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entitled 'Tactical Aircraft: DOD Needs to Better Inform Congress about 
Implications of Continuing F/A-22 Cost Growth' which was released on 
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Report to the Honorable John F. Tierney, House of Representatives:



United States General Accounting Office:



GAO:



February 2003:



TACTICAL AIRCRAFT:



DOD Needs to Better Inform Congress about Implications of Continuing F/

A-22 Cost Growth:



F/A-22F-22 Aircraft:



GAO-03-280:



GAO Highlights:



Highlights of GAO-03-280, a report to Representative John F. Tierney



Why GAO Did This Study:



In 1991, the Air Force began developing the F/A-22 aircraft with 

advanced features to make it less detectable to adversaries and capable 

of high speeds for long distances.  After a history of program cost 

increases, Congress limited the cost of F/A-22 production to $37.5 

billion in 1997. Congress has remained interested in the potential cost 

of production. As requested, we (1) identified the latest production 

cost estimate and assessed the planned offsets from cost reduction 

plans, (2) identified areas where additional cost growth is likely to 

occur, and (3) determined the extent that DOD has informed Congress 

about production costs.



What GAO Found:



The Department of Defense (DOD) has identified about $18 billion in 

estimated production cost growth over the last 6 years. Even though 

the Air Force has designed cost reduction plans to offset a 

significant amount of this estimated cost growth, DOD still 

estimates that the cost of production will exceed the cost limit 

established by Congress in 1997. Furthermore, the Air Force has not 

fully funded certain cost reduction plans called production 

improvement programs (PIPs), and as a result, these PIPs may not 

achieve their estimated $3.7 billion in offsets to cost growth.



In addition to the cost growth estimated by DOD, GAO identified 

areas where, in the future, F/A-22 production cost growth is likely 

to occur. First, the Office of the Secretary of Defense’s current 

production cost estimate does not include about $1.3 billion in 

costs that should be considered in future cost estimates. Second, 

schedule delays in developmental testing could delay the start of 

a multiyear contract designed to control costs. These delays could 

also result in additional costs owing to the expiration of an Air 

Force agreement with the contractor designed to help control 

production costs in fiscal year 2005. Last, other risk factors may 

increase future production costs, including the dependency of 

certain cost reduction plans on the availability of funding and a 

reduction in funding for support costs.



DOD has not fully informed Congress (1) about what the total cost 

of the production program could be if cost reduction plans do not 

offset cost growth as planned or (2) about the aircraft quantity 

that can be procured within the production cost limit. If the cost 

limit is maintained and estimated production costs continue to rise, 

the Air Force will likely have to procure fewer F/A-22s.



What GAO Recommends:





GAO recommends that the Air Force fund production improvement 

programs at the planned level to maximize its potential for cost 

reductions. To help ensure proper congressional oversight, GAO 

recommends that DOD provide Congress with documentation (1) showing 

that the Air Force is funding production improvement programs as 

planned and (2) reflecting the potential cost of production if 

offsets are not achieved as planned and the aircraft quantity that 

can be procured with the cost limit.

DOD did not concur with GAO’s recommendations. GAO believes that 

DOD’s position lessens the opportunity to create greater production 

efficiencies and better inform Congress.



www.gao.gov/cgi-bin/getrpt?GAO-03-280.



To view the full report, including the scope

and methodology, click on the link above.

www.gao.gov/cgi-bin/getrpt?GAO-03-280.



To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Allen Li at (202) 512-4841.



Contents:



Letter:



Results in Brief:



Background:



DOD’s F/A-22 Estimated Production Costs Exceed Cost Limitation:



Estimated Production Costs Are Likely to Increase:



DOD Has Not Fully Informed Congress about Potential Impact of Reduced 

Offsets to Estimated Cost Growth:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Scope and Methodology:



Appendix I: Comments from the Department of Defense:



Appendix II: Amounts Associated with Cost Reduction Plan Categories:



Appendix III: F/A-22 Estimated Production Cost Growth in 1997:



Appendix IV: Cost Reduction Plan Categories and Planned Offsets 

to Estimated Cost Growth:



Appendix V: Estimated F/A-22 Production Cost Growth in 2001:



Appendix VI: Estimated Cost Reduction Plan Offsets for Future 
Production 

Lot Contracts:



Appendix VII: GAO Staff Acknowledgments:



Related GAO Products:



Tables:



Table 1: Comparison of Planned versus Implemented Cost Reduction Plan 

Offsets for Awarded Production Contracts:



Table 2: F/A-22’s Production Cost Growth Not Included in OSD’s Latest 

Estimate:



Table 3: Current Amounts Associated with Cost Reduction 

Plan Categories:



Figures:



Figure 1: Planned versus Actual F/A-22 Production Improvement Program 

Investment for Production Lots 1 and 2:



Figure 2: Planned Offsets to Cost Growth from Investing in and 

Implementing Production Improvement Programs:



Abbreviations:



DAB: Defense Acquisition Board

DOD: Department of Defense

GAO: General Accounting Office

OSD: Office of the Secretary of Defense

PIPs: production improvement programs:



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United States General Accounting Office:



Washington, DC 20548:



February 28, 2003:



The Honorable John F. Tierney

House of Representatives:



Dear Mr. Tierney:



The Air Force is developing the F/A-22 aircraft[Footnote 1] with 

advanced features designed to allow it to be less detectable to 

adversaries, capable of high speeds for long ranges, and able to 

provide the pilot with improved awareness of the surrounding 

situation.[Footnote 2] Development of the aircraft, which started in 

1991, is expected to be completed in early 2004. The Air Force approved 

the start of low-rate production in August 2001.



Congress established a production cost limitation in the National 

Defense Authorization Act for Fiscal Year 1998[Footnote 3] following a 

history of program cost increases. The limitation, which allows for 

inflation adjustments, is currently $37.5 billion.[Footnote 4] The act 

does not specify the total number of aircraft to be procured for this 

amount. During a high-level review by the Department of Defense’s (DOD) 

Defense Acquisition Board[Footnote 5] in August 2001, the Department of 

Defense estimated that production program costs would be 

$43 billion[Footnote 6] and therefore exceed the production cost limit 

of $37.5 billion.



As requested, we reviewed the Air Force’s F/A-22 production program and 

the service’s efforts to offset estimated production cost growth 

through various cost reduction plans. Specifically, we (1) identified 

the F/A-22’s latest production cost estimate acknowledged by DOD, 

including an assessment of the planned offsets from cost reduction 

plans; (2) identified areas where additional cost growth is likely to 

occur; and (3) determined the extent to which DOD has informed Congress 

about the effect of not achieving cost reduction plans, particularly on 

the number of aircraft that can be procured within the existing 

production cost limit.



