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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

February 2013: 

KC-46 Tanker Aircraft: 

Program Generally Stable but Improvements in Managing Schedule Are 
Needed: 

GAO-13-258: 

GAO Highlights: 

Highlights of GAO-13-258, a report to congressional committees. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-13-258]. For more 
information, contact Michael J. Sullivan at (202) 512-4841, or 
sullivanm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

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

Program Is Working On Some Testing, Design, Manufacturing, and 
Technical Challenges: 

Program Has Effective Mechanisms for Mitigating Risks and Conducting 
Program Oversight: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Comparison of Current KC-135 versus Planned KC-46 
Performance Capabilities: 

Appendix III: Description of KC-46 Key Performance Parameters: 

Appendix IV: Top Risks Identified by the KC-46 Integrated Test Team 
and Proposed Mitigation Efforts: 

Appendix V: KC-46 Critical Technology Elements: 

Appendix VI: Description of GAO Scheduling Best Practices: 

Appendix VII: Key Boeing Suppliers for the KC-46 Program: 

Appendix VIII: Comments from the Department of Defense: 

Appendix IX: GAO Contact and Acknowledgments: 

Tables: 

Table 1: Approved KC-46 Quantities, Cost, and Schedule: 

Table 2: KC-46 Development Contract Amounts Compared to Current 
Estimates: 

Table 3: Changes to the Planned Composition of KC-46 Software: 

Table 4: Summary Assessment of KC-46 Development Schedule Compared to 
Best Practices: 

Figures: 

Figure 1: Conversion of Boeing 767-2C into KC-46 Aerial Refueling 
Tanker: 

Figure 2: KC-46 Development Contract Management Reserves Allocation 
Trend (December 2012): 

Figure 3: KC-46 Engineering Design Drawing Completion Status Leading 
to Critical Design Review: 

Figure 4: Planned KC-46 Program Concurrency between Development, 
Flight Testing, and Production: 

Abbreviations: 

CDR: critical design review: 

DCMA: Defense Contract Management Agency: 

DOD: Department of Defense: 

EMD: Engineering and Manufacturing Development: 

FAA: Federal Aviation Administration: 

FPIF: fixed price incentive (firm target): 

ITT: Integrated Test Team: 

OSD: Office of the Secretary of Defense: 

PDR: preliminary design review: 

TPM: technical performance measures: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

February 27, 2013: 

Congressional Committees: 

The KC-46 tanker modernization program, valued at $52 billion, is the 
Air Force's highest acquisition priority and recently completed its 
second year in development to convert a commercial derivative aircraft 
into an aerial refueling tanker.[Footnote 1] Aerial refueling--the 
transfer of fuel from airborne tankers to combat and airlift forces--
is critical to the U.S. military's ability to project power overseas 
and to effectively operate within a combat theater. It enables 
military aircraft to fly further, stay airborne longer, and carry more 
weapons, equipment, and supplies than unrefueled forces. KC-46 
aircraft are expected to replace about two-fifths of the KC-135 
Stratotanker fleet, currently the mainstay of the U.S. large tanker 
force. This force is now over 50 years old on average and costs 
increasingly more to maintain and support, with additional concerns 
that age-related problems could potentially ground the fleet. 
Consequently, the Air Force plans to develop, test, and field 18 KC-46 
tankers by August 2017, and eventually have a total of 179 aircraft by 
2027. 

The National Defense Authorization Act for Fiscal Year 2012 requires 
that we annually review and report on the KC-46 program.[Footnote 2] 
In our initial March 2012 report, we recommended close monitoring of 
its cost, schedule, and performance outcomes in order to identify 
positive or negative lessons learned.[Footnote 3] The Department of 
Defense (DOD) agreed. These lessons and the data compiled by the 
program could be very illustrative and important to decision makers to 
help guide and improve future defense acquisition programs since the 
KC-46 is one of the few major programs to award a fixed price 
incentive (firm target) (FPIF) development contract in recent years. 
We also recommended that the KC-46 program manager fully implement 
sound metrics for each of the aircraft's planned key performance 
parameters, to help ensure that achievement of these parameters can be 
appropriately measured as the program moves toward production. 
Subsequently, the program office took steps to do so. 

This is our second annual report in which we (1) evaluate program 
progress toward cost, schedule, and performance goals; (2) identify 
design, manufacturing, testing plan, and technology challenges; and 
(3) assess the extent the program has developed effective, appropriate 
methods to contain and mitigate risks. We could not assess the 
contractor's manufacturing processes because the program has only 
recently completed its second year of development and it is too early 
for this assessment. To conduct this work, we discussed plans and 
results with the Air Force's KC-46 program office, other defense 
offices, and the prime contractor, the Boeing Company (Boeing). We 
reviewed financial management documents, program budgets, risk 
assessments, technical performance indicators, flight test plans and 
data relating to the program's cost, schedule, and performance. We 
visited Boeing's commercial production line and its facilities for 
system integration and military modifications, and obtained 
information on the program's flight testing and manufacturing plans. 

We conducted this performance audit from June 2012 to February 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. See appendix I 
for more information on our scope and methodology. 

Background: 

In February 2011, Boeing won the Air Force competition to develop the 
next generation aerial refueling tanker aircraft. Boeing received a 
FPIF development contract with incentives to control cost while 
limiting the government's financial liability. The development 
contract is to design, manufacture, and deliver four KC-46 tankers for 
flight testing. The Air Force expects to exercise contract options for 
the first production lot in 2015 and the second production lot in 
2016, both needed for Boeing to produce and deliver 18 operational 
aircraft in the final production configuration by August 2017. In 
addition, all required training must be complete, and the required 
support equipment, and sustainment support in place by August 2017. 
Then the acquisition strategy calls for Boeing to produce the 
remaining aircraft through year 2027 at a target rate of 15 aircraft 
per year. Separate competitions may occur for later acquisitions, 
nominally called the KC-Y and KC-Z, to replace the rest of the KC-135 
fleet and the KC-10 fleet (the Air Force's other large tanker). 

The KC-46 program's acquisition strategy is to convert a commercial 
Boeing 767 airframe into a militarized aerial refueling tanker in two 
phases. In the first, Boeing is modifying their 767 airframe with a 
cargo door and an advanced flight deck display borrowed from the new 
Boeing 787 aircraft and calling this modified version the 767-2C. In 
the second, the 767-2C airframe will be further militarized by adding 
the air refueling capabilities, an air refueling operator station that 
includes panoramic three-dimensional displays, and threat detection 
and avoidance systems. Figure 1 depicts how the 767-2C aircraft is to 
be configured into the KC-46 tanker. 

Figure 1: Conversion of Boeing 767-2C into KC-46 Aerial Refueling 
Tanker: 

[Refer to PDF for image: illustration] 

767-2C aircraft: 
* Baseline non-military aircraft; 
* Enhanced flight deck; 
* Freighter (cargo door and floor); 
* Fuel Tanks; 
* Tanker system provisions. 

KC-46 tanker: 
* Air refueling operating system; 
* Boom refueling systems; 
* Centerline hose and drogue refueling system; 
* Defensive systems; 
* Military avionics; 
* Passenger/cargo/medical patient. 

Source: Copyright, 2011 Boeing Company. 

[End of figure] 

The new KC-46 tanker is expected to be more capable than the KC-135 it 
replaces in several respects. It will have a modernized KC-10 tanker 
refueling boom integrated with a fly-by-wire (computer assisted) 
control system and a permanent hose and drogue refueling system that 
will enable both types of refueling to be employed on the same 
mission.[Footnote 4] The KC-135 has to land and switch equipment to 
transition from one mode to another. Also, the KC-46 is expected to be 
able to refuel in a variety of night-time and covert mission settings 
and will have countermeasures to protect it against infrared missile 
threats. Designed with more refueling capacity, improved efficiency, 
and increased cargo and medical evacuation capabilities than its 
predecessor, the KC-46 is intended to provide aerial refueling to Air 
Force, Navy, Marine Corps, and allied aircraft. Appendix II compares, 
in more detail, the current capabilities of the KC-135 with the 
planned capabilities of the new KC-46 tanker. 

The KC-46 program is one of only a few major weapon system programs in 
recent years to employ a fixed price development contract. In the 
past, DOD has typically used cost-reimbursement contracts in which the 
government pays all allowable costs incurred by the contractor. Recent 
legislation and defense policy now emphasize the use of fixed price 
development contracts, where warranted, to limit the government's 
exposure to cost increases. Defense officials believe that a fixed 
price development contract is appropriate for this program because KC-
46 development is considered to be a relatively low-risk effort to 
integrate mostly mature military technologies onto a well-defined 
commercial derivative aircraft. 

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. While the current cost estimate 
shows an increase of about $217 million for development and 
procurement combined, program officials explained this increase was 
unneeded funding that will be returned to DOD. 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. 

