Tactical Aircraft: Air Force Still Needs Business Case to Support
F/A-22 Quantities and Increased Capabilities (15-MAR-05,	 
GAO-05-304).							 
                                                                 
The Air Force is preparing a modernization plan that expands the 
capabilities of the F/A-22, which was first designed to serve as 
an air-to-air fighter aircraft with very limited ability to	 
strike targets on the ground. The Air Force now intends to	 
transform it by adding robust air-to-ground capabilities to	 
attack enemy ground threats and by adding onboard intelligence	 
data gathering capabilities. After the recent budget cut, DOD	 
estimates F/A-22 cost at $63.8 billion for 178 aircraft. It has  
been in development for more than 19 years, a decade longer than 
originally envisioned. In the face of significant cost and	 
schedule overruns, Congress mandates that GAO annually assess the
F/A-22 program. In this report, GAO addresses (1) the Air Force's
business case for the F/A-22 modernization plan and (2) the	 
recently completed initial operational test and evaluation.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-304 					        
    ACCNO:   A19376						        
  TITLE:     Tactical Aircraft: Air Force Still Needs Business Case to
Support F/A-22 Quantities and Increased Capabilities		 
     DATE:   03/15/2005 
  SUBJECT:   Cost analysis					 
	     Cost overruns					 
	     Military aircraft					 
	     Operational testing				 
	     Performance measures				 
	     Program evaluation 				 
	     Schedule slippages 				 
	     Fighter aircraft					 
	     DOD Bottom-Up Review				 
	     DOD Quadrennial Defense Review			 
	     Eagle Aircraft					 
	     F-15C Aircraft					 
	     F-22 Raptor Aircraft				 
	     F/A-22 Aircraft					 

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GAO-05-304

                 United States Government Accountability Office

                     GAO Report to Congressional Committees

March 2005

TACTICAL AIRCRAFT

 Air Force Still Needs Business Case to Support F/A-22 Quantities and Increased
                                  Capabilities

                                       a

GAO-05-304

[IMG]

March 2005

TACTICAL AIRCRAFT

Air Force Still Needs Business Case to Support F/A-22 Quantities and Increased
Capabilities

                                 What GAO Found

The Air Force has yet to produce a business case for the next-generation
F/A-22. Much has changed in the years since the F/A-22 program began
nearly 2 decades ago-adversarial threats against U.S. aircraft have
evolved, and a plan to modernize the F/A-22 significantly different than
the original aircraft is in progress. A DOD cost estimate in 2003
projected the Air Force's modernization plan to cost $11.7 billion through
2018. A December 2004 budget decision reduced procurement funding and
quantities but did not cut funding for modernization. The decision to
terminate procurement after fiscal year 2008 places the current
modernization plan in doubt as key ground attack and
intelligence-gathering enhancements had been slated for aircraft now
eliminated from the program. Without a new business case for adding a more
robust ground attack capability and for new intelligence missions, the Air
Force may be at a disadvantage when the time comes to justify the
modernization plan in the face of future budget constraints. The following
table shows the current plan for integrating new capabilities:

Planned Modernization Enhancements for the F/A-22 Program

2007 2011 2013 2015

Examples of Air-to-air plus Air-to-ground: Additional air-Enhanced
capabilities to be limited air-to-Add improved to-ground: intelligence
data added ground: radar to seek and Increase gathering: Add

Improved destroy advanced capability to integrated capability to
surface-to-air suppress or intelligence, launch Joint missile systems;
destroy full range surveillance, and Direct Attack integrate of air
defenses reconnaissance

Munition at faster additional air-to-and improve capabilities.

speeds; upgrade ground weapons speed and air-to-air accuracy of
capabilities targeting

Sources: Air Force and Office of Secretary of Defense (data); GAO
(analysis and presentation).

DOD is set to conduct the 2005 Quadrennial Defense Review to weigh the
merits of transformational priorities and investments to determine if the
best choices are being made to meet military needs within available
funding levels. This may further influence an F/A-22 business case.

The F/A-22 program recently underwent initial operational testing, but
testing did not include the air-to-ground missions that the Air Force
envisions for the aircraft. The Air Force does not expect to conduct
testing of these capabilities until after a decision is made to enter
full-rate production. Although a final test report was not available for
our review, Air Force officials told us that the F/A-22 was extremely
effective in performing its air-to-air missions. Evaluation results of
capabilities needed to sustain combat operations and maintain aircraft
were not as favorable. Additional testing will be required to assess
corrective actions for deficiencies identified and to evaluate new ground
attack and intelligence-gathering capabilities added by the modernization
program.

                 United States Government Accountability Office

Contents EUR

Letter

Results in BriefEURBackgroundEURF/A-22 Modernization Program Lacks
Business Case and May Not EUR

Be Executable as Planned Operational Testing Considered Successful by Air
Force, but

Ground Attack Role Has Not Yet Been Tested Conclusions Recommendations for
Executive Action Agency Comments and Our Evaluation

                                       1

                                      2 4

                                       7

13 16 17 18

Appendix I Scope and Methodology

Appendix II	F/A-22 Program Cost, Quantity, and Schedule Changes

Appendix III Comments from the Department of Defense

Related GAO Products

Tables

Table 1: Planned Modernization Enhancements for the F/A-22 Program

Figures

Figure 1: Quantity and Program Acquisition Unit Cost of F/A-22s 6

Abbreviations

CAIG Cost Analysis Improvement Group EURDOD Department of Defense EURIOT&E
Initial Operational Test and EvaluationEUROSD Office of the Secretary of
Defense EUR

This is a work of the U.S. government and is not subject to copyright
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separately.

