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entitled 'Tactical Aircraft: Opportunity to Reduce Risks in the Joint 
Strike Fighter Program with Different Acquisition Strategy' which was 
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Report to Congressional Committees:

United States Government Accountability Office:

GAO:

March 2005:

Tactical Aircraft: 

Opportunity to Reduce Risks in the Joint Strike Fighter Program with 
Different Acquisition Strategy:

GAO-05-271:

GAO Highlights:

Highlights of GAO-05-271, a report to Congressional Committees

Why GAO Did This Study:

The Department of Defenses (DOD) Joint Strike Fighter (JSF) program 
aims to develop and field more than 2,400 stealthy fighter planes with 
greater capabilities than DODs aging tactical aircraft. JSF is DODs 
most costly aircraft program, with estimated life-cycle costs 
approaching $600 billion. 

Since the program began, in 1996, JSF has experienced significant cost 
and schedule overruns. While the program has worked to prepare more 
accurate cost and delivery estimates, upcoming investment decisions 
will indicate the level of risk DOD is willing to accept as the program 
moves forward and annual outlays significantly increase. 

GAO is required by law to review the JSF program annually for the next 
5 years. This first report analyzes JSFs business case for delivering 
new capabilities to the warfighter and determines whether JSFs current 
acquisition strategy follows best practices. 

What GAO Found:

Several program changes have made the original JSF business case 
unexecutable. Since initial estimates in 1996, development costs have 
grown over 80 percent, or $20 billion. Program acquisition unit costs 
have increased by 23 percent, or $19 million, since 2001. In addition, 
delivery of the first JSFs to the warfighter has been delayed 2 years 
so far. Continued program uncertainties make it difficult to estimate 
the resources needed for the program. For example, the full impact of 
recent aircraft design changes on the program may not be fully 
understood for some time, and the Navy, Air Force, and Marinesthe 
programs primary customershave not determined the number of aircraft 
they expect to buy. Given the uncertainties, the program could use more 
time to gain knowledge before moving forward. DOD will also be 
challenged to deliver on future business case agreements if program 
accountability continues to be compromised by frequent changes in 
program management.
Original and Latest Development Cost Estimates: 

[See PDF for image]

[End of figure]

The programs current acquisition strategy does not follow a knowledge-
based, evolutionary approach as dictated by best practices and DOD 
policy. Such a strategy is key to successfully executing a new JSF 
business case. However, JSF preliminary plans call for the developer to 
manufacture about 20 percent of the JSF fleet in the low-rate initial 
production phaseat a cost of about $50 billionwhile still developing 
JSF technologies and integrating and demonstrating the product design, 
making cost and schedule increases likely. To achieve low-rate 
production capacity, DOD will need to invest in personnel, facilities, 
and toolingincreasing its production investment from $100 million a 
month in 2007 to $1 billion a month in 2013---before flight testing is 
completed. Problems discovered late in flight tests could result in 
further cost increases and delivery delays, as well as reduced quality 
and reliability. To execute its strategy, the JSF program will need to 
compete with other large programs for scarce funding, which could be a 
significant challenge because JSFs funding profile assumes an 
unprecedented $225 billion over the next 2 decadesan average of $10 
billion a year. Finally, the strategy assumes the use of a cost 
reimbursement contract for initial production, placing a high burden of 
risk on the government, given the large number of aircraft. 

What GAO Recommends:

GAO recommends that DOD establish an executable program consistent with 
best practices and DOD policy regarding knowledge-based, evolutionary 
acquisitions. If DOD moves the program forward without capturing 
adequate knowledge, it should not make investments to increase 
production capability until it has. DOD partially concurred but 
believes its current practices achieve the recommendations objectives. 

www.gao.gov/cgi-bin/getrpt?GAO-05-271. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Michael J. Sullivan at 
(202) 512-4841 or sullivanm@gao.gov. 

[End of section]

Contents:

Letter:

Results in Brief:

Background:

More Resources Are Now Needed to Deliver Planned Capabilities:

JSF's Current Acquisition Strategy May Not Provide for Successful 
Program Execution:

Conclusions:

Recommendations for Executive Actions:

Agency Comments and Our Evaluation:

Appendix I: Comments from the Department of Defense:

Appendix II: Scope and Methodology:

Appendix III: Projected Time Frames for Demonstration of Critical 
Technologies:

Appendix IV: Measures of JSF Program Cost and Schedule Changes:

Tables:

Table 1: Military Services' Planned Use for the Joint Strike Fighter:

Table 2: Changes in JSF Program Purchase Quantities, Costs, and 
Delivery Estimates:

Table 3: Changes in Unit Flyaway Cost for JSF Variants:

Table 4: Knowledge Attainment on JSF Program at Critical Junctures:

Figures:

Figure 1: Development Costs:

Figure 2: Changes to the Program Schedule:

Figure 3: JSF Acquisition Approach Compared with Best Practices 
Approach for an Evolutionary, Knowledge-Based Acquisition Process:

Figure 4: Overlap of JSF Low-Rate Production and System Development and 
Demonstration Activities:

Figure 5: JSF Program's Annual Funding Requirements:

Abbreviations:

DOD: Department of Defense:

JSF: Joint Strike Fighter:

OSD: Office of the Secretary of Defense:

United States Government Accountability Office:

Washington, DC 20548:

March 15, 2005:

Congressional Committees:

The Joint Strike Fighter (JSF) program is the Department of Defense's 
(DOD) most costly aircraft acquisition. The program's goals are to 
develop and field more than 2,400 stealthy strike fighter aircraft for 
the Navy, Air Force, and Marine Corps and potentially several hundred 
more aircraft for U.S. allies. The JSF is intended to provide greater 
capability and to replace DOD's aging fighter and attack aircraft. DOD 
estimates that the total cost to develop and procure its fleet of 
aircraft will reach $245 billion, with total costs to maintain and 
operate the JSF adding another $344 billion over its life cycle. This 
expense must be measured against other DOD and national priorities as 
the government moves into lean budget years. The JSF will be competing 
for a decreasing share of the federal budget available for 
"discretionary" spending. This includes defense spending and is in 
contrast to "mandatory" spending, such as Social Security and Medicare/ 
Medicaid. In fiscal year 2004, discretionary spending accounted for 
about 39 percent of the federal budget. The Congressional Budget Office 
projects that discretionary spending, as a percentage of the overall 
budget, is likely to decrease in the future.[Footnote 1]

Since the program began, in November 1996, it has experienced technical 
challenges that have resulted in significant cost increases and 
schedule overruns. During most of 2004, program officials worked to 
understand and define current development risks in order to prepare 
more accurate cost and delivery estimates. The upcoming investment 
decisions to begin manufacturing development prototypes and to begin 
long-lead funding for production aircraft in 2006 will be prominent 
indicators of the risk DOD is willing to accept as the JSF program 
moves forward and annual outlays needed to support the program 
significantly increase. 

The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005 (P.L. 108-375) requires us to review the JSF program annually for 
the next 5 years.[Footnote 2] This is our first report, and it (1) 
analyzes the JSF program's business case[Footnote 3] for delivering new 
capabilities to the warfighter and (2) determines whether the JSF 
program's acquisition strategy follows an evolutionary, knowledge- 
based approach. The best practice is to establish an incremental--or 
evolutionary--approach to meet these needs by delivering increasingly 
better performance over time as funding and technologies permit and 
provide specific knowledge about the system at key decision points in 
the acquisition process. 

The act also requires us to certify whether we had access to sufficient 
information to make informed judgments on the matters contained in our 
report. As a result of a lengthy program replanning effort that had 
been in process during most of 2004, we did not have access to the cost 
estimate expected to be contained in JSF's Selected Acquisition Report, 
to be delivered to Congress in the spring of 2005. At the time of our 
review, JSF program officials were still collecting the necessary 
information to develop and complete this estimate. Therefore, our 
review was limited to the estimated program costs contained in the 
December 31, 2003, Selected Acquisition Report. We did, however, have 
access to top-level program and preliminary schedule information 
reflecting the status of the replanning effort. Recognizing this 
limitation in scope, we did have access to sufficient information to 
make informed judgments on the matters covered in this report. We 
performed our work from June 2004 through March 2005 in accordance with 
generally accepted government auditing standards. For more on our scope 
and methodology, see appendix II. 

