Joint Strike Fighter Acquisition: Cooperative Program Needs
Greater Oversight to Ensure Goals Are Met (21-JUL-03,
GAO-03-775).
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 cost sharing, technology transfer, and partner
expectations for industrial return.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-775
ACCNO: A07594
TITLE: Joint Strike Fighter Acquisition: Cooperative Program
Needs Greater Oversight to Ensure Goals Are Met
DATE: 07/21/2003
SUBJECT: Defense procurement
Financial management
International relations
Program evaluation
Strategic planning
Military aircraft
Joint Strike Fighter
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GAO-03-775
Report to the Chairman, Subcommittee on National Security, Emerging
Threats, and International Relations, Committee on Government Reform,
House of Representatives
United States General Accounting Office
GAO
July 2003 JOINT STRIKE FIGHTER ACQUISITION
Cooperative Program Needs Greater Oversight to Ensure Goals Are Met
GAO- 03- 775
The JSF international program structure is based on a complex set of
relationships involving both government and industry 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 from defined
influence over aircraft requirements, improved relationships with U. S.
aerospace companies, and access to JSF program data.
Yet international participation also presents a number of challenges. For
example, while international partners can choose to share any future
program cost increases, they are not required to do so under the terms of
negotiated agreements. Therefore, the burden of any future increases may
fall almost entirely on the United States. Technology transfer also
presents challenges. The large number of export authorizations needed to
share project information, solicit bids from partner suppliers, and
execute contracts must be submitted and resolved in a timely manner to
ensure that partner industry has the opportunity to compete for
subcontracts and key contracts can be executed on schedule. Transfers of
sensitive U. S. military technologies* which are needed to achieve
aircraft commonality goals* will push the boundaries of U. S. disclosure
policy. While actions have been taken in an attempt to address these
challenges, additional actions are needed to control costs and manage
technology transfer.
Finally, if partners* return- on- investment expectations are not met,
support within their countries could deteriorate. To realize this return-
on- investment, partners expect their industry to win JSF contracts
through competition* a departure from other cooperative programs, which
directly link contract awards to financial contributions. If the prime
contractor*s efforts to meet these 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.
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 cost sharing, technology transfer, and partner
expectations for industrial return.
Information on prime contractor activities is critical to balancing
program schedule goals with partner expectations. Therefore, GAO is
recommending that the Secretary of Defense direct the JSF Program Office
to ensure that international supplier planning fully 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 its comments on a
draft of this report, DOD concurred with the recommendations.
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 775. 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- 775, a report to
the Chairman, Subcommittee on National Security, Emerging Threats, and
International Relations, Committee on Government Reform, House of
Representatives
July 2003
JOINT STRIKE FIGHTER ACQUISITION
Cooperative Program Needs Greater Oversight to Ensure Goals Are Met
Page i GAO- 03- 775 Joint Strike Fighter Acquisition Letter 1 Results in
Brief 1 Background 4 International Participation Adds Complexity and
Benefits to JSF Acquisition Program 6 International Participation
Complicates JSF Program Efforts to
Manage Costs 12 JSF Technology Transfer Presents Challenges for Program
Execution, International Suppliers, and Disclosure Policy 16 Managing
Industrial Participation Expectations 20 Conclusions 24 Recommendations
for Executive Action 25 Agency Comments and Our Evaluation 25 Appendix I
Scope and Methodology 28
Appendix II JSF International Participant Contributions and Benefits 31
Appendix III Comments from the Department of Defense 34
Appendix IV Staff Acknowledgments 36 Acknowledgments 36 Table
Table 1: JSF Partner Financial Contributions and Estimated Aircraft
Purchases 10 Figure
Figure 1: JSF Program Relationships 7 Contents
Page ii GAO- 03- 775 Joint Strike Fighter Acquisition Abbreviations
AECA Arms Export Control Act ATPRG Arms Transfer Policy Review Group C4I
command, control, communications, computers, and intelligence CTOL
conventional take- off and landing DOD Department of Defense GPA global
project authorization IPT integrated product team JSF Joint Strike Fighter
MOU memorandum of understanding NATO North Atlantic Treaty Organization
SDD system development and demonstration STOVL short take- off and
vertical landing This is a work of the U. S. Government and is not subject
to copyright protection in the
United States. It may be reproduced and distributed in its entirety
without further permission from GAO. It may contain copyrighted graphics,
images or other materials. Permission from the copyright holder may be
necessary should you wish to reproduce copyrighted materials separately
from GAO*s product.
Page 1 GAO- 03- 775 Joint Strike Fighter Acquisition July 21, 2003 The
Honorable Christopher Shays Chairman, Subcommittee on National Security,
Emerging Threats, and International Relations Committee on Government
Reform House of Representatives Dear Mr. Chairman: The Joint Strike
Fighter (JSF) program is viewed by many within the Department of Defense
(DOD) to be a model acquisition program, as well as a new model for
cooperative development and production between DOD and U. S. allies. As a
centerpiece for DOD acquisition, the program is intended to produce a next
generation multirole fighter to replace aging U. S. aircraft inventories.
As currently planned, the program is DOD*s most expensive aircraft
program, costing an estimated $200 billion to develop and procure about
2,600 aircraft and related support equipment.
By structuring the JSF program to allow for participation by allied
governments during development and production, DOD expects to defray some
development costs and realize other benefits. To ensure that the
challenges of international participation do not negatively affect overall
development and production of the aircraft, you asked us to review how DOD
is managing the integration of partner countries and suppliers into the
program. Specifically, we identified international relationships and the
benefits they are expected to provide and assessed how DOD is managing
cost sharing, technology transfer, and partner expectations for industrial
participation. (See app. I for an explanation of our scope and
methodology.)
The JSF international program structure is based on a complex set of
relationships involving both government and industry from the United
States and eight other countries. Through negotiated agreements with
partner countries, which define specific roles and responsibilities for
participants, the United States expects to benefit from sharing program
costs, gaining access to foreign industrial capabilities, and improving
interoperability with allied militaries once the aircraft is fielded.
Partner governments expect to benefit through defined influence over
aircraft requirements and improved industrial relationships with U. S.
aerospace
United States General Accounting Office Washington, DC 20548
Results in Brief
Page 2 GAO- 03- 775 Joint Strike Fighter Acquisition companies through
access to JSF contractors and subcontracting competitions. Finally, a
major benefit for partners is having their
personnel physically located within the program office with access to
program information and contractor data.
While the United States expects to realize benefits from partnering with
allies, international participation also presents challenges for JSF
program management. First, while international partners can choose to
share any future program cost increases, they are not required to do so
under the terms of the negotiated agreements. Further, they have not been
required to contribute any additional funding despite changes to the scope
of
the program. To address unexpected cost increases, DOD and the
international partners can request additional program funding through
their budget processes; however, this funding may not be provided. DOD can
also adjust schedule, procurement quantities, or aircraft requirements to
meet program cost concerns, although these actions could negatively affect
partners* procurement plans. Program management tools, provisions in
agreements with partners, and contract incentives for Lockheed Martin
Aeronautics Company (the JSF prime contractor) are being used to contain
costs, but if costs still increase, the burden may fall almost entirely on
the United States. Technology transfer issues also present challenges for
the JSF program.
