United States Government Accountability Office

GAO Report to Congressional Committees

March 2008
JOINT STRIKE
FIGHTER

Recent Decisions by
DOD Add to Program
Risks

GAO-08-388
 March 2008

JOINT STRIKE FIGHTER

Accountability Integrity Reliability

Highlights
Highlights of GAO-08-388, a report to
Recent Decisions by DOD Add to Program Risks

Congressional Committees

Why GAO Did This Study What GAO Found

The Joint Strike Fighter (JSF) Since last year’s report, the JSF program office estimates that total acquisition
program seeks to produce and field costs increased by more than $23 billion, primarily because of higher
three aircraft variants for the Air estimated procurement costs. The JSF development cost estimate stayed
Force, Navy, Marine Corps, and about the same. Development costs were held constant by reducing
eight international partners. The requirements, eliminating the alternate engine program, and spending
estimated total investment for JSF
now approaches $1 trillion to
management reserve faster than budgeted. Facing a probable contract cost
acquire and maintain 2,458 aircraft. overrun, DOD implemented a Mid-Course Risk Reduction Plan to replenish
management reserves from about $400 million to about $1 billion by reducing
Under congressional mandate, test resources. Progress has been reported in several important areas,
GAO has annually reviewed the JSF including partner agreements, first flights of a JSF prototype and test bed, and
program since 2005. GAO’s prior a more realistic procurement schedule.
reviews have identified a number
of issues and recommended actions The midcourse plan carries the risk of design and performance problems not
for reducing risks and improving being discovered until late in the operational testing and production phases,
the program’s outcomes. when it is significantly more costly to address such problems. The plan also
fails to address the production and schedule concerns that depleted
This report, the fourth under the
mandate, focuses on the program’s
management reserves. Cost and schedule pressures are mounting. Two-thirds
progress in meeting cost, schedule, of budgeted funding for JSF development has been spent, but only about one-
and performance goals; plans and half of the work has been completed. The contractor is on its third, soon to be
risks in development and test fourth, manufacturing schedule, but test aircraft in manufacturing are still
activities; the program’s cost- behind, the continuing impacts of late designs, delayed delivery of parts, and
estimating methods; and future manufacturing inefficiencies.
challenges facing the program.
We believe that JSF costs will likely be much higher than reported. The
To conduct its work, GAO estimates do not include all costs, including about $6.8 billion for the alternate
identified changes in cost and engine program. In addition, some assumptions are overly optimistic and not
schedule from prior years and their well documented. Three independent defense offices separately concluded
causes, evaluated development
progress and plans, assessed cost-
that program cost estimates are understated by as much as $38 billion and
estimating methodologies against that the development schedule is likely to slip from 12 to 27 months.
best practices, and analyzed future Discrepancies in cost estimates add to program risks and hinder
budget requirements. congressional oversight. Even so, DOD does not plan for another fully
documented, independent total program life-cycle cost estimate until 2013.
What GAO Recommends
GAO recommends that DOD revisit As JSF finalizes the three designs, matures manufacturing processes,
and, if appropriate, revise the Mid- conducts flight tests, and ramps up production, it faces significant challenges.
Course Risk Reduction Plan to JSF’s goal—to develop and field an affordable, highly common family of strike
address concerns about testing, use aircraft—is threatened by rising unit procurement prices and lower
of management reserves, and commonality than expected. The program also makes unprecedented funding
manufacturing. GAO also
recommends action to improve the
demands—an average of $11 billion annually for two decades—and must
reliability and fidelity of the JSF compete with other defense and nondefense priorities for the shrinking
cost estimate. DOD substantially federal discretionary dollar. Further, expected cost per flight hour now
agreed. exceeds that of the F-16 legacy fighter, one of the aircraft it is intended to
replace. With almost 90 percent (in terms of dollars) of the acquisition
program still ahead, it is important to address these challenges, effectively
To view the full product, including the scope
and methodology, click on GAO-08-388.
manage future risks, and move forward with a successful program that meets
For more information, contact Michael J. our and our allies’ needs.
Sullivan (202) 512-4841 or
[email protected]. United States Government Accountability Office
Contents

Letter 1
Results in Brief 2
Background 5
Progress Measured against Cost, Schedule, and Performance Goals
Was Mixed over the Last Year 7
Development Program Faces Increased Risks of Further Cost
Increases and More Schedule Delays 11
JSF Program Cost Estimate Is Not Reliable 20
Future Challenges as Program Moves Forward 24
Conclusions 30
Recommendations for Executive Action 31
Agency Comments and Our Response 32

Appendix I Scope and Methodology 34

Appendix II GAO Assessment of JSF Program Cost Estimate 37

Appendix III Comments from the Department of Defense 48

Appendix IV GAO Contact and Staff Acknowledgments 51

Related GAO Products 52

Tables
Table 1: Changes in Reported JSF Program Costs, Quantities, and
Deliveries 8
Table 2: Manufacturing Performance Data, End of September 2007 15
Table 3: Costs Excluded from the Program Office Acquisition Cost
Estimate 20
Table 4: Outside Organizations’ Assessments of JSF Cost and
Schedule 23
Table 5: Costs Excluded from the Program Office Acquisition Cost
Estimate 37

Page i GAO-08-388 Joint Strike Fighter

 Table 6: Major Assumptions in JSF Cost Estimates 40
Table 7: Outside Organizations’ Assessments of JSF Cost and
Schedule 42
Table 8: JSF Development Program Cost Estimate Comparison 43
Table 9: NAVAIR and DCMA Estimates at Completion for JSF
Aircraft Development Contract 46
Table 10: JSF Complexity Compared to That of Similar Aircraft
Programs 47

Figures
Figure 1: JSF Annual Procurement Plans for the United States and
International Partners 6
Figure 2: JSF’s Use of Management Reserves 12
Figure 3: JSF Development Flight Tests Planned 16
Figure 4: JSF Acquisition Program’s Annual Funding Requirements 26
Figure 5: Changes in Airframe Commonality 28
Figure 6: Cost and Schedule Variances on the Aircraft Development
Contract 44

Abbreviations:

CAIG Cost Analysis Improvement Group

CTOL conventional takeoff and landing
CV carrier-suitable variant
DCMA Defense Contract Management Agency
DOD Department of Defense
EVM earned value management
JSF Joint Strike Fighter
IOT&E Initial Operational Test and Evaluation
NAVAIR Naval Air Systems Command
OSD Office of the Secretary of Defense
SAR Selected Acquisition Report
STOVL short takeoff and vertical landing

Page ii GAO-08-388 Joint Strike Fighter

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Page iii GAO-08-388 Joint Strike Fighter

United States Government Accountability Office
Washington, DC 20548

March 11, 2008

Congressional Committees

The Joint Strike Fighter (JSF) is Department of Defense’s (DOD) most

complex and ambitious aircraft acquisition, seeking to simultaneously
produce and field three aircraft variants for the Air Force, Navy, Marine
Corps, and eight international partners. For the United States, the JSF will
need a joint, long-term commitment to very large annual funding
requirements and a total investment now approaching $1 trillion dollars—
$300 billion to acquire 2,458 aircraft and $650 billion in life-cycle operation
and support costs, according to official program estimates. The JSF is
critical to our nation’s plans for recapitalizing tactical aircraft and just as
important to our allies.

The Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005 requires GAO to review the JSF program annually for five years.1
Previous reports identified opportunities for the program to reduce risks
and improve the chance for more successful outcomes. We have
expressed concern about the substantial overlap of development, test, and
production activities and recommended a more evolutionary and
knowledge-based acquisition strategy with limited investment in
production aircraft until each variant demonstrates required capabilities in
flight testing.2 This is the fourth report under the mandate in which we (1)
determine the JSF program’s progress in meeting cost, schedule, and
performance goals; (2) assess plans and risks in development and test
activities; (3) evaluate program office cost-estimating methodology; and
(4) identify future challenges facing the program.

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. While we were provided sufficient information to make the

1
Pub. L. No. 108-375, § 213 (2004).
2
GAO, Joint Strike Fighter: Progress Made and Challenges Remain, GAO-07-360
(Washington, D.C.: Mar. 15, 2007); Joint Strike Fighter: DOD Plans to Enter Production
before Testing Demonstrates Acceptable Performance, GAO-06-356 (Washington, D.C.:
Mar. 15, 2006); and Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike
Fighter Program with Different Acquisition Strategy, GAO-05-271 (Washington, D.C.:
Mar. 15, 2005).

Page 1 GAO-08-388 Joint Strike Fighter

 assessments contained in this report, a continuing concern has been the
currency of cost and schedule data. The data we are reporting here are
from the JSF Selected Acquisition Report (SAR) dated December 2006 that
was released to Congress and us in April 2007. That SAR reflects the
program position at the time of the submission of the fiscal year 2008
President’s Budget. We were not able to review the program office’s
updated estimates associated with the fiscal year 2009 budget, which will
be reported in the new December 2007 SAR to be released in April 2008.
The program office declined to provide updated costs, stating that those
figures are sensitive because the new budget request had not been
finalized at the time of our review. Every year, this timing disconnect
results in us reporting soon-to-be-outdated cost and schedule data. For
example, shortly after our last report was issued on March 15, 2007, DOD
released new cost estimates that disclosed an increase of more than $23
billion in JSF program costs. On the basis of the evidence we do have and
our analysis, we fully expect future cost estimates to be substantially
higher than the program estimates in this report.

To conduct this work, we tracked and compared current cost and

schedule estimates with those of prior years, identified major changes, and
determined causes. We obtained earned value data, contractor workload
statistics, performance indicators, and manufacturing results. We
assessed the program office’s cost estimating methodologies against best
practices prescribed in GAO’s Cost Assessment Guide. We discussed
results to date, plans, and future challenges with DOD and contractor
officials. We conducted this performance audit from June 2007 to March
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.

The JSF total acquisition cost estimate increased by more than $23 billion
Results in Brief since our March 2007 report due to changes in procurement costs.
Principal driving factors were (1) increased unit costs from extending the
procurement period seven years at lower annual rates and (2) increased
future price estimates based on contractor proposals for the first
production lot. The official cost estimate for development remained about
the same in total as it has since the program was restructured in 2004.
However, this was largely achieved by reducing requirements, not fully
funding the alternate engine program despite congressional interest in the

Page 2 GAO-08-388 Joint Strike Fighter

program, and spending management reserves much faster than budgeted.
Facing a probable contract cost overrun, DOD officials decided not to
request additional funding and time for development, opting instead to
reduce test resources in order to replenish management reserves from
$400 million to $1 billion. During the last year, DOD and the contractor
also reported progress in several important areas, including international
partner agreements, first flights of a JSF prototype and test bed, and a
more realistic procurement schedule.

The recent decision to replenish management reserves by reducing test

resources, known as the Mid-Course Risk Reduction Plan, significantly
increases the risks of not completing development testing on time and not
finding and fixing design and performance problems until late into
operational testing and production, when it is more expensive and
disruptive to do so. The plan also does not directly address and correct the
continuing production and schedule concerns that depleted management
reserves. We expect program development and procurement costs to
increase substantially and schedule pressures to worsen based on
performance to date and the conditions that gave rise to the risk reduction
plan. Two-thirds of budgeted funding for the JSF has been spent on the
prime development contract, but only about one-half of the work has been
completed. The contractor has extended manufacturing schedules several
times, but test aircraft delivery dates continue to slip. The flight test
program has barely begun, but faces substantial risks with reduced assets
as design and manufacturing problems continue to cause delays that
further compress the time available to complete development. The
Director, Operational Test and Evaluation, and several other prominent
defense offices objected to the midcourse plan as too risky because it does
not provide adequate resources for development testing or resolve
systemic problems that depleted management reserves. We agree.

