Joint Strike Fighter Acquisition: Cooperative Program Needs Greater Oversight to Ensure Goals Are Met
Published: 2003-07-21T00:00:00

Fast Facts:

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

section_title: Letter
paragraphs: The Joint Strike Fighter (JSF) program is viewed by many within the  Department of Defense (DOD) to be a model acquisition program, as well  as a new model for cooperative development and production between  DOD and U.S. allies. As a centerpiece for DOD acquisition, the program is  intended to produce a next generation multirole fighter to replace aging  U.S. aircraft inventories. As currently planned, the program is DOD’s most  expensive aircraft program, costing an estimated $200 billion to develop  and procure about 2,600 aircraft and related support equipment.
By structuring the JSF program to allow for participation by allied  governments during development and production, DOD expects to defray  some development costs and realize other benefits. To ensure that the  challenges of international participation do not negatively affect overall  development and production of the aircraft, you asked us to review how  DOD is managing the integration of partner countries and suppliers into  the program. Specifically, we identified international relationships and the  benefits they are expected to provide and assessed how DOD is managing  cost sharing, technology transfer, and partner expectations for industrial  participation. (See app. I for an explanation of our scope and  methodology.)
subsections: section_title: Background
paragraphs: According to DOD policy, the core objectives of armaments cooperation  are to increase military effectiveness through standardization and  interoperability and to reduce weapons acquisition costs by avoiding  duplication of development efforts with U.S. allies. According to DOD and  the program office, through its cooperative agreements, the JSF program  contributes to armaments cooperation policy in the following four areas:    Political/military–expanded foreign relations.
Economic–decreased JSF program costs from partner contributions.
Technical–increased access to the best technologies of foreign  partners.
Operational–improved mission capabilities through interoperability  with allied systems.
The Arms Export Control Act (AECA) provides DOD the authority to enter  into cooperative programs with U.S. allies. In March 1997, the Secretary of  Defense directed that DOD engage allies in discussions as early as possible  to determine the parameters of potential collaboration to meet coalition  needs and ensure interoperability between allied systems. DOD guidance  states that the department will give favorable consideration to transfers of  defense articles, services, and technology consistent with national security  interests to support these international programs. Finally, the AECA  further provides that when the United States enters into a cooperative  agreement, there should be no requirement for industrial or commercial  compensation that is not specifically stated in the agreement. The  DOD Arms Transfer Policy Review Group (ATPRG) approved the  JSF international plan and established guidelines for the JSF system  development and demonstration negotiations based on the AECA  requirement that participants contribute an equitable share of the  costs and receive an equitable share of the results of a project.
In October 2001, DOD awarded Lockheed Martin Aeronautics Company a  contract for the system development and demonstration phase. Pratt and  Whitney and General Electric were awarded contracts to develop engines  for the JSF aircraft. Currently, this phase will last about 10 years; cost  about $33 billion; and involve large, fixed investments in human capital,  facilities, and materials. The next significant program milestone will be the  final critical design review, currently planned for July 2005. At that time,  the final aircraft design should be mature and technical problems should  be resolved so that the production of aircraft can begin with minimal  changes expected.
Unlike other cooperative programs, the JSF program will not guarantee  foreign or domestic suppliers a predetermined level of work based on a  country’s financial contribution to the program. Instead, foreign and  domestic suppliers will generally compete for JSF work. DOD and the JSF  Program Office use the term “best value” to describe this competitive  approach. By doing this, the program moved away from the industrial  policies of other cooperative programs that have used work share  arrangements for participation in the development of military items. An  example of a work share arrangement would be guaranteeing that contract  awards for suppliers in a participant country are tied directly to that  country’s level of investment in the program. The recipient benefits not  only from the value of the contracts placed in country but also the  technology transferred as part of those contracts. However, this approach  does not always result in the most cost-effective program.
section_title: International Participation Adds Complexity and Benefits to JSF Acquisition Program
paragraphs: International participation in the JSF program adds complexity to an  already challenging acquisition process. However, participation  agreements negotiated between DOD and equivalent partner ministries  or departments do provide potential benefits to all partners. The United  States benefits from financial contributions, increased potential for  international sales of JSF aircraft, and access to partner industry. Foreign  partners benefit from participating in JSF Program Office activities,  accessing JSF technical data, and receiving waivers of nonrecurring  aircraft costs and levies from potential sales of JSF aircraft. JSF partners  also enjoy greater access to program information than traditional  cooperative programs because the JSF program allowed countries to  participate at an earlier stage of the acquisition process.
subsections: section_title: JSF International Program Relationships Are Complex
paragraphs: The JSF program is made up of a complex set of relationships involving  both government and industry from the United States and eight other  countries—the United Kingdom, Italy, the Netherlands, Turkey, Denmark,  Norway, Canada, and Australia (see fig. 1).
The JSF program structure was established through a framework  memorandum of understanding (MOU) and individual supplemental MOUs  between each of the partner country’s defense department or ministry  and DOD, negotiating on behalf of the U.S. government. These agreements  identify the roles, responsibilities, and expected benefits for all  participants and are negotiated for each acquisition phase (concept  demonstration, system development and demonstration, and production).  Only the concept demonstration phase and the system development and  demonstration phase agreements have been negotiated to date, and  participation in one phase does not guarantee participation in future  phases. According to DOD officials, the department also contributes to the  implementation of MOUs by acting as a “court of appeals” to address  partner concerns, including industrial participation issues. Additional  documents provide greater detail and clarity:    Financial management procedures document–describes the financial  management procedures for the MOU supplements, as well as funding  streams, auditing procedures, and other topics.
