Tactical Aircraft: Opportunity to Reduce Risks in the Joint	 
Strike Fighter Program with Different Acquisition Strategy	 
(15-MAR-05, GAO-05-271).					 
                                                                 
Under the Ronald W. Reagan National Defense Authorization Act of 
2005, GAO is required to to review the Joint Strike Fighter (JSF)
program annually for the next 5 years. This is the first GAO	 
report, and it (1) analyzes the JSF program's business case for  
delivering new capabilities to the warfighter and (2) determines 
whether the JSF program's acquisition strategy follows an	 
evolutionary, knowledge-based approach. Also, the act requires	 
GAO to certify whether we had access to sufficient information to
make informed judgments on the matters contained in our report.  
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-271 					        
    ACCNO:   A19357						        
  TITLE:     Tactical Aircraft: Opportunity to Reduce Risks in the    
Joint Strike Fighter Program with Different Acquisition Strategy 
     DATE:   03/15/2005 
  SUBJECT:   Accountability					 
	     Cost overruns					 
	     Defense budgets					 
	     Defense capabilities				 
	     Defense cost control				 
	     Financial management				 
	     Internal controls					 
	     Military aircraft					 
	     Program evaluation 				 
	     Schedule slippages 				 
	     Performance measures				 
	     Cost analysis					 
	     Defense procurement				 
	     Risk management					 
	     DOD Quadrennial Defense Review			 
	     Joint Strike Fighter				 
	     F/A-22 Aircraft					 
	     Patriot PAC-3					 
	     Comanche Helicopter				 

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GAO-05-271

                 United States Government Accountability Office

                     GAO Report to Congressional Committees

March 2005

TACTICAL AIRCRAFT

 Opportunity to Reduce Risks in the Joint Strike Fighter Program with Different
                              Acquisition Strategy

                                       a

GAO-05-271

[IMG]

March 2005

TACTICAL AIRCRAFT

Opportunity to Reduce Risks in the Joint Strike Fighter Program with Different
Acquisition Strategy

  What GAO Found

Several program changes have made the original JSF business case
unexecutable. Since initial estimates in 1996, development costs have
grown over 80 percent, or $20 billion. Program acquisition unit costs have
increased by 23 percent, or $19 million, since 2001. In addition, delivery
of the first JSFs to the warfighter has been delayed 2 years so far.
Continued program uncertainties make it difficult to estimate the
resources needed for the program. For example, the full impact of recent
aircraft design changes on the program may not be fully understood for
some time, and the Navy, Air Force, and Marines-the program's primary
customers-have not determined the number of aircraft they expect to buy.
Given the uncertainties, the program could use more time to gain knowledge
before moving forward. DOD will also be challenged to deliver on future
business case agreements if program accountability continues to be
compromised by frequent changes in program management.

Original and Latest Development Cost Estimates Dollars in billions

50

40

30

20

10

0

Fiscal year Original estimate Latest estimate

Source: GAO analysis of DOD data.

The program's current acquisition strategy does not follow a
knowledgebased, evolutionary approach as dictated by best practices and
DOD policy. Such a strategy is key to successfully executing a new JSF
business case. However, JSF preliminary plans call for the developer to
manufacture about 20 percent of the JSF fleet in the low-rate initial
production phase-at a cost of about $50 billion-while still developing JSF
technologies and integrating and demonstrating the product design, making
cost and schedule increases likely. To achieve low-rate production
capacity, DOD will need to invest in personnel, facilities, and
tooling-increasing its production investment from $100 million a month in
2007 to $1 billion a month in 2013---before flight testing is completed.
Problems discovered late in flight tests could result in further cost
increases and delivery delays, as well as reduced quality and reliability.
To execute its strategy, the JSF program will need to compete with other
large programs for scarce funding, which could be a significant challenge
because JSF's funding profile assumes an unprecedented $225 billion over
the next 2 decades-an average of $10 billion a year. Finally, the strategy
assumes the use of a cost reimbursement contract for initial production,
placing a high burden of risk on the government, given the large number of
aircraft.

1994199519961997

        1998199920002001200220032004200520062007200820092010201120122013

                 United States Government Accountability Office

Contents

Letter

Results in Brief
Background
More Resources Are Now Needed to Deliver Planned Capabilities
JSF's Current Acquisition Strategy May Not Provide for Successful

Program Execution Conclusions Recommendations for Executive Actions Agency
Comments and Our Evaluation 1

2 4 6

14 24 25 26

Appendix I Comments from the Department of Defense

Appendix II Scope and Methodology

Appendix III	Projected Time Frames for Demonstration of Critical
Technologies

        Appendix IV Measures of JSF Program Cost and Schedule Changes 38

Tables

Table 1: Military Services' Planned Use for the Joint Strike Fighter 5
Table 2: Changes in JSF Program Purchase Quantities, Costs, and

Delivery Estimates 7 Table 3: Changes in Unit Flyaway Cost for JSF
Variants 10 Table 4: Knowledge Attainment on JSF Program at Critical

Junctures 17

Figures

Figure 1: Development Costs 9 Figure 2: Changes to the Program Schedule 11
Figure 3: JSF Acquisition Approach Compared with Best Practices

Approach for an Evolutionary, Knowledge-Based

Acquisition Process 15

Figure 4: Overlap of JSF Low-Rate Production and System

Development and Demonstration Activities 21 Figure 5: JSF Program's Annual
Funding Requirements 23

Abbreviations

DOD Department of Defense
JSF Joint Strike Fighter
OSD Office of the Secretary of Defense

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separately.

United States Government Accountability Office Washington, DC 20548

March 15, 2005

Congressional Committees

The Joint Strike Fighter (JSF) program is the Department of Defense's
(DOD) most costly aircraft acquisition. The program's goals are to develop
and field more than 2,400 stealthy strike fighter aircraft for the Navy,
Air Force, and Marine Corps and potentially several hundred more aircraft
for U.S. allies. The JSF is intended to provide greater capability and to
replace DOD's aging fighter and attack aircraft. DOD estimates that the
total cost to develop and procure its fleet of aircraft will reach $245
billion, with total costs to maintain and operate the JSF adding another
$344 billion over its life cycle. This expense must be measured against
other DOD and national priorities as the government moves into lean budget
years. The JSF will be competing for a decreasing share of the federal
budget available for "discretionary" spending. This includes defense
spending and is in contrast to "mandatory" spending, such as Social
Security and Medicare/Medicaid. In fiscal year 2004, discretionary
spending accounted for about 39 percent of the federal budget. The
Congressional Budget Office projects that discretionary spending, as a
percentage of the overall budget, is likely to decrease in the future.1

Since the program began, in November 1996, it has experienced technical
challenges that have resulted in significant cost increases and schedule
overruns. During most of 2004, program officials worked to understand and
define current development risks in order to prepare more accurate cost
and delivery estimates. The upcoming investment decisions to begin
manufacturing development prototypes and to begin long-lead funding for
production aircraft in 2006 will be prominent indicators of the risk DOD
is willing to accept as the JSF program moves forward and annual outlays
needed to support the program significantly increase.

The Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005 (P.L. 108-375) requires us to review the JSF program annually for the

1Congressional Budget Office, The Budget and Economic Outlook: An Update.
(Washington, DC: September 2004).

next 5 years.2 This is our first report, and it (1) analyzes the JSF
program's business case3 for delivering new capabilities to the warfighter
and (2) determines whether the JSF program's acquisition strategy follows
an evolutionary, knowledge-based approach. The best practice is to
establish an incremental-or evolutionary-approach to meet these needs by
delivering increasingly better performance over time as funding and
technologies permit and provide specific knowledge about the system at key
decision points in the acquisition process.

