[Senate Hearing 111-823]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 111-823
 
                        THE JOINT STRIKE FIGHTER 

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2010

                               __________

         Printed for the use of the Committee on Armed Services






        Available via the World Wide Web: http://www.fdsys.gov/

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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

ROBERT C. BYRD, West Virginia        JOHN McCAIN, Arizona
JOSEPH I. LIEBERMAN, Connecticut     JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island              JEFF SESSIONS, Alabama
DANIEL K. AKAKA, Hawaii              SAXBY CHAMBLISS, Georgia
BILL NELSON, Florida                 LINDSEY GRAHAM, South Carolina
E. BENJAMIN NELSON, Nebraska         JOHN THUNE, South Dakota
EVAN BAYH, Indiana                   ROGER F. WICKER, Mississippi
JIM WEBB, Virginia                   GEORGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri           SCOTT P. BROWN, Massachusetts
MARK UDALL, Colorado                 RICHARD BURR, North Carolina
KAY R. HAGAN, North Carolina         DAVID VITTER, Louisiana
MARK BEGICH, Alaska                  SUSAN M. COLLINS, Maine
ROLAND W. BURRIS, Illinois
JEFF BINGAMAN, New Mexico
EDWARD E. KAUFMAN, Delaware

                   Richard D. DeBobes, Staff Director

               Joseph W. Bowab, Republican Staff Director

                                  (ii)















                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

                        The Joint Strike Fighter

                             march 11, 2010

                                                                   Page

Carter, Hon. Ashton B.,Under Secretary of Defense for 
  Acquisition, Technology, and Logistics.........................     6
Fox, Hon. Christine H., Director of Cost Assessment and Program 
  Evaluation, Department of Defense; Accompanied by Fred Janicki, 
  Director, Weapon Systems Cost Analysis Division, Cost 
  Assessment and Program Evaluation, Department of Defense.......    17
Gilmore, Hon. J. Michael, Director of Operational Test and 
  Evaluation, Department of Defense..............................    22
Sullivan, Michael, Director of the Acquisition and Sourcing 
  Management Team, Government Accountability Office..............    26

                                 (iii)


                        THE JOINT STRIKE FIGHTER

                              ----------                              


                        THURSDAY, MARCH 11, 2010

                                       U.S. Senate,
                               Committee on Armed Services,
                                                    Washington, DC.
    The committee met, pursuant to the notice at 11:11 a.m., in 
room SR-228, Russell Senate Office Building, Senator Carl Levin 
(chairman) presiding.
    Committee members present: Senators Levin, Lieberman, Bill 
Nelson, McCaskill, McCain, Chambliss, Thune, LeMieux, and 
Collins.
    Committee staff members present: Richard D. DeBobes, staff 
director; and Leah Brewer, nominations and hearings clerk.
    Majority staff members present: Creighton Greene, 
professional staff member; Gerald J. Leeling, counsel; and 
Peter K. Levine, general counsel.
    Minority staff members present: Joseph W. Bowab, Republican 
staff director; Pablo E. Carrillo, minority investigative 
counsel; David M. Morriss, minority counsel; and Christopher J. 
Paul, professional staff member.
    Staff assistants present: Paul J. Hubbard, Christine G. 
Lang, Brian F. Sebold, and Breon N. Wells.
    Committee members assistants present: James Tuite, 
assistant to Senator Byrd; Christopher Griffin, assistant to 
Senator Lieberman; Joel Spangenberg, assistant to Senator 
Akaka; Madeline Otto, assistant to Senator Bill Nelson; Patrick 
Hayes, assistant to Senator Bayh; Gordon Peterson, assistant to 
Senator Webb; Tressa Guenov, assistant to Senator McCaskill; 
Roosevelt Barfield, assistant to Senator Burris; Clyde Taylor 
IV, assistant to Senator Chambliss; Jason Van Beek, assistant 
to Senator Thune; Brian Walsh, assistant to Senator LeMieux; 
and Rob Epplin and Molly Wilkerson, assistants to Senator 
Collins.

