to correct the deficiencies
                          included a more powerful and responsive engine, new wings with move-
                          able leading edges, a modified rudder, and other changes to improve
                          stability.

                          By this time, however, the Navy had already contracted to produce the
                          aircraft and was approaching the deadline for exercising the second pro-
                          duction option with the not-to-exceed prices that had been a key part of
                          the development contract. Since the option was not contingent on accom-
                          plishment of required testing, the Navy could not unilaterally extend
                          either the deadline or the not-to-exceed prices.

                          Ultimately, the second and third production options lapsed because of
                          the deficiencies revealed in the 1988 tests. The program manager at the
                          time summarized his views on the cause and effect of the Navy’s
                          situation:

                          “...while the government had some leverage, the program office strongly pressed for
                          tying the option exercise dates to accomplishment of the required testing and acqui-
                          sition approval...[but was] overruled on the rationale that if the contractor fell



                          Page 17                                          GAO/NSIAD-9146 T-46 Training System
                     Chapter 2
                     Acquisition Risks




                     behind it was possible to negotiate an extension.... With respect to the...[second] pro-
                     duction lot, the contractor has fallen behind, a DAB decision has not been possible,
                     and the option date has passed without being exercised. We havext        certainty of
                     price and schedule protection and we do not have significant leverage to regain it.”


                     The Navy and OSD faced a dilemma after it became apparent that the
Navy and OSD         T-46 program had gone into low-rate production with an ineffective and
Responseto Program   unsuitable design. The choice was whether to halt or to continue produc-
Problems             tion commitments while attempting to achieve a stable design. OSD
                     briefly elected the former option by withholding fiscal year 1989 pro-
                     curement funds and canceling the fiscal year 1990 budget request. Ulti-
                     mately, however, the Navy and OSDresponded to the contractor’s “stop-
                     work assessment” by electing to proceed with an additional production
                     commitment, as discussed in chapter 1.

                     In pursuing this course, the Navy and OSDtook a number of actions
                     intended to reduce risks. The Navy brought in an independent team to
                     assess the design changes needed to correct the aircraft’s deficiencies. It
                     slowed the procurement rate, opting to contract for only 12 aircraft a
                     year through fiscal year 199 1.

                     The DAB, chaired by the Under Secretary of Defense for Acquisition,
                     attached risk-reduction conditions to its release of regular procurement
                     funds for the fiscal years 1989/1990 production lot and long-lead funds
                     for the 1991 production lot. The DAB directed that the Navy obligate the
                     funds only in increments based on validation of the design corrections.
                     The DAB also directed that before regular procurement funds are
                     released for the 1991 production lot the Navy must have (1) demon-
                     strated through development testing and operational testing that the
                     aircraft’s deficiencies have been corrected, (2) obtained recommenda-
                     tions from the test agencies to proceed, and (3) installed a ground-
                     training system at the first base scheduled to receive T-45 aircraft. In
                     commenting on a draft of this report, DOD officials told us that the DAB
                     “authorized the 1991 long lead funds with the stipulation that the Navy
                     base the subsequent release of these funds to the contractor on vali-
                     dated long lead items...and to date [September 28, 19901 has not released
                     any of these funds to the prime contractor.”




                     Page 18                                            GAO/NSIAD-91-46 T-45 Training System
                        Chapter 2
                        Acquisition Risks




                        Probably the greatest risk in the T-45 acquisition strategy was the high
Restructured Program    degree of concurrency that allowed no opportunity for operational
Postponed Testing and   testing before the first production commitment. Recent program changes
Increased Concurrency   made by the Navy and OSDhave increased that risk by (1) postponing
                        tests that were to have supported additional production commitments
Risks                   and (2) increasing the number of aircraft to be produced before develop-
                        ment and operational testing are completed.

                        Concurrency can be an effective technique for expediting acquisition
                        programs. The practice also increases the risk that systems will be pro-
                        duced and deployed with design flaws that make them incapable of
                        accomplishing their missions. Safeguards should be built into concurrent
                        programs to compensate for these additional risks. We have reported
                        that an especially important safeguard for concurrent programs is at
                        least one phase of operational test and evaluation before the initial pro-
                        duction commitment2 This position is consistent with Navy policy,
                        which requires that for all programs at least one phase of operational
                        testing be completed before a decision is made to commit procurement
                        funds for production start-up.

                        In restructuring the program since the aircraft’s initial test failures, the
                        Navy and OSDincreased the level of concurrency by postponing impor-
                        tant tests. In our 1985 report, we emphasized that the degree of concur-
                        rency in an acquisition program should be planned, not dictated by
                        uncontrolled or unforeseen circumstances. This means that delays in
                        scheduled tests should be accompanied by corresponding delays in pro-
                        duction commitments.

                        In the T-45 program, initial test failures caused both production commit-
                        ments and subsequent tests to be delayed-but not to the same degree.
                        The commitment for the second production lot of 24 aircraft was made
                        without successful completion of the 1988 test objectives, as previously
                        planned. As now scheduled, the decision to contract for the 1991 pro-
                        duction lot of 12 additional aircraft will also be made before tests that
                        were to have been conducted in support of this decision.

                        The DAB-imposed requirement that testing verify the success of planned
                        deficiency corrections before proceeding with the 1991 production lot
                        does little to reduce technical risks. Even if that testing is successful, the

                        ‘Production of Some Major Weapon Systems Began With Only Limited Operational Test and Evalua-
                        tion Results (GAO/NmD _86 -68 , June 19,1986); Weapons Testing: DOD Needs to Plan and Conduct
                        More Timely Operational Tests and Evaluation (GAO/NSIAD -90- 107, May 17,199O).



                        Page 19                                               GAO/NSIAD-91-46 T-46 Training System
                         Chapter 2
                         Acquidtion Risks




                         program essentially will be only at the point on the test schedule that it
                         was supposed to have been in 1988. Successful completion of the 1988
                         test objectives-which is, in effect, what the DAB decision requires-was
                         to support the decision to increase production commitments from 12 to
                         36 aircraft. However, that decision was made in 1989 despite the air-
                         craft’s poor performance in initial tests and the subsequent delay of
                         follow-up tests.

                         The 1988 schedule called for operational tests of the aircraft’s carrier
                         suitability and other critical issues before deciding to produce more than
                         36 aircraft, Under a March 1990 draft of the program’s revised test and
                         evaluation master plan, all of those operational tests have been post-
                         poned until after commitments will have been made for 48 aircraft. Sim-
                         ilar or longer postponements also have been scheduled for development
                         tests involving initial sea trials, high angle of attack/spin testing and
                         other important technical issues.

                         Under earlier program schedules, production commitments were
                         planned for 60 LRIP aircraft (20 percent of the planned procurement
                         quantity) during the development phase before all initial operational
                         test phases were completed. Under the revised schedule, commitments
                         will be made to produce 72 LRIP aircraft (24 percent) before develop-
                         ment and initial operational test and evaluation are completed.


Difference in OSDand     In April 1990, the Under Secretary of Defense for Acquisition provided
GAO Assessmentsof T-45   congressional committees a report on concurrency in major defense
                         acquisition programs. The report, required by the National Defense
Concurrency              Authorization Act for fiscal years 1990 and 1991, categorized the T-45
                         program as having only a moderate degree of concurrency. The report
                         defined “moderate” and “high” degrees of concurrency as follows.

                         “A program with moderate conctirrency proceeds into LRIP with only part of early
                         [initial operational test and evaluation] completed to support that decision.

                         “A program with high concurrency typically proceeds into LRIP before significant
                         [initial operational test and evaluation] is completed.”

                         Under those definitions, we believe the T-45 program clearly has a high
                         degree of concurrency, since the program proceeded into LRIP before any
                         initial operational test and evaluation was completed. The difference in
                         the OSD and GAO assessments is at least partially attributable to disagree-
                         ment over the point at which the program entered, or will enter, LRIP.


