Best Practices: Better Acquisition Outcomes Are Possible If DOD Can Apply Lessons from F/A-22 Program
Published: 2003-04-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the next 5 years, DOD's overall investments are expected to average $150 billion a year to modernize and transition our forces. In addition, DOD must modernize its forces amid competing demands for federal funds, such as health care and homeland security. Therefore, it is critical that DOD manage its acquisitions in the most cost efficient and effective manner possible. DOD's newest acquisition policy emphasizes the use of evolutionary, knowledge-based concepts that have proven to produce more effective and efficient weapon systems outcomes. However, most DOD programs currently do not employ these practices and, as a result, experience cost increases, schedule delays, and poor product quality and reliability. This testimony compares the best practices for developing new products with the experiences of the F/A-22 program.
section_title: What GAO Found
paragraphs: GAO's reviews of commercial best practices have identified key enablers to the success of product development programs and focused on how DOD can better leverage its investments by shortening the time it takes to field new capabilities at a more predictable cost and schedule. First, commercial firms use an approach that evolves a product to its ultimate capabilities on the basis of mature technologies and available resources. This approach allows only the product features and capabilities achievable with available resources in the initial development. Further product enhancements are planned for subsequent development efforts when technologies are proven to be mature and other resources are available. Second, commercial firms ensure that a high level of knowledge exists at key junctures during a product's development. The knowledge-based process includes three points: (1) Before a program is launched, successful programs match customer needs and available resources--technology, engineering knowledge, time, and funding; (2) About midway through development, the ability of the product's design is demonstrated to be stable and meet performance requirements; and (3) Before production begins, programs must show that a product can be manufactured within cost, schedule, and quality targets. In contrast, the F/A-22 program illustrates what can happen when a major acquisition program is not guided by the principles of evolutionary, knowledge-based acquisition. When the program was started, several key technologies were not mature. Program managers proceeded through development without the requisite knowledge to effectively manage program risk and, at the start of production, key manufacturing processes were not under control. The F/A-22 program has undergone significant cost increases. Instead of fielding early capabilities to the war fighter, the development cycle has extended to 19 years, so far, and original quantities have been significantly reduced, raising concerns about the capability the program will eventually deliver. DOD recognizes the need to get better weapon system outcomes, and its newest acquisition policy emphasizes the use of evolutionary, knowledge-based acquisition concepts proven to produce better outcomes in developing new products. However, policy changes alone are not enough. Leadership commitment and attention to putting the policy into practice for individual programs is needed to avoid the problems of the past. DOD will have many opportunities to do so over the next several years with its force modernization investments.

section_title: Letter
paragraphs: I am pleased to be here today to participate in the Subcommittee’s hearing  on how the Department of Defense (DOD) can—and must—get better  outcomes from its weapon system investments. DOD is on the threshold of  several major investments in acquisition programs that are likely to  dominate budget and doctrinal debates well into the next decade. These  programs include such systems as the Missile Defense Agency’s suite of  land, sea, air, and space defense systems; the Army’s Future Combat  Systems; and the Air Force’s and Navy’s Joint Strike Fighter. Over the next  5 years, DOD’s overall investments are expected to average $150 billion a  year as DOD works to keep legacy systems as well as modernize and  transform our national defense capabilities for the future. Therefore, to  meet these challenges, it is essential that sound foundations for these and  other weapon system investments be laid now so that the resulting  programs can be executed within estimates of available resources.
Any discussion of improvements to DOD’s modernization efforts must be  set in the context of overall expected budget availability. There are  important competing priorities. Health care costs are growing at double- digit rates, and spending on homeland security will likely grow as we seek  to defeat terrorism worldwide. We face an oncoming demographic tidal  wave, and by 2035 the number of people who are 65 or older will have  doubled, creating much larger demands on the federal budget. The  demand of funding for entitlement programs continues to grow, creating  increasing pressures on discretionary funding for other federal priorities  like education and defense. Therefore, it is critical that DOD manage its  acquisitions in the most cost efficient and effective manner possible.
