KC-46 Program Cost, Schedule, and Performance Estimates Remain Unchanged but There Are Some Concerns as Development Progresses

The KC-46 program estimates for cost, schedule, and performance are  essentially unchanged from last year. The contractor is running  very close to its budget and schedule. Development work is more than  one-fourth complete and the program successfully accomplished its  preliminary design review (PDR) on schedule. Also, the program has now  implemented metrics, in response to our prior recommendation, to  measure the development progress toward achieving its nine key  performance parameters and projects it will meet those requirements by  the end of development. However, there are two areas of concern at this  point. First, both the contractor and the government estimate that  Boeing’s development cost will exceed the contract ceiling price of $4.9  billion, and second, the contractor has already allocated about 80 percent  of the management reserves budget set aside for known and unknown  development risks with about 5 years of work remaining. The program also completed a major schedule  milestone in April 2012 with a successful PDR that determined no major  design changes were needed. For example, only 8 KC-135 aircraft have  the capability to receive fuel from another aerial refueling tanker while  airborne. The program has not yet evaluated how the significant use of  these funds early in development could impact future milestones. Program Is Working On Some Testing, Design, Manufacturing, and Technical Challenges

With development generally proceeding as planned, the program is  addressing, in varying degrees, some key challenges. Also, in preparing for the program’s critical  design review, completing extensive engineering drawings on time will be  challenging and some lower level subsystem design reviews are behind  schedule. Furthermore, Boeing changed its plans and location for  manufacturing and assembling military equipment and is still in the  process of relocating key personnel and establishing needed facilities. Flight Test Plans a Concern among Program Stakeholders

The Air Force, DOD, Boeing, and the FAA have all identified the  aggressive KC-46 flight test schedule as a risk. Growth in these two software  classifications is not a favorable trend. Aircraft weight. Wing aerial refueling pod. Boom refueling system. Program Has Effective Mechanisms for Mitigating Risks and Conducting Program Oversight

The KC-46 program continues to mitigate risks principally through its  acquisition strategy and contract mechanism. The use of a fixed price  incentive contract limits government cost risk and the plan to convert a  commercial derivative aircraft into the KC-46 tanker lessens technology  risk. Our assessments of the KC-46 master schedule, the acquisition  plan, and management framework find that they favorably compare with  best practices and acquisition reform legislation, with some exceptions. Program Has Generally Adhered to Acquisition Best Practices and Reform Legislation

On the whole, the KC-46 program’s acquisition plan and management  framework continue to favorably compare with the standards and  requirements in GAO’s best practices work on acquisition development  and reform legislation. Also, improvements to a  few aspects of the program’s master schedule could make it more  complete and robust to further help ensure program success. To help understand and monitor the causes of the majority of  contractor management reserves being allocated two years into  development, the Secretary of Defense should direct the Air Force,  after Boeing has fully resolved the relevant design and technical  issues, to analyze the root causes for the rate of expenditure of  reserves in order to help the Air Force fully recognize and mitigate risk  areas. DOD concurred with our two  recommendations. Regarding the recommendation to  improve the master schedule, DOD stated that the Air Force is taking  action to address each of the 3 schedule best practices we cited. We also discussed related software development, test, and  integration with the DCMA, Director, Operational Test, and Evaluation  (DOT&E) officials, and OSD Developmental Test and Evaluation (DT&E)  officials and reviewed DOT&E and DT&E annual assessments on the KC- 46 program, integrated test team minutes, program assessment reports,  and contractor and program office risk summary charts to identify risk  areas and what actions are being taken to address challenges to the  program. MOAs are  expected with owning aircraft using commands to support  receiver certifications. (2) Sequencing all activities

The schedule should be planned so that critical project dates can be met.
Why GAO Did This Study

Aerial refueling allows U.S. military aircraft to fly further, stay airborne longer, and carry more weapons, equipment, and supplies. Yet the mainstay of U.S. tanker forces--the KC-135 Stratotanker--is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet. As a result, the Air Force has initiated the $52 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft by 2027.
The National Defense Authorization Act for Fiscal Year 2012 requires GAO to annually review the KC-46 program through 2017. This report addresses (1) progress made in 2012 toward cost, schedule, and performance goals, (2) identified program challenges, and (3) program risk mitigation tools. To address these areas, GAO reviewed key program documents, discussed development plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing. GAO assessed the program's development schedule and technology risks. GAO also assessed the program's acquisition plan to determine compliance with acquisition legislation and acquisition best practices.

What GAO Found

The KC-46 program 2012 estimates for cost, schedule, and performance are virtually the same as last year's, with the contractor running very close to the planned budget and schedule. Development work is more than one-fourth complete and a successful preliminary design review was held on schedule in April 2012. In response to a prior GAO recommendation, the program now has fully implemented metrics to measure the progress toward its key performance parameters and expects to meet these requirements. There are two areas of concern regarding program cost: first, both the contractor and government estimate the cost of development will exceed the contract ceiling price of $4.9 billion (although government liability is capped at that ceiling); and second, the contractor has already allocated about 80 percent of the management reserves budget, primarily for identified, yet unresolved, development risks, with the bulk of work--about 5 years--remaining. GAO maintains that significant use of these funds early in a program may indicate problems. The program has not yet evaluated how the significant use of these funds early could impact future milestones.
With development generally stable, the program is addressing, in varying degrees, some key challenges. First, defense, contractor, and federal aviation officials all identify the flight test schedule as a substantive concern. An integrated test team continues to evaluate and adjust flight test plans ahead of the 2015 start. Second, the contractor must still complete a significant number of engineering drawings needed for the upcoming critical design review; about three-fifths are complete and some lower level subsystem reviews are behind schedule. Third, the contractor is still in the process of relocating key personnel and establishing facilities needed for integrating defense equipment after deciding to close the original location. Additional work continues to more fully mature critical technologies, solidify software plans, address growth in aircraft weight, and ensure there are no design issues with the wing refueling pods and the boom refueling system. Program officials continue to monitor these issues to ensure they will not have major impacts.
The KC-46 program acquisition strategy and contract type are effective mechanisms for mitigating risks. The use of a fixed price contract limits government cost risk and technology risk is lessened by converting a commercial derivative aircraft into the KC-46 tanker. The KC-46 master schedule, acquisition plan, and management framework favorably compare with best practices and acquisition reform legislation, with some exceptions. For example, the master schedule met 7 of 10 best practices criteria, but did not include and sequence all activities and could have incorporated a broader range of uncertainty, leaving room to improve the schedule so program success is not jeopardized.

What GAO Recommends

GAO recommends that the Department of Defense (DOD) analyze the root causes for the rapid allocation of management reserves and improve the KC-46 master schedule. DOD fully concurred with these recommendations.