We do not think the program cost estimate is reliable when judged against
cost estimate standards used throughout the federal government and
industry. Specifically, the program cost estimate (1) is not comprehensive
because it does not include all applicable costs, including $6.8 billion for
the alternate engine program; (2) is not accurate because some of its
assumptions are overly optimistic and not supportable—such as applying
a weight growth factor only half as large as historical experience on
similar aircraft—and because the data system relied upon by the prime
contractor and the program office to report and manage JSF costs and
schedule is deficient; (3) is not well documented in that it does not
sufficiently identify to cost analysts the primary methods, calculations,
results, rationales and assumptions, and data sources used to generate

Page 3 GAO-08-388 Joint Strike Fighter

cost estimates; and (4) is not credible according to three independent
defense offices who all conclude that program cost estimates are
understated by as much as $38 billion and that the development schedule
is likely to slip from 12 to 27 months. Despite this and all the significant
events and changes that have occurred in the 6 years since the start of
system development, DOD does not intend to accomplish another fully
documented, independent total program life-cycle cost estimate for
another 6 years.

The JSF is entering its most challenging phase as it finalizes three designs,
matures manufacturing processes, conducts flight tests, and ramps up
production. The first and foremost challenge is affordability. From its
outset, the JSF goal was to develop and field an affordable, highly
common family of strike aircraft. That goal is threatened by rising unit
procurement prices and somewhat lower commonality than expected,
raising concerns that the United States and its allies may not be able to
buy as many aircraft as currently planned. The program also makes
unprecedented demands for funding from the defense budget—an annual
average of about $11 billion for the next two decades—and must compete
with other defense and non-defense priorities for the shrinking federal
discretionary dollar. Further, informed by more knowledge as the program
progresses, DOD doubled its projection of JSF life-cycle operating and
support costs compared to last year’s estimate and its expected cost per
flight hour now exceeds that of the F-16 legacy fighter it is intended to
replace. With almost 90 percent (in terms of dollars) of the acquisition
program still ahead, it is important to address these challenges, effectively
manage future risks, and move forward with a successful program that
meets our and our allies’ needs.

Because of the elevated risks and valid objections raised by the test
community and other DOD offices, we recommend that DOD revisit and, if
appropriate, revise the Mid-Course Risk Reduction plan recently approved.
DOD should specifically address concerns about constrained testing
capacity, the integration of flight and ground tests, depletion of
management reserves, slippage in the manufacturing schedule, and
progress made in correcting deficiencies in the contractor’s earned value
management system, and to examine in depth the alternatives to the
current plan that could reduce risks. To enhance congressional oversight
and provide DOD management with a higher-fidelity and more
comprehensive cost estimate, we also make several recommendations to
improve cost estimates, in particular that DOD accomplish this year a new
total program life-cycle cost estimate, validated by the Cost Analysis

Page 4 GAO-08-388 Joint Strike Fighter

 Improvement Group, that includes risk analysis and meets DOD policy
requirements for major system cost estimates at milestones.

DOD substantially agreed with our recommendations. DOD believes that

the midcourse plan is a cost-effective approach with a manageable level of
risk that will be monitored and revised if necessary. Regarding our three
recommendations on cost estimating, DOD indicated that it will implement
all elements except the risk and uncertainty analysis that it believes is not
warranted. We think that risk and uncertainty analysis is an important tool
that establishes a confidence interval for a range of possible costs—as
opposed to a single-point estimate—and facilitates good management
decisions and oversight. Such analysis is a best practice in our Cost
Assessment Guide and we note that OSD’s Cost Analysis Improvement
Group supports and uses this cost-estimating tool.

The JSF program goals are to develop and field an affordable, highly
Background common family of stealthy, next-generation strike fighter aircraft for the
Navy, Air Force, Marine Corps, and U.S. allies. The JSF family consists of
three variants. The conventional takeoff and landing (CTOL) variant will
primarily be an air-to-ground replacement for the Air Force’s F-16 Falcon
and the A-10 Warthog aircraft, and will complement the F-22A Raptor. The
short takeoff and vertical landing (STOVL) variant will be a multirole
strike fighter to replace the Marine Corps’ F/A-18C/D and AV-8B Harrier
aircraft. The carrier-suitable (CV) variant will provide the Navy a multi-
role, stealthy strike aircraft to complement the F/A-18E/F Super Hornet.
DOD is planning to buy a total of 2,458 JSFs. The F-35 JSF was christened
Lightning II in July 2006.

Because of the program’s sheer size and the numbers of aircraft it will
replace, the JSF is the linchpin of DOD’s long-term plan to modernize
tactical air forces. It is DOD’s largest acquisition program, with total cost
currently estimated at $300 billion; the longest in planned duration, with
procurement projected through 2034; and the largest cooperative
international development program.3 Our international partners are
providing about $4.8 billion toward development, and foreign firms are

3
The international partners are the United Kingdom, Italy, the Netherlands, Turkey,
Canada, Australia, Denmark, and Norway. These nations are contributing funds for system
development and have signed agreements to procure a minimum of 646 aircraft. Israel and
Singapore are security cooperation participants, and several other nations have reportedly
expressed interest in acquiring aircraft.

Page 5 GAO-08-388 Joint Strike Fighter

 part of the industrial base producing aircraft. They are expecting to
procure a minimum of 646 CTOL and STOVL JSFs. DOD’s funding
requirements for the JSF assume the benefits in reduced unit costs from
these purchases.

Figure 1 shows the JSF’s current procurement profile for U.S. and
international partners. Partner purchases begin in 2009 and reach a
maximum of 95 per year in fiscal year 2016. Total expected procurement in
that peak year, including U.S. quantities, is 225 aircraft.

Figure 1: JSF Annual Procurement Plans for the United States and International Partners
Number of aircraft
250

225

200

175

150

125

100

75

50

25

0
07

09

11

12

14

15

17

21

22

23

24

25

26

27

28

29

30

31

32

33

34
0

2
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Fiscal year

U.S. buys

International buys

Source: GAO analysis of DOD data.

The JSF is a single-seat, single-engine aircraft, designed to rapidly

transition between air-to-ground and air-to-air missions while still
airborne. To achieve its mission, JSF will incorporate low-observable
technologies, defensive avionics, advanced onboard and offboard sensor
fusion, internal and external weapons, and advanced prognostic
maintenance capability. According to DOD, these technologies represent a
quantum leap over legacy tactical aircraft capabilities. In several ways, JSF
development is also more complex and challenging than the F-22A Raptor

Page 6 GAO-08-388 Joint Strike Fighter

 and F/A-18E/F Super Hornet programs, the other two contemporary
aircraft that DOD is acquiring with JSF to recapitalize tactical air forces.
The JSF program is simultaneously developing several airframes and
engines for multiple customers and is projected to have significantly more
lines of operational flight plan software code than the other aircraft.

The JSF 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. The program entered system development and demonstration
in October 2001. At that time, officials planned on a 10½ years
development period costing about $34 billion (amount includes costs of
about $4 billion incurred before system development start). By 2003,
system integration efforts and a preliminary design review revealed
significant airframe weight problems that affected the aircraft’s ability to
meet key performance requirements. Weight reduction efforts were
ultimately successful but added substantially to program cost and
schedule estimates. In March 2004, DOD rebaselined the program (2004
Replan), extending development by 18 months and adding $7.5 billion to
development costs. Program officials also delayed the critical design
reviews, first flights of development aircraft, and the low-rate initial
production decision to allow more time to mitigate risks and mature
designs.

The total program acquisition cost estimate by the JSF program office has
Progress Measured increased since our report last year, primarily due to higher projected
against Cost, procurement unit prices. The reported schedule for major events showed
mostly minor slips. Engineering analyses continue to show performance
Schedule, and requirements are met, but flight and ground tests planned through 2013
Performance Goals will be necessary to confirm these assessments. DOD and the contractor
reported progress in several areas, including international partner
Was Mixed over the agreements, first flights of a JSF prototype and test bed, and a more
Last Year realistic procurement schedule.

The Program Cost JSF costs increased since last year. Table 1 shows the evolution of cost,
Estimate Increased, while quantity, and delivery estimates from the initiation of system development,
Schedule and Performance through the 2004 Replan, to the latest data available. It demonstrates the
impacts of higher procurement costs on unit costs and schedule delays on
Estimates Remained about the delivery of promised capabilities to the warfighters.
the Same

Page 7 GAO-08-388 Joint Strike Fighter

Table 1: Changes in Reported JSF Program Costs, Quantities, and Deliveries

October 2001
(system
development December 2003a December 2006a
start) (2004 Replan) December 2005a (latest available data)
Expected quantities
Development quantities 14 14 15 15b
Procurement quantities (U.S. only) 2,852 2,443 2,443 2,443
Total quantities 2,866 2,457 2,458 2,458

Cost Estimates (then-year dollars in billions)

Development $34.4 $44.8 $44.5 $44.2
Procurement 196.6 199.8 231.7 255.1
Military constructionc 2.0 0.2 0.2 0.5
Total program acquisition $233.0 $244.8 $276.5 $299.8

Unit Cost Estimates (then-year dollars in millions)

Program acquisition $81 $100 $112 $122
Average procurement 69 82 95 104

Estimated delivery dates

First operational aircraft delivery 2008 2009 2009 2010
Initial operational capability 2010-2012 2012-2013 2012-2013 2012-2015
Source: GAO analysis of DOD data.
a
Data are from the annual Selected Acquisition Reports that are dated in December but not officially
released until March or April of the following year. The December 2003 data reflect the 2004 Replan.
The December 2006 data are the latest information on total program costs made available to us by
DOD.
b
A subsequent decision by DOD in September 2007 has reduced development test aircraft by 2 to 13.
c
Military construction costs have not been fully established and the reporting basis changed over time
in these DOD reports. The amount shown for December 2006 represents costs currently in the 2008
future years defense plan.

The current estimate for procurement costs, dated December 2006, shows
an increase of $23.4 billion (plus 10 percent) from the estimate of a year
earlier and a total of $55.3 billion more (plus 28 percent) since 2004.4

4
To eliminate the effects of inflation, these procurement cost increases expressed in base
year fiscal year 2002 dollars are $7.8 billion (plus 5 percent) and $19.6 billion (plus 13
percent), respectively.

Page 8 GAO-08-388 Joint Strike Fighter

Procurement cost increases were primarily due to (1) extending the
procurement period seven years at lower annual rates, (2) increased future
price estimates based on contractor proposals for the first production lot,
(3) airframe material cost increases, and (4) increases resulting from
design maturation. Offsetting a portion of the procurement cost increases
were lower estimates for labor rates and subcontractor costs.

The official development cost estimate has remained relatively constant

since the 2004 Replan. However, there were significant changes in scope
and planned use of funds in order to maintain that estimate as officials
reduced requirements, did not include full funding for the alternate engine
program despite congressional interest in the program,5 and spent
management reserves much faster than budgeted. Management reserves
are a pool of money set aside—in this case about 10 percent of the
development contract value remaining—to handle unanticipated changes
and other risks encountered as a development program proceeds. Weight
growth early in development and subsequent problems resulting from late
aircraft design changes and subsequent manufacturing inefficiencies
depleted reserve funds to an untenable level by 2007. The program faced a
probable contract overrun. DOD officials opted not to request additional
funding and time to complete development and instead adopted a
controversial plan that reduced budgeted funds for development test
aircraft and flight plans in order to replenish management reserves from
$400 million to about $1 billion, an amount deemed prudent to complete
the development phase on time. This plan, known as the Mid-Course Risk
Reduction plan, is discussed in more detail later in this report.