My testimony today is about improving the outcomes of major weapon  system acquisitions by using best practices to capture and use the right  product knowledge at the right time for better decision making during  product development. As per your request, I will compare acquisition  practices and decisions made for the F/A-22 with these best practices for  developing new products. The divergence between F/A-22 experiences and  best product development practices, we believe, largely explains why the  F/A-22 has been in development for over 16 years and its cost has grown  substantially. It is also a primary contributor to other performance issues  that are currently faced by the program. My testimony will also include  observations on what can be done at this time to limit further negative  outcomes in the F/A-22 program. Lastly, I will discuss the need for  enforcing DOD’s newest acquisition policy, which on paper embraces best  practices but in operation does not always do so, if DOD really expects to  get improved outcomes in its major weapon system acquisitions.
subsections: section_title: Improving Major Weapon System Acquisition Outcomes
paragraphs: Clearly, the acquisition process has produced superior weapons, but it  does so at a high price. Weapon systems routinely take much longer time  to field, cost more to buy, and require more support than investment plans  provide for. These consequences reduce the buying power of the defense  dollar, delay capabilities for the war fighter, and force unplanned—and  possibly unnecessary—trade-offs in desired acquisition quantities and an  adverse ripple effect among other weapons programs or defense needs.  Because of the lengthy time to develop new weapons, many enter the field  with outdated technologies and a diminished supply base needed for  system support. Frequently, this requires upgrades to the capability as  soon as the new system is fielded. As previously noted, these inefficiencies  have often led to reduced quantities of new systems. In turn, legacy  systems remain in the inventory for longer periods, requiring greater  operations and support cost that pull funds from other accounts, including  modernization. DOD is facing these problems with its tactical air force  assets now. We believe DOD can learn lessons from the experiences with  the F/A-22 program as it frames the acquisition environment for its many  transformational investments.
DOD recognizes the need to get better weapon system outcomes, and its  newest acquisition policy emphasizes the use of evolutionary, knowledge- based acquisition concepts proven to produce more effective and efficient  outcomes in developing new products. It incorporates the elements of a  knowledge-based acquisition model for developing new products, which  we have recommended in our reviews of commercial best practices. Our  body of work focuses on how DOD can better leverage its investments by  shortening the time it takes to field new capabilities at a more predictable  cost and schedule. However, policy changes alone will not guarantee  success. Unless written policies are consistently implemented in practice  through timely and informed decisions on individual programs, outcomes  will not change. This requires sustained leadership and commitment and  attention to the capture and use of key product knowledge at critical  decision points to avoid the problems of the past.
subsections: section_title: The Case for an Evolutionary Product Development Environment
paragraphs: A key enabler to the success of commercial firms is using an approach that  evolves a product to its ultimate capabilities on the basis of mature  technologies and available resources. This approach allows commercial  companies to develop and produce more sophisticated products faster and  less expensively than their predecessors. Commercial companies have  found that trying to capture the knowledge required to stabilize the design  of a product that requires significant amounts of new technical content is  an unmanageable task, especially if the goal is to reduce development  cycle times and get the product to the marketplace as quickly as possible.  Therefore, product features and capabilities not achievable in the initial  development are planned for subsequent development efforts in future  generations of the product, but only when technologies are proven to be  mature and other resources are available. DOD’s new policy embraces the  idea of evolutionary acquisition. Figure 1 compares evolutionary and  single step (“big bang”) acquisitions.
An evolutionary environment for developing and delivering new products  reduces risks and makes cost more predictable. While the customer may  not receive an ultimate capability initially, the product is available sooner,  with higher quality and reliability, and at lower, more predictable cost.  Improvements are planned for future generations of the product.
section_title: The Case for Knowledge- Based Product Development Process
paragraphs: Leading commercial firms expect that their program managers will deliver  high-quality products on time and within budgets. Doing otherwise could  result in losing a customer in the short term and losing the company in the  longer term. Thus, in addition to creating an evolutionary product  development environment that brings risk in control, these firms have  adopted practices that put their individual program managers in a good  position to succeed in meeting these expectations on individual products.  Collectively, these practices ensure that a high level of knowledge exists  about critical facets of the product at key junctures during its  development. Such a knowledge-based process enables decision makers to  be reasonably certain about critical facets of the product under  development when they need to be.