                         Page 20                                         GAO/NSIAD-9143 T-45 Training System
                               Chapter 2
                               Acquisition Risks




                               According to an OSDofficial, the assessment in the Under Secretary’s
                               report was based on information provided by the Navy which indicated
                               that LRIP has not yet begun, Actually, however, the program entered LRIP
                               with the first production authorization in November 1987. In com-
                               menting on a draft of our report, DOD said the categorization of moderate
                               concurrency for the T-45 program “was derived as the percentage of
                               procurement funds committed before the end of operational test and
                               evaluation, relative to the total procurement of the program....” That,
                               however, was not a definition the Under Secretary’s report cited as the
                               basis for assessing degrees of concurrency.


                      The DAB approved a new program baseline at the same December 1989
Revised Baseline      meeting that released funds for additional T-45 procurement. A new
Likely to Be Breached base1.
                           me was required by the statute on Defense Enterprise Programs.
                               Several months were required for preparation and review of the new
                               baseline, which was submitted to the Congress on May 1, 1990. How-
                               ever, events which occurred in the interim make it likely that the new
                               Defense Enterprise baseline will also be breached.

                               Within days of the DAB'S December 1989 meeting, Navy officials said
                               McDonnell Douglas representatives informed them of the company’s
                               decision to relocate aircraft assembly operations to St. Louis, Missouri.
                               According to Navy officials, the company will suspend deliveries from
                               December 1990 until January 1992, when aircraft can be delivered with
                               the new, redesigned wings, The resulting delivery break means that the
                               program will not be able to meet the schedule approved by the DAB. It
                               also means, according to Navy officials, that the program will breach the
                               baseline submitted to the Congress in May 1990. In the revised baseline,
                               the IOC target date was reported as June 1991, but with the delayed
                               deliveries, the Navy does not now expect to reach the IOC milestone until
                               November 1992.

                               According to Navy officials, the decision by McDonnell Douglas to sus-
                               pend deliveries will reduce the level of concurrency by allowing the con-
                               tractor extra time to develop and install corrections. They pointed out
                               that, with the delay, fewer aircraft will be delivered with known defi-
                               ciencies which require corrections to be retrofitted. For example, under
                               the revised schedule only the first two aircraft will require the new
                               wings to be retrofitted after assembly, versus the first 19 aircraft under
                               the former schedule.




                               Page 21                                    GAO/NSLAD-914   T-45 Training System
                        Chapter 2
                        Acqukdtlon Risks




                        We agree that the suspended delivery schedule has the potential to
                        reduce retrofitting requirements, but we disagree that it will have a sig-
                        nificant effect on reducing concurrency. The Navy still plans to buy 72
                        aircraft before development and testing are completed.


Additional Delays Are   Additional delays can be expected if problems develop with either the
Possible                planned corrections or the performance areas that have yet to be tested.
                        Up to a 2-year delay has been projected by the Navy, for example, if
                        even one of the planned wing, rudder, or speed-brake corrections proves
                        inadequate. The Conventional Systems Committee also reported in
                        December 1989 that high angle-of-attack/spin testing, then scheduled
                        for 1991, “has the potential of discovering unexpected deficiencies
                        which could cause further delays in the program.” This testing has since
                        been postponed until April 1992.


                        Cost risks will not be substantially reduced by the DAR'S proviso that the
Cost Risks Remain       Navy obligate the remaining funds in increments based on successful
                        validation of the fixes to be demonstrated at the next phase of develop-
                        ment and operational testing. In January 1990, the Navy obligated $60
                        million in 1989 procurement funds as the first increment under the DAB'S
                        guidelines, and Navy officials said they obligated a second increment of
                        $33 million in August 1990. These obligations were made before a pro-
                        duction version of the new wing was available and before any of the
                        planned corrections had been operationally tested.

                        Moreover, validating the corrections, as prescribed by the DAB, will not
                        resolve a major cost uncertainty: liability for correcting the aircraft’s
                        deficiencies. This liability includes costs associated with developing and
                        testing the corrections, plus costs related to the schedule disruption
                        caused by the deficiencies. Recurring costs of the new wing on aircraft
                        already under contract, as well as those yet to be bought, also remain
                        undetermined.

                        Navy officials contend that the added development and schedule costs
                        are the contractor’s responsibility under the fixed price established by
                        the development contract. However, the Conventional Systems Com-
                        mittee reported in December 1989 that there was a strong possibility the
                        contractor would attempt to recover costs through “either claims or the
                        courts.” In January 1990, the contractor gave the Navy written notifica-
                        tion that the company (1) considers the original aircraft design com-
                        pliant with the contract, (2) considers changes to that design beyond the


                        Page 22                                    GAO/NSLAD-91-46 T-46 Training System
                     Chapter 2
                     Acquisition W&e




                     scope of the contract, and (3) is in the process of preparing a proposal
                     for an “equitable price and/or schedule adjustment.” In discussing a
                     draft of our report, Navy officials said that in August 1990 they
                     received the contractor’s claim for $293 million in price and schedule
                     adjustments under the fixed-price development and initial production
                     contract. The recurring costs of the installed corrections, and the price
                     the Navy pays per aircraft, will not be known until (1) the contract mod-
                     ification for the fiscal year 1989 production lot is definitized and (2)
                     prices are negotiated under a new contract for subsequent production
                     lots. Program officials said the Navy expects to definitize the 1989 con-
                     tract modification in April 1991.


                     The DAB reported that its support for maintaining production under the
bw Technical Risks   restructured program was based, in part, on the belief that technical
Have Not Been        risks were low. However, DOD'S acquisition policy is to advance pro-
Demonstrated         grams on the basis of demonstrated performance.

                     Low technical risks for the T-45 program have not been demonstrated.
                     To the contrary, the only phase of operational flight testing yet com-
                     pleted demonstrated that the Navy’s earlier assessment of “low to mod-
                     erate” technical risk was overly optimistic.

                     The Navy emphasized that it considers all of the aircraft’s known defi-
                     ciencies to be correctable with existing technology. However, not all of
                     the corrections have been completed, let alone subjected to operational
                     testing as an integrated system. Even components that have been tested
                     in isolation or that have been effective in other applications can fail to
                     perform adequately when integrated into a new system.

                     Moreover, the aircraft’s technical risks are not limited to correction of
                     the deficiencies revealed during the brief development and operational
                     tests conducted in 1988. Postponed tests related to high angle of attack,
                     sea trials, weapons delivery, carrier suitability, and other critical opera-
                     tional issues involve some risks. Those risks may be low, as the DAB
                     reported, but the Navy has no operational test results to support that
                     assessment.




                     Page 23                                     GAO/NSIAD-914   T-46 Training System



                                          /
Chapter 3

Effects of Deferring F’iscalYear
1991 Procurement

                        The DAB cited three reasons for its decision to release advance procure-
                        ment funds for the 1991 production lot: (1) the Navy’s and Joint Staff’s
                        reaffirmation of an urgent need to replace the T-2 and TA-4 trainer air-
                        craft currently in service, (2) the consensus that teChnica risks were
                        low, and (3) the Navy’s projected cost increase of $55 million if long-lead
                        funds were withheld.

                        The second of those reasons, technical risk, was discussed in chapter 2.
                        This chapter will address the other two justifications offered by the
                        DAD-that is, the need for the 12 aircraft in the 1991 production lot and
                        the projected cost increase of deferring their production.