Results in Brief:



DOD has identified about $18 billion in estimated production cost 

growth over the last 6 years. Even though the Air Force has designed 

cost reduction plans to offset a significant amount of this estimated 

cost growth, DOD still estimates that the cost of production will 

exceed the cost limit of $37.5 billion established by Congress in 1997. 

In addition, the Air Force has not fully funded certain cost reduction 

plans; therefore, these plans may not achieve their planned offsets to 

cost growth. For example, the Air Force has not been able to fully fund 

improvements to production processes. As a result, the Air Force may 

not be able to achieve the planned $3.7 billion in offsets from 

improvements to production processes.



In addition to the cost growth estimated by DOD, we identified areas 

where F/A-22 production cost growth is likely to occur in the future. 

First, the current Office of the Secretary of Defense’s production cost 

estimate does not include about $1.3 billion in costs that should be 

considered in future cost estimates. Second, schedule delays in 

developmental testing could delay the award of a multiyear contract 

designed to help control production costs. As a result of schedule 

delays, the Air Force has already delayed the effective date of this 

contract to fiscal year 2006. Consequently, the aircraft planned for 

fiscal year 2005 will not be included in any agreements with the 

contractor designed to help control production costs. Last, several 

risk factors may increase future production costs, including the 

dependency of certain cost reduction plans on the availability of 

funding and a reduction in funding for support costs.



DOD has not fully informed Congress about the potential cost of the 

production program if cost reduction plans do not offset cost growth as 

planned. Moreover, DOD has not informed Congress about the quantity of 

aircraft that can be procured within the existing production cost 

limit. If the production cost limit is maintained and estimated 

production costs continue to rise, the Air Force will likely have to 

procure fewer than the 276 planned F/A-22s.



We are providing recommendations aimed at improving the Air Force’s 

implementation of cost reduction plans and enhancing congressional 

oversight of the F/A-22 program. In written comments on a draft of this 

report, DOD stated that it did not concur with our recommendations.



Background:



The F/A-22 is an air superiority[Footnote 7] aircraft with advanced 

features to make it less detectable to adversaries (stealth 

characteristics) and capable of high speeds for long ranges. It is 

being developed under contracts with Lockheed Martin Corporation for 

the aircraft and Pratt & Whitney Corporation for the engine.



Because of potential cost increases, the Air Force established a team-

-the Joint Estimating Team--to review the total estimated cost of the 

F/A-22 program in 1996. This team reported that the cost of the F/A-22 

production program could grow by $13.1 billion from the amount planned. 

In response to identified cost growth, Congress, in the National 

Defense Authorization Act for Fiscal Year 1998 established cost limits 

for the development and production phases of the F/A-22 program. The 

current production cost limit is $37.5 billion.



In August 2001, during a review by DOD’s Defense Acquisition Board 

(DAB), DOD estimated that the production program would cost 

$43 billion, or $5.4 billion more than the production cost limit. 

However, the two major parties involved in DAB, the Office of the 

Secretary of Defense (OSD) and the Air Force, disagreed over how many 

aircraft could be purchased for $43 billion. OSD believed that only 297 

aircraft could be purchased for $43 billion while the Air Force 

believed 333 aircraft could be purchased for the same amount. DOD 

informed Congress of these divergent viewpoints in September 2001. The 

F/A-22 President’s Budget for fiscal year 2004 would transfer 

$876 million in production funding and reduce the number of aircraft 

to 276 to help fund estimated cost increases in development. As a 

result, the current production cost estimate is $42.2 billion, an 

amount that still exceeds the cost limit of $37.5 billion.



To fully offset the $13.1 billion in estimated cost growth, the Air 

Force and contractors designed cost reduction plans. Since 1997, the 

Air Force has been identifying and implementing these plans. (See 

appendix IV for a list of the major categories of cost reduction plans 

designed to offset the cost growth estimated in 1997.) A direct 

relationship cannot be established between the cost reduction plans and 

specific areas of cost growth. The reason is that the plans generally 

offset cost growth in broad areas by enhancing production technology, 

improving manufacturing techniques, and improving 

acquisition practices.



F/A-22 cost reduction plans are categorized as either “implemented” or 

“not yet implemented.” The Air Force’s and contractors’ criteria for 

determining if a cost reduction plan is implemented include whether:



* the contractor has submitted a firm, fixed price proposal that 

recognizes the impact of the cost reduction;



* the impact of the reduction has been reflected in a current contract 

price or negotiated in an agreement; or:



* the contractor has reduced the number of hours allocated to a task.



Currently, $14 billion in cost reduction plans is considered 

“implemented.”:



Cost reduction plans are categorized as “not yet implemented” if the 

plans are well defined but none of the criteria listed above are met. 

Table 3 in appendix II shows the amounts the Air Force currently 

considers “implemented” and “not yet implemented.”:



DOD’s F/A-22 Estimated Production Costs Exceed Cost Limitation:



Over the last 6 years, $17.7 billion in estimated production cost 

growth has been identified during the course of two program reviews. As 

a result, the estimated cost of the production program currently 

exceeds the congressional cost limit despite the establishment of cost 

reduction plans designed to offset a significant amount of this 

estimated cost growth. The effectiveness of these cost reduction plans 

has varied.



DOD’s Estimates of Production Costs Have Risen:



During a review in 1997, the Air Force estimated cost growth of 

$13.1 billion.[Footnote 8] The major contributing factors to this cost 

growth were inflation, increased estimates of labor costs and materials 

associated with the airframe and engine, and engineering changes to the 

airframe and engine. These factors made up about 75 percent of the cost 

growth identified in 1997. (See appendix III for a complete list of 

cost growth categories identified in 1997.):



In August 2001, DOD estimated an additional $5.4 billion in cost growth 

for the production of the F/A-22, bringing total estimated production 

costs to $43 billion.[Footnote 9] The major contributing factors to 

this cost growth were again due to increased labor costs and airframe 

and engine costs. These factors totaled almost 70 percent of the cost 

growth. According to program officials, major contractors’ and 

suppliers’ inability to achieve the expected reductions in labor costs 

throughout the building of the development and early production 

aircraft has been the primary reason for estimating this additional 

cost growth. (See appendix VI for a complete list of the categories and 

sources of cost growth identified in 2001.):



Cost Reduction Plans Achieve Varied Results:



The effectiveness of cost reduction plans has varied. The Air Force 

was able to implement cost reduction plans and offset cost growth in 

the first four production lot contracts awarded.[Footnote 10] Air Force 

projections for cost reduction plans show that expected offsets are 

also planned for the future production lot contracts to enable the 

production program to be completed within the current production cost 

estimate. However, the Air Force has not fully funded production 

improvement programs (PIPs), which are designed to offset cost growth 

by improving production processes. Consequently, planned offsets may 

not be achieved in the amount expected.