Reported schedule slips for key events since last year’s report were minor
for the most part, but schedules could worsen considerably if the delays in
maturing the aircraft and engine designs and manufacturing test aircraft
continue to push work effort into later years. This would further compress
the time available to complete development and test efforts, affecting the
scheduled start of initial operational test and evaluation and the full-rate
production decision, and increasing the risk of further delivery delays. The
CV’s critical design review, the last of three design reviews for the
program, occurred in June 2007, seven months later than had been
expected. The initial operational capability date for this variant was

5
Congress has subsequently required that DOD obligate and expend sufficient annual
amounts for the continued development and procurement of the alternate engine program.
National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, § 213 (2008).

Page 9 GAO-08-388 Joint Strike Fighter

 pushed out two years to March 2015, to provide more time to mature
design and test this variant in the demanding carrier environment. The
carrier variant is the least developed of the three, incorporates larger
wings, is heavier, and has different speed and range performance
requirements than the other two variants.

On the basis of engineering analyses and computer modeling, the JSF

program projects that the aircraft design will meet seven of the eight key
performance parameters by the end of development. The aircraft is
currently not meeting the interoperability parameter, but this depends on
capabilities being developed outside the JSF program. Key performance
parameters will be verified during ground and flight testing from 2010 to
2013.

Progress Was Made This DOD and the contractor made solid progress this year in several areas that
Year in Several Important could establish a foundation to spur future successes. With almost 90
Areas percent (in terms of dollars) of the acquisition program still ahead, these
and other improvements could be leveraged to help better meet cost,
schedule and performance goals.

• In February 2007, the United States and eight international partners

signed the Production, Sustainment, and Follow-on Development
Memorandum of Understanding, committing to purchase aircraft and
continuing joint development activities.

• DOD reduced near-term procurement quantities and the rate of ramp-

up to full rate production. These actions somewhat lessened the
concurrency of development and production we have previously cited
and make for a more achievable schedule.

• The prime contractor and major subcontractors continued to

implement advanced design and development techniques and utilize
extensive computer modeling and simulation in innovative ways for
design, test, and integration activities.

• DOD and contractor officials also made good progress toward refining
system capabilities, including establishing mission software
requirements, with the goal of improving future program executability
while still meeting warfighter requirements.

• First flights of the prototype test aircraft and a flying test bed occurred
in fiscal year 2007. Both are viewed as important risk reducers in the

Page 10 GAO-08-388 Joint Strike Fighter

 test program and initial flights provided valuable and useful
information, according to program and contractor officials.

• All test aircraft were in manufacturing during 2007. Low-rate initial

production of the first two production aircraft and advance buys for
the second production lot also got under way.

Late in 2007, DOD officials approved a risky and controversial plan that
Development replenishes management reserves by reducing development test aircraft
Program Faces and test flights in order to stay within current cost and schedule estimates.
Difficulties in stabilizing aircraft designs and inefficient production of test
Increased Risks of aircraft resulted in spending management reserves faster than anticipated.
Further Cost The flight test program has barely begun, but faces substantial risks with
reduced assets as delays in design and manufacturing continue to further
Increases and More compress the time available to complete development work prior to
Schedule Delays operational testing and to support the full-rate production decision. The
JSF program is halfway to its planned completion, but is behind schedule
and over cost. On the basis of evidence we have gathered, development
costs can be expected to increase substantially from the current reported
program estimate, and the time needed to complete development testing
and subsequent initial operational testing will likely need to be extended,
delaying the full-rate production decision now planned for October 2013.

Plan to Address The Office of the Secretary of Defense (OSD) approved the Mid-Course
Management Reserve Risk Reduction plan in September 2007. The plan reduces development
Depletion Adds Risk to the test aircraft and test flights, and accelerates the reduction of the
contractor’s development workforce in order to restore management
JSF Development Effort reserves to the level considered prudent to complete the development
contract as planned and within the current cost estimate. The test
community and others within DOD believe the plan puts the development
flight program at considerable risk and trades known cost risk today for
unknown cost and schedule risk in the future.

Management reserves are budgeted funds set aside for unanticipated

development challenges and increase a program’s capacity to deal with
unknowns. At development start, JSF budgeted reserves at 10 percent of
contract value and expected to draw on them at about the same rate as
contract execution. However, the program has had to use these funds
much faster than expected to pay for persistent development cost
increases and schedule delays. A combination of factors contributed to
this problem, such as late release of engineering drawings, production

Page 11 GAO-08-388 Joint Strike Fighter

taking longer than planned, and late delivery of parts from suppliers. In
turn, these contributed to continuing cost and schedule impacts in the
manufacture of development test aircraft, including extensive and
inefficient out-of-station work and delays in proving out the production
schedule. Figure 2 shows how management reserves totaling almost $1.4
billion have been depleted since the 2004 Replan.

Figure 2: JSF’s Use of Management Reserves

11%

11% 29%

24%
25%

$430 million for engineering drawings

$370 million for supplier design and performance

$350 million for production materials and labor

$163 million for other

$160 million for weight and technical changes

Source: GAO analysis of DOD data.

By mid-2007, the development program had completed one-half of the

amount of work scheduled, but had expended two-thirds of the budget.
Management reserves had shrunk to about $400 million, less than one-half
the amount officials believed necessary to complete the final 6 years of
development. At the same time, the program faced significant
manufacturing and software integration challenges, costly flight testing,
and $950 million in other known cost risks. This presented the program
with a likely untenable contract overrun sometime in 2008 if no action was
taken. JSF program management identified a continuing persistent cost
variance of $250 million to $300 million in the aircraft development
contract and the associated shortfall in reserves that required near-term
action beyond “belt tightening.”

Page 12 GAO-08-388 Joint Strike Fighter

An overarching integrated product team considered several alternative
actions, including doing nothing and adding funds from procurement, but
the team chair concluded that replenishment of the management reserve
was essential to position the JSF program to successfully address its
anticipated future development challenges. This option, dubbed the Mid-
Course Risk Reduction Plan, removed two development aircraft (one
CTOL and one CV), eliminated approximately 850 test flights from the
current test plan, revised the verification strategy, increased the use of
ground test labs and the flying test bed, and maximized the number of test
points to be accomplished during test flights. The plan also accelerated
reductions in contractor staff and took other actions. In total, these
planned actions are expected to add between $470 million and $650
million into the reserve to recapitalize it to about $1 billion, an amount
officials believe will be needed to complete development. Officials intend
to use reserves to recover cost and schedule losses in manufacturing and
to cover additional future needs.

This plan was subsequently approved by OSD, although serious risks were
acknowledged and the team was divided on whether the added risks
outweighed the intended benefit. Those in favor of the plan believed that
actions were urgently needed to fix the funding imbalance and avoid a
contract overrun. In this view, the plan would serve as a stopgap measure
to delay another program restructure until more program knowledge and a
clearer understanding of future cost requirements were gained.

Officials from several defense offices thought the risks to testing were too
great and that the plan did not address the underlying design and
manufacturing problems. The Director, Operational Test and Evaluation,
identified specific risks associated with the revised test verification
strategy and recommended against deleting the aircraft, citing inadequate
capacity to handle the pace of mission testing, and for ship suitability,
signature testing, and suitability evaluations. This increased the likelihood
of not finding and resolving critical design deficiencies until operational
testing, when it is more costly and disruptive to do so. OSD’s Systems and
Software Engineering office concurred, expressed concerns that the plan
did not treat the root causes of ongoing production problems, and doubted
that the contractor schedule was achievable. The Cost Analysis
Improvement Group and others agreed that there was too much risk in
reducing test assets at this time since no production representative variant
had started flight tests and no analysis of the management reserve
depletion had been completed. In summary, the plan trades known cost
risk today for unknown cost and schedule risk in the future.

Page 13 GAO-08-388 Joint Strike Fighter

Manufacturing According to our analysis of available evidence, manufacturing test
Inefficiencies Continue to aircraft continue to run behind schedule. The prime contractor has revised
Increase Costs and Delay the test aircraft manufacturing schedule three times, resulting in slips of
up to 16 months in first flight dates of test aircraft. To date, about 3
the Production of months of progress has been made for every 4 months of effort. As
Development Aircraft officials for now have decided not to extend the development period and
delay operational tests and full-rate production, this inefficiency increases
risk and further compresses time and assets available to complete test
activities.

Repercussions from the late release of engineering drawings, design

changes, and parts shortages continue to cause delays and force inefficient
production line workarounds where unfinished work is completed out of
station.6 Production data provided by the Defense Contract Management
Agency (DCMA) show continuing critical part shortages, high change
traffic, out-of-station work, quality issues, and planning rework. These
conditions have also delayed efforts to mature and demonstrate the
production process even as work begins on the first production lot. The
contractor has not yet proven it can efficiently build the JSF, and test
aircraft are being built differently from the process expected for the
production aircraft.

The first test aircraft, a non-production-representative conventional

landing prototype completed in 2006, required 65,000 more labor hours
(about 35 percent more) to build than planned. It encountered most of its
inefficiencies in the wing and final assembly phases. The second test
aircraft, a STOVL model, left the production line in December 2007, and its
first flight is expected in May 2008, 8 months later than originally
scheduled. It cost about 25-30 percent more to build than planned.
Contractor data show that the wings were only three-fifths complete when
moved to final assembly. As a result, over 25,000 more labor hours had to
be performed out of station to complete the wing assembly for this
aircraft.

Table 2 shows work performance on the first seven test aircraft to enter
manufacturing. (This does not include the original prototype completed in

6
An efficient production line establishes an orderly flow of work as a product moves from
workstation to workstation and on to final assembly. Out-of-station work, sometimes
referred to as traveled work, refers to completing unfinished work on major components,
e.g., the wings, after they have left the wing workstation and moved down the production
line to another station.

Page 14 GAO-08-388 Joint Strike Fighter

 December 2006.) These data show that nearly all aircraft are persistently
behind schedule in completing work on these three critical components at
the Fort Worth, Texas, facility. In terms of cost, the data show overall
good performance in constructing the forward fuselage, but poor results
for the wing and final assembly.

Table 2: Manufacturing Performance Data, End of September 2007

Forward fuselage Wing Final assembly

Development Cost
b
aircraft Days behinda efficiency Days behind Cost efficiency Days behind Cost efficiency
STOVL-1 In mate 119% In mate 69% - 77%
STOVL-2 -19 148% -129 65% - 69%
STOVL-3 -34 133% -134 49% - -
STOVL-4 -68 115% -162 41% - -
CTOL -1 -73 139% -279 23% - -
CTOL-2 -35 78% -283 - - -
CTOL-3 -35 58% -140 - - -
Source: GAO analysis of Defense Contract Management Agency data
a
This column represents the number of days the aircraft were behind in manufacturing and assembly
of these components.
b
The cost efficiency column is a measure of how well the component is actually performing financially
in relation to earned budgets. Cost efficiency of 100 percent or higher indicates good performance;
scores under 100 indicate production inefficiencies.

Because of production inefficiencies and delays, the contractor has had to

lengthen the manufacturing schedule three times to provide more time to
complete work. Production line problems have resulted in slips of
between 11 and 16 months to first flight dates for each variant. At the time
of our review, a fourth schedule was being prepared that would add
another 1 to 4 months to schedules. Officials are reporting some
improvements in parts shortages, assembly, and product quality, but
expect the cascading effects from the design delays and manufacturing
inefficiencies to linger for another couple of years.