                        Our review did not include an assessment of the Navy’s requirement for
Effect of the 1991      T-45A aircraft. We did, however, discuss with Navy officials their
Production Lot on the   training requirements and the general status of training aircraft cur-
Need for Replacement    rently in the inventory. Based on those discussions and our review of
                        other program elements, we believe certain facts regarding the 1991
Aircraft                production lot are pertinent to the need for replacement aircraft,

                        First, according to the Navy, only 12 aircraft (plus associated systems)
                        are needed to equip the first training unit and attain IOC. The Navy
                        already has contracted for three times the number of aircraft needed to
                        achieve that milestone. Delivery of the 12 aircraft needed for IOC will be
                        unaffected by either making or foregoing an additional production com-
                        mitment in 1991.

                        Second, estimates of the urgency to replace T-2 and TA-4 aircraft have
                        fluctuated. In 1975, the Navy reported a need to replace those aircraft
                        by 1985. At the outset of full-scale development, the Navy reported that
                        the T-45 system had to be operational no later than fiscal year 199 1.
                        More recently, officials at the Air Training Command said that their
                        training requirement and the condition of existing aircraft dictate that
                        the Command begin receiving the T-45 system in 1994. The 36 aircraft
                        already under contract are scheduled for delivery between October 1990
                        and November 1993.

                        Third, the Navy’s Air Training Command has stated that its requirement
                        can be met only by replacement aircraft that are fully carrier-capable
                        and in the final configuration to train students. Proceeding with the
                        planned 1991 production commitment before a stable design has been
                        demonstrated increases the possibility that aircraft coming off the



                        Page 24                                    GAO/NSIAD-9146 T-46 Training System
                   chapter a
                   Eff’ecta of Deferring Fiscal Year
                   1991 Procurement




                   assembly line will not be carrier-capable or will have to be retrofitted to
                   their final design configuration.


                   A large part of the $55-million projected cost increase cited by the DAB is
Projected Cost     no longer a consideration. A key element in the Navy’s computation was
Increase If 1991   the assumption that deliveries of both the fiscal year 1988 and the fiscal
Procurement Is     year 1989/1990 production lots would have to be stretched to compen-
                   sate for deferred 1991 procurement. In this Navy scenario, prices for
Deferred           those aircraft would have to be renegotiated at an estimated cost
                   increase of $50 million.

                   Under the schedule adopted in January 1990, aircraft will be delivered
                   at even a slower rate than the hypothetical rate the Navy used in its
                   November 1989 computation of the $50-million price increase. Under
                   the latest schedule, the Navy has revised its projected price increase to
                   about $30 million if the 1991 procurement is deferred. Program officials
                   based this revised estimate on the delayed delivery of some aircraft in
                   only the 1989/1990 production lot. The 12 aircraft in the 1988 produc-
                   tion lot would not be affected under the projected schedule.

                   The projected cost increase of about $30 million is not a certainty, how-
                   ever. The Navy could choose to expedite delivery of the planned fiscal
                   year 1992 production lot to prevent the gap from occurring. Navy offi-
                   cials said they have not estimated the additional costs that option may
                   entail.

                   The previously negotiated not-to-exceed price for the 1989 production
                   lot will be adjusted because it excluded recurring costs of the new wing.
                   Any recurring costs attributable to that change will probably result in
                   equitable adjustment of the price and the delivery schedule.

                   According to Navy officials, about $136 million of the requested $306
                   million in procurement funds will be needed even if no aircraft and only
                   two simulators, the minimum sustaining production rate, are bought in
                   1991. This includes the $30-million estimate for the increased prices dis-
                   cussed above and $36 million for the two simulators, plus $70 million in
                   costs that program officials say they are going to have to ultimately
                   pay-in later years if not in 1991. These latter costs include such obliga-
                   tions as prorated reimbursement of tooling investment and logistics
                   support.




                   Page 25                                     GAO/NSIAD-9146 T-46 Training System


                                                .,,
                           Chapter 9
                           Effects of DeferrIng Fiscal Year
                           1991 Procurement




                           Development of the T-45 flight simulators (and other system compo-
Simulator                  nents) has proceeded without problems comparable to those encoun-
Procurement Exceeds        tered in development of the aircraft. The Navy has contracted for a total
Aircraft Procurement       of eight simulators through fiscal year 1990 and has requested funds for
                           five more in fiscal year 1991.

                           Scheduled simulator deliveries are ahead of aircraft deliveries, and the
                           imbalance will increase at least into fiscal year 1993, regardless of
                           whether additional aircraft are funded in fiscal year 1991. By May
                           1993, for example, the contractor is scheduled to have delivered only 22
                           aircraft but enough simulators to support 72 aircraft. Navy officials said
                           that two simulators a year is the minimum rate needed to sustain
                           production.


Fiscal Year 1990 Funding   The Navy requested funds for five simulators in fiscal year 1990, but
                           the Congress appropriated funds for only one simulator, citing the need
Cut in Simulator           to slow production while awaiting a stable aircraft design. However, the
Procurement                Navy contends that procuring the four additional simulators under the
                           already negotiated price will be cost-effective. Consequently, the service
                           plans to procure all five of the simulators already under contract, using
                           reprogrammed funds from as yet undetermined sources to pay for the
                           additional four simulators.

                           In commenting on our report, DOD said the Navy is evaluating options to
                           further align procurement of aircraft and simulators, considering the
                           requirements of the naval training stations and the desire to maintain a
                           minimum sustaining rate.




                           Page 26                                    GAO/NSIAD9143   T-45 Training System
Chapter 4

Conclusions,Recommendations,and
Agency Comments

              The T-45 program entered production prematurely, without a stable air-
              craft design and before any Navy flight testing. The aircraft’s ensuing
              performance problems disrupted the program schedule and caused
              development and procurement costs to increase.

              After testing showed the aircraft’s problems, we believe the most pru-
              dent approach would have been to halt further production commitments
              until the Navy had achieved a stable design. That approach would also
              have been consistent with DOD's policy of advancing systems on the
              basis of demonstrated achievement. However, the Navy and OSD pro-
              ceeded with a new production commitment while design corrections
              were being developed. As a result, the Navy now has production com-
              mitments for 36 aircraft but still does not have a stable design,

              The program’s situation can be attributed to an optimistic assessment of
              the technical challenge involved in adapting the Hawk design to the
              T-45A mission. That assessment led to the use of an acquisition strategy
              which minimized development, testing, and government oversight and
              encouraged early commitments to concurrent production.

              Neither of the two options now facing DOD is free of risks and costs.
              Halting further production commitments until a stable design is devel-
              oped and demonstrated will likely entail additional costs. But continuing
              to make production commitments without a proven, stable design per-
              petuates the type of strategy that led to the program’s current dilemma.

              The DAB attempted to reduce the risks inherent in continuing production
              by requiring both incremental obligations of appropriated funds and test
              results that demonstrate design corrections have been successful. How-
              ever, those measures are limited in the effect they can have in reducing
              the uncertainties the T-45 program faces. The restriction on obligations
              applies only to fiscal year 1989 funds; it does not preclude the Navy
              from making further contractual commitments for subsequent produc-
              tion lots using later fiscal year appropriations, The requirement for
              testing of deficiency corrections can also reduce uncertainties, but, at
              most, will only ensure that the program has achieved the level of design
              maturity it was supposed to have achieved in 1988.

             The Navy and OSD have also attempted to reduce risks by decreasing the
             rate of production commitments. With the extended development phase
             that has resulted from the aircraft’s deficiencies, however, even the
             reduced rate will result in a more highly concurrent program-with     all
             of the risks that an overlap in development and production entails.


              Page27                                     GAO/NSIAD~9146T-46TrainingSystem
Chapter 4
Ckmclusiona, Recommendations, and
Agency Comments




Moreover, critical tests have been postponed to a greater extent than
planned procurement decisions, so that under the restructured program
they now follow the decision points they were originally scheduled to
support.

At this point in the program, expediting-instead     of deferring-testing
would be a reasonable risk-reduction measure. Postponing tests has had
the opposite effect, increasing the risks that further commitments will
be made to produce an aircraft that cannot safely land aboard carriers
or otherwise cannot be made effective and suitable for the T-45 mission.

