Joint Strike Fighter Acquisition: Managing Competing Pressures Is Critical to Achieving Program Goals
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 challenges associated with partner expectations, technology transfer, and recent technical concerns.
section_title: What GAO Found
paragraphs: The JSF program is based on a complex set of relationships among governments and industries 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 financially and technologically through relationships with U.S. aerospace companies and access to JSF program data. Yet international participation also presents a number of challenges. Because of their contributions to the program, partners have significant expectations for financial returns, technology transfer, and information sharing. If these expectations are not met, their support for the program could deteriorate. To realize these financial returns, partners expect their industry to win JSF contracts through competition--a departure from cooperative programs, which directly link contract awards to financial contributions. However, recent actions by the prime contractor could indicate a departure from this competitive approach and a return to directed work share. Technology transfer also presents challenges. Transfers of sensitive U.S. military technologies--which are needed to achieve aircraft commonality and interoperability goals--will push the boundaries of U.S. disclosure policy. In addition, a large number of export authorizations are needed to share project information and execute contracts. These authorizations must be submitted and resolved in a timely manner to maintain program schedules and ensure partner industry has the opportunity to compete for subcontracts. Finally, recent technical challenges threaten program costs and possibly partner participation in the program. While partners can choose to share any future program cost increases, they are not required to do so. Therefore, the burden of any future increases may fall almost entirely on the United States. If efforts to meet any of these partner 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 within the JSF program.

section_title: Letter
paragraphs: I am pleased to be here to discuss the Joint Strike Fighter (JSF)  international acquisition strategy. DOD views the JSF program as  both a model for acquisition reform and an example for the future of  international cooperation. We have previously reported to you on how  the JSF program is being managed relative to best practices for product  development. Central to these best practices is the understanding that  attainment of sufficient knowledge at key program junctures results in a  low-risk path from design to production.
My statement focuses on the structure of the JSF program, the benefits  and challenges cooperative development brings to the overall acquisition  approach, and the opportunity DOD has to achieve critical program  goals. We are also releasing a report today, done at your request, which  addresses many of the issues I am discussing in this statement.
Because international participation adds complexity to already challenging  acquisition programs, proponents of other DOD acquisition efforts are  assessing the potential benefits of using the JSF model and incorporating  key elements into their program strategies. Choices made to balance both  partner expectations and overall program goals will be critical not only to  the success of this program, but potentially for many future cooperative  development efforts. DOD and the JSF Program Office need to ensure  that sufficient knowledge is available and appropriately used in making  these decisions.
subsections: section_title: Background
paragraphs: The JSF program is DOD’s largest cooperative program. It is structured on  a multitiered set of relationships involving both government and industry  from the United States and eight allied nations—the United Kingdom, Italy,  the Netherlands, Turkey, Denmark, Norway, Canada, and Australia. These  relationships are shown in figure 1.
The JSF program structure was established through a framework  memorandum of understanding (MOU) and individual supplemental  MOUs between each of the partner country’s defense department or  ministry and DOD, negotiating on behalf of the U.S. government. These  agreements identify the roles, responsibilities, and expected benefits for  all participants. The current negotiated agreement covers only the system  development and demonstration phase, and participation now does not  guarantee participation in future phases.
The program intends to produce three fighter variants to meet multiservice  requirements: conventional flight for the Air Force, short take-off and  vertical landing for the Marine Corps, and carrier operations for the Navy.  As currently planned, the program will cost about $200 billion to develop  and procure about 2,600 aircraft and related support equipment.
In October 2001, DOD awarded Lockheed Martin Aeronautics Company  a contract for the system development and demonstration phase. Pratt  and Whitney and General Electric were awarded contracts to develop the  aircraft engines. This phase is estimated to last about 10 years and cost  about $33 billion; it will involve large, fixed investments in human capital,  facilities, and materials. The next significant knowledge point will be a  critical design review, currently planned for July 2005. At that time, the  aircraft design should be stable and engineering drawings should be  available to confirm that the design performs acceptably and can be  considered mature.
section_title: United States and Partners Expect Significant Benefits
paragraphs: The United States and its partners expect to realize a variety of benefits  from cooperation on the JSF program. The United States expects to  benefit from partner contributions and potential future aircraft sales;  access to partner industrial capabilities; and improved interoperability  with partner militaries once the aircraft is fielded. Partner governments  expect to benefit financially and obtain an aircraft they could not afford  to develop on their own. Partners also expect to benefit from increased  access to JSF program data, defined influence over aircraft requirements,  and technology transfers to their industries from U.S. aerospace  companies. For the partners, industrial return, realized through JSF  subcontract awards, is critical for their continued participation in  the program.
subsections: section_title: United States Benefits from Financial Contributions and Access to Partner Industry
paragraphs: 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.