United States Government Accountability Office Washington, DC 20548

March 15, 2005

Congressional Committees:

The F/A-22 aircraft program is acquiring the Air Force's next-generation,
multi-mission fighter for about $63.8 billion. The need for the F/A-22,
its increasing costs, and the quantities required to perform its mission
have been the subject of a continuing debate within the Department of
Defense (DOD) and Congress. Supporters cite its advanced features-stealth,
supercruise speed, maneuverability, and integrated avionics-as integral to
the Air Force's Global Strike initiative1 and for maintaining air
superiority over potential future adversaries for years to come. Critics,
however, argue that the Soviet threat it was originally designed to
counter no longer exists and that its large budget could better be
invested in enhancing current air assets and acquiring new and more
transformational capabilities that will allow it to meet the evolving
threat. The debate continues as a December 2004 budget decision by the
Office of the Secretary of Defense (OSD) reduced F/A-22 funding and the
number of aircraft to be acquired. Meanwhile, the upcoming 2005
Quadrennial Defense Review is girding up for a review of force structure,
mission requirements, and modernization plans.

DOD has been pushing to transform its military operations and capabilities
to acquire revolutionary weapon systems and meet evolving post-Cold War
threats. Undertaking this transformational effort requires significant
funding and competes with other DOD and national priorities. When DOD's
weapon systems, such as the F/A-22, require more time and money than
originally anticipated, the extra investment needed to solve problems
takes funding away from other priorities, slows DOD's overall
modernization effort, delays capabilities for the warfighter, and forces
unplanned-and possibly unnecessary-trade-offs among DOD's many priorities.
Our past work has shown that problems, such as cost overruns, arise when
weapon programs do not have a sound business case2 or

1 Global Strike is one of six complementary concepts of operations laying
out the Air Force's ability to rapidly plan and deliver limited-duration
and extended attacks against targets.

2 The business case is defined as 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.

capture the knowledge needed to efficiently and effectively manage program
risks. The end result is a reduction in quantities and ultimately in DOD's
overall buying power.

The National Defense Authorization Act for Fiscal Year 1998 requires GAO
to report annually on the F/A-22 development program and cost, schedule,
and performance issues.3 The act also requires us to certify whether we
had access to sufficient information to make informed judgments on the
matters contained in this report. This report addresses (1) Air Force
business case, plans, and funding for the F/A-22 modernization program and
(2) the recently completed initial operational test and evaluation
(IOT&E).

We performed our work from November 2004 to February 2005 in accordance
with generally accepted government auditing standards. We analyzed
modernization plans, funding, and impacts from recent budget changes. Our
observations on operational testing are limited and largely based on
summary comments and briefing materials provided by testing and program
officials. We did not review Air Force and OSD reports on operational test
results because the reports were not available to us at the time of our
review. Notwithstanding, we believe DOD officials gave us access to
sufficient information to make informed judgments on the matters in this
report. Appendix I further discusses this report's scope and methodology.

The F/A-22 program has changed substantially since it started in 1986, and
Air Force leaders have not developed a new business case for investing
billions more dollars to modernize the aircraft that reflects this change.
A December 2004 budget decision places much of the modernization program
in doubt and renders the current plan obsolete. DOD cut more than $10
billion from the procurement program, ending aircraft procurement after
2008. However, the decision did not cut budgeted funds planned for
modernizing the F/A-22. In March 2003, OSD cost analysts had estimated the
modernization may cost over $11 billion to add more robust ground attack
capabilities and much enhanced intelligence, surveillance,

3 P. L. 105-85 (Nov. 18, 1997), section 217(d). The act states that no
report is required after Engineering and Manufacturing Development under
the program has been completed. If the scheduled March 2005 full-rate
production decision occurs, it means that the overall program has
officially moved beyond the development phase into large-scale production.
Accordingly, this would be the last GAO report under this mandate.

  Results in Brief

and reconnaissance capabilities to give the F/A-22 more utility and to
take on new missions. Many of the advanced ground attack and
intelligence~gathering modernization efforts were intended to be
incorporated on aircraft procured after 2008, which have now been
eliminated. Further, the budget decision and DOD studies to reappraise
multi-service tactical air modernization programs and propose alternative
investments call into question the F/A-22's expected role and
contributions in combination with other DOD assets, the numbers of
aircraft needed in each of its planned configurations, and the
affordability and feasibility of modernization plans. If the modernization
plan were canceled, what is left of the F/A-22 program is the original
F-22, primarily a state-of-the-art fighter designed to counter large
numbers of advanced Soviet fighter aircraft, a threat that never
materialized. Nevertheless, the Air Force still has to decide how best to
invest the remaining billions of dollars budgeted for the program,
increasing the need for a new and executable business case unless the
modernization program is also terminated.

Reports detailing the results from IOT&E were not available for our
review, but Air Force test officials told us that testing showed the
F/A-22 was "overwhelmingly effective" as an air superiority fighter and
that its supporting systems were "potentially suitable." Some deficiencies
and lack of maturity were identified in aircraft reliability and
maintainability (including maintaining low observable characteristics) and
in the integrated diagnostic systems used to identify and direct
maintenance actions. Air Force officials believe these deficiencies are
readily correctible and should meet the needs of the warfighter by the
scheduled initial operational capability date in December 2005. They also
believe that test results support making the full-rate production decision
planned in late March 2005. Testing to demonstrate the limited
air-to-ground attack capability included in the current design was not
done during initial operational testing but is scheduled to be done during
follow-on testing planned to start in July 2005. Air-to-ground attack
capabilities are increasingly emphasized by the Air Force and future
enhancements are planned for 80 percent of the modernized F/A-22s. More
robust ground attack and intelligence gathering capabilities will be
tested in the future as they are developed.

In March 2004,4 GAO recommended the Secretary of Defense complete a new
business case that determines the need for the F/A-22 (air and ground

4 GAO, Tactical Aircraft: Changing Conditions Drive Need for New F/A-22
Business Case, GAO-04-391 (Washington, D.C.: Mar. 15, 2004).

missions) and the quantities required and affordable. DOD did not prepare
a new business case as recommended, stating routine acquisition and budget
processes provide elements of the business case. We do not believe the
routine processes provide sufficient analysis to justify future
investments in the new capabilities added by the modernization program,
especially given the continued uncertainties still surrounding these
program issues. Therefore, we again recommend the Secretary of Defense
direct appropriate studies and analyses be completed in order to prepare a
new business case that justifies the new capabilities and affordable
quantities. DOD concurred with the recommendation this time and said it
will provide business case elements through the 2005 Quadrennial Defense
Review, modernization program documentation required by policy, and in
other ways.