Cost and schedule risks also have increased since the DAB approved a
restructured program in December 1989. The program schedule has
been further disrupted, the IOCdate in the revised Defense Enterprise
baseline submitted to the Congress in May 1990 has become unachiev-
able, and the contractor reportedly has submitted a $293-million claim
for adjustments under the fixed-price contract. Other cost and schedule
impacts can be expected if the postponed tests reveal additional per-
formance problems. In the meantime, the Navy has been unable to deter-
mine the price it ultimately will pay for either the redesigned aircraft
already under contract or the aircraft to be produced through future
commitments.

There appears to be no compelling reason for the Navy to proceed with
the planned fiscal year 1991 production commitment. The 12 aircraft in
that planned production lot will not affect the system’s IOC,and appar-
ently will have minimal effect on either training rates or replacement of
existing trainer aircraft. There will probably be some cost increase from
deferring the 1991 production lot, but the Navy has not determined
either the certainty or the amount of that expected increase. The $55-
million projected increase reported by the DAR has been invalidated by
subsequent events. A more recent Navy projection puts the expected
increase at about $30 million, but that estimate is based on only one of
at least two possible scenarios. Moreover, even the $30-million estimate
must be balanced against the risk of continuing to make production com-
mitments for a system that has not yet demonstrated its effectiveness
and suitability for the Navy’s training mission,

We believe that at this point a more prudent approach would be to halt
additional production commitments for T-45A aircraft until cost,
schedule, and performance risks are reduced. Reduction of performance
risks is especially important because of their residual effect on cost and



Page 28                                    GAO/NSIAD-91-M T-46 Training System
                            Chapter 4
                            Conclusions, Recommendations, and
                            Agency Comments




                            schedule. We also believe that simulator procurement should be reduced
                            to a level more commensurate with aircraft procurement.


                            We recommend that the Secretary of Defense withhold authorization for
Recommendations             the Navy to proceed with additional production commitments for T-45A
                            aircraft until the service has taken the following minimum risk-reduc-
                            tion measures:

                        l completion of the operational test phase to verify deficiency corrections,
                        l completion of the operational test phase to assess carrier-suitability and
                          other critical operational issues,
                        l completion of initial sea trials and high angle-of-attack/spin testing, and
                        . definitization of aircraft prices in existing contracts and negotiated
                          prices for subsequent production contracts.

                            We also recommend that the Secretary of Defense direct the Secretary of
                            the Navy procure only two T-45 simulators in fiscal year 1991.


                                 requested $305.9 million in fiscal year 1991 funding to procure 12
Related Congressional       DOD
                            T-45A aircraft and associated items. Our review of the T-45 program
Actions                     demonstrated that additional commitment to production of this aircraft
                            should be deferred until redesigned models have successfully completed
                            certain critical tests that the Navy postponed until fiscal year 1992. We
                            communicated this result to the Committees on Armed Services and
                            Appropriations in testimony, staff briefings, correspondence, and distri-
                            bution of our draft report from April through August 1990. The DOD
                            Authorization and the Appropriations bills adopted our view and reflect
                            a $147.8-million reduction.


                            In commenting on our draft report, DOD partially concurred with our
Agency Comments             findings and recommendations. DOD did not concur with the suggestion
                            that the Congress consider appropriating no funds for additional T-45A
                            aircraft in fiscal year 1991. The Department stated that correction of
                            the aircraft deficiencies will be satisfactorily demonstrated in opera-
                            tional tests prior to the spring 1991 Defense Acquisition Board review to
                            consider approval of the next production lot.

                            We do not believe that testing scheduled for completion in fiscal year
                            1991 can reduce technical risk sufficiently to warrant additional com-
                            mitment to T-45A procurement, Development of a new wing for the T-45


                            Page 29                                    GAO/NSIADgl-aB   T-45 Training System
Appendix I

CommentsFrom the Department of Defense 1



                                  DIRECTOR   OF DEFENSE      RESEARCH      AND    ENGINEERING

                                               WASHINGTON.      DC   20301-3010




                                                                                                2 8 SEP 1990


                 Mr. Frank C. Conahan
                 Assistant     Comptroller     General
                 National     Security   and
                     International     Affairs    Division
                 U. 5, General Accounting Office
                 Washington, D.C. 20548
                 Dear Mr. Conahan:
                       This is the Department of Defense (DOD) rertponse to the
                 General    Accounting Office        (GAO) draft report,       "T-45 TRAINING
                 SYSTEM: Navy Should Reduce Risks Before Continuing                  Procurement,"
                 Dated August 6, 1990 (GAO Code 394319), OSD Case 8441. The
                 Department partially        concurs with the GAO findings           and
                 recommendations.       The Department disagrees with the matter for
                 Congressional     consideration       suggesting that the Congress consider
                 appropriating     no funds for additional         T-45 aircraft       in FY 1991.
                 Withholding    authorization       for additional     aircraft     until    the Navy
                 has completed flight       testing      to the degree recommended by the
                 GAO is not necessary.         The DOD has, however, made the 1991
                 procurement contingent        upon successful      completion      of critical
                 development and operational           testing.
                         The development of the T-45 aircraft                 has encountered
                 technical      problems, particularly          in the performance of the
                 aircraft     in the low speed, carrier             approach configuration.
                 It also encountered problems in manufacturing                    start up. As a
                 result,     costs have risen and scheduled deliveries                 have been
                 pushed back.         Fixes for the technical          deficiencies       have been
                 identified      and manufacturing        has been transferred          from the
                 Douglas Aircraft         Division    of McDonnell Douglas Corporation               to
                 McDonnell Aircraft          Division   in Saint Louis, which has more
                 experience with Navy carrier             aircraft.       While all of the fixes
                 for the developmental           problems and production          start up have not
                 yet been demonstrated,            the current restructured          program and
                 acquisition       strategy     will achieve the program objectives               and
                 deliver     a suitable     Navy jet training         aircraft    without    further
                 delay or cost eecalation.
                       The issues addressed by the GAO in its report were
                 considered,   among other factors,      by the Defense Acquisition      Board
                 in December 1989. The decisions         reached by the Board were based
                 on a careful   weighing of the technical,      schedule, and concurrency
                 risks against the financial       risks and pilot  training    needs of the
                 Navy. The development phase of the program was extended to
                 enable additional      testing  to be conducted on the aircraft      prior
                 to committing     funds for follow on production.       The production
             Y




                    Page82                                                        GAO/NSLAD-91-46T-45TrainingSystem
I   ”
            Appendix1
            CommenfsFromtheDepartmentofDefense




        program has been slowed and buildup to rate delayed.             The
        decision    to allow procurement of T-4!% to continue at no more
        than 12 aircraft       per year reflects    the Department's   caution until
        the aircraft     deficiencies    are corrected and demonstrated in
        testing.      In addition,    specific   measures in the form of exit
        criteria   have been instituted        to contain the overall   T-45 program
        risk and provide a basis for the fiscal           year 1991 procurement
        decision.
                Simulator procurement has been reduced along with aircraft
        reductions,      although not to the extent recommended by the GAO.
        The Navy is evaluating         options to further   align procurement of
        aircraft    and simulators,       considering  the requirements  of the
        Naval training       stations    and the desire to maintain a minimum
        sustaining     production     rate.
               Detailed DOD comments on each finding   and recommendation are
        provided in the enclosure.    The DOD appreciates   the opportunity
        to comment on the draft report.
                                              Sincerely,




        Enclosure




            Page33                                         GAO/NSIAD-91-4BT-46TrainingSystem
Chapter 4
Conclusions, Recommendations, and
Agency Comments




is one of the major corrective actions that have been instituted in the
wake of the deficiencies discovered in 1988, and the Navy does not
expect to receive delivery and begin testing of an aircraft fitted with
this new wing until fiscal year 1992. Our reasons are discussed in
chapter 2.