Results in Brief:

The original business case for the JSF program has proven to be 
unexecutable. DOD now plans to buy 535 fewer aircraft than originally 
planned. Development costs have grown over 80 percent, from $25 billion 
to $45 billion, since the program started in 1996. Total program costs 
have increased by 5 percent, or $12 billion, and program acquisition 
unit costs have increased by 23 percent, or $19 million, since first 
estimates in 2001. This has resulted in a reduction in buying power in 
that DOD is now buying fewer JSFs at a higher investment than 
originally planned. The first delivery of initial operational 
capabilities to the warfighter has been delayed 2 years so far. DOD may 
not know for some time what the program will cost or when it will be 
able to deliver needed capabilities. The program is still redesigning 
the three variants of the aircraft that it plans to deliver and is 
examining the software development and flight test programs. The 
services--the program's customers--have not determined the exact 
quantities of each variant they expect to buy. Finally, DOD's past 
practice of changing JSF program managers approximately every 2 years 
decreases accountability and, if continued, will make it more difficult 
to deliver on future business case agreements. 

The program's current acquisition strategy does not fully follow the 
intent of DOD's evolutionary, knowledge-based acquisition policy that 
is based on best practices. An evolutionary, knowledge-based strategy 
will be necessary to successfully execute a new business case in the 
future. Instead, the program plans to concurrently develop the JSF 
technologies, integrate and demonstrate the expected product design, 
and produce deliverable fighters--a risky approach. JSF's acquisition 
strategy is to have the developer manufacture nearly 20 percent of the 
planned JSF fleet at a cost of approximately $50 billion beginning in 
2007, well before system development and demonstration is expected to 
be completed in 2013. To achieve planned low-rate initial production 
capacity, DOD must make significant investments in tooling, facilities, 
and personnel. Once the production decision is made, DOD's planned 
investment for production will increase from $100 million a month in 
2007 to about $1 billion a month before testing is completed in 2013. 
Because this substantial investment in procurement will take place 
while the program is still designing and testing the development 
aircraft, it increases the likelihood of costly design changes to 
production aircraft and manufacturing processes, reduced quality and 
reliability, and further delays in the delivery of JSFs to the 
warfighter. Moreover, the program acquisition strategy assumes an 
unprecedented $225 billion in acquisition funding over the next 22 
years, or an average of $10 billion a year. As a result, the JSF 
program will need to successfully compete with many other large 
programs for scarce funding during this same time frame. Finally, the 
strategy assumes the use of a cost reimbursement-type contract for 
initial production, placing a high risk burden on the government during 
the early production phase. 

We are recommending that DOD establish an executable program consistent 
with best practices and DOD policy regarding evolutionary acquisitions. 
DOD officials should define an affordable first increment, with its own 
business case, that clearly defines the warfighters' most immediate 
needs and accurately identifies the resources required to deliver on 
this needed capability. We are also recommending DOD develop and 
implement a knowledge-based acquisition approach, as called for by best 
practices and DOD's acquisition policy, an approach that ensures 
attainment and use of demonstrated product knowledge before making 
future investments for each product increment. Before increasing the 
investment in production resources (tooling, materials, and personnel) 
greater than that already in place to support the manufacturing of 
development test aircraft, the Secretary of Defense should ensure 
knowledge consistent with best practices is captured. 

DOD partially concurred with our recommendations, stating that the 
department is confident management practices and processes currently in 
place achieve the objective of our recommendations. It also stated that 
the JSF acquisition strategy and execution activities ensure the 
department commits resources only after determining that specific 
developmental or knowledge-based criteria are achieved. We continue to 
believe that our recommendations would reduce risks and save time and 
money over the life of the program through a more rigorous and 
comprehensive application of an evolutionary, knowledge-based process, 
a process anchored with high standards for capturing knowledge at 
critical junctures and used for making investment decisions in the 
future. 

Background:

JSF is a joint, multinational acquisition program for the Air Force, 
Navy, Marine Corps, and eight cooperative international partners. The 
program began in November 1996 with a 5-year competition between 
Lockheed Martin and Boeing to determine the most capable and affordable 
preliminary aircraft design. Lockheed Martin won the competition, and 
the program entered system development and demonstration in October 
2001. 

The program's objective is to develop and deploy a technically superior 
and affordable fleet of aircraft that support the warfighter in 
performing a wide range of missions in a variety of theaters. The 
single-seat, single-engine aircraft is being designed to be self- 
sufficient or part of a multisystem and multiservice operation, and to 
rapidly transition between air-to-surface and air-to-air missions while 
still airborne. To achieve its mission, the JSF will incorporate low 
observable technologies, defensive avionics, advanced onboard and 
offboard sensor fusion,[Footnote 4] and internal and external weapons. 
The JSF aircraft design has three variants: conventional takeoff and 
landing variant for the Air Force, aircraft carrier-suitable variant 
for the Navy, and short takeoff and vertical landing variant for the 
Marine Corps, the United Kingdom, and the Air Force. These aircraft are 
intended to replace aging fighter and attack aircraft currently in the 
inventory (see table 1). 

Table 1: Military Services' Planned Use for the Joint Strike Fighter:

Service: Air Force; 
Planned use: Replacement for the F-16 and A-10; 
complement the F/A-22. 

Service: Marine Corps; 
Planned use: Replacement for the AV-8B and F/A- 18 A/C/D. 

Service: Navy; 
Planned use: Complement the F/A-18 E/F. 

Service: United Kingdom; 
Planned use: Replacement for the Sea Harrier and GR-7. 

Source: DOD data. 

[End of table]

In 2004, DOD extended the JSF program schedule to address problems 
discovered during systems integration and the preliminary design 
review. Design efforts revealed significant airframe weight problems 
that affected the aircraft's ability to meet key performance 
requirements. Software development and integration also posed a 
significant development challenge. Program officials delayed the 
critical design reviews, first flights of development aircraft, and the 
low-rate initial production decision to allow more time to mitigate 
design risk and gather more knowledge before continuing to make major 
investments. As a result, the initial operational capability date was 
delayed. DOD is in the process of reestablishing resource levels needed 
to deliver capabilities, given current and expected future conditions. 
The new business case will be presented to the Office of the Secretary 
of Defense (OSD) decision makers this spring. 

A key to successful product development is the formulation of a 
business case that matches requirements with resources--proven 
technologies, sufficient engineering capabilities, time, and funding--
-when undertaking a new product development. First, the user's needs 
must be accurately defined, alternative approaches to satisfying these 
needs properly analyzed, and quantities needed for the chosen system 
must be well understood. The developed product must be producible at a 
cost that matches the users' expectations and budgetary resources. 
Finally, the developer must have the resources to design and deliver 
the product with the features that the customer wants and to deliver it 
when it is needed. If the financial, material, and intellectual 
resources to develop the product are not available, development does 
not go forward. If the business case measures up, the organization 
commits to the development of the product, including the financial 
investment. This calls for a realistic assessment of risks and costs; 
doing otherwise undermines the intent of the business case and invites 
failure. Program managers in organizations employing best practices are 
incentivized to identify risk early, be intolerant of unknowns, and be 
conservative in their estimates. Ultimately, preserving the business 
case strengthens the ability of managers to say no to pressures to 
accept high risks or unknowns. 

More Resources Are Now Needed to Deliver Planned Capabilities:

A key objective of the JSF acquisition program is to develop and 
produce fighter aircraft with greater capabilities and lower 
acquisition and ownership costs than previous fighter aircraft and to 
deliver the aircraft in time to replace DOD's aging fleet. However, 
since the program began in 1996, several program decisions have 
resulted in increased program costs, reduced procurement quantities, 
and delayed delivery dates--making the original business case 
unexecutable. Continued program uncertainties about the aircraft 
redesign, software development, flight test program, and procurement 
quantities make it difficult to estimate the total amount of resources 
needed. Given the uncertainties, the program needs more time to gain 
knowledge before committing to a new, more accurate business case. The 
current pause to replan JSF development and production provides the 
program this opportunity. Finally, frequent changes in JSF program 
management, if continued, will compromise efforts to execute the 
business case agreements. 

JSF's Original Business Case Is Unexecutable:

Several significant changes to the JSF acquisition program have made 
DOD's original business case unexecutable. Purchase quantities have 
been reduced by more than 500 aircraft, total program costs have 
increased by about $12 billion, and delivery of the aircraft has been 
delayed by about 2 years (see table 2 and app. IV for more details). 
These changes have effectively reduced DOD's buying power for its 
investment, as it now plans to buy fewer aircraft with a greater 
financial investment. 

Table 2: Changes in JSF Program Purchase Quantities, Costs, and 
Delivery Estimates:

Expected quantities: Development quantities; 
November 1996 (program start): 10; 
October 2001 (system development start): 14; 
As of January 2005: 15. 

Expected quantities: Procurement quantities (U.S. only); 
November 1996 (program start): 2,978; 
October 2001 (system development start): 2,852; 
As of January 2005: 2,443. 

Total quantities; 
November 1996 (program start): 2,988; 
October 2001 (system development start): 2,866; 
As of January 2005: 2,458. 

