KC-46 Tanker Aircraft:

Program Generally Stable but Improvements in Managing Schedule Are Needed

GAO-13-258: Published: Feb 27, 2013. Publicly Released: Feb 27, 2013.

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Michael J. Sullivan
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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.

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 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.

For more information, contact Michael J. Sullivan at (202) 512-4841, or sullivanm@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Open

    Comments: The Air Force stated that the Defense Contract Management Agency had identified instances where the management reserve budget was being improperly used by the prime contractor, Boeing. As a result, Boeing issued a corrective action plan and restored $70 million to the management reserve fund with the average monthly use being reduced from $14.9 million per month to $2.5 million per month. While these efforts illustrate enhanced oversight by the Department of Defense and could possibly extend the management reserve funding, we are leaving this recommendation open as the Air Force still needs to more fully identify and understand the root causes for the expenditure of management reserve in the areas where the majority of this funding has been used, including systems engineering, program management, design and integration efforts, and test and evaluation activities. DOD concurred with our original recommendation and said it would analyze the root causes for the rate of expenditure of reserves.

    Recommendation: 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 Affected: Department of Defense

    Status: Open

    Comments: The Air Force is taking several actions to address our recommendation to improve its scheduling practices, but implementation actions are still ongoing. For example, the KC-46 program office intends to hold monthly meetings after the completion of the July 2013 critical design review to facilitate the identification of relevant government activities to be incorporated into the program's integrated master schedule. The program office indicated that these identified activities will reflect all necessary efforts for successful completion of KC-46 development, regardless of whether the contractor or government performs them. In addition, the Air Force stated that the Defense Contract Management Agency issued a non-compliance corrective action report to Boeing requesting that flaws and the use of lags in the integrated master schedule be corrected. As a result, Boeing has submitted corrective action plans addressing these issues, which have been approved. The Air Force also conducted a second schedule risk analysis and is in the process of conducting an analysis to verify and validate the integrated master schedule's quality, assumptions used, validity of results, and identification of top schedule drivers. We are leaving this recommendation open as on-going work is still being completed to meet the full intent of our recommendation.

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