KC-46 Tanker Aircraft: Program Generally Stable but Improvements in Managing Schedule Are Needed
Released: 2013-02-27T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Aerial refueling allows U.S. military aircraft to fly further, stay airborne longer, and carry more weapons, equipment, and supplies. Yet the mainstay of U.S. tanker forces--the KC-135 Stratotanker--is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet. As a result, the Air Force has initiated the $52 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft by 2027.

The National Defense Authorization Act for Fiscal Year 2012 requires GAO to annually review the KC-46 program through 2017. This report addresses (1) progress made in 2012 toward cost, schedule, and performance goals, (2) identified program challenges, and (3) program risk mitigation tools. To address these areas, GAO reviewed key program documents, discussed development plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing. GAO assessed the program's development schedule and technology risks. GAO also assessed the program's acquisition plan to determine compliance with acquisition legislation and acquisition best practices.

section_title: What GAO Found
paragraphs: The KC-46 program 2012 estimates for cost, schedule, and performance are virtually the same as last year's, with the contractor running very close to the planned budget and schedule. Development work is more than one-fourth complete and a successful preliminary design review was held on schedule in April 2012. In response to a prior GAO recommendation, the program now has fully implemented metrics to measure the progress toward its key performance parameters and expects to meet these requirements. There are two areas of concern regarding program cost: first, both the contractor and government estimate the cost of development will exceed the contract ceiling price of $4.9 billion (although government liability is capped at that ceiling); and second, the contractor has already allocated about 80 percent of the management reserves budget, primarily for identified, yet unresolved, development risks, with the bulk of work--about 5 years--remaining. GAO maintains that significant use of these funds early in a program may indicate problems. The program has not yet evaluated how the significant use of these funds early could impact future milestones.

With development generally stable, the program is addressing, in varying degrees, some key challenges. First, defense, contractor, and federal aviation officials all identify the flight test schedule as a substantive concern. An integrated test team continues to evaluate and adjust flight test plans ahead of the 2015 start. Second, the contractor must still complete a significant number of engineering drawings needed for the upcoming critical design review; about three-fifths are complete and some lower level subsystem reviews are behind schedule. Third, the contractor is still in the process of relocating key personnel and establishing facilities needed for integrating defense equipment after deciding to close the original location. Additional work continues to more fully mature critical technologies, solidify software plans, address growth in aircraft weight, and ensure there are no design issues with the wing refueling pods and the boom refueling system. Program officials continue to monitor these issues to ensure they will not have major impacts.

The KC-46 program acquisition strategy and contract type are effective mechanisms for mitigating risks. The use of a fixed price contract limits government cost risk and technology risk is lessened by converting a commercial derivative aircraft into the KC-46 tanker. The KC-46 master schedule, acquisition plan, and management framework favorably compare with best practices and acquisition reform legislation, with some exceptions. For example, the master schedule met 7 of 10 best practices criteria, but did not include and sequence all activities and could have incorporated a broader range of uncertainty, leaving room to improve the schedule so program success is not jeopardized.

section_title: What GAO Recommends
paragraphs: GAO recommends that the Department of Defense (DOD) analyze the root causes for the rapid allocation of management reserves and improve the KC-46 master schedule. DOD fully concurred with these recommendations.

section_title: Letter
paragraphs: The KC-46 tanker modernization program, valued at $52 billion, is the Air  Force’s highest acquisition priority and recently completed its second year  in development to convert a commercial derivative aircraft into an aerial  refueling tanker. Aerial refueling—the transfer of fuel from airborne  tankers to combat and airlift forces—is critical to the U.S. military’s ability  to project power overseas and to effectively operate within a combat  theater. It enables military aircraft to fly further, stay airborne longer, and  carry more weapons, equipment, and supplies than unrefueled forces.  KC-46 aircraft are expected to replace about two-fifths of the KC-135  Stratotanker fleet, currently the mainstay of the U.S. large tanker force.  This force is now over 50 years old on average and costs increasingly  more to maintain and support, with additional concerns that age-related  problems could potentially ground the fleet. Consequently, the Air Force  plans to develop, test, and field 18 KC-46 tankers by August 2017, and  eventually have a total of 179 aircraft by 2027.

The National Defense Authorization Act for Fiscal Year 2012 requires that   In our initial March  we annually review and report on the KC-46 program. 2012 report, we recommended close monitoring of its cost, schedule, and  performance outcomes in order to identify positive or negative lessons  learned. The Department of Defense (DOD) agreed. These lessons and  the data compiled by the program could be very illustrative and important  to decision makers to help guide and improve future defense acquisition  programs since the KC-46 is one of the few major programs to award a  fixed price incentive (firm target) (FPIF) development contract in recent  years. We also recommended that the KC-46 program manager fully  implement sound metrics for each of the aircraft’s planned key  performance parameters, to help ensure that achievement of these  parameters can be appropriately measured as the program moves toward  production. Subsequently, the program office took steps to do so.

This is our second annual report in which we (1) evaluate program  progress toward cost, schedule, and performance goals; (2) identify  design, manufacturing, testing plan, and technology challenges; and (3)  assess the extent the program has developed effective, appropriate  methods to contain and mitigate risks. We could not assess the  contractor’s manufacturing processes because the program has only  recently completed its second year of development and it is too early for  this assessment. To conduct this work, we discussed plans and results  with the Air Force’s KC-46 program office, other defense offices, and the  prime contractor, the Boeing Company (Boeing). We reviewed financial  management documents, program budgets, risk assessments, technical  performance indicators, flight test plans and data relating to the program’s  cost, schedule, and performance. We visited Boeing’s commercial  production line and its facilities for system integration and military  modifications, and obtained information on the program’s flight testing  and manufacturing plans.

We conducted this performance audit from June 2012 to February 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. See appendix I for more  information on our scope and methodology.
subsections: section_title: Background
paragraphs: In February 2011, Boeing won the Air Force competition to develop the  next generation aerial refueling tanker aircraft. Boeing received a FPIF  development contract with incentives to control cost while limiting the  government’s financial liability. The development contract is to design,  manufacture, and deliver four KC-46 tankers for flight testing. The Air  Force expects to exercise contract options for the first production lot in  2015 and the second production lot in 2016, both needed for Boeing to  produce and deliver 18 operational aircraft in the final production  configuration by August 2017. In addition, all required training must be  complete, and the required support equipment, and sustainment support  in place by August 2017. Then the acquisition strategy calls for Boeing to  produce the remaining aircraft through year 2027 at a target rate of 15  aircraft per year. Separate competitions may occur for later acquisitions,  nominally called the KC-Y and KC-Z, to replace the rest of the KC-135  fleet and the KC-10 fleet (the Air Force’s other large tanker).

The KC-46 program’s acquisition strategy is to convert a commercial  Boeing 767 airframe into a militarized aerial refueling tanker in two  phases. In the first, Boeing is modifying their 767 airframe with a cargo  door and an advanced flight deck display borrowed from the new Boeing  787 aircraft and calling this modified version the 767-2C. In the second,  the 767-2C airframe will be further militarized by adding the air refueling  capabilities, an air refueling operator station that includes panoramic  three-dimensional displays, and threat detection and avoidance systems.  Figure 1 depicts how the 767-2C aircraft is to be configured into the KC- 46 tanker.