                                 Background EUR

The F/A-22 is the Air Force's next-generation air superiority5 fighter
aircraft and incorporates a low observable (stealth) and highly
maneuverable airframe, advanced integrated avionics, and a new engine
capable of sustained supersonic flight without the use of afterburners. It
was originally designed to counter threats posed by the Soviet Union and
was intended to replace the F-15 fighter in the air-to-air combat role.
Over the years, the Air Force decided to add a more robust air-to-ground
capability not previously envisioned but now considered necessary to
increase the utility of the aircraft. In 2002, the F-22 aircraft was
redesignated the F/A-22, with the "A" representing the expanded ground
attack capabilities. Officials initiated a modernization program to
develop and integrate these new capabilities.

The F-22 acquisition program started in 1986 with an intended development
period of 9 years and an initial operational capability in March 1996. The
Air Force's plan at that time was to procure 750 aircraft. In the years
since, the original business case has been severely weakened as threats,
missions, and requirements have changed. Further, the program milestones
have slipped, the development period lengthened to more than 19 years,
development costs more than doubled, and a modernization program was
added. The initial operational capability date is now December 2005.

5 Air superiority is the degree of air dominance that allows the conduct
of operations by land, sea, and air forces without prohibitive
interference by the enemy.

Amidst concerns about escalating costs and schedule, Congress placed cost
limitations on both development and production budgets in 1997,6 later
removing the development cost cap.7 (The current production cost cap is
$37.3 billion.) Concomitantly, the planned procurement quantity has
steadily decreased due to affordability concerns and changes in missions
and combat requirements. Two major reviews of defense force structure and
acquisition plans, the 1993 Bottom-Up Review and the 1997 Quadrennial
Defense Review, both significantly reduced F/A-22 quantities. In addition,
OSD's "buy to budget" acquisition strategy, which essentially placed a
ceiling on the total program costs, has resulted in further cuts to
quantity as development cost increased. In December 2004, OSD issued
Program Budget Decision 753, which reduced F/A-22 funding by $10.5 billion
and cut 96 aircraft from the planned procurement quantity. The decision
ends procurement in 2008, instead of 2011, and would reduce total
procurement quantity to 178 aircraft.8

Figure 1 illustrates the downward trend in procurement quantity over the
years juxtaposed with a rise in program acquisition unit costs,9 which has
resulted in a significant loss in buying power. Program acquisition unit
costs have increased largely due to (1) increased development and
production costs; (2) decreased procurement quantities; and (3) increased
costs to modernize and enhance capability. The current plan supporting the
fiscal year 2006 defense budget request submitted in February 2005 is to
acquire 178 aircraft for about $63.8 billion.10 Appendix II illustrates
other changes in cost, quantity, and schedule experienced by the program
since its commencement.

6 P. L. 105-85 (Nov. 18, 1997), section 217.

7 P. L. 107-107 (Dec. 28, 2001), section 213.

8 Program Budget Decision nominally reduced procurement quantity to 179
aircraft. Subsequently, the Air Force transferred one production aircraft
to be dedicated to testing, further reducing procurement quantity to 178.
It should also be noted that the recent crash of an F/A-22 has reduced
planned operational aircraft to 177.

9 Program acquisition unit cost includes funding for development,
procurement, related military construction, and initial modernization
costs divided by total procurement quantity. It does not include later
modernization costs and certain support costs.

10 The total amount consists of $61.3 billion currently budgeted for the
basic program and the initial stages of the modernization efforts; $1.3
billion for future start-up costs of a separate acquisition program for
the latter stages of modernization; and $1.2 billion in related costs to
retrofit aircraft with enhanced capabilities and activate depot
maintenance activities.

Figure 1: Quantity and Program Acquisition Unit Cost of F/A-22s

Aircraft quantity Total cost per aircraft (dollars in millions)

800

750

700

600

500

400

300

200

100

0 1986 1991 1993 1997 2003 2005

Quantity

Program acquisition unit cost Source: U.S. Air Force (data); GAO
(presentation).

400

350

300

250

200

150

100

50 0

Our March 2004 report11 discussed the significant changes in cost,
quantity, capabilities, and mission since F-22 development began in 1986.
We reported continued problems and delays in the development and testing
schedules. We recommended that DOD complete a new business case that
justifies the continued need for the F/A-22 and the quantities needed to
carry out the air-to-air versus air-to-ground missions. The business case
was to also consider alternatives within the constraints of future defense
spending. Later in testimony,12 we stated that there are competing
priorities both internal and external to DOD's budget that require a sound
and sustainable business case for DOD's acquisition programs based in
clear priorities, comprehensive needs assessments, and a thorough analysis
of available resources. DOD partially concurred with our report
recommendation but did not prepare a new business case, stating that it

11 GAO-04-391.

12 GAO, Tactical Aircraft: Status of the F/A-22 and Joint Strike Fighter
Programs, GAO-04-597T (Washington, D.C.: Mar. 25, 2004).

evaluates the F/A-22 business case elements as part of the routine
acquisition and budget processes with the results reflected in the defense
budget. We did not think these kinds of activities sufficiently analyzed
and addressed the specific business case elements-analysis of need for
original and new capabilities, assessment of alternatives, justification
of needed quantities, and evidence that planned quantities were
affordable.

  F/A-22 Modernization Program Lacks Business Case and May Not Be Executable as
  Planned

The Air Force, in the face of significant changes to the F/A-22, has not
prepared a new business case to justify the resources needed to add a much
more robust ground attack capability and to assume new missions. The
requirements for the F/A-22 have changed significantly since its original
business case and the available resources are in flux-both are key
components of a business case needed to support further investments. A
December 2004 budget decision reduced procurement funding and quantities
but did not cut funding for modernization. This has made the current
modernization plan obsolete as key ground attack and intelligence
gathering enhancements had been slated for aircraft that have now been
eliminated from the F/A-22 procurement program. While its total cost is
not clear at this time and program content is subject to change, in 2003
OSD cost analysts estimated the modernization program would cost about
$11.7 billion.

