The JSF program is DOD’s largest cooperative program. It is structured on a multitiered set of relationships involving both government and industry from the United States and eight allied nations—the United Kingdom, Italy, the Netherlands, Turkey, Denmark, Norway, Canada, and Australia. These relationships are shown in figure 1. The JSF program structure was established through a framework memorandum of understanding (MOU) and individual supplemental MOUs between each of the partner country’s defense department or ministry and DOD, negotiating on behalf of the U.S. government. These agreements identify the roles, responsibilities, and expected benefits for all participants. The current negotiated agreement covers only the system development and demonstration phase, and participation now does not guarantee participation in future phases. The program intends to produce three fighter variants to meet multiservice requirements: conventional flight for the Air Force, short take-off and vertical landing for the Marine Corps, and carrier operations for the Navy. As currently planned, the program will cost about $200 billion to develop and procure about 2,600 aircraft and related support equipment. In October 2001, DOD awarded Lockheed Martin Aeronautics Company a contract for the system development and demonstration phase. Pratt and Whitney and General Electric were awarded contracts to develop the aircraft engines. This phase is estimated to last about 10 years and cost about $33 billion; it will involve large, fixed investments in human capital, facilities, and materials. The next significant knowledge point will be a critical design review, currently planned for July 2005. At that time, the aircraft design should be stable and engineering drawings should be available to confirm that the design performs acceptably and can be considered mature. The United States and its partners expect to realize a variety of benefits from cooperation on the JSF program. The United States expects to benefit from partner contributions and potential future aircraft sales; access to partner industrial capabilities; and improved interoperability with partner militaries once the aircraft is fielded. Partner governments expect to benefit financially and obtain an aircraft they could not afford to develop on their own. Partners also expect to benefit from increased access to JSF program data, defined influence over aircraft requirements, and technology transfers to their industries from U.S. aerospace companies. For the partners, industrial return, realized through JSF subcontract awards, is critical for their continued participation in the program. According to DOD and the program office, through its cooperative agreements, the JSF program contributes to armaments cooperation policy in the following four areas: Political/military–expanded foreign relations. Economic–decreased JSF program costs from partner contributions. Technical–increased access to the best technologies of foreign partners. Operational–improved mission capabilities through interoperability with allied systems. DOD and the JSF Program Office expect to benefit financially from direct partner contributions and through aircraft purchased by partners and other international buyers, which reduces overall unit cost. Foreign countries become program partners at one of three participation levels, based on financial contribution, which the United States uses to defray program costs. For the current system development and demonstration phase, partner governments have committed to provide over $4.5 billion to the JSF program and are expected to purchase 722 aircraft once the aircraft enters the production phase. According to DOD, foreign military sales to nonpartner countries could include an additional 1,500 to 3,000 aircraft. Expected partner financial contributions and aircraft purchases are detailed in table 1. Contributions can be financial or nonfinancial. For example, Turkey’s system development and demonstration contribution was all cash. Denmark contributed $110 million in cash, and also the use of an F-16 aircraft and related support equipment for future JSF flight tests and the use of North Atlantic Treaty Organization command and control assets for a JSF interoperability study, which were valued to be worth an additional $15 million to the program. In addition, U.S. industry cooperation with aerospace suppliers in partner countries is expected to benefit the JSF program because of the specific advanced design and manufacturing capabilities available from those suppliers. For example, British industry has a significant presence in the program with BAE Systems as a teammate to Lockheed Martin and Rolls Royce as a major engine subcontractor. In addition, Fokker Aerostructures in the Netherlands is under contract to develop composite flight doors for the JSF airframe. Partner governments expect to benefit financially by leveraging significant U.S. resources and inventory requirements to obtain an advanced tactical aircraft they could not afford to develop on their own. From a government perspective, Level I and II partners have been guaranteed waivers of nonrecurring aircraft costs; Level III partners will be considered for a similar waiver. All partners are also eligible to receive potential levies collected on future foreign military sales of aircraft to nonpartner customers. In addition, and in most cases more importantly, partners have identified industrial return to in-country suppliers as vital to their participation in the program. In a recent study assessing the financial impact of the JSF program on international suppliers, DOD reported that partners could potentially earn between $5 and $40 of