F-35 Joint Strike Fighter (JSF) Lightning II Program

2010

On 01 February 2010 Defense Secretary Robert M. Gates announced a restructuring in the F-35 Joint Strike Fighter office to provide increased oversight of a program he conceded has fallen behind in meeting key benchmarks. Gates also announced that he has withheld $614 million in performance fees from the lead contractor, Lockheed-Martin, "since the taxpayers should not have to bear the entire burden of getting the JSF program on track." Gates elevated the position of the JSF program executive to three-star rank, which reflected a need for experienced and vigorous management. The executive primarily will focus on three phases of the contract life: the developmental test program, the ramp-up to full production and Nunn-McCurdy cost concerns.

"We have restructured the F-35 program and believe it is on track to become the backbone of U.S. air superiority for the next generation," Gates said during a Pentagon news conference. "Nonetheless, the progress and performance of F-35, over the last two years, has not been what it should, as a number of key goals and benchmarks were not met." A Defense Department study in 2009 found the development phase of the aircraft had slipped by 30 months. The Defense Department report showed the program was taking longer and costing more than either the government's development office or the contractor had predicted. Defense Secretary Robert M. Gates took measures to reduce the lag time to 13 months.

The February 2010 restructure reflects the direction ordered by the Secretary in an acquisition decision memorandum issued on February 24 and revised on 03 March 2010. Completing system development and approving full-rate production is now expected in April 2016, about 2 ½ years later than planned in the acquisition program baseline approved in 2007.

On March 11, 2010, the Government Accountability Office reported that the current estimated investment is $323 billion to develop and procure 2,457 aircraft. Total estimated acquisition costs had increased $46 billion and development extended 2½ years, compared to the program baseline approved in 2007. Aircraft unit costs will likely exceed the thresholds established by the statutory provision commonly referred to as Nunn-McCurdy and require the Department to certify the need for the JSF to Congress. The Nunn-McCurdy law requires that Congress be notified of a cost growth of more than 15 percent in a program. It also calls for cancellation of programs for which total cost grew by more than 25 percent over the original estimate.

By December 2009, only 4 of 13 test aircraft had been delivered and total labor hours to build the aircraft had increased more than 50 percent above earlier estimates. Late deliveries hamper the development flight test program and affect work on production aircraft, even as plans proceed to significantly ramp-up annual procurement rates.

Development costs (then-year dollars in billions) had grown from $34.4 in October 2001 (system development start), to $44.8 in March 2007 (Approved Baseline), and $49.3 in the Fiscal Year 2011 Budget Request. Procurement costs (then-year dollars in billions) had grown from $196.6 October 2001 (system development start) to $ 231.7 in March 2007 (Approved Baseline) to 273.3 in the Fiscal Year 2011 Budget Request. The delays and cost growth stem from a wing redesign, inefficient production, delays in parts deliveries by suppliers and test problems. The biggest factor was a 2002 decision to redesign the wing of the Marine Corps' version to reduce it by more than 3,500 pounds.

Ashton B. Carter, undersecretary of defense for acquisition, technology and logistics, said in a briefing at the Pentagon March 12, 2010 that the Defense Department will require a shift to a fixed-price contract in its negotiations with Lockheed Martin for the initial production phase of the F-35 Lightning II joint strike fighter. The department also will conduct an internal analysis of what the full production cost should be to better negotiate with the contractor. Taken together, Carter said, these measures will reduce costs of a program that has met with significant production delays and cost overruns since its inception in October 2001.

"The secretary believed -- and this is a principle that's important -- that the investments needed to get back the development schedule oughtn't to be made solely by the taxpayer -- that the responsibility for that should be shared, and it is being shared, with the contractor," Carter said. With this announcement, the department is moving away from a cost-plus arrangement, which reimburses companies for their expenses in addition to providing an extra payment to guarantee them a profit. Instead, in switching to a fixed-price structure, the department and the contractor will set the price beforehand, and the final payment will not depend on the total amount of time or resources expended to complete the project.

The director of defense procurement and acquisition policy will conduct the "should-cost" analysis for the final production rollout of the F-35 aircraft. Carter stressed that it's important for the department to have its own estimate of what the program's cost should be to better determine a negotiated price, rather than relying solely on the contractor's figures. "We will be looking at the cost structure of [the joint strike fighter] in all its aspects - assembly, parts supplies, staffing, overheads and indirect costs, cash flows, contract structures, fees, and lifecycle costs," Carter said in a prepared statement before the Senate Armed Services committee yesterday.

Rather than wait for the program to cross the Nunn-McCurdy line, the defense officials began to review and restructure it as though it was already in Nunn-McCurdy breach. Carter said he understands that these new initiatives will not be easy for Lockheed and its subcontractors to accommodate, but he underscored that these decisions are crucial to moving the program forward in a way that is acceptable to the military and the American public.