Development Flight Test The flight test program has just begun, with only about 25 flights
Efforts Are Beginning with completed as of January 2008. The program had originally planned to
Fewer Assets and Revised conduct development flight tests using 15 aircraft. The recent decision to
Verification Strategy reduce test aircraft to 13 (including the prototype), cut back the number of
flights, and change how some capabilities are tested will stress resources,
compress time to complete testing, and increase the number of

Page 15 GAO-08-388 Joint Strike Fighter

development test efforts that will overlap the planned start of operational
testing in October 2012. Test officials are concerned that capacity will be
too constrained to meet schedules and to adequately test and demonstrate
aircraft in time to support operational testing and the full-rate production
decision in October 2013. The full extent of changes and impacts from a
revised test verification strategy are still evolving. Program officials
reported that if test assets become too constrained, production aircraft
may eventually be used to complete development testing.

The number of development flight tests had already been reduced twice
before the Mid-Course Risk Reduction plan, as shown in figure 3. Test
flights have now been reduced by more than 1,800 flights (26 percent) over
the last 2 years.

Figure 3: JSF Development Flight Tests Planned

Number of flights
8,000
6,979
7,000
6,172
5,997
6,000
5,147
5,000

4,000

3,000

2,000

1,000

0
Pla r

Pla r

Pla t

Pla r
07 us
05 be

06 be

07 be
n

n
20 Aug
20 cto

20 vem

20 vem
O

No

No

Source: GAO analysis of DOD data.

Other test issues and events included the following:

• Flight tests started with the initial development test aircraft, which is
not considered to be a production-representative aircraft. According to
program officials, initial flights of this aircraft yielded very useful
information on flight characteristics. However, three incidents—an
electrical flight control actuator malfunction in-flight and an engine

Page 16 GAO-08-388 Joint Strike Fighter

 blade failure during a ground test—delayed further testing from May to
December 2007. Another blade failure occurred in February 2008.

• Initial flights of the Cooperative Airborne Test Bed aircraft in 2007

verified its airworthiness, and it was then modified to integrate some
JSF systems hardware and software. In December 2007, it began some
limited mission flight tests, but is not yet fully configured. The Mid-
Course Risk Reduction plan revised the development test verification
strategy to increase reliance on this specially configured aircraft to test
capabilities that were going to be demonstrated on JSF aircraft.

• An operational assessment by testers from the Navy, Air Force, and the
United Kingdom’s Royal Air Force was accomplished from March 2004
to December 2005 to assess development progress and current JSF
mission capability. The February 2006 report concluded that the
baseline flight test schedule provided little capability to deal with
unforeseen problems and still meet the scheduled start of operational
test and evaluation in October 2012. Testing officials said the JSF flight
test program was following the historical pattern of legacy programs in
making overoptimistic plans and using assumptions not supported by
historical data. In legacy aircraft, these practices resulted in capacity
constraints, program slips, and reduced testing tasks. We note that
these concerns about the JSF were expressed at a time when the test
program was expected to have the full complement of 15 test aircraft,
not the 13 now planned.

Development Challenges A program as complex and technically challenging as the JSF would be
Have Been Exacerbated by expected to have some setbacks, but we believe that the cause of many
Inattention to Best cost and schedule problems can be traced to an acquisition strategy and
decisions at key junctures that did not adequately follow the best practices
Acquisition Practices we have documented in successful commercial and government
programs.7 The JSF started system development before requisite
technologies were ready, started manufacturing test aircraft before
designs were stable, and moved to production before flight tests have
adequately demonstrated that the aircraft design meets performance and
operational suitability requirements. We previously reported that the JSF
acquisition strategy incorporated excessive overlap in development and

7
For an overview of the best practices methodologies and how current defense programs
fared, see our report of last year on major acquisitions, including the JSF, in GAO, Defense
Acquisitions: Assessments of Selected Weapon Programs, GAO-07-406SP (Washington,
D.C.: Mar. 30, 2007).

Page 17 GAO-08-388 Joint Strike Fighter

 production, posing substantial risks for cost overruns, schedule slips, and
late delivery of promised capabilities to the warfighter.8

Six years after system development start, only two of the JSF’s eight
critical technologies are mature by best practice standards, three are
approaching maturity, and three are immature. Maturing critical
technologies during system development led to cost growth. For example,
development costs for the electric-hydraulic actuation and power thermal
management systems have increased by 195 and 93 percent respectively
since 2003.

All three variants fell significantly short of meeting the best practices
standard of 90 percent of drawings released at the times of their respective
critical design reviews: 46 percent for the STOVL, 43 percent for the CV,
and 3 percent for the CTOL. Design delays and changes to designs were
cited by the Mid-Course Risk Reduction team as the precipitating cause
leading to the depletion of management reserves. The late release of
drawings resulted in a cascading of problems in establishing suppliers and
manufacturing process, which led to late parts deliveries, delayed the
program schedule, and forced inefficient manufacturing processes to
compensate for the delay.

Also, the program began initial low-rate production in 2007 before

delivering an aircraft that fully represents the expected design. Efforts to
mature production are constrained because the designs are not fully
proven and tested, and manufacturing processes are not demonstrated. A
fully integrated, capable production aircraft is not expected to enter flight
testing until fiscal year 2012, increasing risks that problems found may
require redesign, production line changes, and retrofit expenses for
aircraft already built.

Program Costs Expected On the basis of the evidence, we expect JSF program costs to increase and
to Increase and Schedule the schedule worsen to the point where the development period will likely
Worsen need to be extended and Initial Operational Test and Evaluation (IOT&E)
and full-rate production delayed. A major program restructure seems
inevitable, unless significant elements of the program can be safely
eliminated or deferred. The Mid-Course Risk Reduction plan does not
directly address design and manufacturing inefficiencies that created the

8
GAO-05-271.

Page 18 GAO-08-388 Joint Strike Fighter

problem in the first place. If the root causes are not identified and fixed,
the rapid depletion of management reserves can be expected to continue,
and more funding will be needed to complete development.

There is no reason to believe that these problems can be easily and quickly
fixed. While there have been some assembly line improvements, program
officials expect the manufacturing problems to persist for about 2 more years.
Officials hope this plan will give them a period of time to better and more fully
assess all the issues and reevaluate development costs and schedule
requirements. They are depending on the revised test verification plans to
maintain the pace and efficacy of development testing, but the test community
is dubious. What seem more likely are additional costs and time to overcome
inadequate capacity and the elimination or deferral of more test activities.
Eliminating development test activities and deferring additional tasks to be
completed during operational testing increase the likelihood that design and
performance problems will not be identified and resolved until late in the
program, when it is more costly and disruptive and could delay the delivery of
capabilities to the warfighter.

There are also abundant other indicators that acquisition costs will
substantially increase from what is now being reported to Congress.
Specifically:

• DOD has identified billions of dollars in unfunded requirements that

are not in the program office estimate, including additional tooling and
procurement price hikes.

• A new manufacturing schedule in the works indicates continued

degradation in the schedule and further extends times for first flights.

• Both the aircraft and engine development contracts have persistent,

substantial cost variances that cost analysts believe are too large and
too late in the program to resolve without adding to budget.

• The prime contractor and program office are readying a new estimate
at completion, which is expected to be much larger than what is now
budgeted.

• Three defense organizations independent of the JSF program office

have all concluded that the program office’s cost estimate is
significantly understated and the current schedule unlikely to be
achieved.

Page 19 GAO-08-388 Joint Strike Fighter

 For these and other reasons, we believe that the current JSF cost and
schedule reported to Congress are not reliable for decision making, as
discussed next.

The $299.8 billion acquisition cost estimate for the JSF program is not
JSF Program Cost reliable because it is not sufficiently comprehensive, accurate,
Estimate Is Not documented, or credible. GAO’s Cost Assessment Guide outlines best
practices used throughout the federal government and industry for
Reliable producing reliable and valid cost estimates. We assessed the cost-
estimating methodologies used by the JSF program office against these
best practices and determined that certain key costs were excluded,
assumptions used were overly optimistic, documentation was inadequate,
and no analysis had been done to state the confidence and certainty the
program office had in its cost estimate. As a result of these weaknesses,
the JSF program acquisition cost estimate is not reliable for decision
making. Appendix II contains a more detailed discussion of the specific
shortcomings we and the other DOD organizations have found in the
program office cost-estimating methodologies and their potential impacts.

The JSF Cost Estimate Is Estimates are comprehensive when they contain a level of detail that
Not Comprehensive ensures that all pertinent costs are included and no costs are double-
counted. It is important to ensure the completeness, consistency, and
realism of the information contained in the cost estimate. Our review of
the JSF development cost estimate showed that there are several cost
categories totaling more than $10 billion that are excluded or
underreported in the program office estimate. These items are summarized
in table 3 below.

Table 3: Costs Excluded from the Program Office Acquisition Cost Estimate

Cost item Possible impact

Alternate engine $6.8 billion
Military construction $1.5 billion
Tooling $2.1 billion
Capabilities dropped from development Unknown
Total $10 billion plus
Source: GAO analysis of DOD data

Page 20 GAO-08-388 Joint Strike Fighter

 Specifically:

• The current acquisition cost estimate includes only near-term

development funding for the alternate engine program, excluding
procurement-related and other development costs of about $6.8 billion.

• The military services have not firmly established basing needs for the
entire planned JSF force, but an earlier top-line estimate for military
construction was at least $2 billion. The current total cost estimate
includes only near-term budgeted costs of $533 million.

• The JSF program recently increased its estimate of tooling costs by

$2.1 billion due to the inclusion of additional tooling requirements and
estimating methodology changes.

• Cost and performance trade-offs during development deferred some

requirements from the current program that may later require
additional funding. The program office has not quantified these
deferrals, but Naval Air Systems Command (NAVAIR) officials told us
that the amount could be in the billions of dollars.

The JSF Cost Estimate is Estimates are accurate when they are based on an assessment of the costs
Not Accurate most likely to be incurred. Therefore, when costs change, best practices
require that the estimate be updated to reflect changes in technical or
program assumptions and new phases or milestones. DOD’s Cost Analysis
Improvement Group (CAIG) found that the assumptions the JSF program
office used for weight growth, staffing head counts, commonality savings
for similar parts, and outsourced labor rate savings were overly optimistic
and not supported by historical data. 9 For example, the program office had
used a 3 percent factor for weight growth whereas the CAIG used a 6
percent factor more in line with historical data from other programs. With
three variants, a joint program with international participation, three
different engines (cruise, second engine, and lift) in development, and
more than double the amount of operational flight software lines of code
than the F-22A and more than four times that of the F/A-18E/F, the JSF

9
The CAIG serves as the principal advisory body to the milestone decision authority on all
matters concerning an acquisition program’s life-cycle cost, and is given general
responsibilities for establishing DOD policy guidance on a number of matters relating to
cost estimating. The independent CAIG cost estimate is designed to assess the program
office estimate and ensure realistic cost estimates are considered.

Page 21 GAO-08-388 Joint Strike Fighter

 program is substantially more complex than the F-22 or F/A-18E/F, and
therefore may not merit assumptions that are even as optimistic as the
historical data for those programs.