Program position description–describes the position title, duties,  qualifications, and other information related to all foreign personnel  located in the JSF Program Office.
Exchange of letters–series of formal, signed letters, which emphasize  issues of importance to the United States and JSF partners but are not  specifically mentioned or described in the MOU agreements.
Representatives from partner ministries or departments of defense  participate in senior-level management meetings, including chief executive  officer meetings (chaired by the Under Secretary for Acquisition,  Technology, and Logistics); system acquisition executive meetings; the  senior warfighters group; and the configuration steering board with DOD,  JSF Program Office, and contractor officials. These meetings offer  opportunities for partner representatives to gain insight into and, in some  cases, influence over the progress of the JSF program, in addition to that  available from partner staff located in the program office, in areas such as  program management, requirements, and aircraft configuration. Finally,  the system development and demonstration framework MOU establishes  the JSF executive committee, which includes one representative from  the United States and each partner country. This committee provides  executive level oversight for the program, such as reviewing progress  toward program objectives, ensuring compliance with MOU financial  provisions, and resolving program-related issues identified by the JSF  international director.
National deputies act as partner representatives in the JSF Program Office.  They serve as the principal interface between the program office and the  ministries or departments of defense to ensure proper execution of the  system development and demonstration phase MOU and provide support  and guidance on all country-specific program execution and integration  issues. They provide program information to their ministries or  departments of defense and, in some cases, act as an advocate for industry  in their respective countries. National deputies and other partner staff also  serve functional roles on integrated product teams—multidisciplinary  teams that represent a variety of areas, including systems engineering;  logistics; and command, control, communications, computers, and  intelligence.
At an industry level, the prime contractors interact with the JSF Program  Office through activities in support of their system development and  demonstration contracts and participation on both program office and  contractor integrated product teams and work groups. In addition, the  prime contractors interact with partner government ministries or  departments (including defense, industry, and trade) and JSF partner  personnel in the program office to discuss opportunities for industrial  participation and the results of subcontracting competitions. For example,  prior to the negotiation of the MOUs for the current phase, Lockheed  Martin visited many of the partner countries to provide information on the  aircraft and assess potential interest. In addition, for those countries  expected to participate in the system development and demonstration  phase, Lockheed conducted industry assessments and provided feedback  on what areas suppliers might expect to compete for JSF contracts.
section_title: JSF Program Relationships Expected to Benefit Both DOD and Allies
paragraphs: The JSF program allows foreign countries to become program partners at  one of three participation levels, based on financial contribution. As  shown in table 1, the foreign partners have contributed over $4.5 billion,  or about 14 percent, for the system development and demonstration phase  and are expected to purchase about 722 aircraft beginning in the 2012-2015  time frame. Israel and Singapore have recently indicated their intention  to participate in the program as security cooperation participants, a  nonpartner arrangement, which offers limited access to program  information, without a program office presence. According to DOD,  foreign military sales to these and other nonpartner countries could  include an additional 1,500 to 3,000 aircraft.
Contributions can be financial or nonfinancial. For example, Turkey’s  system development and demonstration contribution was all cash,  whereas $15 million of Denmark’s $125 million contribution represented  the use of an F-16 aircraft and related support equipment for future JSF  flight tests and the use of other North Atlantic Treaty Organization  (NATO) command and control assets for a JSF interoperability study.  (See app. II for details on partner contributions and benefits.)
For the agreements negotiated for the system development and  demonstration phase, none of the partner country contribution levels met  the financial targets established in the ATPRG guidelines. In the case of  the United Kingdom, funding was not available to meet the expected  10 percent contribution. The Under Secretary of Defense for Acquisition,  Technology, and Logistics determined that the lower contribution amount  was justified and, in fact, the United States was able to negotiate  concessions concerning rights for the disposal of project equipment and  third-party transfer and sales. Since the United Kingdom was the first  partner to sign, and the only Level I partner, contribution targets for other  partner negotiations were revised proportionately.
Lockheed Martin’s contracts with aerospace suppliers from partner  countries are expected to improve the program because of those  companies’ specific advanced design and manufacturing capabilities.  For example, British industry has a significant presence in the program  with BAE Systems as a teammate to Lockheed Martin and Rolls Royce as a  major engine subcontractor. In addition, Fokker Aerostructures in the  Netherlands is under contract to develop composite flight doors for the  JSF airframe.
In return for their contributions, partner countries have representatives  in the program office with access to program data and technology;  membership on the management decision-making bodies; aircraft delivery  priority over future foreign military sales participants; guaranteed or  potential waiver of nonrecurring aircraft costs; potential levies on future  foreign military sales aircraft sold; and improved relationships for their  industry with U.S. aerospace companies through JSF subcontracting  opportunities. For example, the United Kingdom – which is committed to  contribute just over $2 billion in the system development and  demonstration phase – is a Level I full collaborative partner, with benefits  such as    10 staff positions within the JSF Program Office, including senior  positions on integrated product teams;   participation in cost versus performance trade-off and requirement  setting processes, resulting in British military needs being included in  the JSF operational requirements document; and involvement in final source selection process for the system  development and demonstration contract award.
