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F-35 Program: DOD Needs Better Accountability for Global Spare Parts and Reporting of Losses Worth Millions

GAO-23-106098 Published: May 23, 2023. Publicly Released: May 23, 2023.
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Fast Facts

The Department of Defense anticipates spending $1.7 trillion over the life of its F-35 aircraft program.

DOD owns certain F-35 spare parts that contractors manage. But DOD doesn't account for or oversee the parts. This is in part because various DOD offices and contractors haven't agreed on whether the spare parts should be categorized as government-furnished property.

This lack of agreement affects how DOD processes lost parts. For example, of about a million lost parts worth $85 million, DOD only reviewed the circumstances surrounding 2% of identified losses since 2018.

We recommended that DOD address these issues.

A F35 plane parked on the tarmac.

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Highlights

What GAO Found

The Department of Defense's (DOD) F-35 Joint Program Office does not oversee or account for spare parts in its global spares pool that have been accepted and received by the government and are located at non-prime contractor facilities. The F-35 Joint Program Office does not track or enter these spare parts into an accountable property system of record that would enable it to capture and store real-time changes to property records. Currently, the prime contractors maintain this information.

One contributing factor to DOD's lack of accountability over these spare parts is the lack of agreement among various organizations as to whether the spare parts are both accountable under a contract and government-furnished property. If the spare parts, which include engines; tires; landing gear; and other parts, such as bolts, screws, and fasteners, are not accountable under a contract and are not government-furnished property, the contractor will not enter these parts into the system DOD uses to track losses and disposition. Without DOD taking steps to ensure that these spare parts are accountable under a contract, the F-35 Joint Program Office will be unable to either gain or maintain accountability over these spare parts and will not have data, such as locations, costs, and quantities, needed for financial reporting or to ensure that government interests are protected.

The organizations' inability to reach consensus has also affected the F-35 Joint Program Office's processing of losses (spare parts that are lost, damaged, or destroyed) and disposition of spare parts in the global spares pool. Because the F-35 Joint Program Office does not maintain complete records on losses and disposition of spare parts, GAO used a combination of data provided by both the F-35 Joint Program Office and one prime contractor and found the following:

Since May 2018, one F-35 prime contractor incurred losses of over 1 million spare parts totaling over $85 million, of which less than 2 percent has been reviewed by the F-35 Joint Program Office. Further, due to the lack of a process for reporting losses, as of October 2022, the same prime contractor has not reported over 900,000 spare parts valued at over $66 million to the F-35 Joint Program Office for review. In one example, the contractor identified 34 actuator doors with a total cost of over $3.2 million that were lost in the fourth quarter of 2019 and have yet to be reported to the F-35 Joint Program Office.

As of October 2022, DOD has over 19,000 spare parts in the global spares pool that have been awaiting disposition instructions from the F-35 Joint Program Office for anywhere from a few months up to 5 years.

Without developing procedures for contractors to both (1) report global spares pool losses and (2) dispose of spare parts that staff have determined are excess, obsolete, or unserviceable, DOD does not have assurance that lost spare parts or those in need of disposition are being accurately reported and tracked. This increases the risk of misstatement on DOD's financial statements and increases the risk of mismanagement of F-35 global spares pool losses. It also potentially raises government expenditures.

Why GAO Did This Study

The F-35 Lightning II aircraft is DOD's most costly weapon system in history. Overall costs are estimated to be more than $1.7 trillion over the program's life cycle. The F-35's supply chain has a unique design. Rather than owning the spare parts for their aircraft, the program participants share a common, global pool of spare parts that DOD owns and the prime contractors manage. These spare parts are held in over 50 domestic and international non-prime contractor facilities.

This report was developed in connection with GAO's audit of the U.S. government's consolidated financial statements. This report examines the extent to which DOD oversees and accounts for F-35 global spare parts held at non-prime contractor facilities.

For this report, GAO reviewed relevant DOD guidance, regulations, and instructions. GAO also interviewed DOD and contractor officials to identify how DOD categorizes, oversees, and accounts for these spare parts held at non-prime contractor facilities.