Quantities, Schedule, Cost, and Expected Performance Unchanged Since 
Program Start: 

Since the start of the KC-46 program about two years ago, planned 
aircraft quantities and key schedule events remain unchanged. The 
program's latest cost estimate shows a total increase of $217 million 
in development and procurement, but Air Force officials told us that 
this is due to unneeded funding from DOD budget adjustments and the 
Tanker Replacement Transfer Fund.[Footnote 5] Officials said that the 
February 2011 cost estimate remains the program of record and that 
these funding additions will be returned to DOD. The program also 
completed a major schedule milestone in April 2012 with a successful 
PDR that determined no major design changes were needed. The PDR is an 
important risk reduction activity as the program moves into 
integration and manufacture of the KC-46. Table 1 summarizes the 
planned quantities, costs, and milestone dates approved when the 
program began in February 2011 and the most current estimates in 
October 2012. 

Table 1: Approved KC-46 Quantities, Cost, and Schedule: 

Expected quantities: 

Development quantities; 
February 2011: 4; 
October 2012: 4. 

Procurement quantities; 
February 2011: 175; 
October 2012: 175. 

Total quantities; 
February 2011: 179; 
October 2012: 179. 

Cost estimates (then-year dollars in millions): 

Development; 
February 2011: $7,149.6; 
October 2012: $7,239.6. 

Procurement; 
February 2011: $40,236.0; 
October 2012: $40,363.3. 

Military construction; 
February 2011: $4,314.6; 
October 2012: $4,314.6. 

Total program acquisition; 
February 2011: $51,700.2; 
October 2012: $51,917.5. 

Unit cost estimates (then-year dollars in millions): 

Average program acquisition; 
February 2011: $288.8; 
October 2012: $290.0. 

Average procurement; 
February 2011: $229.9; 
October 2012: $230.6. 

Key milestones: 

Program contract award (Milestone B); 
February 2011: February 2011; 
October 2012: February 2011. 

Preliminary design review; 
February 2011: April 2012; 
October 2012: April 2012. 

Critical design review; 
February 2011: July 2013; 
October 2012: July 2013. 

Low rate initial production (Milestone C); 
February 2011: August 2015; 
October 2012: August 2015. 

Initial operational test and evaluation start; 
February 2011: May 2016; 
October 2012: May 2016. 

Full rate production decision; 
February 2011: June 2017; 
October 2012: June 2017. 

Required assets available (18 aircraft operationally ready); 
February 2011: August 2017; 
October 2012: August 2017. 

Source: GAO presentation of Air Force data. 

[End of table] 

The current development cost estimate of $7.2 billion as reported in 
October 2012 includes $4.9 billion for the aircraft development 
contract and 4 test aircraft, $0.3 billion for the aircrew and 
maintenance training systems, and $2 billion for other government 
costs to include program office support, government test and 
evaluation support, contract performance risk, and other development 
risks associated with the aircraft and training systems. The total 
procurement cost estimate of $40.4 billion is to procure 175 
production aircraft, initial spares, and other support items as priced 
in contract options. The military construction estimate of $4.3 
billion includes the projected costs to build aircraft hangers, 
maintenance and supply shops, and other facilities to house and 
support the KC-46 fleet. 

Through December 2012, Boeing has accomplished approximately $1.4 
billion (28 percent) in development work and has more than $3.5 
billion (72 percent) in estimated work to go over the next 5 years. 
Boeing reports it is running very close to its budget for cost and 
schedule. Minimal schedule delays to this point are attributed 
primarily to design difficulties with the aerial refueling system, 
hardware deliveries for the system integration labs, and configuration 
changes to the commercial platform needed to accommodate military 
specific hardware. DOD officials do not expect these delays to affect 
the completion of critical tasks that ultimately determine whether 
Boeing can meet the required delivery date in the development 
contract. While the schedule delays are relatively small, studies of 
more than 700 defense programs have determined there is limited 
opportunity for a program to get back on schedule once they are more 
than 15 to 20 percent complete.[Footnote 6] Also, the pace of 
development work is expected to accelerate. So far, on average, about 
$60 million worth of work has been completed per month, but over the 
next year more than $100 million worth of work per month is planned. 

The program office currently projects that the KC-46 aircraft will 
meet the requirements of all nine key performance parameters by the 
end of development. These parameters are system characteristics 
considered critical or essential to developing an effective military 
capability. Satisfying these parameters will ensure that the KC-46 
will be able to accomplish its primary mission of providing worldwide, 
day and night, adverse weather aerial refueling as well as its 
secondary missions. Several of these parameters address performance 
characteristics that are limited or do not exist in the current tanker 
fleet. For example, only 8 KC-135 aircraft have the capability to 
receive fuel from another aerial refueling tanker while airborne. At 
times this limits the range of the tanker force and lessens the 
efficient use of assets. The Air Force hopes to address this by 
enabling the entire KC-46 fleet to receive fuel from other tankers. 
Appendix III describes the key performance parameters for the KC-46 
program. 

Our report on the KC-46 last year noted that the program had yet to 
fully implement specific metrics needed to measure progress against 
these parameters.[Footnote 7] As a result, we recommended it do so as 
soon as possible to help ensure that progress toward meeting these 
parameters can be appropriately measured. The program has now fully 
implemented metrics to help measure progress toward achieving these 
parameters. Now that these metrics have been fully established we plan 
to track their status in our subsequent annual reviews of the KC-46 
program. 

Development Contract Cost Estimates Exceed the Contract Ceiling Price 
and the Majority of Funding to Alleviate Program Risk Has Been 
Allocated: 

The KC-46 development contract is designed to hold Boeing accountable 
for cost, limit the government's financial liability, and provide 
Boeing incentives to reduce costs in order to earn more profit. At 
this point in the program, both the contractor and the government 
estimate that development costs will exceed the contract ceiling price 
of $4.9 billion and Boeing has already allocated about 80 percent of 
the contract's management reserves, which are set aside for known and 
unknown development risks, with about five years of development work 
remaining. 

Barring any changes to KC-46 requirements by the Air Force, the 
contract specifies a target price of $4.4 billion and a ceiling price 
of $4.9 billion at which point Boeing must assume responsibility for 
all additional costs.[Footnote 8] Currently, both Boeing and the Air 
Force project that the development effort will exceed the $4.9 billion 
ceiling price, with the Air Force concluding that the primary reason 
is the schedule risk associated with the remainder of the development 
effort. If so, the contractor will have to absorb all costs above this 
amount. Table 2 provides development contract details, current 
contractor and government estimates to complete, and the projected 
amounts over ceiling to be absorbed by the contractor. 

Table 2: KC-46 Development Contract Amounts Compared to Current 
Estimates[A]: 

Dollars in millions: 

Contract amounts; 
Target price: $4,393.9;
Ceiling price: $4,897.6. 

Current estimates at contract completion; 
Contractor: $5,163.5 (+ $265.9 over ceiling price);
Government: $5,615.1 (+ $717.5 over ceiling price). 

Source: GAO presentation of Air Force data. 

[A] Costs in this table include all fixed price incentive fee contract 
line items as well as two firm fixed price items for $66.6 million. 

[End of table] 

The development contract performance baseline set aside $354 million 
in the management reserves account, about 7 percent of the contract 
ceiling price. As of December 2012, less than $72 million in 
unallocated reserves remain. About $282 million had been allocated, 
the majority to non-commercial militarization requirements, including: 

* $94 million for increased system engineering and program management 
costs; 

* $72 million for design and integration of military equipment with 
the commercial airframe; 

* $52 million for construction of system integration labs to reduce 
development risks; and: 

* $42 million for additional test and evaluation challenges as well as 
cost growth for training activities, support equipment, and 
operational site activation. 

Figure 2 shows the use of management reserves to date and future 
projections based on past use. Since the start of performance 
reporting in May 2011, the contractor has allocated an average of 
about $15 million in reserves each month. 

Figure 2: KC-46 Development Contract Management Reserves Allocation 
Trend (December 2012): 

[Refer to PDF for image: line graph] 

Management reserve at start of development: $354 million; 
June 2011: $349 million; 
July 2011: $339 million; 
August 2011: $336 million; 
September 2011: $332 million; 
October 2011: $285 million; 
November 2011: $236 million; 
December 2011: $248 million; 
January 2012: $228 million; 
February 2012: $224 million; 
March 2012: $193 million; 
April 2012: $168 million; 
May 2012: $155 million; 
June 2012: $158 million; 
July 2012: $134 million; 
August 2012: $121 million; 
September 2012: $109 million; 
October 2012: $99 million; 
November 2012: $73.0 million; 
December 2012: $73 million. 

Management reserve allocation trend line hits zero in May, 2013. 

Source: GAO analysis of Boeing prepared contract performance reports 
and Defense Contract Management Agency (DCMA) reported data on the 
allocation of management reserve. 

Note: Reporting of contract cost performance data including the 
allocation of management reserves started in May 2011. 

[End of figure] 

The quick rate of depletion of Boeing's management reserves raises 
concerns. Two years into a 7-year development program, the contractor 
has already allocated about 80 percent of the total available. Less 
than $72 million is available for future contingencies related to the 
more than $3.5 billion in government funded contract work remaining. 
DOD anticipates this negative trend will continue, since Boeing has 
told them design and technical issues driving the allocation of 
management reserves are not fully resolved. 

