Joint Strike Fighter Acquisition: Managing Competing Pressures Is
Critical to Achieving Program Goals (21-JUL-03, GAO-03-1012T).	 
                                                                 
The Joint Strike Fighter (JSF) is a cooperative program between  
the Department of Defense (DOD) and U.S. allies for developing	 
and producing next generation fighter aircraft to replace aging  
inventories. As currently planned, the JSF program is DOD's most 
expensive aircraft program to date, costing an estimated $200	 
billion to procure about 2,600 aircraft and related support	 
equipment. Many in DOD consider JSF to be a model for future	 
cooperative programs. To determine the implications of the JSF	 
international program structure, GAO identified JSF program	 
relationships and expected benefits, and assessed how DOD is	 
managing challenges associated with partner expectations,	 
technology transfer, and recent technical concerns.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-1012T					        
    ACCNO:   A07600						        
  TITLE:     Joint Strike Fighter Acquisition: Managing Competing     
Pressures Is Critical to Achieving Program Goals		 
     DATE:   07/21/2003 
  SUBJECT:   Defense procurement				 
	     Financial management				 
	     Military aircraft					 
	     International relations				 
	     Program evaluation 				 
	     Strategic planning 				 
	     F-16 Aircraft					 
	     Joint Strike Fighter				 

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GAO-03-1012T

United States General Accounting Office

Testimony Before the Subcommittee on National Security, Emerging Threats,
and International Relations, Committee on Government Reform, House of
Representatives GAO For Release on Delivery

Expected at 11: 00 a. m. EDT Monday, July 21, 2003 JOINT STRIKE FIGHTER

ACQUISITION Managing Competing Pressures Is Critical to Achieving Program
Goals

Statement of Katherine V. Schinasi, Director Acquisition and Sourcing
Management

GAO- 03- 1012T

The JSF program is based on a complex set of relationships among
governments and industries from the United States and eight partner
countries. The program is expected to benefit the United States by
reducing its share of program costs, giving it access to foreign
industrial capabilities, and improving interoperability with allied
militaries. Partner governments expect to benefit financially and
technologically through relationships with U. S. aerospace companies and
access to JSF program data.

Yet international participation also presents a number of challenges.
Because of their contributions to the program, partners have significant
expectations for financial returns, technology transfer, and information
sharing. If these expectations are not met, their support for the program
could deteriorate. To realize these financial returns, partners expect
their industry to win JSF contracts through competition* a departure from
cooperative programs, which directly link contract awards to financial
contributions. However, recent actions by the prime contractor could
indicate a departure from this competitive approach and a return to
directed work share. Technology transfer also presents challenges.
Transfers of sensitive U. S. military technologies* which are needed to
achieve aircraft commonality and interoperability goals* will push the
boundaries of U. S. disclosure policy. In addition, a large number of
export authorizations are needed to share project information and execute
contracts. These authorizations must be submitted and resolved in a timely
manner to maintain program schedules and ensure partner industry has the
opportunity to compete for subcontracts. Finally, recent technical
challenges threaten program costs and possibly partner participation in
the program. While partners can choose to share any future program cost
increases, they are not required to do so. Therefore, the burden of any
future increases may fall almost entirely on the United States. If efforts
to meet any of these partner

expectations come into conflict with program cost, schedule, and
performance goals, the program office will have to make decisions that
balance these potentially competing interests within the JSF program.

Joint Strike Fighter

The Joint Strike Fighter (JSF) is a cooperative program between the
Department of Defense (DOD) and

U. S. allies for developing and producing next generation fighter aircraft
to replace aging inventories. As currently planned, the JSF program is
DOD*s most

expensive aircraft program to date, costing an estimated $200 billion to
procure about 2,600 aircraft and related support equipment. Many in DOD
consider JSF to be a model for future cooperative programs.

To determine the implications of the JSF international program structure,
GAO identified JSF program relationships and expected benefits, and
assessed

how DOD is managing challenges associated with partner expectations,
technology transfer, and recent technical concerns.