The act also requires us to certify whether we had access to sufficient
information to make informed judgments on the matters contained in our
report. As a result of a lengthy program replanning effort that had been
in process during most of 2004, we did not have access to the cost
estimate expected to be contained in JSF's Selected Acquisition Report, to
be delivered to Congress in the spring of 2005. At the time of our review,
JSF program officials were still collecting the necessary information to
develop and complete this estimate. Therefore, our review was limited to
the estimated program costs contained in the December 31, 2003, Selected
Acquisition Report. We did, however, have access to top-level program and
preliminary schedule information reflecting the status of the replanning
effort. Recognizing this limitation in scope, we did have access to
sufficient information to make informed judgments on the matters covered
in this report. We performed our work from June 2004 through March 2005 in
accordance with generally accepted government auditing standards. For more
on our scope and methodology, see appendix II.

                                Results in Brief

The original business case for the JSF program has proven to be
unexecutable. DOD now plans to buy 535 fewer aircraft than originally
planned. Development costs have grown over 80 percent, from $25 billion to
$45 billion, since the program started in 1996. Total program costs have
increased by 5 percent, or $12 billion, and program acquisition unit costs
have increased by 23 percent, or $19 million, since first estimates in
2001.

2Section 213 of the act requires us to assess the extent to which the
system development and demonstration program is currently meeting key
cost, schedule, and performance goals; the likelihood that the program
will be completed within estimated costs; and the program's current
acquisition plan leading to production.

3The business case is demonstrated evidence that (1) the warfighter need
exists and that it can best be met with the chosen concept, and (2) the
concept can be developed and produced within existing resources-including
design knowledge, demonstrated technologies, adequate funding, and
adequate time to deliver the product.

This has resulted in a reduction in buying power in that DOD is now buying
fewer JSFs at a higher investment than originally planned. The first
delivery of initial operational capabilities to the warfighter has been
delayed 2 years so far. DOD may not know for some time what the program
will cost or when it will be able to deliver needed capabilities. The
program is still redesigning the three variants of the aircraft that it
plans to deliver and is examining the software development and flight test
programs. The services-the program's customers-have not determined the
exact quantities of each variant they expect to buy. Finally, DOD's past
practice of changing JSF program managers approximately every 2 years
decreases accountability and, if continued, will make it more difficult to
deliver on future business case agreements.

The program's current acquisition strategy does not fully follow the
intent of DOD's evolutionary, knowledge-based acquisition policy that is
based on best practices. An evolutionary, knowledge-based strategy will be
necessary to successfully execute a new business case in the future.
Instead, the program plans to concurrently develop the JSF technologies,
integrate and demonstrate the expected product design, and produce
deliverable fighters-a risky approach. JSF's acquisition strategy is to
have the developer manufacture nearly 20 percent of the planned JSF fleet
at a cost of approximately $50 billion beginning in 2007, well before
system development and demonstration is expected to be completed in 2013.
To achieve planned low-rate initial production capacity, DOD must make
significant investments in tooling, facilities, and personnel. Once the
production decision is made, DOD's planned investment for production will
increase from $100 million a month in 2007 to about $1 billion a month
before testing is completed in 2013. Because this substantial investment
in procurement will take place while the program is still designing and
testing the development aircraft, it increases the likelihood of costly
design changes to production aircraft and manufacturing processes, reduced
quality and reliability, and further delays in the delivery of JSFs to the
warfighter. Moreover, the program acquisition strategy assumes an
unprecedented $225 billion in acquisition funding over the next 22 years,
or an average of $10 billion a year. As a result, the JSF program will
need to successfully compete with many other large programs for scarce
funding during this same time frame. Finally, the strategy assumes the use
of a cost reimbursement-type contract for initial production, placing a
high risk burden on the government during the early production phase.

We are recommending that DOD establish an executable program consistent
with best practices and DOD policy regarding evolutionary acquisitions.
DOD officials should define an affordable first increment,

with its own business case, that clearly defines the warfighters' most
immediate needs and accurately identifies the resources required to
deliver on this needed capability. We are also recommending DOD develop
and implement a knowledge-based acquisition approach, as called for by
best practices and DOD's acquisition policy, an approach that ensures
attainment and use of demonstrated product knowledge before making future
investments for each product increment. Before increasing the investment
in production resources (tooling, materials, and personnel) greater than
that already in place to support the manufacturing of development test
aircraft, the Secretary of Defense should ensure knowledge consistent with
best practices is captured.

DOD partially concurred with our recommendations, stating that the
department is confident management practices and processes currently in
place achieve the objective of our recommendations. It also stated that
the JSF acquisition strategy and execution activities ensure the
department commits resources only after determining that specific
developmental or knowledge-based criteria are achieved. We continue to
believe that our recommendations would reduce risks and save time and
money over the life of the program through a more rigorous and
comprehensive application of an evolutionary, knowledge-based process, a
process anchored with high standards for capturing knowledge at critical
junctures and used for making investment decisions in the future.

JSF is a joint, multinational acquisition program for the Air Force, Navy,
Marine Corps, and eight cooperative international partners. The program
began in November 1996 with a 5-year competition between Lockheed Martin
and Boeing to determine the most capable and affordable preliminary
aircraft design. Lockheed Martin won the competition, and the program
entered system development and demonstration in October 2001.

The program's objective is to develop and deploy a technically superior
and affordable fleet of aircraft that support the warfighter in performing
a wide range of missions in a variety of theaters. The single-seat,
singleengine aircraft is being designed to be self-sufficient or part of a
multisystem and multiservice operation, and to rapidly transition between
air-to-surface and air-to-air missions while still airborne. To achieve
its mission, the JSF will incorporate low observable technologies,
defensive

  Background

avionics, advanced onboard and offboard sensor fusion,4 and internal and
external weapons. The JSF aircraft design has three variants: conventional
takeoff and landing variant for the Air Force, aircraft carrier-suitable
variant for the Navy, and short takeoff and vertical landing variant for
the Marine Corps, the United Kingdom, and the Air Force. These aircraft
are intended to replace aging fighter and attack aircraft currently in the
inventory (see table 1).

Table 1: Military Services' Planned Use for the Joint Strike Fighter

                              Service Planned use

Air Force Replacement for the F-16 and A-10; complement the F/A-22

Marine Corps Replacement for the AV-8B and F/A-18 A/C/D

Navy Complement the F/A-18 E/F

United Kingdom Replacement for the Sea Harrier and GR-7

Source: DOD data.

In 2004, DOD extended the JSF program schedule to address problems
discovered during systems integration and the preliminary design review.
Design efforts revealed significant airframe weight problems that affected
the aircraft's ability to meet key performance requirements. Software
development and integration also posed a significant development
challenge. Program officials delayed the critical design reviews, first
flights of development aircraft, and the low-rate initial production
decision to allow more time to mitigate design risk and gather more
knowledge before continuing to make major investments. As a result, the
initial operational capability date was delayed. DOD is in the process of
reestablishing resource levels needed to deliver capabilities, given
current and expected future conditions. The new business case will be
presented to the Office of the Secretary of Defense (OSD) decision makers
this spring.