       OPENING STATEMENT OF SENATOR CARL LEVIN, CHAIRMAN

    Chairman Levin. The committee will come to order for a 
hearing on the F-35. I want to just check with you, Secretary 
Carter, do you wish to go through your entire opening statement 
and, if so, about how long is your opening statement?
    Dr. Carter. Mr. Chairman, I'm at your disposal. If I did 
give the entire statement, it would take about 10 or 12 
minutes. The only reason I mention that is because of the size 
of the program and all the different pieces, but I'm at your 
disposal.
    Chairman Levin. I understand. If you can just keep that 
down to 10 minutes, no more, it would be welcomed.
    We're now going to shift to the second hearing of the 
morning, the F-35 Joint Strike Fighter (JSF) program. First, I 
want to thank Senator McCain for suggesting that we have a 
hearing on the JSF program promptly, for keeping a focus on 
this program so that we can get on top of what the Department 
of Defense (DOD) found in various independent reviews of the 
JSF program, what actions the DOD has taken to ameliorate 
problems that it found with the program, and what is the best 
judgment available as to how effective these actions will be in 
preventing problems with the program, including cost overruns 
and delays.
    We have with us today Dr. Ashton Carter, Under Secretary of 
Defense for Acquisition, Technology, and Logistics; Christine 
Fox, Director of the Office of Cost Assessment and Program 
Evaluation (CAPE); Michael Gilmore, Director, Operational Test 
and Evaluation (OT&E); General Clyde Moore II, the Air Force 
Acting Program Executive Officer for the JSF program; and 
Michael Sullivan, Director, Acquisition and Sourcing Management 
Team of the U.S. Government Accountability Office (GAO).
    So first, let me extend a welcome to our witnesses. We 
thank each of you for coming before this committee today.
    We had a closed briefing for the committee on the JSF 
program in December 2009 in which Secretary Carter and Director 
Fox briefed the committee. We discussed the JSF program, the 
potential scope of the problems facing the DOD, and some of the 
options DOD had for dealing with these problems.
    While both Senator McCain and I would have preferred to 
have an open hearing at that time, we agreed to hold a closed 
briefing mainly because of the sensitive nature of some of the 
contractor data that was discussed.
    The F-35 JSF program is currently the largest acquisition 
program within the DOD's portfolio with an expected acquisition 
cost before the recent announced cost growth of nearly $300 
billion.
    Any perturbation of the cost, schedule, or performance of a 
program that intends to buy more than 2,400 aircraft for Air 
Force, Navy, and Marine Corps will have significant 
implications for the rest of DOD's acquisition programs and for 
the DOD budget as a whole.
    I would also note that this committee's strong effort on 
acquisition reform, which became law on May 22 of last year, 
included changes to the acquisition procedures requiring 
implementation of the Weapons Systems Acquisition Reform Act 
(WSARA), will not be judged positively unless we can 
demonstrate some success with the largest of the DOD's 
acquisition programs.
    Merely to say that the F-35 program started before we 
enacted the acquisition reform is not going to be an acceptable 
answer if there continues to be major disruptions and cost 
overruns in the program. Delays in producing the F-35 
developmental aircraft have caused an estimated 13-month slip 
in the program for completing the testing.
    We have heard estimates that the delay in initial operating 
capability in the Air Force could slip by as much as 2 years. 
That delay has both cost implications for the F-35 program 
itself and cost implications for the Services as they try to 
manage their current force structure of legacy aircraft.
    We know that Secretary Gates announced that he's asking 
that Lockheed Martin and the rest of the F-35 contractor team 
share in paying for cost growth in the program. We want to hear 
more about the situation and whether this might be a way of 
ensuring that contractor teams will be more cautious before 
bidding low on future acquisition programs with the hope that 
they'll be more than able to make it up at the government's 
expense later on down the road in that program.
    It's not enough merely to say that the JSF program will 
live within its means by shifting production funding to pay for 
the increased development costs because delayed deliveries of 
aircraft and/or buying fewer aircraft will have a seriously 
negative impact on unit procurement costs as well as a 
significant effect on our ability to support the current force 
structure.
    For instance, the Department of the Navy is already facing 
a potential shortfall that last year could have totaled some 
250 aircraft in the middle of the next decade. A shortfall 
that's large enough that if it were realized could cause us to 
tie up aircraft carriers at the pier for lack of aircraft to 
send with them.
    Two years ago the Air Force testified that they could be 
facing shortfalls even larger than the Navy's in the 2024 
timeframe, with a fighter shortage of as many as 800 aircraft. 
Secretary Gates specifically mentioned last year that the 
Quadrennial Defense Review (QDR) was going to evaluate fighter 
requirements so that could have caused those deficits to change 
somewhat.
    However, the QDR did not change the force structure 
requirements, and even if the DOD were to decide that 
requirements should be changed, that is unlikely to erase those 
kinds of deficits. We need to understand what some of the 
options are that the DOD may be evaluating to deal with those 
problems.
    Another particularly troubling matter was revealed in some 
of the documentation from the various independent reviews of 
the JSF program. One observation from the Independent 
Manufacturing Review Team (IMRT) Report on the JSF program said 
the following: ``Affordability is no longer embraced as a core 
pillar.''
    Well, that surely raises great concerns not only about the 
potential for a Nunn-McCurdy breach now, but for continuing 
problems for the JSF program. This committee has been a strong 
supporter of the JSF program from the beginning. However, 
people should not conclude that we're going to be willing to 
continue that strong support without regard to increased costs 
coming from poor program management or from a lack of focus on 
affordability. We cannot sacrifice other important acquisitions 
in the DOD investment portfolio to pay for this capability.
    Those are a few issues that this committee will be hearing 
more about today. I now call on Senator McCain.

