The F-22 is an air superiority aircraft with the capability to deliver air-to-ground weapons. The most significant advanced technology features include supercruise, the ability to fly efficiently at supersonic speeds without using fuel-consuming afterburners; low observability to adversary systems; and integrated avionics to significantly improve the pilot’s situational awareness. The objectives of the F-22 EMD program, begun in 1991, are to (1) design, fabricate, test, and deliver 9 F-22 flight test vehicles, 2 ground test articles, and 26 flight qualified engines; (2) design, fabricate, integrate, and test the avionics suite; and (3) design, develop, and test the F-22 system support and training systems. In June 1996, because of indications of potential cost growth on the F-22 program, the Assistant Secretary of the Air Force for Acquisition chartered a Joint Estimating Team (JET) consisting of personnel from the Air Force, the Department of Defense (DOD), and private industry. The objectives of the JET were to estimate the most probable cost of the F-22 program and to identify realistic initiatives that could be implemented to lower program costs. In January 1997, the JET estimated the F-22 EMD program would cost $18.688 billion, an increase of about $1.45 billion over the previous Air Force estimate. The JET also reported that additional time would be required to complete the EMD program and recommended changes to the EMD schedule. The Air Force and Under Secretary of Defense for Acquisition and Technology adopted the JET’s recommendations, including its cost estimate for the EMD program. Other JET recommendations included slowing the manufacturing of the EMD aircraft to ensure an efficient transition from development to low-rate initial production and increasing the time available to develop and integrate avionics software. In August and September 1997, the Air Force negotiated changes with the prime contractors to more closely align the cost-plus-award-fee contracts with the JET cost estimate and revised schedule. However, as of January 1998, many substantial planned changes recommended by the JET had not been incorporated into the Lockheed Martin contract, such as changes to the avionics estimated to cost $221 million. The National Defense Authorization Act for Fiscal Year 1998, enacted on November 18, 1997, imposed cost limitations of $18.688 billion on the F-22 EMD program and $43.4 billion on the production program. The limitation on production cost did not specify a quantity of aircraft to be procured. The act instructed the Secretary of the Air Force to adjust the cost limitations for (1) the amounts of increases or decreases in costs attributable to economic inflation after September 30, 1997, and (2) the amounts of increases or decreases in costs attributable to compliance with changes in federal, state, or local laws enacted after September 30, 1997. Conferees for the Department of Defense Appropriations Act, 1998, enacted October 8, 1997, provided direction to the Secretary of the Air Force regarding out-of-production parts on the F-22 program. Because it is not economical for some component manufacturers to keep production lines open to produce old technology parts with low demand, they have discontinued making parts, some of which are used on the F-22 EMD aircraft, and will discontinue making others. To minimize cost and schedule impacts on the F-22 EMD and production programs, the Air Force plans to redesign these out-of-production parts or buy sufficient quantities of them for the first five lots of production aircraft. The appropriations conferees directed the Secretary of the Air Force to fund the cost of redesigning out-of-production parts from the Research, Development, Test and Evaluation appropriation. The effect of following that direction would be to add that effort, expected by the Air Force to cost $353 million, to the EMD program. In January 1998, the Air Force notified the Congress that it increased the EMD cost limitation by $353 million, to respond to direction from the conferees, and decreased the production cost limitation by the same amount. As adjusted, the EMD cost limitation increased to $19.041 billion. In addition, the Air Force plans to adjust the cost limitation downward by $102 million to $18.939 billion, to recognize revisions to inflation assumptions by the Office of the Secretary of Defense. In the fiscal year 1999 President’s budget, the Air Force’s estimate to complete the EMD program was $18.884 billion. The estimated cost to complete EMD includes the negotiated prices of the major prime contracts, estimated costs of significant planned contract modifications, other government costs, and a margin to accommodate future cost growth. Although contractor reports through December 1997 project that the efforts on contract are expected to be completed within the negotiated contract prices, manufacturing problems with the wings and the aft fuselage could change those projections for Lockheed Martin. The Air Force contracts with Lockheed Martin and