Recommendations

GAO is making four recommendations, including for DOD to take steps to ensure that all spare parts in the global spares pool are accountable under a contract, and to develop a process for contractors to report losses and dispose of spare parts that are excess, obsolete, or unserviceable. DOD concurred with all four recommendations and cited actions it will take to address them.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Under Secretary of Defense for Acquisition and Sustainment, in coordination with the F-35 Program Executive Office, should take steps to ensure that all spare parts in the global spares pool are categorized appropriately and are accountable under a contract. (Recommendation 1)
Open
DOD concurred with the recommendation. In its response, DOD stated that a Joint Working Group, including Vendor 1, Office of the Secretary of Defense, Joint Program Office (JPO), and Defense Contract Management Agency, was established and discussed the need to modify FY21--23 contract as soon as practicable to incorporate the Government-furnished property (GFP) Attachment. THE JPO sustainment contracts have always included the appropriate Government Property clauses; however, adherence and enforcement has been inconsistent. The Government team took steps to modify the current sustainment contract to add the GFP attachment through an administrative modification (no change in direct cost or Terms and Conditions). On March 10, 2023, a bilateral modification was sent to Vendor 1 to incorporate a GFP list of spare parts as Attachment 38 to the FY 21-23 Annualized Sustainment Contract. Vendor 1 rejected the bilateral modification on March 23, 2023. The JPO is currently assessing next steps to address spares pool accountability and subsequent financial reporting. We will continue to follow-up with DOD on the status of this recommendation.
Department of Defense The Under Secretary of Defense for Acquisition and Sustainment, in coordination with the Under Secretary of Defense (Comptroller), should review all applicable guidance and policies for asset accountability and update as necessary to ensure clarity regarding when an asset is considered government-furnished property. (Recommendation 2)
Open
DOD concurred with our recommendation. In its response, DOD stated that the applicable guidance and policies will be reviewed and updated for clarity regarding Government Furnished Property. We will continue to follow-up with DOD on the status status of this recommendation.
Department of Defense The Under Secretary of Defense for Acquisition and Sustainment, in coordination with the F-35 Program Executive Officer, should develop and document a process for contractors to report government-owned global spares pool losses of spare parts that are not accountable under a contract, until all spare parts in the global spares pool are made accountable under a contract and losses are entered into the GFP Module for DCMA's adjudication. (Recommendation 3)
Open
DOD concurred with this recommendation. In its response, DOD stated that the F-35 Joint Program Office (JPO) issued a Government-furnished property (GFP) modification request to Vendor 1 to acknowledge the government owned spares pool as GFP to remove any ambiguity. Vendor 1 accesses spares pool inventory to meet the performance requirements of the sustainment contracts. F-35 contracts include DFARS 252.245-7002, which requires the contractor to report loss through the GFP Module. The GFP attachment modification rejection by Vendor 1 has delayed implementation of the GFP module, however, the JPO continues to make updates to the program office processes to ensure compliance with DFARS requirements. Under Secretary of Defense for Acquisition and Sustainment recognizes the need for contractual clarity and the application of defense-wide solutions that achieve audit compliance for property in possession of Vendor 1. We will continue to follow-up with DOD on the status of this recommendation.
Department of Defense The Under Secretary of Defense for Acquisition and Sustainment, in coordination with the F-35 Program Executive Officer, should develop and document interim procedures to ensure that disposition instructions are provided, consistent with federal regulations, for the disposition of spare parts in the global spares pool that are excess, obsolete, or unserviceable, until such spare parts are entered into the GFP Module for disposition. (Recommendation 4)
Open
DOD concurred with this recommendation. According to the F-35 Joint Program Office (JPO), it is taking the necessary steps to develop and document interim procedures to ensure that disposition instructions are provided, consistent with federal regulations, for the disposition of spare parts in the global spares pool that are considered excess, obsolete or unserviceable. The JPO told us the policy document for the Demilitarization (DEMIL), Disposal and Deactivation (D3) Plan, is currently being routed for Enterprise review. JPO anticipates that during the review process, existing gaps and disconnects requiring mitigation will be identified for resolution. In parallel, an interim process is being used for dispositioning items that considered excess, obsolete, or unserviceable until full implementation of the GFP module is in place. These procedures are being addressed in the D3 plan and specify procedures for reuse, donation, DEMIL, selling, scrapping or destruction. In addition, disposition records will be maintained for updating applicable accounting records for financial reporting. We will continue to follow up with DOD on the status of this recommendation.

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Topics

AircraftCompliance oversightConsolidated Financial Statements of the U.S. GovernmentDefense logisticsFederal acquisition regulationsFinancial managementFinancial reportingFinancial statementsInventoryMaterial weaknessesMilitary forcesPrime contractorsProperty managementSpare parts