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Report to the Chairman, Subcommittee on National Security, Emerging 
Threats, and International Relations, Committee on Government Reform, 
House of Representatives:

United States General Accounting Office:

GAO:

July 2003:

Joint Strike Fighter Acquisition:

Cooperative Program Needs Greater Oversight to Ensure Goals Are Met:

GAO-03-775:


GAO Highlights:

Highlights of GAO-03-775, a report to the Chairman, Subcommittee on 
National Security, Emerging Threats, and International Relations, 
Committee on Government Reform, House of Representatives 

Why GAO Did This Study:

The Joint Strike Fighter (JSF) is a cooperative program between the 
Department of Defense (DOD) and U.S. allies for developing and 
producing next generation fighter aircraft to replace aging 
inventories. As currently planned, the JSF program is DOD’s most 
expensive aircraft program to date, costing an estimated $200 billion 
to procure about 2,600 aircraft and related support equipment. Many in 
DOD consider JSF to be a model for future cooperative programs.

To determine the implications of the JSF international program 
structure, GAO identified JSF program relationships and expected 
benefits and assessed how DOD is managing cost sharing, technology 
transfer, and partner expectations for industrial return.

What GAO Found:

The JSF international program structure is based on a complex set of 
relationships involving both government and industry from the United 
States and eight partner countries. The program is expected to benefit 
the United States by reducing its share of program costs, giving it 
access to foreign industrial capabilities, and improving 
interoperability with allied militaries. Partner governments expect to 
benefit from defined influence over aircraft requirements, improved 
relationships with U.S. aerospace companies, and access to JSF program 
data.

Yet international participation also presents a number of challenges. 
For example, while international partners can choose to share any 
future program cost increases, they are not required to do so under 
the terms of negotiated agreements. Therefore, the burden of any 
future increases may fall almost entirely on the United States. 
Technology transfer also presents challenges. The large number of 
export authorizations needed to share project information, solicit 
bids from partner suppliers, and execute contracts must be submitted 
and resolved in a timely manner to ensure that partner industry has 
the opportunity to compete for subcontracts and key contracts can be 
executed on schedule. Transfers of sensitive U.S. military 
technologies—which are needed to achieve aircraft commonality goals—
will push the boundaries of U.S. disclosure policy. While actions have 
been taken in an attempt to address these challenges, additional 
actions are needed to control costs and manage technology transfer.

Finally, if partners’ return-on-investment expectations are not met, 
support within their countries could deteriorate. To realize this 
return-on-investment, partners expect their industry to win JSF 
contracts through competition—a departure from other cooperative 
programs, which directly link contract awards to financial 
contributions. If the prime contractor’s efforts to meet these 
expectations come into conflict with program cost, schedule, and 
performance goals, the program office will have to make decisions that 
balance these potentially competing interests.

What GAO Recommends: 

Information on prime contractor activities is critical to balancing 
program schedule goals with partner expectations. Therefore, GAO is 
recommending that the Secretary of Defense direct the JSF Program 
Office to ensure that international supplier planning fully 
anticipates and mitigates risks associated with technology transfer 
and that information concerning the selection and management of 
suppliers is available, closely monitored, and used to improve program 
outcomes. In its comments on a draft of this report, DOD concurred 
with the recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-03-775.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Katherine V. Schinasi 
at (202) 512-4841 or schinasik@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

International Participation Adds Complexity and Benefits to JSF 
Acquisition Program:

International Participation Complicates JSF Program Efforts to 
Manage Costs:

JSF Technology Transfer Presents Challenges for Program Execution, 
International Suppliers, and Disclosure Policy:

Managing Industrial Participation Expectations:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: JSF International Participant Contributions and Benefits:

Appendix III: Comments from the Department of Defense:

Appendix IV: Staff Acknowledgments:

Acknowledgments:

Table:

Table 1: JSF Partner Financial Contributions and Estimated Aircraft 
Purchases:

Figure:

Figure 1: JSF Program Relationships:

Abbreviations:

AECA: Arms Export Control Act:

ATPRG: Arms Transfer Policy Review Group:

C4I: command, control, communications, computers, and intelligence: 

CTOL: conventional take-off and landing: 

DOD: Department of Defense: 

GPA: global project authorization: 

IPT: integrated product team: 

JSF: Joint Strike Fighter: 

MOU: memorandum of understanding: 

NATO: North Atlantic Treaty Organization: 

SDD: system development and demonstration: 

STOVL: short take-off and vertical landing: 

United States General Accounting Office:

Washington, DC 20548:

July 21, 2003:

The Honorable Christopher Shays 
Chairman, 
Subcommittee on National Security, Emerging Threats, and International 
Relations 
Committee on Government Reform 
House of Representatives:

Dear Mr. Chairman:

The Joint Strike Fighter (JSF) program is viewed by many within the 
Department of Defense (DOD) to be a model acquisition program, as well 
as a new model for cooperative development and production between DOD 
and U.S. allies. As a centerpiece for DOD acquisition, the program is 
intended to produce a next generation multirole fighter to replace 
aging U.S. aircraft inventories. As currently planned, the program is 
DOD's most expensive aircraft program, costing an estimated 
$200 billion to develop and procure about 2,600 aircraft and related 
support equipment.

By structuring the JSF program to allow for participation by allied 
governments during development and production, DOD expects to defray 
some development costs and realize other benefits. To ensure that the 
challenges of international participation do not negatively affect 
overall development and production of the aircraft, you asked us to 
review how DOD is managing the integration of partner countries and 
suppliers into the program. Specifically, we identified international 
relationships and the benefits they are expected to provide and 
assessed how DOD is managing cost sharing, technology transfer, and 
partner expectations for industrial participation. (See app. I for an 
explanation of our scope and methodology.):

Results in Brief:

The JSF international program structure is based on a complex set of 
relationships involving both government and industry from the United 
States and eight other countries. Through negotiated agreements with 
partner countries, which define specific roles and responsibilities for 
participants, the United States expects to benefit from sharing program 
costs, gaining access to foreign industrial capabilities, and improving 
interoperability with allied militaries once the aircraft is fielded. 
Partner governments expect to benefit through defined influence over 
aircraft requirements and improved industrial relationships with U.S. 
aerospace companies through access to JSF contractors and 
subcontracting competitions. Finally, a major benefit for partners is 
having their personnel physically located within the program office 
with access to program information and contractor data.

While the United States expects to realize benefits from partnering 
with allies, international participation also presents challenges for 
JSF program management. First, while international partners can choose 
to share any future program cost increases, they are not required to do 
so under the terms of the negotiated agreements. Further, they have 
been required to contribute any additional funding despite changes to 
the scope of the program. To address unexpected cost increases, DOD and 
the international partners can request additional program funding 
through their budget processes; however, this funding may not be 
provided. DOD can also adjust schedule, procurement quantities, or 
aircraft requirements to meet program cost concerns, although these 
actions could negatively affect partners' procurement plans. Program 
management tools, provisions in agreements with partners, and contract 
incentives for Lockheed Martin Aeronautics Company (the JSF prime 
contractor) are being used to contain costs, but if costs still 
increase, the burden may fall almost entirely on the United States.

Technology transfer issues also present challenges for the JSF program. 
Due to the degree of international participation at both a government 
and an industry level, a large number of export authorizations are 
necessary to share project information with governments, solicit bids 
from partner suppliers, and execute contracts. Export authorizations 
must be submitted and resolved in a timely fashion, or the execution of 
key contracts and the ability of partner suppliers to bid for 
subcontracts could be negatively affected. Increased pressure to 
approve export authorizations to support program goals and schedules, 
however, could result in unintended consequences, such as inadequate 
reviews of license content or broad interpretations of disclosure 
authority. In addition, the extent of technology transfers necessary to 
achieve program goals related to aircraft commonality will push the 
boundaries of U.S. disclosure policy for some of the most sensitive 
U.S. military technology. The JSF Program Office and/or Lockheed Martin 
have attempted to address these challenges by adding resources to help 
prepare license applications, exploring ways to streamline the export 
authorization process, and attempting to make decisions on technology 
transfer earlier in the program. However, Lockheed Martin has not 
completed a long-term plan that provides information on JSF 
subcontracting. Such a plan could be used to identify export 
authorizations needed for international suppliers; anticipate problems 
suppliers could face because of licensing or releasability concerns; 
and develop strategies to overcome those problems, such as finding 
other qualified suppliers to do the work.