The new KC-46 tanker is expected to be more capable than the KC-135 it  replaces in several respects. It will have a modernized KC-10 tanker  refueling boom integrated with a fly-by-wire (computer assisted) control  system and a permanent hose and drogue refueling system that will  enable both types of refueling to be employed on the same mission.KC-135 has to land and switch equipment to transition from one mode to  another. Also, the KC-46 is expected to be able to refuel in a variety of  night-time and covert mission settings and will have countermeasures to  protect it against infrared missile threats. Designed with more refueling  capacity, improved efficiency, and increased cargo and medical  evacuation capabilities than its predecessor, the KC-46 is intended to  provide aerial refueling to Air Force, Navy, Marine Corps, and allied  aircraft. Appendix II compares, in more detail, the current capabilities of  the KC-135 with the planned capabilities of the new KC-46 tanker.

The KC-46 program is one of only a few major weapon system programs  in recent years to employ a fixed price development contract. In the past,  DOD has typically used cost-reimbursement contracts in which the  government pays all allowable costs incurred by the contractor. Recent  legislation and defense policy now emphasize the use of fixed price  development contracts, where warranted, to limit the government’s  exposure to cost increases. Defense officials believe that a fixed price  development contract is appropriate for this program because KC-46  development is considered to be a relatively low-risk effort to integrate  mostly mature military technologies onto a well-defined commercial  derivative aircraft.

section_title: KC-46 Program Cost, Schedule, and Performance Estimates Remain Unchanged but There Are Some Concerns as Development Progresses
paragraphs: The KC-46 program estimates for cost, schedule, and performance are  essentially unchanged from last year. While the current cost estimate  shows an increase of about $217 million for development and  procurement combined, program officials explained this increase was  unneeded funding that will be returned to DOD. The contractor is running  very close to its budget and schedule. Development work is more than  one-fourth complete and the program successfully accomplished its  preliminary design review (PDR) on schedule. Also, the program has now  implemented metrics, in response to our prior recommendation, to  measure the development progress toward achieving its nine key  performance parameters and projects it will meet those requirements by  the end of development. However, there are two areas of concern at this  point. First, both the contractor and the government estimate that  Boeing’s development cost will exceed the contract ceiling price of $4.9  billion, and second, the contractor has already allocated about 80 percent  of the management reserves budget set aside for known and unknown  development risks with about 5 years of work remaining.
subsections: section_title: Quantities, Schedule, Cost, and Expected Performance Unchanged Since Program Start
paragraphs: Since the start of the KC-46 program about two years ago, planned  aircraft quantities and key schedule events remain unchanged. The  program’s latest cost estimate shows a total increase of $217 million in  development and procurement, but Air Force officials told us that this is  due to unneeded funding from DOD budget adjustments and the Tanker  Replacement Transfer Fund. Officials said that the February 2011 cost  estimate remains the program of record and that these funding additions  will be returned to DOD. The program also completed a major schedule  milestone in April 2012 with a successful PDR that determined no major  design changes were needed. The PDR is an important risk reduction  activity as the program moves into integration and manufacture of the KC- 46. Table 1 summarizes the planned quantities, costs, and milestone  dates approved when the program began in February 2011 and the most  current estimates in October 2012.

The current development cost estimate of $7.2 billion as reported in  October 2012 includes $4.9 billion for the aircraft development contract  and 4 test aircraft, $0.3 billion for the aircrew and maintenance training  systems, and $2 billion for other government costs to include program  office support, government test and evaluation support, contract  performance risk, and other development risks associated with the aircraft  and training systems. The total procurement cost estimate of $40.4 billion  is to procure 175 production aircraft, initial spares, and other support  items as priced in contract options. The military construction estimate of  $4.3 billion includes the projected costs to build aircraft hangers,  maintenance and supply shops, and other facilities to house and support  the KC-46 fleet.

Through December 2012, Boeing has accomplished approximately $1.4  billion (28 percent) in development work and has more than $3.5 billion  (72 percent) in estimated work to go over the next 5 years. Boeing reports  it is running very close to its budget for cost and schedule. Minimal  schedule delays to this point are attributed primarily to design difficulties  with the aerial refueling system, hardware deliveries for the system  integration labs, and configuration changes to the commercial platform  needed to accommodate military specific hardware. DOD officials do not  expect these delays to affect the completion of critical tasks that  ultimately determine whether Boeing can meet the required delivery date  in the development contract. While the schedule delays are relatively  small, studies of more than 700 defense programs have determined there  is limited opportunity for a program to get back on schedule once they are  more than 15 to 20 percent complete. Also, the pace of development  work is expected to accelerate. So far, on average, about $60 million  worth of work has been completed per month, but over the next year  more than $100 million worth of work per month is planned.

The program office currently projects that the KC-46 aircraft will meet the  requirements of all nine key performance parameters by the end of  development. These parameters are system characteristics considered  critical or essential to developing an effective military capability. Satisfying  these parameters will ensure that the KC-46 will be able to accomplish its  primary mission of providing worldwide, day and night, adverse weather  aerial refueling as well as its secondary missions. Several of these  parameters address performance characteristics that are limited or do not  exist in the current tanker fleet. For example, only 8 KC-135 aircraft have  the capability to receive fuel from another aerial refueling tanker while  airborne. At times this limits the range of the tanker force and lessens the  efficient use of assets. The Air Force hopes to address this by enabling  the entire KC-46 fleet to receive fuel from other tankers. Appendix III  describes the key performance parameters for the KC-46 program.

Our report on the KC-46 last year noted that the program had yet to fully  implement specific metrics needed to measure progress against these  parameters. As a result, we recommended it do so as soon as possible  to help ensure that progress toward meeting these parameters can be  appropriately measured. The program has now fully implemented metrics  to help measure progress toward achieving these parameters. Now that  these metrics have been fully established we plan to track their status in  our subsequent annual reviews of the KC-46 program.

section_title: Development Contract Cost Estimates Exceed the Contract Ceiling Price and the Majority of Funding to Alleviate Program Risk Has Been Allocated
paragraphs: The KC-46 development contract is designed to hold Boeing accountable  for cost, limit the government’s financial liability, and provide Boeing  incentives to reduce costs in order to earn more profit. At this point in the  program, both the contractor and the government estimate that  development costs will exceed the contract ceiling price of $4.9 billion and  Boeing has already allocated about 80 percent of the contract’s  management reserves, which are set aside for known and unknown  development risks, with about five years of development work remaining.

Barring any changes to KC-46 requirements by the Air Force, the contract  specifies a target price of $4.4 billion and a ceiling price of $4.9 billion at  which point Boeing must assume responsibility for all additional costs.Currently, both Boeing and the Air Force project that the development  effort will exceed the $4.9 billion ceiling price, with the Air Force  concluding that the primary reason is the schedule risk associated with  the remainder of the development effort. If so, the contractor will have to  absorb all costs above this amount. Table 2 provides development  contract details, current contractor and government estimates to  complete, and the projected amounts over ceiling to be absorbed by the  contractor.