Page 30                                    GAO/NSIAD-91-46 T-4S Training System
                        Appendix I
                        Comments From the Jhpartment of Defense




                            the Defense Acquisition    Board directed   the Navy to
                            obligate  funds only in increments,     based on validation
                            of the design corrections:    and
                    m      the Defense Acquisition      Board directed    that, before
                           relsase of 1991 procurement funds, the Navy must have
                            (1) demonstrated through development testing         and opera-
                           tional   testing   that the aircraft   deficiencies    have been
                           corrected,     (2) obtained recommendations from the test
                           agencies to proceed, and (3) installed         a ground training
                           system at the first      base scheduled to receive     the T-45.
                    The GAO reported that probably the greatest risk in the
                    T-45 acquisition       strategy was the degree of concurrency that
                    allowed no opportunity         for operational     testing    before the
                    first   production     commitment.      The GAO concluded that recent
                    program changes have increased that risk by (1) postponing
                    tests that were to have supported additional               production
                    commitments, and (2) increasing           the number of aircraft         to
                    be produced before development and operational                testing    are
                    completed.      The GAO observed that an especially             important
                    safeguard for concurrent          programs is at least one phase of
                    operational     test and evaluation       before the initial        production
                    commitment.       The GAO further      concluded, therefore,        that in
                    restructuring      the program, the DOD increased the degree of
                    concurrency by postponing important tests.                The GAO asserted
                    that delays in scheduled tests should be accompanied by
                    corresponding      delays in production        commitments.      The GAO
                    found, however, that the commitment for the second production
                    lot of 24 aircraft        was made without successful        completion of
                    the 1988 test objectives,          as planned.     The GAO further       found
                    that, as now scheduled, the decision to contract                 for the 1991
                    production    lot of 12 additional        aircraft   will also be made
                    before completion of the tests that were to have been con-
                    ducted in support of the decision.
                    The GAO also found that, under a March 1990 draft of the
                    program's revised test and evaluation          master plan, all of
                    those operational       test have been postponed until      after
                    commitments will have been made for 48 aircraft.             The GAO
                    noted that similar        or longer postponements have been scheduled
                    for development tests for other important technical              issues.
                    In addition,    the GAO found that, under the revised schedule,
                    commitments will be made to produce 72 low rate initial
                    production   aircraft      (24 percent of the planned total buy)
                    before development testing         and initial  operational    testing
Now on pp. 19-20.   are completed.        (pp. 34-37/GAO Draft Report)
                    -8                Partially   Concur.      Pour review teams assessed
                    the aircraft    design deficiencies       and the design changes.   The




                        Page 39                                           GAO/NSIAD9146    T-46 Training System
                                                                                              t         'J
                      Appendix1
                      CommentsFrom the Department of Defense




                        The GAO reported that the Navy's initial            tests in 1988
                        revealed that adapting the Hawk design to the T-45 mission
                        was more technically      challenging     than had been estimated.
                        The GAO found that the aircraft         delivered     to the Navy for
                        testing    proved to be ineffective       and unsafe for training
                        student aviators      in a carrier    environment.      The GAO noted
                        that, by this time, the Navy had already contracted             to produce
                        the aircraft     and was approaching the deadline for exercising
                        the second production      option with the not-to-exceed        prices
                        that had been a key part of the development contract.               The GAO
                        pointed out that, since the option was not contingent              on the
                        accomplishment of required testing,           the Navy could not unilat-
                        erally   extend either the deadline or the not-to-exceed            prices.
                        The GAO further      noted that the program manager, referring          to
                        the second production      lot, indicated       that (1) the contractor
                        has fallen     behind, (2) a Defense Acquisition         Board decision
                        has not been possible,       (3) the option date has passed without
                        being exercised,      and (4) the Government has lost certainty           of
                        price and schedule protection         and does not have significant
Nowonpp   16-17         leverage to regain it.         (pp. 30-33/GAO Draft Report)
                        DOD:                Partially      Concur.     Several features of the
                        acquisition     strategy      were adapted to reduce risk to the
                        Government.      The program's initial          development and technical
                        risks were considered to be controllable               because the firm-
                        fixed-price     contract      placed the development risk on the
                        contractor     who maintained the performance requirements             could
                        be met.     Also, the derivative         concept was strongly      supported
                        by ongoing HAWKtesting,            production,     and operations   in the
                        United Kingdom and in other foreign applications.                  The second
                        production     option was established          prior to the Defense
                        Acquisition     Board program review in December 1989 and is under
                        a Not-to-Exceed       type contract.        Consequently,     the Navy has
                        cost and schedule protection            consistent    with the rebaselined
                        program.
                  0     -INa          Br    Bavv and      of the Becret&rY of Defense
                                                        office
                               once    to   PxoaranI         The GAO reported that the Navy
                                                       Problem@.
                        and the Office of the Secretary of Defense faced a dilemma on
                        whether to halt or continue production         commitments, while
                        attempting      to achieve a stable design.     The GAO noted that,
                        after initially      deciding to halt production    commitments, the
                        DOD elected to proceed with an additional         commitment.     The GAO
                        reported that the Navy and the Defense Acquisition           Board took
                        a number of steps to reduce risk,       including   the following:
                                the Navy brought in an independent team to assess
                                the design changes needed to correct the aircraft
                                deficiencies  and slowed the procurement rate:




                      Page 38                                            GAO/NSIAD-91-M T-46 Training System
                      Appendix I
                      CommentsFrom the Department of Defense




                   submitted to the Congress on May 1, 1990. The GAO concluded,
                   however, that events occurring            in the interim make it likely
                   that the new Defense Enterprise             baseline will also be
                   breached.     The GAO reported that, in the revised baseline,
                   the initial    operational     capability      target date was reported
                   as June 1991--but with delayed deliveries,              the Navy does not
                   now expect to reach initial        operational       capability    until
                   November    1992. The GAO reported that some Navy officials
                   maintained that the decision by McDonnell Douglas to suspend
                   deliveries    will reduce the level of concurrency by allowing
                   the contractor     extra time to develop and install            corrections.
                   The GAO disagreed,      asserting    that the Navy still        plans to buy
                   72 aircraft    before development and testing           are completed.

                   The GAO also reported that additional        delays can be expected
                   if problems develop with either the planned corrections            to the
                   deficiencies     discovered  in 1988 or the performance areas not
                   yet tested.      The GAO noted that, in December 1989, the Conven-
                   tional    Systems Committee reported that high angle of attack/
                   spin testing,     then scheduled for 1991, has the potential         for
                   discovering     unexpected deficiencies,    which could cause further
                   delays in the program.       The GAO observed that testing
Now on pp. 21-22   has since been postponed until        April 1992.   (pp. 38-40/GAO
                   Draft Report)
                   DOD:                     Partially     Concur.      A program baseline breach
                   notification          to Congress, which explains             the production
                   program change and benefits                of the initial-operational-
                   capability       adjustment,         is currently      in work.    The GAO reported
                   that high angle-of-attack/spin                 testing     has been postponed
                   until     April 1992. This is not entirely                  true.    High anqle-of-
                   attack testing           is composed of stall          tests and post-stall/spin
                   teats.       Stall testing         is a critical       phase of development where
                   the aircraft          wing must be refined          in order to develop
                   acceptable        flying     qualities     for the mission.        Refining the
                   wing can result            in a long development period and major
                   redesign,      as seen on the T-4%.
                   It should be        noted that the T-45 development program attacked
                   this area of        testing       early in Development and Operational
                   Testing-IIA.          Deficiencies       were found and corrections        will be
                   demonstrated        in Development and Operational           Testing-118.       The
                   post-stall/spin          testing,      which has been rescheduled,       is a
                   continuation        of tests with the refined wing configuration.
                   Risk will be        minimized by the successful           completion of stall
                   testing,     wind     tunnel testing,       and simulation.      This approach
                   to high angle         of attack testing       has been successfully
                   demonstrated        on the AV-8B.




