Defense Acquisitions:

Use of Cost Reduction Plans in Estimating F-22 Total Production Costs

T-NSIAD-00-200: Published: Jun 15, 2000. Publicly Released: Jun 15, 2000.

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Pursuant to a congressional request, GAO discussed the Air Force's F-22 Raptor Program and its impact on production cost reduction plans, focusing on the: (1) status of cost reduction plans, including some plans not yet implemented, and identifying Air Force procedures for reporting on the plans; and (2) comparison of 1999 cost estimates developed by the Air Force and the Office of the Secretary of Defense with the congressional cost limitation.

GAO noted that: (1) of the total $21 billion in cost reductions identified by the F-22 contractors in their plans, about half of that amount is categorized as implemented and the other half as not yet implemented; (2) GAO's review of 10 cost reduction plans not yet implemented indicates that achieving reductions from 3 of the plans will depend on decisions by the Office of the Secretary and Congress; (3) in addition, one of the three plans--to delay establishing an Air Force depot maintenance capability for the F-22--may only defer the costs to future years; (4) also, one of the three plans, estimated to reduce costs by almost a half billion dollars, was so uncertain that neither the Office of the Secretary nor the Air Force considered it to be likely to achieve the cost reduction proposed; (5) both the 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; (6) in 1999, after considering the potential of all the cost reduction plans, the Air Force estimated F-22 production costs at $40.8 billion, and the Office of the Secretary estimated production costs at $48.6 billion; (7) both estimates were based on the production of 339 aircraft; (8) the Office of the Secretary's estimate exceeded the Air Force's estimate by $7.8 billion, or 19 percent; (9) the difference is attributable to the Office's higher estimates of the cost of production ($3.7 billion) and lower estimates of the impact of production cost reduction plans not yet implemented ($4.1 billion); (10) the Office of the Secretary cost estimates exceeded the congressional cost limitation by about $8.8 billion; (11) putting the higher estimate in perspective, if the Office of the Secretary estimate is correct and additional cost reduction plans are not developed and implemented, GAO estimates that the Air Force would have to buy about 85 fewer F-22 aircraft than now planned to stay within the congressional cost limitation; (12) 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; (13) Air Force officials said that the Air Force selected the $39.8 billion as its official cost estimate because the detailed breakout of the estimate for fiscal years 2001 through 2005 was about the same as that budgeted for those years; and (14) the difference between the estimate and the budget is primarily associated with the estimate for years after 2005.

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