	Background

The Joint Strike Fighter is DOD’s most expensive aircraft acquisition  program. DOD is expected  to develop, procure, and maintain 2,443 operational aircraft at a cost of  more than $950 billion over the program’s life cycle. Since awarding that contract, DOD’s last three  budget submissions have included no funding for the alternate engine  program and DOD has proposed canceling it, stating that (1) no net  acquisition cost benefits or savings are to be expected from competition  and (2) low operational risk exists for the warfighter under a sole-source  engine supplier strategy. Program Cost Estimate Increased Since Last Year

DOD reported that total acquisition cost estimate increased by more than  $23 billion since our last report in March of 2007, and $55 billion since the  program underwent a major restructure in 2004. JSF Development Program Faces Increased Risks of Further Cost Increases and Schedule Delays

Midway through its planned 12-year development period, the JSF program  is over cost and behind schedule. 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. 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 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  to report and manage JSF costs and schedule is deficient; (3) is not well  documented in that it does not sufficiently identify the primary methods,  calculations, results, rationales and assumptions, and data sources used to  generate cost estimates; and (4) is not credible according to individual  estimates from OSD’s Cost Analysis Improvement Group, the Defense  Contract Management Agency, and the Naval Air Systems Command. Additional investment of between $3.5 billion to $4.5 billion  may be required should the Department decide to continue competition. While Pratt & Whitney design responsibilities and associated costs may  actually be reduced under a sole-source contract, we remain confident  that competitive pressures could yield enough savings to offset the costs  of competition over the program’s life. Given  certain assumptions with regard to these factors, the additional costs of  having the alternate engine could be recouped if competition were to  generate approximately 9 to 11 percent savings—about 2 percent less than  we estimated previously. According to actual Air Force data from past  engine programs, including the F-16 aircraft, we still believe it is  reasonable to expect savings of at least that much. For example, in the first  4 years of the competition, when comparing actual costs to the program’s  baseline estimate, results included    nearly 30 percent cumulative savings for acquisition costs,  roughly 16 percent cumulative savings for operations and support  costs, and  total savings of about 21 percent in overall life cycle costs. Our prior work, along with studies by  DOD and others, indicate there are a number of non financial benefits that  may result from competition, including better performance, increased  reliability, and improved contractor responsiveness. In addition, the long  term impacts of the JSF engine program on the global industrial base go  far beyond the two competing contractors. Concluding Observations

DOD is challenged once again with weighing short-term needs against  potential long-term payoffs within the JSF program, especially in terms of  the test program and the approach for developing, procuring, and  sustaining the engine. We and others believe that the JSF risk reduction  plan is too risky—cutting test resources and flight tests will constrain the  pace and fidelity of development testing—and additional costs and time  will likely be needed to complete JSF development. These actions may postpone events, but a major restructuring  appears likely—we expect DOD will need more money and time to  complete development and operational testing, which will delay the full- rate production decision. Likewise, the way forward for  the JSF engine acquisition strategy entails one of many critical choices  facing DOD today, and underscores the importance of decisions facing the  program. Such choices made today on the JSF program will have long  term impacts.
Why GAO Did This Study

The Joint Strike Fighter (JSF) is the Department of Defense's (DOD) most expensive aircraft acquisition program. DOD is expected to develop, procure, and maintain 2,443 aircraft at a cost of more than $950 billion. DOD plans for the JSF to replace or complement several types of aircraft in the Air Force, Navy, and Marine Corps. Given the program's cost and importance, it is critical that decisions are made within this program to maximize its benefit to the nation. This testimony highlights a number of those decisions and impacts. It (1) discusses emerging risks to the overall program, and (2) updates information for GAO's cost analysis of last year regarding sole-source and competitive scenarios for acquisition and sustainment of the JSF engine. Information on the overall program is from our mandated annual report, also issued today. GAO tracked annual cost and schedule changes, reasons for changes, decisions affecting development, and compared DOD cost estimating methodologies to best practices. For the two engines, GAO updated cost data from last year's testimony and made new projections.

What GAO Found

GAO believes recent DOD decisions, while potentially reducing near-term funding needs, could have long-term cost implications. DOD's recent plan to reduce test resources in order to pay for development cost overruns adds more risk to the overall JSF program. Midway through development, the program is over cost and behind schedule. Difficulties in stabilizing aircraft designs and the inefficient manufacturing of test aircraft have forced the program to spend management reserves much faster than anticipated. To replenish this reserve, DOD officials decided not to request additional funding and time for development at this time, but opted instead to reduce test resources. GAO believes this plan will hamper development testing while still not addressing the root causes of related cost increases. While DOD reports that total acquisition costs have increased by $55 billion since a major restructuring in 2004, GAO and others in DOD believe that the cost estimates are not reliable and that total costs will be much higher than currently advertised. Another restructuring appears likely--GAO expects DOD will need more money and time to complete development and operational testing, which will delay the full-rate production decision and the fielding of capabilities to the warfighter. This year, DOD is again proposing cancellation of the JSF alternate engine program. The current estimated remaining life cycle cost for the JSF engine program under a sole-source scenario is $54.9 billion. To ensure competition by continuing the JSF alternate engine program, an additional investment of about $3.5 billion to $4.5 billion may be required. However, potential advantages from a competitive strategy could result in savings equal to or exceeding that amount across the life cycle of the engine. GAO's updated cost analysis suggests that a savings of 9 to 11 percent--about 2 percent less than what GAO estimated last year--would recoup that investment. Also, as we noted last year, prior experience indicates that it is reasonable to assume that competition on the JSF engine program could yield savings of at least that much. Further, non financial benefits in terms of better engine performance and reliability, more responsive contractors, and improved industrial base stability are more likely outcomes under a competitive environment than under a sole-source strategy. While cancellation of the program provides needed funding in the near term, recent test failures for the primary JSF engine underscore the importance and long-term implications of DOD decision making with regard to the ultimate engine acquisition approach.