The development contract performance baseline set aside $354 million in  the management reserves account, about 7 percent of the contract ceiling  price. As of December 2012, less than $72 million in unallocated reserves  remain. About $282 million had been allocated, the majority to non- commercial militarization requirements, including: $94 million for increased system engineering and program $72 million for design and integration of military equipment with the $52 million for construction of system integration labs to reduce $42 million for additional test and evaluation challenges as well as  cost growth for training activities, support equipment, and operational  site activation.

Figure 2 shows the use of management reserves to date and future  projections based on past use. Since the start of performance reporting in  May 2011, the contractor has allocated an average of about $15 million in  reserves each month.

The quick rate of depletion of Boeing’s management reserves raises  concerns. Two years into a 7-year development program, the contractor  has already allocated about 80 percent of the total available. Less than  $72 million is available for future contingencies related to the more than  $3.5 billion in government funded contract work remaining. DOD  anticipates this negative trend will continue, since Boeing has told them  design and technical issues driving the allocation of management  reserves are not fully resolved.

At the current allocation rate, our analysis shows that management  reserves will be depleted in May 2013, prior to the critical design review in  July 2013 and more than 4 years before the contractually required  delivery date for 18 operationally ready KC-46 aircraft in August 2017.

According to GAO’s Cost Estimating and Assessment Guide, significant  use of management reserves early in a program may indicate contract  performance problems and decreases the amount of reserves available  for future risks, particularly during the test and evaluation phase when  demand may be the greatest. At the current rate, none of the reserves  will be available to complete the bulk of development work, as well as the  entire period of development testing. Even though Boeing is contractually  liable for all costs above the $4.9 billion ceiling price, unanticipated design  changes, deficiencies discovered in testing, and other risks encountered  that might require management reserves funding could place added  pressures on cost and schedule as the development program moves  forward. The program has not yet evaluated how the significant use of  these funds early in development could impact future milestones.

section_title: Program Is Working On Some Testing, Design, Manufacturing, and Technical Challenges
paragraphs: With development generally proceeding as planned, the program is  addressing, in varying degrees, some key challenges. All major  stakeholders in the program have identified concerns about the degree of  risk in the KC-46 flight test plans and an integrated test team is evaluating  and adjusting test plans. Also, in preparing for the program’s critical  design review, completing extensive engineering drawings on time will be  challenging and some lower level subsystem design reviews are behind  schedule. Furthermore, Boeing changed its plans and location for  manufacturing and assembling military equipment and is still in the  process of relocating key personnel and establishing needed facilities.  While not as complex as a new fighter aircraft, the tanker program still  needs to integrate critical technologies, develop and test software, keep  the aircraft within its target weight, and at the same time, navigate risks  posed by the concurrency, or overlap, between testing and production  activities.
subsections: section_title: Flight Test Plans a Concern among Program Stakeholders
paragraphs: The Air Force, DOD, Boeing, and the FAA have all identified the  aggressive KC-46 flight test schedule as a risk. Developmental flight  tests, to prove aircraft design and demonstrate the aircraft will perform as  expected, are set to occur within a 15-month window starting in early  2015 and ending in 2016. Concerns include the relatively short time for  flight testing and fixing any deficiencies, plans for aircraft flying rates and  personnel resources, and the time needed for air worthiness flight  certifications.

To achieve developmental flight test plans, the contractor has proposed a  5- to 6-day-a-week flight test approach based on its commercial aircraft  test practices. As part of this plan, Boeing intends to fly KC-46 test aircraft  5 days a week with a scheduled make-up day on day 6, and possibly an  additional day, if necessary. This is a more aggressive pace than the two  to three test missions per week for each test aircraft typically assumed by  the Air Force for other aircraft programs. Air Force officials said their  typical approach enables execution of test plans at a steady rate and  includes sufficient time for data analysis, aircraft maintenance, aircrew  training, and test planning between test flights. This issue and other flight  test issues are being addressed by officials on the Integrated Test Team  (ITT). The ITT was concerned about the Air Force’s access to contractor  test documents and data but now has resolved this issue with Boeing.  Also, the ITT is currently in the process of developing formal agreements  with the Air Force, Navy, Boeing, and a foreign partner regarding the use  of 18 military receiver aircraft to be used to certify the KC-46’s aerial  refueling capabilities. Appendix IV provides a list of the top 8 flight test  risks identified by the ITT and plans to mitigate those risks.

GAO-12-366. scheduled to begin in May 2016, be delayed by at least 6 months to allow  additional time for completion of developmental testing and initial aircrew  and maintenance training due to the aggressive flight test schedule. Their  assessment also cites a concern that the current schedule for military  flight testing may need to be extended by 4 to 7 months. In addition, the  DOD development testing office has stated that the proposed flight test  plan allots little time for correction of deficiencies discovered during  development testing prior to the planned start of operational testing. In  January 2013, both offices approved the KC-46 overall test strategy, but  each office still has concerns regarding the program’s detailed test plans,  including the training of aircrew and maintenance personnel overlapping  with the completion of developmental testing.

The FAA still has to certify airworthiness for both the 767-2C and then the  KC-46. The first FAA certification must approve the modifications being  made to the original baseline 767 design and the second certification  must approve the installation of military aerial refueling equipment for the  KC-46 tanker configuration. Boeing established plans for the FAA to  accomplish part of both of these certifications concurrently rather than  consecutively which is the typical procedure. FAA officials said that such  a condensed timeframe will require additional agency resources which  the Air Force has to pay under a program services agreement. According  to DOD risk assessments, if problems arise during this concurrent  certification process, little time will be left for Boeing to recover from  delays.

section_title: Completing Required Engineering Drawings for the Upcoming Critical Design Review May Be Challenging
paragraphs: The KC-46 critical design review (CDR) is scheduled for July 2013. The  CDR is a major milestone that assesses the system’s final design so that  the product can move into fabrication, demonstration, and test. It also  verifies whether performance requirements can be met within cost and  schedule constraints. To prepare for the complete system CDR, the  contractor has been conducting individual subsystem design reviews  during 2012, a few of which were delayed. The design review on the  aerial refueling boom hardware, for example, has been rescheduled 5  months later than planned due to design problems. A design review of the  software associated with the aerial refueling operator station has also  been rescheduled. Also, an analysis to validate the software design was  delayed from June 2012 until February 2013. Despite these slips,  program officials told us subsystem reviews will still occur in time to  support the July 2013 CDR. During the upcoming CDR, Air Force officials  indicated they will also review and approve the contractor’s plans for  system specifications, flight testing, and supplier management.

An important contractual requirement (and best practice) is for Boeing to  release 90 percent of the total engineering design drawings by the CDR.  At this point, Boeing data shows that, as of early December 2012, Boeing  has completed the expected amount of drawings and about 60 percent of  design drawings were complete, which is about 9,000 out of nearly  15,000 total drawings. However, given the time remaining, reaching the  90 percent requirement by CDR could be challenging. Drawings still to be  completed include much of the more complex, new design efforts to  integrate the military technologies on the commercial derivative airframe.  Figure 3 shows that as of December 2012, Boeing is adhering to its  schedule to complete the required number of drawings before CDR.