Implemented Cost Reduction Plans Are Offsetting Cost Growth:



The Air Force was able to implement cost reduction plans and offset 

cost growth in the first four production contracts awarded. The total 

offsets for these contracts slightly exceeded earlier projections by 

about $0.5 million. Table 1 compares previous planned offsets with 

implemented cost reduction plan offsets in the first four production 

contracts.



Table 1: Comparison of Planned versus Implemented Cost Reduction Plan 

Offsets for Awarded Production Contracts:



Dollars in millions.



Fiscal year 1999 (2 aircraft); Planned

 offsets: $199.0; Implemented

 offsets: $200.5; Difference: $1.5.



Fiscal year 2000 (6 aircraft); Planned

 offsets: 329.3; Implemented

 offsets: 336.4; Difference: 7.1.



Fiscal year 2001 (10 aircraft); Planned

 offsets: 580.2; Implemented

 offsets: 611.1; Difference: 30.9.



Fiscal year 2002 (13 aircraft); Planned

 offsets: 827.2; Implemented

 offsets: 788.2; Difference: (39.0).



Total; Planned

 offsets: $1,935.7; Implemented

 offsets: $1,936.2; Difference: $0.5.



Source: U.S. Air Force.



[End of table]



Cost reduction plans exist but have not yet been implemented for 

subsequent production lots planned for fiscal years 2003 through 2010 

because contracts for these production lots have not yet been awarded. 

If implemented successfully, the Air Force expects these cost reduction 

plans to achieve billions of dollars in offsets to estimated cost 

growth and allow the production program to be completed within the 

current production cost estimate of $43 billion.[Footnote 11] However, 

as we noted earlier in this report, this amount exceeds the 

congressionally imposed production cost limit of $37.5 billion.



Not Fully Funding Production Improvement Programs May Reduce Expected 

Offsets:



A production improvement program is a type of cost reduction 

plan whereby the government must make an initial investment to realize 

savings. The earlier the Air Force implements PIPs, the greater the 

impact on the cost of production. Examples of PIPs previously 

implemented by the Air Force include manufacturing process improvements 

for avionics, improvements in the fabrication and assembly processes 

for the airframe, and the redesign of several components to enable 

lower production costs.



The Air Force reduced the funding available for investment in PIPs 

because of cost growth in production lots 1 and 2.[Footnote 12] The Air 

Force subsequently used funding that it planned to invest in PIPs to 

cover the cost growth in production lots 1 and 2. As a result, there 

has not been as much funding available for investment in these PIPs as 

planned. Figure 1 shows that funding was reduced $61 million in fiscal 

year 2001 and $26 million in fiscal year 2002.



Figure 1: Planned versus Actual F/A-22 Production Improvement Program 

Investment for Production Lots 1 and 2:



[See PDF for image]



[End of figure]



It is unlikely that the Air Force will achieve the estimated 

$3.7 billion in cost growth offsets from the implementation of these 

PIPs if investment continues to be less than planned. Figure 2 shows 

the remaining planned investment in PIPs through fiscal year 2006 and 

the $3.7 billion in estimated cost growth that can potentially be 

offset through fiscal year 2010 if the Air Force invests as planned in 

these PIPs.



Figure 2: Planned Offsets to Cost Growth from Investing in and 

Implementing Production Improvement Programs:



[See PDF for image]



[End of figure]



In the past, Congress has been concerned about the Air Force’s practice 

of requesting fiscal year funding for these PIPs but then using part of 

that funding for F/A-22 airframe cost increases. Recently, Congress 

directed the Air Force to submit a request if it plans to use PIP funds 

for an alternate purpose.



Estimated Production Costs Are Likely to Increase:



We found indications that, in the future, F/A-22 production costs are 

likely to increase more than the latest $5.4 billion in cost growth 

recently estimated by the Air Force and OSD. First, the current OSD 

production estimate does not include all costs. Second, schedule delays 

in developmental testing could delay the start of a multiyear contract 

designed to help control production costs. Third, as a result of 

schedule delays that have already occurred, the Air Force has already 

delayed the awarding of this contract to fiscal year 2006. As a 

consequence, the aircraft planned for fiscal year 2005 are not 

currently included in any agreements with the contractor that are 

designed to help control production costs. Last, we found several risk 

factors that may increase future production costs, including the 

dependency of certain cost reduction plans on congressional action and 

a reduction in funding for support costs.



Current OSD Production Cost Estimate Does Not Include All Costs:



OSD’s latest cost estimate does not include costs identified by the 

Air Force during the development of the Air Force’s current F/A-22 

acquisition plan. The Air Force developed this acquisition plan after 

OSD completed its estimate. Table 2 shows some areas of additional 

costs that the Air Force believes the program will incur.



Table 2: F/A-22’s Production Cost Growth Not Included in OSD’s Latest 

Estimate:



Dollars in millions.





Reason for cost growth: Delayed award of multiyear contract; Cost 
growth: $390.



Reason for cost growth: Inflation increases because new acquisition 
plan delays some early 

aircraft purchases; Cost growth: 

350.



Reason for cost growth: Decreased savings expected from Joint Strike 
Fighter program[A]; Cost 

growth: 300.



Reason for cost growth: Change in avionics subcontractor; Cost growth: 
250.



Total; Cost growth: $1,290.



Source: GAO’s analysis of Air Force and OSD Cost Analysis Improvement 

Group data.



[A] Resulting from changes in the prime contractor’s accounting system 

and the calculation of overhead costs.



[End of table]



According to an OSD official, these additional costs should be 

considered in any future OSD production cost estimate, which would 

increase OSD’s estimate by $1.29 billion.



Additional Program Delays May Further Delay Multiyear Procurement:



If the F/A-22’s developmental testing program experiences additional 

delays, there is a greater risk that operational testing, full-rate 

production, and multiyear procurement will be delayed as a result. 

Delays in production and multiyear procurement would likely increase 

production costs. The Air Force has not addressed ongoing problems with 

the developmental testing and therefore remains at high risk for 

further schedule delays.



For example, in March 2002, we reported that the Air Force’s plan to 

complete the developmental airframe testing necessary for the start of 

operational testing was at high risk because (1) the planned number of 

test objectives per flight-hour was not being achieved and (2) most of 

the planned flight-test program was essentially being performed by only 

one test aircraft rather than the three originally planned.[Footnote 

13] Air Force officials told us they understood that completing the 

tests as scheduled with only one development test aircraft was high 

risk. As a result of this strategy, in late 2001, the Air Force delayed 

the F/A-22’s schedule, including the start of a multiyear contract 

designed to save production costs.



Acquisition Plan Contains Gap in Methods to Control Costs:



The cost of the fiscal year 2005 production lot could increase because 

it is currently not included in plans to help control production costs. 

In late 1996, as part of a major program review, the Air Force and 

major F/A-22 contractors entered into a Target Price Curve agreement 

designed to help reduce production costs and ensure production 

affordability. The agreement established production cost goals for the 

first five production lots (fiscal years 1999-2003) and provided the 

contractors with incentives if they achieved these cost goals. 