At the current allocation rate, our analysis shows that management 
reserves will be depleted in May 2013, prior to the critical design 
review in July 2013 and more than 4 years before the contractually 
required delivery date for 18 operationally ready KC-46 aircraft in 
August 2017. According to GAO's Cost Estimating and Assessment Guide, 
significant use of management reserves early in a program may indicate 
contract performance problems and decreases the amount of reserves 
available for future risks, particularly during the test and 
evaluation phase when demand may be the greatest.[Footnote 9] At the 
current rate, none of the reserves will be available to complete the 
bulk of development work, as well as the entire period of development 
testing. Even though Boeing is contractually liable for all costs 
above the $4.9 billion ceiling price, unanticipated design changes, 
deficiencies discovered in testing, and other risks encountered that 
might require management reserves funding could place added pressures 
on cost and schedule as the development program moves forward. 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. All major 
stakeholders in the program have identified concerns about the degree 
of risk in the KC-46 flight test plans and an integrated test team is 
evaluating and adjusting test plans. 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. While not as complex as a new fighter 
aircraft, the tanker program still needs to integrate critical 
technologies, develop and test software, keep the aircraft within its 
target weight, and at the same time, navigate risks posed by the 
concurrency, or overlap, between testing and production activities. 

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. Developmental flight 
tests, to prove aircraft design and demonstrate the aircraft will 
perform as expected, are set to occur within a 15-month window 
starting in early 2015 and ending in 2016. Concerns include the 
relatively short time for flight testing and fixing any deficiencies, 
plans for aircraft flying rates and personnel resources, and the time 
needed for air worthiness flight certifications. 

To achieve developmental flight test plans, the contractor has 
proposed a 5-to 6-day-a-week flight test approach based on its 
commercial aircraft test practices. As part of this plan, Boeing 
intends to fly KC-46 test aircraft 5 days a week with a scheduled make-
up day on day 6, and possibly an additional day, if necessary. This is 
a more aggressive pace than the two to three test missions per week 
for each test aircraft typically assumed by the Air Force for other 
aircraft programs. Air Force officials said their typical approach 
enables execution of test plans at a steady rate and includes 
sufficient time for data analysis, aircraft maintenance, aircrew 
training, and test planning between test flights. This issue and other 
flight test issues are being addressed by officials on the Integrated 
Test Team (ITT).[Footnote 10] The ITT was concerned about the Air 
Force's access to contractor test documents and data but now has 
resolved this issue with Boeing. Also, the ITT is currently in the 
process of developing formal agreements with the Air Force, Navy, 
Boeing, and a foreign partner regarding the use of 18 military 
receiver aircraft to be used to certify the KC-46's aerial refueling 
capabilities. Appendix IV provides a list of the top 8 flight test 
risks identified by the ITT and plans to mitigate those risks. 

As we stated in last year's report,[Footnote 11] DOD's Office of the 
Director, Operational Test and Evaluation (DOT&E),[Footnote 12] also 
expressed concerns in December 2011 about the pace of testing and time 
available to complete development testing and transition to initial 
operational testing.[Footnote 13] In their most recent December 2012 
assessment of the KC-46, the DOT&E has recommended that the start of 
initial operational test and evaluation, scheduled to begin in May 
2016, be delayed by at least 6 months to allow additional time for 
completion of developmental testing and initial aircrew and 
maintenance training due to the aggressive flight test schedule. Their 
assessment also cites a concern that the current schedule for military 
flight testing may need to be extended by 4 to 7 months. In addition, 
the DOD development testing office has stated that the proposed flight 
test plan allots little time for correction of deficiencies discovered 
during development testing prior to the planned start of operational 
testing.[Footnote 14] In January 2013, both offices approved the KC-46 
overall test strategy, but each office still has concerns regarding 
the program's detailed test plans, including the training of aircrew 
and maintenance personnel overlapping with the completion of 
developmental testing. 

The FAA still has to certify airworthiness for both the 767-2C and 
then the KC-46. The first FAA certification must approve the 
modifications being made to the original baseline 767 design and the 
second certification must approve the installation of military aerial 
refueling equipment for the KC-46 tanker configuration. Boeing 
established plans for the FAA to accomplish part of both of these 
certifications concurrently rather than consecutively which is the 
typical procedure. FAA officials said that such a condensed timeframe 
will require additional agency resources which the Air Force has to 
pay under a program services agreement. According to DOD risk 
assessments, if problems arise during this concurrent certification 
process, little time will be left for Boeing to recover from delays. 

Completing Required Engineering Drawings for the Upcoming Critical 
Design Review May Be Challenging: 

The KC-46 critical design review (CDR) is scheduled for July 2013. The 
CDR is a major milestone that assesses the system's final design so 
that the product can move into fabrication, demonstration, and test. 
It also verifies whether performance requirements can be met within 
cost and schedule constraints. To prepare for the complete system CDR, 
the contractor has been conducting individual subsystem design reviews 
during 2012, a few of which were delayed. The design review on the 
aerial refueling boom hardware, for example, has been rescheduled 5 
months later than planned due to design problems. A design review of 
the software associated with the aerial refueling operator station has 
also been rescheduled. Also, an analysis to validate the software 
design was delayed from June 2012 until February 2013. Despite these 
slips, program officials told us subsystem reviews will still occur in 
time to support the July 2013 CDR. During the upcoming CDR, Air Force 
officials indicated they will also review and approve the contractor's 
plans for system specifications, flight testing, and supplier 
management. 

An important contractual requirement (and best practice) is for Boeing 
to release 90 percent of the total engineering design drawings by the 
CDR. At this point, Boeing data shows that, as of early December 2012, 
Boeing has completed the expected amount of drawings and about 60 
percent of design drawings were complete, which is about 9,000 out of 
nearly 15,000 total drawings. However, given the time remaining, 
reaching the 90 percent requirement by CDR could be challenging. 
Drawings still to be completed include much of the more complex, new 
design efforts to integrate the military technologies on the 
commercial derivative airframe. Figure 3 shows that as of December 
2012, Boeing is adhering to its schedule to complete the required 
number of drawings before CDR. 

Figure 3: KC-46 Engineering Design Drawing Completion Status Leading 
to Critical Design Review: 

[Refer to PDF for image: line graph] 

May 2012: PDR: 
Planned: 3,868; 
Actual: 3,956. 

January 2013: PDR: 
Planned: 8,691; 
Actual: 8,776. 

July 2013: CDR: 
Planned: 14,952. 

Source: Boeing engineering drawing data. 

Note: PDR refers to preliminary design review, and CDR refers to 
critical design review. 

[End of figure] 

Original Plan for Manufacturing and Assembly of Militarized Equipment 
Has Changed and New Plan and Needed Facilities Are Not Yet Complete: 

The location, facilities, and some personnel for militarizing the 
commercial-derivative aircraft have changed since the contract was 
awarded. The Air Force originally expected Boeing to do most of the 
work at its long-standing Wichita, Kansas, facility. In January 2012, 
however, Boeing announced plans to close its Wichita plant and move 
all military modification assembly work to Seattle (home to its 
commercial manufacturing operations) to achieve greater cost 
efficiencies and accommodate defense cuts. The company has relocated 
key personnel, and plans are in place for the remaining relocations. A 
temporary facility was opened in Seattle in October 2012 to begin 
production of the first refueling aircraft boom, and the company is 
also examining what additional facilities may be needed for future 
production and aircraft militarization. Air Force officials stated 
that Boeing must still meet all contractual requirements on-time and 
within cost, regardless of where development has been taking place, 
and has identified this transition as a watch item going forward. 

Program Has Some Remaining Technical Challenges: 

The KC-46 program plans to integrate three critical technologies--a 
Three Dimensional Display, Airborne ESTAR, and Threat Correlation 
Software--needed to achieve the tanker's capability requirements. 
These technologies have each been demonstrated in a relevant 
environment in accordance with DOD and statutory requirements, but 
have not yet been demonstrated in a realistic environment. 
Demonstrating technology in a realistic environment offers a higher 
level of maturity and is considered a best practice.[Footnote 15] We 
have previously reported that programs that began development with 
technologies demonstrated to this level experienced less cost growth 
than programs with less mature technologies.[Footnote 16] However, the 
program does not plan to demonstrate these critical technologies in a 
realistic, operational environment before production starts. Boeing is 
required to submit an update to its technology maturation plans prior 
to the CDR in July 2013 and the start of low-rate initial production 
in 2015. Appendix V describes the KC-46 program's three critical 
technologies in detail. 

Other technical challenges include: 

* Software development. Software development plans are still evolving 
and not complete at this time. While the total amount of software 
under development has been reduced by 40 percent since the start of 
development, increased amounts of certain types of software are now 
anticipated and the planned mix of software has also changed. Boeing 
now estimates they will be not be able to reuse as much existing 
software as they thought, and must instead develop more new and 
modified software. Table 3 shows the estimated changes to the KC-46 
software plan. While needing less software overall is a positive, the 
need for more new and modified software typically requires more 
testing than software being reused. Growth in these two software 
classifications is not a favorable trend. However, at this point, 
officials do not expect that this will affect the software test 
schedule. 