Finally, while the JSF Program Office is responsible for ensuring that 
program objectives are met for all participants, Lockheed Martin bears 
most of the responsibility for managing partner industrial 
expectations. Partners have identified industrial return as vital to 
their participation in the program. If return-on-investment 
expectations are not met, partners told us the program could lose 
political support domestically. To realize this return, partner 
industry must win JSF contracts through competition, which is a 
departure from other cooperative programs that have tied contract 
awards directly to partners' financial contributions. The program 
office and the prime contractor have a great deal of responsibility for 
providing a level playing field for JSF competitions, including 
opportunities for partner industries to bid on subcontracts and 
visibility into the subcontracting process. If Lockheed Martin's 
efforts to meet partner return-on-investment expectations come into 
conflict with program cost, schedule, and performance goals, the 
program office will ultimately have to make decisions to balance 
expectations and program execution. The award fee in Lockheed Martin's 
system development and demonstration contract provides the program 
office with a mechanism to focus contractor efforts to achieve both 
U.S. and international program goals.

Given these challenges, management attention on the program will need 
to be greater than that associated with traditional acquisition 
programs. Since DOD and the prime contractor must achieve program cost 
and schedule goals that are important to all participants, while 
managing potentially competing partner expectations for industrial and 
technological cooperation, DOD will need sufficient information about 
contractor activities to ensure that it can address these challenges. 
Accordingly, we are recommending that the Secretary of Defense direct 
the JSF Program Office to ensure that international supplier planning 
anticipates and mitigates risks associated with technology transfer and 
that information concerning the prime contractor's selection and 
management of suppliers is available, closely monitored, and used so 
that award fee decisions address potential conflicts between 
international and program goals. In its comments on a draft of this 
report, DOD concurred with our recommendations.

Background:

According to DOD policy, the core objectives of armaments cooperation 
are to increase military effectiveness through standardization and 
interoperability and to reduce weapons acquisition costs by avoiding 
duplication of development efforts with U.S. allies.[Footnote 1] 
According to DOD and the program office, through its cooperative 
agreements, the JSF program contributes to armaments cooperation policy 
in the following four areas:

* Political/military-expanded foreign relations.

* Economic-decreased JSF program costs from partner contributions.

* Technical-increased access to the best technologies of foreign 
partners.

* Operational-improved mission capabilities through interoperability 
with allied systems.

The Arms Export Control Act (AECA) provides DOD the authority to enter 
into cooperative programs with U.S. allies.[Footnote 2] In March 1997, 
the Secretary of Defense directed that DOD engage allies in discussions 
as early as possible to determine the parameters of potential 
collaboration to meet coalition needs and ensure interoperability 
between allied systems. DOD guidance states that the department will 
give favorable consideration to transfers of defense articles, 
services, and technology consistent with national security interests to 
support these international programs.[Footnote 3] Finally, the AECA 
further provides that when the United States enters into a cooperative 
agreement, there should be no requirement for industrial or commercial 
compensation that is not specifically stated in the agreement. The 
DOD Arms Transfer Policy Review Group (ATPRG) approved the 
JSF international plan and established guidelines for the JSF system 
development and demonstration negotiations based on the AECA 
requirement that participants contribute an equitable share of the 
costs and receive an equitable share of the results of a project.

In October 2001, DOD awarded Lockheed Martin Aeronautics Company a 
contract for the system development and demonstration phase. Pratt and 
Whitney and General Electric were awarded contracts to develop engines 
for the JSF aircraft. Currently, this phase will last about 10 years; 
cost about $33 billion; and involve large, fixed investments in human 
capital, facilities, and materials. The next significant program 
milestone will be the final critical design review, currently planned 
for July 2005. At that time, the final aircraft design should be mature 
and technical problems should be resolved so that the production of 
aircraft can begin with minimal changes expected.[Footnote 4]

Unlike other cooperative programs, the JSF program will not guarantee 
foreign or domestic suppliers a predetermined level of work based on a 
country's financial contribution to the program. Instead, foreign and 
domestic suppliers will generally compete for JSF work. DOD and the JSF 
Program Office use the term "best value" to describe this competitive 
approach.[Footnote 5] By doing this, the program moved away from the 
industrial policies of other cooperative programs that have used work 
share arrangements for participation in the development of military 
items. An example of a work share arrangement would be guaranteeing 
that contract awards for suppliers in a participant country are tied 
directly to that country's level of investment in the program. The 
recipient benefits not only from the value of the contracts placed in 
country but also the technology transferred as part of those 
contracts.[Footnote 6] However, this approach does not always result in 
the most cost-effective program.

International Participation Adds Complexity and Benefits to JSF 
Acquisition Program:

International participation in the JSF program adds complexity to an 
already challenging acquisition process. However, participation 
agreements negotiated between DOD and equivalent partner ministries 
or departments do provide potential benefits to all partners. The 
United States benefits from financial contributions, increased 
potential for international sales of JSF aircraft, and access to 
partner industry. Foreign partners benefit from participating in JSF 
Program Office activities, accessing JSF technical data, and receiving 
waivers of nonrecurring aircraft costs and levies from potential sales 
of JSF aircraft. JSF partners also enjoy greater access to program 
information than traditional cooperative programs because the JSF 
program allowed countries to participate at an earlier stage of the 
acquisition process.

JSF International Program Relationships Are Complex:

The JSF program is made up of a complex set of relationships involving 
both government and industry from the United States and eight other 
countries--the United Kingdom, Italy, the Netherlands, Turkey, Denmark, 
Norway, Canada, and Australia (see fig. 1).

Figure 1: JSF Program Relationships:

[See PDF for image]

[A] Figure does not reflect relationships that the prime contractors 
may have with suppliers in nonpartner countries.

[End of figure]

The JSF program structure was established through a framework 
memorandum of understanding (MOU) and individual supplemental MOUs 
between each of the partner country's defense department or ministry 
and DOD, negotiating on behalf of the U.S. government. These agreements 
identify the roles, responsibilities, and expected benefits for all 
participants and are negotiated for each acquisition phase (concept 
demonstration, system development and demonstration, and production). 
Only the concept demonstration phase and the system development and 
demonstration phase agreements have been negotiated to date, and 
participation in one phase does not guarantee participation in future 
phases. According to DOD officials, the department also contributes to 
the implementation of MOUs by acting as a "court of appeals" to address 
partner concerns, including industrial participation issues. 
Additional documents provide greater detail and clarity:

* Financial management procedures document-describes the financial 
management procedures for the MOU supplements, as well as funding 
streams, auditing procedures, and other topics.

* Program position description-describes the position title, duties, 
qualifications, and other information related to all foreign personnel 
located in the JSF Program Office.

* Exchange of letters-series of formal, signed letters, which emphasize 
issues of importance to the United States and JSF partners but are not 
specifically mentioned or described in the MOU agreements.

Representatives from partner ministries or departments of defense 
participate in senior-level management meetings, including chief 
executive officer meetings (chaired by the Under Secretary for 
Acquisition, Technology, and Logistics); system acquisition executive 
meetings; the senior warfighters group; and the configuration steering 
board with DOD, JSF Program Office, and contractor officials. These 
meetings offer opportunities for partner representatives to gain 
insight into and, in some cases, influence over the progress of the JSF 
program, in addition to that available from partner staff located in 
the program office, in areas such as program management, requirements, 
and aircraft configuration. Finally, the system development and 
demonstration framework MOU establishes the JSF executive committee, 
which includes one representative from the United States and each 
partner country. This committee provides executive level oversight for 
the program, such as reviewing progress toward program objectives, 
ensuring compliance with MOU financial provisions, and resolving 
program-related issues identified by the JSF international director.

National deputies act as partner representatives in the JSF Program 
Office. They serve as the principal interface between the program 
office and the ministries or departments of defense to ensure proper 
execution of the system development and demonstration phase MOU and 
provide support and guidance on all country-specific program execution 
and integration issues. They provide program information to their 
ministries or departments of defense and, in some cases, act as an 
advocate for industry in their respective countries. National deputies 
and other partner staff also serve functional roles on integrated 
product teams--multidisciplinary teams that represent a variety of 
areas, including systems engineering; logistics; and command, control, 
communications, computers, and intelligence.

At an industry level, the prime contractors interact with the JSF 
Program Office through activities in support of their system 
development and demonstration contracts and participation on both 
program office and contractor integrated product teams and work groups. 
In addition, the prime contractors interact with partner government 
ministries or departments (including defense, industry, and trade) and 
JSF partner personnel in the program office to discuss opportunities 
for industrial participation and the results of subcontracting 
competitions. For example, prior to the negotiation of the MOUs for the 
current phase, Lockheed Martin visited many of the partner countries to 
provide information on the aircraft and assess potential interest. In 
addition, for those countries expected to participate in the system 
development and demonstration phase, Lockheed conducted industry 
assessments and provided feedback on what areas suppliers might expect 
to compete for JSF contracts.