Conversely, the five Level III partners, which are committed to contribute  between $125 million and $175 million, each have one program office staff  member and no direct vote with regard to requirement decisions.
All partners have benefited from increased access to program and  contractor information by virtue of their early involvement in the  program. Specifically, this participation provided partners with  information on the development of aircraft requirements and program  costs and schedules, as well as on design, manufacturing, and logistics.  According to some partner personnel, access to program information  often did not meet their expectations early in the program, but it has  improved. During the concept demonstration phase, data were available  to partner staff based on country-specific projects. In addition, data were  only formally provided through a rigorous, paper-driven document release  process and required authority from JSF senior management. For the  system development and demonstration phase, partner representatives  located in the program office now have access to the database of  unclassified program information, referred to as the JSF Virtual  Environment, which contains the majority of program documents. Partner  program office personnel, regardless of participation level, have equal  access to most information. Some information in the database is available  only to U.S. personnel or through integrated product team participation.  Partner staff can request information from integrated product teams on  which they have no membership, as long as the information is not  restricted from being released to their countries. Lockheed Martin has a  separate document database called the Joint Data Library that includes  information on contractor activities, but partner access is limited by  existing technical assistance agreements and National Disclosure Policy.
section_title: International Participation Complicates JSF Program Efforts to Manage Costs
paragraphs: Along with the traditional functions of balancing the requirements for JSF  performance against its established cost and schedule targets, the program  office is tasked with integrating partner government and industry  participants into the program. While initial partner contributions are  beneficial, and critical for political support for the program, there is no  guarantee that additional funding will be available to support future cost  increases should they arise. In addition, even when cost sharing may be  justified, funding may not be available through respective partner  budgetary processes. DOD’s typical response to increased program costs  often results in requesting additional funding, delaying production  schedules, and reducing procurement quantities or system capabilities,  but such actions may negatively affect partner countries. DOD expects  that specific provisions in partner MOUs will maximize partner  cost sharing when appropriate and that the use of competitive contracting  will minimize cost increases to the program.
subsections: section_title: JSF Partners May Not Provide Additional Funding for Program Cost Increases
paragraphs: Our past reviews have shown that weapons acquisition programs  frequently encounter increased cost due to questionable requirements,  unrealistic cost estimates, funding instability, and high-risk acquisition  strategies. We reported in October 2001 that the JSF program entered the  system development and demonstration phase with increased cost risk  due to low maturity of critical technologies. Future cost increases, should  they arise in the program, may fall almost entirely on the United States  because there are no provisions in the negotiated agreements requiring  partners to share these increases. Once established, the contributions for  the partners cannot be revised or increased by the United States without  the consent of the partner government as stated in these agreements.
DOD and program office officials told us there could be instances where  the partners would not be expected to share cost increases. For example,  cost estimates for the system development and demonstration phase have  increased on multiple occasions since the program started in 1996. During  that time, the expected cost for this phase went from $21.2 billion to  $33.1 billion as a result of scope changes and increased knowledge about  cost. According to program officials and documents, partners have not  been required to share any of these costs because the changes were DOD  directed and unrelated to partner actions or requirements.
The MOU framework does require partners to pay for all development  costs related to meeting unique national requirements. For example, some  partners expect to use weapons that may not be included in the current  JSF operational requirements document and fully expect to bear the cost  associated with integrating them into the aircraft’s design. In such a case,  the United States and other partners are not required to share costs  associated with meeting unique country requirements, unless they agree to  make these requirements part of the baseline aircraft configuration and an  adjustment is made to the baseline aircraft price.
Historically, DOD has responded to cost increases by requesting more  funding, extending program schedules, reducing overall program  quantities and aircraft capability, or some combination of these. While  such actions can negatively affect the U.S. military services, the impact  may be more substantial for partners because they have less control over  program decisions and less ability to adjust to these changes. In the case  of the United Kingdom, the Ministry of Defence is developing a new  aircraft carrier, expected for delivery in 2012, which is planned to carry  JSF aircraft. According to United Kingdom officials, if the aircraft are not  delivered as expected, the carrier might not be able to support mission  scenarios. Further, most of the remaining partners also expect to receive  their JSF aircraft beginning in about the 2012 to 2015 time frame. Potential  program delays would affect the availability of the aircraft for partner  governments. Finally, if the unit cost increases as a result of DOD’s  actions, the sales price could be higher than expected, and all partners  would be required to pay that additional amount. Current cost estimates  for the program assume that the United States will purchase 2,443 and  the United Kingdom 150 JSF aircraft. DOD and Lockheed Martin are  working with partner countries to determine aircraft needs for all  participants, and they will incorporate this information into formal  production phase planning.
section_title: Tools Available to Encourage Partner Sharing and Cost Control
paragraphs: To encourage partners to share costs where appropriate, the United States  can consider past cost-sharing behavior when negotiating MOUs for future  phases of the program. If a partner refuses to share legitimate costs during  the system development and demonstration phase, the United States can  use future phase negotiations to recoup all or part of those costs. In  these instances, the United States could reduce levies from future sales,  refuse to waive portions of the nonrecurring cost charges for Level III  partners, or in a worst case, choose not to allow further participation in  the program.