Cost estimates (then year dollars in billions): Development; 
November 1996 (program start): $24.8; 
October 2001 (system development start): $34.4; 
As of January 2005: $44.8. 

Cost estimates (then year dollars in billions): Procurement; 
November 1996 (program start): Not available; 
October 2001 (system development start): $196.6; 
As of January 2005: $199.8. 

Cost estimates (then year dollars in billions): Other; 
November 1996 (program start): Not available; 
October 2001 (system development start): $2.0; 
As of January 2005: $0.2. 

Cost estimates (then year dollars in billions): Total program; 
November 1996 (program start): Not available; 
October 2001 (system development start): $233.0; 
As of January 2005: $244.8. 

Unit cost estimates (then year dollars in millions): Program 
acquisition; 
November 1996 (program start): Not available; 
October 2001 (system development start): $81; 
As of January 2005: $100. 

Unit cost estimates (then year dollars in millions): Total ownership; 
November 1996 (program start): Not available; 
October 2001 (system development start): $217; 
As of January 2005: $240. 

Estimated delivery dates: First aircraft delivery; 
November 1996 (program start): 2007; 
October 2001 (system development start): 2008; 
As of January 2005: 2009. 

Estimated delivery dates: Initial operational capability; 
November 1996 (program start): 2010; 
October 2001 (system development start): 2010-2012; 
As of January 2005: 2012-2013. 

Source: GAO analysis of DOD data. 

[End of table]

Reduced Quantities and Increased Costs Have Lessened the JSF Program's 
Buying Power:

The JSF acquisition program's estimated development and procurement 
costs have increased. In addition, the number of aircraft it plans to 
deliver has been reduced. As a result, unit costs for the JSF aircraft 
have increased substantially, thereby reducing the program's buying 
power. The most significant quantity reduction occurred after system 
development began in 2001, when the program reduced the number of 
aircraft it plans to procure from 2,852 to 2,443, or by 14 percent. The 
Navy--concerned that it could not afford the number of tactical 
aircraft it planned to purchase--reduced the number of JSF aircraft for 
joint Navy and Marine Corps operations from 1,089 to 680 by reducing 
the number of backup aircraft needed. However, the Navy has not 
indicated to the developer the exact mix of the carrier and short 
takeoff and vertical landing variants it intends to purchase. 

The cost estimate to fully develop the JSF has increased by over 80 
percent. DOD expected that by using a joint development program for the 
three variants instead of three separate programs, JSF development 
costs could be cut by about 40 percent. However, cost increases have 
nearly eroded all of the estimated savings. Development costs were 
originally estimated at $24.8 billion. By the 2001 system development 
decision, these costs had increased by $9.6 billion largely because of 
a 36-month schedule extension to allow more time to mature the mission 
systems and a more mature cost estimate. 

By 2004, costs increased an additional $10.4 billion to $44.8 billion. 
The program office cited several reasons, including efforts to achieve 
greater international commonality, optimize engine interchangeability, 
refine the estimating methodology, and extend the schedule for 
unexpected design work. Almost half of this increase, $4.9 billion, was 
a result of an approximately 18-month delay for unexpected design work 
caused by increased aircraft weight that degraded the aircraft's key 
performance capabilities. Figure 1 compares the original and latest 
development cost estimates. 

Figure 1: Development Costs:

[See PDF for image]

[End of figure]

Current estimates for the program acquisition unit cost are about $100 
million, and the total estimated cost to own an aircraft over its life 
cycle is $240 million--an increase of 23 percent and 11 percent, 
respectively. In 1996, the program established unit flyaway 
cost[Footnote 5] goals for each variant, expecting the variants to have 
a high degree of commonality and to be built on a common production 
line. However, commonality among the variants has decreased, and the 
cost to produce the aircraft has increased (see table 3). The unit 
flyaway cost for the conventional takeoff and landing variant has 
increased by 42 percent; the cost for the short takeoff and vertical 
landing variant has increased by a range of 37 to 55 percent; and the 
cost for the carrier variant has increased by a range of 29 to 43 
percent. According to program data, a large part of the cost increase 
since the start of development can be attributed to labor costs for 
building the airframe and to the costs for producing the complex 
mission systems. 

Table 3: Changes in Unit Flyaway Cost for JSF Variants:

Variant: (Unit flyaway costs are stated in millions of fiscal year 2002 
dollars): Conventional takeoff and landing; 
November 1996 (program start): $31.5; 
October 2001 (system development start): $37.0; 
As of January 2005: $44.8. 

Variant: (Unit flyaway costs are stated in millions of fiscal year 2002 
dollars): Short takeoff and vertical landing; 
November 1996 (program start): $33.7-39.3; 
October 2001 (system development start): $45.8; 
As of January 2005: $54.0-61.1. 

Variant: (Unit flyaway costs are stated in millions of fiscal year 2002 
dollars): Carrier; 
November 1996 (program start): $34.9-42.7; 
October 2001 (system development start): $47.8; 
As of January 2005: $55.0-61.0. 

Source: DOD data. 

[End of table]

With reduced quantities and increased program costs, the JSF program is 
now buying fewer aircraft at a higher cost, thereby reducing the 
program's buying power. How effectively DOD manages its JSF funds will 
determine whether it receives a good return on its investment. A sound 
and executable business case is needed to effectively do this. Our 
reviews over the past 20 years have consistently found that DOD's 
weapon system acquisitions take much longer and cost more than 
originally planned, causing disruptions and increasing pressures to 
make unplanned trade-offs to accommodate the resulting budget needs. 

Operational Capabilities Have Been Delayed:

The timely delivery of the JSF to replace aging legacy aircraft was 
cited as a critical need by the warfighter at the program start. When 
the program was initiated, in 1996, it planned to deliver initial 
operational capabilities to the warfighter in 2010. However, largely 
because of technical challenges, the program has delayed the delivery 
of operational aircraft, and current estimates put delivery at 2012 to 
2013. Because of these delays, the services may have to operate legacy 
aircraft longer than expected. These challenges have also delayed 
interim milestones such as the start of system development, design 
reviews, and production decisions. Figure 2 illustrates changes to the 
overall program schedule since it began in 1996 through 2004. 

Figure 2: Changes to the Program Schedule (1996 through 2004):

[See PDF for image]

[End of figure]

Program Uncertainties Make It Difficult to Estimate Resources:

The full impact on costs, schedules, and aircraft performance brought 
about by recent design changes and aggressive software development and 
flight test programs add risks that may not be fully understood for 
some time. Continuing uncertainties about total quantities and types of 
the three JSF variants that the services and the international partners 
expect to purchase in the future also make it difficult to accurately 
estimate costs and schedules. 

Aircraft Design, Software Development, and Flight Test Program Not 
Fully Understood:

In December 2003, DOD estimated program costs based on a notional idea 
of a restructured program. The cost estimates not only lacked detail 
but were based on a different aircraft design, development schedule, 
and procurement plan than what is now being considered. Over the past 
year, DOD has been working to restructure the JSF program to 
accommodate changes in the aircraft's design; until this restructuring 
is completed, it will be difficult to accurately estimate program 
costs. The need for design changes largely resulted from the increased 
weight of the short takeoff and vertical landing variant and the impact 
it was having on key performance parameters. The other JSF variants' 
designs were affected as well. The program plans to have a more 
comprehensive cost estimate in the spring of 2005. However, a detailed 
assessment has not been conducted to determine the exact impact that 
the restructured program will have on meeting performance 
specifications. Until the detailed design efforts are complete--after 
the critical design review in February 2006--the program will have 
difficulty assessing the impact of the design changes on performance. 
While the program office anticipates that recent design changes will 
allow the aircraft to meet key performance parameters, preliminary 
program data indicate that the design is still not meeting several 
speed, maneuverability, and radar cross section 
specifications.[Footnote 6] In addition, program officials noted that 
they will not know with certainty if the weight problems have been 
resolved until after the plane is manufactured and weighed in mid-2007. 

Program officials recognize that JSF's development schedule is 
aggressive and are examining ways to reduce program requirements while 
keeping costs and schedules constant. Design and software teams have 
found greater complexity and less efficiency as they develop the 17 
million lines of software needed for the system. Program analysis also 
indicated that some aircraft capabilities will have to be deferred to 
stay within cost and schedule constraints. As a result, the program 
office is working with the warfighters to determine what capabilities 
could be deferred to later in the development program or to follow on 
development efforts while still meeting the warfighter's basic needs. 
Many of these capabilities are related to the software-intensive 
mission systems suite. They are also examining the content and schedule 
of the planned 7-year, 10,000-hour flight test program. According to 
the program office, the test program was already considered aggressive, 
and recent program changes have only increased the risks of completing 
it on time. 

