Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals
(Statement/Record, 12/07/1999, GAO/T-NSIAD-00-58).

Pursuant to a congressional request, GAO discussed the Air Force's F-22
aircraft development and procurement program.

GAO noted that: (1) in March 1999 GAO reported that it was unlikely the
Air Force would be able to keep the F-22 engineering and manufacturing
development (EMD) program, as planned, within the cost limit established
by Congress; (2) in addition, GAO expressed concern about the
significant reduction the Air Force had made in the testing it planned
to complete before awarding contracts to initiate advance procurement to
accelerate F-22 production; (3) both authorization and appropriations
acts for fiscal year 2000 establish further congressional direction for
the F-22 program; (4) the authorization act required certification by
the Secretary of Defense, prior to beginning low-rate initial
production, that the EMD test plan is adequate for determining F-22
operational effectiveness and suitability; (5) the appropriations act
did not approve the beginning of F-22 low-rate initial production but
approved funding for acquisition of additional flight-test aircraft with
research, development, test, and evaluation funding; (6) the F-22
program has made progress in manufacturing and testing aircraft; (7)
however, there continues to be several important issues regarding the
cost of the EMD and production programs and the schedules for completion
of EMD activities leading to production of F-22s in higher quantities;
(8) preliminary indications from GAO's ongoing review of the EMD
program's status show that, compared to the program's status in March
1999, sufficient cost reductions have not been implemented to ensure
that EMD activities, as planned, can be completed within the cost
limitation, and completion dates for testing F-22 aircraft may be
further delayed; (9) GAO's evaluation of the Air Force's progress in
meeting cost, schedule, and performance goals is continuing as directed
in the National Defense Authorization Act for Fiscal Year 1998; (10) GAO
plans to issue a report to Congress concerning its current evaluation by
March 15, 2000; (11) in 1997, the Air Force indicated that the most
probable cost for production of 438 F-22 aircraft would exceed its cost
estimate by $13 billion; and (12) the Air Force plans to implement
initiatives to offset this projected cost increase.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-00-58
     TITLE:  Defense Acquisitions: Progress in Meeting F-22 Cost and
	     Schedule Goals
      DATE:  12/07/1999
   SUBJECT:  Air Force procurement
	     Avionics
	     Fighter aircraft
	     Military budgets
	     Military cost control
	     Defense capabilities
	     Future budget projections
	     Operational testing
	     Concurrency
IDENTIFIER:  F-22 Aircraft
	     C-130J Aircraft
	     Air Force F-22 Engineering and Manufacturing Development
	     Program

******************************************************************
** This file contains an ASCII representation of the text of a  **

** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************

Before the Committee on Government Reform, Subcommittee on National
Security, Veterans Affairs, and International Relations, House of
Representatives

For Release Expected
at 10:00 a.m. EST
Tuesday,
December 7, 1999

DEFENSE ACQUISITIONS 

Progress in Meeting F-22 Cost and Schedule Goals

Statement for the Record by Louis J. Rodrigues, Director, Defense
Acquisitions Issues, National Security and International Affairs Division

*****************

*****************

GAO/T-NSIAD-00-58

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to submit this statement for the record. The
Subcommittee requested that we provide information on the status of cost
and schedule issues of the Air Force's F-22 aircraft development and
procurement program. 

As directed by the National Defense Authorization Act for Fiscal Year
1998, we reported to the Congress in March 1999 about the extent to which
cost, schedule, and performance goals were being met in the F-22
engineering and manufacturing development (EMD) program./Footnote1/ That
report was supplemented by testimony before the Subcommittee on Airland
Forces of the Senate Armed Services Committee in March 1999. /Footnote2/
This statement summarizes the relevant parts of that report and testimony,
describes the congressional actions on the fiscal year 2000 budget
request, updates the information we provided to the Congress in March
1999, and discusses Air Force and contractor initiatives to control
production costs. Appendix I lists products we have issued that relate to
the F-22 program. 

The National Defense Authorization Act for Fiscal Year 1998 established
cost limits for F-22 EMD and production. The act instructed the Secretary
of the Air Force to adjust the cost limits for economic inflation and
compliance with changes in federal, state, and local laws. In December
1999, the cost limits, as adjusted, were $18.880 billion for EMD and 
$39.759 billion for production. The production cost limit does not specify
a quantity of aircraft.

Results in Brief
----------------

In March 1999 we reported that it was unlikely the Air Force would be able
to keep the F-22 EMD program, as planned, within the cost limit
established by the Congress. In addition, we expressed concern about the
significant reduction the Air Force had made in the testing it planned to
complete before awarding contracts to initiate advance procurement to
accelerate F-22 production. 