DOD and the JSF Program Office expect to benefit financially from direct  partner contributions and through aircraft purchased by partners and  other international buyers, which reduces overall unit cost. Foreign  countries become program partners at one of three participation levels,  based on financial contribution, which the United States uses to defray  program costs. For the current system development and demonstration  phase, partner governments have committed to provide over $4.5 billion  to the JSF program and are expected to purchase 722 aircraft once  the aircraft enters the production phase. According to DOD, foreign  military sales to nonpartner countries could include an additional 1,500 to  3,000 aircraft. Expected partner financial contributions and aircraft  purchases are detailed in table 1.
Contributions can be financial or nonfinancial. For example, Turkey’s  system development and demonstration contribution was all cash.  Denmark contributed $110 million in cash, and also the use of an F-16  aircraft and related support equipment for future JSF flight tests and the  use of North Atlantic Treaty Organization command and control assets for  a JSF interoperability study, which were valued to be worth an additional  $15 million to the program.
In addition, U.S. industry cooperation with aerospace suppliers in  partner countries is expected to benefit the JSF program because of the  specific advanced design and manufacturing capabilities available from  those suppliers. For example, British industry has a significant presence  in the program with BAE Systems as a teammate to Lockheed Martin  and Rolls Royce as a major engine subcontractor. In addition, Fokker  Aerostructures in the Netherlands is under contract to develop composite  flight doors for the JSF airframe.
section_title: Partners Benefit Financially and from Shared Technology and Information
paragraphs: Partner governments expect to benefit financially by leveraging significant  U.S. resources and inventory requirements to obtain an advanced tactical  aircraft they could not afford to develop on their own. From a government  perspective, Level I and II partners have been guaranteed waivers of  nonrecurring aircraft costs; Level III partners will be considered for a  similar waiver. All partners are also eligible to receive potential levies  collected on future foreign military sales of aircraft to nonpartner  customers. In addition, and in most cases more importantly, partners  have identified industrial return to in-country suppliers as vital to their  participation in the program. In a recent study assessing the financial  impact of the JSF program on international suppliers, DOD reported that  partners could potentially earn between $5 and $40 of revenue in return  for each dollar contributed to the program.
Through government and industrial participation, partner countries  also expect to benefit from the technology transferred from U.S. to  partner industry through JSF contract awards. Partners expect that  early participation in the JSF program will improve their defense  industrial capability through increased access to design, technical,  and manufacturing data and through the ability to perform advanced  planning for operation and support of the JSF once it is delivered in their  respective countries. Involvement in the early phases of the JSF program  has provided partners with information on the development of aircraft  requirements, program costs and schedules, and logistics concepts.  International partners have access to program and technology information  through participation on senior-level management decision-making bodies,  representation in the JSF Program Office, and involvement on program  integrated product teams. Partner program office personnel, regardless of  participation level, have equal access to most information. Partner staff  can request information from integrated product teams on which they  have no membership, as long as the information is not restricted from  being released to their countries.
section_title: Program Challenges Force JSF Program to Balance Competing Pressures
paragraphs: International program participants have significant expectations regarding  government and industry return based on their contributions. As such,  the JSF Program Office and Lockheed Martin are faced with balancing  these expectations against other program goals. Recent actions by  Lockheed Martin to address partner concerns could represent a departure  from the JSF competitive contracting approach and result in increased  program costs. International participation in the program also presents a  challenge because the transfer of technologies necessary to achieve DOD’s  goals for aircraft commonality is expected to far exceed past transfers of  advanced military technology. Further, export authorizations for critical  suppliers need timely planning, preparation, and disposition to help avoid  schedule delays in the program and ensure partners the opportunity to bid  for contracts.