The location, facilities, and some personnel for militarizing the  commercial-derivative aircraft have changed since the contract was  awarded. The Air Force originally expected Boeing to do most of the work  at its long-standing Wichita, Kansas, facility. In January 2012, however,  Boeing announced plans to close its Wichita plant and move all military  modification assembly work to Seattle (home to its commercial  manufacturing operations) to achieve greater cost efficiencies and  accommodate defense cuts. The company has relocated key personnel,  and plans are in place for the remaining relocations. A temporary facility  was opened in Seattle in October 2012 to begin production of the first  refueling aircraft boom, and the company is also examining what  additional facilities may be needed for future production and aircraft  militarization. Air Force officials stated that Boeing must still meet all  contractual requirements on-time and within cost, regardless of where  development has been taking place, and has identified this transition as a  watch item going forward.

section_title: Program Has Some Remaining Technical Challenges
paragraphs: The KC-46 program plans to integrate three critical technologies—a  Three Dimensional Display, Airborne ESTAR, and Threat Correlation  Software—needed to achieve the tanker’s capability requirements. These  technologies have each been demonstrated in a relevant environment in  accordance with DOD and statutory requirements, but have not yet been  demonstrated in a realistic environment. Demonstrating technology in a  realistic environment offers a higher level of maturity and is considered a  best practice. We have previously reported that programs that began  development with technologies demonstrated to this level experienced  less cost growth than programs with less mature technologies.However, the program does not plan to demonstrate these critical  technologies in a realistic, operational environment before production  starts. Boeing is required to submit an update to its technology maturation  plans prior to the CDR in July 2013 and the start of low-rate initial  production in 2015. Appendix V describes the KC-46 program’s three  critical technologies in detail.

Other technical challenges include:

Software development. Software development plans are still evolving  and not complete at this time. While the total amount of software  under development has been reduced by 40 percent since the start of  development, increased amounts of certain types of software are now  anticipated and the planned mix of software has also changed. Boeing  now estimates they will be not be able to reuse as much existing  software as they thought, and must instead develop more new and  modified software. Table 3 shows the estimated changes to the KC-46  software plan. While needing less software overall is a positive, the  need for more new and modified software typically requires more  testing than software being reused. Growth in these two software  classifications is not a favorable trend. However, at this point, officials  do not expect that this will affect the software test schedule.

Aircraft weight. Projected weight increased since last year more than  anticipated and is now expected to exceed the KC-46’s target weight.  If the target weight is not achieved, the aircraft will not be able to carry  as much fuel as required. Essentially, every one pound in excess  weight equals one pound less fuel that can be carried to accomplish  its primary mission of refueling other aircraft. Extra weight could also  affect operating requirements for takeoff, mission radius, and landing.  The program does have a mitigation strategy in place to help control  weight. Historically, weapon system acquisition programs can  experience weight gains during development. With about 5 years of  development remaining, including the entire flight test program,  additional weight reduction activities may be necessary.

Wing aerial refueling pod. Problems with buffeting, or instability, of the  aircraft’s wing experienced on another Boeing tanker, led to the  introduction of a new wing aerial refueling pod design for the KC-46.  The new design also required changes in the way the refueling hose  exits the pod, raising concerns whether the hose will be stable in  flight. If the new design has technical shortcomings, additional cost  and time for unplanned design changes and subsequent testing may  be needed.

Boom refueling system. Some changes to the boom refueling system  design have been determined necessary, possibly delaying the  development of boom hardware. Boeing has added manpower to help  manage its suppliers and is addressing risk. According to the program  office, the boom refueling system is still on schedule, but if hardware  is delayed, boom testing could be as well.

section_title: Concurrency Increases Schedule Risk
paragraphs: Successful and timely resolution of design, manufacturing, testing, and  technical challenges could lessen and help manage cost and schedule  risks posed by the concurrency, or overlap, of development, testing, and  production activities. As we reported last year, funding commitments and  the start of low rate production is scheduled before significant  development and testing activities are completed. Currently, about 60  percent of the dedicated KC-46 development flight testing is planned for  completion by the start of production. While not as extensive or potentially  costly as we have reported elsewhere, KC-46 concurrency can have  cost and schedule consequences. Development flight testing is supposed  to demonstrate the maturity of the design and to fix design and  performance problems during the development phase. Discovering and  fixing such problems during production may require modifications to  aircraft already built and, as a result, affect schedule. Figure 4 shows the  program’s current schedule with concurrency between planned  development, testing, and production.

section_title: Program Has Effective Mechanisms for Mitigating Risks and Conducting Program Oversight
paragraphs: The KC-46 program continues to mitigate risks principally through its  acquisition strategy and contract mechanism. The use of a fixed price  incentive contract limits government cost risk and the plan to convert a  commercial derivative aircraft into the KC-46 tanker lessens technology  risk. Our assessments of the KC-46 master schedule, the acquisition  plan, and management framework find that they favorably compare with  best practices and acquisition reform legislation, with some exceptions.
subsections: section_title: Program Contracting Method and Acquisition Strategy Mitigate Risks
paragraphs: The KC-46 fixed price development contract helps control costs by  placing more responsibility on the contractor and limiting government  liability for cost increases. Specific contract provisions ensure that Boeing  must correct any deficiencies and bring them to the final aircraft  configuration at no additional cost to the government. Program officials  have also taken steps with the KC-46 acquisition strategy to limit changes  to requirements similar to those that have caused problems in many  previous acquisition programs. Now, an engineering or contract change  affecting system requirements or possibly impacting program cost,  schedule, and performance baselines must be approved by top Air Force  officials. Program officials also maintain the program is being managed in  an event-based manner—meaning the start of low-rate initial production  is not driven by a certain schedule date, but instead will not be approved  until Boeing demonstrates the knowledge and readiness required for  production.

As DOD seeks to employ more fixed price development contracts, where  appropriate, and acquire more evolutionary weapon system capabilities,  different acquisition strategies and contract provisions come into play. At  times, these factors, and others, can change the responsibilities among  key stakeholders. For example, when using a strategy that couples a  fixed price contract with a largely commercial-derivative system, the  government generally has and needs less access to the contractor’s  activities compared to when a purely military system is being acquired.  KC-46 program officials told us the majority of preliminary and critical  design reviews for components and subsystems used on the commercial  767-2C aircraft are conducted as Boeing internal events, with the Air  Force participating but not leading these reviews. Also, officials told us  they do not receive regular status updates for some types of contractor  data, including engineering design drawings. Officials from the Defense  Contract Management Agency, which oversees the KC-46 development  contract, also told us their typical oversight of defense contracts involving  commercial items is more constrained compared to its oversight of unique  military weapon systems.

section_title: Program Development Schedule Mostly Meets Best Practices for Schedule Estimating
paragraphs: The KC-46 program’s schedule substantially meets the 10 best practices  we have identified as being associated with effective schedule  estimating. Our analysis found that while the schedule does not fully  meet any of the 10 best practices, it is generally comprehensive, well- constructed with a logical sequence of activities, controlled, and credible.  Table 4 summarizes these best practices and our assessment of the  degree to which the KC-46 program has met them.