JSF Program Relationships Expected to Benefit Both DOD and Allies:

The JSF program allows foreign countries to become program partners at 
one of three participation levels, based on financial contribution. As 
shown in table 1, the foreign partners have contributed over 
$4.5 billion, or about 14 percent, for the system development and 
demonstration phase and are expected to purchase about 722 aircraft 
beginning in the 2012-2015 time frame. Israel and Singapore have 
recently indicated their intention to participate in the program as 
security cooperation participants, a nonpartner arrangement, which 
offers limited access to program information, without a program office 
presence. According to DOD, foreign military sales to these and other 
nonpartner countries could include an additional 1,500 to 3,000 
aircraft.

Table 1: JSF Partner Financial Contributions and Estimated Aircraft 
Purchases:

Partner country: United Kingdom; System development and demonstration: 
Partner level: Level I; System development and demonstration: Financial 
contributions (in millions)[A]: $2,056; System development and 
demonstration: Percentage of total costs: 6.2; Production: 
Projected quantities: 150; Production: Percentage of total quantities: 
4.7.

Partner country: Italy; System development and demonstration: Partner 
level: Level II; System development and demonstration: Financial 
contributions (in millions)[A]: $1,028; System development and 
demonstration: Percentage of total costs: 3.1; Production: 
Projected quantities: 131; Production: Percentage of total quantities: 
4.1.

Partner country: Netherlands; System development and demonstration: 
Partner level: Level II; System development and demonstration: 
Financial contributions (in millions)[A]: $800; System development and 
demonstration: Percentage of total costs: 2.4; Production: 
Projected quantities: 85; Production: Percentage of total quantities: 
2.7.

Partner country: Turkey; System development and demonstration: Partner 
level: Level III; System development and demonstration: Financial 
contributions (in millions)[A]: $175; System development and 
demonstration: Percentage of total costs: 0.5; Production: 
Projected quantities: 100; Production: Percentage of total quantities: 
3.2.

Partner country: Australia; System development and demonstration: 
Partner level: Level III; System development and demonstration: 
Financial contributions (in millions)[A]: $144; System development and 
demonstration: Percentage of total costs: 0.4; Production: 
Projected quantities: 100; Production: Percentage of total quantities: 
3.2.

Partner country: Norway; System development and demonstration: Partner 
level: Level III; System development and demonstration: Financial 
contributions (in millions)[A]: $122; System development and 
demonstration: Percentage of total costs: 0.4; Production: 
Projected quantities: 48; Production: Percentage of total quantities: 
1.5.

Partner country: Denmark; System development and demonstration: Partner 
level: Level III; System development and demonstration: Financial 
contributions (in millions)[A]: $110; System development and 
demonstration: Percentage of total costs: 0.3; Production: 
Projected quantities: 48; Production: Percentage of total quantities: 
1.5.

Partner country: Canada; System development and demonstration: Partner 
level: Level III; System development and demonstration: Financial 
contributions (in millions)[A]: $100; System development and 
demonstration: Percentage of total costs: 0.3; Production: 
Projected quantities: 60; Production: Percentage of total quantities: 
1.9.

Partner country: Total partner; System development and demonstration: 
Partner level: System development and demonstration: Financial 
contributions (in millions)[A]: $4,535; System development and 
demonstration: Percentage of total costs: 13.7[B]; Production: 
Projected quantities: 722; Production: Percentage of total quantities: 
22.8.

Partner country: United States; System development and demonstration: 
Partner level: System development and demonstration: Financial 
contributions (in millions)[A]: $28,565; System development and 
demonstration: Percentage of total costs: 86.3; Production: 
Projected quantities: 2,443; Production: Percentage of total 
quantities: 77.2.

Sources: DOD and JSF program documents and AECA project certifications 
to Congress.

[A] Chart values do not reflect any nonfinancial contributions from 
partners (see app. II).

[B] Percentages do not add due to rounding.

[End of table]

Contributions can be financial or nonfinancial. For example, Turkey's 
system development and demonstration contribution was all cash, whereas 
$15 million of Denmark's $125 million contribution represented the use 
of an F-16 aircraft and related support equipment for future JSF flight 
tests and the use of other North Atlantic Treaty Organization (NATO) 
command and control assets for a JSF interoperability study. (See app. 
II for details on partner contributions and benefits.):

For the agreements negotiated for the system development and 
demonstration phase, none of the partner country contribution levels 
met the financial targets established in the ATPRG guidelines. In the 
case of the United Kingdom, funding was not available to meet the 
expected 10 percent contribution. The Under Secretary of Defense for 
Acquisition, Technology, and Logistics determined that the lower 
contribution amount was justified and, in fact, the United States was 
able to negotiate concessions concerning rights for the disposal of 
project equipment and third-party transfer and sales. Since the United 
Kingdom was the first partner to sign, and the only Level I partner, 
contribution targets for other partner negotiations were revised 
proportionately.

Lockheed Martin's contracts with aerospace suppliers from partner 
countries are expected to improve the program because of those 
companies' specific advanced design and manufacturing capabilities. 
For example, British industry has a significant presence in the program 
with BAE Systems as a teammate to Lockheed Martin and Rolls Royce as a 
major engine subcontractor. In addition, Fokker Aerostructures in the 
Netherlands is under contract to develop composite flight doors for the 
JSF airframe.

In return for their contributions, partner countries have 
representatives in the program office with access to program data and 
technology; membership on the management decision-making bodies; 
aircraft delivery priority over future foreign military sales 
participants; guaranteed or potential waiver of nonrecurring aircraft 
costs;[Footnote 7] potential levies on future foreign military sales 
aircraft sold;[Footnote 8] and improved relationships for their 
industry with U.S. aerospace companies through JSF subcontracting 
opportunities. For example, the United Kingdom - which is committed to 
contribute just over $2 billion in the system development and 
demonstration phase - is a Level I full collaborative partner, with 
benefits such as:

* 10 staff positions within the JSF Program Office, including senior 
positions on integrated product teams;

* participation in cost versus performance trade-off and requirement 
setting processes, resulting in British military needs being included 
in the JSF operational requirements document; and:

* involvement in final source selection process for the system 
development and demonstration contract award.

Conversely, the five Level III partners, which are committed to 
contribute between $125 million and $175 million, each have one program 
office staff member and no direct vote with regard to requirement 
decisions.

All partners have benefited from increased access to program and 
contractor information by virtue of their early involvement in the 
program.[Footnote 9] Specifically, this participation provided 
partners with information on the development of aircraft requirements 
and program costs and schedules, as well as on design, manufacturing, 
and logistics. According to some partner personnel, access to program 
information often did not meet their expectations early in the program, 
but it has improved. During the concept demonstration phase, data were 
available to partner staff based on country-specific projects. In 
addition, data were only formally provided through a rigorous, paper-
driven document release process and required authority from JSF senior 
management. For the system development and demonstration phase, partner 
representatives located in the program office now have access to the 
database of unclassified program information, referred to as the JSF 
Virtual Environment, which contains the majority of program documents. 
Partner program office personnel, regardless of participation level, 
have equal access to most information. Some information in the database 
is available only to U.S. personnel or through integrated product team 
participation. Partner staff can request information from integrated 
product teams on which they have no membership, as long as the 
information is not restricted from being released to their countries. 
Lockheed Martin has a separate document database called the Joint Data 
Library that includes information on contractor activities, but partner 
access is limited by existing technical assistance agreements and 
National Disclosure Policy.

International Participation Complicates JSF Program Efforts to 
Manage Costs:

Along with the traditional functions of balancing the requirements for 
JSF performance against its established cost and schedule targets, the 
program office is tasked with integrating partner government and 
industry participants into the program. While initial partner 
contributions are beneficial, and critical for political support for 
the program, there is no guarantee that additional funding will be 
available to support future cost increases should they arise. In 
addition, even when cost sharing may be justified, funding may not be 
available through respective partner budgetary processes. DOD's typical 
response to increased program costs often results in requesting 
additional funding, delaying production schedules, and reducing 
procurement quantities or system capabilities, but such actions may 
negatively affect partner countries. DOD expects that specific 
provisions in partner MOUs will maximize partner cost sharing when 
appropriate and that the use of competitive contracting will minimize 
cost increases to the program.

JSF Partners May Not Provide Additional Funding for Program 
Cost Increases:

Our past reviews have shown that weapons acquisition programs 
frequently encounter increased cost due to questionable requirements, 
unrealistic cost estimates, funding instability, and high-risk 
acquisition strategies. We reported in October 2001 that the JSF 
program entered the system development and demonstration phase with 
increased cost risk due to low maturity of critical 
technologies.[Footnote 10] Future cost increases, should they arise in 
the program, may fall almost entirely on the United States because 
there are no provisions in the negotiated agreements requiring partners 
to share these increases. Once established, the contributions for the 
partners cannot be revised or increased by the United States without 
the consent of the partner government as stated in these agreements.