                     Page41                                                  GAO/NSIAI%91-46T45TraMng System
      Appendix I
      Comments From the Department of Defense




    by the Navy in FY 1989. The rebaselined              program stretched-out
    the procurement of T-45 aircraft,          including     deletion    of the
    entire      FY 1990 buy. While the intent of the Defense
    Enterprise      Program is streamlined    acquisition,       the T-45
    program did not experience reduced scrutiny,              as the 6AO
    etates, because the program encountered significant                 problems
    early on that led to breeching the baseline thresholds.                      The
    T-45 program receives Office        of the Secretary of Defense
    oversi ht to the same degree as any other major defense
    acguis s tion program.      The $72 million      released by the DOD in
    Augurt      1989 was considered the minimum termination           liability
    necessary to maintain the Douglas Aircraft             company commitment
    on the T-45 program until       after the Defense Acquisition               Board
    program review in December 1989, and also provided the Navy
    the basis for a Not-to-Exceed        agreement on the FY 1989/FY 1990
    procurement      option.
    The schedule    change after the Defense Acguieition         Board
    affects   only production   deliveries.       All  test and evaluation
    schedules and milestone decision points in the development
    program have remained essentially        the same as presented to the
    Defense Acquisition     Board. The change in the production
    program was based on the business decision not to deliver
    fixed leading edge wing aircraft        which would require costly
    retrofit,    but rather to wait until      slatted   wing aircraft   could
    be delivered.
0   PINDTNO*       Aocnrinition.              The GAO concluded that, from
     the outset of development, the Navy T-45 acquisition               strategy
    was a calculated     gamble.      The GAO noted, however, that tech-
     nical risks were assessed by the Navy as only low to moderate-
     -and there was a perceived need to have the system operational
     no later  than FY 1991. The GAO found that, in practice,                 adap-
     ting the Hawk design to the T-45 mission proved more challeng-
     ing than either the Navy or the contractor            envisioned,      The
    GAO reported that, when the design flaws became apparent, the
    Navy and the Office of the Secretary of Defense took a number
     of measures to reduce risk, but those measures will not reduce
    all of the risks that have evolved since the aircraft’s                 defi-
    ciencies   became apparent.        The GAO further     concluded that the
    recent restructuring        of the program has actually        heightened
    program risks by postponing key tests and increasing                the
    number of aircraft       to be bought before development is com-
    pleted and before operational          testing   has demonstrated that
    a production    representative      model of the aircraft       is effective
    and suitable    for its mission.         The GAO referenced a 1984
    Office of the Secretary of Defense report,            which concluded,
    "Thiu redesign effort        is certainly     not a minimal task and may
    in fact be more complex than designing            from scratch."       The GAO
    noted that, since World War II, no U.S. fighter               or attack




     Page 36                                              GAO/NSIAD-9146 T-45 Training System
      .        l
                       Appendix I
                       Comments From the Department of Defense




                       The GAO reported that, while the Navy considers all deficien-
                       cies correctable     with existing     technology,     not all of the
                       corrections   have been (1) determined (two rudders are still
                       under consideration)       or (2) developed (development of the new
                       wing is incomplete),       or (3) tested as an integrated        system.
                       The GAO pointed out that the Navy has no test results              to
                       support the poeition       that the technical      risks may be low,
Now on D. 23           as the Defense Acquisition        Board reported.       (pp. 42-43/GAO
                       Draft Report)
                       -1                     Partially       Concur.   The DOD doas not agrea with
                       the GAO statement that the Navy test results                  do not support
                       the position       that technical         risks may be low, as the Defense
                       Acquisition      Board reported.            Recent test results   indicate
                       those problems that have baen surfaced are being corrected and
                       substantiate       the judgement made by the Dafonse Aoguisition
                       Board.      FOr example,         extensive wind tunnel testing       of the
                       Blatted wing in 1989 and early 1990 confirm the robustness of
                       the fix.       Contractor        testing    to demonstrate all the deficiency
                       corrections      is currently          underway with Navy development and
                       operational      testing       to follow in November/December 1990.
                       Additionally,        the baseline rudder design has been established
                       ae the no-float         rudder.
                   0   PlNDINP:         Thp Qefwe     AcqySsition Board DeQisiQn TQ R-am
                                             or The 1991 Production    I& . The GAO reported
                       that     the Defense Acquisition    Board cited three reasons for
                        releasing    funds for the 1991 production     lot, as follows:
                              the Navy and Joint Staff reaffirmation   of an urgent
                              need to replace the T-2 and TA-4 trainer   aircraft;
                              the concensus    that   technical   risks   were low:    and
                              the Navy's projected  coat increase         of $55 million,
                              if long-lead  funds were withheld.
                       The GAO reported the Navy indicated             that only 12 aircraft      are
                       needed to equip the first         training     unit and attain     initial
                       operational    capability.       The GAO found, however, the Navy has
                       already contracted        for three times the number needed to
                       achieve that milestone.          The GAO also concluded that estimates
                       of the urgency to replace the T-2 and TA-4 aircraft                  have been
                       fluid.    The GAO observed that officials             at the air training
                       command indicated       that the condition        of existing   aircraft
                       dictate   that the command m             receiving     the T-45 system in
                       1994. The GAO noted that 36 aircraft               already under contract
                       are scheduled for delivery          between October 1990 and November
                       1993--which    is consideribly       before that date.




                       Page43                                             GAO/N&ID-914       T-46 Training System
                                                                                                                   8
                            Appendix I
                            CommentsFrom the DepartmentofDefense               '




                                         GAO DRAFT REPORT- DATED AUGUST6, 1990
                                             (QAO CODE 394319) OS0 CABE 8141

                                  "T-45 TRAININQ SYSTEM: NAVY SHOULDRRDUCERISXS
                                           BEFORECONTINUING PROCUREMENT"
                                               DEPARTMENTOF DEFENSE COMMENTS


                                                                FINDINQS

                       0   -1NG         a: The T-45 TrqCgLaa S~&@$Q The GAO reported that
                            the T-45A Goshawk is the major compo:ent of a $5.9 billion
                            flight    training      system McDonnell Douglas Corporation                  is devel-
                            oping for the Navy.           The GAO further       reported that, after
                            contracting       for the first      production     lot of 12 aircraft             before
                            development was complete, during initial                  flight     tests in 1988,
                            the Navy discovered that the aircraft                 design was seriously
                            flawed.      The GAO noted the Naval Air Test Center conducted
                           development testing,           reported 24 deficiencies,            and concluded
                           that the aircraft          had limited     potential     for its mission,            but
                           would be satisfactory            after the deficiencies           were corrected.
                           The GAO further          noted the Navy Operational            Test and Evaluation
                           Force found that the aircraft               (1) was potentially           effective       in
                           a non-carrier         environment,      (2) was not effective           in a carrier
                           environment,         (3) was not operationally          suitable      because of
                           safety deficiencies--and             concluded that a recommendation for
                           limited      production      could not be supported until             correction        of
                           the deficiencies          had been verified       by additional        operational
                           testing.        The GAO found that no additional               operational        testing
Now   on pp, 2,9-10.       is scheduled until           September 1990.        (p. 2, pp. 16-20/GAO
                           Draft Report)
                           7:                  Concur.      The Navy Operational     Test and
                           Evaluation     Force actually      said that the T-45A aircraft,       as
                           then configured,       did not have the potential        to be
                           operationally      effective     or suitable    in the aircraft  carrier
                           environment.       Configuration     changes are being made to the
                           aircraft     to provide satisfactory         operation in the carrier
                           environment.
                       0   m:            mnaina Withheld and BaseiUne BreaoB . The GAO
                           reported that, after the tests,      the Office of the Secretary
                           of Defense (1) prohibited    the Navy from obligating      FY 1989
                           procurement funds for the planned second production         lot of
                           24 aircraft   and (2) canceled that portion     of the FY 1990
                           budget request that would have funded procurement of the
                           24 additional   aircraft  in the third production     lot.    The GAO