A key to successful product development is the formulation of a business
case that matches requirements with resources-proven technologies,
sufficient engineering capabilities, time, and funding--when undertaking a
new product development. First, the user's needs must be accurately

4Sensor fusion is the ability to take information from both multiple
onboard and offboard aircraft sensors and display the information in an
easy-to-use format for the pilot. This is vitally important, since the JSF
is a single-seat aircraft, and the pilot needs help to carry out multiple
types of missions.

defined, alternative approaches to satisfying these needs properly
analyzed, and quantities needed for the chosen system must be well
understood. The developed product must be producible at a cost that
matches the users' expectations and budgetary resources. Finally, the
developer must have the resources to design and deliver the product with
the features that the customer wants and to deliver it when it is needed.
If the financial, material, and intellectual resources to develop the
product are not available, development does not go forward. If the
business case measures up, the organization commits to the development of
the product, including the financial investment. This calls for a
realistic assessment of risks and costs; doing otherwise undermines the
intent of the business case and invites failure. Program managers in
organizations employing best practices are incentivized to identify risk
early, be intolerant of unknowns, and be conservative in their estimates.
Ultimately, preserving the business case strengthens the ability of
managers to say no to pressures to accept high risks or unknowns.

A key objective of the JSF acquisition program is to develop and produce
fighter aircraft with greater capabilities and lower acquisition and
ownership costs than previous fighter aircraft and to deliver the aircraft
in time to replace DOD's aging fleet. However, since the program began in
1996, several program decisions have resulted in increased program costs,
reduced procurement quantities, and delayed delivery dates-making the
original business case unexecutable. Continued program uncertainties about
the aircraft redesign, software development, flight test program, and
procurement quantities make it difficult to estimate the total amount of
resources needed. Given the uncertainties, the program needs more time to
gain knowledge before committing to a new, more accurate business case.
The current pause to replan JSF development and production provides the
program this opportunity. Finally, frequent changes in JSF program
management, if continued, will compromise efforts to execute the business
case agreements.

  More Resources Are Now Needed to Deliver Planned Capabilities

JSF's Original Business Several significant changes to the JSF acquisition
program have made

Case Is Unexecutable 	DOD's original business case unexecutable. Purchase
quantities have been reduced by more than 500 aircraft, total program
costs have increased by about $12 billion, and delivery of the aircraft
has been delayed by about 2 years (see table 2 and app. IV for more
details). These changes have effectively reduced DOD's buying power for
its investment, as it now plans to buy fewer aircraft with a greater
financial investment.

    Table 2: Changes in JSF Program Purchase Quantities, Costs, and Delivery
                                   Estimates

October 2001 November 1996 (system As of (program start) development
start) January 2005

                              Expected quantities

Development quantities 10 14

              Procurement quantities (U.S. only) 2,978 2,852 2,443

    Total quantities 2,988 2,866 2,458 Cost estimates (then year dollars in
     billions) Unit cost estimates (then year dollars in millions) Program
                       acquisition Not available $81 $100

        Development                       $24.8     $34.4               $44.8 
        Procurement               Not available     $196.6             $199.8 
           Other                  Not available      $2.0                $0.2 
       Total program              Not available     $233.0             $244.8 

Total ownership Not available $217 $240 Estimated delivery dates First aircraft
                            delivery 2007 2008 2009

            Initial operational capability 2010 2010-2012 2012-2013

Reduced Quantities and Increased Costs Have Lessened the JSF Program's
Buying Power

Source: GAO analysis of DOD data.

The JSF acquisition program's estimated development and procurement costs
have increased. In addition, the number of aircraft it plans to deliver
has been reduced. As a result, unit costs for the JSF aircraft have
increased substantially, thereby reducing the program's buying power. The
most significant quantity reduction occurred after system development
began in 2001, when the program reduced the number of aircraft it plans to
procure from 2,852 to 2,443, or by 14 percent. The Navy-concerned that it
could not afford the number of tactical aircraft it planned to
purchase-reduced the number of JSF aircraft for joint Navy and Marine
Corps operations from 1,089 to 680 by reducing the number of backup
aircraft needed. However, the Navy has not indicated to the developer the
exact mix of the carrier and short takeoff and vertical landing variants
it intends to purchase.

The cost estimate to fully develop the JSF has increased by over 80
percent. DOD expected that by using a joint development program for the
three variants instead of three separate programs, JSF development costs
could be cut by about 40 percent. However, cost increases have nearly
eroded all of the estimated savings. Development costs were originally
estimated at $24.8 billion. By the 2001 system development decision, these

costs had increased by $9.6 billion largely because of a 36-month schedule
extension to allow more time to mature the mission systems and a more
mature cost estimate.

By 2004, costs increased an additional $10.4 billion to $44.8 billion. The
program office cited several reasons, including efforts to achieve greater
international commonality, optimize engine interchangeability, refine the
estimating methodology, and extend the schedule for unexpected design
work. Almost half of this increase, $4.9 billion, was a result of an
approximately 18-month delay for unexpected design work caused by
increased aircraft weight that degraded the aircraft's key performance
capabilities. Figure 1 compares the original and latest development cost
estimates.

Figure 1: Development Costs

Dollars in billions 50

40

30

20

10

0

Fiscal year

Original estimate Latest estimate Source: GAO analysis of DOD data.

Current estimates for the program acquisition unit cost are about $100
million, and the total estimated cost to own an aircraft over its life
cycle is $240 million-an increase of 23 percent and 11 percent,
respectively. In

1994 1995

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
                                   2012 2013

1996, the program established unit flyaway cost5 goals for each variant,
expecting the variants to have a high degree of commonality and to be
built on a common production line. However, commonality among the variants
has decreased, and the cost to produce the aircraft has increased (see
table 3). The unit flyaway cost for the conventional takeoff and landing
variant has increased by 42 percent; the cost for the short takeoff and
vertical landing variant has increased by a range of 37 to 55 percent; and
the cost for the carrier variant has increased by a range of 29 to 43
percent. According to program data, a large part of the cost increase
since the start of development can be attributed to labor costs for
building the airframe and to the costs for producing the complex mission
systems.

Table 3: Changes in Unit Flyaway Cost for JSF Variants

Variant

(Unit flyaway costs are stated in millions of November 1996 fiscal year
2002 dollars) (program start)

                               development start)

As of January 2005

               Conventional takeoff and landing $31.5 $37.0 $44.8

         Short takeoff and vertical landing $33.7-39.3 $45.8 $54.0-61.1

                      Carrier $34.9-42.7 $47.8 $55.0-61.0

Operational Capabilities Have Been Delayed

Source: DOD data.

With reduced quantities and increased program costs, the JSF program is
now buying fewer aircraft at a higher cost, thereby reducing the program's
buying power. How effectively DOD manages its JSF funds will determine
whether it receives a good return on its investment. A sound and
executable business case is needed to effectively do this. Our reviews
over the past 20 years have consistently found that DOD's weapon system
acquisitions take much longer and cost more than originally planned,
causing disruptions and increasing pressures to make unplanned tradeoffs
to accommodate the resulting budget needs.

The timely delivery of the JSF to replace aging legacy aircraft was cited
as a critical need by the warfighter at the program start. When the
program was initiated, in 1996, it planned to deliver initial operational
capabilities to the warfighter in 2010. However, largely because of
technical challenges, the program has delayed the delivery of operational
aircraft, and current estimates put delivery at 2012 to 2013. Because of
these

5Unit flyaway costs include the recurring costs to produce the basic
aircraft, propulsion system, and mission systems. Unit flyaway costs are
stated in fiscal year 2002 dollars.

delays, the services may have to operate legacy aircraft longer than
expected. These challenges have also delayed interim milestones such as
the start of system development, design reviews, and production decisions.
Figure 2 illustrates changes to the overall program schedule since it
began in 1996 through 2004.