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. Export authorizations must be submitted
and resolved in a timely fashion, or the execution of key contracts and
the ability of partner suppliers to bid for subcontracts could be
negatively affected. Increased pressure to approve export authorizations
to support program goals and schedules, however, could result in
unintended consequences, such as inadequate reviews of license content or
broad interpretations of disclosure authority. In addition, the extent of
technology transfers necessary to achieve program goals related to
aircraft commonality will push the boundaries of U. S. disclosure policy
for some of the most sensitive U. S. military technology. The JSF Program
Office and/ or Lockheed Martin have attempted to address these challenges
by adding resources to help prepare license applications, exploring ways
to streamline the export authorization process, and attempting to make
decisions on technology transfer earlier in the program. However, Lockheed
Martin has not completed a long- term plan that provides information on
JSF subcontracting. Such a plan could be used to identify export
authorizations needed for international suppliers; anticipate
Page 3 GAO- 03- 775 Joint Strike Fighter Acquisition problems suppliers
could face because of licensing or releasability concerns; and develop
strategies to overcome those problems, such as
finding other qualified suppliers to do the work. Finally, while the JSF
Program Office is responsible for ensuring that program objectives are met
for all participants, Lockheed Martin bears most of the responsibility for
managing partner industrial expectations. Partners have identified
industrial return as vital to their participation in the program. If
return- on- investment expectations are not met, partners told us the
program could lose political support domestically. To realize this return,
partner industry must win JSF contracts through competition, which is a
departure from other cooperative programs that have tied contract awards
directly to partners* financial contributions. The program office and the
prime contractor have a great deal of responsibility for providing a level
playing field for JSF competitions, including opportunities for partner
industries to bid on subcontracts and visibility into the subcontracting
process. If Lockheed Martin*s efforts to meet partner return- on-
investment expectations come into conflict with program cost, schedule,
and performance goals, the program office will ultimately have to make
decisions to balance expectations and program execution. The award fee in
Lockheed Martin*s system development and demonstration contract provides
the program office with a mechanism to focus contractor efforts to achieve
both U. S. and international program goals.
Given these challenges, management attention on the program will need to
be greater than that associated with traditional acquisition programs.
Since DOD and the prime contractor must achieve program cost and schedule
goals that are important to all participants, while managing potentially
competing partner expectations for industrial and
technological cooperation, DOD will need sufficient information about
contractor activities to ensure that it can address these challenges.
Accordingly, we are 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 prime contractor*s selection and
management of suppliers is available, closely monitored, and used so that
award fee decisions address potential conflicts between international and
program goals. In its comments on a draft of this report, DOD concurred
with our recommendations.
Page 4 GAO- 03- 775 Joint Strike Fighter Acquisition According to DOD
policy, the core objectives of armaments cooperation are to increase
military effectiveness through standardization and
interoperability and to reduce weapons acquisition costs by avoiding
duplication of development efforts with U. S. allies. 1 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. The Arms Export Control Act (AECA) provides DOD the
authority to enter into cooperative programs with U. S. allies. 2 In March
1997, the Secretary of Defense directed that DOD engage allies in
discussions as early as possible to determine the parameters of potential
collaboration to meet coalition needs and ensure interoperability between
allied systems. DOD guidance
states that the department will give favorable consideration to transfers
of defense articles, services, and technology consistent with national
security interests to support these international programs. 3 Finally, the
AECA
further provides that when the United States enters into a cooperative
agreement, there should be no requirement for industrial or commercial
compensation that is not specifically stated in the agreement. The DOD
Arms Transfer Policy Review Group (ATPRG) approved the JSF international
plan and established guidelines for the JSF system development and
demonstration negotiations based on the AECA requirement that participants
contribute an equitable share of the costs and receive an equitable share
of the results of a project.
1 Office of the Deputy Under Secretary of Defense (International and
Commercial Programs), International Armaments Cooperation Handbook
(Washington, D. C.: June 1996).
2 Arms Export Control Act (22 U. S. C. sec. 2767). 3 Even before the 1997
guidance, the JSF program and predecessors such as the AV- 8B tactical
aircraft and Joint Advanced Strike Technology programs had heavy
involvement from the government of the United Kingdom and its defense
suppliers. Background
Page 5 GAO- 03- 775 Joint Strike Fighter Acquisition 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 engines for
the JSF aircraft. Currently, this phase will last about 10 years; cost
about $33 billion; and involve large, fixed investments in human capital,
facilities, and materials. The next significant program milestone will be
the
final critical design review, currently planned for July 2005. At that
time, the final aircraft design should be mature and technical problems
should be resolved so that the production of aircraft can begin with
minimal changes expected. 4 Unlike other cooperative programs, the JSF
program will not guarantee
foreign or domestic suppliers a predetermined level of work based on a
country*s financial contribution to the program. Instead, foreign and
domestic suppliers will generally compete for JSF work. DOD and the JSF
Program Office use the term *best value* to describe this competitive
approach. 5 By doing this, the program moved away from the industrial
policies of other cooperative programs that have used work share
arrangements for participation in the development of military items. An
example of a work share arrangement would be guaranteeing that contract
awards for suppliers in a participant country are tied directly to that
country*s level of investment in the program. The recipient benefits not
only from the value of the contracts placed in country but also the
technology transferred as part of those contracts. 6 However, this
approach does not always result in the most cost- effective program. 4 The
design should include precision schematics of the aircraft and components,
based on
the results of testing and a description of material and manufacturing
processes to be used. 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. 6 U. S. General Accounting Office, Defense
Trade: U. S. Contractors Employ Diverse Activities to Meet Offset
Obligations, GAO/ NSIAD- 99- 35 (Washington, D. C.: Dec. 18, 1998).
Page 6 GAO- 03- 775 Joint Strike Fighter Acquisition International
participation in the JSF program adds complexity to an already challenging
acquisition process. However, participation
agreements negotiated between DOD and equivalent partner ministries or
departments do provide potential benefits to all partners. The United
States benefits from financial contributions, increased potential for
international sales of JSF aircraft, and access to partner industry.
Foreign partners benefit from participating in JSF Program Office
activities, accessing JSF technical data, and receiving waivers of
nonrecurring aircraft costs and levies from potential sales of JSF
aircraft. JSF partners also enjoy greater access to program information
than traditional cooperative programs because the JSF program allowed
countries to participate at an earlier stage of the acquisition process.
The JSF program is made up of a complex set of relationships involving
both government and industry from the United States and eight other
countries* the United Kingdom, Italy, the Netherlands, Turkey, Denmark,
Norway, Canada, and Australia (see fig. 1). International
Participation Adds Complexity and Benefits to JSF Acquisition Program
JSF International Program Relationships Are Complex
Page 7 GAO- 03- 775 Joint Strike Fighter Acquisition Figure 1: JSF Program
Relationships
a Figure does not reflect relationships that the prime contractors may
have with suppliers in nonpartner countries.