Both authorization and appropriations acts for fiscal year 2000
established further congressional direction for the F-22 program. For
example, the authorization act required certification by the Secretary of
Defense, prior to beginning low-rate initial production, that the EMD test
plan is adequate for determining F-22 operational effectiveness and
suitability. The appropriations act did not approve the beginning of F-22
low-rate initial production but approved funding for acquisition of
additional flight-test aircraft with research, development, test, and
evaluation funding. 

The F-22 program has made progress in manufacturing and testing aircraft.
However, there continues to be several important issues regarding the cost
of the EMD and production programs and the schedules for completion of EMD
activities leading to production of F-22s in higher quantities. For
example, preliminary indications from our ongoing review of the EMD
program's status show that, compared to the program's status in March
1999, sufficient cost reductions have not been implemented to ensure that
EMD activities, as planned, can be completed within the cost limitation,
and completion dates for testing F-22 aircraft may be further delayed. Our
evaluation of the Air Force's progress in meeting cost, schedule, and
performance goals is continuing as directed in the National Defense
Authorization Act for Fiscal Year 1998. We plan to issue a report to the
Congress concerning our current evaluation by March 15, 2000. 

In 1997, the Air Force indicated that the most probable cost for
production of 438 F-22 aircraft would exceed its cost estimate by $13
billion. The Air Force plans to implement initiatives to offset this
projected cost increase. As requested by this Subcommittee, we have
initiated a review of the Air Force's and prime contractor's efforts to
reduce production costs.

EMD Program Status as of March 1999 
------------------------------------

In March 1999, the Air Force estimated it could complete the F-22 EMD
program within the congressional cost limit of $18.880 billion. However,
during 1998, contractor costs had exceeded budgets; in addition, work had
not always been completed as scheduled. The Air Force and F-22 contractor
had identified potential cost growth totaling $667 million. We reported
that F-22 EMD costs would rise above the cost limit if this potential cost
growth was not addressed. At that time, the Air Force and contractor were
developing ways to reduce the costs, such as improving efficiency and
deferring or reducing program activities to keep EMD costs within the
congressional limit.

Our March 1999 report and testimony also identified several other issues
that could affect the Air Force's ability to complete the program within
the cost limit:

o The contractor had notified the Air Force that F-22 program costs could
  increase further if sales of C-130J aircraft, which are manufactured in
  the same plant as the F-22, were lower than anticipated because the F-
  22 program would have to absorb a higher than planned share of the
  plant's overhead costs.

o First flights of the third through the sixth test aircraft were
  expected to be late, reducing the time available to accomplish flight-
  tests before planned completion of EMD and potentially requiring
  extension of EMD.

o Development of the F-22's integrated avionics systems had been delayed
  and the schedule for completing avionics development appeared
  unrealistic. If EMD completion were to be extended to complete avionics
  development, additional costs would be incurred.

o Completing static and fatigue tests on the airframe structure had been
  delayed. Problems identified during these tests could require additions
  to planned EMD activities.

In addition, we reported that the Air Force had substantially reduced the
flight-testing hours it had planned to accomplish before awarding
production contracts. This would increase the risk of entering production. 

Authorization and Appropriations Actions Associated With Fiscal Year 2000
Budget Request
---------------------------------------------------------------------------

For fiscal year 2000, the Air Force requested $1.6 billion for low-rate
initial production of six F-22 aircraft. Both authorization and
appropriations acts for fiscal year 2000 established further congressional
direction for the F-22 program. The authorization act required that,
before beginning low-rate initial production, the Secretary of Defense
must certify that the EMD test plan is adequate for determining F-22
operational effectiveness and suitability; and that both EMD and
production can be executed within the respective cost limits. The
appropriations act, among other provisions affecting the F-22 program, did
not approve the beginning of F-22 low-rate initial production but approved
funding for acquisition of additional flight-test aircraft with research,
development, test, and evaluation funding. The appropriations act
restricted award of a fully funded contract to begin low-rate initial
production until (1) the first flight of an F-22 incorporating block 3
avionics software has been conducted; (2) the Secretary of Defense
certifies to the congressional defense committees that criteria identified
in the act for the award of low-rate initial production have been met; and 
(3) the Director of Defense Operational Test and Evaluation reports on the
adequacy of testing to date to measure and predict performance of F-22
avionics systems, stealth characteristics, and weapons delivery systems.

