F-35 Sustainment:

Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates

GAO-14-778: Published: Sep 23, 2014. Publicly Released: Sep 23, 2014.

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What GAO Found

The Department of Defense (DOD) currently has or is developing several plans and analyses that will make up its overall F-35 sustainment strategy, which is expected to be complete in fiscal year 2019. The annual F-35 operating and support (O&S) costs are estimated to be considerably higher than the combined annual costs of several legacy aircraft (see fig.). DOD has begun some cost-savings efforts and established sustainment affordability targets for the F-35 program, but DOD did not use the military services' budgets to set these targets. Therefore, these targets may not be representative of what the services can afford and do not provide a clear benchmark for DOD's cost-savings efforts. In addition, DOD has not fully addressed several issues that have an effect on affordability and operational readiness, including aircraft reliability and technical-data rights, which could affect the development of the sustainment strategy.

Comparison of the Annual Estimated F-35 Operating and Support (O&S) Cost at Steady State to Actual Legacy Aircraft O&S Costs in Fiscal Year 2010

Comparison of the Annual Estimated F-35 Operating and Support (O&S) Cost at Steady State to Actual Legacy Aircraft O&S Costs in Fiscal Year 2010

Notes: For the purposes of this report, GAO defines steady-state operations as the period from 2036 to 2040, when, according to the services' plans, the number of F-35 aircraft and flying hours reaches its highest point and plateaus.

aThe F-35 cost presented is Cost Assessment and Program Evaluation's (CAPE) estimated total annual operating and support (O&S) cost for 2040 in base year 2012 dollars.

bLegacy aircraft cost is based on a CAPE analysis of 2010 cost data, representing a high point for aircraft O&S budgets due to contingency operations at that time.

It is unclear whether DOD's O&S cost estimates for the F-35 program reflect the most likely costs that the F-35 program will incur. DOD has two primary F-35 O&S estimates that each total around $1 trillion over a 56-year life cycle. These cost estimates are comprehensive in that they include all DOD-required program elements and are organized according to a standard O&S cost-estimating structure; however, weaknesses exist with respect to a few of the assumptions, and the estimates did not include all analyses necessary to make them fully reliable. For example, the estimates did not use reasonable fuel burn rate assumptions that reflect the likely future F-35 fuel usage. Further, one of the estimates did not use reasonable assumptions about part replacement rates and depot maintenance. Finally, while DOD took some steps to mitigate the uncertainties inherent in cost estimates, DOD officials did not conduct key analyses to determine the level of risk associated with the estimates.

Why GAO Did This Study

The F-35 Lightning II is intended to replace a variety of existing aircraft in the Air Force, Navy, and Marine Corps, while providing the most supportable, technologically advanced, lethal, and survivable aircraft to date. The F-35 is DOD's most expensive weapon system, with estimated sustainment costs of about $1 trillion. With the military services planning for the ability to deploy and maintain the F-35 within 4 years, DOD is working to develop a sustainment strategy that will be both affordable and executable for the program's life cycle.

GAO was mandated to review DOD's F-35 sustainment planning efforts. This report addresses the extent to which DOD has (1) developed an F-35 sustainment strategy and addressed potential risks related to affordability and operational readiness and (2) developed a reliable O&S cost estimate for the program's life cycle. GAO analyzed documented plans and cost estimates and interviewed DOD and contractor officials.

What GAO Recommends

GAO recommends that DOD develop better informed affordability constraints; address three risks that could affect sustainment, affordability, and operational readiness; and take steps to improve the reliability of its cost estimates. DOD concurred with all but one recommendation and partially concurred with the recommendation to conduct uncertainty analysis on one of its cost estimates, stating it already conducts a form of uncertainty analysis. GAO continues to believe that the recommended analysis would provide a more comprehensive sense of the uncertainty in the estimates.

For more information, contact Cary Russell at (202) 512-5431 or russellc@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Priority recommendation

    Comments: DOD concurred with our recommendation and stated in April 2017 that the F-35 Program Executive Officer and the F-35 enterprise have expanded their collaborative effort to reduce F-35 operating and support (O&S) costs to ensure that they deliver affordable readiness for the F-35 fleet. In an effort to reduce overall O&S costs, the department has undertaken several initiatives. For example, according to DOD, as of January 2017, a program office "cost war room" initiative had reduced the 2012 F-35 annual cost estimate by $60.7 billion. Additionally, according to DOD, a Reliability and Maintainability Improvement Program has resulted in a $1.7 billion O&S cost avoidance through the program's life cycle. Other efforts are also under way that aim to help reduce O&S costs by better informing sustainment decision-making. While the department is taking steps to try to reduce overall O&S costs, the program has yet to develop affordability constraints linked to the military services' budgets. Without affordability constraints that are linked to military service budgets, it remains unclear the extent to which the military services can afford to operate and sustain the F-35 throughout its life cycle as currently planned.

    Recommendation: To help DOD develop an affordable sustainment strategy for the F-35, the Secretary of Defense should direct the Under Secretary of Defense for Acquisitions, Technology and Logistics to direct the F-35 Program Executive Officer to establish affordability constraints linked to, and informed by, military service budgets that will help guide sustainment decisions, prioritize requirements, and identify additional areas for savings by March 2015, at which point the Future Support Construct decision will be approved.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: CAPE has updated its estimate using the Master Data Assumptions List (MDAL) that the Joint Program Office updates regularly. This MDAL contains updated intermediate-level maintenance and fuel burn assumptions. This practice allows CAPE and the JPO to remain on the same page with the most up-to-date programmatic assumptions. This practice addresses our recommendation.