Table 3: Changes to the Planned Composition of KC-46 Software: 

Software type: Reuse; 
Percent of software planned at start of development: 76%; 
Percent of software currently expected: 52%. 

Software type: Modified; 
Percent of software planned at start of development: 18%; 
Percent of software currently expected: 34%. 

Software type: New; 
Percent of software planned at start of development: 6%; 
Percent of software currently expected: 14%. 

Source: KC-46 Air Force Program Office. 

[End of table] 

* Aircraft weight. Projected weight increased since last year more 
than anticipated and is now expected to exceed the KC-46's target 
weight. If the target weight is not achieved, the aircraft will not be 
able to carry as much fuel as required. Essentially, every one pound 
in excess weight equals one pound less fuel that can be carried to 
accomplish its primary mission of refueling other aircraft. Extra 
weight could also affect operating requirements for takeoff, mission 
radius, and landing. The program does have a mitigation strategy in 
place to help control weight. Historically, weapon system acquisition 
programs can experience weight gains during development. With about 5 
years of development remaining, including the entire flight test 
program, additional weight reduction activities may be necessary. 

* Wing aerial refueling pod. Problems with buffeting, or instability, 
of the aircraft's wing experienced on another Boeing tanker, led to 
the introduction of a new wing aerial refueling pod design for the KC-
46. The new design also required changes in the way the refueling hose 
exits the pod, raising concerns whether the hose will be stable in 
flight. If the new design has technical shortcomings, additional cost 
and time for unplanned design changes and subsequent testing may be 
needed. 

* Boom refueling system. Some changes to the boom refueling system 
design have been determined necessary, possibly delaying the 
development of boom hardware. Boeing has added manpower to help manage 
its suppliers and is addressing risk. According to the program office, 
the boom refueling system is still on schedule, but if hardware is 
delayed, boom testing could be as well. 

Concurrency Increases Schedule Risk: 

Successful and timely resolution of design, manufacturing, testing, 
and technical challenges could lessen and help manage cost and 
schedule risks posed by the concurrency, or overlap, of development, 
testing, and production activities. As we reported last year, funding 
commitments and the start of low rate production is scheduled before 
significant development and testing activities are completed. 
Currently, about 60 percent of the dedicated KC-46 development flight 
testing is planned for completion by the start of production. While 
not as extensive or potentially costly as we have reported elsewhere, 
[Footnote 17] KC-46 concurrency can have cost and schedule 
consequences. Development flight testing is supposed to demonstrate 
the maturity of the design and to fix design and performance problems 
during the development phase. Discovering and fixing such problems 
during production may require modifications to aircraft already built 
and, as a result, affect schedule. Figure 4 shows the program's 
current schedule with concurrency between planned development, 
testing, and production. 

Figure 4: Planned KC-46 Program Concurrency between Development, 
Flight Testing, and Production: 

[Refer to PDF for image: illustrated timeline] 

2011: 
Milestone B. 

2011-2018: 
Engineering and manufacturing development. 

2011-2016: 
Developmental test and evaluation. 

2012: 
Preliminary design review. 

2013: [Current status] 
Critical design review. 

2015: Milestone C. 

2015-2016: 
Developmental flight testing. 

Mid-2015-2016: 
Period of concurrency. 

Mid-2015-2017: 
Low rate initial production. 

Mid-2016-2017: 
Initial operation test and evaluation. 

Mid-2017: 
Required assets available (18 Aircraft). 

2017-2019 and beyond: 
Full rate production: final delivery of 179th tanker by 2028. 

Source: GAO presentation of Air Force data. 

[End of figure] 

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 Contracting Method and Acquisition Strategy Mitigate Risks: 

The KC-46 fixed price development contract helps control costs by 
placing more responsibility on the contractor and limiting government 
liability for cost increases. Specific contract provisions ensure that 
Boeing must correct any deficiencies and bring them to the final 
aircraft configuration at no additional cost to the government. 
Program officials have also taken steps with the KC-46 acquisition 
strategy to limit changes to requirements similar to those that have 
caused problems in many previous acquisition programs. Now, an 
engineering or contract change affecting system requirements or 
possibly impacting program cost, schedule, and performance baselines 
must be approved by top Air Force officials. Program officials also 
maintain the program is being managed in an event-based manner--
meaning the start of low-rate initial production is not driven by a 
certain schedule date, but instead will not be approved until Boeing 
demonstrates the knowledge and readiness required for production. 

As DOD seeks to employ more fixed price development contracts, where 
appropriate, and acquire more evolutionary weapon system capabilities, 
different acquisition strategies and contract provisions come into 
play. At times, these factors, and others, can change the 
responsibilities among key stakeholders. For example, when using a 
strategy that couples a fixed price contract with a largely commercial-
derivative system, the government generally has and needs less access 
to the contractor's activities compared to when a purely military 
system is being acquired. KC-46 program officials told us the majority 
of preliminary and critical design reviews for components and 
subsystems used on the commercial 767-2C aircraft are conducted as 
Boeing internal events, with the Air Force participating but not 
leading these reviews. Also, officials told us they do not receive 
regular status updates for some types of contractor data, including 
engineering design drawings. Officials from the Defense Contract 
Management Agency, which oversees the KC-46 development contract, also 
told us their typical oversight of defense contracts involving 
commercial items is more constrained compared to its oversight of 
unique military weapon systems.[Footnote 18] 

Program Development Schedule Mostly Meets Best Practices for Schedule 
Estimating: 

The KC-46 program's schedule substantially meets the 10 best practices 
we have identified as being associated with effective schedule 
estimating.[Footnote 19] Our analysis found that while the schedule 
does not fully meet any of the 10 best practices, it is generally 
comprehensive, well-constructed with a logical sequence of activities, 
controlled, and credible. Table 4 summarizes these best practices and 
our assessment of the degree to which the KC-46 program has met them. 

Table 4: Summary Assessment of KC-46 Development Schedule Compared to 
Best Practices: 

Best practice: 1. Capturing all activities; 
Extent satisfied: Partially met. 

Best practice: 2. Sequencing all activities; 
Extent satisfied: Partially met. 

Best practice: 3. Assigning resources to all activities; 
Extent satisfied: Substantially met. 

Best practice: 4. Establishing the duration of all activities; 
Extent satisfied: Substantially met. 

Best practice: 5. Verifying the schedule is traceable horizontally and 
vertically; 
Extent satisfied: Substantially met. 

Best practice: 6. Confirming the critical path is valid; 
Extent satisfied: Substantially met. 

Best practice: 7. Ensuring reasonable total float; 
Extent satisfied: Substantially met. 

Best practice: 8. Conducting a schedule risk analysis; 
Extent satisfied: Partially met. 

Best practice: 9. Updating the schedule using actual progress and 
logic; 
Extent satisfied: Substantially met. 

Best practice: 10. Maintaining a baseline schedule; 
Extent satisfied: Substantially met. 

Source: GAO analysis of KC-46 Air Force Program Office data. 

Note: "Fully met" means the program provided evidence that completely 
satisfies the best practices criterion. "Substantially met" means the 
program provided evidence that satisfies a large portion of the 
criterion. "Partially met" means the program provided evidence that 
satisfies about half of the criterion. 

[End of table] 

Overall, the evidence suggests that the KC-46 program office and 
Boeing are working to develop and maintain a healthy master schedule. 
Still, our assessment identified three areas that could be improved 
where the current schedule partially meets the best practices. 

* First, our analysis found that not all activities are reflected in 
the schedule. The schedule primarily contains Boeing's activities but 
does not fully include government activities. To better satisfy best 
practices, a program's schedule should reflect all efforts necessary 
for successful completion regardless of who performs them. 

* Second, we found a relatively large number of schedule lags and date 
constraints that may negatively impact the ability to predict how the 
delay or early completion of scheduled activities could affect the KC-
46 major milestones and planned finish date. While lags are included 
in a schedule to denote the passage of time, the KC-46 schedule 
provided few details on the reasons why such a large number of lags 
are included in their schedule. We also found a large number of 
constraints built into the schedule that are being used to control the 
timing of activities. Program officials stated these time constraints 
represent the contractor's resource availability but they also prevent 
activities from starting sooner than planned to take advantage of time 
savings realized on earlier activities. It also requires constant 
manual upkeep of the schedule, increasing the likelihood of errors. 

* Third, while the program office adhered to the best practice that a 
risk analysis be conducted on its planned schedule and even conducted 
a second revised schedule risk analysis after our initial assessment, 
we report this best practice as partially met. Our initial assessment 
found that the original program office schedule risk analysis may not 
have factored in enough risk into the contractor's activity duration 
estimates, and assumptions used to conduct the risk assessment were 
not fully documented. Nor did it account for the correlation between 
activities, that is, the degree to which the duration of some related 
activities may vary together. Program officials reported that they 
revised their original analysis during October 2012 to research 
differences and record assumptions between their schedule risk 
analysis and the contractor's. According to the program office, the 
differences were resolved and assumptions are now documented, which 
addressed some of our earlier concerns. While the program office 
reported these constructive efforts, the revised schedule risk 
analysis still does not account for the correlation between 
activities, and we did not have the time or complete information to 
accomplish an independent assessment of the revised analysis. 

