Program Continues to Face Affordability Challenges

The F-35 program continues to face affordability challenges. At the same time, the number of operational F-35 aircraft that  DOD will have to support will be increasing. Initial Development is Nearing Completion and F-35 Program is Addressing Technical Risks

The F-35 program is nearing the completion of the developmental test  program with about 20 percent of its flight sciences and mission systems  testing remaining; however the remaining testing is likely to be  challenging as it will require complex missions and stressing  environments. Manufacturing and Reliability Progress Continue

The F-35 airframe and engine contractors continue to report improved  efficiency and supply chain performance, and program data indicates that  reliability and maintainability are also improving. This  poses risk as the F-35 program plans to significantly increase production  rates over the next five years. DOD plans to manage F-35 follow-on modernization,  formerly known as follow-on development, as part of the existing program  baseline and not as a separate program which we have seen before. In addition, the F-35 program is exploring the  potential for using a single contract to purchase multiple lots of future  aircraft—known as a block buy approach—which has potential benefits  and risks. Although the  requirements are not yet final and no official cost estimate has been  developed for Block 4, DOD’s fiscal year 2017 budget request indicates  that the department expects to spend nearly $3 billion on these  development efforts over the next 6 years (see figure 10). Therefore, DOD  will not be required to separately account for cost, schedule and  performance progress to Congress with regular, formal reports. Best practices recommend an  incremental approach in which new development efforts are structured  and managed as separate acquisition programs with their own  requirements and acquisition program baselines. Without an acquisition  program baseline and regular reporting on progress, it will be difficult for  Congress to hold DOD accountable for achieving F-35 Block 4 cost,  schedule, and performance goals. Matter for Congressional Consideration

To enhance program oversight and accountability given that DOD does  not plan to modify its acquisition strategy and hold a Milestone B decision  review for the F-35 follow-on modernization program, Congress should  consider directing the Secretary of Defense to hold a Milestone B review  and manage F-35 Block 4 as its own separate and distinct major defense  acquisition program with its own acquisition baseline and regular cost,  schedule, and performance report to Congress. Recommendations for Executive Action

In order to ensure that proper statutory and regulatory oversight  mechanisms are in place and to increase transparency into a major new  investment in the F-35 program, we recommend that the Secretary of  Defense hold a Milestone B review and manage F-35 Block 4 as a  separate and distinct Major Defense Acquisition Program with its own  acquisition program baseline and regular cost, schedule, and  performance reports to the Congress. DOD did not concur with our recommendation to hold a Milestone B  review and manage F-35 Block 4 follow-on modernization as a separate  and distinct major defense acquisition program. DOD stated that it views  Block 4 as a continuation of the existing F-35 acquisition program, which  it believes is the department’s most closely managed system. As noted in this report, the Air Force’s F-22 modernization  program began in a similar situation. Appendix II: Scope and Methodology

To assess the program’s cost and affordability, we reviewed total program  funding requirements using the December 2015 Selected Acquisition  Report. To assess future modernization and procurement plans, we discussed  cost and manufacturing efficiency initiatives, such as the block buy  approach, with contractor and program office officials to understand  potential cost savings and plans. F-35 Joint Strike Fighter: Problems Completing Software Testing May  Hinder Delivery of Expected Warfighting Capabilities. Joint Strike Fighter: DOD Plans to Enter Production before Testing  Demonstrates Acceptable Performance.
Why GAO Did This Study

With estimated acquisition costs of nearly $400 billion, the F-35 Joint Strike Fighter—also known as the Lightning II —aircraft is DOD's most costly and ambitious acquisition program. Since 2001, GAO has reported extensively on the F-35 program's cost, schedule, and performance problems. The program plans to begin increasing production rates over the next few years.
The National Defense Authorization Act for Fiscal Year 2015 contains a provision for GAO to review the F-35 acquisition program. This report assesses program (1) affordability, remaining development, and ongoing manufacturing, and (2) future modernization and procurement plans.
GAO analyzed total program funding requirements. GAO analyzed program documentation including management reports, test data and results, and internal DOD program analyses. GAO also collected and analyzed production and supply chain performance data, and interviewed DOD, program, and contractor officials.

What GAO Found

Although the estimated F-35 Joint Strike Fighter (F-35) program acquisition costs have decreased since 2014, the program continues to face significant affordability challenges. The Department of Defense (DOD) plans to begin increasing production and expects to spend more than $14 billion annually for nearly a decade on procurement of F-35 aircraft. Currently, the program has around 20 percent of development testing remaining, including complex mission systems software testing, which will be challenging. At the same time, the contractors that build the F-35 airframes and engines continue to report improved manufacturing efficiency and supply chain performance.
DOD plans to manage F-35 modernization as part of the existing program baseline and is exploring the use of a single contract to procure multiple lots of future aircraft. Both courses of action have oversight implications. DOD has begun planning and funding significant new development work to add to the F-35's capabilities. Known as Block 4, the funding needed for this effort is projected to be nearly $3 billion over the next 6 years (see figure below), which would qualify it as a major defense acquisition program in its own right.
DOD does not currently plan to manage Block 4 as a separate program with its own acquisition program baseline but rather as part of the existing baseline. As a result, Block 4 will not be subject to key statutory and regulatory oversight requirements, such as providing Congress with regular, formal reports on program cost and schedule performance. A similar approach was initially followed on the F-22 Raptor modernization program, making it difficult to separate the performance and cost of the modernization from the baseline program. Best practices recommend an incremental approach in which new development efforts are structured and managed as separate acquisition programs with their own requirements and acquisition program baselines. The F-22 eventually adopted this approach. If the Block 4 effort is not established as a separate acquisition program, transparency will be limited. Therefore, it will be difficult for Congress to hold it accountable for achieving its cost, schedule, and performance requirements.

What GAO Recommends

Congress should consider directing DOD to manage F-35 follow-on modernization, Block 4, as a separate and distinct acquisition program with its own baseline and regular cost, schedule and performance reporting. GAO included this matter for consideration because DOD did not concur with GAO's recommendation to manage Block 4 as a separate acquisition program. GAO continues to believe this recommendation is valid as discussed in this report.