Partner representatives indicated that they intend to cooperate with the  JSF Program Office and Lockheed Martin in terms of sharing increased  program costs when justified. However, the continued affordability of the  development program and the final purchase price are important for  partners, and there is no guarantee that they would automatically  contribute to cost overruns, especially if the increase is attributable to  factors outside their control. Some partner representatives specifically  expressed concern over the tendency of U.S. weapon system requirements  to increase over time, which results in greater risk and higher costs.  Several partner representatives also emphasized that it is important for the  JSF Program Office to continue to use practices such as Cost as an  Independent Variable and iterative requirements definition to address  these concerns. While some partners could fund portions of cost overruns  from military budgets if requested, others told us that even if they were  willing to support such increases, these decisions would have to be made  through their parliamentary process, which could affect their overall  support for the program.
DOD and the JSF Program Office expect that using a competitive  contracting approach, without prescribed work share for partner  countries, will also assist in controlling JSF costs. DOD officials stated,  and our past work has shown, that cooperative programs, such as the  Army’s Medium Extended Air Defense System, have experienced cost and  schedule problems because such programs focused on meeting industrial  work share requirements rather than pursuing a cost-effective acquisition  strategy. Coproduction programs, such as the F-16 Multinational Fighter  Program, that employ traditional work share approaches often experience  cost premiums to the program in terms of increased manufacturing costs  associated with use of foreign suppliers. In contrast, the JSF approach is  expected to award contracts to the most competitive suppliers, and  therefore Lockheed Martin does not believe there will be cost premiums.  However, Lockheed Martin officials told us that due to limited aerospace  capabilities in some of the partner countries, traditional industrial  arrangements might be used in the JSF production phase.
section_title: JSF Technology Transfer Presents Challenges for Program Execution, International Suppliers, and Disclosure Policy
paragraphs: The transfer of technology on the JSF program presents a number of  challenges related to program execution, international suppliers, and  disclosure policy. The volume of JSF export authorizations has taxed  Lockheed Martin’s licensing resources, and any delays in the disposition  of future export authorizations could affect the execution of key contracts  and the ability of partner suppliers to bid for subcontracts. Further, the  transfer of technologies necessary to achieve aircraft commonality goals  is expected to far exceed past transfers of advanced military technology  and will push the boundaries of U.S. disclosure policy. The JSF Program  Office and the prime contractor have taken various steps to mitigate  these challenges.
subsections: section_title: Timing and Volume of Export Authorizations Could Affect Program Execution and International Suppliers
paragraphs: The JSF Program Office and Lockheed Martin told us that there were  over 400 export authorizations and amendments granted during the JSF  concept demonstration phase, and they expect that the number of  export authorizations required for the current phase could exceed 1,000.  Lockheed Martin licensing officials have indicated that this volume has  strained its JSF program resources. Export authorizations for critical  suppliers need to be planned for, prepared, and resolved in a timely  fashion, to help avoid schedule delays in the program. Without proper  planning, there could be pressure to expedite reviews and approvals of  export authorizations to support program goals and schedules. This could  lead to unintended consequences, such as inadequate reviews of license  content or broad interpretations of disclosure authority. Lockheed  Martin’s ability to forecast its export authorization workload extends out  only 3 months because most licensing resources are already devoted to  keeping up with time critical authorizations. Further, JSF Program Office  officials told us that Lockheed Martin has not yet fulfilled a requirement to  complete a long-term plan that could anticipate the export authorizations  and technology release reviews that will be necessary to execute the  program using international suppliers to design and manufacture key parts  of the aircraft. This plan could also be used to identify problems suppliers  face in executing contracts as a result of licensing or releasability  concerns and develop strategies to overcome those problems, such as  finding other qualified suppliers to do the work.
Timely export authorizations are also necessary to avoid excluding partner  industries from competitions. While Lockheed Martin has stated that no  foreign supplier has been excluded from any of its competitions or denied  a contract because of fear of export authorization processing times or the  conditions that might be placed on an authorization, the company is  concerned this could happen. Further, one partner told us that export  license delays have had a negative effect on the participation of its  companies because some U.S. companies have been reluctant to  undertake the bureaucratic burden to allow the participation of a foreign  company and some partner companies have been unable to bid due to the  time constraints involved in securing an export license.
DOD, the JSF Program Office, and Lockheed Martin have taken several  actions to mitigate the challenges presented by export authorization  delays:    The JSF Program Office and Lockheed Martin have established a  process to coordinate export authorization applications before they are  submitted to the Department of State for review. This process is  intended to reduce review times by ensuring that the export request  clearly describes the data or technology that would be transferred and  by addressing potentially contentious issues related to sensitive  transfers. In addition, Lockheed Martin has added resources to its  licensing organization to respond to the volume and schedule demands  of JSF export authorizations.
Lockheed Martin received a global project authorization (GPA)—an  “umbrella” export authorization that allows Lockheed Martin and  other U.S. suppliers on the program to enter into agreements with  over 200 partner suppliers to transfer certain unclassified technical  data—from the Department of State. The GPA is expected to lessen  the administrative burden and improve the consistency of and  processing times for routine export authorizations. The Departments  of State and Defense and Lockheed Martin agreed to the scope of the  information that could be exported using this authorization and the  conditions for those exports up front. The Department of State expects  to process GPA implementing agreements in 5 days, provided there  is no need to refer them to other agencies or offices for review.