The knowledge-based process followed by leading firms is shown in detail  in table 1, but in general can be broken down into three knowledge points.  First, a match must be made between the customer’s needs and the  available resources—technology, engineering knowledge, time, and  funding—before a program is launched. Second, a product’s design must  demonstrate its ability to meet performance requirements and be stable  about midway through development. Third, the developer must show that  the product can be manufactured within cost, schedule, and quality targets  and is demonstrated to be reliable before production begins. The following  table illustrates more specifically what we have learned about how  successful programs gather knowledge as they move through product  development.
DOD programs often do not employ these practices. We found that if the  evolutionary, knowledge-based acquisition concepts were not applied, a  cascade of negative effects became magnified in the product development  and production phases of an acquisition program. These led to acquisition  outcomes that included significant cost increases and schedule delays,  poor product quality and reliability, and delays in getting new capability to  the war fighter. This is often the case in DOD programs as shown in our  past work on systems like F/A-22 fighter, C-17 airlifter, V-22 tiltrotor  aircraft, PAC-3 missile, BAT antitank munition, and others. We did find  some DOD programs that employed best practice concepts and have had  more successful program outcomes to date. These included the Global  Hawk unmanned vehicle, AIM-9X missile, and Joint Direct Attack  Munitions guided bomb. Figure 3 shows a notional illustration of the  different paths and effects of a product development.
It is clear that knowledge about the product’s technology, design, and  processes captured at the right time can reduce development cycle times  and deliver a more cost effective, reliable product to the customer sooner  than programs that do not capture this knowledge.
In applying the knowledge-based approach, the most leveraged decision  point of the three, is matching the customer’s needs with the developer’s  resources—technology, design, timing, and funding. This initial decision  sets the stage for the eventual outcome—desirable or problematic. The  match is ultimately achieved in every development program, but in  successful development programs, it occurs prior to program launch. In  successful programs, negotiations and trade-offs occur before a product  development is launched to ensure that a match exists between customer  expectations and developer resources. The results achieved from this  match are balanced and achievable requirements, sufficient investment to  complete the development, and a firm commitment to deliver the product.  Commercial companies we have visited usually limit product development  cycle-time to less than 5 years.
In DOD, this match is seldom achieved. It is not unusual for DOD to  bypass early trade-offs and negotiations, instead planning to develop a  product based on a rigid set of requirements that are unachievable within  a reasonable development time frame. This results in cost and schedule  commitments that are unrealistic. Although a program can take as long as  15 years in DOD, the program manager is expected to develop and be  accountable for precise cost and schedule estimates made at the start of  the program. Because of their short tenures, it normally takes several  program managers to complete product development. Consequently, the  program manager that commits to the cost and schedule estimate at the  beginning of the program is not the same person responsible for achieving  it. Therefore, program accountability is problematic. Ironically, this  outcome is rational in the traditional acquisition environment. The  pressures put on program managers to get programs approved encourage  promising more than can be delivered for the time and money allotted.  They are not put in a position to succeed.
The differences in the practices employed by successful commercial firms  and DOD reflect the different demands imposed on programs by the  environments in which they are managed. Specific practices take root and  are sustained because they help a program succeed in its environment.  The way success and failure are defined for commercial and defense  product developments differs considerably, which creates a different set  of incentives and evokes different behaviors from managers. Attempts at  reforming weapon system acquisitions have not succeeded because they  did not change these incentives. All of the participants in the acquisition  process play a part in creating incentives. The F/A-22 program, advertised  as a flagship of acquisition reform in its early days, failed to establish this  match before program launch and today we are discussing the resulting  outcomes to-date.