Figure 2: Changes to the Program Schedule (1996 through 2004)

1996 1996 2001 2003 2005 2009 2010estimate Start of Start of First
critical Low-rate Full-rate Initial concept system design review
production production operational development start start capabilities
delivered

2001
estimate 1996 2001 2004 2006 2010-12 2012

Start of Start of First critical Low-rate Initial Full-rate concept system
design production operational production development review start
capabilities start delivered

2004 1996 2001 2006 2007 2012-13 2013

estimate Start of Start of First critical Low-rate Initial Full-rate
concept system design production operational production development review
start capabilities start delivered

Source: GAO analysis of DOD data.

    Program Uncertainties Make It Difficult to Estimate Resources

Aircraft Design, Software Development, and Flight Test Program Not Fully
Understood

The full impact on costs, schedules, and aircraft performance brought
about by recent design changes and aggressive software development and
flight test programs add risks that may not be fully understood for some
time. Continuing uncertainties about total quantities and types of the
three JSF variants that the services and the international partners expect
to purchase in the future also make it difficult to accurately estimate
costs and schedules.

In December 2003, DOD estimated program costs based on a notional idea of
a restructured program. The cost estimates not only lacked detail but were
based on a different aircraft design, development schedule, and
procurement plan than what is now being considered. Over the past year,
DOD has been working to restructure the JSF program to accommodate changes
in the aircraft's design; until this restructuring is completed, it will
be difficult to accurately estimate program costs. The need for design

Quantities of Variants Still Unknown

changes largely resulted from the increased weight of the short takeoff
and vertical landing variant and the impact it was having on key
performance parameters. The other JSF variants' designs were affected as
well. The program plans to have a more comprehensive cost estimate in the
spring of 2005. However, a detailed assessment has not been conducted to
determine the exact impact that the restructured program will have on
meeting performance specifications. Until the detailed design efforts are
complete-after the critical design review in February 2006- the program
will have difficulty assessing the impact of the design changes on
performance. While the program office anticipates that recent design
changes will allow the aircraft to meet key performance parameters,
preliminary program data indicate that the design is still not meeting
several speed, maneuverability, and radar cross section specifications.6
In addition, program officials noted that they will not know with
certainty if the weight problems have been resolved until after the plane
is manufactured and weighed in mid-2007.

Program officials recognize that JSF's development schedule is aggressive
and are examining ways to reduce program requirements while keeping costs
and schedules constant. Design and software teams have found greater
complexity and less efficiency as they develop the 17 million lines of
software needed for the system. Program analysis also indicated that some
aircraft capabilities will have to be deferred to stay within cost and
schedule constraints. As a result, the program office is working with the
warfighters to determine what capabilities could be deferred to later in
the development program or to follow on development efforts while still
meeting the warfighter's basic needs. Many of these capabilities are
related to the software-intensive mission systems suite. They are also
examining the content and schedule of the planned 7-year, 10,000-hour
flight test program. According to the program office, the test program was
already considered aggressive, and recent program changes have only
increased the risks of completing it on time.

Continued uncertainty about the number and mix of variants the services
plan to purchase also affects JSF's acquisition plans. While the Air Force
has announced its intention to acquire the short takeoff and vertical
landing variant, it has yet to announce when or how many it expects to buy
or how this purchase will affect the quantity of the conventional

6Prior to these changes, the program was not meeting about 25 percent of
the contract performance specifications.

takeoff and landing variant it plans to buy.7 DOD's 2003 acquisition
report states that the annual total quantity and mix of JSF variants and
their related procurement costs for Navy and Marine Corps JSF purchases
remains to be determined. Foreign partners have expressed intent to buy
about 700 aircraft between 2012 and 2015, but no formal agreements have
been signed at this time.

The upcoming 2005 Quadrennial Defense Review-an examination of U.S.
defense needs conducted every 4 years-could also affect the procurement
quantities and schedule.

    Frequently Changing Program Managers Reduces Accountability

Since the JSF program began, a little over 8 years ago, the program has
had five program managers-a new program manager assigned about every 2
years. The development program is estimated to last another 9 years, and
it is likely that the program manager currently involved in decisions
about key program elements such as design, cost, and schedule will not be
responsible for seeing JSF through its completion. In other words, plans
accepted now will likely become the responsibility of future program
managers.

Leading commercial firms limit product development cycle times, thereby
increasing the possibility that program managers will remain on programs
until they are complete. Holding one program manager accountable for the
content of the program when key decisions are made encourages that person
to raise issues and problems early and realistically estimate the
resources needed to deliver the program. This puts the manager in a good
position to deliver a high-quality product on time and within budget. We
note that the law governing the defense acquisition workforce recognizes
the need for long-term assignments in the performance of the program
manager function.8 Specifically, the assignment period for program
managers is required to be at least until completion of the major
milestone that occurs closest in time to the date on which the manager has
served in the position for 4 years.

7In December 2004, Air Combat Command officials told us that the Air Force
is considering buying about 250 short takeoff and landing JSFs and about
1,300 conventional takeoff and landing JSFs. However, these numbers are
not official.

810 U.S.C. section 1734 states this required assignment period can be
waived "in exceptional circumstances."

  JSF's Current Acquisition Strategy May Not Provide for Successful Program
  Execution

The JSF program does not have an evolutionary, knowledge-based acquisition
strategy that fully follows the intent of DOD's acquisition policy. This
type of strategy is necessary for having an executable business case in
the future. The current strategy includes plans to make large production
commitments well before system development and testing have been
completed, significantly increasing the risk of further delays and cost
increases due to design changes and manufacturing inefficiencies. It is
also dependent on an aggressive test aircraft delivery schedule and an
optimistic funding profile that assumes an unprecedented $225 billion over
the next 22 years, or an average of $10 billion a year. DOD plans to bear
the financial risk of concurrently developing and initially producing the
JSF on a cost reimbursement basis with the prime contractor, an uncommon
practice for such a large number of units, until the design and
manufacturing processes are mature. Program officials currently have an
opportunity to change the acquisition strategy. DOD policy and best
practices call for programs to use an acquisition strategy that reflects
an evolutionary, knowledge-based approach-that is, one that ensures
appropriate technology, design, and manufacturing knowledge are captured
at key milestones before committing to increased investments. Our past
work has shown that when programs demonstrate a high level of knowledge
before making significant commitments, they are able to deliver products
within identified resources.

    JSF Program Not Fully Employing an Evolutionary, Knowledge-Based Approach

In recent years, DOD has revised its acquisition policy to support an
evolutionary, knowledge-based approach for acquiring major weapon systems
based on best practices.9 JSF's acquisition strategy does not fully follow
the intent of this policy. Instead, it strives to achieve the ultimate JSF
capability within a single product development increment. While the
acquisition strategy calls for delivering a small number of aircraft with
limited capabilities, the program has committed to deliver the full
capability by the end of system development and demonstration in 2013
within an established cost and schedule, contrary to an evolutionary
approach. The JSF program bypassed early opportunities to trade or defer
to later increments those features and capabilities that could not be

9DOD Directive 5000.1, The Defense Acquisition System (May 2003); DOD
Instruction 5000.2, Operation of the Defense Acquisition System (May
2003). The directive establishes evolutionary acquisition strategies as
the preferred approach to satisfying DOD's operational needs. The
directive also requires program managers to provide knowledge about key
aspects of a system at key points in the acquisition process. The
instruction implements the directive and establishes detailed policy for
evolutionary acquisition.

readily met. The planned approach will not capture adequate knowledge
about technologies, design, and manufacturing processes for investment
decisions at key investment junctures. Figure 3 shows a comparison of an
evolutionary, knowledge-based process based on best practices and JSF's
more concurrent approach.