DOD and program office officials told us there could be instances where 
the partners would not be expected to share cost increases. For 
example, cost estimates for the system development and demonstration 
phase have increased on multiple occasions since the program started in 
1996. During that time, the expected cost for this phase went from 
$21.2 billion to $33.1 billion as a result of scope changes, increased 
knowledge about cost, and more recently, projected decreases in U.S. 
program quantities. According to program officials and documents, 
partners have not been required to share any of these costs because the 
changes were DOD directed and unrelated to partner actions or 
requirements.

The MOU framework does require partners to pay for all development 
costs related to meeting unique national requirements. For example, 
some partners expect to use weapons that may not be included in the 
current JSF operational requirements document and fully expect to bear 
the cost associated with integrating them into the aircraft's design. 
In such a case, the United States and other partners are not required 
to share costs associated with meeting unique country requirements, 
unless they agree to make these requirements part of the baseline 
aircraft configuration and an adjustment is made to the baseline 
aircraft price.

Historically, DOD has responded to cost increases by requesting more 
funding, extending program schedules, reducing overall program 
quantities and aircraft capability, or some combination of these. While 
such actions can negatively affect the U.S. military services, the 
impact may be more substantial for partners because they have less 
control over program decisions and less ability to adjust to these 
changes. In the case of the United Kingdom, the Ministry of Defence is 
developing a new aircraft carrier, expected for delivery in 2012, which 
is planned to carry JSF aircraft. According to United Kingdom 
officials, if the aircraft are not delivered as expected, the carrier 
might not be able to support mission scenarios. Further, most of the 
remaining partners also expect to receive their JSF aircraft beginning 
in about the 2012 to 2015 time frame. Potential program delays would 
affect the availability of the aircraft for partner governments. 
Finally, if the unit cost increases as a result of DOD's actions, the 
sales price could be higher than expected, and all partners would be 
required to pay that additional amount. Current cost estimates for the 
program assume that the United States will purchase 2,443 and 
the United Kingdom 150 JSF aircraft.[Footnote 11] DOD and Lockheed 
Martin are working with partner countries to determine aircraft needs 
for all participants, and they will incorporate this information into 
formal production phase planning.

Tools Available to Encourage Partner Sharing and Cost Control:

To encourage partners to share costs where appropriate, the United 
States can consider past cost-sharing behavior when negotiating MOUs 
for future phases of the program. If a partner refuses to share 
legitimate costs during the system development and demonstration phase, 
the United States can use future phase negotiations to recoup all or 
part of those costs. In these instances, the United States could reduce 
levies from future sales, refuse to waive portions of the nonrecurring 
cost charges for Level III partners, or in a worst case, choose not to 
allow further participation in the program.

Partner representatives indicated that they intend to cooperate with 
the JSF Program Office and Lockheed Martin in terms of sharing 
increased program costs when justified. However, the continued 
affordability of the development program and the final purchase price 
are important for partners, and there is no guarantee that they would 
automatically contribute to cost overruns, especially if the increase 
is attributable to factors outside their control. Some partner 
representatives specifically expressed concern over the tendency of 
U.S. weapon system requirements to increase over time, which results in 
greater risk and higher costs. Several partner representatives also 
emphasized that it is important for the JSF Program Office to continue 
to use practices such as Cost as an Independent Variable[Footnote 12] 
and iterative requirements definition to address these concerns. While 
some partners could fund portions of cost overruns from military 
budgets if requested, others told us that even if they were willing to 
support such increases, these decisions would have to be made through 
their parliamentary process, which could affect their overall support 
for the program.

DOD and the JSF Program Office expect that using a competitive 
contracting approach, without prescribed work share for partner 
countries, will also assist in controlling JSF costs. DOD officials 
stated, and our past work has shown, that cooperative programs, such as 
the Army's Medium Extended Air Defense System, have experienced cost 
and schedule problems because such programs focused on meeting 
industrial work share requirements rather than pursuing a cost-
effective acquisition strategy. Coproduction programs, such as the F-16 
Multinational Fighter Program, that employ traditional work share 
approaches often experience cost premiums to the program in terms of 
increased manufacturing costs associated with use of foreign 
suppliers.[Footnote 13] In contrast, the JSF approach is expected to 
award contracts to the most competitive suppliers, and therefore 
Lockheed Martin does not believe there will be cost premiums. However, 
Lockheed Martin officials told us that due to limited aerospace 
capabilities in some of the partner countries, traditional industrial 
arrangements might be used in the JSF production phase.

JSF Technology Transfer Presents Challenges for Program Execution, 
International Suppliers, and Disclosure Policy:

The transfer of technology on the JSF program presents a number of 
challenges related to program execution, international suppliers, and 
disclosure policy. The volume of JSF export authorizations has taxed 
Lockheed Martin's licensing resources, and any delays in the 
disposition of future export authorizations could affect the execution 
of key contracts and the ability of partner suppliers to bid for 
subcontracts. Further, the transfer of technologies necessary to 
achieve aircraft commonality goals is expected to far exceed past 
transfers of advanced military technology and will push the boundaries 
of U.S. disclosure policy.[Footnote 14] The JSF Program Office and the 
prime contractor have taken various steps to mitigate these challenges.

Timing and Volume of Export Authorizations Could Affect Program 
Execution and International Suppliers:

The JSF Program Office and Lockheed Martin told us that there were 
over 400 export authorizations and amendments granted during the JSF 
concept demonstration phase, and they expect that the number of 
export authorizations required for the current phase could exceed 
1,000. Lockheed Martin licensing officials have indicated that this 
volume has strained its JSF program resources. Export authorizations 
for critical suppliers need to be planned for, prepared, and resolved 
in a timely fashion, to help avoid schedule delays in the program. 
Without proper planning, there could be pressure to expedite reviews 
and approvals of export authorizations to support program goals and 
schedules. This could lead to unintended consequences, such as 
inadequate reviews of license content or broad interpretations of 
disclosure authority. Lockheed Martin's ability to forecast its export 
authorization workload extends out only 3 months because most licensing 
resources are already devoted to keeping up with time critical 
authorizations. Further, JSF Program Office officials told us that 
Lockheed Martin has not yet fulfilled a requirement to complete a long-
term plan that could anticipate the export authorizations and 
technology release reviews that will be necessary to execute the 
program using international suppliers to design and manufacture key 
parts of the aircraft. This plan could also be used to identify 
problems suppliers face in executing contracts as a result of licensing 
or releasability concerns and develop strategies to overcome those 
problems, such as finding other qualified suppliers to do the work.

Timely export authorizations are also necessary to avoid excluding 
partner industries from competitions. While Lockheed Martin has stated 
that no foreign supplier has been excluded from any of its competitions 
or denied a contract because of fear of export authorization processing 
times or the conditions that might be placed on an authorization, the 
company is concerned this could happen. Further, one partner told us 
that export license delays have had a negative effect on the 
participation of its companies because some U.S. companies have been 
reluctant to undertake the bureaucratic burden to allow the 
participation of a foreign company and some partner companies have been 
unable to bid due to the time constraints involved in securing an 
export license.

DOD, the JSF Program Office, and Lockheed Martin have taken several 
actions to mitigate the challenges presented by export authorization 
delays:

* The JSF Program Office and Lockheed Martin have established a process 
to coordinate export authorization applications before they are 
submitted to the Department of State for review. This process is 
intended to reduce review times by ensuring that the export request 
clearly describes the data or technology that would be transferred and 
by addressing potentially contentious issues related to sensitive 
transfers. In addition, Lockheed Martin has added resources to its 
licensing organization to respond to the volume and schedule demands of 
JSF export authorizations.

* Lockheed Martin received a global project authorization (GPA)--an 
"umbrella" export authorization that allows Lockheed Martin and 
other U.S. suppliers on the program to enter into agreements with 
over 200 partner suppliers to transfer certain unclassified technical 
data--from the Department of State.[Footnote 15] The GPA is expected to 
lessen the administrative burden and improve the consistency of and 
processing times for routine export authorizations. The Departments 
of State and Defense and Lockheed Martin agreed to the scope of the 
information that could be exported using this authorization and the 
conditions for those exports up front. The Department of State expects 
to process GPA implementing agreements in 5 days, provided there is no 
need to refer them to other agencies or offices for review. Approved in 
October 2002, implementation of the GPA was delayed until March 2003 
because of supplier concerns related to liability and compliance 
requirements. In March 2003, the first implementing agreement between 
Lockheed Martin and a company in a partner country was reviewed and 
approved in 4 business days.

* Prior to the GPA, Lockheed Martin and 13 other U.S. suppliers were 
granted an exemption by the U.S. Air Force from the export 
authorization requirements that govern the release of unclassified 
technical data to suppliers from NATO and certain other countries, 
including Australia, for bid and proposal purposes. This exemption 
expires in March 2004. Lockheed Martin also uses a country-specific 
exemption to transfer technical data to Canada.[Footnote 16]

* Finally, as a NATO Defense Capabilities Initiative program, partner 
countries and companies participating in the program, including 
Australia, can take advantage of expedited review processes for certain 
types of export licenses. Under these expedited procedures, the 
Department of State promises to complete its reviews of license 
applications in 10 days, and if it requests comments on a license from 
DOD or other government agencies, those reviews should be completed in 
10 days as well.