Previously, the Air Force planned to transition directly to multiyear 

procurement starting with the next production lot. However, since the 

Air Force delayed the start of multiyear procurement from fiscal year 

2004 to fiscal 2006, fiscal 2005 is now not covered by either the 

agreement with the contractor or the planned multiyear procurement 

contract. Therefore, there is less assurance that the cost of the 

fiscal year 2005 production lot will match the current estimate for 

this production lot. If a method to help control costs is not 

implemented for the fiscal year 2005 production lot, the cost of this 

production lot could increase more than expected.



Other Factors Could Increase Future Production Costs:



We found several additional risk factors that may increase production 

costs in the future. As we have also previously reported, the Air Force 

is depending on both multiyear procurement and the Joint Strike 

Fighter initiatives to achieve offsets to estimated cost 

growth.[Footnote 14] Multiyear procurement, because of the cost 

reductions available through long-term commitments such as a 5-year 

contract, make it possible for the contractors and subcontractors to 

charge lower prices for the aircraft being procured. Joint Strike 

Fighter-related savings are planned because the Air Force plans to use 

many of the same contractors and subcontractors as with the Joint 

Strike Fighter in the F/A-22 program, thereby lowering overhead rates 

and increasing buying power.



Even though the Air Force is depending on both the multiyear 

procurement and Joint Strike Fighter initiatives to achieve offsets to 

estimated cost growth, approval to proceed with multiyear procurement 

is determined from the availability of funding.[Footnote 15] Thus, if 

entry into a multiyear procurement contract does not occur as planned, 

offsets from the implementation of multiyear procurement cannot be 

achieved. Similarly, the success of the Joint Strike Fighter cost 

reduction plan is dependent on the schedule of the Joint Strike Fighter 

program and the quantity of the aircraft procured, which are determined 

by Congress and OSD. In an earlier report, we cautioned that if the 

Joint Strike Fighter program were not approved or were delayed, then 

the F/A-22 production program would not achieve the estimated cost 

reductions.[Footnote 16]



Furthermore, the Air Force reduced estimated funding for F/A-22 support 

costs by $1.8 billion in its latest production cost estimate. Support 

costs are for such items as spare components for the aircraft and 

engines, spare engines, and equipment used to support and maintain 

aircraft. F/A-22 program officials explained that the latest support 

costs estimate is a detailed, requirements-based estimate that is more 

accurate than previous estimates, but they could not provide us with 

the detailed rationale for this new estimate. At the same time, we also 

observed that the Air Force added about $1.8 billion to the estimated 

production costs associated with the aircraft and engine. If it is 

determined the F/A-22 program will require the same level of support 

cost funding identified by the Defense Acquisition Board’s review, the 

production cost estimate will increase.



DOD Has Not Fully Informed Congress about Potential Impact of Reduced 

Offsets to Estimated Cost Growth:



DOD has not fully informed Congress about specifics related to the 

total cost of the F/A-22 production program or the quantity of aircraft 

that can be purchased within the cost limitation. DOD uses selected 

acquisition reports and the President’s budget submissions to inform 

Congress about weapon systems programs.[Footnote 17] Since 1999, 

neither the F/A-22 selected acquisition reports nor the President’s 

annual budget submissions to Congress have included details about the 

amount of cost reduction plans identified to offset cost growth. More 

importantly, these documents have not included the potential cost of 

the F/A-22 production program if cost reduction plans do not offset 

cost growth as planned. From 1996 to 1998, selected acquisition reports 

did inform Congress about the potential cost of production if cost 

reduction plans did not offset cost growth as planned. If cost growth 

is not offset as planned, the cost of F/A-22 production could be 

several billion dollars higher than currently estimated.



Furthermore, recent documentation, including the latest selected 

acquisition report (December 2001) and Fiscal Year 2003 President’s 

Budget submission have also not provided Congress with information 

about the quantity of aircraft DOD believes can be procured under the 

existing production cost limitation. Even though the production cost 

limitation remains, as adjusted, at $37.5 billion, the official 

documentation provided to Congress to date has not provided the number 

of aircraft that can be purchased for this amount. Even at the higher 

cost estimate of $43 billion,[Footnote 18] OSD and the Air Force have 

not been able to agree on the aircraft quantity that can be purchased. 

In July 2001, we projected that the Air Force would have to buy 85 

fewer F/A-22s rather than the 333 that it planned to buy to stay within 

the cost limit.[Footnote 19]



Conclusions:



Despite the success of early cost reduction plans, we identified 

estimated cost growth beyond the amounts recognized by the Air Force 

and DOD. Therefore, it is important for the Air Force to take advantage 

of every opportunity to offset cost growth. PIPs can be an important 

mechanism for offsetting this cost growth. However, the Air Force is 

not investing funding as planned in F/A-22 PIPs designed to offset 

estimated cost growth. The failure to invest in PIPs at the planned 

level will likely not allow estimated cost growth to be offset as 

planned and therefore may affect the quantity of aircraft that can be 

acquired.



The F/A-22 production program has experienced a number of schedule 

delays and problems that have increased the estimated costs of a 

program that already requires a significant investment. DOD has not 

fully informed Congress about the amount of cost reduction plans 

identified to offset cost growth, the potential cost of production if 

cost reduction plans are not as effective as planned, or the quantity 

of aircraft that can be produced within the production cost limit. 

Congress would be able to utilize this information to help exercise 

proper program oversight.



Recommendations for Executive Action:



For the Air Force to achieve planned offsets to estimated cost growth, 

we recommend that the Secretary of the Air Force make the funding of 

PIPs at the planned level a priority.



To ensure proper congressional oversight of the F/A-22 program, we 

also recommend that the Secretary of Defense provide Congress with 

documentation:



* showing that funding for PIPs is being invested at the planned level 

each fiscal year, and if not, explaining the reasons why and the 

potential consequences of not fully investing and potentially not 

offsetting cost growth as planned;



* reflecting the potential cost of F/A-22 production if cost reduction 

plans do not offset cost growth as planned; and:



* reflecting the quantity of aircraft DOD believes can be procured with 

the existing production cost limit.



Agency Comments and Our Evaluation:



In written comments on a draft of this report, DOD stated that it did 

not concur with either of our recommendations. Regarding our first 

recommendation on making investments in PIPs a priority, DOD said 

that while it believes that PIP investments in general are a good idea, 

the Department intends to implement PIPs on a case-by-case basis, using 

expected return-on-investment criteria. DOD also commented that our 

report does not provide evidence that investments in PIPs reduce costs.



