The Joint Strike Fighter is DOD’s most expensive aircraft acquisition program. The number of aircraft, engines, and spare parts expected to be purchased, along with the lifetime support needed to sustain the aircraft, mean the future financial investment will be significant. DOD is expected to develop, procure, and maintain 2,443 operational aircraft at a cost of more than $950 billion over the program’s life cycle. The JSF is being developed in three variants for the U.S. military: a conventional takeoff and landing aircraft for the Air Force, a carrier-capable version for the Navy, and a short takeoff and vertical landing variant for the Marine Corps. In addition to its size and cost, the impact of the JSF program is even greater when combined with the number of aircraft expected for international sales (a minimum of 646 aircraft and potentially as many as 3,500). Finally, because a number of current U.S. aircraft will either be replaced by or used in conjunction with the JSF, the program is critical for meeting future force requirements. The JSF program began in November 1996 with a 5-year competition between Lockheed Martin and Boeing to determine the most capable and affordable preliminary aircraft design. Lockheed Martin won the competition. The program entered system development and demonstration in October 2001. At that time, officials planned on a 10½ years development period costing about $34 billion (amount includes about $4 billion incurred before system development start). By 2003, system integration efforts and a preliminary design review revealed significant airframe weight problems that affected the aircraft’s ability to meet key performance requirements. Weight reduction efforts were ultimately successful but added substantially to program cost and schedule estimates. In March 2004, DOD rebaselined the program, extending development by 18 months and adding about $7.5 billion to development costs. In total, estimated development costs for the JSF are now about $10 billion more than at start of system development. In August 2005, DOD awarded a $2.1 billion contract for alternate engine system development and demonstration, of which more than $1 billion has been appropriated to date. Since awarding that contract, DOD’s last three budget submissions have included no funding for the alternate engine program and DOD has proposed canceling it, stating that (1) no net acquisition cost benefits or savings are to be expected from competition and (2) low operational risk exists for the warfighter under a sole-source engine supplier strategy. We have previously reported that DOD’s analysis to support this decision focused only on the potential up-front savings in engine procurement costs. That analysis, along with statements made before this committee last year, inappropriately included cost already sunk in the program and excluded long-term savings that might accrue from competition for providing support for maintenance and operations over the life cycle of the engine. In fiscal year 2007, the program office awarded the first of three annual production contracts to Pratt & Whitney for its F135 engine. Under that acquisition strategy, the program then planned to award noncompetitive contracts to both Pratt & Whitney and to the Fighter Engine Team in fiscal years 2010 and 2011. Beginning in fiscal year 2012, the program planned to award contracts on an annual basis under a competitive approach for quantities beyond each contractor’s minimum sustaining rate. Full-rate production for the program begins in fiscal year 2014 and is expected to continue through fiscal year 2034. The JSF program intends to use a combination of competition, performance-based logistics, and contract incentives to achieve goals related to affordability, supportability, and safety. Through this approach, the JSF program office hopes to achieve substantial reductions in engine operating and support costs, which traditionally have accounted for 72 percent of a program’s life cycle costs. Today, we are issuing our latest report on the JSF acquisition program, the fourth as mandated in the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005. In our report we acknowledge the challenges in managing such a complex and ambitious acquisition and cite recent progress in refining system requirements, forging production agreements with international partners, and beginning flight testing of the prototype aircraft and a flying test bed. DOD also extended the procurement period for 7 years, reducing annual quantities and the rate of ramp up to full production. These actions somewhat lessened, but did not eliminate, the undue concurrency of development and production we have previously reported. We also report continuing cost increases and development risks resulting from recent decisions by DOD to eliminate test resources to replenish needed management reserve funds. We expect that DOD will eventually need more money and time to complete development and operational testing, potentially delaying the full-rate production decision now planned for October 2013. We further report that the official program cost estimate before the Congress is not reliable for decision-making, based on our assessment of estimating methodologies compared to best practice standards. With almost 90 percent of the acquisition program’s spending still ahead, it is important to address these challenges, effectively manage future risks, and move forward with a successful program that meets ours’ and our