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 and are
negotiated for each acquisition phase (concept
Page 8 GAO- 03- 775 Joint Strike Fighter Acquisition demonstration, system
development and demonstration, and production). Only the concept
demonstration phase and the system development and
demonstration phase agreements have been negotiated to date, and
participation in one phase does not guarantee participation in future
phases. According to DOD officials, the department also contributes to the
implementation of MOUs by acting as a *court of appeals* to address
partner concerns, including industrial participation issues. Additional
documents provide greater detail and clarity:
Financial management procedures document* describes the financial
management procedures for the MOU supplements, as well as funding streams,
auditing procedures, and other topics.
Program position description* describes the position title, duties,
qualifications, and other information related to all foreign personnel
located in the JSF Program Office.
Exchange of letters* series of formal, signed letters, which emphasize
issues of importance to the United States and JSF partners but are not
specifically mentioned or described in the MOU agreements.
Representatives from partner ministries or departments of defense
participate in senior- level management meetings, including chief
executive officer meetings (chaired by the Under Secretary for
Acquisition, Technology, and Logistics); system acquisition executive
meetings; the senior warfighters group; and the configuration steering
board with DOD, JSF Program Office, and contractor officials. These
meetings offer
opportunities for partner representatives to gain insight into and, in
some cases, influence over the progress of the JSF program, in addition to
that available from partner staff located in the program office, in areas
such as program management, requirements, and aircraft configuration.
Finally, the system development and demonstration framework MOU
establishes
the JSF executive committee, which includes one representative from the
United States and each partner country. This committee provides executive
level oversight for the program, such as reviewing progress toward program
objectives, ensuring compliance with MOU financial provisions, and
resolving program- related issues identified by the JSF international
director.
National deputies act as partner representatives in the JSF Program
Office. They serve as the principal interface between the program office
and the ministries or departments of defense to ensure proper execution of
the system development and demonstration phase MOU and provide support
Page 9 GAO- 03- 775 Joint Strike Fighter Acquisition and guidance on all
country- specific program execution and integration issues. They provide
program information to their ministries or
departments of defense and, in some cases, act as an advocate for industry
in their respective countries. National deputies and other partner staff
also serve functional roles on integrated product teams* multidisciplinary
teams that represent a variety of areas, including systems engineering;
logistics; and command, control, communications, computers, and
intelligence. At an industry level, the prime contractors interact with
the JSF Program
Office through activities in support of their system development and
demonstration contracts and participation on both program office and
contractor integrated product teams and work groups. In addition, the
prime contractors interact with partner government ministries or
departments (including defense, industry, and trade) and JSF partner
personnel in the program office to discuss opportunities for industrial
participation and the results of subcontracting competitions. For example,
prior to the negotiation of the MOUs for the current phase, Lockheed
Martin visited many of the partner countries to provide information on the
aircraft and assess potential interest. In addition, for those countries
expected to participate in the system development and demonstration phase,
Lockheed conducted industry assessments and provided feedback on what
areas suppliers might expect to compete for JSF contracts.
The JSF program allows foreign countries to become program partners at one
of three participation levels, based on financial contribution. As shown
in table 1, the foreign partners have contributed over $4.5 billion, or
about 14 percent, for the system development and demonstration phase and
are expected to purchase about 722 aircraft beginning in the 2012- 2015
time frame. Israel and Singapore have recently indicated their intention
to participate in the program as security cooperation participants, a
nonpartner arrangement, which offers limited access to program
information, without a program office presence. According to DOD, foreign
military sales to these and other nonpartner countries could include an
additional 1,500 to 3,000 aircraft. JSF Program Relationships
Expected to Benefit Both DOD and Allies
Page 10 GAO- 03- 775 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 AECA project certifications to
Congress. a Chart values do not reflect any nonfinancial contributions
from partners (see app. II). 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, whereas
$15 million of Denmark*s $125 million contribution represented the use of
an F- 16 aircraft and related support equipment for future JSF flight
tests and the use of other North Atlantic Treaty Organization (NATO)
command and control assets for a JSF interoperability study. (See app. II
for details on partner contributions and benefits.) For the agreements
negotiated for the system development and
demonstration phase, none of the partner country contribution levels met
the financial targets established in the ATPRG guidelines. In the case of
the United Kingdom, funding was not available to meet the expected
10 percent contribution. The Under Secretary of Defense for Acquisition,
Technology, and Logistics determined that the lower contribution amount
was justified and, in fact, the United States was able to negotiate
concessions concerning rights for the disposal of project equipment and
third- party transfer and sales. Since the United Kingdom was the first
partner to sign, and the only Level I partner, contribution targets for
other partner negotiations were revised proportionately.
Lockheed Martin*s contracts with aerospace suppliers from partner
countries are expected to improve the program because of those
Page 11 GAO- 03- 775 Joint Strike Fighter Acquisition companies* specific
advanced design and manufacturing capabilities. 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.
In return for their contributions, partner countries have representatives
in the program office with access to program data and technology;
membership on the management decision- making bodies; aircraft delivery
priority over future foreign military sales participants; guaranteed or
potential waiver of nonrecurring aircraft costs; 7 potential levies on
future foreign military sales aircraft sold; 8 and improved relationships
for their industry with U. S. aerospace companies through JSF
subcontracting opportunities. For example, the United Kingdom * which is
committed to contribute just over $2 billion in the system development and
demonstration phase * is a Level I full collaborative partner, with
benefits such as
10 staff positions within the JSF Program Office, including senior
positions on integrated product teams;
participation in cost versus performance trade- off and requirement
setting processes, resulting in British military needs being included in
the JSF operational requirements document; and
involvement in final source selection process for the system development
and demonstration contract award. Conversely, the five Level III partners,
which are committed to contribute between $125 million and $175 million,
each have one program office staff member and no direct vote with regard
to requirement decisions.
7 The President of the United States may reduce or waive cooperative
project nonrecurring costs in accordance with the AECA (22 U. S. C. 2761
and 2767). For the JSF program, the Level I and II partners have been
granted a full waiver of these costs; Level III participants will receive
consideration for this waiver. 8 According to DOD, final disposition of
levies and nonrecurring costs for partners will be decided in production
phase MOU negotiations.
Page 12 GAO- 03- 775 Joint Strike Fighter Acquisition All partners have
benefited from increased access to program and contractor information by
virtue of their early involvement in the
program. 9 Specifically, this participation provided partners with
information on the development of aircraft requirements and program costs
and schedules, as well as on design, manufacturing, and logistics.
According to some partner personnel, access to program information often
did not meet their expectations early in the program, but it has improved.
During the concept demonstration phase, data were available to partner
staff based on country- specific projects. In addition, data were only
formally provided through a rigorous, paper- driven document release
process and required authority from JSF senior management. For the system
development and demonstration phase, partner representatives located in
the program office now have access to the database of unclassified program
information, referred to as the JSF Virtual Environment, which contains
the majority of program documents. Partner program office personnel,
regardless of participation level, have equal access to most information.