    Modernization Program Makes Significant Changes to F/A-22 Requirements
    without a New Business Case

The Air Force embarked on the expensive and wide-ranging modernization
program without a new business case to support investments of billions of
dollars to develop and deliver new capabilities and missions. The
modernized F/A-22 would differ so significantly from the original aircraft
in capabilities and missions that it should have been developed in an
entirely separate acquisition program. Instead, the Air Force opted to
incorporate modernization efforts within the existing acquisition
program.13 A business case should match 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 defined, alternative approaches to satisfying
these needs properly analyzed, and quantities needed for the chosen

13 In November 2004, the acting Under Secretary of Defense for
Acquisition, Technology and Logistics directed the Air Force to hold
separate milestone reviews for the latter stages of the modernization
program to be consistent with DOD acquisition policy. The Air Force now
plans to manage these efforts as a separate acquisition program while
continuing to manage the initial stages of modernization in the existing
F/A-22 program.

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, a program incurs substantial risk
in moving forward.

The original business case for the F/A-22 was made in 1986 to support
acquiring large quantities of air superiority fighters to engage in
conventional warfare and counter Cold War-era threats. These threats never
materialized as expected. Because the program was in development for over
19 years, tactical fighter requirements, projected threats, and
operational war plans changed. To enhance the utility of the F/A-22 for
today and the future, the Air Force now plans to develop a robust
air-to~ground attack capability to allow the aircraft to engage a greater
variety of ground targets, such as surface-to-air missiles systems, that
pose a significant threat to U.S. aircraft. It also plans to equip most of
the F/A-22 fleet with improved capabilities to satisfy expanded warfighter
requirements and to take on new missions, including intelligence data
gathering and the suppression of enemy air defenses and interdiction.

The Air Force established a time-phased modernization program to develop
and insert new capabilities required to implement the Air Force's Global
Strike concept of operations. Table 1 shows how the Air Force intended to
integrate new capabilities incrementally before the December 2004 budget
decision reduced quantities by 96 aircraft. At the time of our review,
officials were still determining the impacts of the budget decision on the
modernization program content and quantities.

       Table 1: Planned Modernization Enhancements for the F/A-22 Program

Fiscal year when enhancements are expected to be incorporated

                          2007        2011a        2013           2015        
                         Global          Global   Global                      
      Capabilities       Strike          Strike   Strike             Enhanced 
        increment         Basic        Enhanced    Full         Intelligence,
                                                           Surveillance, and  
                                                             Reconnaissance   
     bConfiguration     Block 20     Block 30    Block 40       Block 40      

c

Quantity of F/A-22s 56 91 128

Examples of enhancements Improve capability to Enhance air-to-ground
Increase capability to Add capability for full

to be added launch Joint Direct capability by adding suppress or destroy
the intelligence, Attack Munition at faster improved radar full range of
air surveillance, and speeds and at longer capabilities to seek and
defenses and improve reconnaissance distances; upgrade air-destroy
advanced speed and accuracy of integration for increased to-air
capabilities surface-to-air missile targeting target sets and lethality
systems; integrate additional air-to-ground weapons

Sources: Air Force and Office of Secretary of Defense.

aGlobal Strike Enhanced includes two increments of capability with the
first increment incorporated in fiscal year 2009 and the second in 2011.

bThe Air Force plans to have three configurations (called blocks) that
include specific enhancements developed in the modernization program.

c This quantity included in Global Strike Full amount. Total 128 aircraft
planned for block 40.

Initial development work on modernization enhancements started in 2003 and
is planned to extend over a 12-year period with the first set of new
capabilities inserted into the production line in fiscal year 2007. By the
end of development in 2015, the Air Force plans to have three different
configurations (or blocks) of F/A-22s, each with distinct operational
capabilities. Based on the current modernization road map, the Global
Strike Basic configuration (block 20) will include 56 F/A-22s built
primarily to perform air-to-air missions but with limited air-to-ground
capability. The Global Strike Enhanced configuration (block 30) includes
91 aircraft that will perform the bulk of air-to-ground and electronic
attack missions using advanced radars to track targets and small diameter
bombs to destroy them. Block 40 encompasses both the Global Strike Full
and Enhanced Intelligence, Surveillance, and Reconnaissance increments.
This configuration of 128 aircraft is expected to perform such missions as
suppression of enemy air defenses and gathering up-to-date information on
potential adversaries' locations, resources, and personnel to improve
target identification and increase kill capabilities. According to program
officials, these latter two increments are still conceptual in nature and
subject to revision.

    Budget Decisions and Unstable Resources Place the F/A-22 Modernization
    Program in Doubt

The modernization program as currently planned is much in doubt because of
the recent budget cut and the likely prospects for more changes. The
instability in F/A-22 resources and upcoming DOD-wide reviews of
capabilities and requirements may result in further revisions and
cutbacks, further impacting modernization plans. Budget and programmatic
decisions also cause ripple effects on other resource plans tied to the
modernization, which may open up budgeted funds for other uses.

In March 2003, OSD's Cost Analysis Improvement Group (CAIG)14 estimated
that the Air Force would need $11.7 billion for the planned modernization
programs through fiscal year 2018. The CAIG estimate included costs for
development, procurement, and retrofit of modernized aircraft. The Air
Force's latest estimated cost for the modernization program is about $5.4
billion through 2011. Future modernization costs beyond 2011 have not been
definitized and are subject to change. The modernization program manager
projected annual funding of $700 million to $750 million would be needed
for the currently planned modernization program after 2011.