Degree of Technology Transfer Will Stretch Current Disclosure 
Boundaries:

The United States has committed to design, develop, and qualify 
aircraft for partners that fulfill the JSF operational requirements 
document and are as common to the U.S. JSF configuration as possible 
within National Disclosure Policy.[Footnote 17] In some cases, 
according to DOD, the program has requested exceptions from National 
Disclosure Policy to achieve interoperability and aircraft commonality 
goals and to avoid additional development costs. Some DOD officials 
confirmed that technology transfer decisions have been influenced by 
JSF program goals, rather than adjusting program goals to meet current 
disclosure policy.

DOD, JSF Program Office, and Lockheed Martin officials agreed that 
technology transfer issues should be resolved as early as possible in 
order to meet program schedules without placing undue pressure on the 
release process. However, there have been some initial problems 
executing this strategy. An official at the Defense Technology Security 
Administration, one of the offices responsible for technical 
assessments of disclosure and export authorization requests, stated 
that even though the JSF program has a plan to manage releasability 
issues and the National Disclosure Policy process, the office does not 
always receive information related to these issues in a timely manner. 
In addition, one partner has expressed concern about the pace of 
information sharing and decision making related to the JSF support 
concept. According to several partners, access to technical data is 
needed so that they can plan for and develop a sovereign support 
infrastructure as expressed in their formal exchange of letters with 
the United States. The program office anticipates that in-country 
support of JSF aircraft will be an issue for all partners and 
will involve both technology transfer and industrial considerations. 
The JSF support concept is currently being developed, with input from 
the U.S. military services and international partners.

DOD, the JSF Program Office, and Lockheed Martin have taken a number of 
actions designed to mitigate the challenges presented by the transfer 
of technologies on the program.

* In February 2002, the program office modified Lockheed Martin's 
system development and demonstration contract to include a study on the 
expected commonality between U.S. and partner JSF aircraft. The 
objective of this study is to develop a partner JSF aircraft 
specification that is as common to the U.S. specification as possible 
under National Disclosure Policy. This effort allows the program to 
pursue early releasability decisions, which mitigates the risk of 
putting undue schedule pressure on the process. Lockheed Martin did not 
deliver the partner specification to the program office as planned in 
March 2003, and it now expects to deliver the specification in August 
2003.

* To identify and resolve expected technical, security, and policy 
issues for the overseas sale and cooperative development of JSF 
aircraft, the program chartered an international development work 
group. The core of this group consists of program office and contractor 
personnel, as well as individuals from the Air Force's Office of 
International Affairs and Special Programs, Marine Corps Requirements, 
and Navy International Programs. The group was chartered to review how 
past export decisions apply to the JSF program; identify contentious 
items in advance; and provide workable resolutions that minimize the 
impact to the program cost, schedule, or performance.

* In February 2003, the JSF Program Office received direction from the 
Low Observables/Counter Low Observables Executive Committee to appoint 
a JSF export compliance officer. The purpose of this position is to 
ensure that releasability decisions and export licensing provisos or 
conditions are fully implemented and adhered to by the program and 
applied to JSF configurations as required.

* As required by DOD acquisition regulations, the JSF program has 
identified critical program information, and Lockheed Martin is 
developing a plan to prevent unauthorized disclosure or inadvertent 
transfer of leading-edge technologies and sensitive data or systems. To 
reduce cost and integrate appropriate measures into the JSF design, 
this effort is being undertaken as a systems engineering activity. 
During this phase of the program, technology protection measures have 
to be demonstrated, operationally tested, and made ready for 
production. DOD officials have stated that the program's progress on 
this plan has been slow. Given that releasability decisions should 
consider the measures mentioned above, timely completion of this plan 
is important for long-term program planning.

* Finally, the JSF Program Office established an exchange of letters 
work group with participation from selected program office and Lockheed 
Martin integrated product teams, and partner representatives when 
appropriate. The current focus of this group is to address partner 
goals related to in-country support of the aircraft. In addition, the 
JSF autonomic logistics integrated product team is conducting trade 
studies to further define a global support solution for worldwide 
support to start to address these issues. According to program 
officials, this strategy will identify the best approach for 
maintaining JSF aircraft, and may include logistics centers in partner 
countries. Follow-on trade studies would determine the cost of 
developing additional maintenance locations. The implementation of the 
global support solution and the options identified in follow-on trade 
studies will have to be in full compliance with the National Disclosure 
Policy, or the program will need to request exceptions.

Managing Industrial Participation Expectations:

In the JSF program, the prime contractor is responsible for managing 
industrial participation. Lockheed Martin provides partners with 
return-on-investment expectations, opportunities for qualified bidders 
to compete for JSF contracts, and visibility into the subcontracting 
process for the program. Partners have identified industrial return as 
one of the primary reasons for their participation in the program. If 
partners do not realize their expectations, they can choose to leave 
the program and/or not purchase the aircraft--both negative 
consequences for DOD. But, if Lockheed Martin's efforts to meet partner 
return-on-investment expectations come into conflict with program cost, 
schedule, and performance goals, this could have a negative effect as 
well. Therefore, the JSF Program Office will ultimately have to make 
decisions to balance partner expectations and program execution.

Management of Partner Expectations Is Critical for Program Success:

Partner representatives generally agreed with the JSF competitive 
approach to contracting, but cautioned that while it is too early to 
assess results, their industries' ability to win JSF contracts and 
participate in design and development is vital to their continued 
involvement in the program. In addition, some partners stated that 
retaining political support for the program in their countries will 
depend, in large part, on winning contracts whose total value 
approaches or exceeds their financial contributions for the JSF system 
development and demonstration phase. In addition to the amount of work 
placed in a partner country, partners have expectations about the 
timing of contracts and/or which companies in their countries win 
contracts. If return-on-investment and other expectations are not met, 
partners could decide to leave the program and not purchase the 
aircraft.[Footnote 18] If a partner decided to leave the program, DOD 
would be deprived of anticipated development funding and an opportunity 
to improve interoperability among U.S. allies, while Lockheed Martin 
could be faced with lower than projected international sales.

Other cooperative programs provide for industrial participation 
commensurate with the financial contributions of the partners. In 
contrast, the JSF MOU provides that, to achieve "best value for money," 
DOD will require contractors to select subcontractors on a competitive 
basis to the maximum practical extent. To support this approach, 
Lockheed Martin has taken the following steps to manage partner return-
on-investment expectations, identify opportunities for qualified 
bidders to compete for JSF contracts, and provide visibility into the 
subcontracting process for the program:

* To manage partner return-on-investment expectations, Lockheed Martin 
sent teams of engineers and business development personnel to partner 
countries and assessed suppliers' ability to compete for JSF contracts. 
In some cases, Lockheed Martin signed agreements with partner 
governments and suppliers to document the opportunities they would have 
to bid for JSF contracts, as well as the potential value of those 
contracts. DOD and program office officials told us that these 
agreements were necessary to secure political support in certain 
countries because the U.S. government does not guarantee that the 
partners will recoup their investment in the program through contracts 
with their industry. In at least one case, Lockheed Martin has promised 
an international contractor predetermined work that satisfies a major 
portion of that country's expected return-on-investment. While 
disavowing knowledge of the specific contents of these agreements, DOD 
was supportive of their use during partner negotiations. DOD officials 
conceded that the agreements contained in these documents departed from 
the competitive approach, but expressed the hope that the use of these 
agreements would not be widespread.

* In response to partner concerns about the slow pace of contract 
awards, Lockheed Martin has stated that the bulk of the remaining 
subcontracting with partner industry will come later in the current 
phase or during the production phase, especially in countries where the 
aerospace industry is less developed and contracts are more likely to 
be awarded for build-to-print or second-source manufacturing.

* To provide visibility into the subcontracting process, Lockheed 
Martin, the JSF program manager, DOD, or a combination of the three 
have provided explanations of how sourcing decisions were made after 
partner governments raised concerns on behalf of suppliers about the 
results of competitions. These governments were told that suppliers 
submitted bids far above the competitive range and thus were not 
selected. In addition, DOD, JSF Program Office, and Lockheed Martin 
personnel provided feedback to the partners concerning how to approach 
future competitions.