The program cost estimate is also considered inaccurate because it relies

on data and reports found to be deficient. JSF program office used
Lockheed Martin earned value management (EVM) data in estimating
development costs.10 However, DCMA determined that the data as being of
very poor quality and issued a report in November 2007 stating that it is
deficient to the point where the government is not obtaining useful
program performance data to manage risks. Among other problem areas,
DCMA found that the contractor was using management reserve funds to
alter its own and subcontractor performance levels and cost overruns.
DCMA officials who conducted the review told us that the poor quality of
the data invalidated key performance metrics regarding cost and schedule,
as well as the contractor’s estimate of the cost to complete the contract. At
the time of our review, corrective actions and plans were in process.

The JSF Cost Estimate Is Cost estimates are well documented when they can be easily repeated or
Not Well Documented updated and can be traced to original sources through auditing. Rigorous
documentation increases the credibility of an estimate and helps support
an organization’s decision-making process. The documentation should
explicitly identify the primary methods, calculations, results, rationales,
assumptions, and sources of the data used to generate each cost element.
All the steps involved in developing the estimate should be documented so
that a cost analyst unfamiliar with the program can recreate the estimate
with the same result.

We found that the JSF cost model is highly complex and the level of
documentation is not sufficient for someone unfamiliar with the program
to easily recreate it. Specifically, we found that the program office does
not have formal documentation for the development, production, and
operation and support cost models and could not provide detailed
documentation such as quantitative analysis to support its assumptions.
For the development cost estimate, the JSF program officials said they did
not have a cost model that was continually updated with actual costs.

10
Earned value management is a method of tracking and measuring the value of work
accomplished in a given period and comparing it with the planned value of work scheduled
and the actual cost of work accomplished. Its use is required by federal regulations.

Page 22 GAO-08-388 Joint Strike Fighter

 Instead the program office relies heavily on earned value management
data and contractor analysis to update its development cost estimate.

The JSF Cost Estimate Is Estimates are credible when they have been cross-checked with an
Not Credible independent cost estimate and when a level of uncertainty associated with
the estimate has been identified. An independent cost estimate provides
the estimator with an unbiased test of the reasonableness of the estimate
and reduces the cost risk associated with the project by demonstrating
that alternative methods generate similar results.

Several independent organizations have reviewed the JSF program and are
predicting much higher costs than the program office. Table 4 below
provides a summary of these assessments.

Table 4: Outside Organizations’ Assessments of JSF Cost and Schedule

Assessing
organization Impact on cost Impact on schedule
CAIG $5.1 billion more for development, over 12 months slip
$33 billion more for procurement
NAVAIR $8 billion to $13 billion additional 19-27 months slip
development costs or trade-offs adding
to procurement costs
DCMA $4.9 billion additional cost to complete Up to 12 months slip
Lockheed Martin development contract
Source: CAIG, NAVAIR, DCMA.

CAIG estimates were prepared using different and more realistic

assumptions and schedule projections than the program office estimate.
NAVAIR, which provides resources to the JSF program office cost-
estimating function, derived much higher cost estimates and a longer
development period based on historical cost performance and removing
what it considered to be artificial and unachievable schedule constraints.
Officials were also concerned about the amount and future impact of
requirements potentially traded or pushed off into the procurement phase,
which could be even more costly. DCMA projected higher development
costs for the aircraft contract based on adjusted cost and schedule
performance to date and assuming additional slips. Officials continue to
examine the contractor’s deficient earned value management system and
its misreporting of cost and schedule data.

Page 23 GAO-08-388 Joint Strike Fighter

DOD Intends to Wait to The JSF program has not conducted a fully documented independent cost
Make a New and estimate since system development start in 2001. Despite reliability
Independent Cost Estimate concerns and all the significant events and changes in cost, schedule, and
quantity since then—those reported by the program office as well as those
identified by other defense organizations and us—DOD does not intend to
accomplish another one until required to support the full-rate production
decision in 2013. If so, this will mean that the program—DOD’s largest
acquisition and vitally important to our allies—will have a 12-year gap
between official validated cost estimates. The program may complete
development and be 6 years into production before an accurate, up-to-
date, and reliable official cost estimate is done.

Despite widely held views that costs will likely be higher and the schedule
longer than reported, the JSF program continues to be funded to the level
of the program office estimate. DOD acquisition policy requires fully
documented total program life-cycle cost estimates, with validation by the
CAIG, at certain major decision points and when mandated by the
milestone decision authority. DOD officials decided not to do such an
estimate at the start of low-rate initial production in 2007, which typically
coincides with a major milestone.

The JSF is entering its most challenging phase as it finalizes three designs,
Future Challenges as matures manufacturing processes, conducts flight tests, and ramps up
Program Moves production. The first and foremost challenge is maintaining affordability in
three dimensions—reasonable procurement prices, stable annual funding,
Forward and economical life-cycle operating and support costs. If affordability is
not maintained during the acquisition program, quantities bought by the
United States and allies may either decrease or else consume more of the
available defense budgets. Over the life cycle of a system, higher costs for
maintaining readiness and maintainability drive up annual operating
expenses and may limit funds for new investments. Other program
challenges could affect future quantities and the mix of aircraft procured
by the United States and our allies.

Affordability Concerns From its outset, the JSF goal has been to develop and field an affordable,
Have Major Repercussions highly common family of strike aircraft. Rising unit procurement prices,
and somewhat lower commonality than expected, raise concerns that the
United States and its allies may not be able to buy as many aircraft as
currently planned. Average unit procurement costs are up 27 percent since
the 2004 Replan and 51 percent since the start of system development (see

Page 24 GAO-08-388 Joint Strike Fighter

table 1). Rising prices erode buying power, likely resulting in reduced
quantities and delays in delivering promised capabilities to the warfighter.

The program also places an unprecedented demand for funding on the

defense budget—an annual average of about $11 billion for the next two
decades--with attendant funding risk should political, economic or military
conditions change. The JSF will have to annually compete with other
defense and nondefense priorities for the shrinking discretionary federal
dollar. To complete the acquisition program as currently planned, JSF will
require about $269 billion from 2008 through 2034. Annual funding
requirements for procurement increase rapidly as production ramps up to
the full-rate production decision expected in October 2013. During the
peak years of production, JSF procurement funding requirements are
expected to average about $12.5 billion per year for the 12-year period
spanning fiscal years 2012-2023.

Figure 4 illustrates the annual funding requirements as of December 2006

and contrasts these with plans from prior years. The December 2003 line
shows the funding profile resulting from the 2004 Replan and the 2005 line
shows the jump in funding needed to accommodate program cost
increases in the period following the Replan. The 2006 data reflect the
impact on annual funding requirements from extending procurement 7
years. The extension reduced annual budget amounts, but requires
continued funding through 2034 to procure deferred quantities. DOD
calculated that the extension added $11.2 billion to total procurement
cost.

Page 25 GAO-08-388 Joint Strike Fighter

Figure 4: JSF Acquisition Program’s Annual Funding Requirements
Funding requirements (dollars in billions)
18

16

14

12

10

0
07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

43
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Fiscal year

December 2003 plan

December 2005 plan
December 2006 plan

Source: GAO analysis of DOD data.

A third aspect of affordability is the life-cycle cost of ownership. DOD is

recapitalizing its tactical air forces by replacing aging legacy systems with
new, more capable systems, like the JSF, that incorporates reliability and
maintainability features designed to reduce future operating costs.
Recently, DOD sharply increased its projection of JSF operating and
support costs compared to previous estimates. The December 2006 SAR
projected life-cycle operating and support costs for all three variants at
$650.3 billion, almost double the $346.7 billion amount shown in the
December 2005 SAR and similar earlier estimates. The operating cost per
flying hour for the JSF CTOL is now estimated to be greater than current
flying hour cost for the F-16, one of the legacy aircraft to be replaced.

Officials explained that the amounts reported in 2005 and before were
early estimates based on very little data, whereas the new estimate is of
higher fidelity, informed by more information as JSF development
progresses and more knowledge is obtained. Factors responsible for the
increased cost estimate included a revised fielding and basing plan,
changes in repair plans, revised costs for depot maintenance, increased
fuel costs, increased fuel consumption, revised estimates for manpower

Page 26 GAO-08-388 Joint Strike Fighter

 and mission personnel, and a new estimate of the cost of the JSF’s
autonomic logistics system.

Overall, the cost of ownership represents a very large and continuing

requirement for the life of fielded aircraft. According to the new estimate,
we calculate that DOD will incur about $24 billion per year to operate and
support JSF units, assuming the quantities now planned and an 8,000-hour
service life for each JSF aircraft fielded over time.

Commonality Is Less than From the inception of the program, DOD has anticipated major cost
Expected savings from developing and fielding JSF variants that share many
common components and subsystems. While a degree of commonality has
been achieved, expectations are now lower than they were at program
start. Substantial commonality has been maintained for the mission
systems among all three variants and for the propulsion system of the
conventional and carrier variants. However, commonality among
airframes and vehicle systems has declined overall since the start of
system development. Figure 5 shows the decline in airframe commonality,
the most costly of the four major categories. For example, in October 2001
DOD anticipated that the CTOL airframe would be more than 60 percent
common with the other variants. Commonality had declined to about 40
percent by December 2006. Lesser commonality will likely increase
acquisition and future support costs.

Page 27 GAO-08-388 Joint Strike Fighter

 Figure 5: Changes in Airframe Commonality
Percent in common
90

80

70

60

50

40

30

20

10

0
CTOL STOVL CV
Aircraft variant

October 2001

March 2004

December 2006

Source: GAO analysis, DOD data.

Navy and Marine Corps The current JSF program shows a total quantity of 680 aircraft to be
Requirements and Mix Are procured by the Department of the Navy, but the allocation between the
Unsettled CV and STOVL variants has not been officially established. We observe
that the Navy and Marine Corps have somewhat divergent views on the
quantities, intended employment, and basing of JSF aircraft. The Navy
wants the Marine Corps to buy some CV variants and continue to man
some of its carrier-based squadrons. The Marine Corps, however, wants to
have a future strike force composed solely of the STOVL variant and has
established a requirement for 420 aircraft. During conflicts, the Marines
plan to forward deploy JSFs to accompany and support the expeditionary
ground forces.

Navy officials told us that they have some time to make decisions because
they will be buying a mix of both CVs and STOVLs in the early years of
production and that funding requirements are not significantly affected
since unit prices for both variants are about the same. However, we

Page 28 GAO-08-388 Joint Strike Fighter

 believe the continuing disagreements on basing, employment, and force
mix will have increasingly stronger impacts on JSF plans, costs, and
international partner relations. Decreased quantities of STOVLs bought by
the Department of the Navy would likely result in higher unit prices paid
by the Marine Corps and two allies buying STOVLs. Fundamental
decisions on the mix of naval aircraft also affect future operating and
support costs, military construction, and carrier requirements.

Officials also have some reservations whether they can afford the
quantities now planned at peak production rates. Navy and Marine Corps
officials told us last year that buying the JSF at the current planned rate—
requiring a ramp-up to 50 CV and STOVL aircraft by fiscal year 2015—will
be difficult to achieve and to afford, particularly if costs increase and
schedules slip. Officials told us that a maximum of 35 per year was
probably affordable, given budget plans at that time.11

Containing Future Weight Weight growth was the most significant challenge faced by the JSF
Growth program early in development. Redesign efforts to address weight growth
was the single largest factor causing the $10 billion cost increase and 18-
month extension in the development schedule since the start of system
development.