                STATEMENT OF SENATOR JOHN McCAIN

    Senator McCain. Thank you, Mr. Chairman. I would ask that 
my full statement be included in the record and I want to thank 
the witnesses. I'll try to be brief.
    I've been a strong supporter of this aircraft and this 
weapon system, but I'm deeply concerned about the cost overruns 
and the problems that have been associated with the JSF.
    Could I just remind you that just last August, after 
meeting with the program's prime contractor in Texas, Secretary 
Gates said that his impression is that, ``most of the high risk 
elements associated with JSF's developmental program are 
largely behind us,'' and he went on to say that, ``there was a 
good deal of confidence on the part of the leadership here that 
the manufacturing process, the supply chain, and the issues 
associated with all of these have been addressed or are being 
addressed.'' That was certainly not the impression that we got 
in the closed meeting that we just had in December.
    Press reports are saying that the program would need at 
least $15 billion more in funding through fiscal year 2015; 
that the aircraft test and production would slip by at least 2 
years; that the JSF program would most certainly suffer a Nunn-
McCurdy cost breach. The media reports, Mr. Chairman, have been 
very stark. Whereas this committee, although our staff has been 
briefed from time to time, has certainly not been notified.
    Now, according to Secretary Carter's statement, it's a 
comprehensive statement, but it should have been the opening 
paragraph, I would say, Secretary Carter, this means that the 
average price of a JSF aircraft as estimated by the Joint 
Estimating Team (JET), the overall cost of the program averaged 
over all the years of production divided by the number of 
aircraft would be more than 50 percent higher in inflation-
adjusted dollars than it was projected to be back in 2001 when 
the program began. Then you go on to say, ``I expect that Air 
Force Secretary Donley will formally notify Congress of JSF's 
Nunn-McCurdy breach within days.''
    I have to tell the witnesses that we have not been kept up 
to speed as much as we should have been. It's been very clear 
from media reports that there are serious problems, but the 
most important thing is, much of this was predicted.
    It is so much, Mr. Chairman, in keeping with the cost 
overruns that we've had with literally every major weapons 
system lately in the last 10 years of cost overruns, being 
behind schedule, and the impact that has on the existing legacy 
aircraft, the ability to replace them, and the strain. All of 
those have been based on certain assumptions that clearly we 
are not aware of.
    It's a bit frustrating to hear the Secretary of Defense as 
short a time ago as last August tell us that everything's okay, 
but when we're reading media reports that tell us they are not. 
I would respectfully ask, Secretary Carter, that you would 
begin your statement by saying how much over cost is this 
program going to be and what will be the delay so the American 
people will know.
    The taxpayers are a little tired of this and I can't say 
that I blame them and so I thank you, Mr. Chairman, for holding 
this hearing, and I welcome the witnesses.
    [The prepared statement of Senator McCain follows:]
               Prepared Statement by Senator John McCain
    Mr. Chairman, thank you for holding this important hearing on the 
F-35 Joint Strike Fighter (JSF) Program.
    At an expected total cost of about $1 trillion--almost $300 billion 
to buy nearly 2,500 aircraft and another $760 billion for future 
operation and support costs--the JSF program is the largest and most 
complex acquisition program in the Department of Defense (DOD). Even 
more importantly, because the JSF is the next generation fighter-bomber 
for the Air Force, Navy, and Marine Corps, it will serve as the 
backbone of the tactical combat aircraft fleet that will be used by the 
United States and many of our allies for decades to come.
    I have been a strong supporter of the DOD and its requests for 
funding and accelerated development of the JSF, but I am deeply 
concerned about the program's stability. Much of my concern comes from 
conflicting information from the DOD and what I see as reluctance by 
senior DOD officials to share the real story about the JSF's problems 
in a timely manner with Congress so we can make informed decisions.
    Last August, after meeting with the program's prime contractor in 
Texas, Secretary Gates said that ``[his] impression is that most of the 
high-risk elements associated with [JSF's] developmental program are 
largely behind us'' and that there was ``a good deal of confidence on 
the part of leadership here that the manufacturing process, that the 
supply chain, that the issues associated with all of these have been 
addressed or are being addressed.''
    However, press reports painted a different picture. By July 2009, 
the Deputy Secretary of Defense had already directed a second Joint 
Estimating Team (JET II) reassessment of the program, which found that 
the JSF program would need at least $15 billion more in funding through 
fiscal year 2015 and that the aircraft production and test schedule 
would slip by at least 2 years. Soon thereafter, the media reported 
that another Pentagon-directed review of the program called the 
Independent Manufacturing Review Team found that the rate at which the 
program planned to ramp-up producing JSFs would likely not be achieved 
within the planned timeframe.
    Furthermore, Secretary Gates told this committee last month that 
the initial operating capability (IOC) dates would not change despite 
restructuring and development delays in the program. Within a matter of 
days, however, the civilian and military leaders of the Air Force said 
that the IOC date for the Air Force would probably slip from 2013 to 
2015 and that the JSF program would almost certainly suffer a ``Nunn-
McCurdy'' cost breach that will require recertification of the need for 
the program and its affordability.
    I am frustrated with the piecemeal, time-late process by which the 
DOD has notified the committee of the results of its risk assessments 
and the changes it has directed in the program. Learning about these 
developments first from press reports rather than from the DOD 
frustrates the ability of this committee to exercise proper 
congressional oversight and does not serve the program well.
    As for the merits of DOD's restructuring of the JSF program, it 
appears that the DOD has embraced the major tenets of our acquisition 
reform legislation by putting more emphasis on developmental testing, 
while slowing aircraft production. Also, the DOD's strategy aims to 
turn the JSF program around by assigning a premium to robust systems 
engineering and getting reliable and independent cost estimates to 
better understand what is driving costs. These, too, are consistent 
with the principles of our acquisition reform legislation and are a 
move in the right direction. I am also pleased that the DOD intends to 
better incentivize contractor performance in this program by 
eliminating award fees and that it is taking steps now to ensure that a 
fixed-price type contract will be used for the follow-on procurement of 
these aircraft.
    However, even after all the planned restructuring steps have been 
taken, there is still a lot of concurrency built into the current 
plan--in other words, we are still trying to design, develop, test, and 
build production models of the aircraft on overlapping schedules. So, I 
continue to be concerned about the impact on cost and schedule if we 
determine during testing that major redesign of this complex aircraft 
program is required. I am also concerned that if the Services need to 
replace legacy aircraft, they may be forced to accept aircraft for 
``initial operating capability'' that don't have the operational combat 
capability the JSF program promised--resulting in the need to buy back 
capability later through expensive upgrades. Lastly, I'm concerned that 
delays in the program will cause real problems with our legacy fighter 
aircraft fleet that have been used more than what was planned over the 
last 20 years, resulting in the need to extend the service lives of 
those old airplanes or retire them without replacement--worsening what 
has been described as a ``fighter gap.''
    On these and other important issues, I look forward to hearing the 
testimony of our witnesses.
    Thank you, Mr, Chairman.