Approved in October 2002, implementation of the GPA was delayed  until March 2003 because of supplier concerns related to liability and  compliance requirements. In March 2003, the first implementing  agreement between Lockheed Martin and a company in a partner  country was reviewed and approved in 4 business days.
Prior to the GPA, Lockheed Martin and 13 other U.S. suppliers were  granted an exemption by the U.S. Air Force from the export  authorization requirements that govern the release of unclassified  technical data to suppliers from NATO and certain other countries,  including Australia, for bid and proposal purposes. This exemption  expires in March 2004. Lockheed Martin also uses a country-specific  exemption to transfer technical data to Canada.
Finally, as a NATO Defense Capabilities Initiative program, partner  countries and companies participating in the program, including  Australia, can take advantage of expedited review processes for certain  types of export licenses. Under these expedited procedures, the  Department of State promises to complete its reviews of license  applications in 10 days, and if it requests comments on a license from  DOD or other government agencies, those reviews should be  completed in 10 days as well.
section_title: Degree of Technology Transfer Will Stretch Current Disclosure Boundaries
paragraphs: The United States has committed to design, develop, and qualify aircraft  for partners that fulfill the JSF operational requirements document and  are as common to the U.S. JSF configuration as possible within National  Disclosure Policy. In some cases, according to DOD, the program has  requested exceptions from National Disclosure Policy to achieve  interoperability and aircraft commonality goals and to avoid additional  development costs. Some DOD officials confirmed that technology  transfer decisions have been influenced by JSF program goals, rather than  adjusting program goals to meet current disclosure policy.
DOD, JSF Program Office, and Lockheed Martin officials agreed that  technology transfer issues should be resolved as early as possible in order  to meet program schedules without placing undue pressure on the release  process. However, there have been some initial problems executing this  strategy. An official at the Defense Technology Security Administration,  one of the offices responsible for technical assessments of disclosure and  export authorization requests, stated that even though the JSF program  has a plan to manage releasability issues and the National Disclosure  Policy process, the office does not always receive information related to  these issues in a timely manner. In addition, one partner has expressed  concern about the pace of information sharing and decision making  related to the JSF support concept. According to several partners, access  to technical data is needed so that they can plan for and develop a  sovereign support infrastructure as expressed in their formal exchange  of letters with the United States. The program office anticipates that  in-country support of JSF aircraft will be an issue for all partners and  will involve both technology transfer and industrial considerations.  The JSF support concept is currently being developed, with input from  the U.S. military services and international partners.
DOD, the JSF Program Office, and Lockheed Martin have taken a number  of actions designed to mitigate the challenges presented by the transfer of  technologies on the program.
In February 2002, the program office modified Lockheed Martin’s  system development and demonstration contract to include a study on  the expected commonality between U.S. and partner JSF aircraft. The  objective of this study is to develop a partner JSF aircraft specification  that is as common to the U.S. specification as possible under National  Disclosure Policy. This effort allows the program to pursue early  releasability decisions, which mitigates the risk of putting undue  schedule pressure on the process. Lockheed Martin did not deliver the  partner specification to the program office as planned in March 2003,  and it now expects to deliver the specification in August 2003.
To identify and resolve expected technical, security, and policy issues  for the overseas sale and cooperative development of JSF aircraft, the  program chartered an international development work group. The core  of this group consists of program office and contractor personnel, as  well as individuals from the Air Force’s Office of International Affairs  and Special Programs, Marine Corps Requirements, and Navy  International Programs. The group was chartered to review how past  export decisions apply to the JSF program; identify contentious items  in advance; and provide workable resolutions that minimize the impact  to the program cost, schedule, or performance.
In February 2003, the JSF Program Office received direction from the  Low Observables/Counter Low Observables Executive Committee to  appoint a JSF export compliance officer. The purpose of this position is  to ensure that releasability decisions and export licensing provisos or  conditions are fully implemented and adhered to by the program and  applied to JSF configurations as required.
As required by DOD acquisition regulations, the JSF program has  identified critical program information, and Lockheed Martin is  developing a plan to prevent unauthorized disclosure or inadvertent  transfer of leading-edge technologies and sensitive data or systems. To  reduce cost and integrate appropriate measures into the JSF design,  this effort is being undertaken as a systems engineering activity. During  this phase of the program, technology protection measures have to be  demonstrated, operationally tested, and made ready for production.  DOD officials have stated that the program’s progress on this plan has  been slow. Given that releasability decisions should consider the  measures mentioned above, timely completion of this plan is important  for long-term program planning.
Finally, the JSF Program Office established an exchange of letters  work group with participation from selected program office and  Lockheed Martin integrated product teams, and partner representatives  when appropriate. The current focus of this group is to address partner  goals related to in-country support of the aircraft. In addition, the JSF  autonomic logistics integrated product team is conducting trade  studies to further define a global support solution for worldwide  support to start to address these issues. According to program officials,  this strategy will identify the best approach for maintaining JSF  aircraft, and may include logistics centers in partner countries. Follow- on trade studies would determine the cost of developing additional  maintenance locations. The implementation of the global support  solution and the options identified in follow-on trade studies will have  to be in full compliance with the National Disclosure Policy, or the  program will need to request exceptions.