section_title: F/A-22 Did Not Employ Evolutionary or Knowledge-Based Process
paragraphs: The F/A-22 provides an excellent example of what can happen when a  major acquisition program is not guided by the principles of evolutionary,  knowledge-based acquisition. The program failed to match requirements  with resources and make early trade-offs and took on a number of new  and unproven technologies. Instead of fielding early capability and then  evolving the product to get new capabilities to the war fighter sooner, the  Air Force chose a “big bang” product development approach that is now  planned to take about 19 years. This created a challenging and risky  acquisition environment that has delayed the war fighter the capabilities  expected from this new aircraft. Program leaders did not capture the  specific knowledge identified as key for each of the three critical  knowledge points in product development. Instead, program managers  proceeded through the F/A-22’s development without the requisite  knowledge necessary for reducing program risk and achieving more  successful program outcomes. Now the optimism underlying these  decisions has resulted in significant cost increases, schedule delays, trade- offs—making do with less than half the number of originally desired  aircraft—and concerns about the capability to be delivered.
subsections: section_title: F/A-22 Program Outcomes
paragraphs: Since the F/A-22 acquisition program was started in October 1986, the F/A- 22 cost and schedule estimates have grown significantly to where, today,  the Air Force estimates the total acquisition unit cost of a single aircraft is  $257.5 million. This represents a 74 percent increase from the estimate at  the start of development and a commensurate loss in the buying power of  the defense dollar. Intended to replace the aging F-15 fighter, the F/A-22  program is now scheduled to reach its initial operational capability in  December 2005—making its development cycle about 19 years. During this  cycle, the planned buy quantity has been reduced 63 percent from 750 to  276 aircraft. In addition, since fiscal year 2001, funding for F/A-22  upgrades has dramatically increased from $166 million to $3.0 billion, most  of which is to provide increased ground attack capability, a requirement  that was added late in the development program.
section_title: F/A-22 Did Not Use Evolutionary Acquisition or Capture Knowledge Required at Key Decision Junctures
paragraphs: The F/A-22 acquisition strategy from the outset was to achieve full  capability in a “big bang” approach. By not using an evolutionary  approach, the F/A-22 took on significant risk and onerous technological  challenges. While the big bang approach may have allowed the Air Force  to more successfully compete for early funding, it hamstrung the program  with many new undemonstrated technologies, preventing the program  from knowing cost and schedule ramifications throughout development.  Cost, schedule, and performance problems resulted. The following table  summarizes the F/A-22 program’s attainment of critical knowledge and key  decision junctures during the development program and the changes in  development cost and cycle time at each point.
Technology—The F/A-22 did not have mature technology at the start of  the acquisition program. The program included new low-observable  (stealth) materials, integrated avionics, and propulsion technology that  were not mature at this time. The Air Force did not complete an evaluation  of stealth technology on a full-scale model of the aircraft until several  years into development. It was not until September 2000, or 9 years into  development, that the integrated avionics reached a maturity level  acceptable to begin product development. During development, the  integrated avionics was a source of schedule delays and cost growth.  Since 1997, avionics software development and flight-testing have been  delayed, and the cost of avionics development has increased by over $980  million dollars. Today, the avionics still has problems affecting the ability  to complete developmental testing and begin operational testing, and the  Air Force cannot predict when a solution will be found.
Design—The effects of immature technologies cascaded into the F/A-22  development program, making it more difficult to achieve a stable design  at the right time. The standard measure of design stability is 90 percent of  design drawings releasable by the critical design review. The F/A-22  achieved only 26 percent by this review, taking an additional 43 months to  achieve the standard. Moving ahead in development, the program  experienced several design and manufacturing problems described by the  F/A-22 program office as a “rolling wave” effect throughout system  integration and final assembly. These effects included numerous design  changes, labor inefficiencies, parts shortages, out of sequence work, cost  increases, and schedule delays.
Production—At the start of production, the F/A-22 did not have  manufacturing processes under control and was only beginning testing  and demonstration efforts for system reliability. Initially, the F/A-22 had  taken steps to use statistical process control data to gain control of critical  manufacturing processes by full rate production. However, the program  abandoned this best practice approach in 2000 with less than 50 percent of  its critical manufacturing processes in control. In March 2002, we  recommended that the F/A-22 program office monitor the status of critical  manufacturing process as the program proceeds toward high rate  production.