Quantities of Variants Still Unknown:

Continued uncertainty about the number and mix of variants the services 
plan to purchase also affects JSF's acquisition plans. While the Air 
Force has announced its intention to acquire the short takeoff and 
vertical landing variant, it has yet to announce when or how many it 
expects to buy or how this purchase will affect the quantity of the 
conventional takeoff and landing variant it plans to buy.[Footnote 7] 
DOD's 2003 acquisition report states that the annual total quantity and 
mix of JSF variants and their related procurement costs for Navy and 
Marine Corps JSF purchases remains to be determined. Foreign partners 
have expressed intent to buy about 700 aircraft between 2012 and 2015, 
but no formal agreements have been signed at this time. 

The upcoming 2005 Quadrennial Defense Review--an examination of U.S. 
defense needs conducted every 4 years--could also affect the 
procurement quantities and schedule. 

Frequently Changing Program Managers Reduces Accountability:

Since the JSF program began, a little over 8 years ago, the program has 
had five program managers--a new program manager assigned about every 2 
years. The development program is estimated to last another 9 years, 
and it is likely that the program manager currently involved in 
decisions about key program elements such as design, cost, and schedule 
will not be responsible for seeing JSF through its completion. In other 
words, plans accepted now will likely become the responsibility of 
future program managers. 

Leading commercial firms limit product development cycle times, thereby 
increasing the possibility that program managers will remain on 
programs until they are complete. Holding one program manager 
accountable for the content of the program when key decisions are made 
encourages that person to raise issues and problems early and 
realistically estimate the resources needed to deliver the program. 
This puts the manager in a good position to deliver a high-quality 
product on time and within budget. We note that the law governing the 
defense acquisition workforce recognizes the need for long-term 
assignments in the performance of the program manager 
function.[Footnote 8] Specifically, the assignment period for program 
managers is required to be at least until completion of the major 
milestone that occurs closest in time to the date on which the manager 
has served in the position for 4 years. 

JSF's Current Acquisition Strategy May Not Provide for Successful 
Program Execution:

The JSF program does not have an evolutionary, knowledge-based 
acquisition strategy that fully follows the intent of DOD's acquisition 
policy. This type of strategy is necessary for having an executable 
business case in the future. The current strategy includes plans to 
make large production commitments well before system development and 
testing have been completed, significantly increasing the risk of 
further delays and cost increases due to design changes and 
manufacturing inefficiencies. It is also dependent on an aggressive 
test aircraft delivery schedule and an optimistic funding profile that 
assumes an unprecedented $225 billion over the next 22 years, or an 
average of $10 billion a year. DOD plans to bear the financial risk of 
concurrently developing and initially producing the JSF on a cost 
reimbursement basis with the prime contractor, an uncommon practice for 
such a large number of units, until the design and manufacturing 
processes are mature. Program officials currently have an opportunity 
to change the acquisition strategy. DOD policy and best practices call 
for programs to use an acquisition strategy that reflects an 
evolutionary, knowledge-based approach--that is, one that ensures 
appropriate technology, design, and manufacturing knowledge are 
captured at key milestones before committing to increased investments. 
Our past work has shown that when programs demonstrate a high level of 
knowledge before making significant commitments, they are able to 
deliver products within identified resources. 

JSF Program Not Fully Employing an Evolutionary, Knowledge-Based 
Approach:

In recent years, DOD has revised its acquisition policy to support an 
evolutionary, knowledge-based approach for acquiring major weapon 
systems based on best practices.[Footnote 9] JSF's acquisition strategy 
does not fully follow the intent of this policy. Instead, it strives to 
achieve the ultimate JSF capability within a single product development 
increment. While the acquisition strategy calls for delivering a small 
number of aircraft with limited capabilities, the program has committed 
to deliver the full capability by the end of system development and 
demonstration in 2013 within an established cost and schedule, contrary 
to an evolutionary approach. The JSF program bypassed early 
opportunities to trade or defer to later increments those features and 
capabilities that could not be readily met. The planned approach will 
not capture adequate knowledge about technologies, design, and 
manufacturing processes for investment decisions at key investment 
junctures. Figure 3 shows a comparison of an evolutionary, knowledge- 
based process based on best practices and JSF's more concurrent 
approach. 

Figure 3: JSF Acquisition Approach Compared with Best Practices 
Approach for an Evolutionary, Knowledge-Based Acquisition Process:

[See PDF for image]

[End of figure]

Successful commercial companies use an evolutionary acquisition 
approach where new products are developed in increments based on 
available resources. Companies have found that trying to capture the 
knowledge required to stabilize the design of a product that requires 
significant amounts of new content is an unmanageable task if the goal 
is to reduce cycle times and get the product to the customer as quickly 
as possible. With an evolutionary acquisition approach, design elements 
that are not currently achievable are planned for and managed as 
increments in future generations of the product, and each increment is 
managed as a separate knowledge-based acquisition, with separate 
milestones, costs, and schedules. 

Programs that attain the right knowledge at the right time reduce the 
risk of incurring design, development, and manufacturing problems that 
result in cost and schedule overruns. Our past work has shown that to 
ensure successful program outcomes, a high level of demonstrated 
knowledge must be attained at three key junctures for each increment in 
the program. 

* At knowledge point 1, the customer's needs should match the 
developer's available resources--mature technologies, engineering 
knowledge, time, and funding--before system development starts. This is 
indicated by a demonstration that technologies needed to meet essential 
product requirements work in their intended environment and the 
producer has completed a preliminary design of the product that shows 
that the design is feasible. 

* At knowledge point 2, the product's design is stable and has 
demonstrated that it is capable of meeting performance requirements 
before transitioning from system integration to system demonstration. 
This is best indicated by a prototype demonstration of the design and 
release of 90 percent of the engineering drawings to manufacturing 
organizations. 

* At knowledge point 3, the product must be producible within cost, 
schedule, and quality targets and demonstrated to be reliable and work 
as intended before production begins. This is indicated by a 
demonstration of an integrated product in its intended environment and 
by bringing critical manufacturing processes under statistical control. 

JSF Began System Development Well before Knowledge Point 1:

The start of the JSF system development was approved in 2001--well 
before a match was made between the customer's requirements and the 
resources needed to meet those requirements. Many of the technologies 
needed for the product's full capabilities were demonstrated only in a 
lab environment or ground testing and not in the form, fit, or 
functionality needed for the intended product design. Also, while the 
program had a proposed technical solution to meet the warfighter's 
requirements, it did not deliver a preliminary design based on sound 
systems engineering principles. At the JSF preliminary design review, 
held about 1 years after development started, significant design 
issues surfaced, potentially affecting the critical performance 
capabilities of the aircraft. The program has worked to find solutions 
to design problems, but at a substantial cost. The detailed design work 
has fallen behind schedule, delaying the critical design reviews for 16 
to 22 months. Table 4 compares the product knowledge available at the 
JSF system development start and the knowledge expected to be available 
to support future decision points based on the current acquisition 
plan. 

Table 4: Knowledge Attainment on JSF Program at Critical Junctures:

Decision points: Investment decision; 
Development start--2001: Develop a product that meets customer 
expectations within available resources; Requires a significant 
financial commitment to design, integrate, and demonstrate that the 
product will meet the user's requirements and can be manufactured on 
time, with high quality, and at cost that provides an acceptable return 
on investment; 
Design review--2006: Transition from system integration to system 
demonstration; Requires significant investment to start building and 
testing production representative prototypes in a manufacturing 
environment; 
Production start--2007: Produce and deliver a product to the user; 
Requires significant investments for materials and resources such as 
additional tooling to build the product at planned rates, facilities, 
personnel, training, and support. 

Decision points: Best practice; 
Development start--2001: Attain knowledge point 1; Separate technology 
and product development, deliver mature technology, and have 
preliminary design based on systems engineering principles; 
Design review--2006: Attain knowledge point 2; Completion of 90 percent 
of engineering drawing packages for structures and systems, critical 
design review completed, and design prototyped; 
Production start--2007: Attain knowledge point 3; One hundred percent 
of critical manufacturing processes under statistical control, 
demonstration of a fully integrated product in its operational 
environment to show it will work as intended, and reliability goals 
demonstrated. 

Decision points: JSF practice; 
Development start--2001: Knowledge point 1 was not attained; Failed to 
separate technology and product development. Critical technologies not 
mature and sound preliminary design not established. Several 
technologies not expected to be mature until after production begins; 
Design review--2006: Knowledge point 2 will not be attained under 
current plan; The program estimates 35 percent of the engineering 
drawing packages are expected to be released at the critical design 
review. Also, prototype testing will not be done prior to the design 
review. The design will not be stable until after production begins; 
Production start--2007: Knowledge point 3 will not be attained under 
current plan; The program does not expect to demonstrate that the 
critical processes are under statistical control until 2009. The 
program expects to demonstrate that a fully integrated aircraft will 
work as intended and meets reliability goals in 2010-2012 time frame. 