Overall, the evidence suggests that the KC-46 program office and Boeing  are working to develop and maintain a healthy master schedule. Still, our  assessment identified three areas that could be improved where the  current schedule partially meets the best practices.

First, our analysis found that not all activities are reflected in the  schedule. The schedule primarily contains Boeing’s activities but does  not fully include government activities. To better satisfy best practices,  a program’s schedule should reflect all efforts necessary for  successful completion regardless of who performs them.

Second, we found a relatively large number of schedule lags and date  constraints that may negatively impact the ability to predict how the  delay or early completion of scheduled activities could affect the KC- 46 major milestones and planned finish date. While lags are included  in a schedule to denote the passage of time, the KC-46 schedule  provided few details on the reasons why such a large number of lags  are included in their schedule. We also found a large number of  constraints built into the schedule that are being used to control the  timing of activities. Program officials stated these time constraints  represent the contractor’s resource availability but they also prevent  activities from starting sooner than planned to take advantage of time  savings realized on earlier activities. It also requires constant manual  upkeep of the schedule, increasing the likelihood of errors.

Third, while the program office adhered to the best practice that a risk  analysis be conducted on its planned schedule and even conducted a  second revised schedule risk analysis after our initial assessment, we  report this best practice as partially met. Our initial assessment found  that the original program office schedule risk analysis may not have  factored in enough risk into the contractor’s activity duration  estimates, and assumptions used to conduct the risk assessment  were not fully documented. Nor did it account for the correlation  between activities, that is, the degree to which the duration of some  related activities may vary together. Program officials reported that  they revised their original analysis during October 2012 to research  differences and record assumptions between their schedule risk  analysis and the contractor’s. According to the program office, the  differences were resolved and assumptions are now documented,  which addressed some of our earlier concerns. While the program  office reported these constructive efforts, the revised schedule risk  analysis still does not account for the correlation between activities,  and we did not have the time or complete information to accomplish  an independent assessment of the revised analysis.

section_title: Program Has Generally Adhered to Acquisition Best Practices and Reform Legislation
paragraphs: On the whole, the KC-46 program’s acquisition plan and management  framework continue to favorably compare with the standards and  requirements in GAO’s best practices work on acquisition development  and reform legislation. The program has utilized: a time-defined development approach of about 7 years; a process requiring consultation with top Air Force officials before manufacturing readiness levels designed to provide a common  measure and vocabulary for assessing manufacturing maturity and  risk; and a knowledge-based acquisition approach, in which knowledge is  acquired at key decision points, by ensuring requirements and  resources match, the product design is stable, and manufacturing  processes are mature.

As we reported last year, while the program has implemented many  acquisition best practices, the Air Force did not conduct a technology  development phase and instead proceeded directly into development.  The program’s three critical technologies were assessed as approaching  maturity and meeting internal defense policy, but below the fully mature  level associated with best practices. Our prior work consistently shows  that programs going directly into development before fully maturing all  critical technologies typically incur additional costs and take longer to  complete.

The program reports that it is also meeting many of the requirements of  the Weapon Systems Acquisition Reform Act of 2009 (Reform Act) that  encourages DOD to engage in a more robust discussion of trade-offs  among cost, schedule, and performance.  legislation, the program has implemented cost and schedule  management requirements and is measuring and reporting on operation  and sustainment costs. Further, they have also implemented cost  effective measures including plans for future competitions for aircraft  subsystems and several software integration laboratories. The Air Force  is also employing an incremental acquisition approach, as mentioned in  the Reform Act, to replacing the current refueling fleet by procuring the  KC-46, and then later the KC-Y and KC-Z. This approach could leverage  competition for future tanker aircraft development and procurement.

Pub. L. No. 111-23, § 201. technical, cost, and schedule delivery information to mitigate risk.  Appendix VII provides a list of key Boeing suppliers for the KC-46  program. In addition, the Air Force has approved the contractor’s  manufacturing program plan that leverages military modifications on the  commercial 767 assembly line with Boeing planning to use a  manufacturing readiness assessment and production reviews for quality  assurance.

section_title: Conclusions
paragraphs: Entering its third year, the KC-46 development program is, for the most  part, progressing as planned even though some concerns exist. The  program has an ambitious schedule, particularly with regard to flight  testing. While program estimates are essentially unchanged, the  development contract cost estimate continues to be above the contract  ceiling price, making it essential the government not change KC-46  requirements. Boeing has also allocated management reserves at a high  rate which raises concerns because doing so early in a program is often  an indicator of future contract performance problems. While the fixed  price development contract caps the government’s cost liability, it would  still behoove the Air Force to fully understand the causal factors driving  the accelerated use of management reserves in order to recognize risks,  consider potential trade-offs, and better understand circumstances that  could impact on-time delivery to the warfighter. Also, improvements to a  few aspects of the program’s master schedule could make it more  complete and robust to further help ensure program success.

section_title: Recommendations for Executive Action
paragraphs: We are recommending that the Secretary of Defense take the following  two actions on the KC-46 program.

To help understand and monitor the causes of the majority of  contractor management reserves being allocated two years into  development, the Secretary of Defense should direct the Air Force,  after Boeing has fully resolved the relevant design and technical  issues, to analyze the root causes for the rate of expenditure of  reserves in order to help the Air Force fully recognize and mitigate risk  areas.

To help maintain a more thorough and insightful KC-46 development  schedule, the Secretary of Defense should direct the Air Force to  address our concerns related to three schedule best practices  (capturing all activities, sequencing all activities, and conducting a  schedule risk analysis), where we concluded the program’s master  schedule had only partially met best practice criteria.

section_title: Agency Comments
paragraphs: DOD provided us with written comments on a draft of this report which  are reprinted in appendix VIII. DOD concurred with our two  recommendations.  We also incorporated technical comments from DOD  as appropriate.

Regarding the recommendation to analyze the use of management  reserves, DOD stated that the contractor has performed a root cause  analysis and that the program office will monitor, analyze, and report on  the use of management reserves. Regarding the recommendation to  improve the master schedule, DOD stated that the Air Force is taking  action to address each of the 3 schedule best practices we cited.

We are sending copies of this report to the Secretary of Defense; the  Secretary of the Air Force; and the Director of the Office of Management  and Budget. The report also is available at no charge on the GAO website  at http://www.gao.gov.

If you or your staff has any questions concerning this report, please  contact me at (202) 512-4841 or sullivanm@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff contributing to this report are  listed in appendix IX.

section_title: Appendix I: Scope and Methodology
paragraphs: We interviewed officials from the KC-46 program, Air Force, and Office of  the Secretary of Defense (OSD) to obtain their views on KC-46  development progress, ongoing concerns and actions taken to address  program technical risks, and future plans to complete KC-46 flight testing  and manufacturing. We also reviewed program documentation and plans  for compliance with current Department of Defense (DOD) policy,  acquisition reform legislation, and GAO best practices for weapon system  development.