subsections: section_title: Alternate Contracting Approach May be Used to Meet Partner Expectations
paragraphs: DOD and the JSF Program Office have said that the use of competitive  contracting is central to meeting partner expectations for industrial  return and will assist in controlling program costs. JSF officials use  the term “best value” to describe this approach, which is a departure  from other cooperative development programs that guarantee  pre-determined levels of works based on contribution. Partner  representatives generally agree with the JSF competitive approach to  contracting, but some emphasize that their industries’ ability to win  JSF contracts whose total value approaches or exceeds their financial  contributions for the JSF system development and demonstration phase  is important for their continued involvement in the program. The program  office and the prime contractor have a great deal of responsibility for  providing a level playing field for JSF competitions, including visibility into  the subcontracting process and opportunities for partner industries to bid  on subcontracts. To that end, Lockheed Martin performed assessments for  many of the partners to determine the ability of their industries to compete  for JSF contracts. The results of these assessments in some cases showed  potential return that far exceeded country contribution levels. In some  cases, Lockheed Martin then signed agreements with partner governments  and suppliers to document the opportunities they would have to bid for  JSF contracts, as well as the potential value of those contracts.
DOD and the JSF Program Office have left implementation of the  competitive contracting approach to Lockheed Martin whose decisions  will therefore largely determine how partner expectations are balanced  against program goals. In at least one case, Lockheed Martin has  promised an international contractor predetermined work that satisfies  a major portion of that country’s expected return-on-investment. While  disavowing knowledge of the specific contents of any such agreement,  DOD was supportive of their use during partner negotiations. DOD  officials conceded that the agreements contained in these documents  departed from the competitive approach. However, the agreements  were necessary to secure political support in some countries, since the  U.S. government does not guarantee that the partners will recoup their  investment through industry contracts on the JSF program. In addition,  Lockheed Martin has recently developed a plan to use “strategic best value  sourcing” to supplement its original competitive approach. According to  DOD, this plan will allow for a limited number of work packages to be  directly awarded to industry in partner countries where contract awards  to date have not met expectations. While there are predetermined cost  goals under these strategic awards, there are concerns from some partners  that this is a departure from the competitive approach and, in fact, a move  toward prescribed work share.
Because Lockheed Martin makes the subcontracting decisions, it bears the  primary responsibility for managing partner expectations—in addition to  duties associated with designing, developing, and producing the aircraft.  Lockheed Martin’s actions seem to indicate a response to partner concerns  about return-on-investment expectations and a desire to ensure continued  partner participation. Most partners have a clause in their agreements  that allow for withdrawal from this phase of the program if industrial  participation is not satisfactory. If a partner decided to leave the program,  DOD would be deprived of the additional development funding expected  from that partner. Lockheed Martin could be faced with lower than  projected international sales, resulting in fewer units sold. At the same  time, directed work share often results in less than optimal program  results. For example, other coproduction programs such as the F-16  Multinational Fighter, which employ the traditional work share approach,  often pay cost premiums in terms of increased manufacturing costs  associated with use of foreign suppliers.
section_title: JSF Stretches 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. DOD and the JSF Program Office must balance  partner expectations for commonality against the transfer of U.S. military  technology. Decisions in this area will be critical because the extent of  technology transfers necessary to achieve program goals will push the  boundaries of U.S. disclosure policy for some of the most sensitive  U.S. military technology. To address these issues, Lockheed Martin has  a contract requirement to conduct a study to develop a partner JSF  specification that fulfills commonality goals. Due to issues related to  the disclosure review process, the contractor expects to deliver the  study to the program office in August 2003, 5 months later than originally  planned. According to DOD, the program has requested exceptions from  National Disclosure Policy in some cases to achieve aircraft commonality  goals and avoid additional development costs. Some DOD officials told  us that technology transfer decisions have been influenced by JSF  program goals, rather than adjusting program goals to meet current  disclosure policy.
DOD, JSF Program Office, and Lockheed Martin officials agreed that  technology transfer issues should be resolved as early as possible in order  to meet program schedules without placing undue pressure on the release  process. The program has taken steps to address potential concerns,  including chartering a working group to review how past export decisions  apply to the JSF program; identify contentious items in advance; and  provide workable resolutions that minimize the impact to the program  cost, schedule, or performance. However, partners have expressed  concern about the pace of information sharing and decision making  related to the JSF support concept. For example, according to several  partners, greater access to technical data is needed so that they can  plan for and develop a sovereign support infrastructure as expressed in  formal exchanges of letters with the United States. The JSF program is  conducting trade studies to further define the concept for how the JSF  will be maintained and supported worldwide so that it can start to address  these issues. According to program officials, this strategy will identify the  best approach for maintaining JSF aircraft, and it may include logistics  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: Export Control Process Presents Challenges for JSF Program
paragraphs: Authorization for export of JSF information to partners and international  suppliers also present challenges for the program. In addition to the  U.S. government determining the level of disclosure for partners and  technology areas, JSF contractors must receive authorization to transfer  data and technology through the export control process. Due to the  degree of international participation at both a government and an industry  level, a large number of export authorizations are necessary to share  project information with governments, solicit bids from partner suppliers,  and execute contracts. The JSF Program Office and Lockheed Martin  told us that there were over 400 export authorizations and amendments  granted during the JSF concept demonstration phase, and they expect that  the number of export authorizations required for the current phase could  exceed 1,000. Lockheed Martin officials told us that an increased level of  resources has been required to address licensing and other export  concerns for the program.