Some information in the database is available only to U. S. personnel or
through integrated product team participation. 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. Lockheed Martin has a separate document
database called the Joint Data Library that includes information on
contractor activities, but partner access is limited by existing technical
assistance agreements and National Disclosure Policy. Along with the
traditional functions of balancing the requirements for JSF
performance against its established cost and schedule targets, the program
office is tasked with integrating partner government and industry
participants into the program. While initial partner contributions are
beneficial, and critical for political support for the program, there is
no guarantee that additional funding will be available to support future
cost increases should they arise. In addition, even when cost sharing may
be justified, funding may not be available through respective partner
budgetary processes. DOD*s typical response to increased program costs
often results in requesting additional funding, delaying production
schedules, and reducing procurement quantities or system capabilities, but
such actions may negatively affect partner countries. DOD expects
9 Most partners have been involved in the JSF program since the concept
development phase, which began in 1996. International
Participation Complicates JSF Program Efforts to Manage Costs
Page 13 GAO- 03- 775 Joint Strike Fighter Acquisition that specific
provisions in partner MOUs will maximize partner cost sharing when
appropriate and that the use of competitive contracting will minimize cost
increases to the program.
Our past reviews have shown that weapons acquisition programs frequently
encounter increased cost due to questionable requirements, unrealistic
cost estimates, funding instability, and high- risk acquisition
strategies. We reported in October 2001 that the JSF program entered the
system development and demonstration phase with increased cost risk due to
low maturity of critical technologies. 10 Future cost increases, should
they arise in the program, may fall almost entirely on the United States
because there are no provisions in the negotiated agreements requiring
partners to share these increases. Once established, the contributions for
the partners cannot be revised or increased by the United States without
the consent of the partner government as stated in these agreements.
DOD and program office officials told us there could be instances where
the partners would not be expected to share cost increases. For example,
cost estimates for the system development and demonstration phase have
increased on multiple occasions since the 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 program officials and documents, partners have not been
required to share any of these costs because the changes were DOD directed
and unrelated to partner actions or requirements.
The MOU framework does require partners to pay for all development costs
related to meeting unique national requirements. For example, some
partners expect to use weapons that may not be included in the current
JSF operational requirements document and fully expect to bear the cost
associated with integrating them into the aircraft*s design. In such a
case, the United States and other partners are not required to share costs
associated with meeting unique country requirements, unless they agree to
make these requirements part of the baseline aircraft configuration and an
adjustment is made to the baseline aircraft price. 10 U. S. General
Accounting Office, Joint Strike Fighter Acquisition: Mature Critical
Technologies Needed to Reduce Risks, GAO- 02- 39 (Washington, D. C.: Oct.
19, 2001). The JSF Program Office now tracks 23 program level risks* 3 are
low risks, 19 are moderate, and 1 is high. The high risk carried by the
program is related to aircraft weight. JSF Partners May Not
Provide Additional Funding for Program Cost Increases
Page 14 GAO- 03- 775 Joint Strike Fighter Acquisition Historically, DOD
has responded to cost increases by requesting more funding, extending
program schedules, reducing overall program
quantities and aircraft capability, or some combination of these. 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. In the case
of the United Kingdom, the Ministry of Defence is developing a new
aircraft carrier, expected for delivery in 2012, which is planned to carry
JSF aircraft. According to United Kingdom officials, if the aircraft are
not delivered as expected, the carrier might not be able to support
mission scenarios. Further, most of the remaining partners also expect to
receive their JSF aircraft beginning in about the 2012 to 2015 time frame.
Potential
program delays would affect the availability of the aircraft for partner
governments. Finally, if the unit cost increases as a result of DOD*s
actions, the sales price could be higher than expected, and all partners
would be required to pay that additional amount. Current cost estimates
for the program assume that the United States will purchase 2,443 and the
United Kingdom 150 JSF aircraft. 11 DOD and Lockheed Martin are working
with partner countries to determine aircraft needs for all participants,
and they will incorporate this information into formal production phase
planning.
To encourage partners to share costs where appropriate, the United States
can 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.
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, the continued affordability of the
development program and the final purchase price are important for
11 United Kingdom officials told us that for planning purpose it assumes a
JSF buy of up to 150 aircraft. This assumption has not been formalized in
a production MOU with the United States. Tools Available to
Encourage Partner Sharing and Cost Control
Page 15 GAO- 03- 775 Joint Strike Fighter Acquisition partners, and there
is no guarantee that they would automatically contribute to cost overruns,
especially if the increase is attributable to
factors outside their control. Some partner representatives specifically
expressed concern over the tendency of U. S. weapon system requirements to
increase over time, which results in greater risk and higher costs.
Several partner representatives also emphasized that it is important for
the JSF Program Office to continue to use practices such as Cost as an
Independent Variable 12 and iterative requirements definition to address
these concerns. 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, which could affect their overall
support for the program. DOD and the JSF Program Office expect that using
a competitive contracting approach, without prescribed work share for
partner countries, will also assist in controlling JSF costs. DOD
officials stated, and our past work has shown, that cooperative programs,
such as the Army*s Medium Extended Air Defense System, have experienced
cost and schedule problems because such programs focused on meeting
industrial
work share requirements rather than pursuing a cost- effective acquisition
strategy. Coproduction programs, such as the F- 16 Multinational Fighter
Program, that employ traditional work share approaches often experience
cost premiums to the program in terms of increased manufacturing costs
associated with use of foreign suppliers. 13 In contrast, the JSF approach
is expected to award contracts to the most competitive suppliers, and
therefore Lockheed Martin does not believe there will be cost premiums.
However, Lockheed Martin officials told us that due to limited aerospace
capabilities in some of the partner countries, traditional industrial
arrangements might be used in the JSF production phase.
12 A process by which performance requirements are considered in terms of
the established cost targets so that trade- offs in performance
capabilities can be made as necessary. 13 U. S. General Accounting Office,
F- 16 Program: Reasonably Competitive Premiums for European Coproduction,
GAO/ NSIAD- 90- 181 (Washington, D. C.: May 14, 1990) and 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 16 GAO- 03- 775 Joint Strike Fighter Acquisition The transfer of
technology on the JSF program presents a number of challenges related to
program execution, international suppliers, and
disclosure policy. The volume of JSF export authorizations has taxed
Lockheed Martin*s licensing resources, and any delays in the disposition
of future export authorizations could affect the execution of key
contracts and the ability of partner suppliers to bid for subcontracts.
Further, the transfer of technologies necessary to achieve aircraft
commonality goals is expected to far exceed past transfers of advanced
military technology and will push the boundaries of U. S. disclosure
policy. 14 The JSF Program Office and the prime contractor have taken
various steps to mitigate these challenges.
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 licensing officials have indicated that this volume has strained
its JSF program resources. Export authorizations for critical suppliers
need to be planned for, prepared, and resolved in a timely fashion, to
help avoid schedule delays in the program. Without proper planning, there
could be pressure to expedite reviews and approvals of export
authorizations to support program goals and schedules. This could lead to
unintended consequences, such as inadequate reviews of license content or
broad interpretations of disclosure authority. Lockheed Martin*s ability
to forecast its export authorization workload extends out only 3 months
because most licensing resources are already devoted to keeping up with
time critical authorizations. Further, JSF Program Office officials told
us that Lockheed Martin has not yet fulfilled a requirement to complete a
long- term plan that could anticipate the export authorizations
and technology release reviews that will be necessary to execute the
program using international suppliers to design and manufacture key parts
of the aircraft. This plan could also be used to identify problems
suppliers face in executing contracts as a result of licensing or
releasability concerns and develop strategies to overcome those problems,
such as finding other qualified suppliers to do the work.