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. The program has utilized: 

* a time-defined development approach of about 7 years; 

* a process requiring consultation with top Air Force officials before 
changing requirements; 

* manufacturing readiness levels designed to provide a common measure 
and vocabulary for assessing manufacturing maturity and risk; and: 

* a knowledge-based acquisition approach, in which knowledge is 
acquired at key decision points, by ensuring requirements and 
resources match, the product design is stable, and manufacturing 
processes are mature. 

As we reported last year, while the program has implemented many 
acquisition best practices, the Air Force did not conduct a technology 
development phase and instead proceeded directly into development. 
[Footnote 20] The program's three critical technologies were assessed 
as approaching maturity and meeting internal defense policy, but below 
the fully mature level associated with best practices. Our prior work 
consistently shows that programs going directly into development 
before fully maturing all critical technologies typically incur 
additional costs and take longer to complete. 

The program reports that it is also meeting many of the requirements 
of the Weapon Systems Acquisition Reform Act of 2009 (Reform Act) that 
encourages DOD to engage in a more robust discussion of trade-offs 
among cost, schedule, and performance.[Footnote 21] To comply with 
this legislation, the program has implemented cost and schedule 
management requirements and is measuring and reporting on operation 
and sustainment costs. Further, they have also implemented cost 
effective measures including plans for future competitions for 
aircraft subsystems and several software integration laboratories. The 
Air Force is also employing an incremental acquisition approach, as 
mentioned in the Reform Act, to replacing the current refueling fleet 
by procuring the KC-46, and then later the KC-Y and KC-Z. This 
approach could leverage competition for future tanker aircraft 
development and procurement. 

Finally, the contractor is using several commercial best practices for 
the KC-46 program. For example, Boeing requires all of its major 
suppliers to meet a stringent aerospace industry quality management 
standard and has a supplier quality assurance surveillance process to 
monitor supplier technical, cost, and schedule delivery information to 
mitigate risk. Appendix VII provides a list of key Boeing suppliers 
for the KC-46 program. In addition, the Air Force has approved the 
contractor's manufacturing program plan that leverages military 
modifications on the commercial 767 assembly line with Boeing planning 
to use a manufacturing readiness assessment and production reviews for 
quality assurance. 

Conclusions: 

Entering its third year, the KC-46 development program is, for the 
most part, progressing as planned even though some concerns exist. The 
program has an ambitious schedule, particularly with regard to flight 
testing. While program estimates are essentially unchanged, the 
development contract cost estimate continues to be above the contract 
ceiling price, making it essential the government not change KC-46 
requirements. Boeing has also allocated management reserves at a high 
rate which raises concerns because doing so early in a program is 
often an indicator of future contract performance problems. While the 
fixed price development contract caps the government's cost liability, 
it would still behoove the Air Force to fully understand the causal 
factors driving the accelerated use of management reserves in order to 
recognize risks, consider potential trade-offs, and better understand 
circumstances that could impact on-time delivery to the warfighter. 
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. 

Recommendations for Executive Action: 

We are recommending that the Secretary of Defense take the following 
two actions on the KC-46 program. 

* 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. 

* To help maintain a more thorough and insightful KC-46 development 
schedule, the Secretary of Defense should direct the Air Force to 
address our concerns related to three schedule best practices 
(capturing all activities, sequencing all activities, and conducting a 
schedule risk analysis), where we concluded the program's master 
schedule had only partially met best practice criteria. 

Agency Comments: 

DOD provided us with written comments on a draft of this report which 
are reprinted in appendix VIII. DOD concurred with our two 
recommendations. We also incorporated technical comments from DOD as 
appropriate. 

Regarding the recommendation to analyze the use of management 
reserves, DOD stated that the contractor has performed a root cause 
analysis and that the program office will monitor, analyze, and report 
on the use of management reserves. 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 are sending copies of this report to the Secretary of Defense; the 
Secretary of the Air Force; and the Director of the Office of 
Management and Budget. The report also is available at no charge on 
the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff has any questions concerning this report, please 
contact me at (202) 512-4841 or sullivanm@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff contributing to this report 
are listed in appendix IX. 

Signed by: 

Michael J. Sullivan: 
Director: 
Acquisition and Sourcing Management: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable James Inhofe: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Richard Durbin: 
Chairman: 
The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Howard P. McKeon: 
Chairman: 
The Honorable Adam Smith: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable C.W. Bill Young: 
Chairman: 
The Honorable Pete Visclosky: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

We interviewed officials from the KC-46 program, Air Force, and Office 
of the Secretary of Defense (OSD) to obtain their views on KC-46 
development progress, ongoing concerns and actions taken to address 
program technical risks, and future plans to complete KC-46 flight 
testing and manufacturing. We also reviewed program documentation and 
plans for compliance with current Department of Defense (DOD) policy, 
acquisition reform legislation, and GAO best practices for weapon 
system development. 

To determine the extent the KC-46 program is meeting cost, schedule, 
and performance goals in the calendar year of this review (2012), we 
reviewed briefings by program and contractor officials, financial 
management documents, defense acquisition executive summary reports, 
selected acquisition reports, monthly activity reports, technical 
performance indicators, risk assessments, and other documentation. To 
evaluate cost information, we reviewed program office documentation on 
what actions are currently being taken in the areas of earned value 
management and contractor performance. We also reviewed contractor use 
of management reserves funding to project when this funding will 
likely be depleted. To assess the program's development schedule 
progress, we reviewed the program's latest master schedule and 
compared it against previous master schedules and reviewed monthly 
Defense Contract Management Agency (DCMA) reports for information 
relating to a 14-point schedule risk assessment they conduct as part 
of their ongoing oversight to identify changes that could impact key 
program milestone events. Regarding performance goals, we reviewed key 
performance parameters and progress in fully implementing technical 
performance measures used to evaluate whether program performance 
parameters are being achieved. 

To identify the design, manufacturing, testing plan, and technology 
challenges, we met with contractor, Air Force, and DOD officials and 
examined program documentation such as the post preliminary design 
review report, manufacturing program plan, software block 
functionality plan, reliability growth curve charts, and critical 
technology element maturation plan. To measure progress regarding the 
relocation of military modification work on the KC-46 tanker, we met 
with Boeing officials and reviewed briefings on their transition plans 
from Wichita, Kansas to Everett, Washington and the implications on 
expertise, knowledge, personnel relocation, and associated costs and 
impact on program development and production. To assess progress 
toward test plans, we compared the revised KC-46 test and evaluation 
master plan to the original and against recent reviews completed by 
the Air Force and DOD test offices to evaluate whether changes have 
been made to mitigate flight testing concerns. Specifically, we 
analyzed contractor and program office mitigation efforts planned to 
deal with identified flight test challenges of the commercial 
derivative 767-2C and KC-46 tanker and also Federal Aviation 
Administration (FAA) air worthiness certification requirements. 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. Finally, we leveraged information received as part of a 
related GAO review on weapon system assessments, which includes the KC-
46 program. 

To assess the extent the program has developed effective, appropriate 
methods to mitigate challenges, we analyzed contractor and program 
office plans for risk mitigation contained on their respective risk 
and technical watch lists. We reviewed a preliminary design report and 
briefing and subsystems critical design review results. We 
concentrated especially on follow-up actions (redesigns) the program 
has identified as a need to address, the program's critical technology 
maturation plan, key performance parameter achievement concerns and 
operational assessment criteria used to note significant trends in 
development efforts, programmatic voids, risk areas, and operational 
testing plans. We compared these risk mitigation plans to GAO's 
commercial best practices work on weapon system programs, focusing on 
knowledge points, technology readiness levels, software development, 
and testing to identify processes and trends that provide a framework 
for improving weapon system development outcomes. Finally, to analyze 
risk in the program's development schedule, we reviewed the integrated 
master schedule and determined the extent to which the program's 
development schedule was prepared in accordance with best practices 
that GAO has identified as fundamental to having a reliable schedule. 
We then characterized the extent to which each of the 10 scheduling 
best practices were met; that is, we rated each characteristic as 
being either: not met, minimally met, partially met, substantially 
met, or fully met. We could not assess the contractor's manufacturing 
processes because the program is only in its second year of 
development and it is too early for this assessment. 

In performing our work, we interviewed officials from Air Mobility 
Command, Scott Air Force Base, Illinois; Air Force Operational Test 
and Evaluation Center, Detachment 5, Edwards Air Force Base, 
California; 412th Test Wing, Edwards Air Force Base, California; KC-46 
program office, Wright-Patterson Air Force Base, Ohio; Defense 
Contract Management Agency, Seattle, Washington; and Federal Aviation 
Administration, Wichita, Kansas. We also met with and obtained 
information from the Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics, in Washington, D.C; the 
Director of Operational Test and Evaluation, Washington, D.C.; and the 
Deputy Assistant Secretary of Defense for Developmental Test and 
Evaluation, Washington, D.C. 