Export authorizations for critical suppliers need to have timely  planning, preparation, and disposition to help avoid schedule delays  and cost increases in the program. Without proper planning, there could  be pressure to expedite reviews and approvals of export authorizations to  support program goals and schedules. In addition, advanced identification  of potential alternative sources for critical contracts could be an  appropriate action to prevent schedule delays in the event of unfavorable  approval decisions. Although it is required to do so, Lockheed Martin has  not completed a long-term industrial participation plan that provides  information on JSF subcontracting. Such a plan could be used to  anticipate export authorizations needed for international suppliers and  identify potential licensing concerns far enough in advance to avoid  program disruption or accelerated licensing reviews. Our work has  shown that past cooperative programs have experienced cost and  schedule problems as a result of poor planning for licenses. For example,  like the JSF, the Army’s Medium Extended Air Defense System program  involves several sensitive technologies critical to preserving the  U.S. military advantage. That program failed to adequately plan for release  requirements related to those technologies and saw dramatic increases in  approval times, which affected contractors’ ability to use existing missile  technology and pursue the cheapest technical solution.
Timely disposition of export authorizations is also necessary to avoid  excluding partner industries from competitions. While Lockheed Martin  has stated that no foreign supplier has been excluded from any of its  competitions or denied a contract because of fear of export authorization  processing times or the conditions that might be placed on an  authorization, the company is concerned this could happen. In fact, one  partner told us that export license delays have had a negative effect on  the participation of its companies because some U.S. subcontractors have  been reluctant to take on the added burden of the license process. The  U.S. subcontractors must apply for the export authorization on behalf of  the foreign supplier, which can add time and expense to their contracts.  Further, we were told that some partner companies have been unable to  bid due to the time constraints involved in securing an export license.
The JSF program has attempted to address the additional administrative  tasks associated with export authorizations by adding resources to help  prepare applications and exploring ways to streamline the process.  For example, Lockheed Martin received a global project authorization  (GPA)—an “umbrella” export authorization that allows Lockheed Martin  and other U.S. suppliers on the program to enter into agreements with  over 200 partner suppliers to transfer certain technical data—from the  Department of State. Approved in October 2002, implementation of the  GPA was delayed until March 2003 because of supplier concerns related  to liability and compliance requirements. In March 2003, the first GPA  implementing agreement between Lockheed Martin and a company in a  partner country was submitted and approved in 4 business days. JSF  partners have expressed dissatisfaction with the time it has taken to  finalize the conditions under which the GPA can be used and  disappointment that the authorization may not realize their expectations  in terms of reducing the licensing burdens of the program. As currently  structured, the GPA does not cover the transfer of any classified  information or certain unclassified, export-controlled information in  sensitive technology areas such as stealth, radar, and propulsion.
section_title: Technical Concerns Could Affect Program Costs and Partner Participation
paragraphs: The Joint Strike Fighter program, and its implications for acquisition  reform and cooperative development, is a good test of whether the  desire for better outcomes can outweigh traditional management  pressures. In our 2001 review of JSF technical maturity, we employed  knowledge standards consistent with best practices and DOD  acquisition reforms and found that several technologies critical to  meeting requirements were not sufficiently mature. The best practice  for such a decision is to have a match between technologies and weapon  requirements. At its recent preliminary design review, the JSF program  uncovered significant problems with regard to various issues, including  aircraft weight, design maturity, and weapons integration. Such problems  have historically resulted in increased program costs, longer development  schedules, or a reduction in system capabilities. While such actions can  negatively affect the U.S. military services, the impact may be more  substantial for partners because they have less control over program  decisions and less ability to adjust to these changes. This may affect  partners’ participation in the program in a variety of ways.
