The program  expects to reach peak production rates for U.S. aircraft in 2022, at which  point DOD expects to spend more than $14 billion a year on average for a  decade (see fig. These dates represented a delay of 5 to 6 years from the  program’s initial baseline. Continuing Problems with Flight Testing of Software Capabilities Will Delay the Completion of Development and Increase Development Costs

DOD will need more time and money than expected to complete the  remaining 10 percent of the F-35 development program. However, based on our analysis, the program’s projection is optimistic as  it does not reflect historical F-35 test data. According to GAO best practices,  credible schedule estimates are rooted in historical data. Delays in Developmental Testing Will Likely Affect Plans for Initial Operational Testing, Navy Operational Capability Dates, and Full-Rate Production

Delays in developmental testing will likely drive delays in current plans to  start F-35 initial operational test and evaluation. Likewise, DOD’s full-rate production  decision, currently planned for April 2019, may have to be delayed. Based on the program office’s estimate of  a 5-month delay in developmental testing, the F-35 program will need an  additional $532 million to complete the development contract. If developmental testing is delayed 12 months,  as we estimate, and operational testing is not completed until 2020, as  projected by DOT&E, then we estimate that the program could need more  than an additional $1.7 billion to complete the F-35 development contract. DOD’s Planned Investments in Modernization and Economic Order Purchase May Be Premature

In fiscal year 2018, F-35 program officials expect to invest more than $1.2  billion to start two efforts while simultaneously facing significant shortfalls  in completing the F-35 baseline development program, as discussed  above. Specifically, DOD and program officials project that in fiscal year  2018 the program will need over $600 million to begin development of  follow-on modernization of the F-35 and more than $650 million to  procure economic order quantities (EOQ) of parts to achieve cost savings  during procurement. Until Block 3F  testing is complete, DOD will not have the knowledge it needs to develop  and present an executable business case for Block 4, with reliable cost  and funding estimates. However, the requirements  for the first increment of that effort, known as Block 4, have not been  finalized. Currently, F-35 program  officials plan to release the RFP for Block 4.1 development in the third  quarter of fiscal year 2017, nearly 1 year before we estimate Block 3F  developmental testing will be completed. Program officials have stated  that Block 3F is the foundation for Block 4, but continuing delays in Block  3F testing make it difficult to fully understand Block 3F functionality and its  effect on early Block 4 capabilities. However, as of January 2017, contractors stated they were still  negotiating the terms of this arrangement; therefore, the specific costs  and benefits remained uncertain. According  to internal control standards, agencies should communicate with external  stakeholders, such as Congress. In addition, with baseline development still  ongoing the program will not likely have the knowledge it needs to  present a sound business case for soliciting contractor proposals for  Block 4 development in fiscal year 2017. 1. 2. 3. DOD did not concur with our recommendation to reassess the additional  cost and time needed to complete developmental testing using historical  program data. We continue to believe that our recommendation  is valid. DOD stated that it partially concurred with our third recommendation to  finalize the details of investments associated with an EOQ purchase in  fiscal year 2018, and submit a report to Congress with the fiscal year  2018 budget request that clearly identifies those details. We discussed key aspects  of F-35 development progress, including flight testing progress, with  program management and contractor officials as well as DOD test  officials and program test pilots. We also  reviewed and analyzed best practices identified by GAO and reviewed  relevant DOD policies and statutes. We compared the acquisition plans to  these policies and practices. F-35 Joint Strike Fighter: Assessment Needed to Address Affordability  Challenges.
Why GAO Did This Study

The F-35 Joint Strike Fighter is DOD's most expensive and ambitious acquisition program. Acquisition costs alone are estimated at nearly $400 billion, and beginning in 2022, DOD expects to spend more than $14 billion a year on average for a decade.
The National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to review the F-35 acquisition program annually until the program reaches full-rate production. This, GAO's second report in response to that mandate, assesses, among other objectives, (1) progress of remaining program development and testing and (2) proposed future plans for acquisition investments. To conduct this work, GAO reviewed and analyzed management reports and historical test data; discussed key aspects of F-35 development with program management and contractor officials; and compared acquisition plans to DOD policy and GAO acquisition best practices.

What GAO Found

Cascading F-35 testing delays could cost the Department of Defense (DOD) over a billion dollars more than currently budgeted to complete development of the F-35 baseline program. Because of problems with the mission systems software, known as Block 3F, program officials optimistically estimate that the program will need an additional 5 months to complete developmental testing. According to best practices, credible estimates are rooted in historical data. The program's projections are based on anticipated test point achievements and not historical data. GAO's analysis—based on historical F-35 flight test data—indicates that developmental testing could take an additional 12 months (see table below). These delays could affect the start of the F-35's initial operational test and evaluation, postpone the Navy's initial operational capability, and delay the program's full rate production decision, currently planned for April 2019.
Program officials estimate that a delay of 5 months will contribute to a total increase of $532 million to complete development. The longer delay estimated by GAO will likely contribute to an increase of more than $1.7 billion, approximately $1.3 billion of which will be needed in fiscal year 2018.
Meanwhile, program officials project the program will need over $1.2 billion in fiscal year 2018 to start two efforts. First, DOD expects it will need over $600 million for follow-on modernization (known as Block 4). F-35 program officials plan to release a request for Block 4 development proposals nearly 1 year before GAO estimates that Block 3F—the last block of software for the F-35 baseline program—developmental testing will be completed. DOD policy and GAO best practices state that requirements should be approved and a sound business case formed before requesting development proposals from contractors. Until Block 3F testing is complete, DOD will not have the knowledge it needs to present a sound business case for Block 4. Second, the program may ask Congress for more than $650 million in fiscal year 2018 to procure economic order quantities—bulk quantities. However, as of January 2017 the details of this plan were unclear because DOD's 2018 budget was not final and negotiations with the contractors were ongoing. According to internal controls, agencies should communicate with Congress, otherwise it may not have the information it needs to make a fully informed budget decision for fiscal year 2018. Completing Block 3F development is essential for a sound business case and warrants funding priority over Block 4 and economic order quantities at this time.

What GAO Recommends

GAO recommends that DOD use historical data to reassess the cost of completing development of Block 3F, complete Block 3F testing before soliciting contractor proposals for Block 4 development, and identify for Congress the cost and benefits associated with procuring economic order quantities of parts. DOD did not concur with the first two recommendations and partially concurred with the third while outlining actions to address it. GAO continues to believe its recommendations are valid, as discussed in the report.