We conducted this performance audit from June 2012 to February 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comparison of Current KC-135 versus Planned KC-46 
Performance Capabilities: 

[Refer to PDF for image: illustrated table and 2 photos] 

Photos: 
KC-135; 
KC-46. 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Capability area: 
KC-135: 
KC-46: 

Source: GAO presentation of Air Force information; Copyright Boeing 
Company (photos). 

[End of figure] 

[End of section] 

Appendix III: Description of KC-46 Key Performance Parameters: 

Key performance parameter: Tanker Air Refueling Capability; 
Description: Aircraft shall be capable of accomplishing air refueling 
of all Department of Defense current and programmed (budgeted) receiver 
aircraft. The aircraft shall be capable of conducting both boom and 
drogue air refueling on the same mission. 

Key performance parameter: Fuel Offload versus Radius; 
Description: Aircraft shall be capable of carrying certain amounts of 
fuel (to use in air refueling) certain distances. 

Key performance parameter: Operate in Civil and Military Airspace; 
Description: Aircraft shall be capable of worldwide flight operations 
in all civil and military airspace. 

Key performance parameter: Airlift Capability; 
Description: Aircraft shall be capable of transporting certain amounts 
of both equipment and personnel. 

Key performance parameter: Receiver Air Refueling Capability; 
Description: Aircraft shall be capable of receiving air refueling from 
any compatible tanker aircraft. 

Key performance parameter: Force Protection; 
Description: Aircraft shall be able to operate in chemical and 
biological environments. 

Key performance parameter: Net-Ready; 
Description: Aircraft must be able to have effective information 
exchanges with many other Department of Defense systems to fully 
support execution of all necessary missions and activities. 

Key performance parameter: Survivability; 
Description: Aircraft shall be capable of operating in hostile threat 
environments. 

Key performance parameter: Simultaneous Multi-Point Refueling; 
Description: Aircraft shall be capable of conducting drogue refueling 
on multiple aircraft on the same mission. 

Source: GAO presentation of Air Force data. 

[End of table] 

[End of section] 

Appendix IV: Top Risks Identified by the KC-46 Integrated Test Team 
and Proposed Mitigation Efforts: 

Risk: 1; 
Risk issue: Military Type Certification Schedule and Flight 
Test Rate: Planned military-specific test schedule is more aggressive 
than historical experience. Planned flight hours per aircraft per month 
average (50 hours vs. approximately 30 hours) and test efficiency 
exceeds that for similar aircraft (85 percent vs. 55 percent); 
Air Force mitigation efforts: Integrated Test Team (ITT) clarification: 
Approximately 90 percent of aircraft testing will be achieved under the 
Federal Aviation Administration (FAA) process. Previous commercial 767 
aircraft test programs have significantly exceeded 30 flight hours per 
aircraft per month and 55 percent efficiency. 

Risk: 2; 
Risk issue: Receiver Certification Planned Flight Test Hours: 
Aerial refueling certification testing of required Initial Operational 
Test and Evaluation (IOT&E) receiver aircraft will take longer 
(approximately 400 flight hours) than the hours and time in the current 
schedule. This is estimated to extend the test schedule by almost 6 to 
8 months; 
Air Force mitigation efforts: ITT clarification: Boeing 
flight test hours are indicative of actual receiver time on station, 
not total flight time. The method of calculating test hours is now 
understood correctly. 

Risk: 3; 
Risk issue: Access to Boeing Data and Personnel: Integrated 
Test Team requires access to Boeing proprietary commercial test data 
and commercial division personnel. Air Force Flight Test Center is 
concerned about Boeing proprietary Test Planning, Execution, and 
Reporting Tool interfacing with government tracking tools; 
Air Force mitigation efforts: ITT resolution: Responsible Test 
Organization (RTO) and Boeing reached agreement that test planning 
will be conducted by Boeing. A common test and evaluation database is 
being implemented through Boeing's Integrated Digital Environment 
(IDE) database system. 

Risk: 4; 
Risk issue: Responsible Test Organization (RTO) Crew Staffing: 
RTO crew personnel could impact test operations schedule due to 
availability of RTO personnel. There are no contractual Type 1 (one-
time or limited training) slots for replacement training and there have 
been issues with retention of crews due to permanent change of station 
and deployments; 
Air Force mitigation efforts: ITT resolution: Boeing has agreed to 
include a 10 percent replacement training factor (by specialty) for 
all Type 1 training. An executable training plan has been built within 
the fixed-price construct. Increases in Type 1 training allocations 
for the 412th Test Wing is to be offset by personnel sharing. 

Risk: 5; 
Risk issue: Developmental Testing (DT)/Operational Testing 
(OT) Maintenance Staffing: Insufficient number of qualified tanker 
maintenance personnel to support DT and IOT&E. Air Mobility Command and 
Air Force Materiel Command (AFMC) planning and programming effort 
required to meet requirement of 100 maximum slots to support IOT&E and 
15 additional slots for DT; 
Air Force mitigation efforts: ITT resolution: Initial staffing 
assumptions by the RTO and Air Force Operational Test and Evaluation 
Center (AFOTEC) did not support the pace of test outlined by Boeing's 
Stage 2 flight test plans. RTO has since added additional manning 
slots for DT and will share resources with AFOTEC to meet OT demands. 
The KC-46 Program Office has adjusted Type 1 training requirements to 
the new demand. 

Risk: 6; 
Risk issue: DT/OT Aerial Refueling Operator (ARO) Personnel: 
Insufficient number of qualified ARO personnel to support DT and IOT&E 
activities. Potential AFMC programming and budgeting input required for 
additional ARO positions for DT and OT activities; 
Air Force mitigation efforts: ITT resolution: Initial staffing 
assumptions by the RTO and AFOTEC did not support the pace of test 
outlined by Boeing's Stage 2 test plans. RTO has since added 
additional manning slots for DT and will share resources with AFOTEC 
to meet OT demands. The KC-46 Program Office has adjusted Type-I 
training requirements to the new demand. Additionally, the 370 Flight 
Test Squadron remained activated to support KC-46 testing. 

Risk: 7; 
Risk issue: Schedule Sufficiency for Deficiency Correction: 
Flight-test schedule does not reflect sufficient time to correct 
discrepancies identified prior to start of operational testing. There 
is a lack of Integrated Test Team insight into schedule and contract 
and concerns whether the Joint Deficiency Reporting System can support 
pace of test operations; 
Air Force mitigation efforts: ITT clarification: Although a Correction-
of-Deficiency period is not identified on the current KC-46 Test and 
Evaluation Master Plan (TEMP) test schedule due to a lack of available 
space, there is a 90-day aircraft refurbishment period of time to 
bring the four test aircraft to production configuration. This time is 
annotated on the detailed test schedules provided by Boeing. 

Risk: 8; 
Risk issue: Receiver Aircraft Availability: Lack of military 
receiver aircraft availability to support aerial refueling 
certification testing. Air Force will have to maximize flexibility of 
receiver aircraft for air refueling certification testing by possibly 
utilizing Navy, Boeing, and foreign partner F/A-18 aircraft; 
Air Force mitigation efforts: ITT clarification: Memorandums of 
Agreement/Memorandums of Understanding (MOAs/MOUs) will be implemented 
between organizations to facilitate support of test activity. MOAs are 
expected with owning aircraft using commands to support receiver 
certifications. 

Source: GAO presentation of Air Force information. 

[End of table] 

[End of section] 

Appendix V: KC-46 Critical Technology Elements: 

Critical Technology: 3-Dimensional Display; 
Description: The display screens at boom operator stations inside the 
aircraft provide the visual cues needed for the operator to monitor 
the aircraft being refueled before and after contact with the 
refueling boom or drogue. The images of the aircraft on the screens 
are captured by a pair of cameras outside that aircraft that are meant 
to replicate the binocular aspect of human vision by supplying an 
image from two separate points of view, replicating how humans see two 
points of view, one for each eye. The resulting image separation 
provides the boom operator with greater fidelity and a more realistic 
impression of depth, or a 3rd dimension; 
Testing to Date: Similar technology has been used on two foreign-
operated refueling aircraft and a representative model in tests with 
other Boeing tankers. 

Critical Technology: Airborne ESTAR; 
Description: This software module is planned to have an algorithm that 
allows for automatically re-routing and constructing new flight paths 
for the aircraft that are safe, flyable, and avoid potential threats. 
The algorithm is new and novel technology, critical to meeting 
operational requirements; 
Testing to Date: Airborne ESTAR has been tested in a simulation that 
provided data on its performance, interfaces, and functionality. 

Critical Technology: Threat Correlation Software; 
Description: Somewhat similar to Airborne ESTAR, this new software 
module serves to correlate tracks from multiple potential threats and 
automatically help re-route the tanker's flight path to avoid them; 
Testing to Date: The integration of software algorithms with the 
associated processor has been laboratory tested in a relevant 
environment. 

Source: GAO presentation of Air Force information. 

[End of table] 

[End of section] 

Appendix VI: Description of GAO Scheduling Best Practices: 

Criterion: (1) Capturing all activities; 
Explanation: The schedule should reflect all activities as defined in 
the project's work breakdown structure (WBS), which defines in detail 
the work necessary to accomplish a project's objectives, including 
activities both the owner and contractor are to perform. 