14 National Disclosure Policy establishes procedures and criteria for
releasing classified or controlled unclassified military information to
other countries. In addition, there are special release processes for
technology, such as stealth. U. S. policy on the release of stealth-
related data and technology is contained in DOD Instruction S5230.28. JSF
Technology
Transfer Presents Challenges for Program Execution, International
Suppliers, and Disclosure Policy
Timing and Volume of Export Authorizations Could Affect Program Execution
and International Suppliers
Page 17 GAO- 03- 775 Joint Strike Fighter Acquisition Timely export
authorizations are 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. Further, one partner told us that export
license delays have had a negative effect on the participation of its
companies because some U. S. companies have been reluctant to undertake
the bureaucratic burden to allow the participation of a foreign company
and some partner companies have been unable to bid due to the time
constraints involved in securing an export license.
DOD, the JSF Program Office, and Lockheed Martin have taken several
actions to mitigate the challenges presented by export authorization
delays:
The JSF Program Office and Lockheed Martin have established a process to
coordinate export authorization applications before they are submitted to
the Department of State for review. This process is intended to reduce
review times by ensuring that the export request clearly describes the
data or technology that would be transferred and by addressing potentially
contentious issues related to sensitive transfers. In addition, Lockheed
Martin has added resources to its licensing organization to respond to the
volume and schedule demands of JSF export authorizations.
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 unclassified technical data* from the
Department of State. 15 The GPA is expected to lessen the administrative
burden and improve the consistency of and processing times for routine
export authorizations. The Departments of State and Defense and Lockheed
Martin agreed to the scope of the information that could be exported using
this authorization and the conditions for those exports up front. The
Department of State expects to process GPA implementing agreements in 5
days, provided there is no need to refer them to other agencies or offices
for review.
15 The JSF global project authorization 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.
Page 18 GAO- 03- 775 Joint Strike Fighter Acquisition 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 implementing agreement
between Lockheed Martin and a company in a partner country was reviewed
and approved in 4 business days.
Prior to the GPA, Lockheed Martin and 13 other U. S. suppliers were
granted an exemption by the U. S. Air Force from the export authorization
requirements that govern the release of unclassified technical data to
suppliers from NATO and certain other countries, including Australia, for
bid and proposal purposes. This exemption expires in March 2004. Lockheed
Martin also uses a country- specific exemption to transfer technical data
to Canada. 16 Finally, as a NATO Defense Capabilities Initiative
program, partner
countries and companies participating in the program, including Australia,
can take advantage of expedited review processes for certain types of
export licenses. Under these expedited procedures, the Department of State
promises to complete its reviews of license applications in 10 days, and
if it requests comments on a license from DOD or other government
agencies, those reviews should be completed in 10 days as well.
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. 17 In some cases, according to DOD, the program has
requested exceptions from National Disclosure Policy to achieve
interoperability and aircraft commonality goals and to avoid additional
development costs. Some DOD officials confirmed 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
16 U. S. General Accounting Office, Defense Trade: Lessons to Be Learned
from the Country Export Exemption, GAO- 02- 63 (Washington, D. C.: Mar.
29, 2002). 17 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. Degree of
Technology
Transfer Will Stretch Current Disclosure Boundaries
Page 19 GAO- 03- 775 Joint Strike Fighter Acquisition to meet program
schedules without placing undue pressure on the release process. However,
there have been some initial problems executing this
strategy. An official at the Defense Technology Security Administration,
one of the offices responsible for technical assessments of disclosure and
export authorization requests, stated that even though the JSF program has
a plan to manage releasability issues and the National Disclosure Policy
process, the office does not always receive information related to these
issues in a timely manner. In addition, one partner has expressed concern
about the pace of information sharing and decision making related to the
JSF support concept. According to several partners, access to technical
data is needed so that they can plan for and develop a sovereign support
infrastructure as expressed in their formal exchange of letters with the
United States. The program office anticipates that in- country support of
JSF aircraft will be an issue for all partners and will involve both
technology transfer and industrial considerations. The JSF support concept
is currently being developed, with input from the U. S. military services
and international partners.
DOD, the JSF Program Office, and Lockheed Martin have taken a number of
actions designed to mitigate the challenges presented by the transfer of
technologies on the program.
In February 2002, the program office modified Lockheed Martin*s system
development and demonstration contract to include a study on the expected
commonality between U. S. and partner JSF aircraft. The objective of this
study is to develop a partner JSF aircraft specification that is as common
to the U. S. specification as possible under National Disclosure Policy.
This effort allows the program to pursue early releasability decisions,
which mitigates the risk of putting undue schedule pressure on the
process. Lockheed Martin did not deliver the partner specification to the
program office as planned in March 2003, and it now expects to deliver the
specification in August 2003. To identify and resolve expected
technical, security, and policy issues
for the overseas sale and cooperative development of JSF aircraft, the
program chartered an international development work group. The core of
this group consists of program office and contractor personnel, as well as
individuals from the Air Force*s Office of International Affairs and
Special Programs, Marine Corps Requirements, and Navy International
Programs. The group was chartered 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.
Page 20 GAO- 03- 775 Joint Strike Fighter Acquisition In February 2003,
the JSF Program Office received direction from the Low Observables/
Counter Low Observables Executive Committee to
appoint a JSF export compliance officer. The purpose of this position is
to ensure that releasability decisions and export licensing provisos or
conditions are fully implemented and adhered to by the program and applied
to JSF configurations as required.
As required by DOD acquisition regulations, the JSF program has
identified critical program information, and Lockheed Martin is developing
a plan to prevent unauthorized disclosure or inadvertent transfer of
leading- edge technologies and sensitive data or systems. To reduce cost
and integrate appropriate measures into the JSF design, this effort is
being undertaken as a systems engineering activity. During this phase of
the program, technology protection measures have to be demonstrated,
operationally tested, and made ready for production. DOD officials have
stated that the program*s progress on this plan has been slow. Given that
releasability decisions should consider the measures mentioned above,
timely completion of this plan is important for long- term program
planning.
Finally, the JSF Program Office established an exchange of letters work
group with participation from selected program office and Lockheed Martin
integrated product teams, and partner representatives when appropriate.
The current focus of this group is to address partner goals related to in-
country support of the aircraft. In addition, the JSF autonomic logistics
integrated product team is conducting trade studies to further define a
global support solution for worldwide support to start to address these
issues. According to program officials, this strategy will identify the
best approach for maintaining JSF aircraft, and may include logistics
centers in partner countries. Followon 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.
In the JSF program, the prime contractor is responsible for managing
industrial participation. Lockheed Martin provides partners with return-
on- investment expectations, opportunities for qualified bidders to
compete for JSF contracts, and visibility into the subcontracting process
for the program. Partners have identified industrial return as one of the
primary reasons for their participation in the program. If partners do not
realize their expectations, they can choose to leave the program and/ or
not Managing Industrial
Participation Expectations
Page 21 GAO- 03- 775 Joint Strike Fighter Acquisition purchase the
aircraft* both negative consequences for DOD. But, if Lockheed Martin*s
efforts to meet partner return- on- investment
expectations come into conflict with program cost, schedule, and
performance goals, this could have a negative effect as well. Therefore,
the JSF Program Office will ultimately have to make decisions to balance
partner expectations and program execution.