    Chairman Levin. Thank you, again, Senator McCain, for your 
focus on this. It reflects the concerns of every member, surely 
most members of this committee and the concerns which we've 
talked about in our opening comments, I hope, will be addressed 
in the early part of your statement, Secretary Carter, so we 
can summarize it and then perhaps expand, if you would, as to 
how are you going to deal with these questions and how did we 
get to where we're at.
    Secretary Carter.

STATEMENT OF HON. ASHTON B. CARTER, UNDER SECRETARY OF DEFENSE 
           FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS

    Dr. Carter. Thank you, Mr. Chairman, Senator. I will give a 
very abbreviated version of the statement, but let me just cut 
to the chase to follow up on what Senator McCain said.
    When we met in December, I described to you that there were 
two estimates before the leadership in the DOD of where the 
program was going. One provided by the Program Office and the 
contractor, another one provided independently by Ms. Fox's 
office, the JET estimate stated that there was a wide 
discrepancy between those two and that we were trying to 
understand why it is we had one picture on the one hand and one 
picture on the other hand.
    We came to the view and Secretary Gates came to the view 
that the JET estimate was credible, was carefully done, and 
should be the basis for our budgeting and program planning 
going forward and that's the gist of the report I'm going to 
give you today. It underlies the disappointing news that there 
will be a critical Nunn-McCurdy breach in this, our largest 
program.
    If there's any kind of silver lining to this story, it is 
only this, that as between this story which was optimistic and 
the story that I painted last time of the JET estimate. By 
addressing the reason for this difference, why you guys say 
this and you guys say that, understand better what it is that 
is driving poor performance in the program and we have found 
some steps, managerial steps that we can take, some have been 
described by Secretary Gates, to do better.
    Senator McCain mentioned one, which is steps taken to 
compress the development program that was stretching and 
costing us more money and taking more time than it ought to 
have. Those investments, as I think you, Mr. Chairman, noted, 
are investments that we don't think the taxpayer ought to 
assume solely and so we have asked the contractors to share in 
those investments required to get us back on schedule.
    By beginning a process of aggressive management of this 
program, we're trying to get to a point where the full 
consequences of the JET estimate, which as I repeat, are very 
credible. That's a world that I believe is a realistic estimate 
of where this program is going.
    I'd like to do better and I'd like to challenge the 
contractors to do better, more jets, faster, cheaper, and in 
the statement I'll describe the managerial steps we're trying 
to do to take in the development phase, in the ramp-up to full 
production, in full production itself, and in sustainment 
which, though it's many years in the future, is worth planning 
for now to try to do better.
    Chairman Levin. Mr. Carter, could I ask again if you could 
provide us now with a cost overrun, the amount of cost overrun 
and the months of delay you estimate now?
    Dr. Carter. Yes, absolutely. The measure of delay that I've 
focused on is a good measure of the technical performance of 
the program and the slip in the time to completion of 
developmental testing.
    That is the number I'm sure you've heard which originally 
when I first talked to you, we were projecting a 30-month slip. 
Now, as a result of these remedial steps that the Secretary 
directed there is a 13-month slip in the completion of system 
development and demonstration (SDD).
    As regards to costs, I think I'm going to ask Ms. Fox, 
since she does those estimates, and I assume you're asking 
principally about the calculation that drives the Nunn-McCurdy 
breach. Which is the unit cost that is the total cost of the 
total program as we now project it going forward divided by the 
total number of airplanes.
    Then secondarily, not to make it more complicated than it 
has to be, in every year of ramp-up, that is, as we negotiate 
as we are now the Low Rate Initial Production (LRIP) 4 
contract, there will be a certain number of aircraft and a 
price. As with LRIP 5 next year, with the fiscal year 2011 
funding that we are asking you for this year.
    In those early years, as the ramp goes up, the order 
numbers are smaller. The line is immature and so the unit costs 
there are different and obviously higher earlier in the 
program. We have both the costs in the early ramp years and 
integrated over the entire program.
    Since she is the keeper of those estimates, let me ask Ms. 
Fox to address that, if I may.
    Ms. Fox. Certainly. Senator, the Milestone B 2001 estimated 
average procurement unit cost----
    Senator McCain. Ms. Fox, could I just ask what was the 
original estimate of the cost of the program and the estimate 
now? Could we just start with that?
    Ms. Fox. Yes, sir.
    Senator McCain. Thank you.
    Ms. Fox. I'm sorry. I was trying to do that, sir. It was 
$50 million per copy in 2002 dollars.
    Senator McCain. $50 million?
    Ms. Fox. $50 million in 2002 baseline-year dollars. That 
was the Milestone B 2001 estimate. The current program 
estimate, based on JET II numbers, will be somewhere between 
$80 million and $95 million in constant-year 2002 baseline 
dollars. We are refining that estimate now. The $80 million at 
the bottom----
    Senator McCain. This will be the overall. The Air Force is 
asking for $205 million for one aircraft in the supplemental 
budget request?
    Ms. Fox. Sir, I'm sorry, I can't address that.
    Senator McCain. All right. Go ahead, I'm sorry.
    Dr. Carter. I think I may be able to explain that. That 
is----
    Chairman Levin. Is that unit costs for the 2,400 planes?
    Dr. Carter. That's unit cost but it's again at this early 
ramp.
    Chairman Levin. Is that the unit cost at a particular ramp 
or is that the overall unit cost for the entire production?
    Dr. Carter. I think the number Senator McCain was pointing 
to was the unit cost in that particular lot which would have 
been the LRIP 3 lot.
    Chairman Levin. Is that what you were asking for?
    Senator McCain. Yes, thank you.
    Chairman Levin. Is LRIP 3 the same number of planes?
    Dr. Carter. No, the ramp goes up with every--I'm sorry, no. 
LRIP 3 is 30 planes.
    Chairman Levin. Is that changed from the 2002 estimate, the 
number in that segment? Was it 30 planes and 30 planes now or 
has that number changed?
    Dr. Carter. Absolutely the ramp moved even before today.
    Chairman Levin. I'm not talking about that. I'm talking 
about the number of planes in that particular segment. In other 
words, are you dividing by the same number of planes?
    Dr. Carter. She is, yes.
    Ms. Fox. For the average unit cost, we're dividing by 2,443 
planes and that has been the number we've used since 2002.
    Chairman Levin. Okay.
    Ms. Fox. The LRIP numbers, I believe, have changed, and I'm 
sorry I don't have those.
    Senator McCain. I take it because--and I'm sorry, Mr. 
Chairman, but I think maybe this could be helpful. I take it 
that the reason why that the aircraft is now $205 million in 
the supplemental request is because you're looking at the 
overall costs which means that the cost of the aircraft will 
decrease in later years as you ramp up production.
    So the early cost of these aircraft in the first couple 
blocks are much, much higher, is that correct?
    Dr. Carter. That's absolutely correct.
    Senator McCain. Thank you, Mr. Chairman.
    Chairman Levin. Do you have a number to compare to the $205 
million? What would it have been if those early predictions 
held?
    Dr. Carter. Not off the top of my head, but I can get you a 
number, sir.
    [The information referred to follows:]