GAO is not making recommendations in this testimony. In a report issued
concurrently (GAO- 03- 775), GAO is recommending that the Secretary of
Defense direct the JSF program office to ensure that international
supplier planning anticipates and mitigates risks associated with

technology transfer and that information concerning the selection and
management of suppliers is available, closely monitored, and used to
improve program outcomes. In comments on that report, DOD concurred with
the recommendations.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 1012T. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Katherine V. Schinasi at (202) 512- 4841 or
schinasik@ gao. gov. Highlights of GAO- 03- 1012T, a testimony

before the Subcommittee on National Security, Emerging Threats, and
International Relations, Committee on Government Reform, House of
Representatives

July 21, 2003

JOINT STRIKE FIGHTER ACQUISITION

Managing Competing Pressures Is Critical to Achieving Program Goals

Page 1 GAO- 03- 1012T Joint Strike Fighter Acquisition Mr. Chairman and
Members of the Subcommittee: I am pleased to be here to discuss the Joint
Strike Fighter (JSF)

international acquisition strategy. DOD views the JSF program as both a
model for acquisition reform and an example for the future of
international cooperation. We have previously reported to you on how the
JSF program is being managed relative to best practices for product
development. Central to these best practices is the understanding that
attainment of sufficient knowledge at key program junctures results in a
low- risk path from design to production.

My statement focuses on the structure of the JSF program, the benefits and
challenges cooperative development brings to the overall acquisition
approach, and the opportunity DOD has to achieve critical program goals.
We are also releasing a report today, done at your request, which
addresses many of the issues I am discussing in this statement.

Because international participation adds complexity to already challenging
acquisition programs, proponents of other DOD acquisition efforts are
assessing the potential benefits of using the JSF model and incorporating
key elements into their program strategies. Choices made to balance both
partner expectations and overall program goals will be critical not only
to the success of this program, but potentially for many future
cooperative

development efforts. DOD and the JSF Program Office need to ensure that
sufficient knowledge is available and appropriately used in making these
decisions.

Page 2 GAO- 03- 1012T Joint Strike Fighter Acquisition 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.

Figure 1: JSF Program Relationships

a Figure does not reflect relationships that the prime contractors may
have with nonpartner countries.

Background

Page 3 GAO- 03- 1012T Joint Strike Fighter Acquisition 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. United States and

Partners Expect Significant Benefits

Page 4 GAO- 03- 1012T Joint Strike Fighter Acquisition 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. 1 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. 1 Israel and Singapore have recently
indicated their intention to participate in the program as security
cooperation participants, a nonpartner arrangement, that offers limited
access to program information, without a program office presence. United
States Benefits

from Financial Contributions and Access to Partner Industry

Page 5 GAO- 03- 1012T Joint Strike Fighter Acquisition Table 1: JSF
Partner Financial Contributions and Estimated Aircraft Purchases System
development and demonstration Production

Partner country Partner level

Financial contributions

(in millions) a Percentage of total costs Projected

quantities Percentage of total quantities

United Kingdom Level I $2,056 6. 2 150 4.7 Italy Level II $1,028 3. 1 131
4.1 Netherlands Level II $800 2. 4 85 2.7 Turkey Level III $175 0. 5 100
3.2 Australia Level III $144 0. 4 100 3.2 Norway Level III $122 0. 4 48
1.5 Denmark Level III $110 0. 3 48 1.5 Canada Level III $100 0. 3 60 1.9
Total partner $4,535 13.7 b 722 22.8 United States $28,565 86.3 2,443 77.2
Sources: DOD and JSF program documents and Arms Export Control Act project
certifications to Congress.

a Chart values do not reflect any nonfinancial contributions from
partners. b Percentages do not add due to rounding.

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.

Page 6 GAO- 03- 1012T Joint Strike Fighter Acquisition 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. 2 All partners are also eligible to receive potential
levies collected on future foreign military sales of aircraft to
nonpartner customers. 3 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. 4 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.

2 The President of the United States may reduce or waive cooperative
project nonrecurring costs in accordance with the Arms Export Control Act
(22 U. S. C. 2761 and 2767). 3 According to DOD, final disposition of
levies and nonrecurring costs for partners will be decided in production
phase MOU negotiations. 4 Most partners have been involved in the JSF
program since the concept development phase, which began in 1996. Partners
Benefit

Financially and from Shared Technology and Information

Page 7 GAO- 03- 1012T Joint Strike Fighter Acquisition 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. 5 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. 5 This
is not necessarily the same as best value under the Federal Acquisition
Regulation, which is an acquisition that provides the greatest overall
benefit in response to the requirement and can be obtained by using one or
a combination of multiple source selection approaches. Program Challenges

Force JSF Program to Balance Competing Pressures

Alternate Contracting Approach May be Used to Meet Partner Expectations

Page 8 GAO- 03- 1012T Joint Strike Fighter Acquisition 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. Lockheed Martin could be faced with lower than
projected international sales, resulting in fewer units sold. At the same
time, directed work share often results in less than optimal program
results. For example, other coproduction programs such as the F- 16
Multinational Fighter, which employ the traditional work share approach,
often pay cost premiums in terms of increased manufacturing costs
associated with use of foreign suppliers. 6 6 U. S. General Accounting
Office, F- 16 Program: Reasonably Competitive Premiums for

European Coproduction, GAO/ NSIAD- 90- 181 (Washington, D. C.: May 14,
1990).