Current EMD Program Status 
---------------------------

Before I discuss the current EMD program, I need to point out that the
congressional actions on the fiscal year 2000 budget for the F-22 program
could require changes to the F-22 program that have not, at this time,
been fully defined. Accordingly, our comments regarding the program may
change as the Air Force and Department of Defense change the program and
the relationships between EMD activities and initiation of the production
phase of the F-22 program. The F-22 program has made progress in
manufacturing and testing aircraft; however, there continues to be several
important issues regarding the cost of the EMD and production programs,
and the schedules for completion of EMD activities that are intended to
lead to production of F-22s in higher quantities. Preliminary indications
from our ongoing review of the EMD program's status are that, compared to
the program's status in March 1999, (1) sufficient cost reductions have
not yet been implemented to ensure that EMD activities, as planned, can be
completed within the cost limitation; (2) the impact on the F-22 program
of lower than planned C-130J sales has not been determined; (3) deliveries
of F-22 test aircraft have been further delayed; (4) fiscal year 2000
actions by the Congress increased the time available to test F-22s before
beginning low-rate initial production; (5) some avionics milestones have
been further delayed; (6) the avionics schedule planned by the Air Force
still appears to be unrealistic; and (7) completion dates for testing of
ground test articles have been further delayed. I will now discuss each of
these areas in greater detail.

Mitigation of Identified Cost Growth in EMD Program
---------------------------------------------------

According to the Air Force, $536.7 million (about 80 percent) of the
identified $667 million in F-22 EMD cost growth has been mitigated through
implementation of various cost reduction initiatives. These initiatives
are designed to reduce costs by improving efficiency and deferring or
reducing program activities. However, the cost growth to be mitigated
could be larger than previously determined. The Air Force provided us
information showing that the potential cost growth may increase. We are
reviewing the Air Force's identification of and plans to mitigate this
additional cost growth.

Potential Impact if C-130J Sales Are Lower Than Planned
-------------------------------------------------------

Because of the lower than anticipated sales of the C-130J cargo aircraft
by Lockheed Martin, the F-22 program may have to absorb a higher share of
the Lockheed Martin plant's overhead costs. Lockheed Martin produces both
the C-130J cargo aircraft and the F-22 aircraft in its Marietta, Georgia,
plant. The agreement in effect in March 1999 between Lockheed Martin and
the Air Force concerning the distribution of plant overhead costs for both
the C-130J and the F-22 program was predicated on the production of 24 to
25 C-130J aircraft per year. However, 19 C-130J aircraft were produced in
calendar year 1999, and production for calendar years 2000-2003 is
estimated at about 17 aircraft per year. Reductions in C-130J aircraft
produced could result in higher amounts of overhead costs being absorbed
by the F-22 program.

Delays in Delivering Test Aircraft
----------------------------------

The 1997 flight-test plan included about 250 flight-test
months./Footnote3/ In March 1997, we testified that because of
manufacturing problems, several 
flight-test aircraft would be delivered late, resulting in 16.9 fewer
flight-test months available through scheduled completion of EMD. In June
1999, the Air Force acknowledged further delays in the delivery of most of
the 
flight-test aircraft due to continuing wing delivery problems. As a result
of the further delay, there are now almost 29 fewer flight-test months
available. If the test program were to be extended, the cost of EMD would
increase. 

We are concerned that additional delivery delays may further reduce 
flight-test months available to complete flight-testing. For example,
Lockheed Martin recently reported that wing deliveries may be further
delayed. Flight-test time is essential for the program to test and prove
specific features of the aircraft as well as to reduce the risk to the
government as commitments are made to production. 

Congressional Actions Allow for More Testing Time Prior to Low-rate
Initial Production
---------------------------------------------------------------------------

Because of delays in the EMD program, the Air Force substantially reduced
the amount of flight-testing planned before beginning production. At the
beginning of 1999, the program goal was to complete a total of 519 
flight-test hours by the end of 1999. Even though the Air Force is close
to reaching this goal, as we reported in March 1999, earlier plans
scheduled many more flight-test hours for completion by December 1999,
which at the time, was the planned date of the first low-rate initial
production contract award. The actions of the Authorization and
Appropriations Committees on the fiscal year 2000 budget delayed the
beginning of production until certain conditions are met. As a result,
more time is available to complete flight-tests, therefore reducing risks
before the decision is made to commit to low-rate initial production. As
the Air Force makes changes to the F-22 program to reflect fiscal year
2000 congressional actions, we will continue evaluating the relationships
of EMD, testing, and production commitments.

Avionics Milestones Are Further Delayed
---------------------------------------

We reported in March 1999 that development of avionics systems for the 
F-22 was behind the schedule established in 1997. Development problems
with the communication, navigation and identification system, and, to a
lesser extent, the electronic warfare system caused schedule delays and
cost growth in avionics development. Because of these problems, the Air
Force did not complete the first major avionics segment, known as block 1,
until May 1999, 4 months behind schedule. Furthermore, we reported in
March 1999 that the first flight of the first avionics test aircraft with
block 1 avionics was scheduled for February 2000, but this event is now
scheduled for May 2000. Flight-testing of the next scheduled avionics
segment, known as block 2, is also expected to be delayed.