The reliability goal for the F/A-22 is 3 hours of flying time between  maintenance actions. The Air Force estimated that in late 2001, when it  entered production, it should have been able to demonstrate almost 2  flying hours between maintenance actions. Instead, it could fly an average  of only 0.44 hours between maintenance actions. Since then there has  been a decrease in reliability. As of November 2002, development test  aircraft have been completing only 0.29 hours between maintenance  actions. Additionally, the program was slow to fix and correct problems  that had affected reliability. At the time of our review in July 2002,  program officials had identified about 260 different types of failures and  had identified fixes for less than 50 percent of the failures. To achieve  reliability goals will require additional design changes, testing, and  modifications. Therefore, additional problems and costs can be expected if  the system is fielded with the level of reliability achieved to date.
section_title: It Is Too Late for the F/A- 22 Program to Gain Full Benefit of a Knowledge- Based Process
paragraphs: The F/A-22 did not take advantage of evolutionary, knowledge-based  concepts up front and now, the best it can hope for is to limit cost  increases and performance problems by not significantly increasing its  production until development is complete—signified by developmental  and operational testing and reliability demonstrations. To that end, we  have recommended that the Air Force reconsider its decision to increase  the aircraft production rate beyond 16 aircraft per year. The program is  nearing the end of developmental testing and plans to start initial  operational testing in October 2003. If developmental testing goes as  planned, which is not guaranteed, operational testing is expected to be  completed around September 2004. By the end of this fiscal year, 51 F/A- 22s will be on contract as low rate production began in 2001.
Our March 2003 report identifies various problems still outstanding that  could have further impacts on cost, schedule, and delivered performance  that are in addition to undemonstrated reliability goals. The problems  identified are of particular concern, given Air Force plans to increase  production rates and make a full rate production decision in 2004. The  problems include:    unexpected shutdowns (instability) of the avionics,    excessive movement of the vertical tails,    overheating in rear portions of the aircraft,    separations of the horizontal tail material,   inability to meet airlift support requirements, and    excessive ground maintenance actions.
These problems are still being addressed, and not all of them have been  solved as yet. For example, Air Force officials stated they do not yet  understand the problems associated with the avionics instability well  enough to predict when they would be able to resolve them, and certain  tests to better understand the vertical tail problem have not yet begun.  Despite remaining testing and outstanding problems, the Air Force plans  to continue acquiring production aircraft at increasing annual rates and  make the full rate production decision in 2004. This is a very risky strategy,  given outstanding issues in the test program and the system’s less than  expected reliability. The Air Force may encounter higher production costs  as a result of acquiring significant quantities of aircraft before adequate  testing and demonstrations are complete. In addition, remaining testing  could identify problems that require costly modifications in order to  achieve satisfactory performance.
In a February 28, 2003 report to Representative John Tierney, we found  that F/A-22 production costs are likely to increase more than the latest  $5.4 billion cost growth recently estimated by the Air Force and the Office  of Secretary of Defense (OSD). First, the current OSD production estimate  does not include $1.3 billion included in the latest Air Force acquisition  plan. Second, schedule delays in developmental testing could further  postpone the start of the first F/A-22 multiyear contract, which has already  been delayed until fiscal year 2006. This could result in lower cost savings  from multiyear procurement. Last, we found several risk factors that may  increase future production costs, including the dependency of certain cost  reduction plans on Air Force investments that are not being made to  improve production processes, the availability of funding, and a reduction  in funding for support costs. In addition, DOD has not informed Congress  about the quantity of aircraft that can be procured within existing  production cost limits, which we believe could be fewer than the 276  currently planned. Further details on F/A-22 cost growth and the Air  Force’s attempt to offset it are provided in appendix I.