* The award fee structure of Lockheed Martin's contract permits the 
JSF Program Office to establish focus criteria applicable to specific 
evaluation periods. To help ensure partner industries are provided 
opportunities to compete for JSF subcontracts, the program office 
established focus criteria concerning subcontract competition for the 
evaluation period between November 1, 2002, and April 30, 2003. 
Lockheed Martin was judged on its ability to (1) provide partners 
regular insight into subcontracting opportunities, (2) encourage its 
major suppliers to consider partner suppliers on a competitive basis, 
and (3) acquire needed export authorizations in a timely manner to 
support competitions. In response, Lockheed Martin has developed a 
database to track contract opportunities, especially for international 
suppliers and U.S. small businesses, and provides monthly summaries of 
industrial participation to partner personnel in the program office. 
These summaries include the names of suppliers, contracts for which 
they will be eligible to bid, bid and proposal dates, status of 
contracts awarded, and the status of supplier export authorizations. 
This database will assist DOD in meeting MOU requirements to provide 
visibility into JSF subcontracting efforts.

Further, some partners have concerns about some aspects of the 
competition, including delays in getting U.S. export licenses and 
reluctance by a major supplier to provide opportunities to industry in 
a partner country. If competition for contracts is not implemented in a 
manner consistent with partner expectations, partners' continued 
support for the program could be jeopardized.

JSF industrial relationships are solely developed between U.S. 
contractors and partner country industry. After deciding to award work 
to foreign and domestic companies based on competition, instead of the 
share of program costs contributed, DOD and the JSF Program Office have 
left implementation of this competitive approach to Lockheed Martin 
under the standard Federal Acquisition Regulation clause related to 
competition in subcontracting.[Footnote 19] Lockheed Martin officials 
told us their approach for supplier selection is based on factors such 
as a supplier's ability to incorporate a management approach that is 
responsive to maintaining JSF schedules, reducing design and production 
cost within acceptable risk levels, developing a solid technical 
approach with opportunities for technology improvements, reducing 
aircraft size and weight, and increasing aircraft performance. They 
further told us that this approach is being implemented without regard 
to a supplier's country of origin, with U.S. and international 
suppliers competing equally.[Footnote 20] Lockheed Martin concluded 
that awarding subcontracts in this manner would help achieve program 
affordability goals and avoid pressure from partners to guarantee 
contract awards consistent with their monetary contributions to the 
program.

Program officials told us that since the award fee emphasizes overall 
affordability, program management, technical progress, and development 
cost control, it should incentivize Lockheed Martin to perform 
subcontracting activities on a competitive basis. If, during its 
regular monitoring of contract execution, the program office identifies 
the need for more emphasis in a certain area--such as reducing aircraft 
weight or providing opportunities to international suppliers--it can 
address this concern through the contract's award fee process.[Footnote 
21] While the program office has used an award fee focus letter to 
encourage Lockheed Martin to provide a competitive environment, it has 
not evaluated whether competitive results have been achieved.

Conclusions:

The JSF program is not immune to unpredictable cost growth, schedule 
delays, and other management challenges that have historically plagued 
DOD's systems acquisition programs. International participation in the 
program, while providing benefits, makes managing these challenges more 
difficult and places additional risk on DOD and the prime contractor. 
While DOD expects international cooperation in systems acquisition to 
benefit future military coalition engagements, this may come at the 
expense of U.S. technological and industrial advantages or the overall 
affordability of the JSF aircraft. Over the next 2 years, DOD will make 
decisions that will critically affect the cost, schedule, and 
performance of the program. Because Lockheed Martin bears the 
responsibility for managing partner industrial expectations, it will be 
forced to balance its ability to meet program milestones and collect 
program award fees against meeting these expectations, which could be 
the key in securing future sales of the JSF for the company. In turn, 
DOD must be prepared to assess and mitigate any risks resulting from 
these contractor decisions as it fulfills national obligations set 
forth in agreements with partner governments. While steps have been 
taken to position the program for success, given the size and 
importance of the program, additional attention on the part of DOD and 
the program office would help minimize the risks associated with 
implementing the international program. Toward this end, DOD and the 
JSF Program Office need to maintain a significant knowledge base to 
enable adequate oversight and control over an acquisition strategy that 
effectively designs, develops, and produces the aircraft while ensuring 
that the strategy is carried out to the satisfaction of the U.S. 
services and the international partners. Tools are in place to provide 
this oversight and management, but they must be fully utilized to 
achieve program goals.

Recommendations for Executive Action:

To provide greater knowledge, which anticipates decisions needed as the 
JSF program matures, we recommend that the Secretary of Defense direct 
the JSF Program Office to ensure that the Lockheed Martin international 
industrial plan:

* identifies current and potential contracts involving the transfer of 
sensitive data and technology to partner suppliers;

* evaluates the risks that unfavorable export decisions could pose for 
the program; and:

* develops alternatives to mitigate those risks, such as using 
U.S. suppliers.

We also recommend that the Secretary direct the JSF Program Office to 
ensure that information concerning the prime contractor's selection and 
management of suppliers be collected, closely monitored, and used for 
program oversight. This oversight should include identifying potential 
conflicts between partner expectations and program goals, developing 
focus letters that encourage Lockheed Martin to resolve these 
conflicts, and making award fee determinations accordingly.

Agency Comments and Our Evaluation:

DOD provided us with written comments on a draft of this report. These 
comments are reprinted in appendix III. DOD provided separate technical 
comments, which we incorporated as appropriate.

DOD concurred with our recommendation that the Secretary of Defense 
direct the JSF Program Office to ensure that the Lockheed Martin 
international industrial plan identifies current and potential 
contracts involving the transfer of sensitive data and technology to 
partner suppliers, evaluates the risks that unfavorable export 
decisions could pose for the program, and develops alternatives to 
mitigate those risks. DOD did raise a concern about our suggestion that 
using U.S. suppliers was one way to avoid the risks that unfavorable 
export decisions could pose for the program. In particular, DOD stated 
it could undermine the program's affordability goals. However, we 
believe that due to the level of advanced technology on the JSF 
program, affordability goals must be considered in the context of 
protecting some of the most sensitive U.S. technologies--those vital to 
maintaining U.S. technical superiority. This means that technology 
transfer considerations must be part of the sourcing process. If 
contracts are awarded without identifying and addressing technology 
transfer issues, the protection of sensitive technology or the 
execution of those contracts could be compromised. For example, if a 
contract is awarded to a partner supplier, an export decision that 
subsequently prohibits or places conditions on the transfer of 
controlled data or technology to that company could adversely affect 
its ability to execute the contract. If mitigation options have not 
been identified, the likely outcome is pressure on the export control 
system to approve broader export authorizations in support of program 
goals. In other cases where technology transfer concerns have not been 
anticipated or addressed, JSF contractors could be forced to re-source 
work, which could also undermine not only affordability but other 
goals, such as meeting program schedule.

The international industrial plan referenced in our recommendation can 
help alleviate these potential pressures by identifying alternatives, 
one of which would be identifying potential U.S. suppliers in cases 
where technology transfer is a concern. In its comments, DOD states 
that mitigating risk in this manner could require the dual sourcing of 
specific JSF contracts. This is not necessarily the case. Again, 
ideally, these technology transfer issues would be anticipated before a 
development or production contract is competed or awarded. With this 
knowledge, the JSF Program Office and Lockheed Martin could suggest 
adjustments to work packages or bidders' lists if the technology or 
companies in question are likely to raise export control concerns. 
Regardless, the end result could still be the selection of a single 
source--one that advances affordability and protects sensitive U.S. 
technology.

DOD also concurred with our recommendation that the Secretary of 
Defense direct the JSF Program Office to ensure that information 
concerning the prime contractors' selection and management of suppliers 
is collected, closely monitored, and used for program oversight. In its 
comments, DOD stated that the JSF Program Office would work closely 
with Lockheed Martin to achieve effective program oversight with regard 
to partner expectations and program goals. However, DOD did not specify 
how it plans to collect and monitor this information or elaborate on 
other steps the JSF Program Office would take to identify and resolve 
potential conflicts between partner expectations and program goals.

We are sending copies of this report to interested congressional 
committees; the Secretary of Defense; the Secretaries of the Navy and 
the Air Force; the Commandant of the Marine Corps; and the Director, 
Office of Management and Budget. We will also make copies available to 
others upon request. In addition, this report will be available at no 
charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-4841. Key contributors to this report are 
listed in appendix IV.

Sincerely yours,

Katherine V. Schinasi, 
Director Acquisition and Sourcing Management:

Signed by Katherine V. Schinasi: 

[End of section]

Appendix I: Scope and Methodology:

Our objective was to review how the Department of Defense (DOD) is 
managing the integration of partner countries and suppliers into the 
Joint Strike Fighter (JSF) program. Specifically, we identified 
international relationships and the benefits they are expected to 
provide and assessed how DOD is managing cost sharing, technology 
transfer, and partner expectations for industrial return. To conduct 
our work, we reviewed various guidance and agreements related to the 
JSF program. We also interviewed cognizant government officials and 
industry experts, including those in several JSF partner countries.