To determine the extent the KC-46 program is meeting cost, schedule,  and performance goals in the calendar year of this review (2012), we  reviewed briefings by program and contractor officials, financial  management documents, defense acquisition executive summary reports,  selected acquisition reports, monthly activity reports, technical  performance indicators, risk assessments, and other documentation. To  evaluate cost information, we reviewed program office documentation on  what actions are currently being taken in the areas of earned value  management and contractor performance. We also reviewed contractor  use of management reserves funding to project when this funding will  likely be depleted. To assess the program’s development schedule  progress, we reviewed the program’s latest master schedule and  compared it against previous master schedules and reviewed monthly  Defense Contract Management Agency (DCMA) reports for information  relating to a 14-point schedule risk assessment they conduct as part of  their ongoing oversight to identify changes that could impact key program  milestone events. Regarding performance goals, we reviewed key  performance parameters and progress in fully implementing technical  performance measures used to evaluate whether program performance  parameters are being achieved.

To identify the design, manufacturing, testing plan, and technology  challenges, we met with contractor, Air Force, and DOD officials and  examined program documentation such as the post preliminary design  review report, manufacturing program plan, software block functionality  plan, reliability growth curve charts, and critical technology element  maturation plan. To measure progress regarding the relocation of military  modification work on the KC-46 tanker, we met with Boeing officials and  reviewed briefings on their transition plans from Wichita, Kansas to  Everett, Washington and the implications on expertise, knowledge,  personnel relocation, and associated costs and impact on program  development and production. To assess progress toward test plans, we  compared the revised KC-46 test and evaluation master plan to the  original and against recent reviews completed by the Air Force and DOD  test offices to evaluate whether changes have been made to mitigate  flight testing concerns. Specifically, we analyzed contractor and program  office mitigation efforts planned to deal with identified flight test  challenges of the commercial derivative 767-2C and KC-46 tanker and  also Federal Aviation Administration (FAA) air worthiness certification  requirements. We also discussed related software development, test, and  integration with the DCMA, Director, Operational Test, and Evaluation  (DOT&E) officials, and OSD Developmental Test and Evaluation (DT&E)  officials and reviewed DOT&E and DT&E annual assessments on the KC- 46 program, integrated test team minutes, program assessment reports,  and contractor and program office risk summary charts to identify risk  areas and what actions are being taken to address challenges to the  program. Finally, we leveraged information received as part of a related  GAO review on weapon system assessments, which includes the KC-46  program.

To assess the extent the program has developed effective, appropriate  methods to mitigate challenges, we analyzed contractor and program  office plans for risk mitigation contained on their respective risk and  technical watch lists. We reviewed a preliminary design report and  briefing and subsystems critical design review results. We concentrated  especially on follow-up actions (redesigns) the program has identified as  a need to address, the program’s critical technology maturation plan, key  performance parameter achievement concerns and operational  assessment criteria used to note significant trends in development efforts,  programmatic voids, risk areas, and operational testing plans. We  compared these risk mitigation plans to GAO’s commercial best practices  work on weapon system programs, focusing on knowledge points,  technology readiness levels, software development, and testing to identify  processes and trends that provide a framework for improving weapon  system development outcomes. Finally, to analyze risk in the program’s  development schedule, we reviewed the integrated master schedule and  determined the extent to which the program’s development schedule was  prepared in accordance with best practices that GAO has identified as  fundamental to having a reliable schedule. We then characterized the  extent to which each of the 10 scheduling best practices were met; that is,  we rated each characteristic as being either: not met, minimally met,  partially met, substantially met, or fully met. We could not assess the  contractor’s manufacturing processes because the program is only in its  second year of development and it is too early for this assessment.

In performing our work, we interviewed officials from Air Mobility  Command, Scott Air Force Base, Illinois; Air Force Operational Test and  Evaluation Center, Detachment 5, Edwards Air Force Base, California;  412th Test Wing, Edwards Air Force Base, California; KC-46 program  office, Wright-Patterson Air Force Base, Ohio; Defense Contract  Management Agency, Seattle, Washington; and Federal Aviation  Administration, Wichita, Kansas. We also met with and obtained  information from the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics, in Washington, D.C; the Director  of Operational Test and Evaluation, Washington, D.C.; and the Deputy  Assistant Secretary of Defense for Developmental Test and Evaluation,  Washington, D.C.

We conducted this performance audit from June 2012 to February 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Comparison of Current KC-135 versus Planned KC-46 Performance Capabilities
paragraphs: Not capable of both on same mission.

section_title: Appendix III: Description of KC-46 Key Performance Parameters
paragraphs: Description  Aircraft shall be capable of accomplishing air  refueling of all Department of Defense current and  programmed (budgeted) receiver aircraft. The  aircraft shall be capable of conducting both boom  and drogue air refueling on the same mission.

Aircraft shall be capable of carrying certain amounts  of fuel (to use in air refueling) certain distances.

Aircraft shall be capable of worldwide flight  operations in all civil and military airspace.

Aircraft shall be capable of transporting certain  amounts of both equipment and personnel.

Receiver Air Refueling Capability  Aircraft shall be capable of receiving air refueling  from any compatible tanker aircraft.

Aircraft shall be able to operate in chemical and  biological environments.

Aircraft must be able to have effective information  exchanges with many other Department of Defense  systems to fully support execution of all necessary  missions and activities.

Aircraft shall be capable of operating in hostile threat  environments.

Aircraft shall be capable of conducting drogue  refueling on multiple aircraft on the same mission.

section_title: Appendix IV: Top Risks Identified by the KC- 46 Integrated Test Team and Proposed Mitigation Efforts
subsections: section_title: Risk Risk issue 1
paragraphs: Military Type Certification Schedule and Flight Test  Rate: Planned military-specific test schedule is more  aggressive than historical experience. Planned flight hours  per aircraft per month average (50 hours vs. approximately  30 hours) and test efficiency exceeds that for similar aircraft  (85 percent vs. 55 percent).

Air Force mitigation efforts  Integrated Test Team (ITT) clarification: Approximately 90  percent of aircraft testing will be achieved under the Federal  Aviation Administration (FAA) process. Previous commercial  767 aircraft test programs have significantly exceeded 30 flight  hours per aircraft per month and 55 percent efficiency.

Receiver Certification Planned Flight Test Hours: Aerial  refueling certification testing of required Initial Operational  Test and Evaluation (IOT&E) receiver aircraft will take longer  (approximately 400 flight hours) than the hours and time in  the current schedule. This is estimated to extend the test  schedule by almost 6 to 8 months.

ITT clarification: Boeing flight test hours are indicative of actual  receiver time on station, not total flight time. The method of  calculating test hours is now understood correctly.

Access to Boeing Data and Personnel: Integrated Test  Team requires access to Boeing proprietary commercial test  data and commercial division personnel. Air Force Flight  Test Center is concerned about Boeing proprietary Test  Planning, Execution, and Reporting Tool interfacing with  government tracking tools.