Page 9 GAO- 03- 1012T Joint Strike Fighter Acquisition The United States
has committed to design, develop, and qualify aircraft for partners that
fulfill the JSF operational requirements document and are as common to the
U. S. JSF configuration as possible within National Disclosure Policy. 7
DOD and the JSF Program Office must balance

partner expectations for commonality against the transfer of U. S.
military technology. Decisions in this area will be critical because the
extent of technology transfers necessary to achieve program goals will
push the boundaries of U. S. disclosure policy for some of the most
sensitive U. S. military technology. To address these issues, Lockheed
Martin has a contract requirement to conduct a study to develop a partner
JSF specification that fulfills commonality goals. Due to issues related
to the disclosure review process, the contractor expects to deliver the
study to the program office in August 2003, 5 months later than originally
planned. According to DOD, the program has requested exceptions from
National Disclosure Policy in some cases to achieve aircraft commonality
goals and avoid additional development costs. Some DOD officials told us
that technology transfer decisions have been influenced by JSF program
goals, rather than adjusting program goals to meet current disclosure
policy.

DOD, JSF Program Office, and Lockheed Martin officials agreed that
technology transfer issues should be resolved as early as possible in
order to meet program schedules without placing undue pressure on the
release process. The program has taken steps to address potential
concerns, including chartering a working group to review how past export
decisions apply to the JSF program; identify contentious items in advance;
and provide workable resolutions that minimize the impact to the program
cost, schedule, or performance. However, partners have expressed concern
about the pace of information sharing and decision making related to the
JSF support concept. For example, according to several partners, greater
access to technical data is needed so that they can plan for and develop a
sovereign support infrastructure as expressed in formal exchanges of
letters with the United States. The JSF program is conducting trade
studies to further define the concept for how the JSF will be maintained
and supported worldwide so that it can start to address these issues.
According to program officials, this strategy will identify the best
approach for maintaining JSF aircraft, and it may include logistics

7 Releasability reviews, such as the low observable/ counter low
observable review process for stealth technology, are necessary to
transfer certain sensitive technologies and related design and
manufacturing data to foreign countries and suppliers. JSF Stretches
Disclosure

Boundaries

Page 10 GAO- 03- 1012T Joint Strike Fighter Acquisition centers in partner
countries. Follow- on trade studies would determine the cost of developing
additional maintenance locations. The implementation of the global support
solution and the options identified in follow- on trade

studies will have to be in full compliance with the National Disclosure
Policy, or the program will need to request exceptions.

Authorization for export of JSF information to partners and international
suppliers also present challenges for the program. In addition to the U.
S. government determining the level of disclosure for partners and
technology areas, JSF contractors must receive authorization to transfer
data and technology through the export control process. Due to the degree
of international participation at both a government and an industry level,
a large number of export authorizations are necessary to share project
information with governments, solicit bids from partner suppliers, and
execute contracts. The JSF Program Office and Lockheed Martin told us that
there were over 400 export authorizations and amendments granted during
the JSF concept demonstration phase, and they expect that the number of
export authorizations required for the current phase could exceed 1,000.
Lockheed Martin officials told us that an increased level of resources has
been required to address licensing and other export

concerns for the program. Export authorizations for critical suppliers
need to have timely planning, preparation, and disposition to help avoid
schedule delays and cost increases in the program. Without proper
planning, there could be pressure to expedite reviews and approvals of
export authorizations to support program goals and schedules. In addition,
advanced identification of potential alternative sources for critical
contracts could be an appropriate action to prevent schedule delays in the
event of unfavorable approval decisions. Although it is required to do so,
Lockheed Martin has not completed a long- term industrial participation
plan that provides information on JSF subcontracting. Such a plan could be
used to anticipate export authorizations needed for international
suppliers and identify potential licensing concerns far enough in advance
to avoid program disruption or accelerated licensing reviews. Our work has
shown that past cooperative programs have experienced cost and schedule
problems as a result of poor planning for licenses. For example, like the
JSF, the Army*s Medium Extended Air Defense System program involves
several sensitive technologies critical to preserving the U. S. military
advantage. That program failed to adequately plan for release requirements
related to those technologies and saw dramatic increases in Export Control
Process Presents Challenges for