First, the continued affordability of the development program and the  final purchase price are important for partners—both of which could be  affected by recent technical problems. There is no guarantee that partners  will automatically contribute to cost overruns, especially if the increase  is attributable to factors outside their control. Therefore, future cost  increases in the JSF program may fall almost entirely on the United States  because there are no provisions in the negotiated agreements requiring  partners to share these increases. Partner representatives indicated  that they intend to cooperate with the JSF Program Office and Lockheed  Martin in terms of sharing increased program costs when justified.  However, some partner officials expressed concern over the tendency of  U.S. weapon system requirements to increase over time, which results in  greater risk and higher costs. While some partners could fund portions of  cost overruns from military budgets if requested, others told us that even if  they were willing to support such increases, these decisions would have to  be made through their parliamentary process.
DOD has not required any of the partners to share cost program  increases to date. For example, cost estimates for the system development  and demonstration phase have increased on multiple occasions since the  program started in 1996. During that time, the expected cost for this  phase went from $21.2 billion to $33.1 billion as a result of scope changes  and increased knowledge about cost. According to DOD, partners have not  been required to share any of these costs because the changes were DOD  directed and unrelated to partner actions or requirements. To encourage  partners to share costs where appropriate, the United States has said it  will consider past cost sharing behavior when negotiating MOUs for future  phases of the program. If a partner refuses to share legitimate costs during  the system development and demonstration phase, the United States can  use future phase negotiations to recoup all or part of those costs. In these  instances, the United States could reduce levies from future sales, refuse  to waive portions of the nonrecurring cost charges for Level III partners,  or in a worst case, choose not to allow further participation in the  program. However, DOD officials have not committed to using these  mechanisms to encourage cost sharing. Therefore, DOD may be forced to  choose between accepting the additional cost burden and asking for  additional partner contributions—which could jeopardize partner support  for the program.
section_title: Conclusion
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 critically affect the cost, schedule, and performance of the  program. Because Lockheed Martin bears the responsibility for managing  partner industrial expectations, it will be forced to balance its ability to  meet program milestones and collect program award fees against meeting  these expectations—which could be key to securing future sales of the  JSF for the company. In turn, DOD must be prepared to assess and  mitigate any risks resulting from these contractor decisions as it fulfills  national obligations set forth in agreements with partner governments.  While some steps have been taken to position the JSF program for  success, given its size and importance, additional attention from DOD  and the program office would help decrease the risks associated with  implementing the international program.
In the report we are releasing today, we recommend that DOD ensure  that the JSF Program Office and its prime contractors have sufficient  information on international supplier planning to fully anticipate and  mitigate risk associated with technology transfer and that information  concerning the selection and management of suppliers is available,  closely monitored, and used to improve program outcomes. Toward this  end, DOD and the JSF Program Office need to maintain a significant  knowledge base to enable adequate oversight and control over an  acquisition strategy that effectively designs, develops, and produces the  aircraft while ensuring that the strategy is carried out to the satisfaction  of the U.S. services and the international partners. Tools are in place to  provide this oversight and management, but they must be fully utilized to  achieve program goals.
DOD concurred with our report recommendations, agreeing to (1) ensure  that Lockheed Martin’s JSF international industrial plans are continually  reviewed for technology control, export control, and risk mitigation  issues and (2) work with Lockheed Martin to achieve effective program  oversight when it comes to partner expectations and program goals.  While we commend this proactive response, we note that DOD did not  provide any detail as to the criteria to be employed for reviewing industrial  plans. In addition, DOD did not specify how it plans to collect and monitor  information in suppliers or elaborate on other steps the JSF Program  Office would take to identify and resolve potential conflicts between  partner expectations and program goals.
Through decisions made on the Joint Strike Fighter program today, DOD  will also influence other acquisition programs like the Missile Defense  Agency’s suite of land, sea, air, and space defense systems and the Army’s  Future Combat System. These programs will potentially shape budgetary  and strategic military policy for the long term, and as such, need to use  every tool available for success. Adopting knowledge-based policies and  practices with regard to these critical acquisition programs is an important  first step to ensuring that success.
Mr. Chairman, that concludes my statement. I will be happy to respond to  any questions you or other Members of the Subcommittee may have.
subsections: section_title: Contacts and Acknowledgments
paragraphs: For future questions regarding this testimony, please contact Katherine  Schinasi, (202) 512-4841. Individuals making key contributions to this  testimony include Tom Denomme, Brian Mullins, and Ron Schwenn.
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