Our recommendation that the Air Force make the funding of PIPs at 

the planned level a priority is based on evidence from both the 

Air Force and OSD that investment in PIPs at the planned level will 

generate a significant return-on-investment. In addition, during the 

course of our review, Air Force officials told us they planned to make 

up for not fully investing in PIPs during the last 2 fiscal years by 

investing more in subsequent years in order to achieve the planned 

savings. The Air Force’s plan appears to recognize that it has moved 

beyond a case-by-case approach. Our recommendation would support such a 

plan. Finally, the reluctance to embrace PIPs in DOD’s comments appears 

to be contrary to the position taken within the Department. The 

potential benefits of investing in PIPs continue to be highlighted in 

high-level F/A-22 meetings[Footnote 20] and correspondence to Congress. 

A September 2001 letter to Congress from the Under Secretary of Defense 

for Acquisition, Technology and Logistics estimates that the quantity 

of F/A-22 aircraft will need to be reduced, but more aircraft can be 

procured if cost reduction plans (which include PIPs) prove more 

successful than OSD’s estimates. We believe our recommendation to make 

the funding of PIPs at the planned level a priority puts DOD in a 

better position to enhance the affordability of the F/A-22. Conversely, 

by not funding PIPs at the planned level, DOD may lose opportunities to 

create greater production efficiencies and as a result, have to acquire 

fewer aircraft.



Regarding our second recommendation related to providing documentation 

to Congress on cost reduction plans, the implications of not investing 

in PIPs as planned, and the aircraft quantities that can be acquired 

within the existing production cost limit, DOD stated that our 

recommendation is inconsistent with its decision to use a “buy-to-

budget” approach for the F/A-22 (buying the highest quantity of 

aircraft possible each year on the basis of appropriated funding each 

year). DOD also stated that providing this information to Congress 

would not provide a reliable projection of the number of aircraft 

possible because (1) there are other factors that affect cost and (2) 

the projected savings are uncertain and may not materialize as the 

estimator expects.



We continue to believe that the Secretary of Defense should provide 

Congress with this documentation. As we have discussed in this and 

several earlier reports,[Footnote 21] we agree that there are indeed 

many factors that can cause F/A-22 production costs to rise. And, as we 

have also noted, projected offsets generated by PIPs and other cost 

reduction plans are uncertain and may not all materialize, even if 

investments are made as planned. Shifts in these realities are frequent 

and create a constantly changing picture of F/A-22 production costs, 

offsets, and aircraft quantities. This is particularly the case when 

PIP investments are not made as planned. Hence, it is important that 

updated and accurate information be regularly and routinely made 

available to Congress as the picture changes. DOD’s argument that it is 

implementing a “buy-to-budget” approach makes our recommendation more 

compelling because aircraft quantities planned each fiscal year can 

change in the few months between when fiscal year funding is 

appropriated and when a production contract is negotiated with the 

prime contractor and awarded. Providing visibility to the projection of 

how many aircraft can be acquired within the cost limitation would 

enhance program oversight.



DOD has several extant reporting options that can be used to provide 

this information. A new report is not required. For example, DOD could 

return to its former practice of using annual selected acquisition 

reports to inform Congress about the potential cost of production if 

cost reduction plans do not offset cost growth as planned. This 

information was included in these reports from 1996 to 1998. In 

addition, the President’s Budget submission could be used as a vehicle 

to provide Congress with updated information about the quantity of 

aircraft DOD believes can be acquired under the existing production 

cost limitation. Finally, requests to reprogram PIP investment funds 

could be expanded to include this information along with justification 

for PIP reprogramming.



Scope and Methodology:



To identify the F/A-22 production cost growth, we examined documents 

related to the Joint Estimating Team’s review completed in January 1997 

and received clarification on some review conclusions from the F/A-22 

program office. We also reviewed documentation and discussed with 

program officials the results of the 2001 F/A-22 Defense Acquisition 

Board’s review that estimated $5.4 billion more in production cost 

growth.



To evaluate the planned effectiveness of cost reduction plans designed 

to offset production cost growth, we assessed the reliability of a 

contractor’s and the Air Force’s database on cost reduction plans to 

ensure that the data were complete, sufficient, and relevant to our 

work. We reviewed information from this database on implemented and not 

yet implemented cost reduction plans. We compared estimated cost 

reduction plan offsets from fiscal years 2000 and 2002 to determine 

current versus planned estimated offsets for F/A-22 production lots. We 

also analyzed cost information from the Air Force to determine the 

amount of planned and actual funding invested in PIPs designed to 

offset estimated cost growth by improving production processes.



To identify areas where additional production cost growth has occurred 

and may occur, we reviewed several aspects of the F/A-22 program that 

were likely to contribute to future cost growth. We examined previous 

and current OSD and Air Force production cost estimates, expected 

delays in the F/A-22 program’s completion of operational testing, 

aircraft unit price estimates and controls, and funding for support 

costs.



To evaluate the degree to which DOD has informed Congress about the 

potential cost of F/A-22 production, we examined the content of recent 

official documentation (selected acquisition reports and President’s 

budgets) provided to Congress and compared them with required content 

and content that would be expected considering the congressionally 

imposed F/A-22 production cost limitation.



In performing our work, we obtained information or interviewed 

officials from the Office of the Secretary of Defense, Washington D.C.; 

the F/A-22 Program Office, Wright-Patterson Air Force Base, Ohio; and 

the Defense Contract Management Agency, Marietta, Georgia. We performed 

our work from March 2002 through February 2003 in accordance with 

generally accepted government auditing standards.



As agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution of it until 30 

days from the date of this report. At that time, we will send copies to 

interested congressional committees; the Secretary of Defense; the 

Secretary of the Air Force; and the Director, Office of Management and 

Budget. We will also make copies available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site 

at http://www.gao.gov.



Please contact me at (202) 512-4841 or Catherine Baltzell at (202) 512-

8001 if you or your staff have any questions concerning this report. 

Major contributors to this report are listed in appendix VII.



Sincerely yours,



Allen Li

Director

Acquisition and Sourcing Management:



Signed by Allen Li:



[End of section]



Appendix I: Comments from the Department of Defense:



ACQUISITION, TECHNOLOGY AND LOGISTICS:



OFFICE OF THE UNDER SECRETARY OF DEFENSE:



3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:



24 JAN 2003



Mr. Allen Li:



Director, Acquisition and Sourcing Management U.S. General Accounting 

Office:



441 G Street, NW Washington, D.C. 20548:



Dear Mr. Li:



This is the Department of Defense’s (DoD) response to the General 

Accounting Office’s Draft Report, GAO-03-280, “TACTICAL AIRCRAFT: F/A-

22 Production Cost Growth Continues Despite Some Effective Offsetting 

Efforts,” Dated December 13, 2002 (GAO Code 120128). The Department 

appreciates the opportunity to comment on the draft report.