ITT resolution: Responsible Test Organization (RTO) and  Boeing reached agreement that test planning will be  conducted by Boeing. A common test and evaluation database  is being implemented through Boeing’s Integrated Digital  Environment (IDE) database system.

Responsible Test Organization (RTO) Crew Staffing:  RTO crew personnel could impact test operations schedule  due to availability of RTO personnel. There are no  contractual Type 1 (one-time or limited training) slots for  replacement training and there have been issues with  retention of crews due to permanent change of station and  deployments.

ITT resolution: Boeing has agreed to include a 10 percent  replacement training factor (by specialty) for all Type 1  training. An executable training plan has been built within the  fixed-price construct. Increases in Type 1 training allocations  for the 412th Test Wing is to be offset by personnel sharing.

Developmental Testing (DT) / Operational Testing (OT)  Maintenance Staffing: Insufficient number of qualified  tanker maintenance personnel to support DT and IOT&E. Air  Mobility Command and Air Force Materiel Command  (AFMC) planning and programming effort required to meet  requirement of 100 maximum slots to support IOT&E and 15  additional slots for DT.

ITT resolution: Initial staffing assumptions by the RTO and Air  Force Operational Test and Evaluation Center (AFOTEC) did  not support the pace of test outlined by Boeing’s Stage 2 flight  test plans. RTO has since added additional manning slots for  DT and will share resources with AFOTEC to meet OT  demands. The KC-46 Program Office has adjusted Type 1  training requirements to the new demand.

DT/OT Aerial Refueling Operator (ARO) Personnel:  Insufficient number of qualified ARO personnel to support  DT and IOT&E activities. Potential AFMC programming and  budgeting input required for additional ARO positions for DT  and OT activities.

ITT resolution: Initial staffing assumptions by the RTO and  AFOTEC did not support the pace of test outlined by Boeing’s  Stage 2 test plans. RTO has since added additional manning  slots for DT and will share resources with AFOTEC to meet OT  demands. The KC-46 Program Office has adjusted Type-I  training requirements to the new demand. Additionally, the 370  Flight Test Squadron remained activated to support KC-46  testing.

Schedule Sufficiency for Deficiency Correction: Flight- test schedule does not reflect sufficient time to correct  discrepancies identified prior to start of operational testing.  There is a lack of Integrated Test Team insight into schedule  and contract and concerns whether the Joint Deficiency  Reporting System can support pace of test operations.

ITT clarification: Although a Correction-of-Deficiency period is  not identified on the current KC-46 Test and Evaluation Master  Plan (TEMP) test schedule due to a lack of available space,  there is a 90-day aircraft refurbishment period of time to bring  the four test aircraft to production configuration. This time is  annotated on the detailed test schedules provided by Boeing.

section_title: Risk Risk issue 8
paragraphs: Receiver Aircraft Availability: Lack of military receiver  aircraft availability to support aerial refueling certification  testing. Air Force will have to maximize flexibility of receiver  aircraft for air refueling certification testing by possibly  utilizing Navy, Boeing, and foreign partner F/A-18 aircraft.

Air Force mitigation efforts  ITT clarification: Memorandums of Agreement / Memorandums  of Understanding (MOAs/MOUs) will be implemented between  organizations to facilitate support of test activity. MOAs are  expected with owning aircraft using commands to support  receiver certifications.

section_title: Appendix V: KC-46 Critical Technology Elements
paragraphs: Appendix V: KC-46 Critical Technology  Elements Description  The display screens at boom operator stations inside the aircraft  provide the visual cues needed for the operator to monitor the aircraft  being refueled before and after contact with the refueling boom or  drogue. The images of the aircraft on the screens are captured by a  pair of cameras outside that aircraft that are meant to replicate the  binocular aspect of human vision by supplying an image from two  separate points of view, replicating how humans see two points of  view, one for each eye. The resulting image separation provides the  boom operator with greater fidelity and a more realistic impression of  depth, or a 3rd dimension.

Testing to Date  Similar technology has been used  on two foreign-operated refueling  aircraft and a representative model  in tests with other Boeing tankers.

This software module is planned to have an algorithm that allows for  automatically re-routing and constructing new flight paths for the  aircraft that are safe, flyable, and avoid potential threats. The  algorithm is new and novel technology, critical to meeting operational  requirements.

Airborne ESTAR has been tested in  a simulation that provided data on  its performance, interfaces, and  functionality.

Somewhat similar to Airborne ESTAR, this new software module  serves to correlate tracks from multiple potential threats and  automatically help re-route the tanker’s flight path to avoid them.

The integration of software  algorithms with the associated  processor has been laboratory  tested in a relevant environment.

section_title: Appendix VI: Description of GAO Scheduling Best Practices
subsections: section_title: Criterion (1) Capturing all activities
paragraphs: Explanation   The schedule should reflect all activities as defined in the project’s work breakdown  structure (WBS), which defines in detail the work necessary to accomplish a project’s  objectives, including activities both the owner and contractor are to perform.

section_title: (2) Sequencing all activities
paragraphs: The schedule should be planned so that critical project dates can be met. To do this,  activities need to be logically sequenced-that is, listed in the order in which they are to be  carried out. In particular, activities that must be completed before other activities can  begin (predecessor activities), as well as activities that cannot begin until other activities  are completed (successor activities), should be identified. Date constraints and lags  should be minimized and justified to help ensure that the interdependence of activities  that collectively lead to the completion of events or milestones can be established and  used to guide work and measure progress.  (3) Assigning resources to all activities   The schedule should reflect the resources (labor, materials, overhead) needed to do the  work, whether they will be available when needed, and any funding or time constraints.

section_title: (4) Establishing the duration of all activities
paragraphs: The schedule should realistically reflect how long each activity will take. When the  duration of each activity is determined, the same rationale, historical data, and  assumptions used for cost estimating should be used. Durations should be reasonably  short and meaningful and allow for discrete progress measurement. Schedules that  contain planning and summary planning packages as activities will normally reflect longer  durations until broken into work packages or specific activities.

section_title: (5) Verifying that the schedule can be traced horizontally and vertically
paragraphs: The detailed schedule should be horizontally traceable, meaning that it should link  products and outcomes associated with other sequenced activities. These links are  commonly referred to as “hand-offs” and serve to verify that activities are arranged in the  right order for achieving aggregated products or outcomes. The integrated master  schedule (IMS) should also be vertically traceable-that is, varying levels of activities and  supporting subactivities can be traced. Such mapping or alignment of levels enables  different groups to work to the same master schedule.

section_title: (6) Confirming that the critical path is valid
paragraphs: The schedule should identify the program critical path-the path of longest duration through  the sequence of activities. Establishing a valid critical path is necessary for examining the  effects of any activity’s slipping along this path. The program critical path determines the  program’s earliest completion date and focuses the team’s energy and management’s  attention on the activities that will lead to the project’s success.

section_title: (7) Ensuring reasonable total float
paragraphs: The schedule should identify reasonable float (or slack)-the amount of time by which a  predecessor activity can slip before the delay affects the program’s estimated finish date- so that the schedule’s flexibility can be determined. Large total float on an activity or path  indicates that the activity or path can be delayed without jeopardizing the finish date. The  length of delay that can be accommodated without the finish date’s slipping depends on a  variety of factors, including the number of date constraints within the schedule and the  amount of uncertainty in the duration estimates, but the activity’s total float provides a  reasonable estimate of this value. As a general rule, activities along the critical path have  the least amount of float.   (8) Conducting a schedule risk analysis   A schedule risk analysis uses a good critical path method (CPM) schedule and data about  project schedule risks and opportunities as well as statistical simulation to predict the level  of confidence in meeting a program’s completion date, determine the time contingency  needed for a level of confidence, and identify high-priority risks and opportunities. As a  result, the baseline schedule should include a buffer or reserve of extra time.