Criterion: (2) Sequencing all activities; 
Explanation: The schedule should be planned so that critical project 
dates can be met. To do this, activities need to be logically 
sequenced-that is, listed in the order in which they are to be carried 
out. In particular, activities that must be completed before other 
activities can begin (predecessor activities), as well as activities 
that cannot begin until other activities are completed (successor 
activities), should be identified. Date constraints and lags should be 
minimized and justified to help ensure that the interdependence of 
activities that collectively lead to the completion of events or 
milestones can be established and used to guide work and measure 
progress. 

Criterion: (3) Assigning resources to all activities; 
Explanation: The schedule should reflect the resources (labor, 
materials, overhead) needed to do the work, whether they will be 
available when needed, and any funding or time constraints. 

Criterion: (4) Establishing the duration of all activities; 
Explanation: The schedule should realistically reflect how long each 
activity will take. When the duration of each activity is determined, 
the same rationale, historical data, and assumptions used for cost 
estimating should be used. Durations should be reasonably short and 
meaningful and allow for discrete progress measurement. Schedules that 
contain planning and summary planning packages as activities will 
normally reflect longer durations until broken into work packages or 
specific activities. 

Criterion: (5) Verifying that the schedule can be traced horizontally 
and vertically; 
Explanation: The detailed schedule should be horizontally traceable, 
meaning that it should link products and outcomes associated with 
other sequenced activities. These links are commonly referred to as 
"hand-offs" and serve to verify that activities are arranged in the 
right order for achieving aggregated products or outcomes. The 
integrated master schedule (IMS) should also be vertically traceable-
that is, varying levels of activities and supporting subactivities can 
be traced. Such mapping or alignment of levels enables different 
groups to work to the same master schedule. 

Criterion: (6) Confirming that the critical path is valid; 
Explanation: The schedule should identify the program critical path-
the path of longest duration through the sequence of activities. 
Establishing a valid critical path is necessary for examining the 
effects of any activity's slipping along this path. The program 
critical path determines the program's earliest completion date and 
focuses the team's energy and management's attention on the activities 
that will lead to the project's success. 

Criterion: (7) Ensuring reasonable total float; 
Explanation: The schedule should identify reasonable float (or slack)--
the amount of time by which a predecessor activity can slip before the 
delay affects the program's estimated finish date--so that the 
schedule's flexibility can be determined. Large total float on an 
activity or path indicates that the activity or path can be delayed 
without jeopardizing the finish date. The length of delay that can be 
accommodated without the finish date's slipping depends on a variety 
of factors, including the number of date constraints within the 
schedule and the amount of uncertainty in the duration estimates, but 
the activity's total float provides a reasonable estimate of this 
value. As a general rule, activities along the critical path have the 
least amount of float. 

Criterion: (8) Conducting a schedule risk analysis; 
Explanation: A schedule risk analysis uses a good critical path method 
(CPM) schedule and data about project schedule risks and opportunities 
as well as statistical simulation to predict the level of confidence 
in meeting a program's completion date, determine the time contingency 
needed for a level of confidence, and identify high-priority risks and 
opportunities. As a result, the baseline schedule should include a 
buffer or reserve of extra time. 

Criterion: (9) Updating the schedule using actual progress and logic; 
Explanation: Progress updates and logic provide a realistic forecast of 
start and completion dates for program activities. Maintaining the 
integrity of the schedule logic at regular intervals is necessary to 
reflect the true status of the program. To ensure that the schedule is 
properly updated, people responsible for the updating should be 
training in critical path method scheduling. 

Criterion: (10) Maintaining a baseline schedule; 
Explanation: A baseline schedule is the basis for managing the project 
scope, the time period for accomplishing it, and the required 
resources. The baseline schedule is designated the target schedule, 
subject to a configuration management control process, against which 
project performance can be measured, monitored, and reported. The 
schedule should be continually monitored so as to reveal when 
forecasted completion dates differ from planned dates and whether 
schedule variances will affect downstream work. A corresponding 
baseline document explains the overall approach to the project, 
defines custom fields in the schedule file, details ground rules and 
assumptions used in developing the schedule, and justifies 
constraints, lags, long activity durations, and any other unique 
features of the schedule. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix VII: Key Boeing Suppliers for the KC-46 Program: 

Supplier and location: Cobham (Davenport, Iowa); 
Key component(s) being developed: Refueling systems, including Wing 
Aerial Refueling Pods and Centerline Drogue System. 

Supplier and location: DRS Laurel Technologies Inc. (Johnstown, Pa.); 
Key component(s) being developed: Aerial Refueling Operator Station. 

Supplier and location: Eaton Aerospace (Grand Rapids and Jackson, 
Mich.); 
Key component(s) being developed: Electromechanical and cargo 
door actuation systems; hydraulic and fuel distribution subcomponents. 

Supplier and location: GE Aviation Systems (Grand Rapids, Mich. and 
Clearwater, Fla.); 
Key component(s) being developed: Mission Control System. 

Supplier and location: Goodrich (Colorado and Ontario, Canada); 
Key component(s) being developed: Interiors and landing gear. 

Supplier and location: Honeywell (Phoenix and Tucson, Ariz.; Coon 
Rapids, Mich., and Urbana, Ohio); 
Key component(s) being developed: Auxiliary power unit; cabin pressure 
control system; air data inertial navigation; 
lighting. 

Supplier and location: Moog Inc. (East Aurora, N.Y., Torrence, Calif., 
and Wolverhampton, UK); 
Key component(s) being developed: Electro-hydraulic servo valves, 
actuators, stabilize trim controls, leading edge slat actuator, 
inboard/outboard leading edge rotary actuators, autopilot actuators, 
elevator feel system; refueling boom actuators. 

Supplier and location: Northrop Grumman (Rolling Meadows, Ill.); 
Key component(s) being developed: Large Aircraft Infrared 
Countermeasures. 

Supplier and location: Parker Aerospace (Ariz., Calif., Florida, Ga., 
Mich., N.Y., N.C., Ohio, Tex., and Utah); 
Key component(s) being developed: Refueling components including the 
receptacle door actuator, aerial refueling interface control system, 
and wing refueling, pod hydraulic power packs; primary flight controls 
and fuel equipment; pneumatic, fluid conveyance, and hydraulic 
equipment. 

Supplier and location: Pratt & Whitney (Middletown, Conn.); 
Key component(s) being developed: Engines. 

Supplier and location: Raytheon Company (El Segundo, Calif.); 
Key component(s) being developed: Digital radar warning receiver and 
digital anti-jam receiver GPS. 

Supplier and location: Rockwell Collins (Cedar Rapids, Iowa); 
Key component(s) being developed: Integrated display system featuring 
15 inch diagonal crystal displays from the commercial 787; tactical 
situational awareness system; remote vision system 3-D and 2-D 
technology for the boom operator; communications, navigation, 
surveillance, networking and flight control systems. 

Supplier and location: Spirit (Wichita, Ks. and Prestwick, Scotland); 
Key component(s) being developed: Forward fuselage section; 
strut; nacelle components to include inlet, fan cowl and core cowl; 
fixed fan duct; fixed leading edge. 

Supplier and location: Triumph Group Inc. (Berwyn, Pa.); 
Key component(s) being developed: Horizontal stabilizer and aft body 
section, including pressure bulkhead; wing center section, doors, 
nacelles and other components including cowl doors, seal depressor 
panels, acoustic panels and aft wheel well bulkhead. 

Supplier and location: Woodward Inc. (Skokie, Ill.); 
Key component(s) being developed: Several elements of the aerial 
refueling boom, including the sensor system, control unit, and 
telescopic and flight control sticks. 

Source: GAO presentation of Boeing Company information. 

[End of table] 

[End of section] 

Appendix VIII: Comments from the Department of Defense: 

Department of The Air Force: 
Air Force Life Cycle Management Center: 
Wright-Patterson Air Force Base Ohio: 

February 1, 2013: 

AFLCMC/WK:
2590 Loop Road West: 
Wright-Patterson AFB OH 45433-7142: 

Michael J Sullivan: 
Director, Acquisition and Sourcing Management: 
United States Government Accountability Office: 
441 G St, NW: 
Washington DC 20548: 

Dear Mr. Sullivan: 

This is the Department of Defense (DoD) response to the General 
Accountability Office (GAO) draft report, GAO-13-258, "KC-46 Tanker 
Aircraft: Program Generally Stable but Improvements in Managing 
Schedule Are Needed," dated January 16, 2013 (GAO Code 121064).
The DoD mitigated the greatest KC-46 risk to the taxpayer—cost growth 
and open-ended financial liability—by negotiating the competitive 
fixed-price incentive development contract with firm-fixed and not-to-
exceed pricing for production. The Program Office will continue to 
mitigate developmental schedule risk as we approach Critical Design 
Review and will continue to maintain tight oversight of contract 
execution which has resulted in Boeing delivering on all contractual 
commitments to date. 