section_title: Real Change in Acquisition Outcomes Requires Disciplined Enforcement of Acquisition Policy
paragraphs: While DOD’s new acquisition policy is too late to influence the F/A-22  program, it is not too late for other major acquisition programs like the  Missile Defense Agency’s suite of land, sea, air, and space defense  systems; the Army’s Future Combat Systems; and the Air Force and Navy’s  Joint Strike Fighter. DOD’s revised acquisition policy represents tangible  leadership action to getting better weapon system acquisition outcomes,  but unless the policies are implemented through decisions on individual  programs, outcomes are not likely to change. Further, unless pressures are  alleviated in DOD to get new acquisition programs approved and funded  on the basis of requirements that must stand out, programs will continue  to be compromised from the outset with little to no chance of successful  outcomes. If new policies were implemented properly, through decisions  on individual programs, managers would face less pressure to promise  delivery of all the ultimate capabilities of a weapon system in one “big  bang.”
Both form and substance are essential to getting desired outcomes. At a  tactical level, we believe that the policies could be made more explicit in  several areas to facilitate such decisions. First, the regulations provide  little or no controls at key decision points of an acquisition program that  force a program manager to report progress against knowledge-based  metrics. Second, the new regulations, once approved, may be too general  and may no longer provide mandatory procedures. Third, the new  regulations may not provide adequate accountability because they may not  require knowledge-based deliverables containing evidence of knowledge  at key decision points.
At a strategic level, some cultural changes will be necessary to translate  policy into action. At the very top level, this means DOD leadership will  have to take control of the investment dollars and to say “no” in some  circumstances if programs are inappropriately deviating from sound  acquisition policy. In my opinion, programs should follow a knowledge- based acquisition policy—one that embraces best practices—unless there  is a clear and compelling national security reason not to. Other cultural  changes instrumental to implementing change include:    Keeping key people in place long enough so that they can affect decisions  and be held accountable.
Providing program offices with the skilled people needed to craft  acquisition approaches that implement policy and to effectively oversee  the execution of programs by contractors.
Realigning responsibilities and funding between science and technology  organizations and acquisition organizations to enable the separation of  technology development from product development.
Bringing discipline to the requirements-setting process by demanding a  match between requirements and resources.
Requiring readiness and operating cost as key performance parameters  prior to beginning an acquisition.
Designing and implementing test programs that deliver knowledge when  needed, including reliability testing early in design.
Ultimately, the success of the new acquisition policy will be seen in  individual program and resource decisions. Programs that are  implementing knowledge-based policies in their acquisition approaches  should be supported and resourced, presuming they remain critical to  national needs and affordable within current and projected resource  levels. Conversely, if programs that repeat the approaches of the past are  approved and funded, past policies—and their outcomes—will be  reinforced with a number of adverse implications.
section_title: Conclusions
paragraphs: DOD will continue to face challenges in modernizing its forces with new  demands on the federal dollar created by changing world conditions.  Consequently, it is incumbent upon DOD to find and adopt best product  development practices that can allow it to manage its weapon system  programs in the most efficient and effective way. Success over the long  term will depend not only on policies that embrace evolutionary,  knowledge-based acquisition practices but also on DOD leadership’s  sustaining its commitment to improving business practices and ensuring  that those adopted are followed and enforced.
DOD’s new acquisition policy embraces the best practice concepts of  knowledge-based, evolutionary acquisition and represents a good first step  toward achieving better outcomes from major acquisition programs. The  F/A-22 program followed a different path at its beginning, a big bang, high- risk approach whose outcomes so far have been increased cost, quality  and reliability problems, growing procurement reductions, and delays in  getting the aircraft to the war fighter. Since this program is nearing the end  of development and already into production, it is too late to adopt a  knowledge approach, but it can limit further cost increases and adverse  actions by not ramping up production beyond current levels until  developmental and operational testing are completed and reliability goals  have been demonstrated. Regardless of the F/A-22’s current predicament,  the new policy can and should be used to manage all new acquisition  programs and should be adapted to those existing programs that have not  progressed too far in development to benefit. At a minimum, the F/A-22  should serve as a lesson learned from which to effect a change in the  future DOD acquisition environment. The costs of doing otherwise are  simply too high for us to tolerate.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions that you or other members of the Subcommittee  may have.
section_title: Appendix I: F/A-22 Production Cost Growth
paragraphs: Over the last 6 years, DOD has identified about $18 billion in estimated  production cost growth during the course of two DOD program reviews.  As a result, the estimated cost of the production program currently  exceeds the congressional cost limit. The Air Force has implemented cost  reduction plans designed to offset a significant amount of this estimated  cost growth. But the effectiveness of these cost reduction plans has varied.