While the weight increase has been addressed for now, projections are
that the aircraft weight will continue to increase during the balance of the
development period, consistent with weight increases seen on legacy
aircraft programs. According to an OSD official with knowledge of legacy
aircraft development efforts, half of all weight growth during the
development effort can be typically expected after first flight but prior to
initial operational capability, and that additional small but persistent
weight increases can be expected during the aircraft’s service life. First
flight of a production-representative JSF has not yet occurred, and weight
is running very close to the limits as evaluated by engineering analyses and
trend extrapolation. As designs continue to mature and flight testing
intensifies, maintaining weight within limits to meet warfighter capability
requirements will be a continuing challenge and pose a major risk to
meeting cost, schedule, and performance goals.

11
GAO, Tactical Aircraft: DOD Needs a Joint and Integrated Investment Strategy,
GAO-07-415 (Washington, D.C.: Apr. 2, 2007).

Page 29 GAO-08-388 Joint Strike Fighter

 The clear implication from performance to date and the Mid-Course Risk
Conclusions Reduction plan is that additional costs and time will be needed to
complete JSF development. The plan to recapitalize management reserve
at the expense of test assets is risky with potential major impacts down
the road on costs, performance requirements, and fielding schedules. The
remaining development effort will be less robust than originally planned
and depends on a revised test verification strategy that is still evolving. As
a result, the development effort has an increased risk of not fully
measuring JSF capabilities and deficiencies prior to operational testing
and could result, in the words of one DOD official, in the future
operational test period being one of discovery rather than validation of the
aircraft’s capabilities and deficiencies. Finding and fixing deficiencies
during operational testing and after production has ramped up is costly,
disruptive, and delays getting new capabilities to the warfighter.

Because the program cost estimate is not reliable when judged against
best standards, the decision making and oversight by Congress, top
military leaders, and our allies are diminished. The picture they do have is
one where costs continue to rise and schedules slip. The situation will be
considerably worsened if the cost estimates of defense offices outside the
program are more accurate than the conservative, official in-house
estimates. Waiting 12 years between fully documented and validated total
program cost estimates is contrary to policy and good management, given
all the changes in cost, quantity, schedules, and other events that have
occurred since the 2001 estimate. The size of the JSF acquisition, its
impact on our and allied tactical air forces, and the unreliability of the
current estimate argue for an immediate new and independent cost
estimate and uncertainty analysis. This is critical information needed by
DOD management to make sound trade-off decisions against competing
demands and by Congress to perform oversight and hold DOD
accountable.

Program problems and setbacks must be put into perspective: The JSF is
DOD’s largest and most complex aircraft acquisition and an integral
component of the future force. Problems happen in such an environment.
Progress has been made and some significant challenges overcome, but
more await as program moves into flight testing and low-rate production.
Maintaining affordability so the United States military and our allies can
buy, field, and support the numbers needed by the warfighter remains the
overarching challenge.

Page 30 GAO-08-388 Joint Strike Fighter

 Because of the elevated risks and the valid objections raised by the test
Recommendations for community and other DOD offices, we recommend that the Secretary of
Executive Action Defense direct elements of the department to revisit and, if appropriate,
revise the Mid-Course Risk Reduction plan recently approved. This should
be supported by an intensive analysis that includes causes of management
reserve depletion, an evaluation of progress against the baseline
manufacturing schedule, and the progress made in correcting deficiencies
in the contractor’s earned value management system. It should also
include an in-depth examination of alternatives to the current plan and
address the specific concerns raised by officials regarding testing capacity,
the integration of ground and flight tests, and backup plans should
capacity become overloaded.

So that DOD may have an accurate picture of JSF cost and schedule
requirements, and that Congress may have an accurate understanding of
future funding requirements, we recommend that the Secretary of Defense
direct that

1. The JSF program office update its cost estimate using best practices,
so that the estimate is comprehensive, accurate, well documented, and
credible. Specifically, the JSF program office should

• include costs that were inappropriately omitted from the estimate;

• identify performance requirements that have been traded off in

development;

• fully document assumptions, data sources and methodologies in the

cost model; and

• perform a risk and uncertainty analysis to focus on key cost drivers and
reduce the risk of cost overruns.

2. The program conduct a full Schedule Risk Analysis to ensure that its
schedules are fully understood, manageable, and executable;

3. DOD conduct a full, independent cost estimate should be conducted

according to the highest standards of any DOD cost estimating
organization, based on a comprehensive review of program data; that
this cost estimate be reviewed by an independent third party such as
the CAIG; and that the results of these estimates be briefed to all
interested parties in DOD and Congress.

Page 31 GAO-08-388 Joint Strike Fighter

 DOD provided us with written comments on a draft of this report. The
Agency Comments comments appear in appendix III. DOD also provided several technical
and Our Response comments, which we incorporated in this report.

DOD substantially agreed with our recommendation to revisit the Mid-

Course Risk Reduction plan. DOD stated that the plan is a cost-effective
approach with a manageable level of risk that will be monitored and
revised if necessary. We believe the plan’s reduction of test resources will
hamper development testing and that the Department will eventually have
to make programmatic adjustments, adding cost and time.

DOD also substantially agreed with our three recommendations on cost

estimating. DOD indicated that it will implement all elements except the
risk and uncertainty analysis, which is unwarranted in its view. We believe
that risk and uncertainty analysis is an important tool that establishes a
confidence interval for a range of possible costs—as opposed to a single-
point estimate—and facilitates good management decisions and oversight.
Such analysis is a best practice in our Cost Assessment Guide and we note
that OSD’s Cost Analysis Improvement Group supports and uses this cost-
estimating tool.

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 made 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. Contact points for our offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Staff members making key contributions to this report are
listed in appendix IV.

Michael J. Sullivan
Director
Acquisition and Sourcing Management

Page 32 GAO-08-388 Joint Strike Fighter

List of Congressional Committees

The Honorable Carl Levin

Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Daniel K. Inouye

Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Ike Skelton

Chairman
The Honorable Duncan L. Hunter
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable John P. Murtha

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

Page 33 GAO-08-388 Joint Strike Fighter

 Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

To determine the Joint Strike Fighter (JSF) program’s progress in meeting

cost, schedule, and performance goals, we received briefings by program
and contractor officials and reviewed financial management reports,
budget documents, annual Selected Acquisition Reports, monthly status
reports, performance indicators, and other data. We compared reported
progress with prior years’ data, identified changes in cost and schedule,
and obtained officials’ reasons for these changes. We interviewed
Department of Defense (DOD), JSF program, and contractor officials to
obtain their views on progress, ongoing concerns and actions taken to
address them, and future plans to complete JSF development and ramp up
procurement.

To assess plans and risks in development, manufacturing, and test

activities, we examined program documents and interviewed DOD and
contractor officials about changes to the test plan and actions taken to
modify these plans to address funding and schedule challenges. This
included reviewing and interviewing program and Office of the Secretary
of Defense (OSD) officials about changes to development testing that
evolved in response to a projected shortfall in management reserves and a
goal to stay on schedule toward a full-rate production decision in October
2013. We reviewed information compiled by program officials to document
options they considered viable, changes to the test plan and test resources
that would occur under a proposed risk reduction option, and
challenges/risks to taking this course of action and possible fallback plans.
We also reviewed stakeholder views of options and the benefits and
challenges of going forward with the changes made to the development
test plan. We collected manufacturing cost and work performance data to
assess progress against plans, determined reasons for manufacturing
delays, discussed program and contractor plans to improve, and expected
impacts on development and operational tests.

In assessing program cost estimates, we also evaluated the JSF joint

program office estimating methodologies, assumptions, and results to
determine whether the official cost estimates were comprehensive,
accurate, well documented, and credible. We used our draft guide on
estimating program schedules and costs, which is based on extensive
research of best practices. Our Cost Assessment Guide considers an
estimate to be accurate if it is not overly conservative, is based on an
assessment of the most likely costs, and is adjusted properly for inflation;
comprehensive if its level of detail ensures that all pertinent costs are
included and no costs are double-counted; well documented if the
estimate can be easily repeated or updated and can be traced to original
sources through auditing; and credible if the estimate has been cross-

Page 34 GAO-08-388 Joint Strike Fighter

Appendix I: Scope and Methodology

checked with an independent cost estimate and a level of uncertainty

associated with the estimate has been identified. We also interviewed the
JSF program office’s cost estimating team to obtain a detailed
understanding of the cost model and met with the Department of Defense
Cost Analysis Improvement Group (CAIG) 1 to understand their
methodology, data and approach in developing their Joint Strike Fighter
independent cost estimate. We analyzed earned value management (EVM) 2
reports and met with the Naval Air Systems Command and the Defense
Contract Management Agency (DCMA) to discuss the EVM data and to
obtain their independent cost estimates for JSF development efforts. To
assess the validity and reliability of prime contractors’ earned value
management systems and reports, we analyzed the EVM reports and
reviewed audit reports prepared by the DCMA.

To identify future challenges, we continued discussions with DOD and

contractor officials on forward-looking plans and areas of emphasis. We
analyzed budget requirements from successive plans and tracked
contributing factors to changes in budget. We collected information on
commonality assessments among the three variants and trends. With Navy
and Marine Corps officials, we discussed future plans on the employment
and quantity mix of aircraft and identified differences in plans and
perspectives. We discussed past and present weight growth issues with
engineers and plans for controlling future growth.

In performing our work, we obtained information and interviewed officials

from the JSF Joint Program Office, Arlington, Virginia; Aeronautical
Systems Center, Wright-Patterson Air Force Base, Ohio; Naval Air Systems
Command, Patuxent River, Maryland; Defense Contract Management
Agency, Fort Worth, Texas; and Lockheed Martin Aeronautics, Fort Worth,

1
The CAIG serves as the principal advisory body to the milestone decision authority on all
matters concerning an acquisition program’s life-cycle cost, and is given general
responsibilities for establishing DOD policy guidance on a number of matters relating to
cost estimating. The independent CAIG cost estimate is designed to assess the program
office estimate and ensure realistic cost estimates are considered.
2
Earned value management is a method of tracking the value of work accomplished in a
given period and comparing it with the planned value of work scheduled and the actual
cost of work accomplished. Its use is required by federal regulations. EVM places special
emphasis on efficiently and effectively executing work through the development and
operation of management control system that includes people, systematic processes, and
innovative tools and techniques. The intent of EVM is to help program managers, and the
teams who support them, be successful by allowing them to operate productively in the
high-risk environments surrounding them.

Page 35 GAO-08-388 Joint Strike Fighter

Appendix I: Scope and Methodology

Texas. We also met and obtained data from the following OSD offices in
Washington, D.C.: Director, Operational Test and Evaluation; Program
Analysis and Evaluation; Cost Analysis Improvement Group; Portfolio
Systems Acquisition (Air Warfare); and Systems and Software Engineering.
We conducted this performance audit from June 2007 to February 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.

Page 36 GAO-08-388 Joint Strike Fighter

 Appendix II: GAO Assessment of JSF Program
Appendix II: GAO Assessment of JSF
Cost Estimate

Program Cost Estimate

The $299.8 billion acquisition cost estimate for JSF is not reliable because it is
The Current JSF not sufficiently comprehensive, accurate, documented, or credible. Cost-
Program Office estimating organizations throughout the federal government and industry use
certain key practices to produce sound cost estimates that are comprehensive
Acquisition Cost and accurate and that can be easily traced, replicated, and updated. GAO’s Cost
Estimate Is Not Assessment Guide outlines practices that, if followed correctly, should result in
high-quality, reliable, and valid cost estimates that management can use for
Reliable making informed decisions. We assessed the methodology used by the JSF
program office to determine its development cost estimate against four best
practices characteristics, which are that an estimate should be comprehensive,
accurate, well documented, and credible.1 We found that the JSF program
office has not followed best practices for developing a reliable and valid life
cycle cost estimate because it did not include certain key costs, assumptions
used to develop the estimate are overly optimistic, the estimate is not well
documented, and no analysis has been done to state the confidence and
certainty it has in its estimate. As a result of these weaknesses, the JSF
program acquisition cost estimate is not reliable for decision making.

