Defense Acquisitions:

Recent F-22 Production Cost Estimates Exceeded Congressional Limitation

NSIAD-00-178: Published: Aug 15, 2000. Publicly Released: Aug 15, 2000.

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Pursuant to a congressional request, GAO provided information on the Air Force F-22 Raptor production cost estimate, focusing on: (1) the status of cost reduction plans, including some plans not yet implemented, and Air Force procedures for reporting on the plans; and (2) a comparison of the 1999 production cost estimates with the congressional cost limitation.

GAO noted that: (1) about half of the $21.0 billion in cost reductions identified by the F-22 contractors and program office have not yet been implemented; (2) however, the Air Force may not be able to achieve the expected results from some of the plans because they are beyond the Air Force's ability to control; (3) GAO reviewed 10 plans estimated to reduce costs by $6.8 billion; (4) GAO found that cost reductions for 4 of the plans, which accounted for $5.6 billion in potential cost reductions, may not be achievable because they were dependent on decisions or later determinations that must be made by the Office of the Secretary of Defense or Congress; (5) although the Air Force and its contractors have procedures to track the status of the production cost reduction plans, and the Air Force has reported quarterly to the Under Secretary of Defense concerning the total estimated cost of F-22 production, the Air Force reports have not regularly included a summary of the status of production cost reduction plans; (6) both Office of the Secretary and Air Force cost estimators projected F-22 production costs that exceeded the congressional cost limitation of $39.8 billion in effect at that time; (7) in 1999, after considering the potential of all the cost reduction plans, the Air Force estimated F-22 production cost at $40.8 billion, and the Office of the Secretary of Defense estimated production costs at $48.6 billion; (8) in comparing the cost estimates, GAO found that: (a) although both estimates were based on the production of 339 aircraft, the two estimating groups did not use the same estimating methods, nor did they make the same estimating assumptions; (b) the cost estimators did not make the same assumptions about which cost reduction plans were already implemented or about the cost reductions achievable from plans not yet implemented; (c) the Office of the Secretary's estimate of F-22 total production cost exceeded the Air Force's estimate by $7.8 billion, or 19 percent; (d) although Air Force cost estimators projected a total of $40.8 billion in production costs, the official Air Force cost position was $39.8 billion, the same as the congressional cost limitation; and (e) DOD officials noted that it will be some time before actual production cost trends emerge and before they will know whether the Air Force or the Secretary of Defense estimate is more realistic.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In its response to the final report, DOD concurred with the recommendation. In July 2004, a DOD official (the PEO) explained that DOD has expanded reporting to ensure summary data on all production cost reduction plans is reported at quarterly reviews to the Under Secretary of Defense for Acquisition, Technology, and Logistics per GAO's recommendation.

    Recommendation: To enhance the visibility of the Air Force's plans to reduce production costs, the Secretary of Defense should direct the Air Force to report to the Under Secretary of Defense for Acquisition, Technology, and Logistics on the status of the production cost reduction plans each quarter. For each contractor, this report should include, as a minimum, summary information such as the total number of cost reduction plans identified, the number implemented, the total estimated reductions, and the reductions realized to date. The report should also highlight major changes, such as additions or deletions from the list of plans, from the previous report.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In commenting on the final report, DOD stated that it will use the Quadrennial Defense Review to evaluate force structure needs of the DOD and address affordability of the F-22. After the Quadrennial Defense Review, they said that the Selected Acquisition Report for the F-22 will identify any adjustments to quantities to conform to the congressional cost limitation and/or planned budgets. The Quadrennial Defense Review is complete, but the two latest F-22 Selected Acquisition Reports do not identify quantity adjustments necessary to stay within the production cost limitation. These reports only identify quantities that can potentially be procured for an additional $5.4 billion over the production cost limitation. In response to GAO testimony and its February 2003 report on the F-22, the House Committee on Government Reform, Subcommittee on National Security formally requested information from DOD on the number of F-22s that could be acquired under the production cap, as well as the impact of buying fewer aircraft because of the cap. The DOD responded to the Committee with a letter that estimated number of F-22s (216 to 218) and provided their analysis of the operational impacts of buying fewer aircraft.

    Recommendation: Since both Office of the Secretary and Air Force cost estimators projected that the F-22 production costs would exceed the congressionally imposed cost limitation and the possibility exists that these cost estimates could increase further if some cost reductions do not materialize, the Secretary of Defense should reconcile the number of F-22s that need to be procured with the congressional cost limitation and report to Congress on the implications of procuring fewer F-22s because of potentially higher costs.

    Agency Affected: Department of Defense

 

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