    The Fiscal Year 2011 Overseas Contingency Operations (OCO) 
Supplemental request included $205 million for one F-35A Conventional 
Take-Off and Landing variant aircraft, to replace an F-15 combat 
attrition loss. The $205 million includes the airframe, engine, 
electronics, support and training equipment, technical publications and 
contractor services required to be procured to support the weapon 
system. The requested aircraft would be produced as part of the Low 
Rate Initial Production Lot 5, which would be among the first 100 
aircraft produced. Aircraft procured early in production necessarily 
cost more as the manufacturing process is still maturing and cost moves 
down the learning curve.
    The Average Procurement Unit Cost (APUC) costs provide a similar 
comparison to the costs associated with the fiscal year 2011 OCO 
aircraft request, as they include all procurement costs but do not 
include facilities or developmental costs. The APUC for the 2,443 
aircraft planned to be procured for the U.S. Services is estimated in 
the December 2009 F-35 Selected Acquisition Report to be between a 
range of $114 million to $134 million in then-year dollars.
    The APUC estimate will likely be refined as part of the anticipated 
F-35 Nunn-McCurdy review. If the APUC estimate changes, that 
information will be provided to Congress with the Nunn-McCurdy 
certification results.

    Chairman Levin. Good. Why don't you continue then?
    Dr. Carter. Okay. I'll just go back to the beginning and 
agree with what was said in both of your----
    Senator McCain. I'm sorry if I knocked you off script 
there.
    Dr. Carter. No, not at all.
    Senator McCain. I apologize.
    Dr. Carter. Getting to the heart is what it's about. I just 
wanted to agree this is the DOD's largest acquisition program. 
It's obviously immensely important to the DOD. It's going to be 
the backbone of our air combat superiority for a long time. At 
the same time, however, this committee and Secretary Gates have 
emphasized performance in our programs. Not just the necessity 
to have them, but that they perform.
    As I'll describe in more detail, the JSF program's fallen 
short on performance over the last several years and this is 
unacceptable. It's unacceptable to the taxpayer, to the 
warfighters of the Air Force, the Navy, the Marine Corps, and 
all the international partners that are depending on this 
aircraft.
    We described this situation preliminarily in December when 
we met with you and in his presentation of the President's 
fiscal year 2011 budget, Secretary Gates described some of the 
steps he has taken to restructure the program and notably to 
put it on a more realistic schedule and budget.
    These are important steps. I will give you more detail 
about them today, but I'd also like to emphasize that it's 
taken a couple of years for the JSF program to fall behind and 
the DOD's going to need to aggressively manage this program 
years into the future and particularly in these coming critical 
years as it transitions from development and test and into 
production.
    We're going to be looking for the program, as I know this 
committee will, to show progress against a reasonable set of 
objectives according to a realistic overall plan and I'll 
describe the elements of that plan.
    The emphasis must be on restoring a key aspect of this 
airplane. When the JSF program was first launched over a decade 
ago and you've spoken this word already, Senator McCain, and 
that's affordability. You know that we've conducted several 
reviews. You and your staffs have those reviews. I won't repeat 
what they indicated at this time.
    Just to rewind the clock a little bit and remind you that 
the very first JET estimate was done in October 2008. At that 
time it projected essentially the same thing that this one is 
projecting; namely, that the SDD phase of the program is taking 
longer and is costing more than was projected. In response to 
that October 8 JET estimate, Secretary of Defense Gates added 
$476 million in fiscal year 2010 to the SDD program for JSF in 
order to hopefully begin the process of catching it up.
    What we got in October 2009 was JET II, the second JET 
analysis. It was substantially similar to the one of a year 
before; namely, it said that the JSF SDD program continues for 
a second straight year to take longer than we thought and cost 
more than we thought.
    It was on the basis of this news 2 years in a row that we 
determined that we should have a department-wide in-depth 
review of the program to try to get to the bottom of what was 
going on and why there was this vast difference between the JET 
II estimate and what we were hearing from the Joint Program 
Office (JPO) and the contractor at that time.
    It was also abundantly clear now that back in October and 
November that if the JET estimate were true, as we have come to 
believe, that it was credible that the JSF program would be in 
critical Nunn-McCurdy breach. So that review started in 
November and I had the opportunity to meet with you and give 
you some of the results in December.
    The Secretary of Defense gave you some of his decisions 
based on that review and I'd like to briefly recap them in 
three phases. First, the JSF development phase, then the 
transition to full-rate production, as one comes up the ramp, 
