See figure 2 for a  timeline of major events and anticipated fleet growth in the F-35 program. DOD Is Currently Sustaining More Than 250 F-35 Aircraft, but Insufficient Planning Has Led to Significant Challenges That Pose Risk to Its Growing Fleet

		DOD Is Sustaining More Than 250 F-35 Aircraft, but Faces Significant Challenges That Are Affecting Readiness

DOD has currently fielded and is sustaining more than 250 F-35 aircraft,  and the number is expected to triple by the end of 2021 and keep growing  as the program moves into full-rate production. DOD’s Sustainment Plans Do Not Fully Include Key Requirements, Associated Timelines, and Aligned Funding, but Some Initial Steps Are Being Taken

As discussed above, DOD’s challenges are due in large part to  sustainment plans that do not fully include key requirements, associated  timelines, and aligned (that is, timely and sufficient) funding to support  those requirements. DOD Is Testing Agreements with the Contractor but May Not Be Well Positioned to Enter into Multi-year, Performance-based Sustainment Contracts by 2020

		DOD Is Testing Performance-based Agreements to Incentivize the Prime Contractor

DOD is conducting pilot—or trial—performance-based agreements with  the prime contractor as a part of its annual cost-reimbursable sustainment  contracts, in order to test metrics and performance-management  processes. DOD may not be using the appropriate metrics under the pilot  performance-based agreements to achieve desired outcomes. This  ultimately makes it difficult for DOD to hold the contractor  accountable. DOD Does Not Yet Have Full Information on F-35 Sustainment Costs or Technical Aircraft Characteristics

DOD does not yet have full information on F-35 sustainment costs or  technical characteristics such as reliability and maintainability, and this  could pose risks to its ability to effectively negotiate 5-year, fixed-price  performance-based contracts with the prime contractor by 2020. The  department concurred with this recommendation but has not taken  specific action on it at the program level. For example, according to program documentation,  the Marine Corps was initially given a funding requirement for fiscal  year 2017 sustainment support of $293 million, which then increased  to $364 million in the execution year, largely due to increases in  contractor personnel costs. This lack of transparency is due in part to insufficient communication  between the program office and the services, particularly as requirements  and costs change. There is little  doubt that the F-35 brings unique capabilities to the U.S. military, but  without revising sustainment plans to include the key requirements and  decision points needed to fully implement the F-35 sustainment strategy,  and without aligned funding plans to meet those requirements, DOD is at  risk of being unable to leverage the capabilities of the aircraft it has  recently purchased. DOD’s plan to enter into multi-year, performance-based contracts with the  prime contractor has the potential to produce cost savings and other  benefits. Without examining  whether it has the appropriate metrics to incentivize the contractor or a  sufficient understanding of the actual costs and technical characteristics  of the aircraft before entering into multi-year, performance-based  contracts, DOD could find itself overpaying for sustainment support that is  not sufficient to meet warfighter requirements. Already the most expensive weapon  system in DOD’s history, these rising costs are particularly concerning  because the military services do not fully understand what they are  paying for. This puts them in a precarious position as they consider  critical trade-offs that might make F-35 sustainment more affordable. Without improving communication with the services to help them better  understand how the sustainment costs they are being charged relate to  the capabilities that they receive, the services may not be able to  effectively budget for the F-35 over the long term. (Recommendation 1)
The Under Secretary of Defense for Acquisition, Technology, and  Logistics, in coordination with the F-35 Program Executive Officer,  should re-examine the metrics that it will use to hold the contractor  accountable under the fixed-price, performance-based contracts to  ensure that such metrics are objectively measurable, are fully  reflective of processes over which the contractor has control, and  drive desired behaviors by all stakeholders. To assess the extent to which DOD is positioned to enter into multi-year  performance-based F-35 sustainment contracts, we reviewed  documentation related to DOD’s pilot—or trial— performance-based  agreements for F-35 sustainment, such as sustainment contracts,  readiness data provided by the military services, metric taxonomies, and  agreements between the program office and the military services that  identify the services’ desired performance targets. To assess the progress, if any, DOD has made toward reducing F-35  sustainment costs, and the extent to which costs are transparent to the  military services, we reviewed F-35 Joint Program Office sustainment- cost estimates from fiscal year 2012 to fiscal year 2016 in order to identify  changes to the estimate since the program’s sustainment cost baseline  was established in 2012; documentation related to program office and  service cost-reduction efforts; sustainment contracts; F-35 cost-sharing  rules; and budget documentation from both the program office and the  military services.
Why GAO Did This Study