allies’ needs. DOD reported that total acquisition cost estimate increased by more than $23 billion since our last report in March of 2007, and $55 billion since the program underwent a major restructure in 2004. Recent increases in the procurement cost estimate were principally due to (1) extending the procurement period seven years at lower annual rates; (2) increases to future price estimates based on contractor proposals for the first production lot, and (3) airframe material cost increases. The official development cost estimate remained about the same. However, this was largely achieved by reducing requirements, not fully funding the alternate engine program despite congressional interest in the program, and reducing test resources in order to replenish management reserve funds which were spent much faster than budgeted. Table 1 shows the evolution in costs, unit costs, quantities, and deliveries since the start of the JSF’s system development and demonstration program. Midway through its planned 12-year development period, the JSF program is over cost and behind schedule. The program has spent two-thirds of its budgeted funding on the prime development contract, but estimates that only about one-half of the development work has been completed. The contractor has extended manufacturing schedules several times and test aircraft delivery dates have continually slipped. Repercussions from late release of engineering drawings to the manufacturing floor, design changes, and parts shortages continue to cause delays in maturing manufacturing processes and force inefficient production line workarounds. These design and manufacturing problems depleted management reserve funds to an untenable level in 2007. Facing a probable contract cost overrun, DOD officials decided not to request additional funding and time for development, opting instead to reduce test resources in order to replenish management reserves from $400 million to $1 billion. The decision to replenish management reserves by reducing test resources, known as the Mid-Course Risk Reduction Plan, was ratified by OSD in September 2007. It eliminated two development test aircraft (reducing the total from 15 to 13), reduced flight tests, revised test verification plans, and accelerated the reduction in the prime contractor’s development workforce. Officials from several prominent defense offices objected to specific elements of the plan because of risks to the test program and because it did not treat the root causes of production and schedule problems. We agree with this prognosis and believe the mid-course plan should be re- evaluated to address these concerns, examine alternatives, and correct the causes of management reserve depletion. The plan significantly increases the risks of not completing development testing on time and not finding and fixing design and performance problems until late into operational testing and production, when it is more expensive and disruptive to do so. It also does not directly address and correct the continuing problems that caused the depletion in management reserves. This increases the risk that development costs will increase substantially and schedules will be further delayed. The flight test program has barely begun, but faces substantial risks with reduced assets as design and manufacturing problems continue to cause delays that further compress the time available to complete development. We expect that DOD will have to soon restructure the JSF program to add resources and extend the development period, likely delaying operational testing, the full-rate production decision, and achievement of initial operational capabilities. We do not think the official JSF program cost estimate is reliable when judged against cost estimating standards used throughout the federal government and industry. Specifically, the program cost estimate: (1) is not comprehensive because it does not include all applicable costs, including $6.8 billion for the alternate engine program; (2) is not accurate because some of its assumptions are optimistic and not supportable—such as applying a weight growth factor only half as large as historical experience on similar aircraft—and because the data system relied upon to report and manage JSF costs and schedule is deficient; (3) is not well documented in that it does not sufficiently identify the primary methods, calculations, results, rationales and assumptions, and data sources used to generate cost estimates; and (4) is not credible according to individual estimates from OSD’s Cost Analysis Improvement Group, the Defense Contract Management Agency, and the Naval Air Systems Command. All three of these defense offices concluded that the official program cost estimate is understated in a range up to $38 billion and that the development schedule is likely to slip from 12 to 27 months. Despite this and all the significant events and changes that have occurred in the 6 years since the start of system development, DOD does not intend to accomplish another fully documented, independent total program life-cycle cost estimate for another 6 years. Twelve years between high-fidelity estimates is not acceptable in our view, especially given the size of the JSF program, its importance to our and our allies’ future force structures, the changes in cost and quantity in the intervening years, and the unreliability of the current estimate. Based on the evidence we collected, we believe a new estimate will likely be much higher than now reported.