The Under Secretary of Defense (Acquisition, Technology and Logistics) 

has targeted, and continues to address, cost control as a key oversight 

issue on the F/A-22 program. The GAO’s report, however, fails to 

provide credible evidence that investments in Production Improvement 

Programs (PIPS) reduce costs. The Department intends to implement PIPS 

on a case-by-case basis, using expected return-on-investment criteria, 

rather than using a generalized formula that is not sufficient across 

the wide range of projects.



The GAO’s report makes two recommendations. The Department does not 

concur with Recommendation 1 which requires the Secretary of the Air 

Force to make funding of the PIPs at the planned level a priority, 

because there is no evidence to support this recommendation, and its 

implementation, therefore, would not be prudent. Recommendation 2 

requires the Secretary of Defense to provide documentation to Congress 

concerning investment in PIPs, and the consequences of any decision not 

to invest in PIPs. The Department does not concur with this 

recommendation because it would require the Secretary to submit 

redundant reports, since justification already is required as a part of 

a request to reprogram funds designated for PIPs.



The Department believes that focusing F/A-22 program cost management on 

the PIPs is too narrow. The absence of a measurable, direct cause-and-

effect relationship between the PIP investments and production costs 

does not support the GAO’s recommendations.



Detailed comments regarding the recommendation are enclosed. The 

Department is prepared to discuss these comments with you in more 

detail should you desire.



Sincerely,



Glenn F. Lamartin, Director:



Strategic and Tactical Systems:



Enclosure:



GENERAL ACCOUNTING OFFICE DRAFT REPORT Dated December 13, 2002 (GAO-03-

280/GAO Code 120128):



“TACTICAL AIRCRAFT: F/A-22 Production Cost Growth Continues Despite 

Some Effective Offsetting Efforts”:



DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:



RECOMMENDATION 1: The GAO recommended that the Secretary of the Air 

Force make the funding of production improvement plans (PIPs) at the 

planned level a priority. (Draft Report/p. 19):



DOD RESPONSE:	Non Concur. The Department believes that there is no 

evidence to support this recommendation. The future PIP-related cost 

savings of $3.7 billion appear to be based on a 15:1 return on 

investment (from the data presented in Figure 2, page 11). The specific 

source of these data is not provided.	We believe that the PIP 

investments in general are a good idea, and they should be funded based 

upon expected return-on-investment criteria.



RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 

provide documentation to Congress a) showing that funding for PIPS is 

being invested at the planned level each fiscal year, and if not, 

provide an explanation to Congress on the reasons why and the potential 

consequences, and b) reflecting both the potential cost of F/A-22 

production if cost reduction plans do not offset cost growth as planned 

and the quantity of aircraft DOD believes can be procured with the 

existing production cost limit. (Draft Report/p. 19):



DOD RESPONSE:	Non Concur. Part (a) of the recommendation would create 

redundant reporting requirements, given that the conferees from the 

appropriations committees, in the conference report regarding the 

Department of Defense Appropriations Act, 2003, directed the Air Force 

to submit a request for reprogramming to use PIP funds for alternate 

purposes (page 12 of the draft report).	That request must include a 

justification for the Air force’s decision not to use these funds for 

investments in PIPs. There is no reason that the Air Force and the 

Secretary of Defense should provide reports that contain essentially 

identical information. Part (b) of the recommendation is inconsistent 

with the Department’s August 2001 decision to approve a “buy-to-budget” 

approach for F/A-22, and reflects the GAO’s failure to recognize that 

other factors can cause costs to rise. Any report would, of necessity, 

be based on either the Air Force’s or the contractor’s projection of 

savings. However, this estimate would not provide a reliable 

projection of the number of aircraft possible because (a) there 

are other factors that impact cost such as: prime labor and materials 

costs, supplier pricing strategies, economic order quantities, and 

uncertainty of the F/A-22 development program, and (b) the projected 

savings are uncertain and may not materialize as the estimator 

expects.



[End of section]



Appendix II: Amounts Associated with Cost Reduction Plan Categories:



F/A-22 cost reduction plans are categorized as either “implemented” 

or “not yet implemented.” The Air Force and contractors’ criteria for 

determining if a cost reduction plan is implemented include (1) whether 

the contractor has submitted a firm-fixed price proposal that 

recognizes the impact of the cost reduction, (2) whether the impact of 

the reduction has been reflected in a current contract price or 

negotiated in an agreement, or (3) whether the contractor has reduced 

the number of hours allocated to a task.



Cost reduction plans are categorized as “not yet implemented” if the 

plans are well defined but none of the criteria listed above are met.



Table 3: Current Amounts Associated with Cost Reduction 

Plan Categories:



Dollars in billions.



Cost reduction plan category: Implemented; Amount: $14.0.



Cost reduction plan category: Not yet implemented; Amount: 13.3.



Total; Amount: $27.3.



Source: U.S. Air Force.



[End of table]



[End of section]



Appendix III: F/A-22 Estimated Production Cost Growth in 1997:



Dollars in billions.



Category of cost growth: Inflation; Source of cost growth: Inflation; 

Cost  growth: $5.8; Cost growth as a percentage: 43.3.



Category of cost growth: Airframe labor and materials; Source of cost 

growth: Increased estimates of the cost of labor and materials; Cost

 growth: 2.4; Cost growth as a percentage: 17.9.



Category of cost growth: All categories; Source of cost growth: 

Increase in fee provided to contractor; Cost growth: 1.1; Cost growth

as a percentage: 8.2.



Category of cost growth: Airframe and engine; Source of cost growth: 

Engineering changes to airframe and engine; Cost growth: 1.8; Cost 

growth as a percentage: 13.4.



Category of cost growth: Analysis and integration of components and 

training; Source of cost growth: Increased costs associated with 

analysis and integration of aircraft components; Cost growth: 

0.6; Cost growth as a percentage: 4.5.



Category of cost growth: Defensive countermeasure and a classified 

program; Source of cost growth: Funding for defensive countermeasures 

and a classified program; Cost growth: 0.6; Cost growth as a 

percentage: 4.5.



Category of cost growth: Equipment provided to contractor by the 

government and equipment used to support the aircraft; Source of cost 

growth: Increased costs of equipment; Cost growth: 0.4; Cost growth

as a percentage: 3.0.



Category of cost growth: Avionics; Source of cost growth: Increased 

cost associated with buying large quantities of parts that industry 

may not continue to produce; Cost growth: 0.3; Cost growth as a 

percentage: 2.2.



Category of cost growth: Aircraft utilities and subsystems; Source of 

cost growth: Increased estimate of the cost to produce aircraft 

utilities and subsystems; Cost growth: 0.2; Cost growth

as a percentage: 1.5.



Category of cost growth: Contractor costs; Source of cost growth: 

Increased estimate of the cost of contractor support; Cost growth: 

0.1; Cost growth as a percentage: 0.7.



Category of cost growth: Mission support requirements; Source of 

cost growth: Increased estimate for mission support requirements; 

Cost growth: 0.1; Cost growth as a percentage: 0.7.