                           Page   34                                                    GAO/NSIAD-91-4BT-46TrainingSystem
                    Appendix     I
                    Commenta From the bartment            of Defenee




                0                             tor Prwent           l&zaads I&croft         Proc-
                     ilt3=’ . The GAO reported that the development of the
                     T-45 flight      simulator5    ha5 proceeded without problems com-
                     parable to those of the aircraft.               The GAO noted that the
                     scheduled deliveries         of simulators      is ahead of aircraft
                     deliveries--     and the imbalance will         increase,      at least into
                     FY 1993, regardless         of whether additional         aircraft    are funded
                     in FY 1991. The GAO observed that, by May 1993, the con-
                     tractor     is scheduled to deliver        only 22 aircraft--but         enough
                     simulator5     to support 72 aircraft.
                     The GAO reported that, in FY 1990, the Navy plans to procure
                     al.1 five simulators      under contract  by using reprogrammed
                     funds--even    though the Congress appropriated       funds for only
                     one simulator     and citing   the need to slow production     while
                     awaiting    a stable aircraft     design.  The GAO noted that the
                     Navy contends that the procurement under the already nego-
                     tiated   price will be cost effective.       The GAO nonetheless
                     concluded that simulator       procurement should be reduced to
                     a level more commensurate with aircraft         procurement.
Now on p. 26.         (pp. 47-48/GAO Draft Report)
                     M)D*                Partially     Concur.     With the T-45 Training
                     System   concept of delivering          a total training         system, the
                     importance of the timing of simulator              delivery        is critical     to
                     the program.      Lead-time for simulators           is a full year longer
                     than aircraft     lead-time.       Simulators     are being procured at
                     minimum sustaining        production     rates which should be
                     maintained.     Additionally,        procurement of simulators              ahead of
                     aircraft    is necessary to provide timely introduction                     of the
                     integrated    system at the Naval training             facilities.



                                                   RECOMMENDATIONS

                0    -:                    The GAO recommended that the Secretary
                     of Defense withhold    authorization   for the Navy to proceed
                     with additional   production    commitments for T-45A aircraft
                     until the Navy has taken the following       risk-reduction
                     measures:
                               completion   of   the operational       test   phase to verify
                               deficiency   corrections;
                               completion of the operational           test phase to assess
                               carrier-suitability and other           critical operational
                               issues;




                    Page 45                                                   GAO/NSIAD-91-46 T-46 Training System




                                                      I
                        AppendhI
                        CommentsFromtheDepartmentofDefense




                         teame    agreed on the corrective          actions.   The GAO reiterates
                         its discussion           about the revised test program in the
                         rebaselined         program identified     in Finding C. (See the DOD
                         response to Finding C.) Regarding the procurement of 12
                         aircraft      in FY 1991, the Defense Acquisition         Board authorized
                         the 1991 long lead funds with the stipulation              that the Navy
                         base the subsequent release of these funds to the contractor
                         on validated         long lead items.     To date, the Navy has not
                         released any of those funds to the prime contractor.
                         Additionally,          the Navy does not plan to contract      for the 1991
                         aircraft      until      after the completion of testing     to support the
                         decision.
                    0   -8              B.                 The GAO reported that the Under
                        Secretary of Defense for Zcguisition            provided congressional
                        committees a report on concurrency            in major defense acquisi-
                        tion programs that categorized          the T-45 program as having only
                        a "moderate" degree of concurrency.             The GAO strongly       disa-
                        greed, asserting       that the T-45 clearly       has a "high" degree of
                        concurrency     since the program proceeded to low rate initial
                        production     before gny initial      operational      test and evaluation
                        was completed.        The GAO also reported that an official            of the
                        Office of the Secretary of Defense maintained that low rate
                        initial    production     has not yet begun--it       is the GAO position,
                        however, that it began with the first             production    authorization
                        in November 1987. The GAO contended that "pilot                 production@1
                         (12 aircraft    per year) is clearly       within the Navy definition
                        of low rate initial        production    (24 aircraft      per year).
Now on pp. 20-21.        (pp. 37-38/GAO Draft Report)
                        DOD:                 Partially     Concur.   The determination      of the
                        T-45 program being of moderate concurrency was derived as the
                        percentage of procurement funds committed before the end of
                        operational      test and evaluation,       relative  to the total
                        procurement of the program, which was consistent                with the
                        assessment of concurrency risk of major programs recently
                        reported to Congress.            The Navy's procurement plan provides
                        for the orderly establishment           of a production     base leading to
                        a full production         decision after operational      testing    is
                        completed.       The DOD will continue to review low rate initial
                        production      quantities     to ensure consistency    with procurement
                        and budgetary guidelines.            The derivative   nature of the
                        aircraft,     combined with the intermediate         operational     test and
                        evaluation      phases, continue to support the moderate
                        categorization.
                    0   ZWpING Q: Bsviaed BJ@QI&w Likelv To Be Breacheg           The GAO
                        reported that, at the same December 1989 meeting, ihe Defense
                        Acquisition  Board approved a new program baseline--which
                        released funds for additional  T-45 procurement and which was




                        Page40                                            GAO/NSLAD-91-46T-15TrainingSystem
                  Appendix I
                  Commenta F’rom the Department of Defense




                               NATTER BOR CONGRRSSIONALCONSIDERATION

              0   The GAO suggested that the Congress consider appropriating
                  funds for no additional  T-45A aircraft     and appropriating
Nowon p.29.       funds for only two T-45 simulators     in ‘FY 1991.   (p. 54/GAO
                  Draft Report)
                  000              8 Non-Concur.       Although the DOD agrees that some
                  concurrency     and risk remain in the program, previous DOD
                  budget decisions       have removed 84 aircraft         and 10 simulators
                  from FY 1990 through FY 1992 to reduce risk and concurrency.
                  In addition     to other factors,       the December 1989 Defense
                  Acquisition     Board considered the same factors that the GAO
                  presented in its report.           The Defense Acquisition         Board judged
                   (1) that additional      aircraft    procurement was not warranted
                  beyond the FY 1989/FY1990 procurement lot until                 deficiency
                  corrections     were satisfactorily        demonstrated and (2) that
                  simulator    procurement could proceed at a minimum sustaining
                  rate.     Progress has been made in correcting            aircraft
                  deficiencies      and success has been demonstrated in aircraft
                  flight    and wind tunnel testing.          Corrections    to aircraft
                  deficiencies      will be satisfactorily       demonstrated in
                  operational     tests prior to the Spring 1991 Defense Acguisition
                  Board review to consider approval of the next production                   lot.