revenue in return for each dollar contributed to the program. Through government and industrial participation, partner countries also expect to benefit from the technology transferred from U.S. to partner industry through JSF contract awards. Partners expect that early participation in the JSF program will improve their defense industrial capability through increased access to design, technical, and manufacturing data and through the ability to perform advanced planning for operation and support of the JSF once it is delivered in their respective countries. Involvement in the early phases of the JSF program has provided partners with information on the development of aircraft requirements, program costs and schedules, and logistics concepts. International partners have access to program and technology information through participation on senior-level management decision-making bodies, representation in the JSF Program Office, and involvement on program integrated product teams. Partner program office personnel, regardless of participation level, have equal access to most information. Partner staff can request information from integrated product teams on which they have no membership, as long as the information is not restricted from being released to their countries. International program participants have significant expectations regarding government and industry return based on their contributions. As such, the JSF Program Office and Lockheed Martin are faced with balancing these expectations against other program goals. Recent actions by Lockheed Martin to address partner concerns could represent a departure from the JSF competitive contracting approach and result in increased program costs. International participation in the program also presents a challenge because the transfer of technologies necessary to achieve DOD’s goals for aircraft commonality is expected to far exceed past transfers of advanced military technology. Further, export authorizations for critical suppliers need timely planning, preparation, and disposition to help avoid schedule delays in the program and ensure partners the opportunity to bid for contracts. DOD and the JSF Program Office have said that the use of competitive contracting is central to meeting partner expectations for industrial return and will assist in controlling program costs. JSF officials use the term “best value” to describe this approach, which is a departure from other cooperative development programs that guarantee pre-determined levels of works based on contribution. Partner representatives generally agree with the JSF competitive approach to contracting, but some emphasize that their industries’ ability to win JSF contracts whose total value approaches or exceeds their financial contributions for the JSF system development and demonstration phase is important for their continued involvement in the program. The program office and the prime contractor have a great deal of responsibility for providing a level playing field for JSF competitions, including visibility into the subcontracting process and opportunities for partner industries to bid on subcontracts. To that end, Lockheed Martin performed assessments for many of the partners to determine the ability of their industries to compete for JSF contracts. The results of these assessments in some cases showed potential return that far exceeded country contribution levels. In some cases, Lockheed Martin then signed agreements with partner governments and suppliers to document the opportunities they would have to bid for JSF contracts, as well as the potential value of those contracts. DOD and the JSF Program Office have left implementation of the competitive contracting approach to Lockheed Martin whose decisions will therefore largely determine how partner expectations are balanced against program goals. In at least one case, Lockheed Martin has promised an international contractor predetermined work that satisfies a major portion of that country’s expected return-on-investment. While disavowing knowledge of the specific contents of any such agreement, DOD was supportive of their use during partner negotiations. DOD officials conceded that the agreements contained in these documents departed from the competitive approach. However, the agreements were necessary to secure political support in some countries, since the U.S. government does not guarantee that the partners will recoup their investment through industry contracts on the JSF program. In addition, Lockheed Martin has recently developed a plan to use “strategic best value sourcing” to supplement its original competitive approach. According to DOD, this plan will allow for a limited number of work packages to be directly awarded to industry in partner countries where contract awards to date have not met expectations. While there are predetermined cost goals under these strategic awards, there are concerns from some partners that this is a departure from the competitive approach and, in fact, a move toward prescribed work share. Because Lockheed Martin makes the subcontracting decisions, it bears the primary responsibility for managing partner expectations—in addition to duties associated with designing, developing, and producing the aircraft. Lockheed Martin’s actions seem to indicate a response to partner concerns about return-on-investment expectations and a desire to ensure continued partner participation. Most partners have a clause in their agreements that allow for withdrawal from this phase of the program if industrial participation is not satisfactory. If a partner decided to leave the program, DOD would be deprived of the additional development funding expected from that partner.