Source: GAO data and analysis of DOD data. 

[End of table]

JSF Program Plans to Commit Significant Resources to System 
Demonstration before Reaching Knowledge Point 2:

Knowing that a product's design is stable before system demonstration 
reduces the risk of costly design changes occurring during the 
manufacturing of production representative prototypes--when investments 
in acquisitions become even more significant. The JSF program expects 
to have all critical drawings and a small number of other drawings 
completed by the planned February 2006 critical design review--the 
milestone at which design stability is determined.[Footnote 10] 
However, these drawings represent only about 35 percent of the total 
drawings needed to complete the JSF design. While program officials 
believe that having 35 percent of the total drawings will allow them to 
track JSF's design stability, we have found that programs that moved 
forward with less than 90 percent of the total drawings at the start of 
the product demonstration phase were challenged to stabilize the design 
at the same time they were trying to build and test the product. This 
overlap frequently results in costly design changes and parts shortages 
during manufacturing, which, in turn, result in labor inefficiencies, 
schedule delays, and quality problems.[Footnote 11] The F/A-22 and PAC-
3 missile are prime examples of programs that failed to complete 90 
percent of their drawings by the critical design review and suffered 
substantial cost increases and schedule delays. 

Using prototypes to demonstrate the design is a best practice that 
provides additional evidence of design stability. JSF will not have 
this type of demonstration before the critical design review. Prototype 
testing allows the design to be demonstrated before making costly 
investments in materials, manufacturing equipment, and personnel to 
begin building production representative prototypes for the system 
demonstration phase. The JSF program is building an early prototype of 
the conventional takeoff and landing variant and plans to use this 
prototype to validate performance predictions, manufacturing processes, 
and reliability and maintainability models.[Footnote 12] According to 
the current schedule, however, the first demonstrations will occur 
after the critical design review, after most of the design drawings 
have been released, and after manufacturing has begun for many of the 
remaining test aircraft. Any significant design problems found during 
the prototype demonstrations would likely require more time and money 
for redesign efforts and retrofitting of test aircraft already in the 
manufacturing process. 

JSF Program Plans to Enter Production before Knowledge Point 3:

In addition to lacking mature technologies and design stability, the 
JSF program will lack critical production knowledge when it plans to 
enter low-rate initial production in 2007. Between 2007 and 2013, when 
the program is scheduled to move to full-rate production, it expects to 
buy nearly 500 JSF aircraft--20 percent of its planned total buys--at a 
cost of roughly $50 billion. Under the program's preliminary plan, it 
expects to increase low-rate production from 5 aircraft a year to 143 
aircraft a year, significantly increasing the financial investment 
after production begins.[Footnote 13] Between 2007 and 2009, the 
program plans to increase low-rate production spending from about $100 
million a month to over $500 million a month, and before development 
has ended and an integrated aircraft has undergone operational 
evaluations, DOD expects to spend nearly $1 billion a month. To achieve 
its production rate, the program will invest significantly in tooling, 
facilities, and personnel. According to contractor officials, an 
additional $1.2 billion in tooling alone would be needed to ramp up the 
production rate to 143 aircraft a year. Over half of this increase 
would be needed by 2009--more than 2 years before operational flight 
testing begins. 

Despite this substantial investment, the key event to support the 
decision to enter low-rate production in 2007 is the JSF's first 
flight. Significant commitments will thus be made to JSF production 
before requisite knowledge is available. This is a much lower standard 
than called for by best practices. The following are examples of 
technology, design, and production knowledge that will not have been 
achieved at the time JSF enters low-rate initial production. 

Technology: According to information provided by the program office, 
only one of JSF's eight critical technologies is expected to be 
demonstrated in an operational environment by the 2007 low-rate 
production decision. The remaining seven technologies, which include 
the complex mission systems and prognostics and health maintenance 
systems, are not expected to be mature prior to entering production. 
(See app. III for program office's projected time frames for 
demonstrating the eight critical technologies.)

Design: Low levels of design knowledge will continue beyond the 
production decision. Only about 40 percent of the 17 million lines of 
code needed for the system's software will have been released. The 
complex software needed to integrate the advanced mission systems is 
not scheduled for release until about 2010--3 years after JSF is 
scheduled to enter production. In addition, most structural fatigue 
testing and radar cross section testing of full-up test articles-- 
needed to verify the stability of the aircraft's structural design--are 
not planned to be completed until 2010. 

Production: The program will not demonstrate that critical 
manufacturing processes are in statistical control when it enters 
production. At that time, only one test aircraft will be completed and 
delivered. According to the contractor, manufacturing processes will 
not be under statistical control until after all of the system 
development and demonstration aircraft have been built. Also, flight 
testing of a fully configured and integrated JSF (with critical mission 
systems and prognostics technologies) is not scheduled until 2011. 
Operational testing to evaluate the effectiveness and suitability of 
the integrated system will continue until the full-rate production 
decision in 2013. 

The JSF, like many past DOD weapons programs, is very susceptible to 
discovering costly problems late in development when the more complex 
software and advanced capabilities are tested. In the case of the JSF, 
several hundred aircraft costing several billions of dollars may 
already be on order or delivered, making any changes that result from 
testing costly to incorporate. Figure 4 shows the proposed low-rate 
initial production plan and how it overlaps with development and test 
activities. 

Figure 4: Overlap of JSF Low-Rate Production and System Development and 
Demonstration Activities (Includes U.S. and U.K. Quantities):

[See PDF for image]

[End of figure]

Failing to Meet Aggressive Delivery Schedule Could Delay Flight Testing:

If the JSF program cannot meet aggressive delivery schedules for test 
aircraft, flight testing will be delayed. Flight testing provides key 
knowledge about JSF performance needed to make investment decisions for 
production. The JSF program is attempting to develop three different 
aircraft, for three different services. All want to fly at supersonic 
speeds, shoot air-to-air missiles, and drop bombs on a target, but they 
all have vastly different operational concepts. While each of the 
variants may look similar externally, subtle design differences provide 
many needed capabilities that are unique to each service. As a result, 
the program will attempt to design, build, and test simultaneously 
three distinct aircraft designs. This difficult task is further 
complicated by plans to manufacture and deliver in a 5-year period, 15 
flight test aircraft and 8 ground test articles. When compared with 
schedules of other programs with fewer variables, JSF's schedule is 
aggressive. For example, the F/A-22 program took almost 8 years to 
manufacture and deliver nine flight test aircraft and two ground test 
articles of a single aircraft design. 

While the first aircraft had only been in assembly for about 8 months, 
it was already behind schedule as of January 2005. According to the 
Defense Contract Management Agency, based on the manufacturing status 
of the center fuselage, wing, forward fuselage, and software 
development, the first flight, scheduled for August 2006, could be 
delayed from 2 to 6 months. Late engineering releases to the 
manufacturing floor have resulted in parts shortages and manufacturing 
inefficiencies. According to contractor data, as of January 2005, it 
had taken about 50 percent more labor hours than planned to complete 
manufacturing efforts. 

Program Funding Level Assumptions May Be Difficult to Achieve:

To execute its current acquisition strategy, the JSF program must 
obtain on average over $10 billion annually in acquisition funds over 
the next 2 decades. Regardless of likely increases in program costs, 
the sizable continued investment in JSF--estimated at roughly $225 
billion over 22 years[Footnote 14]--must be viewed within the context 
of the fiscal imbalance facing the nation within the next 10 years. The 
JSF program will have to compete with many other large defense 
programs, such as the Army's Future Combat System and the Missile 
Defense Agency's ballistic missile defense system, for funding during 
this same time frame. There are also important competing priorities 
external to DOD's budget. Fully funding specific programs or activities 
will undoubtedly create shortfalls in others. 

Funding challenges will be even greater if the program fails to 
translate current cost estimates into actual costs. For example, we 
estimate that another 1-year delay in JSF development would cost $4 
billion to $5 billion based on current and expected development 
spending rates. A 10 percent increase in production costs would amount 
to $20 billion. The JSF program's latest planned funding profile for 
development and procurement--as of December 2003--is shown in figure 5. 