Avionics Schedule Still Appears Unrealistic
-------------------------------------------

In 1997, an evaluation team concluded that avionics development could take
more time than planned because of delays in avionics blocks 1, 2, 3, and
3.1. Even though block 1 was completed/Footnote4/ behind schedule and
block 2 is expected to be completed behind schedule, the current avionics
schedule shows blocks 3 and 3.1 avionics being completed 6 and 3 months,
respectively, before the completion dates the Air Force and the evaluation
team considered realistic in 1997. If blocks 3 and 3.1 take longer than
planned to be completed, additional costs will be incurred.

Further Delays in Testing of Ground Test Articles
-------------------------------------------------

Two major tests of F-22 airframe structural integrity continue to be
delayed. These are static testing, designed to ensure the aircraft can
withstand flight stresses, and fatigue testing, which involves subjecting
the aircraft to the structural stresses expected within its planned life.
Static tests have been delayed 12 months and fatigue tests have been
delayed 

14 months. These are longer delays than the Air Force expected in March
1999. The following table shows the continuing delays in completing these
tests by comparing the schedules in 1997, March 1999, and as of November
1999.

Table****Helvetica:x11****1:    Delayed Completion Dates for Static and
                                Fatigue Testing

-------------------------------------------------------------------------
| Test        : 1997 schedule  : March 1999       : Schedule as of      |
|             :                : schedule         : November 1999       |
|-----------------------------------------------------------------------|
| Static      : October 1999   : February 2000    : October 2000        |
|-----------------------------------------------------------------------|
| Fatigue     : December 1999  : September 2000   : February 2001       |
-------------------------------------------------------------------------

F-22 Production Cost Reduction Initiatives
------------------------------------------

Concerned about growing costs of the F-22 program, the Assistant Secretary
of the Air Force for Acquisition, in June 1996, established a team to
estimate the most probable costs of the F-22 EMD and production programs.
The team estimated, in January 1997, that the production costs for 438 F-
22s would increase by $13.1 billion to about $61.2 billion. The team
identified cost reduction initiatives that it expected to offset the
production cost increase. DOD subsequently reduced the planned procurement
quantity to 339 aircraft.

On November 23, 1999, this Subcommittee asked us to review the progress
the Air Force and the contractors have made in implementing cost reduction
initiatives needed to remain within the production cost limit for the
program. We have initiated the requested review. 

This concludes our statement. We appreciate the opportunity to have it
placed in the record.

Contact and Acknowledgments
---------------------------

For future contacts regarding this statement, please contact Louis J.
Rodrigues at (202) 512-4841. Individuals making key contributions to this
statement included Marvin Bonner, Todd Brannon, Edward Browning, Leonard
Benson, Allen Li, Robert Murphy, and Don Springman. 

--------------------------------------
/Footnote1/-^ F-22 Aircraft: Issues in Achieving Engineering and
  Manufacturing Development Goals (GAO/NSIAD-99-55, Mar. 15, 1999).
/Footnote2/-^ Defense Acquisitions: Progress of the F-22 and F/A-18E/F
  Engineering and Manufacturing Development Programs (GAO/T-NSIAD-99-113,
  Mar.17, 1999).
/Footnote3/-^ A flight-test month is one flight-test aircraft available
  for 1 month.
/Footnote4/-^ That is, completed to the point it is placed on an EMD
  aircraft in preparation for flight-testing.
Related GAO Products

Fiscal Year 2000 Budget: DOD's Procurement and RDT&E Programs (GAO/NSIAD-
99-233R, Sept. 23, 1999).

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year
2000 (GAO/NSIAD-99-233R, Apr. 16, 1999).

Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering and
Manufacturing Development Programs (GAO/T-NSIAD-99-113, 
Mar. 17, 1999).

F-22 Aircraft: Issues in Achieving Engineering and Manufacturing
Development Goals (GAO/NSIAD-99-55, Mar. 15, 1999).

F-22 Aircraft: Progress of the Engineering and Manufacturing Development
Program (GAO/T-NSIAD-98-137, Mar. 25, 1998).

F-22 Aircraft: Progress in Achieving Engineering and Manufacturing
Development Goals (GAO/NSIAD-98-67, Mar. 10, 1998).

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

Defense Aircraft Investments: Major Program Commitments Based on
Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997).

F-22 Restructuring (GAO/NSIAD-97-100BR, Feb. 28, 1997).

Tactical Aircraft: Concurrency in Development and Production of 
F-22 Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995).

Air Force Embedded Computers (GAO/AIMD-94-177R, Sept. 20, 1994).

Tactical Aircraft: F-15 Replacement Issues (GAO/T-NSIAD-94-176, 
May 5, 1994).

Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned
(GAO/NSIAD-94-118, Mar. 25, 1994).

(707467)

*** End of document. ***