The F-35 aircraft represents the future of tactical aviation for the U.S. military, and is DOD's most expensive weapon system, with sustainment costs alone estimated at more than $1 trillion over a 60-year life cycle. As the F-35 program approaches full-rate production, DOD is working to deliver an affordable sustainment strategy that is able to meet the needs of the military services. This strategy is being tested as DOD stands up military depots, trains personnel, and supports its first operational squadrons—with plans to establish multi-year, performance-based contracts by 2020.
The National Defense Authorization Act for fiscal year 2017 includes a provision for GAO to review the F-35 program's sustainment support structure. This report assesses (1) the status of DOD's efforts to sustain the F-35 fleet and any challenges it has faced; (2) the extent to which DOD is positioned to enter into multi-year, performance-based F-35 sustainment contracts; and (3) the progress, if any, DOD has made toward reducing F-35 sustainment costs and the extent to which costs are transparent. GAO reviewed DOD and contractor documentation, analyzed data, and interviewed relevant officials.

What GAO Found

The Department of Defense (DOD) is sustaining over 250 F-35 aircraft (F-35) and plans to triple the fleet by the end of 2021, but is facing sustainment challenges that are affecting warfighter readiness (see table). These challenges are largely the result of sustainment plans that do not fully include key requirements or aligned (timely and sufficient) funding. DOD is taking steps to address some challenges, but without more comprehensive plans and aligned funding, DOD risks being unable to fully leverage the F-35's capabilities and sustain a rapidly expanding fleet.
DOD's plan to enter into multi-year, performance-based F-35 sustainment contracts with the prime contractor has the potential to produce costs savings and other benefits, but DOD may not be well positioned to enter into such contracts by 2020. To date, DOD has not yet achieved its desired aircraft performance under pilot (i.e., trial) performance-based agreements with the prime contractor. In addition, the level of performance DOD has contracted for is generally below what the services desire (see figure 2 for Marine Corps example). Also, the three performance metrics DOD is using to incentivize the contractor under these pilot agreements may not be the appropriate metrics to achieve desired outcomes, in part because they are not fully reflective of processes for which the contractor has control. This can make it difficult for DOD to hold the contractor accountable. Further, due to system immaturity, DOD does not have full information on F-35 sustainment costs and technical characteristics such as reliability and maintainability, which could hinder its ability to effectively negotiate performance-based contracts with the contractor by 2020. Without examining whether it has the appropriate metrics to incentivize the contractor or a full understanding of the actual costs and technical characteristics of the aircraft before entering into multi-year, performance-based contracts, DOD risks overpaying the contractor for sustainment support that does not meet warfighter requirements.
DOD has taken actions to reduce F-35 sustainment costs, but estimated life cycle costs have increased and are not fully transparent to the military services (see figure 3). Specifically, the services do not fully understand how the costs they are being charged by the program office are linked to the capabilities they are receiving, citing unexplained cost increases and difficulty in tracking their requirements to contracts. For example, the Marine Corps received an initial funding requirement for fiscal year 2017 sustainment of $293 million, which then increased to $364 million in the execution year. This lack of transparency is due in part to insufficient communication between the program office and the services, and it puts the services in a difficult position as they consider critical trade-offs that may make F-35 sustainment more affordable. Without improving communication with the services about the costs they are being charged, the services may not be able to effectively budget for long-term sustainment.

What GAO Recommends

GAO recommends that DOD revise sustainment plans, re-examine metrics and ensure that it has sufficient knowledge of costs and technical characteristics before entering into performance-based contracts, and improve communication with the services about sustainment costs. DOD concurred with these recommendations.