The JASSM program began in 1995 and was to be an affordable, joint program between the Air Force and the Navy to meet an urgent need with a streamlined acquisition strategy. JASSM predecessor TSSAM was also planned to be a low-cost cruise missile able to deliver several different munitions. However, after several unsuccessful flight tests, the lead contractor for TSSAM initiated a reliability improvement program to address higher reliability requirements, but demonstration of whether problems had been resolved would have taken several years and cost more than $300 million. As costs for TSSAM increased, the Army ended its participation in the program and after a period of declining budgets and changes to threat scenarios, a cost and operational effectiveness analysis was completed, which showed that other options might be adequate to meet national security requirements. In 2004, the Navy left the JASSM program citing it as a redundant capability to other systems in its inventory. JASSM was expected to require minimal maintenance while in storage and life-cycle cost was to be controlled through improved reliability and supportability achieved during development. To execute the acquisition strategy and meet cost and schedule goals, the Air Force used Total System Performance Responsibility (TSPR). TSPR generally gives the contractor total responsibility for the entire weapon system and for meeting DOD requirements, with minimum government oversight. The Air Force made initial JASSM requirements flexible to allow Lockheed Martin to have clear control of the design and product baseline. Program officials stated this strategy was based on other successful programs, such as the Joint Direct Attack Munition program, and would allow the contractor flexibility to make changes to meet cost and schedule deadlines without having to consult with the government. An example of this flexibility was the mission missile effectiveness requirement. The effectiveness requirement is the minimum number of missiles required to kill specified targets and was named as a key performance parameter, allowing trades between reliability, survivability, and lethality. In other words, if the program was successful at achieving high levels of survivability and lethality, reliability could remain low, even fluctuate, and still meet the stated parameters. Quantities for JASSM were established by reviewing the threshold targets and determining the number of missiles necessary to meet operational damage criteria, based on missile performance using the effectiveness requirement. Therefore, changes to reliability would affect the quantities necessary to meet requirements. As part of the program’s 1995 acquisition strategy, the Air Force received five proposals for JASSM and in 1996 selected Lockheed Martin and McDonnell Douglas to begin a 24-month risk-reduction phase. Following the risk-reduction phase, the Air Force planned 32 months for development and a total of 56 months from program start to full-rate production in 2001. The program planned for concurrent developmental and operational testing and evaluation with four flight tests planned before initial production. The Air Force planned to have nine fixed-price production lots from 2001 through 2009 totaling 2,400 baseline missiles with an initial program cost estimate of $2.2 billion (fiscal year 2010 dollars). A former Air Force official who was an early JASSM program manager stated the Air Force accepted Lockheed Martin’s proposal, which included favorable fixed-price contract prices for production lots 1 through 5 with the understanding that the prices would increase after Lot 5. JASSM’s acquisition strategy planned for a 74 percent unit cost increase between Lots 5 and 6. The cost increase between Lots 5 and 6 was to occur at a time when quantities were increasing. Despite this planned cost increase, the production unit costs would have remained within the Air Force’s acceptable range established before the competition and at much less cost than TSSAM. Further, the prices offered by Lockheed Martin for the first five production lots were below the Air Force’s desired cost range for the system. Air Force officials said the low costs contributed to Lockheed Martin’s selection. However, to maintain the benefits of this pricing, the quantities purchased by the Air Force had to remain within a certain range for each of the first 5 years. While the Air Force planned for some cost growth in the original acquisition strategy, the program’s cost grew much more than expected. For the first four production lots, the Air Force benefited from the favorable prices in the original contract. However, because of funding limitations, it was not able to procure the minimum missile purchase in Lot 5 and had to renegotiate this lot with Lockheed Martin. In doing so, Lockheed Martin was able to renegotiate Lot 5 prices based on its actual production costs—at over $1 million per missile. Air Force documentation indicates that previously negotiated unit prices for Lot 1 through Lot 5 were as much as 45 percent less than Lockheed Martin’s actual costs. Subsequent lots that had not been negotiated under the original contract similarly reflected an increase in price. Most of this cost growth took place prior to 2006, culminating in a critical Nunn-McCurdy unit cost breach late in 2006. According to program documents, several causes have been cited for the critical Nunn-McCurdy unit cost breach: an unrealistic cost estimate resulting from a flawed acquisition strategy; the addition of 2,500 more expensive JASSM-ER variants; the costly efforts to overcome reliability problems; and reduced annual production rates for a longer period. Following the critical Nunn- McCurdy unit cost breach, the Air Force halted production of the missiles until DOD certified that the program should continue. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD/ATL) found no lower cost alternatives and certified the program in 2008, despite the missile’s higher than projected production costs. Since operational testing began in 2001, the reliability of the JASSM missile has been inconsistent. The Air Force flight-tested 62 baseline missiles from January 2001 through May 2007, resulting in 25 failures and 3 “no tests,” which was a 58 percent reliability success rate. However, because the program’s strategy allowed for the contractor to manage to mission effectiveness by combining reliability with other factors, the 58 percent reliability rate was sufficient to meet mission effectiveness criteria. The Air Force tracked reasons for flight test failures, but was not part of the failure review boards until production Lot 5, 5 years after the start of operational testing. Air Force officials stated that until 2006, Lockheed Martin handled all flight test failure review determinations and made corrective actions internally and the government was not heavily involved. During the Nunn-McCurdy certification process, USD/ATL directed the JASSM program to develop a reliability growth plan that would achieve 90 percent reliability for the baseline missile. The program set a goal of achieving this reliability rate by Lot 11, or fiscal year 2013. In addition, the JASSM-ER program set a reliability goal of 85 percent by Lot 4, or fiscal year 2014. In our 2000 report on JASSM, we recommended the Secretary of Defense revise its acquisition strategy for the JASSM program to be more closely linked to demonstrating that the missile design is stable and can meet performance requirements before making the production decision. DOD partially concurred with our recommendation stating that its acquisition strategy is directly linked to knowledge points, that it is linked to specific criteria established for making the low-rate initial production decision, and that the contractor is required to meet these criteria. We concluded that, while the Air Force had taken steps to link production decisions for JASSM to knowledge, we did not believe that the specific criteria established to support a production decision were sufficient to minimize cost and schedule risk. In June 2010, the Secretary of Defense announced an initiative to restore affordability and productivity in defense spending. He stated that there is a need to abandon inefficient practices accumulated in a period of budget growth and learn to manage defense dollars in a manner that is “respectful of the American taxpayer at a time of economic and fiscal stress.” He set a goal to save $100 billion over the course of the 5 year defense planning period. Subsequently, USD/ATL has issued guidance on delivering better value to the taxpayer and improving the way DOD does business. That guidance indicated that budget savings could be found by eliminating unneeded and costly programs and activities as well as by conducting needed programs and activities more efficiently, such as by stabilizing production rates. Subsequently, in a September 14, 2010, memorandum, USD/ATL provided specific guidance to acquisition professionals to achieve this mandate. That guidance included 23 principle actions to improve efficiency, including “Mandate affordability as a requirement” and “Drive productivity growth through Will Cost/Should Cost management.” Since 2007, the Air Force has enhanced its oversight of the JASSM program and made significant investments to improve its reliability as directed by USD/ATL. As a result of increased reliability testing and investments in reliability initiatives, the Air Force has identified many of the root causes for flight test failures. Since then, design changes and other corrective actions have improved JASSM baseline’s test results significantly—now demonstrating 85 percent success. The JASSM-ER variant has done well thus far, with no scored failures during the first seven flight tests. However, while JASSM baseline missile reliability has improved, it is not expected to achieve the USD/ATL-required level of 90 percent until 2013, and its operational effectiveness has not yet been demonstrated either through operational testing or use in a combat operation. In 2004, after two back-to-back flight test failures, the Air Force formed a reliability enhancement team to address what it considered the loss of confidence in JASSM’s performance, OSD’s concerns about the program, and budget reductions. The team’s report stated that while JASSM’s development and reliability were within acceptable ranges when compared to other cruise missiles, the JASSM program should increase testing to discover additional weaknesses in design or production as well as increase confidence in the level of reliability achieved and tie those results to contractor incentives.