The December 2004 budget decision places much of the modernization program
in doubt, particularly the latter stages. OSD substantially reduced the
F/A-22 budget, which will require another strategy for the modernization
program. It reduced F/A-22 funding by $10.5 billion, stopped procurement
of aircraft after 2008, and reduced the quantity by 96 aircraft. This and
other events will reduce the Air Force's expected buy to no more than 178
aircraft. While the OSD funding decision changed the baseline F/A-22
program, it did not change the planned funding for the modernization
program to add advanced ground attack and intelligence gathering
capabilities between 2007 and 2015. However, many of these new and
advanced capabilities had been planned for aircraft that will not be built
as the budget eliminates F/A-22 aircraft that had been planned for
production after 2008. Air Force officials told us they hope to reverse
these changes, but officials acknowledge that a major restructuring is
likely if the proposed funding cuts are sustained. If the budget cut is
sustained, the modernization program as currently planned is largely
obsolete and funding for these advanced capabilities to be incorporated
after 2008 would be available for other uses. This could include up to

14 The OSD CAIG acts as the principal advisory body to the milestone
decision authority on acquisition program costs.

$1.2 billion now budgeted for the start-up of the latter modernization
increments.

The Air Force's desire to upgrade the F/A-22's computer architecture and
avionics processors in order to support the block 40 expanded
capabilities15 may also be affected by the recent budget cut. Program
officials do not expect the new architecture to be fully developed and
ready for installation in the F/A-22 until fiscal year 2010. However,
early indications show that the effort to upgrade the computer
architecture- expected to cost between $400 million and $500
million-already is experiencing schedule problems and increased risks. As
a result, the 2010 insertion date may not be achievable as planned for the
F/A-22. Furthermore, DOD's proposed termination of procurement after 2008
raises questions about the need to proceed with the planned computer
upgrade. The existing processors with some minor upgrades would support up
to 155 aircraft and most Global Strike Enhanced capabilities.

Additionally, since our March 2004 report the program office has
identified new requirements needed to implement the modernization program.
The F/A-22 program office has concluded that the F/A-22 infrastructure,
including government laboratories, such as software avionics integration
labs, flying test beds, and test ranges need to be upgraded to ensure a
successful modernization program. According to program officials, the
existing facilities have major resource/capacity limitations and are
inadequate to support needed software integration activities and system
performance and operational testing for most planned enhancements. The
program office has budgeted about $1.8 billion through fiscal year 2009
for the infrastructure upgrades, including funds for engineering and
maintenance personnel support. According to program officials, the current
infrastructure limitations have caused some modernization efforts to be
deferred to later blocks. If modernization plans are curtailed, some
infrastructure improvements may not be needed.

Even if funding were restored to the F/A-22 program and the
above~mentioned concerns were resolved, previous funding shortfalls and
schedule slippages have already resulted in planned capabilities being
deferred to later years. For example, block 20 enhancements required to
conduct autonomous search and improve target recognition have been

15 GAO-04-391, p. 8 through 10, discusses Air Force needs, plans, and
associated risks for a new computer architecture and avionics processor to
support the modernization program.

deferred to block 30. Similarly, funding problems have caused the Air
Force to scale back some efforts and delay development of block 30
electronic attack and small diameter bomb enhancements. In November 2004,
the Defense Contract Management Agency reported that the contractor
proposes to reduce the amount of planned tasks, defer development of
software specifications, and incrementally develop a key communication
component in order to meet an April 2005 system design review.

DOD officials stated that they believe the budget cut has some
diseconomies that may result in procuring even fewer than 178 aircraft.
They said that stopping aircraft production early affects production
economies and efficiencies that were expected from a multiyear procurement
contract and from production line efficiencies. The multiyear contract was
to begin in fiscal year 2008, the year procurement is now curtailed by the
budget decision. Now that opportunity is gone. Officials also said that
cutting production quantities from the final years of the program
eliminate projected savings in annual unit procurement costs. Typical of
many DOD acquisitions, Air Force program officials had projected future
budgets assuming that the marginal costs for buying F/A~22s would decrease
with each passing year of production as a result of manufacturing
efficiencies, productivity projects, and more economical buying
quantities. This means that aircraft bought late in the production program
usually cost less than those bought earlier in the program. For example,
the average unit flyaway cost16 paid for F/A-22s was $212 million per
aircraft bought in 2002 and $178 million in 2003. Before the budget
decision, officials had projected average unit flyaway costs to decrease
to $127 million, $111 million, and $108 million in fiscal years 2007, 2008
and 2009, respectively. Now that the program has been truncated after
2008, the less expensive aircraft in 2009 and beyond will not be bought
and unit costs are now projected at $135 million in 2007 and $149 million
in 2008 (increase associated with close-out of production).

OSD has directed that the 2005 Quadrennial Defense Review include an
assessment of joint air dominance in future warfare and the contributions
provided by all tactical aircraft, including the F/A-22. An announced
defense goal is to redirect investment from areas of conventional warfare,

16 Average unit flyaway cost includes the costs associated with procuring
one aircraft, including the airframe, engines, avionics, other mission
equipment, and certain nonrecurring production costs. It does not include
"sunk" costs, such as development and test, and other costs to the whole
system including logistical support and construction.

where the United States enjoys a strong combat advantage, toward more
transformational capabilities needed to counter "irregular" threats, such
as the insurgency in Iraq and ongoing war on terror. DOD is also
conducting a set of joint capability reviews to ensure acquisition
decisions are based on providing integrated capabilities rather than
focused on individual weapon systems. The study results, although still
months away, could further impact the future of the F/A-22 program
including the modernization plan. The F/A-22 will have to compete for
funding, priority, and mission assignments with operational systems, such
as the F-15 and F/A-18, and future systems, such as the Joint Strike
Fighter and the Joint Unmanned Combat Air Systems.