JSF Program

Page 11 GAO- 03- 1012T Joint Strike Fighter Acquisition approval times,
which affected contractors* ability to use existing missile technology and
pursue the cheapest technical solution. 8 Timely disposition of export
authorizations is also necessary to avoid

excluding partner industries from competitions. While Lockheed Martin has
stated that no foreign supplier has been excluded from any of its
competitions or denied a contract because of fear of export authorization
processing times or the conditions that might be placed on an
authorization, the company is concerned this could happen. In fact, one
partner told us that export license delays have had a negative effect on
the participation of its companies because some U. S. subcontractors have
been reluctant to take on the added burden of the license process. The U.
S. subcontractors must apply for the export authorization on behalf of the
foreign supplier, which can add time and expense to their contracts.
Further, we were told that some partner companies have been unable to bid
due to the time constraints involved in securing an export license.

The JSF program has attempted to address the additional administrative
tasks associated with export authorizations by adding resources to help
prepare applications and exploring ways to streamline the process. For
example, Lockheed Martin received a global project authorization (GPA)* an
*umbrella* export authorization that allows Lockheed Martin and other U.
S. suppliers on the program to enter into agreements with over 200 partner
suppliers to transfer certain technical data* from the Department of
State. Approved in October 2002, implementation of the GPA was delayed
until March 2003 because of supplier concerns related to liability and
compliance requirements. In March 2003, the first GPA implementing
agreement between Lockheed Martin and a company in a partner country was
submitted and approved in 4 business days. JSF partners have expressed
dissatisfaction with the time it has taken to finalize the conditions
under which the GPA can be used and disappointment that the authorization
may not realize their expectations in terms of reducing the licensing
burdens of the program. As currently structured, the GPA does not cover
the transfer of any classified information or certain unclassified,
export- controlled information in sensitive technology areas such as
stealth, radar, and propulsion.

8 U. S. General Accounting Office, Defense Acquisition: Decision Nears on
Medium Extended Air Defense System, GAO/ NSIAD- 98- 145 (Washington, D.
C.: June 9, 1998).

Page 12 GAO- 03- 1012T Joint Strike Fighter Acquisition The Joint Strike
Fighter program, and its implications for acquisition reform and
cooperative development, is a good test of whether the

desire for better outcomes can outweigh traditional management pressures.
In our 2001 review of JSF technical maturity, we employed knowledge
standards consistent with best practices and DOD acquisition reforms and
found that several technologies critical to meeting requirements were not
sufficiently mature. 9 The best practice for such a decision is to have a
match between technologies and weapon requirements. At its recent
preliminary design review, the JSF program uncovered significant problems
with regard to various issues, including

aircraft weight, design maturity, and weapons integration. Such problems
have historically resulted in increased program costs, longer development
schedules, or a reduction in system capabilities. While such actions can
negatively affect the U. S. military services, the impact may be more
substantial for partners because they have less control over program
decisions and less ability to adjust to these changes. This may affect

partners* participation in the program in a variety of ways. First, the
continued affordability of the development program and the final purchase
price are important for partners* both of which could be affected by
recent technical problems. There is no guarantee that partners will
automatically contribute to cost overruns, especially if the increase

is attributable to factors outside their control. Therefore, future cost
increases in the JSF program may fall almost entirely on the United States
because there are no provisions in the negotiated agreements requiring
partners to share these increases. Partner representatives indicated that
they intend to cooperate with the JSF Program Office and Lockheed Martin
in terms of sharing increased program costs when justified. However, some
partner officials expressed concern over the tendency of U. S. weapon
system requirements to increase over time, which results in greater risk
and higher costs. While some partners could fund portions of cost overruns
from military budgets if requested, others told us that even if they were
willing to support such increases, these decisions would have to

be made through their parliamentary process. DOD has not required any of
the partners to share cost program increases to date. For example, cost
estimates for the system development and demonstration phase have
increased on multiple occasions since the