and then the full-rate production itself.
    Just to repeat, the JET II forecasted, speaking now to the 
development program, a longer by 30 months and more expensive 
by $3 billion over the Future Years Defense Program (FYDP) 
development phase than the JPO was forecasting last summer.
    As I indicated, Secretary Gates determined that the JET II 
estimate regarding the development program was credible. He 
directed several steps to try to partially restore the SDD 
schedule to what it was supposed to be.
    He didn't get all the way there but, first, he directed the 
procurement of an additional carrier version aircraft to be 
used for flight testing. If you have more aircraft for flight 
testing, obviously you can get through all the tests you need 
to get done faster, so that's just a matter of adding resources 
to the test program.
    Second, he directed that we take three early production 
jets that were planned for operational tests and loan them to 
developmental tests, again, with the objective of hastening the 
developmental tests.
    Third, he directed that the JPO and the contractor add 
another software integration line to the program. This was to 
prevent a situation in which we compressed, again, the flight 
test program but then found that the long pole in the tent was 
the delivery of mission systems software. We didn't want to get 
into that situation, so we wanted proactively to add to the 
software integration capability of the contractor so that that 
wouldn't become a limiting factor in the future and the 
Secretary of Defense did that.
    On that basis the JET Team said now let's look at that 
program as restructured by Secretary Gates. Let's go through 
the math again and when they did that same methodology, they 
found that the slip was 13 months rather than 30 months. So a 
13-month slip is better than the 30-month slip but it's not as 
good as no slip, but that's as far back as we could get.
    Let me just emphasize something I said earlier. It didn't 
seem reasonable to the Secretary or to any of us that the 
taxpayer should bear the entire cost of this failure of the 
program to meet expectations. These additions of additional 
aircraft and software integration capability, it seemed that 
costs should be shared between us and the contractor and that 
is the reason why the Secretary decided to withhold $614 
million in award fee from the Lockheed Martin SDD contract.
    The second thing I ought to say on this development phase 
before getting to the early production, is that while it's a 
constructive result of this JET process that we got 30 months 
down to 13 months. I just want to emphasize that these are 
still estimates and reality gets a vote here. However good we 
are and they are very good in Ms. Fox's shop at estimating, 
reality gets a vote.
    The next 2 years are going to be critical ones, lots of 
activity in the JSF program. We have delivery of test aircraft 
at Patuxent River Naval Air Station and Edwards Air Force Base, 
completion of the analysis of hundreds of test flights and 
commencement of flight training at Eglin Air Force Base just 
this year.
    If we go on to 2011, that is when we'll have the first 
short take-off and vertical landing (STOVL) training and sea 
trials aboard an actual amphibious ship. The STOVL version is 
the Marine Corps version, completion of land-based catapult, 
Senator McCain will appreciate this better than I can, but 
catapult and arrested landing testing at Lakehurst Naval Air 
Station and Patuxent River, release of the Block II software to 
flight test which is a critical software-related milestone, 
completion of static structural testing of all three of the 
variants, and so forth. So both 2010 and 2011 are event-filled 
years and as I said reality gets a vote.
    The current program plan, now estimated, as revised, stands 
up the first training squadron at Eglin in 2011 and delivers 
production aircraft to the Marine Corps in 2012, Air Force in 
2013, and Navy in 2014. Those are the first delivery of 
aircraft. That is not IOC and I want to address, if I may, Mr. 
Chairman, IOC simply because there's been so much confusion 
surrounding what IOC is in the press.
    The IOCs are determined by the Services based on both the 
program's performance and how each of the Services define IOC. 
Each Service has a somewhat different definition, depending on 
what capabilities they intend to have at IOC, their operational 
test and training requirements, and the number of aircraft they 
require for IOC, and since the restructuring, the Services have 
specified these definitions.
    At this time, based on the revised JET II schedule for the 
end of developmental and operational tests and their 
definitions of IOC, the Services are estimating IOCs of 2012 
for the Marine Corps and 2016 for the Air Force and Navy.
    Let me now speak to the initial production process. The 
IMRT Report which my office commissioned was mentioned already. 
That report examined this critical transition from development 
to full-rate production as one goes up the ramp. The JSF has an 
unprecedented amount of concurrency in the program. That is a 
period of time in which the development activities are still 
continuing and testing even as production begins.
    What the IMRT, when it reported back, said in essence that 