    Recommendation: To improve the reliability of the Cost Assessment and Program Evaluation (CAPE) F-35 O&S cost estimate, the Secretary of Defense should direct the Director of CAPE, for future F-35 O&S cost estimates, to clearly document assumptions related to intermediate-level maintenance and revise fuel burn assumptions to better reflect the current and future state of the F-35 program.

    Agency Affected: Department of Defense

  3. Status: Open

    Comments: According to DOD officials, the ALIS Integrated Product Team (IPT) is continuing to work with the Joint Program Office's Performance Based Logistics (PBL) team to further develop and refine appropriate metrics for inclusion into future sustainment contracts. Although DOD has made progress in developing performance metrics for ALIS, as of September 2017, DOD has yet to develop metrics that are based on intended behavior of the system and tie system performance to user requirements. Until this progression is made, this recommendation will remain open.

    Recommendation: To help DOD address key risks to F-35 affordability and operational readiness, and to improve the reliability of its O&S cost estimates for the life cycle of the program, the Secretary of Defense should direct the F-35 Program Executive Officer, to enable DOD to better identify, address, and mitigate performance issues with the Autonomic Logistics Information System (ALIS) that could have an effect on affordability, as well as readiness, to establish a performance-measurement process for ALIS that includes, but is not limited to, performance metrics and targets that (1) are based on intended behavior of the system in actual operations and (2) tie system performance to user requirements.

    Agency Affected: Department of Defense

  4. Status: Open

    Comments: DOD has an R&M assessment process in place, but as of September 2017, had not developed a process that would focus directly on software reliability and maintainability. Until DOD develops a process more focused on software and its effects on overall R&M issues, this recommendation will remain open.

    Recommendation: To help DOD address key risks to F-35 affordability and operational readiness, and to improve the reliability of its O&S cost estimates for the life cycle of the program, the Secretary of Defense should direct the F-35 Program Executive Officer, to develop a high level of confidence that the aircraft will achieve its R+M goals, to develop a software reliability and maintainability (R+M) assessment process, with metrics, by which the program can monitor and determine the effect that software issues may have on overall F-35 R+M issues.

    Agency Affected: Department of Defense

  5. Status: Open

    Comments: DOD has still not developed an overall strategy that would identify data rights ownership, needs, and costs. As of September 2017, the program had taken some steps to develop an Intellectual Property Strategy, but has not identified all critical needs and their associated costs. Program office officials said that they are currently working with the prime contractor to develop a list of technical data requirements. Until this strategy is developed, this recommendation will remain open.

    Recommendation: To help DOD address key risks to F-35 affordability and operational readiness, and to improve the reliability of its O&S cost estimates for the life cycle of the program, the Secretary of Defense should direct the F-35 Program Executive Officer, to promote competition, address affordability, and inform its overarching sustainment strategy, to develop a long-term Intellectual Property (IP) Strategy to include, but not be limited to, the identification of (1) current levels of technical data rights ownership by the federal government and (2) all critical technical data needs and their associated costs.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In response to our recommendation, the PEO updated the 2014 F-35 Ground Rules and Assumptions (GR&A) documentation for intermediate-level maintenance assumptions to more explicitly define the current 2-level (organizational and depot) maintenance strategy. Additionally, the PEO revised the 2014 fuel burn rate GR&A documentation for the F-35A according to a US Air Force modeled direct fuel consumption approach inclusive of future growth and the F-35B and F-35C according to Department of the Navy recommended fuel consumption rates and adjustment factors. Furthermore, the PEO reviewed and updated the 2014 part replacement GR&A documentation for reliability, condemnation assumptions, and component pricing for maintenance-significant items per aircraft variant. Finally, the PEO revised the 2014 depot maintenance GR&A documentation for the discrete tasks associated with Low Observable scuff and refresh, analytical condition inspection, and unscheduled maintenance. These actions will allow the JPO to provide more reliable O&S cost information in its future estimates, improving decision-makers' ability to make more informed F-35 sustainment decisions. We believe the actions taken have met the intent of our recommendation.

    Recommendation: To help DOD address key risks to F-35 affordability and operational readiness, and to improve the reliability of its O&S cost estimates for the life cycle of the program, the Secretary of Defense should direct the F-35 Program Executive Officer, to improve the reliability of the Joint Program Office (JPO) F-35 O&S cost estimate, to clearly document assumptions related to intermediate-level maintenance costs and revise assumptions related to fuel burn rates, part replacement, and depot-maintenance induction in its future F-35 O&S cost estimates to better reflect the current and future state of the F-35 program.

    Agency Affected: Department of Defense

  7. Status: Open

    Comments: As of September 2017, DOD had not applied risk/uncertainty analyses to its cost estimates. Until it does so, this recommendation will remain open.

    Recommendation: To help DOD address key risks to F-35 affordability and operational readiness, and to improve the reliability of its O&S cost estimates for the life cycle of the program, the Secretary of Defense should direct the F-35 Program Executive Officer, to understand the potential range of costs associated with the JPO F-35 O&S cost estimate, to conduct uncertainty analyses on future JPO estimates.

    Agency Affected: Department of Defense

  8. Status: Open

    Comments: According to DOD officials, the Cost Assessment and Program Evaluation (CAPE) has not updated its F-35 estimate subsequent to the release of GAO-14-778. Pending a major program change, CAPE will update the F-35 O&S estimate for the full-rate production decision point in the second quarter of fiscal year 2019. Until CAPE updates its F-35 estimate, we will not be able to determine if they will perform any uncertainty analyses on its cost estimate; therefore, this recommendation will remain open as of September 1, 2017.

    Recommendation: To improve the reliability of the CAPE F-35 O&S cost estimate, the Secretary of Defense should direct the Director of CAPE, for future F-35 O&S cost estimates, to conduct uncertainty analyses to understand the potential range of costs associated with its estimates to reflect the most likely costs associated with the program.

    Agency Affected: Department of Defense

 

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