                  Page 47                                             GAO/NSIAD-9146 T-45 Training System
                    Appendix I                                                                               .         .
                    Comments From the Department of Defense




                0     BI#DINO:            Coet*                          The GAO reported that the
                      cost risks will not be substantially                        reduced by the Defense
                      Acquisition         Board proviso that the Navy obligate                      the remaining
                      pilot      production       funding in increments,              based on successful
                      validation        of the fixes         to be demonstrated at the next phase
                      of development and operational                   testing.         The GAO found that
                      the Navy obligated             $60 million       in January 1990 and plans to
                      obligate       about $40 million            in June 1990--before            a production
                      version of the new wing is available                        and before any of the
                      planned corrections             will have been operationally                  tested.     The
                      GAO also pointed           out that validating              corrections       will not
                      resolve a major cost uncertainty--i.e.,                         the liability         for
                      correcting        the aircraft         deficiencies.          The GAO reported that,
                      while Navy officials             contend the contractor               is responsible       for
                      added development and schedule costs, in December 1989, the
                      Conventional          Systems Committee reported there was a strong
                      possibility         the contractor         would attempt to recover costs
                      through either claims or the courts.                         The GAO noted that,
                      in January 1990, the contractor                    notified       the Navy in writing
                      that it is preparing             a proposal for an equitable                  price and/or
                      schedule adjustment.               The GAO also reported that the recurring
                      costs of the installed                corrections       will not be known until
                      the contract          modifications         for the FY 1989 production               lot are
                      definitised         and prices are negotiated                under a new contract          for
                      subsequent production               lots.      The GAO noted a Navy official
                      indicated       that price quotations              for the replacement engine
                      and wing are expected between April and September 1990.
Nowonpp.22.23          (pp. 41-42/GAO Draft Report)
                      M)D:               Partially         Concur.   The foreign exFhange rate
                      continues to fluctuate          and this is a major source of cost
                      risk.    The DOD has based release of funds for the FY 1989-
                      FY 1990 production       lots and the FY 1991 long lead items--on
                      revised termination        liability      estimates.       No more than the
                      minimum funding required to cover termination                    liability       is
                      provided to the contractor             to accomplish milestones
                      established     by the Navy. Funding for the FY 1991 production
                      will not be released to the contractor               until    flight       test
                      resuLta are known. As mentioned earlier,                   the firm fixed price
                      contract    also provides an incentive            for cost control,           by
                      placing the burden of risk with the contractor.
                0     BlNOINg:       &ow TeC~osl    Risks Rave Not Been Demonstrated .
                      The GAO reported that the Defense Acquisition          Board support
                      for maintaining    production   under the restructured      program, was
                      based, in part,    on the llconcensusll   that technical    risks were
                      low. The GAO found, however, that low technical           risk has not
                      been demonstrated and, to the contrary,        the only operational
                      test yet completed demonstrated that the earlier          Navy assess-
                      ment of low to moderate technical       risk was very optimistic.




                    Page 42                                                      GAO/NSIAD-9146 T-46 Training System
L



    .-1-_“..--    --




           ()I-cleriug   Iufonna   t.iou

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                        Appendix I                                                                  .    Y
                        Comments From the Department of Defense




                    The GAO also reported the Navy training         command stated its
                    requirement      can only be met by replacement aircraft      that are
                    fully   carrier-capable    and in the final configuration       to train
                    students.      The GAO concluded, however, that proceeding with
                    the planned 1991 production       commitment before a stable design
                    has bean demonstrated,      increases the possibility     that aircraft
                    coming off the assembly line will not be carrier-capable             or
                    will have to be retrofitted.
                    The GAO reported that a large part of the $55 million                pro-
                    jected cost increase cited by the Defense Acquisition                Board
                    is no longer a consideration.         The GAO noted that, under the
                    Navy ncenario,      the prices for the FY 1988 and FY 1989-FY 1990
                    production     lote would have to be renegotiated         at an estimated
                    coat of $50 million,       because of stretched      out procurement to
                    compensate for the deferred 1991 procurement.              The GAO found
                    that, under the latest       schedule, the Navy has revised its
                    projected     price increase to about $30 million--if           the 1991
                    procurement is deferred--because         the 12 aircraft      in the 1988
                    production     lot would not be affected under the projected
                    schedule.      The GAO also pointed out that the projected
                    increase of $30 million       is not a certainty,       because the Navy
                    could choose to expedite delivery          of the planned FY 1992
                    production     lot to prevent the gap from occurring.             The GAO
                    reported that the previously        negotiated    price for the 1989
                    production     lot is probably going to be adjusted and changes
                    will probably require that price negotiations             be reopened.
                    The GAO observed that, according to Navy officials,                about
                    $136 million      of the requested $306 million       in procurement
                    funds will be needed even if no aircraft           and only two simu-
                    lators,    the minimum sustaining     rate, are bought in 1991.
                    The GAO concluded that there appears to be no compelling
                    reason for the Navy to proceed with the planned FY 1991
                    production     commitment.    The GAO further     concluded that the
                    DOD should halt additional       production    commitments until        cost,
Now on pp. 24-25.   schedule, and performance risks are reduced.              (pp. 44-47/GAO
                    Draft Report)
                    DODREBPONSE, Partially         Concur.     The initial      operational
                    capability   with 12 aircraft     provides only an initial
                    capability   to train pilots     at the Naval Air Station,
                    Kingsville.     Continuous deliveries       for 6 years are needed to
                    achieve full operational       capability.      Delaying the delivery   of
                    additional   aircraft    forces the training       command to use the
                    aging T-2C and TA-4J longer than planned.              As noted
                    previously,   procurement of FY 1991 aircraft           will not be
                    initiated   by the Navy until     critical     development and
                    operational   testing   of the aircraft      fixes has been conducted.




                        Page 44                                            GAO/NSIAD-9146 T-45 Training System
                   Appendix I
                   CommentaFromtheDepartmentofDefense




                         completion      of initial      sea trials      and high     angle-of-
                         attack/spin      testing:      and
                         definitization       of aircraft      prices in existing
                         contracts      and negotiated      prices for subseguent
Nowon p.29.              production      contracts.       (p. 53/GAO Draft Report)

                  M)D:                  Partially      Concur.      The DOD continues to
                  emphasize risk reduction             as a primary management tool and has
                   implemented some of the above measures.                    However, completing
                  flight    testing     to the degree suggested by the GAO prior to
                  further     procurement results          in attendant       cost increases which
                  are not justified.            Completion of the operational               test phase
                  in November/December 1990 will validate                    deficiency       corrections
                  and assess carrier-suitability,                high angle-of-attack            (stall)
                  and other critical          operational       characteristics,           Additional
                  production      commitments      will not be authorized            until     this
                  testing     is satisfactorily         completed.       Completion of follow-on
                  high angle-of-attack/spin             testing     and initial      sea trials        are
                  not necessary prior to a decision to proceed with additional
                  low rate production           commitments, but will be required prior to
                  a full rate production           approval.        While the FY 1989/1990
                  procurement is not yet definitized,                 the Navy has established             a
                  Not-to-Exceed       contract     for this procurement.             Consequently,
                  certainty      of price and schedule protection                have been achieved.
              0   BECOMMENBATXPN: The GAO recommended that the Secretary
                  of Defense direct the Navy to reduce the rate of simulator
                  procurement to a minimum sustaining    rate more commensurate
Nowonp.29         with the rate of aircraft procurement.     (p. 53/GAO Draft
                  Report)
                  pCD RESPONSE          Partially     Concur.   The Navy has previously
                  reduced simulator         procurement profiles      along with those of the
                  aircraft.      While the GAO is correct that simulator           procurement
                  exceeds aircraft        production,     this is a result    of a considered
                  business decision to reduce costs.              The T-45 simulator
                  provides a significant           percentage of the business base of the
                  simulator     contractor,       so the impact of procurement
                  restructuring        on the contractor      must also be considered.      The
                  Navy is evaluating          procurement options to align simulator        and
                  aircraft     deliveries       more closely,   while maintaining    minimum
                  sustaining     production       rates.




                   Page46                                                     GAO/NSIAD-91-46T-45TrainingSystem
 Ppt3

kG:i Contributors to This Report


                        Brad Hathaway, Associate Director
National Security and   Patrick S. Donahue, Assistant Director
International Affairs
Division,
Washington, D.C.

                        Edward States, Regional Management Representative
Norfolk Regional        James B. Marshall, Evaluator-in-Charge
Office                  William W. McComb, Jr., Site Senior
                        Ruth M. Winchester, Site Senior




(as4ala)                Page 48                                  GAO/NSIAD-91-46 T-46 Training System
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