section_title: Managing Industrial Participation Expectations
paragraphs: In the JSF program, the prime contractor is responsible for managing  industrial participation. Lockheed Martin provides partners with  return-on-investment expectations, opportunities for qualified bidders to  compete for JSF contracts, and visibility into the subcontracting process  for the program. Partners have identified industrial return as one of the  primary reasons for their participation in the program. If partners do not  realize their expectations, they can choose to leave the program and/or not  purchase the aircraft—both negative consequences for DOD. But,  if Lockheed Martin’s efforts to meet partner return-on-investment  expectations come into conflict with program cost, schedule, and  performance goals, this could have a negative effect as well. Therefore,  the JSF Program Office will ultimately have to make decisions to balance  partner expectations and program execution.
subsections: section_title: Management of Partner Expectations Is Critical for Program Success
paragraphs: Partner representatives generally agreed with the JSF competitive  approach to contracting, but cautioned that while it is too early to assess  results, their industries’ ability to win JSF contracts and participate in  design and development is vital to their continued involvement in the  program. In addition, some partners stated that retaining political support  for the program in their countries will depend, in large part, on winning  contracts whose total value approaches or exceeds their financial  contributions for the JSF system development and demonstration phase.  In addition to the amount of work placed in a partner country, partners  have expectations about the timing of contracts and/or which companies  in their countries win contracts. If return-on-investment and other  expectations are not met, partners could decide to leave the program and  not purchase the aircraft. If a partner decided to leave the program, DOD  would be deprived of anticipated development funding and an opportunity  to improve interoperability among U.S. allies, while Lockheed Martin  could be faced with lower than projected international sales.
Other cooperative programs provide for industrial participation  commensurate with the financial contributions of the partners. In contrast,  the JSF MOU provides that, to achieve “best value for money,” DOD will  require contractors to select subcontractors on a competitive basis to the  maximum practical extent. To support this approach, Lockheed Martin has  taken the following steps to manage partner return-on-investment  expectations, identify opportunities for qualified bidders to compete for  JSF contracts, and provide visibility into the subcontracting process for  the program:    To manage partner return-on-investment expectations, Lockheed  Martin sent teams of engineers and business development personnel to  partner countries and assessed suppliers’ ability to compete for JSF  contracts. In some cases, Lockheed Martin signed agreements with  partner governments and suppliers to document the opportunities they  would have to bid for JSF contracts, as well as the potential value of  those contracts. DOD and program office officials told us that these  agreements were necessary to secure political support in certain  countries because the U.S. government does not guarantee that the  partners will recoup their investment in the program through contracts  with their industry. In at least one case, Lockheed Martin has promised  an international contractor predetermined work that satisfies a major  portion of that country’s expected return-on-investment. While  disavowing knowledge of the specific contents of these agreements,  DOD was supportive of their use during partner negotiations. DOD  officials conceded that the agreements contained in these documents  departed from the competitive approach, but expressed the hope that  the use of these agreements would not be widespread.
In response to partner concerns about the slow pace of contract  awards, Lockheed Martin has stated that the bulk of the remaining  subcontracting with partner industry will come later in the current  phase or during the production phase, especially in countries where the  aerospace industry is less developed and contracts are more likely to  be awarded for build-to-print or second-source manufacturing.
To provide visibility into the subcontracting process, Lockheed Martin,  the JSF program manager, DOD, or a combination of the three have  provided explanations of how sourcing decisions were made after  partner governments raised concerns on behalf of suppliers about the  results of competitions. These governments were told that suppliers  submitted bids far above the competitive range and thus were not  selected. In addition, DOD, JSF Program Office, and Lockheed Martin  personnel provided feedback to the partners concerning how to  approach future competitions.
The award fee structure of Lockheed Martin’s contract permits the  JSF Program Office to establish focus criteria applicable to specific  evaluation periods. To help ensure partner industries are provided  opportunities to compete for JSF subcontracts, the program office  established focus criteria concerning subcontract competition for the  evaluation period between November 1, 2002, and April 30, 2003.  Lockheed Martin was judged on its ability to (1) provide partners  regular insight into subcontracting opportunities, (2) encourage its  major suppliers to consider partner suppliers on a competitive basis,  and (3) acquire needed export authorizations in a timely manner to  support competitions. In response, Lockheed Martin has developed a  database to track contract opportunities, especially for international  suppliers and U.S. small businesses, and provides monthly summaries  of industrial participation to partner personnel in the program office.  These summaries include the names of suppliers, contracts for which  they will be eligible to bid, bid and proposal dates, status of contracts  awarded, and the status of supplier export authorizations. This  database will assist DOD in meeting MOU requirements to provide  visibility into JSF subcontracting efforts.
Further, some partners have concerns about some aspects of the  competition, including delays in getting U.S. export licenses and  reluctance by a major supplier to provide opportunities to industry in a  partner country. If competition for contracts is not implemented in a  manner consistent with partner expectations, partners’ continued support  for the program could be jeopardized.
JSF industrial relationships are solely developed between U.S. contractors  and partner country industry. After deciding to award work to foreign and  domestic companies based on competition, instead of the share of  program costs contributed, DOD and the JSF Program Office have left  implementation of this competitive approach to Lockheed Martin under  the standard Federal Acquisition Regulation clause related to competition  in subcontracting. Lockheed Martin officials told us their approach for  supplier selection is based on factors such as a supplier’s ability to  incorporate a management approach that is responsive to maintaining  JSF schedules, reducing design and production cost within acceptable  risk levels, developing a solid technical approach with opportunities  for technology improvements, reducing aircraft size and weight, and  increasing aircraft performance. They further told us that this approach is  being implemented without regard to a supplier’s country of origin, with  U.S. and international suppliers competing equally. Lockheed Martin  concluded that awarding subcontracts in this manner would help  achieve program affordability goals and avoid pressure from partners to  guarantee contract awards consistent with their monetary contributions to  the program.