During a 1997 review, the Air Force estimated cost growth of $13.1 billion.  The major contributing factors to this cost growth were inflation,  increased estimates of labor costs and materials associated with the  airframe and engine, and engineering changes to the airframe and engine.  These factors made up about 75 percent of the cost growth identified in  1997.
In August 2001, DOD estimated an additional $5.4 billion in cost growth for  the production of the F/A-22, bringing total estimated production cost to  $43 billion. The major contributing factors to this cost growth were again  due to increased labor costs and airframe and engine costs. These factors  totaled almost 70 percent of the cost growth. According to program  officials, major contractors’ and suppliers’ inability to achieve the  expected reductions in labor costs throughout the building of the  development and early production aircraft has been the primary reason for  estimating this additional cost growth.
subsections: section_title: Mixed Success With Cost Reduction Plans
paragraphs: The Air Force was able to implement cost reduction plans and offset cost  growth by nearly $2 billion in the first four production contracts awarded.  As shown in table 3, the total offsets for these contracts slightly exceeded  earlier projections by about $.5 million.
Cost reduction plans exist but have not yet been implemented for  subsequent production lots planned for fiscal years 2003 through 2010  because contracts for these production lots have not yet been awarded. If  implemented successfully, the Air Force expects these cost reduction  plans to achieve billions of dollars in offsets to estimated cost growth and  to allow the production program to be completed within the current  production cost estimate of $43 billion. However, this amount exceeds the  production cost limit of $36.8 billion.
In addition, while the Air Force has been attempting to offset costs  through production improvement programs (PIPs), recent funding  cutbacks for PIPs may reduce their effectiveness. PIPs focus specifically  on improving production processes to realize savings by using an initial  government investment. The earlier the Air Force implements PIPs, the  greater the impact on the cost of production. Examples of PIPs previously  implemented by the Air Force include manufacturing process  improvements for avionics, improvements in fabrication and assembly  processes for the airframe, and redesign of several components to enable  lower production costs.
As shown in figure 3, the Air Force reduced the funding available for  investment in PIPs by $61 million for lot 1 and $26 million for lot 2 to cover  cost growth in production lots 1 and 2. As a result, it is unlikely that PIPs  covering these two lots will be able to offset cost growth as planned.
Figure 4 shows the remaining planned investment in PIPs through fiscal  year 2006 and the $3.7 billion in estimated cost growth that can potentially  be offset through fiscal year 2010 if the Air Force invests as planned in  these PIPs.
In the past, Congress has been concerned about the Air Force’s practice of  requesting fiscal year funding for these PIPs but then using part of that  funding for F/A-22 airframe cost increases.  Recently, Congress directed  the Air Force to submit a request if it plans to use PIP funds for an  alternate purpose.
section_title: Related GAO Products
paragraphs: Best Practices: Setting Requirements Differently Could Reduce Weapon  Systems’ Total Ownership Costs. GAO-03-57. Washington, D.C.: February  11, 2003.
Best Practices: Capturing Design and Manufacturing Knowledge Early  Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.: July 15,  2002.
Defense Acquisitions: DOD Faces Challenges in Implementing Best  Practices. GAO-02-469T. Washington, D.C.: February 27, 2002.
Best Practices: Better Matching of Needs and Resources Will Lead to  Better Weapon System Outcomes. GAO-01-288. Washington, D.C.: March 8,  2001.
Best Practices: A More Constructive Test Approach Is Key to Better  Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.: July 31,  2000.