Air Force leadership and the Air Combat Command continue to support the
multi-mission role for the F/A-22 and do not want to reduce or eliminate
the new capabilities and missions. Therefore, if restructuring is
required, program officials are considering other options to accommodate
the program within reduced funding and fleet size. They are considering
the possibility of moving forward with blocks 20 and 30 but curtailing
block 40 because its enhancements are slated for those aircraft that have
been cut by the budget decision (refer to table 1). Officials said that
some of the enhancements planned for block 40 could be retrofitted into
the block 20 and 30 aircraft. At the time of our review, Air Force
officials were considering alternative strategies and plans for rephasing
funds in order to execute the changes in the program enumerated above. It
is paramount that these issues be settled before moving forward in the
program.

Reports detailing the results from IOT&E were not available for our
review, but Air Force test officials told us that testing showed the
F/A-22 was "overwhelmingly effective" as an air superiority fighter and
that its supporting systems were "potentially suitable." Some deficiencies
were noted, particularly in reliability and maintainability, but Air Force
officials believe these deficiencies can be corrected in time to meet the
warfighter's needs by the scheduled initial operational capability date in
December 2005. They also believe test results support making the full-rate
production decision. Testing to demonstrate the limited air-to-ground
attack capability was not accomplished but is scheduled to be done as part
of the follow-on operational test planned to start in July 2005.

The F/A-22 initial operational test and evaluation was conducted by the
Air Force Operational Test and Evaluation Center from April through
December 2004 to support the full-rate production decision planned for
March 2005. Its operational test plan was designed to assess the F/A-22's

  Operational Testing Considered Successful by Air Force, but Ground Attack Role
  Has Not Yet Been Tested

combat effectiveness and suitability in an operationally representative
environment. The warfighter had established five critical operational
issues for evaluation during operational testing to demonstrate
effectiveness and suitability:

o  DEGeffectiveness-demonstrate operational performance to effectively
execute selected counter-air missions;

o  DEGsurvivability-assess ability to evade and survive against air-to-air
and surface-to-air threats;

o  DEGdeployability-evaluate the timely transportability and set up of
F/A-22 personnel and equipment into a theater of operations;

o  DEGsortie generation-assess how well air crews can generate and launch
sorties, including maintenance and supply support capabilities; and

o  DEGground attack-demonstrate limited air-to-ground attack with the
Joint Direct Attack Munition.

The first two issues assess combat effectiveness in completing selected
counter air missions and in surviving against representative air and
ground threats. The second two issues assess suitability of F/A-22 to
support combat by transporting, deploying and sustaining forces and
equipment. These four critical operational issues were addressed in IOT&E.
The fifth critical operational issue-ground attack-was not addressed in
IOT&E and will be assessed during follow-on operational test and
evaluation, scheduled to start in July 2005. This follow-on testing is
also planned to include demonstrations of corrective actions for some
deficiencies identified during IOT&E and other testing needed to achieve
initial operational capability in December 2005. Additional follow-on
operational tests are planned in the future to test new, more robust
attack capabilities and other enhancements added by the modernization
program.

Combat effectiveness and survivability testing included extensive flight
tests to evaluate air-to-air capabilities including (1) offensive
counter-air missions against aggressor aircraft and (2) defensive
counter-air missions to accompany and protect friendly strike and high
value support aircraft from attack by aggressor aircraft. These tests
incorporated ground and air threats resident at the Air Force's Nevada
test range. Computer simulations and models were also used to evaluate
performance against future threats and in other scenarios that cannot be
replicated in open flight tests.

Test officials told us that the F/A-22 performed all the air-to-air
missions very satisfactorily, demonstrating "overwhelming effectiveness"
in their words. Officials also said that, in direct comparability tests
with the F-15C,

the F/A-22 demonstrated a clear advantage often many more times the
effectiveness of the F-15C. Testing did reveal some areas needing
improvement, including avionics reliability, defensive systems, and other
corrective actions that will need to be addressed in follow-on testing.

Test officials characterized F/A-22 suitability demonstrations for the
aircraft and support systems as "potentially suitable." The ability to
transport and deploy F/A-22 personnel and equipment was adequately
demonstrated and met the interim goal set by the warfighter regarding the
number of airlift planes needed to transport forces and support equipment
in the required amount of time.

Of the four critical operational issues assessed, sortie generation
experienced the most problems. Officials rated the sortie generation area
as unsatisfactory. Problems were noted in aircraft reliability and
maintainability, including maintenance of the aircraft's critical low
observable characteristics. Problems were also noted in the maturity of
integrated diagnostic systems, key assets expected to greatly improve and
accelerate field maintenance activities for meeting sortie rates with
constrained personnel. Officials believe these and other deficiencies can
be corrected in time to meet the warfighter's needs. For example,
officials said the mission capability rate demonstrated during testing has
continued to improve and is close to achieving the warfighter's desired
rate, not required until December 2005. However, the testing and
implementation of most corrective actions will not occur until after the
full-rate production decision.

Sortie generations and support activities also required the extensive
involvement of contractor personnel for providing technical assistance,
off-aircraft maintenance, and engineering, including trouble-shooting and
use of special test equipment. Air Force officials said that extensive
contractor involvement has long been planned for the F/A-22 system,
particularly during initial fielding, and that reliance on contractor
personnel and special test equipment should somewhat lessen as Air Force
personnel gain experience.

Before full-rate production can start, the Office of the Director of
Operational Test and Evaluation must still review test results and report
to

Congress and defense leadership.17 In addition, the F/A-22 program must
demonstrate it satisfies criteria established by the Defense Acquisition
Board in November 2004. Among other things, that criteria includes
delivering a fully-resourced plan for follow-on testing to correct
deficiencies identified in IOT&E, achieving design stability of the
avionics software, demonstrating mature manufacturing processes, and
validating technical order data.