Program officials told us that since the award fee emphasizes overall  affordability, program management, technical progress, and development  cost control, it should incentivize Lockheed Martin to perform  subcontracting activities on a competitive basis. If, during its regular  monitoring of contract execution, the program office identifies the need  for more emphasis in a certain area—such as reducing aircraft weight or  providing opportunities to international suppliers—it can address this  concern through the contract’s award fee process. While the program  office has used an award fee focus letter to encourage Lockheed Martin to  provide a competitive environment, it has not evaluated whether  competitive results have been achieved.
section_title: Conclusions
paragraphs: The JSF program is not immune to unpredictable cost growth, schedule  delays, and other management challenges that have historically plagued  DOD’s systems acquisition programs. International participation in the  program, while providing benefits, makes managing these challenges more  difficult and places additional risk on DOD and the prime contractor.  While DOD expects international cooperation in systems acquisition to  benefit future military coalition engagements, this may come at the  expense of U.S. technological and industrial advantages or the overall  affordability of the JSF aircraft. Over the next 2 years, DOD will make  decisions that will critically affect the cost, schedule, and performance of  the program. Because Lockheed Martin bears the responsibility for  managing partner industrial expectations, it will be forced to balance its  ability to meet program milestones and collect program award fees against  meeting these expectations, which could be the key in securing future  sales of the JSF for the company. In turn, DOD must be prepared to assess  and mitigate any risks resulting from these contractor decisions as it  fulfills national obligations set forth in agreements with partner  governments. While steps have been taken to position the program for  success, given the size and importance of the program, additional attention  on the part of DOD and the program office would help minimize the risks  associated with implementing the international program. Toward this end,  DOD and the JSF Program Office need to maintain a significant knowledge  base to enable adequate oversight and control over an acquisition strategy  that effectively designs, develops, and produces the aircraft while ensuring  that the strategy is carried out to the satisfaction of the U.S. services and  the international partners. Tools are in place to provide this oversight and  management, but they must be fully utilized to achieve program goals.
section_title: Recommendations for Executive Action
paragraphs: To provide greater knowledge, which anticipates decisions needed as the  JSF program matures, we recommend that the Secretary of Defense direct  the JSF Program Office to ensure that the Lockheed Martin international  industrial plan  identifies current and potential contracts involving the transfer of  sensitive data and technology to partner suppliers;   evaluates the risks that unfavorable export decisions could pose for the    develops alternatives to mitigate those risks, such as using  U.S. suppliers.
We also recommend that the Secretary direct the JSF Program Office to  ensure that information concerning the prime contractor’s selection and  management of suppliers be collected, closely monitored, and used for  program oversight. This oversight should include identifying potential  conflicts between partner expectations and program goals, developing  focus letters that encourage Lockheed Martin to resolve these conflicts,  and making award fee determinations accordingly.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided us with written comments on a draft of this report. These  comments are reprinted in appendix III. DOD provided separate technical  comments, which we incorporated as appropriate.
DOD concurred with our recommendation that the Secretary of Defense  direct the JSF Program Office to ensure that the Lockheed Martin  international industrial plan identifies current and potential contracts  involving the transfer of sensitive data and technology to partner  suppliers, evaluates the risks that unfavorable export decisions could pose  for the program, and develops alternatives to mitigate those risks. DOD  did raise a concern about our suggestion that using U.S. suppliers was one  way to avoid the risks that unfavorable export decisions could pose for the  program. In particular, DOD stated it could undermine the program’s  affordability goals. However, we believe that due to the level of advanced  technology on the JSF program, affordability goals must be considered in  the context of protecting some of the most sensitive U.S. technologies— those vital to maintaining U.S. technical superiority. This means that  technology transfer considerations must be part of the sourcing process. If  contracts are awarded without identifying and addressing technology  transfer issues, the protection of sensitive technology or the execution of  those contracts could be compromised. For example, if a contract is  awarded to a partner supplier, an export decision that subsequently  prohibits or places conditions on the transfer of controlled data or  technology to that company could adversely affect its ability to execute  the contract. If mitigation options have not been identified, the likely  outcome is pressure on the export control system to approve broader  export authorizations in support of program goals. In other cases where  technology transfer concerns have not been anticipated or addressed,  JSF contractors could be forced to re-source work, which could also  undermine not only affordability but other goals, such as meeting  program schedule.
The international industrial plan referenced in our recommendation can  help alleviate these potential pressures by identifying alternatives, one  of which would be identifying potential U.S. suppliers in cases where  technology transfer is a concern. In its comments, DOD states that  mitigating risk in this manner could require the dual sourcing of specific  JSF contracts. This is not necessarily the case. Again, ideally, these  technology transfer issues would be anticipated before a development or  production contract is competed or awarded. With this knowledge, the  JSF Program Office and Lockheed Martin could suggest adjustments to  work packages or bidders’ lists if the technology or companies in question  are likely to raise export control concerns. Regardless, the end result  could still be the selection of a single source—one that advances  affordability and protects sensitive U.S. technology.