Figure 3: JSF Acquisition Approach Compared with Best Practices Approach
for an Evolutionary, Knowledge-Based Acquisition Process

(impro

Best Practices Approach                         Development     
                                                   Production      
                                                   start start     
First increment (basic              Technology                  Production 
capabilities)                       development                 
                                                   KP 1 KP 2 KP 3  
                                                    Development    
                                                     Production    
                                                    start start    
Second increment                     Technology                 

ved capabilities) development Production

Third increment (full capability)

JSF Program Approach

KP 1 KP 2 KP 3

                                 Development      Production 
                                    start              start 
         Technology development                              Production 
                                    KP 1     KP 2       KP 3 

Development Production start start

Technology development

     First increment (full capability with interim capabilities delivered)

KP 1 KP 2 KP 3

KP 1 (knowledge point 1): technologies and resources match requirements
KP 2 (knowledge point 2): design performs as expected
KP 3 (knowledge point 3): production can meet cost, schedule, and quality
targets

Source: GAO analysis of DOD data.

Successful commercial companies use an evolutionary acquisition approach
where new products are developed in increments based on available
resources. Companies have found that trying to capture the knowledge
required to stabilize the design of a product that requires significant
amounts of new content is an unmanageable task if the goal is to reduce
cycle times and get the product to the customer as quickly as possible.
With an evolutionary acquisition approach, design elements that are not
currently achievable are planned for and managed as increments in

future generations of the product, and each increment is managed as a
separate knowledge-based acquisition, with separate milestones, costs, and
schedules.

Programs that attain the right knowledge at the right time reduce the risk
of incurring design, development, and manufacturing problems that result
in cost and schedule overruns. Our past work has shown that to ensure
successful program outcomes, a high level of demonstrated knowledge must
be attained at three key junctures for each increment in the program.

o  	At knowledge point 1, the customer's needs should match the
developer's available resources-mature technologies, engineering
knowledge, time, and funding-before system development starts. This is
indicated by a demonstration that technologies needed to meet essential
product requirements work in their intended environment and the producer
has completed a preliminary design of the product that shows that the
design is feasible.

o  	At knowledge point 2, the product's design is stable and has
demonstrated that it is capable of meeting performance requirements before
transitioning from system integration to system demonstration. This is
best indicated by a prototype demonstration of the design and release of
90 percent of the engineering drawings to manufacturing organizations.

o  At knowledge point 3, the product must be producible within cost,

JSF Began System Development Well before Knowledge Point 1

schedule, and quality targets and demonstrated to be reliable and work as
intended before production begins. This is indicated by a demonstration of
an integrated product in its intended environment and by bringing critical
manufacturing processes under statistical control.

The start of the JSF system development was approved in 2001-well before a
match was made between the customer's requirements and the resources
needed to meet those requirements. Many of the technologies needed for the
product's full capabilities were demonstrated only in a lab environment or
ground testing and not in the form, fit, or functionality needed for the
intended product design. Also, while the program had a proposed technical
solution to meet the warfighter's requirements, it did not deliver a
preliminary design based on sound systems engineering

principles. At the JSF preliminary design review, held about 1 1/2 years
after development started, significant design issues surfaced, potentially
affecting the critical performance capabilities of the aircraft. The
program has worked to find solutions to design problems, but at a
substantial cost. The detailed design work has fallen behind schedule,
delaying the critical design reviews for 16 to 22 months. Table 4 compares
the product

knowledge available at the JSF system development start and the knowledge
expected to be available to support future decision points based on the
current acquisition plan.

       Table 4: Knowledge Attainment on JSF Program at Critical Junctures

Decision points Development start-2001 Design review-2006 Production
start-2007

Investment Develop a product that meets Transition from system Produce and
deliver a product to decision customer expectations within integration to
system the user.

available resources. demonstration. Requires significant investments for
Requires a significant financial Requires significant investment materials
and resources such as
commitment to design, integrate, to start building and testing additional
tooling to build the
and demonstrate that the product production representative product at
planned rates, facilities,
will meet the user's requirements prototypes in a manufacturing personnel,
training, and support.
and can be manufactured on time, environment.
with high quality, and at cost that
provides an acceptable return on
investment.

Best practice  Attain knowledge    Attain knowledge    Attain knowledge    
                      point 1.            point 2.            point 3.        
                 Separate technology  Completion of 90   One hundred percent  
                 and product             percent of          of critical      
                    development,     engineering            manufacturing     
                   deliver mature    drawing packages      processes under    
                 technology, and     for structures and  statistical control, 
                 have preliminary     systems, critical      demonstration of 
                   design based on     design review     a fully integrated   
                       systems         completed, and      product in its     
                     engineering                        operational           
                     principles.     design prototyped. environment to show   
                                                        it                    
                                                                 will work as 
                                                                intended, and 
                                                                  reliability 
                                                         goals demonstrated.  

JSF practice Knowledge point 1 was not    Knowledge point 2 will not be    
                                             Knowledge point 3 will not be    
                        attained.            attained under current plan.     
                                             attained under current plan.     
                Failed to separate        The program estimates 35 percent    
                technology and            The program does not expect to      
                  product development.        of the engineering drawing      
                        Critical             demonstrate that the critical    
                  technologies not mature     packages are expected to be     
                                and sound   processes are under statistical   
                   preliminary design not   released at the critical design   
                             established.   control until 2009. The program   
                Several technologies not  review. Also, prototype testing     
                expected                  will expects to demonstrate that a  
                                          fully                               
                to be mature until after    not be done prior to the design   
                production                 integrated aircraft will work as   
                                               review. The design will not be 
                         begins.               intended and meets reliability 
                                                                        goals 
                                           stable until after production in   
                                                 2010-2012 time frame.        
                                                        begins.               

JSF Program Plans to Commit Significant Resources to System Demonstration
before Reaching Knowledge Point 2

Source: GAO data and analysis of DOD data.

Knowing that a product's design is stable before system demonstration
reduces the risk of costly design changes occurring during the
manufacturing of production representative prototypes-when investments in
acquisitions become even more significant. The JSF program expects to have
all critical drawings and a small number of other drawings completed by
the planned February 2006 critical design review-

the milestone at which design stability is determined.10 However, these
drawings represent only about 35 percent of the total drawings needed to
complete the JSF design. While program officials believe that having 35
percent of the total drawings will allow them to track JSF's design
stability, we have found that programs that moved forward with less than
90 percent of the total drawings at the start of the product demonstration
phase were challenged to stabilize the design at the same time they were
trying to build and test the product. This overlap frequently results in
costly design changes and parts shortages during manufacturing, which, in
turn, result in labor inefficiencies, schedule delays, and quality
problems.11 The F/A-22 and PAC-3 missile are prime examples of programs
that failed to complete 90 percent of their drawings by the critical
design review and suffered substantial cost increases and schedule delays.

Using prototypes to demonstrate the design is a best practice that
provides additional evidence of design stability. JSF will not have this
type of demonstration before the critical design review. Prototype testing
allows the design to be demonstrated before making costly investments in
materials, manufacturing equipment, and personnel to begin building
production representative prototypes for the system demonstration phase.
The JSF program is building an early prototype of the conventional takeoff
and landing variant and plans to use this prototype to validate
performance predictions, manufacturing processes, and reliability and
maintainability models.12 According to the current schedule, however, the
first demonstrations will occur after the critical design review, after
most of the design drawings have been released, and after manufacturing
has begun for many of the remaining test aircraft. Any significant design
problems found during the prototype demonstrations would likely require
more time and money for redesign efforts and retrofitting of test aircraft
already in the manufacturing process.

10Critical drawings are primarily of structural parts weighing more than 5
pounds. The February 2006 critical design review is for both the
conventional takeoff and landing variant and the short takeoff and
vertical landing variant. The carrier variant will have its own design
review about 1 year later.