Figure 5: JSF Program's Annual Funding Requirements (as of December 
2003):

[See PDF for image]

[End of figure]

Current Strategy Requires Prolonged Reliance on Cost Reimbursement 
Contract:

The program's acquisition strategy is to concurrently develop, test, 
and produce the JSF aircraft, creating a risky approach. Because of 
this risk, the program office plans to place initial production orders 
on a cost reimbursement basis. According to program officials, a cost 
reimbursable contract is necessary during the initial production phase 
because of the uncertainties inherent in concurrent development and 
production programs that prevent the pricing of initial production 
orders on a fixed-price basis. Cost reimbursement contracts provide for 
payment of allowable incurred costs, to the extent prescribed in the 
contract. They are used when uncertainties involved in contract 
performance do not permit costs to be estimated with sufficient 
accuracy to use any type of fixed-price contract. Cost reimbursement 
contracts require only the contractor's "best efforts," thus placing a 
greater cost risk on the buyer--in this case, DOD. In contrast, a fixed-
price contract provides for a pre-established price and places more 
risk and responsibility for costs and resulting profit or loss on the 
contractor and provides more incentive for efficient and economical 
performance. However, to negotiate a fixed-price contract requires 
certainty about the item to be purchased, which in the case of the JSF 
will not be possible until late in the development program. 

The program plans to transition to a fixed-price contract once the air 
vehicle has a mature design, has been demonstrated in flight test, and 
is producible at established cost targets. According to program 
officials, this transition will occur sometime before full-rate 
production begins in 2013. The program office believes the combination 
of the early concept development work, the block development approach, 
and what it characterizes as the relatively small numbers of aircraft 
in the initial production buys allow decisions to be made earlier than 
normal with an acceptable level of risk. 

Conclusions:

The JSF program is at a crossroads. DOD has not been able to deliver on 
its initial promises, and the sizable investment DOD plans to make over 
the next few years greatly raises the stakes to meet future promises. 
Given the many uncertainties surrounding JSF's development, program 
officials need more time to gain knowledge before committing to a 
business case. JSF's failure to adequately match requirements and 
resources has already resulted in increases in cost, schedule, and 
performance estimates, and a reduction in DOD's buying power. The new 
business case must also be accompanied by an acquisition strategy that 
adopts an evolutionary approach to product development--one that 
enables knowledge-based investment decisions to maximize remaining 
program dollars. While the warfighter may not receive the ultimate 
capability initially, an evolutionary approach provides a useful 
product sooner and in sufficient quantities to start replacing the 
rapidly aging legacy fighter and attack force. The decisions DOD makes 
now and over the next 2 years will greatly influence the efficiency of 
its remaining funding--over 90 percent of the $245 billion estimated 
total program costs. Chief among these are the investments needed to 
increase production to 143 aircraft a year, increasing production 
expenditures from $100 million a month to $1 billion a month by 2013. 
While delays are never welcomed, time taken by DOD now to gain more 
knowledge and reduce risk before increasing its investment may well 
save time and money later in development and production. Now is the 
time to get the strategy right for delivering on the remainder of the 
investment. With an evolutionary, knowledge-based plan in place, DOD 
managers will be in a better position to succeed in delivering the 
warfighter needed capabilities within budgeted resources. 

Recommendations for Executive Actions:

Given that DOD has invested only about 10 percent of the estimated cost 
to develop and produce the JSF aircraft, and that significant 
investments are planned in the next few years that can lock the program 
into a higher-risk acquisition, we recommend the Secretary of Defense 
take the following two actions to increase the likelihood of having a 
successful program outcome by delivering capabilities to the warfighter 
when needed and within available resources Establish an executable 
program consistent with best practices and DOD policy regarding 
evolutionary acquisitions. DOD officials should define an affordable 
first increment, with its own business case that clearly defines the 
warfighter's most immediate needs and accurately identifies the 
resources required to deliver on this needed capability. The business 
case should be established with a high degree of confidence based on 
known constraints about technology, engineering knowledge, time, and 
money. For those warfighter needs that cannot be accommodated within 
this first increment, the program should outline a strategy to meet 
these needs through subsequent increments, each dependent on having 
sufficient product knowledge to start system development and 
demonstration. Each increment should be managed as a distinct 
acquisition with its own business case for supporting the investment. 

Develop and implement a knowledge-based acquisition approach, as called 
for by best practices and DOD's acquisition policy, an approach that 
ensures attainment and use of demonstrated product knowledge before 
making future investments for each product increment. Before increasing 
the investment in production resources (tooling, materials, and 
personnel) greater than investments already in place to support the 
manufacturing of development test aircraft, the Secretary should ensure 
knowledge consistent with best practices is captured. This should help 
minimize the number of low-rate initial production aircraft DOD 
procures on a cost reimbursement basis, reducing the potential 
financial risk to the government. 

Agency Comments and Our Evaluation:

The Office of the Under Secretary of Defense (Acquisition, Technology, 
and Logistics), provided us with written comments on a draft of this 
report. The comments appear in appendix I. 

DOD partially concurred with our recommendation that the Secretary 
establish an executable program that includes an affordable first 
increment with its own business case that clearly defines the 
warfighter's most immediate needs and accurately identifies the 
resources required to deliver on this capability. DOD stated that the 
JSF program acquisition strategy is based on an appropriate balance of 
technical, cost, and schedule risk considerations to achieve program 
objectives. Warfighter representatives are involved in determining the 
content for each block capability, and technology maturity is factored 
into the decision plan that has been endorsed by DOD leadership. DOD 
stated its JSF management practices achieve the objectives of the GAO 
recommendation. 

We believe DOD's acquisition strategy will not provide the full 
benefits of an evolutionary approach as suggested by DOD's policy and 
best practices. DOD has not structured the JSF development program into 
increments managed as separate acquisitions with their own cost, 
schedule, and decision milestones, making the likelihood of successful 
program outcomes low. The JSF strategy resembles other past major 
acquisition programs that have attempted to achieve the ultimate 
capability in a single development increment. DOD has allowed 
technology development to spill over into product development, 
weakening any foundation for program cost or schedule estimates. This 
has led to poor outcomes for other programs, such as the F/A-22 and 
Comanche, where lengthy and costly development efforts resulted in 
either program cancellation or a significant reduction in the number of 
systems to be acquired, a real loss in DOD buying power. Without a true 
evolutionary approach supported by a business case for each increment, 
it will be difficult for the JSF program to meet product requirements 
within current estimates of time and money. 

DOD also partially concurred with our recommendation to develop and 
implement a knowledge-based acquisition approach, which ensures 
attainment and use of demonstrated product knowledge before making 
future investments for each product increment. The department agrees 
that a knowledge-based approach is critical to making prudent 
acquisition decisions and stated that its current JSF acquisition 
strategy incorporates this type of approach. The department admits it 
has accepted some concurrency between development and production to 
reduce schedule and cost, but it will consider the production readiness 
of the JSF design at the low-rate and full-rate production decision 
milestones. It states that the new program plan includes clear entry 
and exit criteria for critical milestones to ensure technologies are 
mature and required incremental objectives are achieved before 
obligating funds. DOD stated that it conducts regular program reviews, 
and the Defense Acquisition Board will review program readiness prior 
to making any milestone decision. The frequent rotation of program 
leadership ensures ongoing cooperative oversight of emerging challenges 
and program decisions, and ensures accountability for the 
implementation of those decisions. Finally, DOD states that the 
acquisition strategy is consistent with acquisition directives and 
ensures the department commits resources only after determining that 
specific developmental or knowledge-based criteria are achieved. 

We believe the JSF's acquisition strategy will not capture the right 
knowledge at the right time for informed decisions on future 
investments--over $200 billion dollars. The program does not have the 
practices in place to capture knowledge at key junctures. DOD will not 
have captured knowledge before production starts that ensures the 
design is mature, reliable, and works or that manufacturing processes 
are in control---keys to successful outcomes in the production phase. 
Further, the large investments planned in production capability for the 
JSF over the next few years are vulnerable to costly changes as the 
aircraft is still being designed and tested. DOD has historically 
developed new weapon systems in a highly concurrent environment that 
usually forces acquisition programs to manage technology, design, and 
manufacturing risk at the same time. While DOD believes it can manage 
the risk of concurrent development and production by holding regular 
program reviews and with entrance and exit criteria for decisions, 
DOD's own experience has shown this approach to be risky and often not 
totally effective. This has been DOD's traditional approach to weapons 
acquisition, the same approach that has led to programs costing 
significantly more than planned and taking much longer to develop. This 
environment has made it difficult to make informed decisions because 
appropriate knowledge has not been available at key decision points. If 
decisions are tied to the availability of critical knowledge, program 
managers can be held accountable for the timely capture of that 
knowledge instead of less precise or ill-defined criteria included in 
risk reduction plans. DOD's practice of frequently changing program 
managers also decreases accountability because commitments made today 
will likely not be carried through by the same managers who made the 
commitments. 