DOD also concurred with our recommendation that the Secretary of  Defense direct the JSF Program Office to ensure that information  concerning the prime contractors’ selection and management of suppliers  is collected, closely monitored, and used for program oversight. In its  comments, DOD stated that the JSF Program Office would work closely  with Lockheed Martin to achieve effective program oversight with regard  to partner expectations and program goals. However, DOD did not specify  how it plans to collect and monitor this information or elaborate on other  steps the JSF Program Office would take to identify and resolve potential  conflicts between partner expectations and program goals.
We are sending copies of this report to interested congressional  committees; the Secretary of Defense; the Secretaries of the Navy and the  Air Force; the Commandant of the Marine Corps; and the Director, Office  of Management and Budget. We will also make copies available to others  upon request. In addition, this report will be available at no charge on the  GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-4841. Key contributors to this report are listed in  appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objective was to review how the Department of Defense (DOD) is  managing the integration of partner countries and suppliers into the Joint  Strike Fighter (JSF) program. Specifically, we identified international  relationships and the benefits they are expected to provide and assessed  how DOD is managing cost sharing, technology transfer, and partner  expectations for industrial return. To conduct our work, we reviewed  various guidance and agreements related to the JSF program. We also  interviewed cognizant government officials and industry experts, including  those in several JSF partner countries.
To determine what relationships are necessary to integrate international  partners into the program, we identified and examined documents related  to JSF international arrangements and agreements, including information  from DOD; the JSF Program Office in Arlington, Virginia; and the  Lockheed Martin Aeronautics Company in Fort Worth, Texas. Specifically,  we obtained documents from the Office of the Under Secretary of Defense  (Acquisition, Technology, and Logistics), the Department of State (Office  of Defense Trade Controls), the Secretary of the Air Force (International  Affairs), the Navy International Programs Office, and the Department of  Commerce (Bureau of Industry and Security). We discussed the guidance  and processes for developing and negotiating agreements for international  participation with officials from each of these offices. We also obtained  and reviewed signed copies of the memoranda of understanding (MOU)  and other documents that outline the agreed upon conditions between the  United States and each partner nation. To understand the JSF  international program structure in the context of other DOD cooperative  development programs, we reviewed reports and documentation on  programs such as the F-16 Multinational Fighter Program, the Medium  Extended Air Defense System, and the Multiple Launch Rocket System  and discussed this information with DOD, contractor, and international  personnel with experience on those programs.
For specific information on cost sharing within the program, we reviewed  MOUs and related documents and discussed this issue with the Office of  the Under Secretary of Defense (Acquisition, Technology, and Logistics) –  International Cooperation, JSF Program Office international directorate  and contracts; and Lockheed Martin international program officials.
To determine how the program is responding to technology transfer  concerns, we reviewed documentation on U.S. National Disclosure Policy  and related guidance. In addition, we spoke to officials in DOD, the  Departments of State and Commerce, the JSF Program Office, and  Lockheed Martin. Within DOD, we collected data on sensitive technology  areas and spoke to representatives from the Defense Technology Security  Administration, the Office of the Under Secretary of Defense (Acquisition,  Technology, and Logistics) Directorate of Special Programs, and the Office  of the Air Force Under Secretary for International Affairs (Foreign  Disclosure and Technology Transfer Division) to determine the extent to  which the JSF program considered these concerns in its approach. We  reviewed the JSF program protection plan and spoke with Lockheed  Martin and program office security personnel to determine how the  program implements this plan and other mechanisms related to foreign  disclosure and technology transfer.
To assess the JSF approach to managing international partner  expectations, we reviewed various sources of information on other  U.S. cooperative development programs, including our past reports,  to determine potential challenges for the international program and  discussed these challenges with officials from the Office of the Secretary  of Defense, the JSF Program Office, Lockheed Martin, and other personnel  as necessary. We reviewed program documentation and procedures for  addressing these challenges and spoke with key staff from the Office of  the Secretary of Defense, the JSF Program Office International  Directorate, and Lockheed Martin JSF International Programs on issues  regarding implementation of their management approach.
To determine and assess the position of international participants in the  program, we obtained the direct views of officials from the partner  countries. First, we conducted structured interviews with the National  Deputies from the partner countries represented in the JSF Program  Office. These officials were both civilian and military personnel and  provided information in areas related to their countries’ involvement in the  program, including expected benefits, experience with other cooperative  programs, presence in the JSF Program Office and contractor locations,  industry participation in the program, cost sharing, experience with the  U.S. export licensing process, and technology transfer. The results of  interviews were documented and verified with each of the national  deputies and their respective governments for accuracy. One country  elected to provide written responses to the interview questions we  submitted. In addition, we visited government and industry representatives  in London and Bristol, United Kingdom; Rome, Italy; and The Hague,  Netherlands. We discussed JSF program participation with senior defense  officials in each of these three countries to assess their views on the  overall progress and success of the program to date. Finally, we visited  and discussed our review objectives with officials from BAE Systems and  Rolls Royce in the United Kingdom, who are major suppliers to the JSF  prime contractors.
We performed our work from February 2002 to May 2003 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: JSF International Participant Contributions and Benefits
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Tom Denomme, Brian Mullins, Ron Schwenn, Anne Howe, Delores Cohen,  Karen Sloan, and Robert Ackley made key contributions to this report.