11Drawings include details on the parts and work instructions needed to
make the product and reflect the results of testing. Completed drawings
allow suppliers to produce the parts so they can be available to the
manufacturer when needed for installation on the product.

12Manufacturing of the first conventional take-off and landing prototype
is currently under way. This aircraft, however, does not include many of
the design changes that resulted from the redesign efforts to reduce
airframe weight. According to program officials, essentially every drawing
used to build this aircraft was affected by the redesign effort.

JSF Program Plans to Enter Production before Knowledge Point 3

In addition to lacking mature technologies and design stability, the JSF
program will lack critical production knowledge when it plans to enter
low-rate initial production in 2007. Between 2007 and 2013, when the
program is scheduled to move to full-rate production, it expects to buy
nearly 500 JSF aircraft-20 percent of its planned total buys-at a cost of
roughly $50 billion. Under the program's preliminary plan, it expects to
increase low-rate production from 5 aircraft a year to 143 aircraft a
year, significantly increasing the financial investment after production
begins. 13 Between 2007 and 2009, the program plans to increase low-rate
production spending from about $100 million a month to over $500 million a
month, and before development has ended and an integrated aircraft has
undergone operational evaluations, DOD expects to spend nearly $1 billion
a month. To achieve its production rate, the program will invest
significantly in tooling, facilities, and personnel. According to
contractor officials, an additional $1.2 billion in tooling alone would be
needed to ramp up the production rate to 143 aircraft a year. Over half of
this increase would be needed by 2009-more than 2 years before operational
flight testing begins.

Despite this substantial investment, the key event to support the decision
to enter low-rate production in 2007 is the JSF's first flight.
Significant commitments will thus be made to JSF production before
requisite knowledge is available. This is a much lower standard than
called for by best practices. The following are examples of technology,
design, and production knowledge that will not have been achieved at the
time JSF enters low-rate initial production.

Technology: According to information provided by the program office, only
one of JSF's eight critical technologies is expected to be demonstrated in
an operational environment by the 2007 lowrate production decision. The
remaining seven technologies, which include the complex mission systems
and prognostics and health maintenance systems, are not expected to be
mature prior to entering production. (See app. III for program office's
projected time frames for demonstrating the eight critical technologies.)

13The preliminary plan was what was being considered at the time of our
review. Since then, in its fiscal year 2006 budget submission, DOD has
reduced the planned procurement quantities for the U.S. by 38 aircraft
through fiscal year 2011. The preliminary figures also includes planned
quantities for the United Kingdom of 2 aircraft in fiscal year 2009, 4
aircraft in fiscal year 2010, 9 aircraft in fiscal year 2011, 9 aircraft
in fiscal year 2012, and 10 aircraft in fiscal year 2013.

Design: Low levels of design knowledge will continue beyond the production
decision. Only about 40 percent of the 17 million lines of code needed for
the system's software will have been released. The complex software needed
to integrate the advanced mission systems is not scheduled for release
until about 2010-3 years after JSF is scheduled to enter production. In
addition, most structural fatigue testing and radar cross section testing
of full-up test articles-needed to verify the stability of the aircraft's
structural design-are not planned to be completed until 2010.

Production: The program will not demonstrate that critical manufacturing
processes are in statistical control when it enters production. At that
time, only one test aircraft will be completed and delivered. According to
the contractor, manufacturing processes will not be under statistical
control until after all of the system development and demonstration
aircraft have been built. Also, flight testing of a fully configured and
integrated JSF (with critical mission systems and prognostics
technologies) is not scheduled until 2011. Operational testing to evaluate
the effectiveness and suitability of the integrated system will continue
until the full-rate production decision in 2013.

The JSF, like many past DOD weapons programs, is very susceptible to
discovering costly problems late in development when the more complex
software and advanced capabilities are tested. In the case of the JSF,
several hundred aircraft costing several billions of dollars may already
be on order or delivered, making any changes that result from testing
costly to incorporate. Figure 4 shows the proposed low-rate initial
production plan and how it overlaps with development and test activities.

Figure 4: Overlap of JSF Low-Rate Production and System Development and
Demonstration Activities (Includes U.S. and U.K. Quantities)

             2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 

If the JSF program cannot meet aggressive delivery schedules for test
aircraft, flight testing will be delayed. Flight testing provides key
knowledge about JSF performance needed to make investment decisions for
production. The JSF program is attempting to develop three different
aircraft, for three different services. All want to fly at supersonic
speeds, shoot air-to-air missiles, and drop bombs on a target, but they
all have vastly different operational concepts. While each of the variants
may look similar externally, subtle design differences provide many needed
capabilities that are unique to each service. As a result, the program
will attempt to design, build, and test simultaneously three distinct
aircraft designs. This difficult task is further complicated by plans to
manufacture and deliver in a 5-year period, 15 flight test aircraft and 8
ground test articles. When compared with schedules of other programs with
fewer variables, JSF's schedule is aggressive. For example, the F/A-22
program took almost 8 years to manufacture and deliver nine flight test
aircraft and two ground test articles of a single aircraft design.

While the first aircraft had only been in assembly for about 8 months, it
was already behind schedule as of January 2005. According to the Defense
Contract Management Agency, based on the manufacturing status of the
center fuselage, wing, forward fuselage, and software development, the
first flight, scheduled for August 2006, could be delayed from 2 to 6
months. Late engineering releases to the manufacturing floor have resulted
in parts shortages and manufacturing inefficiencies. According to

Long-lead decision Low-rate initial

for low-rate initial production production decision System development and
demonstration Low-rate initial production orders (519 aircraft)

                       Source: GAO analysis of DOD data.

                      70 aircraft 5 aircraft 143 aircraft

    Failing to Meet Aggressive Delivery Schedule Could Delay Flight Testing

contractor data, as of January 2005, it had taken about 50 percent more
labor hours than planned to complete manufacturing efforts.

    Program Funding Level Assumptions May Be Difficult to Achieve

To execute its current acquisition strategy, the JSF program must obtain
on average over $10 billion annually in acquisition funds over the next 2
decades. Regardless of likely increases in program costs, the sizable
continued investment in JSF-estimated at roughly $225 billion over 22
years14-must be viewed within the context of the fiscal imbalance facing
the nation within the next 10 years. The JSF program will have to compete
with many other large defense programs, such as the Army's Future Combat
System and the Missile Defense Agency's ballistic missile defense system,
for funding during this same time frame. There are also important
competing priorities external to DOD's budget. Fully funding specific
programs or activities will undoubtedly create shortfalls in others.

Funding challenges will be even greater if the program fails to translate
current cost estimates into actual costs. For example, we estimate that
another 1-year delay in JSF development would cost $4 billion to $5
billion based on current and expected development spending rates. A 10
percent increase in production costs would amount to $20 billion. The JSF
program's latest planned funding profile for development and
procurement-as of December 2003-is shown in figure 5.

14 This figured is based on DOD's December 2003 JSF cost estimate.

Figure 5: JSF Program's Annual Funding Requirements (as of December 2003)

Dollars in billions

2023202420252026202719941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022

Fiscal year

                       Source: GAO analysis of DOD data.