We are sending copies of this report to the Secretary of Defense; 
the Secretaries of the Air Force, Army, and Navy; 
and the Director of the Office of Management and Budget. We will also 
provide copies to others on request. In addition, the report will be 
available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4841 or Michael Hazard at (937) 258-7917. Other 
staff making key contributions to this report were Marvin Bonner, 
Matthew Drerup, Matthew Lea, David Schilling, Karen Sloan, and Adam 
Vodraska. 

Signed by: 

Michael J. Sullivan: 
Director: 
Acquisition and Sourcing Management:

List of Congressional Committees:

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services United States Senate:

The Honorable Ted Stevens: 
Chairman: 
The Honorable Daniel K. Inouye: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate:

The Honorable Duncan Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives:

The Honorable C.W. Bill Young: 
Chairman: 
The Honorable John P. Murtha: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives:

[End of section]

Appendix I: Comments from the Department of Defense:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:
ACQUISITION, TECHNOLOGY AND LOGISTICS:

3000 DEFENSE PENTAGON: 
WASHINGTON, DC 20301-3000:

FEB 24, 2005:

Mr. Michael J. Sullivan:
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office:
441 G Street N.W. 
Washington, D.C. 20548:

Dear Mr. Sullivan:

This is the Department of Defense (DoD) response to the Government 
Accountability Office (GAO) draft report, 'TACTICAL AIRCRAFT: DoD Has 
Opportunity to Reduce Risks in the Joint Strike Fighter (JSF) Program 
With Different Acquisition Strategy,' dated January 27, 2005, (GAO Code 
120355/GAO-05-271). The Department of Defense partially concurs with 
the two recommendations in the draft report (see enclosure).

The first GAO recommendation is to manage risk with a "first increment" 
aircraft that meets only the warfighters' most immediate needs. The 
Department partially concurs.

The ongoing program replan includes a "first increment" block plan. It 
incorporates restructured spiral development with sequential capability 
increments to meet the most immediate, achievable warfighting 
requirements while limiting developmental risk. The re-plan strategy is 
a balance of technical, cost and schedule risk that incorporates a best 
practice, evolutionary approach to system acquisition as outlined in 
the latest Department regulations and instructions.

The second GAO recommendation is to develop and implement a knowledge- 
based acquisition approach which ensures attainment and use of 
demonstrated product knowledge before making future investments for 
each product "increment." The Department partially concurs.

The Department agrees that a knowledge-based approach is critical to 
making prudent acquisition decisions. The current acquisition strategy 
incorporates this type of approach with small incremental steps 
designed to meet the requirements for System Development and 
Demonstration. The Department has accepted some concurrency between 
development and production to reduce schedule and cost. The Department 
will consider the production readiness of the JSF design at the low 
rate and full rate production decision milestones based on the 
program's status at that time. The Defense Acquisition Board will 
review program readiness in detail and all aspects of concurrency risk 
will receive careful scrutiny prior to making the necessary milestone 
decisions.

The Department appreciates the opportunity to comment on the draft 
report.

Sincerely,

Signed by: 

Glenn F. Lamartin: 
Director: 
Defense Systems:

Enclosure: As stated:

GAO DRAFT REPORT - DATED JANUARY 27, 2005: 
GAO CODE 120355/GAO-05-271:

"TACTICAL AIRCRAFT: DoD Has Opportunity to Reduce Risks in the Joint 
Strike Fighter Program With Different Acquisition Strategy"

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The Government Accountability Office (GAO) 
recommended that the Secretary of Defense establish an executable 
program consistent with best practices and DoD policy regarding 
evolutionary acquisitions. DoD officials should define an affordable 
first increment, with its own business case that clearly defines the 
warfighters' most immediate needs and accurately identifies the 
resources required to deliver on this needed capability. (p. 21/GAO 
Draft Report):

DOD RESPONSE: Partially Concur. The JSF Block plan provides a spiral 
development approach to acquisition based on an appropriate balance of 
technical, cost, and schedule risk considerations to achieve program 
objectives.

JSF program replan includes a block approach to support System 
Development and Demonstration and Initial Operational Capability. 
Warfighter representatives are integral to the discussion of content 
for each block of capability, and technology maturity is factored into 
the decision plan. The Acting Under Secretary of Defense for 
Acquisition, Technology and Logistics (USD(AT&L)) endorsed the path 
forward to resolve the remaining elements of the replan. This replan 
includes a risk management approach to block capability, the integrated 
test and evaluation schedule, and funding. The OSD Cost Analysis 
Improvement Group (CAIG) estimate for the JSF will be presented at the 
next Defense Acquisition Board (DAB) review to ensure cost risks are 
understood. The Acting USD(AT&L) also requested that the Joint Program 
Office update the JSF acquisition strategy for his approval consistent 
with the President's Budget 2006 submission.

These activities are core tenets of evolutionary acquisition. The 
Department is confident management practices currently in place achieve 
the objectives of this GAO recommendation.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
develop and implement a knowledge-based acquisition approach, as called 
for by best practices and DoD's acquisition policy, which ensures 
attainment and use of demonstrated product knowledge before making 
future investments for each product increment. Before increasing the 
investment in production resources (tooling, materials, and personnel) 
greater than that already in place to support the manufacturing of 
development test aircraft, the Secretary should ensure knowledge 
consistent with best practices is captured. (p. 22/GAO Draft Report):

DOD RESPONSE: Partially Concur. The Department agrees that a knowledge- 
based approach is critical to making prudent acquisition decisions. The 
current acquisition strategy incorporates this type of approach with 
small incremental steps designed to meet the requirements for System 
Development and Demonstration.

The program replan consists of clear entry and exit criteria for 
critical milestones to ensure technologies are mature, and required 
incremental objectives are achieved before obligating funds on 
subsequent contracts. The Department conducts acquisition reviews via 
Integrating Integrated Product Teams (IIPT) and Overarching Integrated 
Product Teams (OIPT), which support Defense Acquisition Board (DAB) 
reviews. Configuration Steering Board (CSB) and Service Acquisition 
Executive (SAE) bodies meet quarterly to decide on proposed program 
changes and ensure associated risks are understood and appropriately 
resourced.

Prior to any updates of desired warfighting capabilities, operational 
requirements assessments are conducted through an active process of 
Operational Advisory Group and Senior Warfighting Group reviews. Their 
recommendations are submitted via the CSB, SAE, IIPT, OIPT, and DAB to 
ensure risks and costs are considered, and if accepted, budgeted.

The Department has implemented best practices throughout the execution 
of this important program. One example is the convention of program 
management oversight periodically alternating between the Departments 
of the Navy and the Air Force, with a Program Director (PD) who reports 
to the other Department's Acquisition Executive. This ensures ongoing 
cooperative oversight management of emerging challenges, decisions in 
execution, and accountability, for the successfal implementation of 
those decisions across the entire span of the program. The knowledge 
that oversight will alternate between SAES helps ensure consistent and 
constant cooperative oversight on the part of both SAES as well as the 
PD. The value of this process has been demonstrated in the five SAE and 
PD leadership transitions that have been smoothly and seamlessly 
executed to-date. The standard JSF practice of the Deputy Program 
Director becoming the PD also significantly contributes to continuity 
and accountability in program execution.

JSF Program acquisition strategy and execution activities are 
consistent with the Department's acquisition directives, and ensure the 
Department commits resources only after determining that specific 
developmental or knowledge based criteria are achieved. 

[End of section]

Appendix II: Scope and Methodology:

To determine the status of the Joint Strike Fighter (JSF) business case 
for delivering new capabilities to the warfighter, we compared the 
original program estimates with current estimates. For development, we 
used the program estimates that justified the program when it started 
in 1996. This was the point at which JSF transitioned from a technology 
development environment to an acquisition program environment, with the 
commitment to delivery a family of strike aircraft that meet the Air 
Force, Navy, and Marine Corps needs. At that time, total production, 
acquisition, and ownership costs had not been estimated. However, the 
program had estimated the unit flyaway costs for each variant. The 
total production, acquisition, and ownership estimates were first 
established to support the decision to enter the system development and 
demonstration phase in 2001. We used these estimates as the baseline 
for these costs. We identified changes in costs, quantities, and 
schedules as well as the causes for the changes. We also identified 
program conditions that may affect these estimates in the future. To 
accomplish this, we reviewed management plans, cost reports, progress 
briefings, program baselines, risk reports, and independent program 
assessments. We also interviewed officials from the Department of 
Defense's (DOD) acquisition program management office and prime 
contractor. 