Pratt & Whitney, after being restructured, had negotiated prices of $16.003 billion. The Air Force, as of December 1997, planned to add modifications to the contracts totaling about $1.546 billion. The Air Force’s estimated costs for F-22 EMD are shown in table 1. Air Force officials provided us a list of planned and budgeted modifications that will increase the contract prices. The list is consistent with the JET findings. Modifications planned relate to efforts directed by the conferees on the Department of Defense Appropriations Act, 1998, to redesign out-of-production parts ($353 million); award fees to be paid to the contractor based on evaluations of contractor performance ($262 million); extending the time period for F-22 testing ($230 million); addition of changes (Block IV) to the avionics, including interface capability with the newly developed AIM-9X air-to-air missile ($221 million); extending the time period for keeping an active laboratory infrastructure ($158 million); efforts to provide the capability to perform air combat simulation and ground testing of avionics prior to its delivery ($65 million); provision for contractor resources to conduct initial operational test and evaluation ($60 million); efforts to test and approve the F-22 for supersonic launch of external missiles ($51 million); implementation of aircraft battle damage repair capability ($29 million); and other changes ($117 million). Since the contracts were restructured in August and September 1997, limited experience has been accumulated to indicate the extent to which contractors are completing scheduled work at the planned cost. Contractor reports reflecting experience through December 1997, however, indicate the contractors are predicting they will be able to complete efforts now covered by the contract within the negotiated costs. Lockheed Martin and Pratt & Whitney report to the Air Force monthly concerning their progress compared to contract costs and schedules. These reports define the cost and schedule variances from the contract plans. When the contracts were restructured, the contractors rebaselined their cost control systems that measure the cost and schedule progress and calculate how the actual costs and schedules vary from the goals. Prior to restructuring the contracts, the Lockheed Martin and Pratt & Whitney reports indicated unfavorable variances at completion of EMD totaling about $1.2 billion. Both Pratt & Whitney and Lockheed Martin reports showed variances of less than 1 percent from the negotiated contract cost and planned schedule through December 1997. The most significant variance identified in the contractor reports was about a $54 million unfavorable schedule variance for Lockheed Martin. The contractors’ reports showed that the negotiated costs include about $194 million for management reserves. Management reserves are amounts set aside to react to cost increases due to unplanned efforts or cost growth in planned efforts. Lockheed Martin and Pratt & Whitney December 1997 reports indicate they plan to complete the contract efforts within the negotiated costs. However, the impact of delays in the delivery of wing and aft fuselage assemblies and the flight test program have not been reflected in those reports. Lockheed Martin has advised the Air Force that it can execute the revised schedule caused by the late deliveries at no increased cost to the EMD contract. At the time of our review, the Air Force was assessing the impact of these delays and whether it agrees that the changes can be accomplished with no cost increase to the EMD contract. In January 1998, the F-22 program was not meeting its schedule goals. The first flight of an F-22 did not occur on time and resumption of its flight test program will be delayed by at least 2 to 3 weeks to correct a problem discovered in the horizontal tail of the aircraft. Also, the late delivery of aft fuselage assemblies and wing assemblies is expected to cause delays in delivery of other EMD aircraft. These problems will also delay the progress of the flight test program. The Air Force has revised its schedule to reflect the late first flight. However, it had not determined how the late deliveries of aft fuselage assemblies and wing assemblies will impact the overall F-22 EMD schedule. The Air Force planned to complete its evaluation of the impact on the schedule by the end of February 1998. Because of a number of technical problems with the aircraft, the first flight of the first F-22 EMD aircraft was delayed over 3 months, until September 7, 1997. According to the Air Force, the problems were not caused by the design of the aircraft but involved a fuel tank leak, failure of an auxiliary power unit resulting from faulty installation, a software defect, incorrect installation of the electrical connector to a fuel tank probe, and foreign object damage from debris being ingested into an engine. After making two flights, the aircraft flight test program was suspended to accomplish planned ground tests and minor structural additions to the airframe.