there were a large number of conditions that would have to be 
met for this program to achieve the ramp that was then planned 
and they recommended a somewhat flatter and smoother ramp.
    That, together with the slip in SDD, means that we are now, 
and this is the essence of the CAPE projection for this phase 
of the program, expecting a later and somewhat lower production 
ramp. Secretary Gates, accordingly, decided to budget to this 
revised JET II production ramp and that is why the fiscal year 
2011 budget submission forecasts a later, slower ramp.
    We are, therefore, budgeting to an independent cost 
estimate (ICE). This is consonant with your legislation, the 
WSARA; and doing so has three important consequences for this 
program.
    First, it reduces risk because it reduces concurrency.
    Second, the earlier aircraft will be more expensive since 
they are produced in smaller annual lots.
    Third, this is, just to say it again, an estimate.
    Obviously, we would like the program to perform better than 
the revised JET II estimate. That's why we're protecting the 
option to produce 48 aircraft and not 43 in fiscal year 2011.
    This will be determined in negotiations with the contractor 
which are ongoing. These negotiations include the transitioning 
of the LRIP contracts for JSF to a fixed price at an earlier 
date. This is again something this committee in the acquisition 
reform legislation emphasized.
    Obviously, we think the taxpayer would want us to get more 
and cheaper aircraft in those years than the JET II estimates. 
So we're going to try to do better in our negotiations with the 
contractor than the estimate.
    Finally, I'll conclude on this point, we go up the ramp and 
then we're in full-rate production. After several years of 
LRIP, the program will enter full-rate production and, as was 
noted earlier, that's 2,443 American jets and 730 jets for our 
international partners.
    The JSF program's been approaching the Nunn-McCurdy 
threshold for several years and, as I mentioned earlier, it was 
obvious back in November that if the JET II estimate was 
accepted, then it would, indeed, breach the Nunn-McCurdy 
threshold.
    Since we do accept and the Secretary accepts the revised 
JET II estimate as credible and the basis of our program plan, 
the Secretary of the Air Force will inform Congress within days 
of a Nunn-McCurdy breach and we will then begin the process of 
considering the certification of the JSF program.
    I guess the only good thing I can say about it at this 
juncture is that what the thorough process called for in the 
Nunn-McCurdy legislation, is the very process we began back in 
November. We have been acting as though we're in Nunn-McCurdy 
breach since we realized back in November that that's probably 
where we are going to end up.
    We have some of the work behind us and some of that work is 
represented in what I'm able to tell you today. Ms. Fox can 
describe all the factors that go into the cost growth. There 
are a number of them in the airframe, in the engines, in the 
materials, and other things. Many factors go into that cost 
growth.
    Let me just conclude by looking ahead now. Several 
management measures are going to be critical over the next few 
years and Secretary Gates has elevated the position of JSF 
program Executive Officer (PEO) to three-star rank to reflect 
this need for experienced and vigorous management.
    The JPO, with oversight from the Office of the Secretary of 
Defense (OSD), will need to take a number of critical steps in 
the next few years and once again I divide them into 
development, ramp-up, and addressing Nunn-McCurdy.
    In regard to the developmental test program, the lead up to 
IOC, it's important to provide the new test assets and software 
capability to the development program as directed by Secretary 
Gates so that there won't be any further delays.
    Second, the contractor must be held to account to meet or 
exceed a defined set of milestones connected to earn fee on the 
development contract. All those events in 2010 and 2011 that I 
named are now on a schedule and they constitute a set of 
targets for the program. The remaining fee on the SDD contract 
will be tied to the achievement of all of those milestones and 
those negotiations are underway.
    Finally, the program's going to need to deal promptly with 
the issues that arise during flight testing. We're going into 
flight testing and experience shows that issues will surface in 
flight testing.
    With respect to the ramp-up to full-rate production, the 
LRIP 4 contract, which covers fiscal year 2011, should provide 
for pricing that meets or exceeds the JET II-based plan of 43 
aircraft and these negotiations are also underway.
    LRIP contracts should transition, as I mentioned earlier, 
to a fixed price structure, reflecting the need for the 
contractor to control costs and not simply pass them on to the 
government.
    The Director of Defense Procurement and Acquisition Policy, 
who's with me here today, will be conducting a should-cost 
analysis in preparation for LRIP 5 so that we, too, on the 
government side will have a view on what the aircraft should 
cost in LRIP 5 which will be the fiscal year 2012 buy.
    In regard to addressing the Nunn-McCurdy cost growth, 
affordability must be aggressively and relentlessly pursued by 