To evaluate whether the current acquisition plan follows an 
evolutionary, knowledge-based approach to meeting business case goals 
in the future, we applied GAO's methodology for assessing risks in 
major weapon systems. This methodology is derived from best practices 
and experiences of leading commercial firms and successful defense 
acquisition programs. We reviewed Office of the Secretary of Defense 
(OSD), program office, and prime contractor processes and management 
actions. We compared the program's plans and results to date against 
best practice standards in capturing product knowledge in terms of 
technology, design, and production maturity information and in applying 
knowledge to support major program investment decisions. We reviewed 
management plans, acquisition strategies, test plans, risk assessments, 
and program status briefings. We identified gaps in product knowledge, 
reasons for these gaps, and the risks associated with moving forward 
with inadequate knowledge at future decision points. We also reviewed 
DOD's acquisition policy to determine whether JSF's approach met its 
intent. 

In performing our work, we obtained information and interviewed 
officials from the JSF Joint Program Office, Arlington, Virginia; 
Lockheed Martin Aeronautical Systems, Fort Worth, Texas; Defense 
Contract Management Agency, Fort Worth, Texas; Institute for Defense 
Analyses, Alexandria, Virginia; and offices of the Director, 
Operational Test and Evaluation, and Acquisition, Technology and 
Logistics, which are part of the Office of Secretary of Defense in 
Washington, D.C. 

[End of section]

Appendix III: Projected Time Frames for Demonstration of Critical 
Technologies:

Critical technologies: Integrated flight propulsion control; 
Technology description: Includes integration of propulsion, vehicle 
management system, and other subsystems as they affect aircraft 
stability, control, and flying qualities (especially short takeoff and 
vertical landing). Aircraft improvements are to reduce pilot workload 
and increase flight safety; 
Actual or planned date technology demonstrated in relevant 
environment[A]: First quarter 2006; 
Actual or planned date technology demonstrated in operational 
environment[B]: Third quarter 2007. 

Critical technologies: Prognostics and health management; 
Technology description: Involves the ability to detect and isolate the 
cause of aircraft problems and then predict when maintenance activity 
will have to occur on systems with pending failures. Life-cycle cost 
savings are dependent on prognostics and health management through 
improved sortie generation rate, reduced logistics and manpower 
requirements, and more efficient inventory control; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Third quarter 2009; 
Actual or planned date technology demonstrated in operational 
environment[B]: Third quarter 2010. 

Critical technologies: Integrated support system; 
Technology description: Involves designing an integrated support 
concept that includes an aircraft with supportable stealth 
characteristics and improved logistics and maintenance functions. Life-
cycle cost savings are expected from improved logistics and maintenance 
functions. Life- cycle cost savings are expected from low observable 
maintenance techniques and streamlined logistics and inventory systems; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Third quarter 2010; 
Actual or planned date technology demonstrated in operational 
environment[B]: Third quarter 2011. 

Critical technologies: Subsystems; 
Technology description: Includes areas of electrical power, electrical 
wiring, environmental control systems, fire protection, fuel systems, 
hydraulics, landing gear systems, mechanisms and secondary power. 
Important for reducing aircraft weight, decreasing maintenance cost, 
and improving reliability; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Demonstrated in 2002; 
Actual or planned date technology demonstrated in operational 
environment[B]: Demonstrated in 2004. 

Critical technologies: Integrated core processor; 
Technology description: Includes the ability to use commercial-based 
processors in an open architecture design to provide processing 
capability for radar, information management, communications, etc. Use 
of commercial processors reduces development and production costs, and 
an open architecture design reduces future development and upgrade 
costs; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Third quarter 2009; 
Actual or planned date technology demonstrated in operational 
environment[B]: First quarter 2011. 

Critical technologies: Radar; 
Technology description: Includes advanced integration with 
communication, navigation, and identification functions and electronic 
warfare functions through improved apertures, antennas, modules, 
radomes, etc. Important for reducing avionics cost and weight, and 
decreasing maintenance cost through improved reliability; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Fourth quarter 2007; 
Actual or planned date technology demonstrated in operational 
environment[B]: Fourth quarter 2008. 

Critical technologies: Mission systems integration; 
Technology description: Involves decreasing pilot workload by providing 
information for targeting, situational awareness, and survivability 
through fusion of radar, electronic warfare, and communication, 
navigation, and identification data. Improvements are achieved through 
highly integrated concept of shared and managed resources, which reduce 
production costs, aircraft weight, and volume requirements, in addition 
to providing improved reliability; 
Actual or planned date technology demonstrated in relevant 
environment[A]: First quarter 2010; 
Actual or planned date technology demonstrated in operational 
environment[B]: Fourth quarter 2011. 

Critical technologies: Manufacturing; 
Technology description: Involves lean, automated, highly efficient 
aircraft fabrication and assembly techniques. Manufacturing costs 
should be less through improved flow time, lower manpower requirements, 
and reduced tooling cost; 
Actual or planned date technology demonstrated in relevant 
environment[A]: Second quarter 2007; 
Actual or planned date technology demonstrated in operational 
environment[B]: Second quarter 2007. 

Source: Joint Strike Fighter Program Office. 

[A] Technology is in a form that closely represents the form, fit, and 
function needed for the JSF and is demonstrated in an environment that 
closely approximates the realities of its intended use but is short of 
the eventual operating environment itself, such as in a high-fidelity 
laboratory. 

[B] Technology is in the form, fit, and function needed for the JSF and 
is demonstrated in an operational environment similar to that intended 
for the JSF, such as on a surrogate platform or test bed. 

[End of table]

[End of section]

Appendix IV: Measures of JSF Program Cost and Schedule Changes:

[See PDF for image]

[End of figure]

[End of section]

FOOTNOTES

[1] Congressional Budget Office, The Budget and Economic Outlook: An 
Update. (Washington, DC: September 2004). 

[2] Section 213 of the act requires us to assess the extent to which 
the system development and demonstration program is currently meeting 
key cost, schedule, and performance goals; the likelihood that the 
program will be completed within estimated costs; and the program's 
current acquisition plan leading to production. 

[3] The business case is demonstrated evidence that (1) the warfighter 
need exists and that it can best be met with the chosen concept, and 
(2) the concept can be developed and produced within existing 
resources--including design knowledge, demonstrated technologies, 
adequate funding, and adequate time to deliver the product. 

[4] Sensor fusion is the ability to take information from both multiple 
onboard and offboard aircraft sensors and display the information in an 
easy-to-use format for the pilot. This is vitally important, since the 
JSF is a single-seat aircraft, and the pilot needs help to carry out 
multiple types of missions. 

[5] Unit flyaway costs include the recurring costs to produce the basic 
aircraft, propulsion system, and mission systems. Unit flyaway costs 
are stated in fiscal year 2002 dollars. 

[6] Prior to these changes, the program was not meeting about 25 
percent of the contract performance specifications. 

[7] In December 2004, Air Combat Command officials told us that the Air 
Force is considering buying about 250 short takeoff and landing JSFs 
and about 1,300 conventional takeoff and landing JSFs. However, these 
numbers are not official. 

[8] 10 U.S.C. section 1734 states this required assignment period can 
be waived "in exceptional circumstances."

[9] DOD Directive 5000.1, The Defense Acquisition System (May 2003); 
DOD Instruction 5000.2, Operation of the Defense Acquisition System 
(May 2003). The directive establishes evolutionary acquisition 
strategies as the preferred approach to satisfying DOD's operational 
needs. The directive also requires program managers to provide 
knowledge about key aspects of a system at key points in the 
acquisition process. The instruction implements the directive and 
establishes detailed policy for evolutionary acquisition. 

[10] Critical drawings are primarily of structural parts weighing more 
than 5 pounds. The February 2006 critical design review is for both the 
conventional takeoff and landing variant and the short takeoff and 
vertical landing variant. The carrier variant will have its own design 
review about 1 year later. 

[11] Drawings include details on the parts and work instructions needed 
to make the product and reflect the results of testing. Completed 
drawings allow suppliers to produce the parts so they can be available 
to the manufacturer when needed for installation on the product. 

[12] Manufacturing of the first conventional take-off and landing 
prototype is currently under way. This aircraft, however, does not 
include many of the design changes that resulted from the redesign 
efforts to reduce airframe weight. According to program officials, 
essentially every drawing used to build this aircraft was affected by 
the redesign effort. 

[13] The preliminary plan was what was being considered at the time of 
our review. Since then, in its fiscal year 2006 budget submission, DOD 
has reduced the planned procurement quantities for the U.S. by 38 
aircraft through fiscal year 2011. The preliminary figures also 
includes planned quantities for the United Kingdom of 2 aircraft in 
fiscal year 2009, 4 aircraft in fiscal year 2010, 9 aircraft in fiscal 
year 2011, 9 aircraft in fiscal year 2012, and 10 aircraft in fiscal 
year 2013. 

[14] This figured is based on DOD's December 2003 JSF cost estimate. 

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