Current Strategy Requires The program's acquisition strategy is to
concurrently develop, test, and Prolonged Reliance on produce the JSF
aircraft, creating a risky approach. Because of this risk, Cost
Reimbursement the program office plans to place initial production orders
on a cost Contract reimbursement basis. According to program officials, a
cost reimbursable

contract is necessary during the initial production phase because of the
uncertainties inherent in concurrent development and production programs
that prevent the pricing of initial production orders on a fixed-

price basis. Cost reimbursement contracts provide for payment of allowable
incurred costs, to the extent prescribed in the contract. They are used
when uncertainties involved in contract performance do not permit costs to
be estimated with sufficient accuracy to use any type of fixedprice
contract. Cost reimbursement contracts require only the contractor's "best
efforts," thus placing a greater cost risk on the buyer-in this case, DOD.
In contrast, a fixed-price contract provides for a pre-established price
and places more risk and responsibility for costs and resulting profit or
loss on the contractor and provides more incentive for efficient and
economical performance. However, to negotiate a fixed-price contract
requires certainty about the item to be purchased, which in the case of
the JSF will not be possible until late in the development program.

The program plans to transition to a fixed-price contract once the air
vehicle has a mature design, has been demonstrated in flight test, and is
producible at established cost targets. According to program officials,
this transition will occur sometime before full-rate production begins in
2013. The program office believes the combination of the early concept
development work, the block development approach, and what it
characterizes as the relatively small numbers of aircraft in the initial
production buys allow decisions to be made earlier than normal with an
acceptable level of risk.

The JSF program is at a crossroads. DOD has not been able to deliver on
its initial promises, and the sizable investment DOD plans to make over
the next few years greatly raises the stakes to meet future promises.
Given the many uncertainties surrounding JSF's development, program
officials need more time to gain knowledge before committing to a business
case. JSF's failure to adequately match requirements and resources has
already resulted in increases in cost, schedule, and performance
estimates, and a reduction in DOD's buying power. The new business case
must also be accompanied by an acquisition strategy that adopts an
evolutionary approach to product development-one that enables
knowledge-based investment decisions to maximize remaining program
dollars. While the warfighter may not receive the ultimate capability
initially, an evolutionary approach provides a useful product sooner and
in sufficient quantities to start replacing the rapidly aging legacy
fighter and attack force. The decisions DOD makes now and over the next 2
years will greatly influence the efficiency of its remaining funding-over
90 percent of the $245 billion estimated total program costs. Chief among
these are the investments needed to increase production to 143 aircraft a
year, increasing production expenditures from $100 million a month to $1
billion a month by 2013.

  Conclusions

  Recommendations for Executive Actions

While delays are never welcomed, time taken by DOD now to gain more
knowledge and reduce risk before increasing its investment may well save
time and money later in development and production. Now is the time to get
the strategy right for delivering on the remainder of the investment. With
an evolutionary, knowledge-based plan in place, DOD managers will be in a
better position to succeed in delivering the warfighter needed
capabilities within budgeted resources.

Given that DOD has invested only about 10 percent of the estimated cost to
develop and produce the JSF aircraft, and that significant investments are
planned in the next few years that can lock the program into a higherrisk
acquisition, we recommend the Secretary of Defense take the following two
actions to increase the likelihood of having a successful program outcome
by delivering capabilities to the warfighter when needed and within
available resources:

(1) Establish an executable program consistent with best practices and DOD
policy regarding evolutionary acquisitions. DOD officials should define an
affordable first increment, with its own business case that clearly
defines the warfighter's most immediate needs and accurately identifies
the resources required to deliver on this needed capability. The business
case should be established with a high degree of confidence based on known
constraints about technology, engineering knowledge, time, and money. For
those warfighter needs that cannot be accommodated within this first
increment, the program should outline a strategy to meet these needs
through subsequent increments, each dependent on having sufficient product
knowledge to start system development and demonstration. Each increment
should be managed as a distinct acquisition with its own business case for
supporting the investment.

(2) Develop and implement a knowledge-based acquisition approach, as
called for by best practices and DOD's acquisition policy, an approach
that ensures attainment and use of demonstrated product knowledge before
making future investments for each product increment. Before increasing
the investment in production resources (tooling, materials, and personnel)
greater than investments already in place to support the manufacturing of
development test aircraft, the Secretary should ensure knowledge
consistent with best practices is captured. This should help minimize the
number of low-rate initial production aircraft DOD

  Agency Comments
  and Our Evaluation

procures on a cost reimbursement basis, reducing the potential financial
risk to the government.

The Office of the Under Secretary of Defense (Acquisition, Technology, and
Logistics), provided us with written comments on a draft of this report.
The comments appear in appendix I.

DOD partially concurred with our recommendation that the Secretary
establish an executable program that includes an affordable first
increment with its own business case that clearly defines the warfighter's
most immediate needs and accurately identifies the resources required to
deliver on this capability. DOD stated that the JSF program acquisition
strategy is based on an appropriate balance of technical, cost, and
schedule risk considerations to achieve program objectives. Warfighter
representatives are involved in determining the content for each block
capability, and technology maturity is factored into the decision plan
that has been endorsed by DOD leadership. DOD stated its JSF management
practices achieve the objectives of the GAO recommendation.

We believe DOD's acquisition strategy will not provide the full benefits
of an evolutionary approach as suggested by DOD's policy and best
practices. DOD has not structured the JSF development program into
increments managed as separate acquisitions with their own cost, schedule,
and decision milestones, making the likelihood of successful program
outcomes low. The JSF strategy resembles other past major acquisition
programs that have attempted to achieve the ultimate capability in a
single development increment. DOD has allowed technology development to
spill over into product development, weakening any foundation for program
cost or schedule estimates. This has led to poor outcomes for other
programs, such as the F/A-22 and Comanche, where lengthy and costly
development efforts resulted in either program cancellation or a
significant reduction in the number of systems to be acquired, a real loss
in DOD buying power. Without a true evolutionary approach supported by a
business case for each increment, it will be difficult for the JSF program
to meet product requirements within current estimates of time and money.

DOD also partially concurred with our recommendation to develop and
implement a knowledge-based acquisition approach, which ensures attainment
and use of demonstrated product knowledge before making future investments
for each product increment. The department agrees that a knowledge-based
approach is critical to making prudent acquisition decisions and stated
that its current JSF acquisition strategy incorporates

this type of approach. The department admits it has accepted some
concurrency between development and production to reduce schedule and
cost, but it will consider the production readiness of the JSF design at
the low-rate and full-rate production decision milestones. It states that
the new program plan includes clear entry and exit criteria for critical
milestones to ensure technologies are mature and required incremental
objectives are achieved before obligating funds. DOD stated that it
conducts regular program reviews, and the Defense Acquisition Board will
review program readiness prior to making any milestone decision. The
frequent rotation of program leadership ensures ongoing cooperative
oversight of emerging challenges and program decisions, and ensures
accountability for the implementation of those decisions. Finally, DOD
states that the acquisition strategy is consistent with acquisition
directives and ensures the department commits resources only after
determining that specific developmental or knowledge-based criteria are
achieved.

We believe the JSF's acquisition strategy will not capture the right
knowledge at the right time for informed decisions on future
investments-over $200 billion dollars. The program does not have the
practices in place to capture knowledge at key junctures. DOD will not
have captured knowledge before production starts that ensures the design
is mature, reliable, and works or that manufacturing processes are in
control---keys to successful outcomes in the production phase. Further,
the large investments planned in production capability for the JSF over
the next few years are vulnerable to costly changes as the aircraft is
still being designed and tested. DOD has historically developed new weapon
systems in a highly concurrent environment that usually forces acquisition
programs to manage technology, design, and manufacturing risk at the same
time. While DOD believes it can manage the risk of concurrent development
and production by holding regular program reviews and with entrance and
exit criteria for decisions, DOD's own experience has shown this approach
to be risky and often not totally effective. This has been DOD's
traditional approach to weapons acquisition, the same approach that has
led to programs costing significantly more than planned and taking much
longer to develop. This environment has made it difficult to make informed
decisions because appropriate knowledge has not been available at key
decision points. If decisions are tied to the availability of critical
knowledge, program managers can be held accountable for the timely capture
of that knowledge instead of less precise or ill-defined criteria included
in risk reduction plans. DOD's practice of frequently changing program
managers also decreases accountability because commitments made today will
likely not be carried through by the same managers who made the
commitments.