Explanation   Progress updates and logic provide a realistic forecast of start and completion dates for  program activities. Maintaining the integrity of the schedule logic at regular intervals is  necessary to reflect the true status of the program. To ensure that the schedule is  properly updated, people responsible for the updating should be training in critical path  method scheduling.

section_title: (10) Maintaining a baseline schedule
paragraphs: A baseline schedule is the basis for managing the project scope, the time period for  accomplishing it, and the required resources. The baseline schedule is designated the  target schedule, subject to a configuration management control process, against which  project performance can be measured, monitored, and reported. The schedule should be  continually monitored so as to reveal when forecasted completion dates differ from  planned dates and whether schedule variances will affect downstream work. A  corresponding baseline document explains the overall approach to the project, defines  custom fields in the schedule file, details ground rules and assumptions used in  developing the schedule, and justifies constraints, lags, long activity durations, and any  other unique features of the schedule.

section_title: Appendix VII: Key Boeing Suppliers for the KC-46 Program
subsections: section_title: Supplier and location Cobham (Davenport, Iowa)
paragraphs: DRS Laurel Technologies Inc. (Johnstown, Pa.)  Eaton Aerospace (Grand Rapids and Jackson, Mich.)

GE Aviation Systems (Grand Rapids, Mich. and Clearwater,  Fla.)

Goodrich (Colorado and Ontario, Canada)  Honeywell (Phoenix and Tucson, Ariz.; Coon Rapids, Mich.,  and Urbana, Ohio)

Moog Inc. (East Aurora, N.Y., Torrence, Calif., and  Wolverhampton, UK)

Northrop Grumman (Rolling Meadows, Ill.)  Parker Aerospace (Ariz., Calif., Florida, Ga., Mich., N.Y., N.C.,  Ohio, Tex., and Utah)

Pratt & Whitney (Middletown, Conn.)  Raytheon Company (El Segundo, Calif.)  Rockwell Collins (Cedar Rapids, Iowa)

Spirit (Wichita, Ks. and Prestwick, Scotland)

section_title: Triumph Group Inc. (Berwyn, Pa.)

section_title: Appendix VIII: Comments from the Department of Defense

section_title: Appendix IX: GAO Contact and Acknowledgments
subsections: section_title: GAO Contact

section_title: Acknowledgments
paragraphs: In addition to the contact name above, the following staff members made  key contributions to this report: Bruce Fairbairn, Assistant Director; Tina  Cheng; Matt Drerup; Keith Hudson; John Krump; Don Springman; and  Robert Swierczek.


Question-summary annotations: questions: question: What does the KC-46 program estimate?
answer: The KC-46 program 2012 estimates for cost, schedule, and performance are virtually the same as last year's, with the contractor running very close to the planned budget and schedule.

question: What has the program done as a result of a prior GAO recommendation?
answer: In response to a prior GAO recommendation, the program now has fully implemented metrics to measure the progress toward its key performance parameters and expects to meet these requirements.

question: What concerns are there regarding program cost?
answer: There are two areas of concern regarding program cost: first, both the contractor and government estimate the cost of development will exceed the contract ceiling price of $4.9 billion (although government liability is capped at that ceiling); and second, the contractor has already allocated about 80 percent of the management reserves budget, primarily for identified, yet unresolved, development risks, with the bulk of work--about 5 years--remaining.
child_questions: question: What does GAO indicate about these concerns?
answer: GAO maintains that significant use of these funds early in a program may indicate problems.

questions: question: How is the program addressing key challenges?
answer: First, defense, contractor, and federal aviation officials all identify the flight test schedule as a substantive concern. An integrated test team continues to evaluate and adjust flight test plans ahead of the 2015 start. Second, the contractor must still complete a significant number of engineering drawings needed for the upcoming critical design review; about three-fifths are complete and some lower level subsystem reviews are behind schedule. Third, the contractor is still in the process of relocating key personnel and establishing facilities needed for integrating defense equipment after deciding to close the original location.

question: What is additional work benefiting?
answer: Additional work continues to more fully mature critical technologies, solidify software plans, address growth in aircraft weight, and ensure there are no design issues with the wing refueling pods and the boom refueling system.
child_questions: question: How is additional work being monitored?
answer: Program officials continue to monitor these issues to ensure they will not have major impacts.

questions: question: How are KC-46 program acquisition strategy and contract type effective?
answer: The KC-46 program acquisition strategy and contract type are effective mechanisms for mitigating risks.

question: What is the benefit of a fixed price contract?
answer: The use of a fixed price contract limits government cost risk and technology risk is lessened by converting a commercial derivative aircraft into the KC-46 tanker.

question: How do the KC-46 master schedule, acquisition plan, and management framework compare?
answer: The KC-46 master schedule, acquisition plan, and management framework favorably compare with best practices and acquisition reform legislation, with some exceptions.
child_questions: question: What exception are there to this comparison?
answer: For example, the master schedule met 7 of 10 best practices criteria, but did not include and sequence all activities and could have incorporated a broader range of uncertainty, leaving room to improve the schedule so program success is not jeopardized.

questions: question: What does aerial refueling allow for?
answer: Aerial refueling allows U.S. military aircraft to fly further, stay airborne longer, and carry more weapons, equipment, and supplies.

question: What is the problem with the KC-135 Stratotanker?
answer: Yet the mainstay of U.S. tanker forces--the KC-135 Stratotanker--is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet.
child_questions: question: What is the Air Force doing to fix this problem?
answer: As a result, the Air Force has initiated the $52 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft by 2027.

questions: question: What does the National Defense Authorization Act for Fiscal Year 2012 require?
answer: The National Defense Authorization Act for Fiscal Year 2012 requires GAO to annually review the KC-46 program through 2017.

question: What does this report address?
answer: This report addresses (1) progress made in 2012 toward cost, schedule, and performance goals, (2) identified program challenges, and (3) program risk mitigation tools.
child_questions: question: How did GAO get information for this report?
answer: To address these areas, GAO reviewed key program documents, discussed development plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing. GAO assessed the program's development schedule and technology risks. GAO also assessed the program's acquisition plan to determine compliance with acquisition legislation and acquisition best practices.