Defense Acquisitions: Employing Best Practices Can Shape Better  Weapon System Decisions. GAO/T-NSIAD-00-137. Washington, D.C.: April  26, 2000.
Best Practices: DOD Training Can Do More to Help Weapon System  Programs Implement Best Practices. GAO/NSIAD-99-206. Washington,  D.C.: August 16, 1999.
Best Practices: Better Management of Technology Development Can  Improve Weapon System Outcomes. GAO/NSIAD-99-162. Washington,  D.C.: July 30, 1999.
Best Practices: DOD Can Help Suppliers Contribute More to Weapon  System Programs. GAO/NSIAD-98-87. Washington, D.C.: March 17, 1998.
Best Practices: Successful Application to Weapon Acquisition Requires  Changes in DOD’s Environment. GAO/NSIAD-98-56. Washington, D.C.:  February 24, 1998.
Best Practices: Commercial Quality Assurance Practices Offer  Improvements for DOD. GAO/NSIAD-96-162. Washington, D.C.: August 26,  1996.
Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T.  Washington, D.C.: April 2, 2003.
Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22  Production Rates While Development Risks Continue. GAO-03-431.  Washington, D.C.: March 14, 2003.
Tactical Aircraft: DOD Needs to Better Inform Congress about  Implications of Continuing F/A-22 Cost Growth. GAO-03-280.  Washington, D.C.: February 28, 2003.
Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should  Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.
Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs  within the Congressional Limitation. GAO-01-782. Washington, D.C.: July  16, 2001.
Tactical Aircraft: F-22 Development and Testing Delays Indicate Need  for Low-Rate Production. GAO-01-310. Washington, D.C.: March 15, 2001.
Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded  Congressional Limitation. GAO/NSIAD-00-178. Washington, D.C.: August  15, 2000.
Defense Acquisitions: Use of Cost Reduction Plans in Estimating F-22  Total Production Costs. GAO/T-NSIAD-00-200. Washington, D.C.: June 15,  2000.
Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal  Year 2001. GAO/OCG-00-8. Washington, D.C.: March 31, 2000.
F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are  Avoided. GAO/NSIAD-00-68. Washington, D.C.: March 14, 2000.
Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals.  GAO/T-NSIAD-00-58. Washington, D.C.: December 7, 1999.
Fiscal Year 2000 Budget: DOD’s Procurement and RDT&E Programs.  GAO/NSIAD-99-233R. Washington D.C.: September 23, 1999.
Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal  Year 2000. GAO/OCG-99-26. Washington, D.C.: April 16, 1999.
Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering  and Manufacturing Development Programs. GAO/T-NSIAD-99-113.  Washington, D.C.: March 17, 1999.
F-22 Aircraft: Issues in Achieving Engineering and Manufacturing  Development Goals. GAO/NSIAD-99-55. Washington, D.C.: March 15, 1999.
F-22 Aircraft: Progress of the Engineering and Manufacturing  Development Program. GAO/T-NSIAD-98-137. Washington D.C.: March 25,  1998.
F-22 Aircraft: Progress in Achieving Engineering and Manufacturing  Development Goals. GAO/NSIAD-98-67. Washington, D.C.: March 10, 1998.
Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program.  GAO/NSIAD-97-156. Washington, D.C.: June 4, 1997.
Defense Aircraft Investments: Major Program Commitments Based on  Optimistic Budget Projections. GAO/T-NSIAD-97-103. Washington, D.C.:  March 5, 1997.
F-22 Restructuring. GAO/NSIAD-97-100BR. Washington, D.C.: February  28, 1997.
Tactical Aircraft: Concurrency in Development and Production of F-22  Aircraft Should Be Reduced. GAO/NSIAD-95-59. Washington, D.C.: April  19, 1995.
Tactical Aircraft: F-15 Replacement Issues. GAO/T-NSIAD-94-176.  Washington, D.C.: May 5, 1994.
Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned.  GAO/NSIAD-94-118. Washington, D.C.: March 25, 1994.