Partner representatives generally agreed with the JSF competitive approach
to contracting, but cautioned that while it is too early to assess
results, their industries* ability to win JSF contracts and participate in
design and development is vital to their continued involvement in the
program. In addition, some partners stated that retaining political
support for the program in their countries will depend, in large part, on
winning contracts whose total value approaches or exceeds their financial
contributions for the JSF system development and demonstration phase. In
addition to the amount of work placed in a partner country, partners have
expectations about the timing of contracts and/ or which companies in
their countries win contracts. If return- on- investment and other
expectations are not met, partners could decide to leave the program and
not purchase the aircraft. 18 If a partner decided to leave the program,
DOD would be deprived of anticipated development funding and an
opportunity to improve interoperability among U. S. allies, while Lockheed
Martin could be faced with lower than projected international sales. Other
cooperative programs provide for industrial participation
commensurate with the financial contributions of the partners. In
contrast, the JSF MOU provides that, to achieve *best value for money,*
DOD will require contractors to select subcontractors on a competitive
basis to the maximum practical extent. To support this approach, Lockheed
Martin has taken the following steps to manage partner return- on-
investment expectations, identify opportunities for qualified bidders to
compete for JSF contracts, and provide visibility into the subcontracting
process for the program:
To manage partner return- on- investment expectations, Lockheed Martin
sent teams of engineers and business development personnel to partner
countries and assessed suppliers* ability to compete for JSF
18 Most partners have a clause in their supplement MOUs that allows for
withdrawal from this phase of the program if industrial participation is
not satisfactory. Management of Partner
Expectations Is Critical for Program Success
Page 22 GAO- 03- 775 Joint Strike Fighter Acquisition contracts. In some
cases, Lockheed Martin 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 program office officials told us that these
agreements were necessary to secure political support in certain countries
because the U. S. government does not guarantee that the partners will
recoup their investment in the program through contracts with their
industry. 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 these agreements, DOD was supportive
of their use during partner negotiations. DOD officials conceded that the
agreements contained in these documents departed from the competitive
approach, but expressed the hope that the use of these agreements would
not be widespread.
In response to partner concerns about the slow pace of contract awards,
Lockheed Martin has stated that the bulk of the remaining subcontracting
with partner industry will come later in the current phase or during the
production phase, especially in countries where the aerospace industry is
less developed and contracts are more likely to be awarded for build- to-
print or second- source manufacturing.
To provide visibility into the subcontracting process, Lockheed Martin,
the JSF program manager, DOD, or a combination of the three have provided
explanations of how sourcing decisions were made after partner governments
raised concerns on behalf of suppliers about the results of competitions.
These governments were told that suppliers submitted bids far above the
competitive range and thus were not selected. In addition, DOD, JSF
Program Office, and Lockheed Martin personnel provided feedback to the
partners concerning how to approach future competitions.
The award fee structure of Lockheed Martin*s contract permits the JSF
Program Office to establish focus criteria applicable to specific
evaluation periods. To help ensure partner industries are provided
opportunities to compete for JSF subcontracts, the program office
established focus criteria concerning subcontract competition for the
evaluation period between November 1, 2002, and April 30, 2003. Lockheed
Martin was judged on its ability to (1) provide partners regular insight
into subcontracting opportunities, (2) encourage its major suppliers to
consider partner suppliers on a competitive basis, and (3) acquire needed
export authorizations in a timely manner to support competitions. In
response, Lockheed Martin has developed a
Page 23 GAO- 03- 775 Joint Strike Fighter Acquisition database to track
contract opportunities, especially for international suppliers and U. S.
small businesses, and provides monthly summaries
of industrial participation to partner personnel in the program office.
These summaries include the names of suppliers, contracts for which they
will be eligible to bid, bid and proposal dates, status of contracts
awarded, and the status of supplier export authorizations. This database
will assist DOD in meeting MOU requirements to provide visibility into JSF
subcontracting efforts.
Further, some partners have concerns about some aspects of the
competition, including delays in getting U. S. export licenses and
reluctance by a major supplier to provide opportunities to industry in a
partner country. If competition for contracts is not implemented in a
manner consistent with partner expectations, partners* continued support
for the program could be jeopardized.
JSF industrial relationships are solely developed between U. S.
contractors and partner country industry. After deciding to award work to
foreign and domestic companies based on competition, instead of the share
of program costs contributed, DOD and the JSF Program Office have left
implementation of this competitive approach to Lockheed Martin under the
standard Federal Acquisition Regulation clause related to competition in
subcontracting. 19 Lockheed Martin officials told us their approach for
supplier selection is based on factors such as a supplier*s ability to
incorporate a management approach that is responsive to maintaining JSF
schedules, reducing design and production cost within acceptable risk
levels, developing a solid technical approach with opportunities for
technology improvements, reducing aircraft size and weight, and increasing
aircraft performance. They further told us that this approach is being
implemented without regard to a supplier*s country of origin, with U. S.
and international suppliers competing equally. 20 Lockheed Martin
concluded that awarding subcontracts in this manner would help achieve
program affordability goals and avoid pressure from partners to guarantee
contract awards consistent with their monetary contributions to the
program.
19 Federal Acquisition Regulation 52.244- 5, Competition in
Subcontracting. This clause requires contractors to select subcontractors
on a competitive basis to the maximum practical extent consistent with the
objectives and requirements of the contract.
20 Lockheed Martin officials told us that in some cases competitions would
be waived for *heritage* suppliers* suppliers with whom Lockheed Martin
has had a long- standing industrial relationship.
Page 24 GAO- 03- 775 Joint Strike Fighter Acquisition Program officials
told us that since the award fee emphasizes overall affordability, program
management, technical progress, and development
cost control, it should incentivize Lockheed Martin to perform
subcontracting activities on a competitive basis. If, during its regular
monitoring of contract execution, the program office identifies the need
for more emphasis in a certain area* such as reducing aircraft weight or
providing opportunities to international suppliers* it can address this
concern through the contract*s award fee process. 21 While the program
office has used an award fee focus letter to encourage Lockheed Martin to
provide a competitive environment, it has not evaluated whether
competitive results have been achieved.
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 will 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 the key in 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 steps have been taken to position the program for
success, given the size and importance of the program, additional
attention on the part of DOD and the program office would help minimize
the risks associated with implementing the international program. 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 21 Lockheed Martin*s contract for the current JSF
phase provides no base fee; instead, it
calls for a potential award fee of almost $2.5 billion, or 15 percent of
the total contract value. The exact amount of the fee is determined by the
program office, based on subjective criteria related to Lockheed Martin*s
ability to achieve development and unit
cost control, program management, and technical development goals and
milestones. Conclusions
Page 25 GAO- 03- 775 Joint Strike Fighter Acquisition 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. To
provide greater knowledge, which anticipates decisions needed as the JSF
program matures, we recommend that the Secretary of Defense direct the JSF
Program Office to ensure that the Lockheed Martin international industrial
plan
identifies current and potential contracts involving the transfer of
sensitive data and technology to partner suppliers;
evaluates the risks that unfavorable export decisions could pose for the
program; and
develops alternatives to mitigate those risks, such as using U. S.
suppliers.