9 Joint Strike Fighter Acquisition: Mature Critical Technologies Needed to
Reduce Risks,

GAO- 02- 39 (Washington, D. C.: Oct. 19, 2001). Technical Concerns

Could Affect Program Costs and Partner Participation

Page 13 GAO- 03- 1012T Joint Strike Fighter Acquisition program started in
1996. During that time, the expected cost for this phase went from $21.2
billion to $33.1 billion as a result of scope changes and increased
knowledge about cost. According to DOD, partners have not

been required to share any of these costs because the changes were DOD
directed and unrelated to partner actions or requirements. To encourage
partners to share costs where appropriate, the United States has said it
will consider past cost sharing behavior when negotiating MOUs for future
phases of the program. If a partner refuses to share legitimate costs
during the system development and demonstration phase, the United States
can use future phase negotiations to recoup all or part of those costs. In
these

instances, the United States could reduce levies from future sales, refuse
to waive portions of the nonrecurring cost charges for Level III partners,
or in a worst case, choose not to allow further participation in the
program. However, DOD officials have not committed to using these
mechanisms to encourage cost sharing. Therefore, DOD may be forced to
choose between accepting the additional cost burden and asking for
additional partner contributions* which could jeopardize partner support
for the program.

The JSF program is not immune to unpredictable cost growth, schedule
delays, and other management challenges that have historically plagued
DOD*s systems acquisition programs. International participation in the
program, while providing benefits, makes managing these challenges more
difficult and places additional risk on DOD and the prime contractor.
While DOD expects international cooperation in systems acquisition to
benefit future military coalition engagements, this may come at the
expense of U. S. technological and industrial advantages or the overall
affordability of the JSF aircraft. Over the next 2 years, DOD will make

decisions that critically affect the cost, schedule, and performance of
the program. Because Lockheed Martin bears the responsibility for managing
partner industrial expectations, it will be forced to balance its ability
to meet program milestones and collect program award fees against meeting
these expectations* which could be key to securing future sales of the JSF
for the company. In turn, DOD must be prepared to assess and mitigate any
risks resulting from these contractor decisions as it fulfills national
obligations set forth in agreements with partner governments. While some
steps have been taken to position the JSF program for success, given its
size and importance, additional attention from DOD and the program office
would help decrease the risks associated with implementing the
international program. Conclusion

Page 14 GAO- 03- 1012T Joint Strike Fighter Acquisition In the report we
are releasing today, we recommend that DOD ensure that the JSF Program
Office and its prime contractors have sufficient

information on international supplier planning to fully anticipate and
mitigate risk associated with technology transfer and that information
concerning the selection and management of suppliers is available, closely
monitored, and used to improve program outcomes. Toward this end, DOD and
the JSF Program Office need to maintain a significant knowledge base to
enable adequate oversight and control over an acquisition strategy that
effectively designs, develops, and produces the aircraft while ensuring
that the strategy is carried out to the satisfaction of the U. S. services
and the international partners. Tools are in place to provide this
oversight and management, but they must be fully utilized to achieve
program goals.

DOD concurred with our report recommendations, agreeing to (1) ensure that
Lockheed Martin*s JSF international industrial plans are continually
reviewed for technology control, export control, and risk mitigation
issues and (2) work with Lockheed Martin to achieve effective program
oversight when it comes to partner expectations and program goals.

While we commend this proactive response, we note that DOD did not provide
any detail as to the criteria to be employed for reviewing industrial
plans. In addition, DOD did not specify how it plans to collect and
monitor information in suppliers or elaborate on other steps the JSF
Program Office would take to identify and resolve potential conflicts
between partner expectations and program goals.

Through decisions made on the Joint Strike Fighter program today, DOD will
also influence other acquisition programs like the Missile Defense
Agency*s suite of land, sea, air, and space defense systems and the Army*s
Future Combat System. These programs will potentially shape budgetary and
strategic military policy for the long term, and as such, need to use
every tool available for success. Adopting knowledge- based policies and
practices with regard to these critical acquisition programs is an
important first step to ensuring that success.

Page 15 GAO- 03- 1012T Joint Strike Fighter Acquisition Mr. Chairman, that
concludes my statement. I will be happy to respond to any questions you or
other Members of the Subcommittee may have.

For future questions regarding this testimony, please contact Katherine
Schinasi, (202) 512- 4841. Individuals making key contributions to this
testimony include Tom Denomme, Brian Mullins, and Ron Schwenn. Contacts
and

Acknowledgments

(120274)

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