Since operational testing began in 2001, the reliability of the JASSM  missile has been inconsistent. In June 2010, the Secretary of Defense announced an initiative to restore  affordability and productivity in defense spending. That guidance included 23 principle actions to  improve efficiency, including “Mandate affordability as a requirement” and  “Drive productivity growth through Will Cost/Should Cost management.”

	Corrective Actions Have Led to Improved JASSM Test Results but Operational Effectiveness Is Still to Be Demonstrated

Since 2007, the Air Force has enhanced its oversight of the JASSM  program and made significant investments to improve its reliability as  directed by USD/ATL. As a result of increased reliability testing and  investments in reliability initiatives, the Air Force has identified many of  the root causes for flight test failures. Since then, design changes and  other corrective actions have improved JASSM baseline’s test results  significantly—now demonstrating 85 percent success. The JASSM-ER  variant has done well thus far, with no scored failures during the first  seven flight tests. However, while JASSM baseline missile reliability has  improved, it is not expected to achieve the USD/ATL-required level of 90  percent until 2013, and its operational effectiveness has not yet been  demonstrated either through operational testing or use in a combat  operation. In  addition, while it has initiated several cost control measures, the Air Force  appears to have limited options to reduce JASSM costs. First, the Air Force has not been  able to provide enough annual funding to support the annual procurement  levels used as the basis for its 2008 program cost estimate. That has led to  a less efficient production process and a longer production period (most  recently extended 5 years to 2025). If retrofitted missiles are  found to be effective, the Air Force may still have to find additional  funding to complete the retrofit process. Third, the Air Force plans to  conduct many more flight tests to improve JASSM reliability from 85 to 90  percent. Finally, in comparing the capabilities and cost of JASSM to  several domestic and international missile systems in 2008, the Air Force  assumed that JASSM would cost about $1 million per unit, which is about  40 percent less than currently expected. Further, the unit cost differential between  JASSM-ER and the lower-priced alternatives may now be large enough to  make those alternatives more competitive in terms of cost or capabilities. A $2.2 billion, 11-year program to produce 2,400  missiles has become a $7.1 billion, 28-year program to produce 4,900  missiles. At this point, about 70 percent of the projected JASSM costs have not yet  been incurred. With the JASSM program now  expected to extend through 2025 and about $5 billion yet to be spent, a  reevaluation of its cost-effectiveness is warranted before such a  commitment is made. Recommendation for Executive Action

We recommend that the Secretary of Defense defer the production  decision for JASSM-ER until (1) the program’s likely costs and  affordability are reassessed to take into account the feasibility and cost of  retrofitting JASSM baseline missiles or replacing them, the cost of  additional reliability testing against the likely improvement, and the effect  of sustained low production rates; and (2) the results of the previous  analysis of alternatives are reassessed in light of the likely costs of the  JASSM program. DOD stated that JASSM-ER is on track for a Milestone C  low-rate initial production decision in November 2010. Beyond these steps, it is incumbent upon the department to reexamine  JASSM before making the production decision to ensure that the program  is structured as efficiently as possible and is still a good investment given  the other demands DOD faces. If DOD needs  more time, then we believe the decision could be delayed. We interviewed officials with the JASSM joint program office; Lockheed  Martin; Office of Under Secretary of Defense for Acquisition, Technology,  and Logistics; Office of Secretary of Defense Cost Assessment and  Program Evaluation; Director of Operational Test and Evaluation; Air  Combat Command; Secretary of the Air Force for Acquisition; Joint Staff;  and a former program official to the determine acquisition planning  leading up to JASSM-ER’s production decision and what initiatives have  been taken to control costs. Appendix II: Comments from the Department of Defense

Appendix III: JASSM Baseline and JASSM-ER Cost Estimates Met Most Best Practices, but the Risk Analyses Did Not Consider Reliability or Extending the Production Schedule

After reviewing documentation submitted by the JASSM program office,  conducting interviews, and reviewing relevant sources, we determined the  CAIG’s life-cycle cost estimate’s totaling $7.1 billion for both programs— the JASSM baseline cost estimate was $3.4 million while the JASSM-ER  variant cost estimate of $3.7 million—Fully Met one and Substantially Met  the other three characteristics of a reliable cost estimate, as shown in  Table 3 below.
Why GAO Did This Study

Over the past two and a half decades, the Department of Defense (DOD) has invested heavily to acquire a cruise missile capable of attacking ground targets stealthily, reliably, and affordably. After abandoning an earlier, more expensive missile and a joint service effort, the Air Force began producing the Joint Air-to-Surface Standoff Missile (JASSM) in 2001. After that, the program (1) encountered many flight test failures, (2) decided to develop an extended range version, and (3) recognized significant cost growth. The production decision for the JASSM-ER is planned for November 2010. Also, the Secretary of Defense has recently announced a major initiative to restore affordability and productivity in defense spending. This initiative is expected to, among other things, identify savings by conducting needed programs more efficiently. As DOD faces the initial production decision on JASSM-ER, GAO was asked to assess (1) most recent test results, correction of causes of previous flight test failures, and efforts to improve JASSM's reliability; and (2) JASSM cost changes, efforts to control costs, and additional cost risks for the program.

What GAO Found

Since 2007, design changes and other corrective actions by the Air Force have improved the baseline JASSM's test results significantly--the missile has now demonstrated 85 percent success versus 58 percent achieved previously and before the corrections. The JASSM-ER variant has done well thus far, with no failures during the first seven flight tests. These results reflect the Air Force's enhanced oversight of the program and significant investments made to improve reliability. These efforts also identified many of the root causes for flight test failures. While baseline JASSM missile reliability has improved, it is not expected to achieve the Under Secretary of Defense for Acquisition, Technology and Logistics' required level of 90 percent until 2013. Tests conducted thus far of the improved baseline JASSM and the JASSM-ER variants have been developmental--or controlled--in nature. Neither the improved JASSM baseline missile nor the JASSM-ER has been demonstrated in operationally realistic testing or in a combat operation. JASSM costs have increased by over seven percent since the program was restructured in 2008. As the table shows, since 1998, JASSM quantities have more than doubled and estimated program costs have grown from $2.2 billion to a $7.1 billion. The Air Force has taken several steps to control JASSM costs, but options to reduce costs at this point appear limited. In fact, several factors suggest additional cost growth is likely. First, the Air Force has not been able to provide enough funding to produce the missiles at planned rates. That has led to a less efficient production process, a longer production period, and higher costs that have not yet been reflected in the $7.1 billion estimate. Second, the Air Force's potential plans to retrofit existing missiles with the reliability improvements may not be feasible, given the missile's sensitivity to being reopened. If retrofits prove infeasible, new replacements may have to be purchased; if they are feasible, the Air Force may have to provide additional funding to retrofit all existing missiles. Finally, since the Air Force last compared JASSM to possible alternatives, the unit cost was assumed to be about 40 percent less than currently expected and that now could make alternatives more competitive in terms of cost and/or capabilities. A reevaluation of the JASSM program, given that most of its costs have yet to be incurred, is warranted before the decision to produce the JASSM-ER is made.

What GAO Recommends

GAO recommends that the Secretary of Defense reevaluate the JASSM program's affordability and cost-effectiveness before making the decision to produce the JASSM-ER. DOD partially concurred with GAO's assessment, but believes the JASSM-ER should begin production in November 2010. GAO believes that it is incumbent upon the department to reexamine JASSM before making the production decision to ensure that the program is structured as efficiently as possible and is still a good investment given the other demands DOD faces.