Total cost growth (aircraft): Engine and materials; Source of cost 

growth: Not purchasing a training engine and outsourcing a wiring 

harness; Cost growth: (0.2); Cost growth as a percentage: [Empty].



Net cost growth[A]; Source of cost growth: [Empty]; Cost growth: 

$13.1[B]; Cost growth as a percentage: [Empty].



Source: U.S. Air Force.



[A] Based on a plan to procure 438 aircraft.



[B] Does not add because of rounding.



[End of table]



[End of section]



Appendix IV: Cost Reduction Plan Categories and Planned Offsets 

to Estimated Cost Growth:



Dollars in billions.



Cost production plan category: Lean manufacturing--Improving 

manufacturing processes and 

incorporating new technology; Planned offsets to estimated cost 

growth: Dollar amount: $9.1; Planned offsets to estimated cost 

growth: Percentage: 33.7.



Cost production plan category: Production improvement programs--

Improving production processes; Planned offsets to estimated cost 

growth: Dollar amount: 8.4; Planned offsets to estimated cost 

growth: Percentage: 30.8.



Cost production plan category: Acquisition reform--Applying 

performance-based contracting practices; 

Planned offsets to estimated cost growth: Dollar amount: 0.5; 

Planned offsets to estimated cost growth: Percentage: 2.9.



Cost production plan category: Material efficiencies--Improving 

material procurement strategies; 

Planned offsets to estimated cost growth: Dollar amount: 1.0; 

Planned offsets to estimated cost growth: Percentage: 3.7.



Cost production plan category: Diminishing manufacturing 

sources--Resolving obsolescence and diminishing sources issues; 

Planned offsets to estimated cost growth: Dollar amount: 1.5; 

Planned offsets to estimated cost growth: 

Percentage: 5.5.



Cost production plan category: Production support--Defer or avoid 

government investment in depot 

maintenance capability; Planned offsets to estimated cost growth: 

Dollar amount: 3.0; Planned offsets to estimated cost growth: 

Percentage: 11.0.



Cost production plan category: Multiyear procurement--Award a 

production contract for multiple years; 

Planned offsets to estimated cost growth: Dollar amount: 2.2; 

Planned 

offsets to estimated cost growth: Percentage: 8.1.



Cost production plan category: Joint Strike Fighter--Manufacturing 

Joint Strike Fighter and F/A-22 

components in the same plants; Planned offsets to estimated cost 

growth: Dollar amount: 1.1; Planned offsets to estimated cost 

growth: 

Percentage: 4.0.



Cost production plan category: Strategic sourcing--Procurement 

initiatives to identify suppliers to reduce costs; Planned offsets 

to estimated cost growth: Dollar amount: 0.3; Planned offsets to 

estimated cost growth: Percentage: [Empty].



Cost production plan category: Additional learning--Various methods 

and process improvements; Planned offsets to estimated cost growth: 

Dollar amount: 0.1; Planned offsets to estimated cost growth: 

Percentage: [Empty].



Total; Planned offsets to estimated cost growth: Dollar amount: 

$27.3[A]; Planned offsets to estimated cost growth: Percentage: 

100[A].



Source: U.S. Air Force.



[A] Does not add because of rounding.



[End of table]



[End of section]



Appendix V: Estimated F/A-22 Production Cost Growth in 2001:



Dollars in billions.



Airframe and engine; Source of cost growth: Increased estimated labor 

costs of prime contractors and subcontractors; Cost

 growth: $4.60; Cost growth as a percentage: 69.



Inflation; Source of cost growth: Adjustments for inflation; Cost

 growth: 0.95; Cost growth as a percentage: 14.



Risk; Source of cost growth: Increased estimate for risk; Cost

 growth: 0.50; Cost growth as a percentage: 8.



Avionics; Source of cost growth: Change in contractor required revised 

cost estimate; Cost growth: 0.25; Cost growth as a percentage: 4.



Tools to produce airframe and engine; Source of cost growth: Increase 

in production rate required more tooling; Cost growth: 0.20; 

Cost growth as a percentage: 3.



Other government costs; Source of cost growth: Production of pilot 

helmet designed to help fire short-range missiles more effectively; 

Cost growth: 0.14; Cost growth as a percentage: 2.



Total cost growth; Source of cost growth: [Empty]; Cost

 growth: $6.64; Cost growth as a percentage: 100.



Spare parts; Source of cost growth: Reassessment of quantity of spare 

parts needed; Cost growth: (0.80)[A]; Cost growth as a

 percentage: [Empty].



Production rate savings; Source of cost growth: Lowered production rate 

charges by using new accounting system; Cost growth: 

(0.30)[A]; Cost growth as a percentage: [Empty].



Cost reduction plans; Source of cost growth: Change is estimated offset 

amount; Cost growth: (0.13)[A]; Cost growth as a percentage: [Empty].



Net cost growth; Source of cost growth: [Empty]; Cost

 growth: $5.40[B]; Cost growth as a

 percentage: [Empty].



Source: U.S. Air Force.



[A] Expected offsets to estimated cost growth.



[B] DOES NOT ADD BECAUSE OF ROUNDING] .



[End of table]



[End of section]



Appendix VI: Estimated Cost Reduction Plan Offsets for Future 
Production 

Lot Contracts:



Dollars in billions.



Lot 3 (fiscal year 2003); Estimated offsets: $1.1.



Lot 4 (fiscal year 2004); Estimated offsets: 1.5.



Lot 5 (fiscal year 2005); Estimated offsets: 1.9.



Lot 6 (fiscal year 2006); Estimated offsets: 2.5.



Lot 7 (fiscal year 2007); Estimated offsets: 2.9.



Lot 8 (fiscal year 2008); Estimated offsets: 2.8.



Lot 9 (fiscal year 2009); Estimated offsets: 2.8.



Lot 10 (fiscal year 2010); Estimated offsets: 1.7.



Total; Estimated offsets: $17.2.



Source: U.S. Air Force.



[End of table]



[End of section]



Appendix VII: GAO Staff Acknowledgments:



Acknowledgments:



Catherine Baltzell, Marvin Bonner, Edward Browning, Gary Middleton, 

Sameena Nooruddin, Robert Pelletier, and Don M. Springman made key 

contributions to this report.



[End of section]



Related GAO Products:



Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should 

Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.



Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs 

within the Congressional Limitation. GAO-01-782. Washington, D.C.: 

July 16, 2001.



Tactical Aircraft: F-22 Development and Testing Delays Indicate Need 

for Low-Rate Production. GAO-01-310. Washington, D.C.: March 15, 2001.



Defense Acquisitions: Recent F-22 Production Cost Estimates 

Exceeded Congressional Limitation. GAO/NSIAD-00-178. Washington, D.C.: 

August 15, 2000.



