Inside Defense
(Editor's note: This story was modified after initial publication to correct a quote attributed to Pentagon spokesman Geoff Morrell.)
Oct. 29, 2009 -- A senior Pentagon official with access to details of a closely held new cost assessment of the Joint Strike Fighter program is advising Defense Department colleagues that the F-35 development program “will likely breach” a key congressionally mandated cost threshold, a step that could require dramatic remedial action for the U.S. military's costliest weapon program.
The predicted breach of the so-called Nunn-McCurdy statute, delivered within the last two weeks and confirmed by two Pentagon sources, indicates that an audit of the program prepared this summer by a DOD team of cost estimators, aircraft engineers and missions systems experts has found the F-35 program’s performance -- measured in cost schedule -- has deteriorated over the last year.
That audit, by the Joint Strike Fighter Joint Estimate Team, is due to be briefed soon to Deputy Defense Secretary William Lynn. A similar team last year determined an additional $14.8 billion and two years was required to develop the aircraft, being built by Lockheed Martin.
The Nunn-McCurdy law requires that Congress be notified if a program faces cost growth greater than 15 percent over the current baseline estimate. It also dictates that the project be terminated if the price climbs higher than 25 percent -- a “critical” breach -- unless the defense secretary certifies the program is essential to national security, that no lesser-cost alternative is available, and that cost controls are in place.
Draft Pentagon policy being considered to implement the 2009 Weapon Acquisition Systems Reform Act calls for programs that experience a critical cost breach to be restructured “in a manner that addresses the root cause or causes of the critical cost growth,” have their "most recent milestone approval rescinded,” as well as other steps to rein in cost growth, according to a copy of the draft policy.
The JSF program is due to be reviewed by the high-level Defense Acquisition Board between October and December, according to Pentagon fiscal year 2010 budget documents.
The new cost estimate -- first reported Oct. 22 by InsideDefense.com -- is "pessimistic," Pentagon spokesman Geoff Morrell told reporters today, adding that Ashton Carter, the Defense Department's acquisition executive, has been briefed on the JET assessment. He also said the assessment "clearly raises concerns about the course the program is on."
“The Joint Strike Fighter program may not be as neat and on time, on schedule and on performance as perhaps the secretary of defense was led to believe six months ago when he made [fiscal year 2010] budget decisions in April,” said a Pentagon official familiar with tactical aircraft deliberations -- a regular focus of high-level meetings of a standing panel chaired by Deputy Defense Secretary William Lynn, including one held as recently as Oct. 20.
“The information last week was: If you're associated with the program, you probably are concerned,” said the Pentagon official.
Sources with indirect access to preliminary findings of the JSF JET said the results were not only as bad as last year, but worse.
“The JET was convinced that none of the fundamental underlying labor trends, software trends, testing trends improved,” said one of the sources, who is not in the Pentagon. “On all of them, the JET thought they were as bad or worse.”
In reviewing the program, the JET may have looked at the management reserve ledger in the JSF Joint Program Office books.
Two years after the JSF program was restructured and the depleted management reserve accounts topped off at $800 million, the coffers are now nearly empty while the program has not increased its scope of work, according to a government source.
Cheryl Limrick, a spokeswoman for the JSF Joint Program Office, did not return repeated calls requesting comment on the state of the program's strategic reserve account.
Last month, the Pentagon's Office of the Director of Test and Evaluation said in briefing slides obtained by InsideDefense.com that the “F-35 is a highly concurrent program with significant risk of discovery of deficiencies after several hundred aircraft have been procured.” The briefing also cited “significant risk in [the] planned production rate before flight test[s] provide significant results” and said “more time is needed [for flight tests] due to the lateness of developmental test aircraft.”
Defense Secretary Robert Gates, during a visit to Lockheed Martin's JSF manufacturing facility in Fort Worth, TX, on Aug. 31, voiced support for the program.
“My impression is that most of the high-risk elements associated with this developmental program are largely behind us, and I felt a good deal of confidence on the part of the leadership here that the manufacturing process, that the supply chain, that the issues associated with all of these have been addressed or are being addressed,” Gates said.
Morrell today said the JET is “a very important tool” in the budget process.
“It provides us a worst-case assessment of how the program will likely develop,” the Pentagon spokesman said. “And that is balanced against, on the other extreme, the [F-35 Joint] Program Office's assessment of it, which is generally much more optimistic.”
In March 2008, DOD advised Congress that it was forming the JET to provide and “independent” assessment of the effort's true cost, not necessarily to envision a worse-case scenario.
“And so what we need to do, what the secretary tries to do, is to sort of figure out the sweet spot, if you will, between those. What's the appropriate balance between the JET's sort of sky-is-falling assessment and the program office's perhaps rosier view of things?” Morrell said.
The JSF Joint Estimate Team -- more than two dozen experts in both accounting and the complexities of combat aircraft development -- is led by a group from the cost assessment and program evaluation (CAPE) office, with support from NAVAIR 4.2, the Navy's team of analysts who assess the cradle-to-grave cost of weapon systems, and the Air Force Cost Analysis Agency.
Many CAPE cost estimates, particularly those that induce sticker shock because of their high price, are discounted by critics -- particularly those in the services looking to protect their programs from budget cuts -- who believe that CAPE is institutionally inclined toward finding programs to cut from the Pentagon's portfolio.
However, the JSF JET estimate is far from a typical CAPE assessment; the team’s ecumenical composition is unusual. According to Pentagon documents, the team includes officials from the Air Force and Navy with expertise in not only cost estimating, but in systems engineering, manufacturing, software integration and air vehicles. Also on the team are senior engineering and acquisition professionals from across the Defense Department's tactical aircraft community.
Their work is the result of visits to numerous sites associated with the F-35, including those involved in the design, manufacture and testing of the aircraft. This includes government facilities as well as those run by the team of defense contractors building the aircraft.
The JET has subdivided its work into groups that include a cost team, a schedule team and a risk team.
The work of the team examining the costs will be decisive in determining when the JSF program joins the pantheon of weapons programs that breach the “critical” Nunn-McCurdy line.
According to an InsideDefense.com analysis of Pentagon JSF selected acquisition reports, an increase of $17.2 billion would push the JSF baseline program cost to $227.6 billion; the original baseline estimate was $177.1 billion.
The Pentagon's most recent acquisition report on the JSF -- provided to Congress in April 2008 -- pegs the JSF unit cost, which includes research and development spending, at $85.5 million per aircraft, a cost that would have to climb to at least $92.7 million to qualify as a “critical” breach. -- Jason Sherman
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