The DoD will also mitigate risk posed by concurrency by ensuring 
adequate testing is completed prior to the Milestone C decision, in 
addition to the contract provision requiring Boeing to incorporate 
fixes to issues found during testing into production aircraft at no 
additional cost. The DoD is committed to proactively and transparently 
supporting GAO's assessment process to provide Congress the needed 
program insight to fulfill their oversight role, and appreciates the 
opportunity to provide comments to this report. 

Again, thank you for the opportunity to review this report. If you 
have any questions, please contact Lt Col Jason Bartolomei, 
jason.bartolomei@pentagon.af.mil, (571) 256-0509, the Air Force's 
Primary Action Officer, or my point of contact Maj Michael Scales, 
michael.scales@wpafb.af.mil, (937) 656-7957. 

Sincerely, 

Signed by: 

John F. Thompson, Maj. Gen., USAF: 
AF Program Executive Officer for Tankers: 

Attachment: 

DoD Comments to the GAO Recommendations: 

Recommendation 1: 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 require 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 Response: The DoD concurs with the recommendation to analyze the 
root causes for the rate of expenditure of reserves. The KC-46 Program 
Office performs a rigorous analysis of Boeing's performance data from 
the Contract Performance Report and Integrated Master Schedule. 
Results of the analysis (to include Management Reserve allocation) are 
presented to the Program Executive Officer monthly. In addition, 
Defense Contract Management Agency conducted an audit of Boeing's 
Earned Value Management System (EVMS) in September 2012. This audit 
resulted in the issuance of a Level II Corrective Action Report (a 
Level II CAR is issued for noncompliances that are not promptly 
correctable and warrant root cause analysis and preventive action, or 
need action by the contractor to determine if other products or 
services are affected). In response to the report, Boeing performed a 
root cause analysis and developed a corrective/preventive action plan. 
Due to the severity of the issues found in their September 2012 
review, DCMA is planning to conduct a more comprehensive EVMS review 
in mid-2013. The Program Office will continue to monitor, analyze, and 
report the Boeing's application of Management Reserve. 

Recommendation 2: To help maintain a more thorough and insightful KC-
46 development schedule, the Secretary of Defense should require the 
Air Force to address our concerns related to three schedule best 
practices (capturing all activities, sequencing all activities, and 
conducting a schedule risk analysis), where we concluded the program's 
master schedule had only partially met best practice criteria. 

DoD Response: The DoD concurs with this recommendation to address 
concerns related to three schedule assessment GAO best practices that 
were assessed as partially met. The Air Force will incorporate all 
relevant government activities in the Integrated Master Schedule and 
has already started to address the sequencing of activities. Regarding 
GAO best practices when conducting a schedule risk analysis, the 
Program Office complies with direction prescribed in the Air Force 
Acquisition Excellence and Change Office Schedule Risk Assessment 
Process Guide. The current tools available to the program and 
contractor do not support schedule correlation analysis. However, 
during the most recent schedule risk analysis the program performed 
basic correlation analysis that helped identify top schedule drivers. 
The Air Force will continue to explore opportunities to incorporate 
correlation analysis. 

[End of section] 

Appendix IX: GAO Contact and Acknowledgments: 

GAO Contact: 

Michael Sullivan (202) 512-4841 or sullivanm@gao.gov: 

Acknowledgments: 

In addition to the contact name above, the following staff members 
made key contributions to this report: Bruce Fairbairn, Assistant 
Director; Tina Cheng; Matt Drerup; Keith Hudson; John Krump; Don 
Springman; and Robert Swierczek. 

[End of section] 

Footnotes: 

[1] The KC-46 designation refers to the acquisition program, while the 
actual tanker aircraft being procured is designated the KC-46A. For 
purposes of this report, we will use the KC-46 designation throughout. 

[2] Pub. L. No. 112-81 § 244 (2011). 

[3] GAO, KC-46 Tanker Aircraft: Acquisition Plans Have Good Features 
but Contain Schedule Risk, [hyperlink, 
http://www.gao.gov/products/GAO-12-366] (Washington, D.C.: Mar. 26, 
2012). 

[4] Currently, Air Force fixed-wing aircraft refuel with the "flying 
boom." The boom is a rigid, telescoping tube that an operator on the 
tanker aircraft extends and inserts into a receptacle on the aircraft 
being refueled. Air Force helicopters, and all Navy and Marine Corps 
aircraft refuel using the "hose and drogue." The "hose and drogue" 
system involves a long, flexible refueling hose stabilized by a drogue 
(a small windsock) at the end of the hose. The pilot of the receiving 
aircraft maneuvers and connects to the hose. 

[5] In August 2004, the Department of Defense Appropriations Act, 2005 
(Pub. L. No. 108-287, § 8132) established the Tanker Replacement 
Transfer Fund (TRTF) through which Congress has made funding available 
to the Air Force to proceed with a tanker acquisition program. The Air 
Force must notify Congress prior to making any transfer of funds from 
the TRTF and funds transferred shall be available for the same purpose 
and time period as the appropriation to which they are transferred. 
Since August 2004, the Air Force has transferred a total of $840.7 
million in budget authority from the TRTF to the tanker program's 
research, development, test, and evaluation appropriation account to 
fund weapon system development and program support activities. 

[6] See Society of Cost Estimating and Analysis, "Earned Value 
Management Systems (EVMS) Tracking Cost and Schedule Performance on 
Projects" (2003). 

[7] [hyperlink, http://www.gao.gov/products/GAO-12-366]. 

[8] The KC-46 development contract with Boeing specifies an incentive 
ratio for sharing any savings in the event of underruns when the 
actual contract cost is less than the target cost, or the sharing of 
additional costs when the actual contract cost is greater than this 
target cost. The government's share of any cost savings or cost 
overrun is 60 percent while Boeing's share is 40 percent. This cost 
sharing arrangement ends when the actual contract cost reaches a level 
that invokes the contract ceiling price of $4.9 billion, at which 
point the contractor is responsible for all additional costs. 

[9] GAO, GAO Cost Estimating and Assessment Guide, [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: Mar. 2009). 

[10] The ITT is the overarching test management team comprised of 
representatives from the KC-46 program office, the contractor, 
operating command, and OSD testing offices. 

[11] [hyperlink, http://www.gao.gov/products/GAO-12-366]. 

[12] The Director, Operational Test and Evaluation (DOT&E) is 
responsible for all operational tests and evaluation and approves 
operational and live fire test and evaluation within each major 
defense acquisition program. The office also approves the test and 
evaluation master plan, which documents the overall structure and 
objectives of the test and evaluation program. 

[13] Initial operational test and evaluation is conducted on 
production aircraft, or production representative articles, to 
determine whether systems are operationally effective and suitable to 
support a full-rate production decision. 

[14] The Deputy Assistant Secretary of Defense for Developmental Test 
and Evaluation reviews and approves the developmental test and 
evaluation content, as well as issues in the test and evaluation 
strategy and the test and evaluation master plan for each major 
defense acquisition program. 

[15] Demonstration in a relevant environment is defined as technology 
readiness level 6, meaning that a model or prototype close to final 
form, fit, and function has been tested in a high fidelity laboratory 
environment or in a simulated operational environment. Demonstration 
in a realistic environment is defined as technology readiness level 7 
and means that an actual system prototype has been integrated with key 
supporting subsystems to demonstrate full functionality and flight 
tested in a realistic operational environment. Our extensive body of 
work in commercial best practices suggests that this higher standard 
be attained for each critical technology before a new acquisition 
enters system development. Technology readiness requirements are 
defined in Department of Defense Instruction 5000.02, Operation of the 
Defense Acquisition System, enc. 2, para. 5 d. (4) (Dec. 8, 2008) and 
the National Defense Authorization Act for Fiscal Year 2006, Pub. L. 
No. 109-163, § 801 (codified as amended at 10 U.S.C. § 2366b 
(a)(3)(D)). 

[16] GAO, Defense Acquisitions: Assessments of Selected Weapon 
Programs, [hyperlink, http://www.gao.gov/products/GAO-11-233SP] 
(Washington, D.C.: Mar. 29, 2011). 

[17] GAO, Joint Strike Fighter: DOD Actions Needed to Further Enhance 
Restructuring and Address Affordability Risks, [hyperlink, 
http://www.gao.gov/products/GAO-12-437] (Washington, D.C.: June 14, 
2012). 

[18] The Defense Contract Management Agency is the DOD component that 
works directly with defense suppliers (contractors) to help ensure 
that DOD supplies and services are delivered on time, at projected 
cost, and meet all performance requirements. The specific role of the 
agency after a contract has been awarded to a contractor is to monitor 
their performance and management systems to ensure that cost, product 
performance, and delivery schedules are in compliance with the terms 
and conditions of the contracts. 

[19] GAO, GAO Schedule Assessment Guide: Best Practices for Project 
Schedules, [hyperlink, http://www.gao.gov/products/GAO-12-120G] 
(Washington, D.C.: May 2012). See appendix VI for a detailed 
description of these best practices. 

[20] [hyperlink, http://www.gao.gov/products/GAO-12-366]. 

[21] Pub. L. No. 111-23, § 201. 

[End of section] 

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