Defense Acquisitions: Use of Cost Reduction Plans in Estimating 

F-22 Total Production Costs. GAO/T-NSIAD-00-200. Washington, D.C.: 

June 15, 2000.



Budget Issues: Budgetary Implications of Selected GAO Work for 

Fiscal Year 2001. GAO/OCG-00-8. Washington, D.C.: March 31, 2000.



F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are 

Avoided. GAO/NSIAD-00-68. Washington, D.C.: March 14, 2000.



Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals. 

GAO/T-NSIAD-00-58. Washington, D.C.: December 7, 1999.



Fiscal Year 2000 Budget: DOD’s Procurement and RDT&E Programs. GAO/

NSIAD-99-233R. Washington D.C.: September 23, 1999.



Budget Issues: Budgetary Implications of Selected GAO Work for 

Fiscal Year 2000. GAO/OCG-99-26. Washington, D.C.: April 16, 1999.



Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering 

and Manufacturing Development Programs. GAO/T-NSIAD-99-113. 

Washington, D.C.: March 17, 1999.



F-22 Aircraft: Issues in Achieving Engineering and Manufacturing 

Development Goals. GAO/NSIAD-99-55. Washington, D.C.: March 15, 1999.



F-22 Aircraft: Progress of the Engineering and Manufacturing 

Development Program. GAO/T-NSIAD-98-137. Washington D.C.: 

March 25, 1998.



F-22 Aircraft: Progress in Achieving Engineering and Manufacturing 

Development Goals. GAO/NSIAD-98-67. Washington, D.C.: March 10, 1998.



Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program. 

GAO/NSIAD-97-156. Washington, D.C.: June 4, 1997.



Defense Aircraft Investments: Major Program Commitments Based on 

Optimistic Budget Projections. GAO/T-NSIAD-97-103. Washington, D.C.: 

March 5, 1997.



F-22 Restructuring. GAO/NSIAD-97-100BR. Washington, D.C.: 

February 28, 1997.



Tactical Aircraft: Concurrency in Development and Production of F-22 

Aircraft Should Be Reduced. GAO/NSIAD-95-59. Washington, D.C.: 

April 19, 1995.



Tactical Aircraft: F-15 Replacement Issues. GAO/T-NSIAD-94-176. 

Washington, D.C.: May 5, 1994.



Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned. 

GAO/NSIAD-94-118. Washington, D.C.: March 25, 1994.



FOOTNOTES



[1] “F/A” stands for fighter/attack aircraft. The Air Force changed the 

designation from F-22 to F/A-22 in September 2002 to reflect the 

aircraft’s air-to-surface attack capability.



[2] These features are expected to permit the F/A-22 to penetrate 

adversary airspace, operate with limited interference, and destroy 

targets on the ground as well as in the air.



[3] Section 217, P.L.105-85, Nov. 18, 1997.



[4] The cost limitation, before adjustment under the act’s provisions, 

was $43.4 billion. The cost limitation does not include $1.575 billion 

associated with six aircraft labeled Production Representative Test 

Vehicles, which are excluded from the production cost limitation. Those 

aircraft are funded mostly with appropriations for research, 

development, test and evaluation as approved by Congress.



[5] A DOD senior-level forum for advising the Under Secretary of 

Defense (Acquisition, Technology and Logistics) on critical decisions 

concerning major weapon systems programs.



[6] The F/A-22 President’s Budget for fiscal year 2004 would transfer 

$876 million in production funding to help fund estimated cost 

increases in development. As a result, the current production cost 

estimate is $42.2 billion, an amount that still exceeds the cost limit 

of $37.5 billion.



[7] “Air superiority” is the degree of air dominance that allows the 

conduct of operations by land, sea, and air forces without prohibitive 

interference by enemy aircraft.



[8] P.L.105-85, Nov. 18, 1997. The cost limit is adjusted for inflation 

and for compliance with changes in federal, state, and local laws.



[9] Based on a plan to procure 438 aircraft.



[10] The F/A-22 President’s Budget for fiscal year 2004 would transfer 

$876 million in production funding to help fund estimated cost 

increases in development. As a result, the current production cost 

estimate is $42.2 billion.



[11] These four production lots include: Production Representative Test 

Vehicle lot 1--fiscal year 1999, Production Representative Test 

Vehicle lot 2--fiscal year 2000, lot 1--fiscal year 2001, and lot 2--

fiscal year 2002. Future production lots are planned annually from 

fiscal year 2003 to fiscal year 2011.



[12] The F/A-22 President’s Budget for fiscal year 2004 would transfer 

$876 million in production funding to help fund estimated cost 

increases in development. As a result, the current production cost 

estimate is $42.2 billion.



[13] Production lot 1 was awarded in fiscal year 2001, and production 

lot 2 was awarded in fiscal year 2002.



[14] See U.S. General Accounting Office, Tactical Aircraft: F-22 Delays 

Indicate Initial Production Rates Should Be Lower to Reduce Risks, GAO-

02-298 (Washington, D.C.: Mar. 5, 2002).



[15] See U.S. General Accounting Office, Defense Acquisitions: Recent 

F-22 Production Cost Estimates Exceeded Congressional Limitation, GAO/

NSIAD-00-178 (Washington, D.C.: Aug. 15, 2000).



[16] Under 10 U.S.C. 2306b, a multiyear contract must meet specific 

criteria and be approved by Congress. The criteria must include the 

following: (1) the contract must result in substantial savings compared 

with the awarding of annual contracts, (2) the item being bought must 

have a stable design and not have excessive technical risks, and 

(3) the estimated cost of the system and the estimated cost avoidance 

from the multiyear procurement are to be realistic.



[17] See GAO/NSIAD-00-178.



[18] The U.S. Code (10 U.S.C. Sec. 2432) requires DOD-selected 

acquisition reports to report the status of all the costs of 

production, and the President’s budgets are meant to do the same on an 

annual basis. 



[19] The F/A-22 President’s Budget for fiscal year 2004 would transfer 

$876 million in production funding to help fund estimated cost 

increases in development. As a result, the current production cost 

estimate is $42.2 billion, an amount that still exceeds the cost limit 

of $37.5 billion.



[20] See U.S. General Accounting Office, Tactical Aircraft: Continuing 

Difficulty Keeping F-22 Production Costs Within the Congressional 

Limitation, GAO-01-782 (Washington D.C.: July 16, 2001).



[21] PIPs were highlighted in the most recent F/A-22 Defense 

Acquisition Board meeting involving both Air Force and OSD officials.



[22] See U.S. General Accounting Office, Tactical Aircraft: Continuing 

Difficulty Keeping F-22 Production Costs Within the Congressional Cost 

Limitation. GAO-01-782 (Washington D.C.: July 16, 2001), and Defense 

Acquisitions: Recent F-22 Production Cost Estimates Exceeded 

Congressional Limitation, GAO/NSIAD-00-178 (Washington D.C.: 

Aug. 15, 2000).



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