We also recommend that the Secretary direct the JSF Program Office to
ensure that information concerning the prime contractor*s selection and
management of suppliers be collected, closely monitored, and used for
program oversight. This oversight should include identifying potential
conflicts between partner expectations and program goals, developing focus
letters that encourage Lockheed Martin to resolve these conflicts, and
making award fee determinations accordingly.
DOD provided us with written comments on a draft of this report. These
comments are reprinted in appendix III. DOD provided separate technical
comments, which we incorporated as appropriate.
DOD concurred with our recommendation that the Secretary of Defense direct
the JSF Program Office to ensure that the Lockheed Martin international
industrial plan identifies current and potential contracts involving the
transfer of sensitive data and technology to partner suppliers, evaluates
the risks that unfavorable export decisions could pose for the program,
and develops alternatives to mitigate those risks. DOD did raise a concern
about our suggestion that using U. S. suppliers was one way to avoid the
risks that unfavorable export decisions could pose for the program. In
particular, DOD stated it could undermine the program*s affordability
goals. However, we believe that due to the level of advanced
Recommendations for
Executive Action Agency Comments and Our Evaluation
Page 26 GAO- 03- 775 Joint Strike Fighter Acquisition technology on the
JSF program, affordability goals must be considered in the context of
protecting some of the most sensitive U. S. technologies* those vital to
maintaining U. S. technical superiority. This means that
technology transfer considerations must be part of the sourcing process.
If contracts are awarded without identifying and addressing technology
transfer issues, the protection of sensitive technology or the execution
of those contracts could be compromised. For example, if a contract is
awarded to a partner supplier, an export decision that subsequently
prohibits or places conditions on the transfer of controlled data or
technology to that company could adversely affect its ability to execute
the contract. If mitigation options have not been identified, the likely
outcome is pressure on the export control system to approve broader export
authorizations in support of program goals. In other cases where
technology transfer concerns have not been anticipated or addressed, JSF
contractors could be forced to re- source work, which could also undermine
not only affordability but other goals, such as meeting program schedule.
The international industrial plan referenced in our recommendation can
help alleviate these potential pressures by identifying alternatives, one
of which would be identifying potential U. S. suppliers in cases where
technology transfer is a concern. In its comments, DOD states that
mitigating risk in this manner could require the dual sourcing of specific
JSF contracts. This is not necessarily the case. Again, ideally, these
technology transfer issues would be anticipated before a development or
production contract is competed or awarded. With this knowledge, the JSF
Program Office and Lockheed Martin could suggest adjustments to work
packages or bidders* lists if the technology or companies in question are
likely to raise export control concerns. Regardless, the end result
could still be the selection of a single source* one that advances
affordability and protects sensitive U. S. technology.
DOD also concurred with our recommendation that the Secretary of Defense
direct the JSF Program Office to ensure that information concerning the
prime contractors* selection and management of suppliers is collected,
closely monitored, and used for program oversight. In its comments, DOD
stated that the JSF Program Office would work closely with Lockheed Martin
to achieve effective program oversight with regard to partner expectations
and program goals. However, DOD did not specify how it plans to collect
and monitor this information or elaborate on other steps the JSF Program
Office would take to identify and resolve potential conflicts between
partner expectations and program goals.
Page 27 GAO- 03- 775 Joint Strike Fighter Acquisition We are sending
copies of this report to interested congressional committees; the
Secretary of Defense; the Secretaries of the Navy and the
Air Force; the Commandant of the Marine Corps; and the Director, Office of
Management and Budget. We will also make copies available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at http:// www. gao. gov. If you or your staff have any
questions regarding this report, please contact me at (202) 512- 4841. Key
contributors to this report are listed in appendix IV. Sincerely yours,
Katherine V. Schinasi, Director Acquisition and Sourcing Management
Appendix I: Scope and Methodology Page 28 GAO- 03- 775 Joint Strike
Fighter Acquisition Our objective was to review how the Department of
Defense (DOD) is managing the integration of partner countries and
suppliers into the Joint Strike Fighter (JSF) program. Specifically, we
identified international
relationships and the benefits they are expected to provide and assessed
how DOD is managing cost sharing, technology transfer, and partner
expectations for industrial return. To conduct our work, we reviewed
various guidance and agreements related to the JSF program. We also
interviewed cognizant government officials and industry experts, including
those in several JSF partner countries.
To determine what relationships are necessary to integrate international
partners into the program, we identified and examined documents related to
JSF international arrangements and agreements, including information from
DOD; the JSF Program Office in Arlington, Virginia; and the Lockheed
Martin Aeronautics Company in Fort Worth, Texas. Specifically, we obtained
documents from the Office of the Under Secretary of Defense (Acquisition,
Technology, and Logistics), the Department of State (Office of Defense
Trade Controls), the Secretary of the Air Force (International Affairs),
the Navy International Programs Office, and the Department of Commerce
(Bureau of Industry and Security). We discussed the guidance and processes
for developing and negotiating agreements for international participation
with officials from each of these offices. We also obtained and reviewed
signed copies of the memoranda of understanding (MOU) and other documents
that outline the agreed upon conditions between the United States and each
partner nation. To understand the JSF international program structure in
the context of other DOD cooperative
development programs, we reviewed reports and documentation on programs
such as the F- 16 Multinational Fighter Program, the Medium Extended Air
Defense System, and the Multiple Launch Rocket System and discussed this
information with DOD, contractor, and international personnel with
experience on those programs.
For specific information on cost sharing within the program, we reviewed
MOUs and related documents and discussed this issue with the Office of the
Under Secretary of Defense (Acquisition, Technology, and Logistics) *
International Cooperation, JSF Program Office international directorate
and contracts; and Lockheed Martin international program officials.
To determine how the program is responding to technology transfer
concerns, we reviewed documentation on U. S. National Disclosure Policy
and related guidance. In addition, we spoke to officials in DOD, the
Departments of State and Commerce, the JSF Program Office, and Lockheed
Martin. Within DOD, we collected data on sensitive technology Appendix I:
Scope and Methodology
Appendix I: Scope and Methodology Page 29 GAO- 03- 775 Joint Strike
Fighter Acquisition areas and spoke to representatives from the Defense
Technology Security Administration, the Office of the Under Secretary of
Defense (Acquisition,
Technology, and Logistics) Directorate of Special Programs, and the Office
of the Air Force Under Secretary for International Affairs (Foreign
Disclosure and Technology Transfer Division) to determine the extent to
which the JSF program considered these concerns in its approach. We
reviewed the JSF program protection plan and spoke with Lockheed
Martin and program office security personnel to determine how the program
implements this plan and other mechanisms related to foreign disclosure
and technology transfer.