                                Conclusions EUR

The Air Force, in the face of significant changes to the F/A-22, has not
prepared a new business case to justify the resources needed to add a much
more robust ground attack capability and to assume new missions. Over the
19 years that the program has been in development, the world threat
environment has changed and the capabilities the Air Force once needed and
planned for in the F-22 may not satisfy the warfighter's future needs.
Additionally, cost growth over time and affordability concerns have driven
down planned aircraft quantities from 750 to 178 aircraft. The Air Force
is now planning a modernization program that will substantially change the
role of the F/A-22. Because of budget cuts in the program that have
eliminated F/A-22 procurement after 2008 the modernization program as
planned is obsolete. Even if aircraft are restored to the procurement plan
beyond 2008, this modernization is projected to occur over a 12-year
period. Based on the program's current knowledge, there is significant
risk that the planned modernization would not move ahead and deliver
capability to the warfighter on schedule. The original plan to develop and
deliver an initial capability for the F-22 was 9 years-it has taken nearly
20 years. Our body of work in best practices tells us one thing for
certain, and that is that the chances of attaining successful outcomes are
substantially increased when a business case is made that matches
requirements and resources for developing a product. Right now both
requirements and resources for the F/A-22 program are in a state of flux
and it lacks a business case to move forward with billions of dollars in
planned investments.

17 10 U.S.C. section 2399 provides that a major defense acquisition
program may not proceed beyond low-rate initial production until initial
operational test and evaluation is completed and the congressional defense
committees have received the report of testing results from the Director
of Operational Test and Evaluation. This report is to contain an opinion
about test adequacy and whether the test results confirm that the system
actually tested is operationally effective and suitable for combat.

  Recommendations for Executive Action

Over the immediate horizon, planned studies present OSD with opportunities
to answer questions about need and affordability of the F/A~

22. The 2005 Quadrennial Defense Review is expected to make a strategic
assessment of available and planned tactical air capabilities to help
determine where to target resources. Likewise, an ongoing series of joint
capabilities reviews, to include the F/A-22, could help determine where
the F/A-22 now fits in the force structure. These top-level studies would
provide information needed for a specific F/A-22 business case that would
place DOD leaders in a better position to decide on remaining F/A-22
investments in concert with other tactical aircraft and DOD needs. The
F/A-22 full rate production decision is currently planned for March 2005,
before the results of these studies are available and production is
already at near full rate quantities.

Because of evolving threats against the United States; pending changes in
U.S. defense plans; the lack of clarity regarding F/A-22 required
capabilities, quantities, and resources; the recent budget decision; and
upcoming reviews on joint air capabilities, we are reiterating and
expanding upon the recommendation in our March 2004 report for a new and
comprehensive business case to justify future investment in the F/A-22
program. We recommend the Secretary of Defense complete a new business
case that determines the continued need for the F/A-22 and that
specifically:

(a) justifies the F/A-22's expanded air-to-ground capabilities based on an
assessment of alternatives to include both operational assets and planned
future weapon systems;

(b) justifies the quantity of F/A-22 aircraft needed to satisfy
requirements for air-to-air and air-to-ground missions;

(c) provides evidence that the planned quantity and capabilities are
affordable within current and projected budgets and the statutory funding
limitation;

(d) addresses impacts of the recent budget decision on the need for and
cost of future developmental activities, long-term logistical support and
basing decisions, and the ability to take advantage of cost reduction
efforts, such as multiyear contracting and productivity improvement; and

(e) justifies the need for investments for a new computer architecture and
avionics processor, and F/A-22 infrastructure deficiencies.

  Agency Comments EURand Our Evaluation EUR

In written comments on a draft of this report, DOD concurred with our
recommendation. They identified the following actions planned that would
accomplish business case elements: (1) the 2005 Quadrennial Defense Review
will address quantity of aircraft needed for air-to-air and air-to~ground
missions; (2) Defense Acquisition Board reviews of the F/A-22 program will
ensure that initial modernization efforts have validated requirements and
are tested; and (3) the plan to break out the latter stages of
modernization as a separate acquisition program will require the Air Force
to develop requirements, perform an analysis to substantiate those
requirements, and justify investments in new capabilities.

DOD also stated its concern that by only reporting total program
acquisition unit cost (pp. 5 and 6 herein), the report does not provide a
balanced picture. They asked us to also present information concerning the
steady reduction in unit flyaway costs over the course of the program.
Flyaway costs do not include "sunk" costs and fixed expenses for program
start-up, development, test, construction, and support but focus on the
procurement costs of buying additional systems, costs that generally
decrease as a production program matures and manufacturing efficiency
improves. In response, we provided additional information about flyway
costs and potential diseconomies from truncating the procurement program
(see p. 12). We also incorporated other technical comments from DOD where
appropriate.

We are sending copies of this report to the Secretary of Defense; the
EURSecretary of the Air Force; and the Director, Office of Management and
EURBudget. Copies will also be made available to others on request. Please
EURcontact me or Michael J. Hazard at (202) 512-4841 if you or your staff
has EURany questions concerning this report. Other contributors to this
report EURwere Robert Ackley, Michael W. Aiken, Lily J. Chin, Bruce D.
Fairbairn, EURSteven M. Hunter, and Adam Vodraska. EUR

Michael J. Sullivan EURDirectorEURAcquisition and Sourcing ManagementEUR

List of Congressional Committees

The Honorable John Warner EURChairman EURThe Honorable Carl Levin
EURRanking Minority MemberEURCommittee on Armed Services EURUnited States
Senate EUR

The Honorable Ted Stevens EURChairman EURThe Honorable Daniel K. Inouye
EURRanking Minority MemberEURSubcommittee on Defense EURCommittee on
Appropriations EURUnited States Senate EUR

The Honorable Duncan L. Hunter EURChairman EURThe Honorable Ike Skelton
EURRanking Minority MemberEURCommittee on Armed Services EURHouse of
Representatives EUR

The Honorable C. W. Bill Young EURChairman EURThe Honorable John P. Murtha
EURRanking Minority MemberEURSubcommittee on Defense EURCommittee on
Appropriations EURHouse of Representatives EUR

                     Appendix I: Scope and Methodology EUR

To determine the Air Force's F/A-22 modernization plans and funding
requirements, we analyzed budget documents, cost reports, acquisition
plans, and project listings to identify the purpose, scope, and cost of
the modernization efforts. Officials from the Air Force and the Office of
the Secretary of Defense (OSD) briefed us on program details, specific
candidate projects, and program history. We compared current plans and
project listings with previous time periods to determine changes in
modernization projects and schedules. We also compared cost estimates
prepared by the Air Force and OSD's cost analysts in order to identify key
differences in assumptions used, cost factors applied, and time periods
and to reconcile how these differences impacted final results.