We are sending copies of this report to the Secretary of Defense; the
Secretaries of the Air Force, Army, and Navy; and the Director of the
Office of Management and Budget. We will also provide copies to others
on request. In addition, the 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 concerning this report, please
contact me at (202) 512-4841 or Michael Hazard at (937) 258-7917. Other
staff making key contributions to this report were Marvin Bonner,
Matthew Drerup, Matthew Lea, David Schilling, Karen Sloan, and Adam
Vodraska.

Michael J. Sullivan
Director
Acquisition and Sourcing Management

List of Congressional Committees

The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

              Appendix I: Comments from the Department of Defense

              Appendix I: Comments from the Department of Defense

              Appendix I: Comments from the Department of Defense

                       Appendix II: Scope and Methodology

To determine the status of the Joint Strike Fighter (JSF) business case
for delivering new capabilities to the warfighter, we compared the
original program estimates with current estimates. For development, we
used the program estimates that justified the program when it started in
1996. This was the point at which JSF transitioned from a technology
development environment to an acquisition program environment, with the
commitment to delivery a family of strike aircraft that meet the Air
Force, Navy, and Marine Corps needs. At that time, total production,
acquisition, and ownership costs had not been estimated. However, the
program had estimated the unit flyaway costs for each variant. The total
production, acquisition, and ownership estimates were first established to
support the decision to enter the system development and demonstration
phase in 2001. We used these estimates as the baseline for these costs. We
identified changes in costs, quantities, and schedules as well as the
causes for the changes. We also identified program conditions that may
affect these estimates in the future. To accomplish this, we reviewed
management plans, cost reports, progress briefings, program baselines,
risk reports, and independent program assessments. We also interviewed
officials from the Department of Defense's (DOD) acquisition program
management office and prime contractor.

To evaluate whether the current acquisition plan follows an evolutionary,
knowledge-based approach to meeting business case goals in the future, we
applied GAO's methodology for assessing risks in major weapon systems.
This methodology is derived from best practices and experiences of leading
commercial firms and successful defense acquisition programs. We reviewed
Office of the Secretary of Defense (OSD), program office, and prime
contractor processes and management actions. We compared the program's
plans and results to date against best practice standards in capturing
product knowledge in terms of technology, design, and production maturity
information and in applying knowledge to support major program investment
decisions. We reviewed management plans, acquisition strategies, test
plans, risk assessments, and program status briefings. We identified gaps
in product knowledge, reasons for these gaps, and the risks associated
with moving forward with inadequate knowledge at future decision points.
We also reviewed DOD's acquisition policy to determine whether JSF's
approach met its intent.

In performing our work, we obtained information and interviewed officials
from the JSF Joint Program Office, Arlington, Virginia; Lockheed Martin
Aeronautical Systems, Fort Worth, Texas; Defense Contract Management
Agency, Fort Worth, Texas; Institute for Defense Analyses, Alexandria,
Virginia; and offices of the Director, Operational Test and Evaluation,
and

Appendix II: Scope and Methodology

Acquisition, Technology and Logistics, which are part of the Office of
Secretary of Defense in Washington, D.C.

                    Appendix III: Projected Time Frames for
                     Demonstration of Critical Technologies

                                                          Actual or planned   
                                                                 date         
                                       Actual or planned      technology      
                                                    date 
     Critical                                 technology   demonstrated in    
                                         demonstrated in 
                    Technology                  relevant          operational 
technologies     description             environmenta         environmentb 

Integrated flight Includes integration of propulsion, vehicle management
First quarter 2006 Third quarter 2007
propulsion system, and other subsystems as they affect aircraft
control stability, control, and flying qualities (especially short

takeoff and vertical landing). Aircraft improvements are to reduce pilot
workload and increase flight safety.

Prognostics Involves the ability to detect and Third quarter Third quarter 
               isolate the cause of                   2009               2010 
and health  aircraft problems and then predict               
               when maintenance                                 
                 activity will have to occur on                 
management         systems with pending                      
               failures. Life-cycle cost savings                
                        are dependent on                        
               prognostics and health management                
               through improved                                 
               sortie generation rate, reduced                  
               logistics and manpower                           
                requirements, and more efficient                
                       inventory control.                       

Integrated Involves designing an integrated support concept that Third
quarter 2010 Third quarter 2011

support system	includes an aircraft with supportable stealth
characteristics and improved logistics and maintenance functions.
Life-cycle cost savings are expected from improved logistics and
maintenance functions. Life-cycle cost savings are expected from low
observable maintenance techniques and streamlined logistics and inventory
systems.

Subsystems  Includes areas of electrical   Demonstrated in Demonstrated in 
                 power, electrical wiring,         2002                  2004 
              environmental control systems,                  
                   fire protection, fuel                      
                 systems, hydraulics, landing                 
                     gear systems, mechanisms                 
              and secondary power. Important                  
              for reducing aircraft                           
              weight, decreasing maintenance                  
              cost, and improving                             
                       reliability.                           

Integrated core Includes the ability to use commercial-based processors
Third quarter 2009 First quarter 2011

processor 	in an open architecture design to provide processing capability
for radar, information management, communications, etc. Use of commercial
processors reduces development and production costs, and an open
architecture design reduces future development and upgrade costs.

Radar Includes advanced integration with     Fourth quarter Fourth quarter 
         communication,                              2007                2008 
                 navigation, and identification                
                       functions and electronic                
         warfare functions through improved                    
         apertures,                                            
         antennas, modules, radomes, etc.                      
         Important for                                         
         reducing avionics cost and weight, and                
         decreasing                                            
         maintenance cost through improved                     
         reliability.                                          

Appendix III: Projected Time Frames for Demonstration of Critical
Technologies

Actual or planned date

Actual or planned date technology Critical technology demonstrated in
demonstrated in technologies Technology description relevant environmenta
operational environmentb

     Mission       Involves decreasing pilot     First quarter Fourth quarter 
                     workload by providing           2010                2011 
               information for targeting,                      
     systems   situational awareness, and                      
integration survivability through fusion of                 
               radar, electronic warfare,                      
                  and communication, navigation,               
                        and identification data.               
               Improvements are achieved through               
               highly integrated                               
               concept of shared and managed                   
               resources, which                                
               reduce production costs, aircraft               
               weight, and volume                              
                 requirements, in addition to                  
                      providing improved                       
                         reliability.                          

Manufacturing   Involves lean, automated,    Second quarter Second quarter 
                   highly efficient aircraft         2007                2007 
                    fabrication and assembly                   
                   techniques. Manufacturing                   
                 costs should be less through                  
                 improved flow time, lower                     
                   manpower requirements, and                  
                     reduced tooling cost.                     

Source: Joint Strike Fighter Program Office.

aTechnology is in a form that closely represents the form, fit, and
function needed for the JSF and is demonstrated in an environment that
closely approximates the realities of its intended use but is short of the
eventual operating environment itself, such as in a high-fidelity
laboratory.

bTechnology is in the form, fit, and function needed for the JSF and is
demonstrated in an operational environment similar to that intended for
the JSF, such as on a surrogate platform or test bed.

Appendix IV: Measures of JSF Program Cost and Schedule Changes

25

                       Source: GAO analysis of DOD data.

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