To assess the JSF approach to managing international partner expectations,
we reviewed various sources of information on other U. S. cooperative
development programs, including our past reports, to determine potential
challenges for the international program and discussed these challenges
with officials from the Office of the Secretary of Defense, the JSF
Program Office, Lockheed Martin, and other personnel as necessary. We
reviewed program documentation and procedures for addressing these
challenges and spoke with key staff from the Office of the Secretary of
Defense, the JSF Program Office International Directorate, and Lockheed
Martin JSF International Programs on issues regarding implementation of
their management approach.
To determine and assess the position of international participants in the
program, we obtained the direct views of officials from the partner
countries. First, we conducted structured interviews with the National
Deputies from the partner countries represented in the JSF Program Office.
These officials were both civilian and military personnel and provided
information in areas related to their countries* involvement in the
program, including expected benefits, experience with other cooperative
programs, presence in the JSF Program Office and contractor locations,
industry participation in the program, cost sharing, experience with the
U. S. export licensing process, and technology transfer. The results of
interviews were documented and verified with each of the national deputies
and their respective governments for accuracy. One country elected to
provide written responses to the interview questions we submitted. In
addition, we visited government and industry representatives in London and
Bristol, United Kingdom; Rome, Italy; and The Hague, Netherlands. We
discussed JSF program participation with senior defense
officials in each of these three countries to assess their views on the
overall progress and success of the program to date. Finally, we visited
and discussed our review objectives with officials from BAE Systems and
Appendix I: Scope and Methodology Page 30 GAO- 03- 775 Joint Strike
Fighter Acquisition Rolls Royce in the United Kingdom, who are major
suppliers to the JSF prime contractors.
We performed our work from February 2002 to May 2003 in accordance with
generally accepted government auditing standards.
Appendix II: JSF International Participant Contributions and Benefits
Page 31 GAO- 03- 775 Joint Strike Fighter Acquisition Value of
contributions National
deputy JSF Program Office staff Data use rights Benefits during
production Level I partner United Kingdom U. S. target: approximately 10
percent or $2.5 billion
Negotiated contribution: $2.056 billion
At the director level reports to the JSF program manager
Ten fully integrated staff, including the deputy director of the systems
engineering integrated product team
JSF purposes: includes use for the performance of project activities under
SDD MOUs and future efforts by the United Kingdom (either collaboratively,
nationally, or under U. S. foreign military sales arrangements) for the
design, development, manufacture, operation, and support of any JSF
aircraft
Delivery priority based on level of SDD contributions
Waiver of all nonrecurring research and development costs
Levies from sales to nonpartners based on level of SDD contributions
Level II partner Italy U. S. target: approximately 5 percent or $1.25
billion
Negotiated contribution: $1.028 billion
Reports to the JSF international director
Five integrated staff, including a logistics manager on the autonomic
logistics integrated product team
Italian Ministry of Defense JSF purposes: includes use for the performance
of project activities under SDD MOUs and future efforts by the Italian
Ministry of Defense (either collaboratively, nationally, or under U. S.
foreign military sales arrangements) for the design, development,
manufacture, operation, and support of the JSF CTOL and STOVL variants
Delivery priority based on level of SDD contributions
Waiver of all nonrecurring research and development costs
Levies from sales to nonpartners based on level of SDD contributions
Netherlands U. S. target: approximately 5 percent or
$1.25 billion
Negotiated contribution: $800 million
Reports to the JSF international director
Three integrated staff CTOL purposes: includes use for the performance of
project activities under SDD MOUs and future efforts by the Netherlands
(either collaboratively, nationally, or under U. S. foreign military sales
arrangements) for the design, development, manufacture, operation, and
support of the JSF CTOL and F- 16 aircraft
Delivery priority based on level of SDD contributions
Waiver of all nonrecurring research and development costs
Levies from sales to nonpartners based on level of SDD contributions
Appendix II: JSF International Participant Contributions and Benefits
Appendix II: JSF International Participant Contributions and Benefits
Page 32 GAO- 03- 775 Joint Strike Fighter Acquisition Value of
contributions National
deputy JSF Program Office staff Data use rights Benefits during
production Level III Partner Turkey U. S. target: approximately 1- 2
percent or $250- 500 million
Negotiated contribution: $175 million
Reports to the JSF international director
One integrated staff, who performs both national deputy duties and
participates on the C4I IPT
Project purposes: includes use for the performance of project activities
under SDD MOUs
Delivery priority based on level of SDD contributions
Consideration for waiver of all nonrecurring research and development
costs
Levies from sales to nonpartners based on level of SDD contributions
Australia U. S. target: approximately 1- 2 percent or $250- 500 million
Negotiated contribution: $150 million
Same as above One integrated staff, who performs both national deputy
duties and participates on the C4I IPT
Same as above Same as above Canada U. S. target:
approximately 1- 2 percent or $250- 500 million
Negotiated contribution: $150 million
Same as above One integrated staff, who performs both national deputy
duties and participates on the C4I IPT
Same as above Same as above Denmark U. S. target:
approximately 1- 2 percent or $250- 500 million
Negotiated contribution: $125 million
Same as above One integrated staff, who performs both national deputy
duties and participates on the C4I IPT
Same as above Same as above Norway U. S. target:
approximately 1- 2 percent or $250- 500 million
Negotiated contribution: $125 million
Same as above One integrated staff, who performs both national deputy
duties and participates on the C4I IPT
Same as above Same as above
Appendix II: JSF International Participant Contributions and Benefits
Page 33 GAO- 03- 775 Joint Strike Fighter Acquisition Value of
contributions National
deputy JSF Program Office staff Data use rights Benefits during
production Security Cooperation Participant Israel Approximately $50
million spread
over two phases None None Assessment of JSF*s ability to meet Israeli
Ministry of Defense requirements
Studies on incorporation of unique Israeli systems
Program updates on the design, development, and qualification of the JSF
aircraft
Opportunity to request purchase of a version of the JSF aircraft
Delivery priority based on level of SDD contributions
Singapore Approximately $50 million spread over two phases None None
Assessment of JSF*s
ability to meet the requirements of the Singapore Ministry of Defense
Studies on incorporation of unique requirements of the Singapore
Ministry of Defense
Program updates on the design, development, and qualification of the JSF
aircraft
Opportunity to request purchase of a version of the JSF aircraft
Delivery priority based on level of SDD contributions
Legend C4I IPT = command, control, communications, computers, and
intelligence integrated product team CTOL = conventional take- off and
landing
JSF = Joint Strike Fighter LOA = letter of offer and acceptance MOU=
memorandum of understanding SDD = system development and demonstration
STOVL = short take- off and vertical landing Source: GAO*s summary of JSF
MOUs and letters of intent.
Appendix III: Comments from the Department of Defense
Page 34 GAO- 03- 775 Joint Strike Fighter Acquisition Appendix III:
Comments from the Department of Defense
Appendix III: Comments from the Department of Defense Page 35 GAO- 03- 775
Joint Strike Fighter Acquisition
Appendix IV: Staff Acknowledgments
Page 36 GAO- 03- 775 Joint Strike Fighter Acquisition Tom Denomme, Brian
Mullins, Ron Schwenn, Anne Howe, Delores Cohen, Karen Sloan, and Robert
Ackley made key contributions to this report.
Appendix IV: Staff Acknowledgments Acknowledgments
(120120)
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