The JSF Cost Estimate Is Estimates are comprehensive when they contain a level of detail that ensures
Not Comprehensive that all pertinent costs are included and no costs are double-counted. It is
important to ensure the completeness, consistency, and realism of the
information contained in the cost estimate. Our review of the JSF development
cost estimate showed that there are several cost categories totaling more than
$10 billion that are excluded or underreported in the program office estimate.
These items are summarized in table 5.

Table 5: Costs Excluded from the Program Office Acquisition Cost Estimate

Cost item Possible impact

Alternate engine $6.8 billion
Military construction $1.5 billion plus
Tooling $2 billion-$3 billion plus
Capabilities dropped from development and deferred Unknown
Total $10 billion plus
Source: GAO analysis of DOD data

1
These four best practice criteria for a reliable, high-quality cost estimate can be mapped
to 12 steps of a high-quality cost estimating process that have been identified by GAO in the
Cost Assessment Guide. Chapter 1 of the guide describes the 12 steps and how they map to
the four best practice characteristics.

Page 37 GAO-08-388 Joint Strike Fighter

Appendix II: GAO Assessment of JSF Program
Cost Estimate

• Alternate engine program. Congress has been interested in DOD

developing a second source for the JSF engine to induce competition
and to reduce operational risks in the future should the sole engine
develop problems requiring the grounding of all JSFs. DOD has not
wanted to pursue this second engine source and twice removed
funding from the JSF program line. In 2005, DOD deleted a total of
about $7.2 billion from the JSF’s development and procurement
accounts for the alternate engine. In 2006, it reinserted $340 million for
the program, reflecting only development funding in the future years
defense program. This omits about $6.8 billion left out of the JSF cost
estimate for this program.

• Military construction. In prior years, the JSF cost estimate included

$2 billion for military construction costs. Since the services had not yet
fully established basing plans, this amount was a top-level parametric
estimate not based on discrete estimates for specific sites. The current
December 2006 cost estimate reported military construction costs of
$533 million, reflecting only the amount budgeted in the fiscal year
2008 future years defense program. This means that about $1.5 billion
in military construction—and possibly more—will eventually be
required for specific basing needs of the JSF fleets. DOD will update
military construction estimates as the services identify specific site
requirements.

• Tooling. The JSF program recently increased its estimate of tooling

costs due to the inclusion of additional tooling requirements and
estimating methodology changes. This change is ongoing, and has not
yet been included in official program estimates. According to a recent
press report, a Lockheed Martin official stated that the full requirement
to support procurement by our allies was not adequately factored into
prior tooling estimates. The program estimates the additional cost
through 2015 at about $2.1 billion.

• Deferred capabilities. Cost and performance trade-offs during

development have resulted in some requirements being deleted from
the program cost estimate and deferred until later years. This includes
a number of planned capabilities dropped from the final block of
development software. The program office has not quantified the cost
of these deferred capabilities, and the costs are not reflected anywhere
in the program office’s life-cycle cost estimate. Naval Air Systems
Command (NAVAIR) officials told us that the total deferred amount
could be in the billions of dollars. We note that prior acquisitions such
as the Global Hawk and F-22A programs also deferred requirements
that would later need additional funding. For example, we reported in

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 Appendix II: GAO Assessment of JSF Program
Cost Estimate

2005 that the Global Hawk program costs did not include $400.6 million
in known additional procurement costs for sensors, ground station
enhancements, and other items required to achieve the system’s initial
full-up capability. 2 These costs had been in the program baseline but
were later deferred and reclassified because of cost pressures and
schedule changes. Similarly, the Air Force’s $5.9 billion modernization
and reliability improvement program includes capabilities deferred
from the acquisition program and reliability enhancements needed to
correct deficiencies and achieve the level of reliability that was
supposed to be accomplished during acquisition.

The JSF Cost Estimate Is Estimates are accurate when they are based on an assessment of the costs
Not Accurate most likely to be incurred. Therefore, when costs change, best practices
require that the estimate be updated to reflect changes in technical or
program assumptions and new phases or milestones. DOD’s Cost Analysis
Improvement Group found that the assumptions the JSF program office
used for weight growth, staffing head counts, commonality savings for
cousin (similar) parts, and outsourced labor rate savings could be too
optimistic, given the program’s complexity. With three variants and three
engines (cruise, alternate, and lift) in development, multiple customers,
and more than double the amount of operational flight software than the
F-22A and four times that of the F/A-18E/F, the JSF acquisition program is
substantially more complex than those contemporary systems, and
therefore may not merit assumptions that are even as optimistic as the
historical data for those programs. The following table shows some major
differences in assumptions used by the program office and the CAIG in
estimating JSF costs.

2
GAO, Unmanned Aircraft Systems: Global Hawk Cost Increase Understated in Nunn-
McCurdy Report, GAO-06-222R (Washington, D.C.: Dec. 15, 2005).

Page 39 GAO-08-388 Joint Strike Fighter

Appendix II: GAO Assessment of JSF Program
Cost Estimate

Table 6: Major Assumptions in JSF Cost Estimates

Assumption JSF Program office CAIG

Engineering head count 5,000 engineers 3,000 engineers
Weight growth 3% average growth based on 6% based on historical data
Lockheed Martin database
Cousin parts (similar, but 82% credit for commonality 25% credit for commonality
not identical, parts among among cousin parts among cousin parts
the variants)
Labor cost savings for 50% cost savings None – based labor costs on
outsourcing forward pricing rate
agreements
Additional 2,000 pounds No cost increase Estimated a cost increase
for carrier variant
Fee, and “fee on fee” for 13% fee on all development 15% fee on all development
Northrop Grumman and and production contracts and production contracts
BAE Systems production No “fee on fee” impact Estimated a “fee on fee”
items impact
Test failure redesign effort No additional costs Additional costs for this effort
Source: JSF program office, CAIG.

JSF program officials told us that they use Lockheed Martin earned value
management data in creating their estimate of JSF development costs.
However, DCMA, which reviews contracts and industrial performance for
DOD, identified this data as being of very poor quality, calling into
question the accuracy of any estimate based on these data. In November
2007, DCMA issued a report saying that Lockheed Martin’s tracking of cost
and schedule information at its aerospace unit in Fort Worth, Texas—
where the JSF program is managed—is deficient to the point where the
government is not obtaining useful program performance data to manage
risks.

DCMA said that Lockheed’s earned value data at the Fort Worth facility
are not sufficient to manage complex, multibillion-dollar weapon systems
acquisition programs. Among other problem areas, DCMA found that
Lockheed had not clearly defined roles and responsibilities, and was using
management reserve funds to alter its own and subcontractor
performance levels and cost overruns. These issues hurt DOD’s ability to
use the Lockheed data to determine product delivery dates and develop
accurate estimates of program costs. DCMA officials who conducted the
review at Lockheed Martin told us that the poor quality of the data
invalidated key performance metrics regarding cost and schedule, as well
as the contractor’s estimate of the cost to complete the contract. NAVAIR

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 Appendix II: GAO Assessment of JSF Program
Cost Estimate

had also raised concerns about Lockheed Martin’s earned value system as
early as June 2005, and these officials told us they were in agreement with
the findings in the November 2007 DCMA report. NAVAIR officials also
said that most deficiencies identified by the DCMA report have the effect
of underreporting costs, and that the official program cost estimates will
increase if the deficiencies are corrected.

Also in 2007, the prime contractor alerted DOD to a billing error involving
duplicate charges for the portion of the earned award fee paid to
subcontractors. This resulted in $266 million in overcharges. Government
officials became concerned that such a large discrepancy could occur
without the government’s knowledge and questioned the adequacy of the
contractor’s billing system and accounting procedures. DCMA and the
Defense Contract Audit Agency were tasked to conduct an investigation.
Their investigation found that the overbilling resulted from an accounting
system error in the internal handling of award fees on the JSF contract.
According to the investigation report, the error that created the overbilling
has been corrected, and the government has recouped the overbilled
principal and interest.

The JSF Cost Estimate Is Cost estimates are well documented when they can be easily repeated or
Not Well Documented updated and can be traced to original sources through auditing. Rigorous
documentation increases the credibility of an estimate and helps support
an organization’s decision-making process. The documentation should
explicitly identify the primary methods, calculations, results, rationales or
assumptions, and sources of the data used to generate each cost element.
All the steps involved in developing the estimate should be documented so
that a cost analyst unfamiliar with the program can recreate the estimate
with the same result.

We found that the JSF cost model is highly complex and the level of
documentation is not sufficient for someone unfamiliar with the program
to easily recreate it. Specifically, we found that the program office does
not have formal documentation for the development, production, and
operating support cost models. Instead, it relies on briefing slides that
describe the methodology and the data sources used, but did not provide
detailed documentation such as quantitative analysis to support the
assumptions that were involved in producing the life-cycle cost estimate.
For the development cost estimate, the JSF program office admitted it did
not have a cost model that continually updates with actual costs. Instead
the program office relies heavily on earned value management data and

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 Appendix II: GAO Assessment of JSF Program
Cost Estimate

analysis from Lockheed Martin to update its development cost estimate,

but provided us no documentation to back up this claim.

The JSF Cost Estimate Is Estimates are credible when they have been cross-checked with an
Not Credible independent cost estimate and when a level of uncertainty associated with
the estimate has been identified. An independent cost estimate provides
the estimator with an unbiased test of the reasonableness of the estimate
and reduces the cost risk associated with the project by demonstrating
that alternative methods generate similar results.

Several independent organizations have reviewed the JSF program and are
predicting much higher costs than the program office. Table 7 below
provides a summary of these assessments.

Table 7: Outside Organizations’ Assessments of JSF Cost and Schedule

Assessing
organization Impact on cost Impact on schedule
CAIG $5.1 billion more for development, over 12 months slip
$33 billion more for procurement
NAVAIR $8 billion to $13 billion additional 19-27 months slip
development costs or trade-offs adding
to cost in procurement
DCMA $4.9 billion additional cost to complete Up to 12 months slip
Lockheed Martin contract, including the
cost of a 12-month schedule slip
Source: CAIG, NAVAIR, DCMA.

In 2005, the CAIG performed an independent estimate of JSF program

development costs, which include the cost of the Lockheed Martin
contract and fees as well as the government’s in-house costs. The CAIG
expected that the development phase would cost $5.1 billion more than
expected by the program office, measured against the program office’s
most recent data available at that time, from the 2004 Selected Acquisition
Report (SAR). The CAIG official in charge of the estimate told us that
while it has not formally presented an updated estimate to the program
office, the order of magnitude of difference between the CAIG and
program office estimates remains roughly the same as at the time of the
2005 independent estimate.

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Appendix II: GAO Assessment of JSF Program
Cost Estimate

Table 8: JSF Development Program Cost Estimate Comparison

(Then-year dollars in billions)

Delta between
JSF CAIG CAIG And JSF
System development start in 2001 $30.2 $31.4 $1.2
December 2004 SAR $41.5 $46.6 $5.1
Cost growth from 2001 start to 2004 SAR $11.3 $15.2 $3.9
Source: CAIG.