To determine what relationships are necessary to integrate 
international partners into the program, we identified and examined 
documents related to JSF international arrangements and agreements, 
including information from DOD; the JSF Program Office in Arlington, 
Virginia; and the Lockheed Martin Aeronautics Company in Fort Worth, 
Texas. Specifically, we obtained documents from the Office of the Under 
Secretary of Defense (Acquisition, Technology, and Logistics), the 
Department of State (Office of Defense Trade Controls), the Secretary 
of the Air Force (International Affairs), the Navy International 
Programs Office, and the Department of Commerce (Bureau of Industry and 
Security). We discussed the guidance and processes for developing and 
negotiating agreements for international participation with officials 
from each of these offices. We also obtained and reviewed signed copies 
of the memoranda of understanding (MOU) and other documents that 
outline the agreed upon conditions between the United States and each 
partner nation. To understand the JSF international program structure 
in the context of other DOD cooperative development programs, we 
reviewed reports and documentation on programs such as the F-16 
Multinational Fighter Program, the Medium Extended Air Defense System, 
and the Multiple Launch Rocket System and discussed this information 
with DOD, contractor, and international personnel with experience on 
those programs.

For specific information on cost sharing within the program, we 
reviewed MOUs and related documents and discussed this issue with the 
Office of the Under Secretary of Defense (Acquisition, Technology, and 
Logistics) - International Cooperation, JSF Program Office 
international directorate and contracts; and Lockheed Martin 
international program officials.

To determine how the program is responding to technology transfer 
concerns, we reviewed documentation on U.S. National Disclosure Policy 
and related guidance. In addition, we spoke to officials in DOD, the 
Departments of State and Commerce, the JSF Program Office, and Lockheed 
Martin. Within DOD, we collected data on sensitive technology areas and 
spoke to representatives from the Defense Technology Security 
Administration, the Office of the Under Secretary of Defense 
(Acquisition, Technology, and Logistics) Directorate of Special 
Programs, and the Office of the Air Force Under Secretary for 
International Affairs (Foreign Disclosure and Technology Transfer 
Division) to determine the extent to which the JSF program considered 
these concerns in its approach. We reviewed the JSF program protection 
plan and spoke with Lockheed Martin and program office security 
personnel to determine how the program implements this plan and other 
mechanisms related to foreign disclosure and technology transfer.

To assess the JSF approach to managing international partner 
expectations, we reviewed various sources of information on other 
U.S. cooperative development programs, including our past reports, 
to determine potential challenges for the international program and 
discussed these challenges with officials from the Office of the 
Secretary of Defense, the JSF Program Office, Lockheed Martin, and 
other personnel as necessary. We reviewed program documentation and 
procedures for addressing these challenges and spoke with key staff 
from the Office of the Secretary of Defense, the JSF Program Office 
International Directorate, and Lockheed Martin JSF International 
Programs on issues regarding implementation of their management 
approach.

To determine and assess the position of international participants in 
the program, we obtained the direct views of officials from the partner 
countries. First, we conducted structured interviews with the National 
Deputies from the partner countries represented in the JSF Program 
Office. These officials were both civilian and military personnel and 
provided information in areas related to their countries' involvement 
in the program, including expected benefits, experience with other 
cooperative programs, presence in the JSF Program Office and contractor 
locations, industry participation in the program, cost sharing, 
experience with the U.S. export licensing process, and technology 
transfer. The results of interviews were documented and verified with 
each of the national deputies and their respective governments for 
accuracy. One country elected to provide written responses to the 
interview questions we submitted. In addition, we visited government 
and industry representatives in London and Bristol, United Kingdom; 
Rome, Italy; and The Hague, Netherlands. We discussed JSF program 
participation with senior defense officials in each of these three 
countries to assess their views on the overall progress and success of 
the program to date. Finally, we visited and discussed our review 
objectives with officials from BAE Systems and Rolls Royce in the 
United Kingdom, who are major suppliers to the JSF prime contractors.

We performed our work from February 2002 to May 2003 in accordance with 
generally accepted government auditing standards.

[End of section]

Appendix II: JSF International Participant Contributions and Benefits:

Level I partner: 

United Kingdom; Value of contributions: Level I partner: * U.S. target: 
approximately 10 percent or $2.5 billion; * Negotiated contribution: 
$2.056 billion; National deputy: Level I partner: At the director level 
reports to the JSF program manager; JSF Program Office staff: Level I 
partner: Ten fully integrated staff, including the deputy director of 
the systems engineering integrated product team; Data use rights: Level 
I partner: JSF purposes: includes use for the performance of project 
activities under SDD MOUs and future efforts by the United Kingdom 
(either collaboratively, nationally, or under U.S. foreign military 
sales arrangements) for the design, development, manufacture, 
operation, and support of any JSF aircraft; Benefits during production: 
Level I partner: * Delivery priority based on level of SDD 
contributions; * Waiver of all non-recurring research and development 
costs; * Levies from sales to nonpartners based on level of SDD 
contributions.

Level II partner: 

Italy; Value of contributions: Level I partner: * U.S. target: 
approximately 5 percent or $1.25 billion; * Negotiated contribution: 
$1.028 billion; National deputy: Level I partner: Reports to the JSF 
international director; JSF Program Office staff: Level I partner: Five 
integrated staff, including a logistics manager on the autonomic 
logistics integrated product team; Data use rights: Level I partner: 
Italian Ministry of Defense JSF purposes: includes use for the 
performance of project activities under SDD MOUs and future efforts by 
the Italian Ministry of Defense (either collaboratively, nationally, or 
under U.S. foreign military sales arrangements) for the design, 
development, manufacture, operation, and support of the JSF CTOL and 
STOVL variants; Benefits during production: Level I partner: * Delivery 
priority based on level of SDD contributions; * Waiver of all non-
recurring research and development costs; * Levies from sales to 
nonpartners based on level of SDD contributions.

Netherlands; Value of contributions: Level I partner: * U.S. target: 
approximately 5 percent or $1.25 billion; * Negotiated contribution: 
$800 million; National deputy: Level I partner: Reports to the JSF 
international director; JSF Program Office staff: Level I partner: 
Three integrated staff; Data use rights: Level I partner: CTOL 
purposes: includes use for the performance of project activities under 
SDD MOUs and future efforts by the Netherlands (either collaboratively, 
nationally, or under U.S. foreign military sales arrangements) for the 
design, development, manufacture, operation, and support of the JSF 
CTOL and F-16 aircraft; Benefits during production: Level I partner: * 
Delivery priority based on level of SDD contributions; * Waiver of all 
non-recurring research and development costs; * Levies from sales to 
nonpartners based on level of SDD contributions.

Level III Partner: 

Turkey; Value of contributions: Level I partner: * U.S. target: 
approximately 1-2 percent or $250-500 million; * Negotiated 
contribution: $175 million; National deputy: Level I partner: Reports 
to the JSF international director; JSF Program Office staff: Level I 
partner: One integrated staff, who performs both national deputy duties 
and participates on the C4I IPT; Data use rights: Level I partner: 
Project purposes: includes use for the performance of project 
activities under SDD MOUs; Benefits during production: Level I partner: 
* Delivery priority based on level of SDD contributions; * 
Consideration for waiver of all non-recurring research and development 
costs; * Levies from sales to nonpartners based on level of SDD 
contributions.

Australia; Value of contributions: Level I partner: * U.S. target: 
approximately 1-2 percent or $250-500 million; * Negotiated 
contribution: $150 million; National deputy: Level I partner: Same as 
above; JSF Program Office staff: Level I partner: One integrated staff, 
who performs both national deputy duties and participates on the C4I 
IPT; Data use rights: Level I partner: Same as above; Benefits during 
production: Level I partner: * Same as above.

Canada; Value of contributions: Level I partner: * U.S. target: 
approximately 1-2 percent or $250-500 million; * Negotiated 
contribution: $150 million; National deputy: Level I partner: Same as 
above; JSF Program Office staff: Level I partner: One integrated staff, 
who performs both national deputy duties and participates on the C4I 
IPT; Data use rights: Level I partner: Same as above; Benefits during 
production: Level I partner: * Same as above.

Denmark; Value of contributions: Level I partner: * U.S. target: 
approximately 1-2 percent or $250-500 million; * Negotiated 
contribution: $125 million; National deputy: Level I partner: Same as 
above; JSF Program Office staff: Level I partner: One integrated staff, 
who performs both national deputy duties and participates on the C4I 
IPT; Data use rights: Level I partner: Same as above; Benefits during 
production: Level I partner: * Same as above.

Norway; Value of contributions: Level I partner: * U.S. target: 
approximately 1-2 percent or $250-500 million; * Negotiated 
contribution: $125 million; National deputy: Level I partner: Same as 
above; JSF Program Office staff: Level I partner: One integrated staff, 
who performs both national deputy duties and participates on the C4I 
IPT; Data use rights: Level I partner: Same as above; Benefits during 
production: Level I partner: * Same as above.