To determine the results and implications of the initial operational test
and evaluation on the F/A-22 program, we first reviewed test plans, laws
and regulations governing operational tests, and management direction
affecting the scope and schedule of testing. We then discussed summary
results and program impacts, including schedule issues, with testing and
evaluating officials from the Air Force and OSD. We also reviewed briefing
materials used by testing officials to inform DOD management and
congressional staffs on the results of initial operational test and
evaluation (IOT&E). However, at the time of our review, the final reports
on IOT&E results from the Air Force's Operational Test and Evaluation
Center and the OSD Director of Operational Test and Evaluation were not
issued nor were drafts made available to us. Accordingly, our analysis of
actual results and data was somewhat constrained and our reporting limited
to providing summary level observations on test scope, results, and
corrective actions identified. Notwithstanding, DOD officials gave us
access to sufficient information to make informed judgments on the matters
covered in this report.

In performing our work, we obtained information and interviewed officials
from the Office of the Secretary of Defense, Washington, D.C., including
the offices of the Under Secretary of Defense for Acquisition, Technology
and Logistics, the Director of Operational Test and Evaluation, the
Program Analysis and Evaluation, and the Cost Analysis Improvement Group;
Air Force Headquarters, Washington, D.C.; F/A-22 System Program Office,
Wright-Patterson Air Force Base, Ohio; Air Combat Command, Langley Air
Force Base, Virginia; Air Force Operational Test and Evaluation Center,
Kirkland Air Force Base, New Mexico; and the Combined Flight Test Center,
Edwards Air Force Base, California.. We performed our work from November
2004 through February 2005 in accordance with generally accepted
government auditing standards.

Appendix II: F/A-22 Program Cost, Quantity, and Schedule Changes

Development costs and cycle times have increased Events delayed since
system development started in 1991

Dollars in billions

35 Critical design review complete 30

First flight

25 Low rate

initial production 20 1st operational

aircraft delivered 15

Initial operational

10 capabilities delivered

IOT&E complete 63 5

Full rate

63

0 production

0 10203040506070

Number of months Fiscal year

Program start 1986 Current estimate 2005

Procurement quantities have decreased Program acquisition unit costs have
increased

648

Number of aircraft Dollars in millions

Development start 1991 Development start 1991

Current estimate 2005 Current estimate 2005

                    Source: GAO analysis of Air Force data.

           198419861988199019921994199619982000200220042006 20082010

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Related GAO Products EUR

Defense Acquisitions: Assessments of Major Weapon Programs. GAO-04~248.
Washington, D.C.: March 31, 2004.

Tactical Aircraft: Status of the F/A-22 and Joint Strike Fighter Programs.
GAO-04-597T. Washington, D.C.: March 25, 2004.

Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 Business
Case. GAO-04-391. Washington, D.C.: March 15, 2004.

Best Practices: Better Acquisition Outcomes Are Possible If DOD Can Apply
Lessons from F/A-22 Program. GAO-03-645T. Washington, D.C.: April 11,
2003.

Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T. Washington,
D.C.: April 2, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22
Production Rates While Development Risks Continue. GAO-03-431. Washington,
D.C.: March 14, 2003.

Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should Be
Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.

Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs
Within the Congressional Limitation. GAO-01-782. Washington, D.C.: July
16, 2001.

Tactical Aircraft: F-22 Development and Testing Delays Indicate Need for
Limit on Low-Rate Production. GAO-01-310. Washington, D.C.: March 15,
2001.

Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded
Congressional Limitation. GAO/NSIAD-00-178. Washington, D.C.: August 15,
2000.

Defense Acquisitions: Use of Cost Reduction Plans in Estimating F-22 Total
Production Costs. GAO/T-NSIAD-00-200. Washington, D.C.: June 15, 2000.

F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are
Avoided. GAO/NSIAD-00-68. Washington, D.C.: March 14, 2000.

Related GAO Products

Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals.
GAO/T-NSIAD-00-58. Washington, D.C.: December 7, 1999.

Fiscal Year 2000 Budget: DOD's Production and RDT&E Programs.
GAO/NSIAD-99-233R. Washington, D.C.: September 23, 1999.

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year
2000. GAO/OCG-99-26. Washington, D.C.: April 16, 1999.

Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering and
Manufacturing Development Programs. GAO/T-NSIAD-99-113. Washington, D.C.:
March 17, 1999.

F-22 Aircraft: Issues in Achieving Engineering and Manufacturing
Development Goals. GAO/NSIAD-99-55. Washington, D.C.: March 15, 1999.

F-22 Aircraft: Progress of the Engineering and Manufacturing Development
Program. GAO/T-NSIAD-98-137. Washington, D.C.: March 25, 1998.

F-22 Aircraft: Progress in Achieving Engineering and Manufacturing
Development Goals. GAO/NSIAD-98-67. Washington, D.C.: March 10, 1998.

Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program.
GAO/NSIAD-97-156. Washington, D.C.: June 4, 1997.

Defense Aircraft Investments: Major Program Commitments Based on
Optimistic Budget Projections. GAO/T-NSIAD-97-103. Washington, D.C.: March
5, 1997.

F-22 Restructuring. GAO/NSIAD-97-100R. Washington, D.C.: February 28,
1997.

Tactical Aircraft: Concurrency in Development and Production of F-22
Aircraft Should Be Reduced. GAO/NSIAD-95-59. Washington, D.C.: April 19,
1995.

Tactical Aircraft: F-15 Replacement Issues. GAO/T-NSIAD-94-176.
Washington, D.C.: May 5, 1994.

Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned.
GAO/NSIAD-94-118. Washington, D.C.: March 25, 1994.

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