The variance between the CAIG and program office estimates grew
significantly as the program encountered problems. The CAIG explained
that some of the $15.2 billion growth in its development cost estimate from
Milestone B in 2001 to the December 2004 SAR was due to initial
assumptions that 5,000 engineers would be available to work on the three
JSF variants. This assumption turned out to be too optimistic since only
about 3,000 engineers have been working on the program. Because of
fewer people available to support the JSF design and development, the
CAIG shifted the program schedule to the right, increasing the costs. The
program office, on the other hand, assumed it could get the same effort
done with fewer people. In addition, the CAIG used historical data from
the F-22A program, including the costs to design the aircraft, test it, and
redesign any fixes, and adjusted these data to account for differences in
the JSF program, including the three variants. The program office relies
mostly on contractor data.

When it was awarded the development contract in 2001, Lockheed Martin

agreed to develop the JSF aircraft for $16.5 billion, excluding fee. In April
2005, the development program was rebaselined, adding more than $6
billion to reflect funds added to the program due to weight growth issues
in 2003. This raised the JSF baseline development contract cost estimate
to $23.2 billion, excluding fee.

Despite the additional funding to cover preexisting cost and schedule

overruns, Lockheed Martin’s JSF development cost and schedule
performance has continued to decline over time. As shown in figure 6,
cost and schedule variances continued on a downward trend despite the
April 2005 rebaseline. As of September 2007, Lockheed Martin was
reporting cumulative cost overruns of $305.7 million and was behind
schedule to an extent valued at $251.3 million.

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 Appendix II: GAO Assessment of JSF Program
Cost Estimate

Figure 6: Cost and Schedule Variances on the Aircraft Development Contract

Variance from plan (dollars in million)
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Ma

Fiscal year

Cost variance
Schedule variance
Source: GAO analysis of DOD data.

Key drivers of cost overruns to date have included unfunded requirements

for design changes, loss of commonality savings, critical part shortages,
high change traffic, inefficient productivity due to performing work out of
sequence, constant rework, suppliers’ performance, late release of
engineering requirements, a greater than planned effort for designs of the
short takeoff and landing and the conventional takeoff and landing
variants, and additional radar testing. Some of this cost variance is due to
optimistic assumptions at the beginning of the program. For example,
cost estimates assumed that only one design iteration would be needed,
whereas in reality it takes numerous design iterations before the final
designs are determined.

Despite its poor performance since the rebaseline, Lockheed Martin was
predicting only a $113 million cost overrun at contract completion. This is
unrealistic given the persistence and size of the $305.7 million overrun
reported in September 2007, at which point the contract was 67 percent
complete. In order to achieve a $113 million overrun at completion,

Page 44 GAO-08-388 Joint Strike Fighter

Appendix II: GAO Assessment of JSF Program
Cost Estimate

Lockheed Martin would have to not only incur no further cost variances
from now until completion of the contract, but it would also have to
significantly improve its performance. This is unlikely given that studies
of more than 700 defense programs have shown limited opportunity for
getting a program back on track once it is more than 15 percent to 20
percent complete. The true cost to complete the contract may be
significantly greater, as DCMA has expressed its concern to DOD over
Lockheed Martin’s failure to regularly update its estimate of the costs to
complete the JSF contract, stating that Lockheed’s infrequent updates are
insufficient to provide the government with information bearing on
potential cost growth and funding needs.

Like the CAIG, both DCMA and NAVAIR believe that Lockheed Martin’s
estimate at completion is too optimistic and that the program office will
most likely require significantly more funding to complete the
development program. NAVAIR provides resources to the JSF program
office cost-estimating function, and it estimated in 2006 that JSF
development costs could be almost $8 billion to $13 billion higher than
estimated by the program office, or else cost billions more in procurement
due to requirements pushed off from development. NAVAIR officials told
us they believe that the 2006 estimate continues to be accurate today, but
explained that since the JSF program is a joint program they do not
control JSF cost-estimating procedures, although their estimates are
briefed to JSF program management. The estimate removed what NAVAIR
views as artificial constraints on the JSF schedule and projected forward,
resulting in an estimate that the schedule would likely slip 19 to 27
months, and combined this with trends in cost performance. NAVAIR
officials said that their confidence in the achievability of the JSF program
schedule is low, as the master schedule comprises more than 600
individual schedules, making it difficult to accurately assess the
achievability of the overall schedule.

DCMA estimates that JSF development could cost as much as $4.9 billion
more than program office estimates, accounting for poor cost and
schedule performance to date and assuming further schedule slips of up to
12 months. DCMA confirmed that a schedule risk analysis, which uses
statistical techniques to obtain a measure of confidence in completing a
program, has never been performed on the JSF program. Since historically
state-of-the-art development programs have taken longer than planned, a
schedule risk analysis should be conducted to determine the level of
uncertainty in the schedule. Despite these outside organizations’
predictions of significantly higher costs to complete the JSF contract and

Page 45 GAO-08-388 Joint Strike Fighter

Appendix II: GAO Assessment of JSF Program
Cost Estimate

the lack of realism in the contractor’s own estimate, the JSF program
office continues to use the contractor’s estimate as its own.

Table 9: NAVAIR and DCMA Estimates at Completion for JSF Aircraft Development
Contract (Then-year dollars in billions)

Projected
overrun to the
Estimates estimate
Lockheed Martin’s estimate at completion (EAC) $23.4
NAVAIR best case EAC projection $31.3 $7.9
NAVAIR worst case EAC projection $36.8 $13.4
DCMA EAC based on earned value data $24.8
DCMA additional costs for schedule slip $3.6
Total DCMA EAC (earned value + schedule slip) $28.3 $4.9
Source: GAO analysis of DOD data.

In addition to expected cost overruns for JSF development, the CAIG is

predicting significantly higher costs for JSF for the military services to
purchase the aircraft. Using different assumptions about weight growth,
labor rates, avionics and propulsion costs, and contractor fees, the CAIG
calculated significantly higher unit costs for the aircraft variants (see table
6 earlier in this report for comparison of CAIG and program office
assumptions affecting both development and procurement costs
estimates). Multiplying these higher unit costs by the expected
procurement quantities leads to a more than $33 billion (in constant year
2002 dollars) difference from official program office estimates for
procurement costs.3 The CAIG estimates were briefed in 2006 to the DOD
working group that oversees the JSF program, and top OSD officials were
aware of the discrepancy between the CAIG and JSF program office
estimates.

The program office has not conducted an uncertainty analysis on its cost
estimates despite the complexity of the program and associated risk and
uncertainty. As shown in table 10, the JSF program is significantly more
complicated than comparable aircraft development programs.

3
We expressed the costs in constant 2002 dollars instead of then-year dollars because the
data we relied on to make this projection were in constant dollars, and we did not have the
quantity profiles by year to inflate the costs.

Page 46 GAO-08-388 Joint Strike Fighter

Appendix II: GAO Assessment of JSF Program
Cost Estimate

Table 10: JSF Complexity Compared to That of Similar Aircraft Programs

Complexity factor F/A-18E/F F/A-22 JSF

Program participation by multiple No No Yes
military services
Aircraft variants One One Three
Avionics Off-the-shelf New New
Stealth Minimal Yes Yes
Software (operational flight program 1.1 million 2.2 million 5.0 millionª
source lines of code)
Engine(s) One One Two cruise, one lift
International participation No No Yes
Source: CAIG

ªThis assumes approximately 30 percent growth in lines of code by completion of development (F-22
included 34 percent growth and F/A-18, 60 percent growth).

This complexity makes it all the more necessary to fully account for the
effect various risks can have on the overall cost estimate. An uncertainty
analysis assesses the extent to which the variability of an outcome
variable is caused by uncertainty in the input parameters. It should be
performed for every cost estimate in order to inform decision makers
about the likelihood of success. In performing uncertainty analysis, an
organization varies the effects of multiple elements on costs, and as a
result, can express a level of confidence in the point estimate.

We found that the JSF program has not conducted an uncertainty analysis.
Such analysis would provide a range of possible values to program
management and an estimate of the likelihood of the various possibilities.
Instead, the program office only offers a single point estimate—one dollar
figure, with no associated range—and no technical analysis of the
likelihood that this estimate is credible. The lead cost estimator for the
program office acknowledged that such a single point estimate is virtually
certain to be wrong, but also stated that the analysis used to develop a
range of values is easily manipulated and therefore not valuable. It is
GAO’s view that a point estimate should be accompanied by an estimated
confidence level to quantify the uncertainty surrounding the estimate in
order for management to make good decisions. Because the JSF program
office has not conducted an uncertainty analysis, it is unable to provide
Congress with any confidence level for its point estimate of approximately
$300 billion for JSF acquisition.

Page 47 GAO-08-388 Joint Strike Fighter

 Appendix III: Comments from the Department
Appendix III: Comments from the
of Defense

Department of Defense

Page 48 GAO-08-388 Joint Strike Fighter

Appendix III: Comments from the Department
of Defense

Page 49 GAO-08-388 Joint Strike Fighter

Appendix III: Comments from the Department
of Defense

Page 50 GAO-08-388 Joint Strike Fighter

 Appendix IV: GAO Contact and Staff
Appendix IV: GAO Contact and Staff
Acknowledgments

Acknowledgments

Michael Sullivan (202) 512-4841 or [email protected]

GAO Contact
Bruce Fairbairn, Assistant Director; Jerry Clark; Marvin Bonner; Simon
Staff Hirschfeld; Matt Lea; Karen Richey; Dave Hart; and Jim York
Acknowledgments

Page 51 GAO-08-388 Joint Strike Fighter

 Related GAO Products
Related GAO Products

Joint Strike Fighter: Impact of Recent Decisions on Program Risks.

GAO-08-569T. Washington, D.C.: March 11, 2008

Tactical Aircraft: DOD Needs a Joint and Integrated Strategy.

GAO-07-415. Washington, D.C.: April 2, 2007.

Defense Acquisitions: Assessments of Selected Major Weapon Programs.

GAO-07-406SP. Washington D.C.: March 30, 2007.

Best Practices: An Integrated Portfolio Management Approach to Weapon

System Investments Could Improve DOD’s Acquisition Outcomes.
GAO-07-388. Washington, D.C.: March 30, 2007.

Defense Acquisitions: Analysis of Costs for the Joint Strike Fighter

Engine Program. GAO-07-656T. Washington, D.C.: March 22, 2007.

Joint Strike Fighter: Progress Made and Challenges Remain. GAO-07-360.

Washington, D.C.: March 15, 2007.

Systems Acquisition: Major Weapon Systems Continue to Experience

Cost and Schedule Problems under DOD’s Revised Policy. GAO-06-368.
Washington, D.C.: April 13, 2006.

Defense Acquisitions: Actions Needed to Get Better Results on Weapon

Systems Investments. GAO-06-585T. Washington, D.C.: April 5, 2006.

Tactical Aircraft: Recapitalization Goals Are Not Supported by

Knowledge-Based F-22A and JSF Business Cases. GAO-06-487T.
Washington, D.C.: March 16, 2006.

Joint Strike Fighter: DOD Plans to Enter Production before Testing

Demonstrates Acceptable Performance. GAO-06-356. Washington, D.C.:
March 15, 2006.

Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications

for Tactical Aircraft Modernization. GAO-05-519T. Washington, D.C.:
April 6, 2005.

Tactical Aircraft: Opportunity to Reduce Risks in the Joint Strike

Fighter Program with Different Acquisition Strategy. GAO-05-271.
Washington, D.C.: March 15, 2005.

(120663)
Page 52 GAO-08-388 Joint Strike Fighter
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