Security Cooperation Participant: 

Israel; Value of contributions: Level I partner: Approximately $50 
million spread over two phases; National deputy: Level I partner: None; 
JSF Program Office staff: Level I partner: None; Data use rights: Level 
I partner: * Assessment of JSF's ability to meet Israeli Ministry of 
Defense requirements; * Studies on incorporation of unique Israeli 
systems; * Program updates on the design, development, and 
qualification of the JSF aircraft; Benefits during production: Level I 
partner: * Opportunity to request purchase of a version of the JSF 
aircraft; * Delivery priority based on level of SDD contributions.

Singapore; Value of contributions: Level I partner: Approximately 
$50 million spread over two phases; National deputy: Level I partner: 
None; JSF Program Office staff: Level I partner: None; Data use rights: 
Level I partner: * Assessment of JSF's ability to meet the requirements 
of the Singapore Ministry of Defense; * Studies on incorporation of 
unique requirements of the Singapore Ministry of Defense; * Program 
updates on the design, development, and qualification of the JSF 
aircraft; Benefits during production: Level I partner: * Opportunity to 
request purchase of a version of the JSF aircraft; * Delivery priority 
based on level of SDD contributions.

Legend:

C4I IPT = command, control, communications, computers, and intelligence 
integrated product team:

CTOL = conventional take-off and landing:

JSF = Joint Strike Fighter:

LOA = letter of offer and acceptance:

MOU= memorandum of understanding:

SDD = system development and demonstration:

STOVL = short take-off and vertical landing:

Source: GAO's summary of JSF MOUs and letters of intent.

[End of table]

[End of section]

Appendix III: Comments from the Department of Defense:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:

3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:

ACQUISITION, TECHNOLOGY AND LOGISTICS:

Ms. Katherine V. Schinasi:

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

441 G Street, N.W. Washington, D.C. 20548:

JUN 30 2003:

Dear Ms. Schinasi:

This is the Department of Defense (DoD) response to the GAO Draft 
Report GAO-03-775, "JOINT STRIKE FIGHTER ACQUISITION: Cooperative 
Program Needs Greater Oversight to Ensure Goals Are Met," dated June 9, 
2003 (GAO Code 120120).

The Department concurs with the GAO report. DoD Comments to the GAO 
Recommendations are provided as an enclosure. Additionally, proposed 
corrections for technical accuracy have been provided separately.

Sincerely,

Signed for: Alfred G. Volkman 
Director 
International Cooperation:

Enclosure:

GAO DRAFT REPORT - DATED JUNE 9, 2003 GAO CODE 120120/GAO-03-775:

"JOINT STRIKE FIGHTER ACQUISITION: Cooperative Program Needs Greater 
Oversight to Ensure Goals Are Met":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: To provide greater knowledge, which anticipates 
decisions needed as the JSF program matures, the GAO recommended that 
the Secretary of Defense direct the JSF program office to ensure that 
the Lockheed Martin international industrial plan:

* identifies current and potential contracts involving the transfer of 
sensitive data and technology to partner suppliers;

* evaluates the risks that unfavorable export decisions could pose for 
the program; and 

* develops alternatives to mitigate those risks, such 
as using U.S. suppliers. (p. 25/GAO Draft Report):

DOD RESPONSE: Concur. The report states the need for risk mitigation 
plans that might include more use of U.S. suppliers. While this is one 
possible course of action to mitigate risk, such an approach could also 
undermine the JSF program's "best value" affordability precepts. Dual 
sourcing is often not the best way to mitigate risk. The JSF program 
office will ensure that Lockheed Martin's international industrial plan 
is continually reviewed for technology transfer, export control, and 
risk mitigation issues.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the JSF program office to ensure that information concerning the 
prime contractors' selection and management of suppliers be collected, 
closely monitored, and used for program oversight. This oversight 
should include identifying potential conflicts between partner 
expectations and program goals, developing focus letters that encourage 
Lockheed Martin to resolve these conflicts, and making award fee 
determinations accordingly. (p. 25/GAO Draft Report):

DOD RESPONSE: Concur. The JSF program office will work closely with 
Lockheed Martin to achieve effective program oversight when it comes to 
partner expectations and program goals.

[End of section]

Appendix IV: Staff Acknowledgments:

Acknowledgments:

Tom Denomme, Brian Mullins, Ron Schwenn, Anne Howe, Delores Cohen, 
Karen Sloan, and Robert Ackley made key contributions to this report.


FOOTNOTES

[1] Office of the Deputy Under Secretary of Defense (International and 
Commercial Programs), International Armaments Cooperation Handbook 
(Washington, D.C.: June 1996).

[2] Arms Export Control Act (22 U.S.C. sec. 2767).

[3] Even before the 1997 guidance, the JSF program and predecessors 
such as the AV-8B tactical aircraft and Joint Advanced Strike 
Technology programs had heavy involvement from the government of the 
United Kingdom and its defense suppliers.

[4] The design should include precision schematics of the aircraft and 
components, based on the results of testing and a description of 
material and manufacturing processes to be used.

[5] This is not necessarily the same as best value under the Federal 
Acquisition Regulation, which is an acquisition that provides the 
greatest overall benefit in response to the requirement and can be 
obtained by using one or a combination of multiple source selection 
approaches.

[6] U.S. General Accounting Office, Defense Trade: U.S. Contractors 
Employ Diverse Activities to Meet Offset Obligations, GAO/NSIAD-99-35 
(Washington, D.C.: Dec. 18, 1998).

[7] The President of the United States may reduce or waive cooperative 
project nonrecurring costs in accordance with the AECA (22 U.S.C. 2761 
and 2767). For the JSF program, the Level I and II partners have been 
granted a full waiver of these costs; Level III participants will 
receive consideration for this waiver.

[8] According to DOD, final disposition of levies and nonrecurring 
costs for partners will be decided in production phase MOU 
negotiations.

[9] Most partners have been involved in the JSF program since the 
concept development phase, which began in 1996.

[10] U.S. General Accounting Office, Joint Strike Fighter Acquisition: 
Mature Critical Technologies Needed to Reduce Risks, GAO-02-39 
(Washington, D.C.: Oct. 19, 2001). The JSF Program Office now tracks 23 
program level risks--3 are low risks, 19 are moderate, and 1 is high. 
The high risk carried by the program is related to aircraft weight.

[11] United Kingdom officials told us that for planning purpose it 
assumes a JSF buy of up to 150 aircraft. This assumption has not been 
formalized in a production MOU with the United States.

[12] A process by which performance requirements are considered in 
terms of the established cost targets so that trade-offs in performance 
capabilities can be made as necessary.

[13] U.S. General Accounting Office, F-16 Program: Reasonably 
Competitive Premiums for European Coproduction, GAO/NSIAD-90-181 
(Washington, D.C.: May 14, 1990) and U.S. General Accounting Office, 
Defense Acquisition: Decision Nears on Medium Extended Air Defense 
System, GAO/NSIAD-98-145 (Washington, D.C.: June 9, 1998).

[14] National Disclosure Policy establishes procedures and criteria for 
releasing classified or controlled unclassified military information 
to other countries. In addition, there are special release processes 
for technology, such as stealth. U.S. policy on the release of stealth-
related data and technology is contained in DOD Instruction S5230.28.

[15] The JSF global project authorization does not cover the transfer 
of any classified information or certain unclassified, export-
controlled information in sensitive technology areas such as stealth, 
radar, and propulsion.

[16] U.S. General Accounting Office, Defense Trade: Lessons to Be 
Learned from the Country Export Exemption, GAO-02-63 (Washington, D.C.: 
Mar. 29, 2002).

[17] Releasability reviews, such as the low observable/counter low 
observable review process for stealth technology, are necessary to 
transfer certain sensitive technologies and related design and 
manufacturing data to foreign countries and suppliers.

[18] Most partners have a clause in their supplement MOUs that allows 
for withdrawal from this phase of the program if industrial 
participation is not satisfactory. 

[19] Federal Acquisition Regulation 52.244-5, Competition in 
Subcontracting. This clause requires contractors to select 
subcontractors on a competitive basis to the maximum practical extent 
consistent with the objectives and requirements of the contract.

[20] Lockheed Martin officials told us that in some cases competitions 
would be waived for "heritage" suppliers--suppliers with whom Lockheed 
Martin has had a long-standing industrial relationship.

[21] Lockheed Martin's contract for the current JSF phase provides no 
base fee; instead, it calls for a potential award fee of almost 
$2.5 billion, or 15 percent of the total contract value. The exact 
amount of the fee is determined by the program office, based on 
subjective criteria related to Lockheed Martin's ability to achieve 
development and unit cost control, program management, and technical 
development goals and milestones.

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