all three airframe contractors, Lockheed Martin, Northrop 
Grumman, BAE Systems, and the F135 engine prime which is Pratt 
& Whitney. We will be looking at the cost structure of the JSF 
in all its aspects; assembly, part supplies, staffing, 
overheads and indirect costs, cash flows, contract structures, 
fees, and life cycle costs.
    More fundamentally, the program management contractors in 
the DOD need to surface candidly and openly issues with this 
program as they arise so that we can deal with them 
managerially, so that Congress is aware of them and they can be 
addressed.
    I pledge that we will keep this committee fully and 
promptly informed of this program's progress. We will keep our 
international partners fully and promptly informed. As I said, 
the program will benefit from the fresh eyes and experienced 
managerial hand of a three-star PEO.
    Military capability of JSF will ensure that this aircraft 
will be the backbone of U.S. combat air superiority for the 
next generation and, as I stated earlier, the technological 
capabilities of the aircraft are sound, but its affordability 
must be restored.
    Thank you.
    [The prepared statement of Dr. Carter follows:]
               Prepared Statement by Dr. Ashton B. Carter
    Mr. Chairman, Senator McCain, members of the committee: I am 
pleased to meet with you and my colleagues to discuss the F-35 Joint 
Strike Fighter (JSF) program.
    The JSF is the Department of Defense's (DOD) largest acquisition 
program, and its importance to our national security is immense. As 
Secretary Gates has said publicly, ``we cannot afford, as a nation, not 
to have this airplane.'' The JSF will form the backbone of U.S. air 
combat superiority for the next generation. It will replace the legacy 
tactical fighter fleets of the Air Force, Navy, and Marine Corps with a 
dominant, multi-role, fifth-generation aircraft, capable of projecting 
U.S. power and deterring potential adversaries. Furthermore, the JSF 
will have the capability to effectively perform missions across the 
full spectrum of combat operations. For our international partners who 
are participating in the program, the JSF will become a linchpin for 
future coalition operations and will help to close a crucial capability 
gap that will enhance the strength of our security alliances.
    At the same time, Secretary Gates has insisted upon performance in 
acquisition programs, as has this committee. The JSF program has fallen 
short on performance over the past several years. This is unacceptable 
to the taxpayer and to the warfighters of the U.S. Air Force, Navy, and 
Marine Corps, and to the international partners who also plan to deploy 
the JSF. We described this situation to the committee when we met with 
you in December 2009.
    In his presentation of the President's fiscal year 2011 defense 
budget, Secretary Gates described some of the steps he has taken to 
restructure the program, and, notably, to put it on a more realistic 
schedule and budget. These are important steps, and we will be giving 
the committee more detail on them today. But I would like to emphasize 
that it has taken a couple of years for the JSF program to fall behind, 
and the DOD will need to aggressively manage the program over the 
coming critical years as it transitions from development and test into 
production. The DOD will be looking to the program, as I know this 
committee will, to show progress against a reasonable set of objectives 
according to a realistic overall plan. The emphasis must be on 
restoring a key aspect of this airplane when the JSF program was first 
launched over a decade ago: affordability.
                       reviews of the jsf program
    DOD has conducted several reviews of the JSF program: two Joint 
Estimating Team (JET) reviews, an Independent Manufacturing Review Team 
(IMRT) review, and a F135 Joint Assessment Team (JAT) review. Let me 
clear up something right at the beginning: all of these reviews have 
been provided to your staffs.
    The Cost Assessment and Program Evaluation (CAPE) office led the 
JET I and II reviews. Ms. Fox can describe the documentation and 
briefings made available to your staff. Acquisition, Technology, and 
Logistics commissioned the IMRT and the JAT.
    In October 2008, the JET I estimate projected that the System 
Development and Demonstration (SDD) phase of the program would take 
longer and cost more than both the JSF Joint Program Office (JPO) and 
the contractor were projecting. Based on the JET I estimate, Secretary 
Gates directed in October 2008 that $476 million be added to the SDD 
program in fiscal year 2010 to mitigate the schedule risk and cost 
growth forecast.
    In July 2009, Deputy Secretary Lynn directed that a second JET 
estimate, JET II, be prepared by October 2009. The JET II estimate was 
substantially similar to the JET I estimate. It found that the factors 
noted in the JET I estimate in October 2008 had persisted for another 
year. These factors were driven by substantially higher contractor 
Class 2 change traffic (that is, changes in design not resulting from 
changes in requirements or capability), which led to increased 
engineering and software staffing, extended manufacturing span times, 
and delayed delivery of aircraft to flight test. The overall effect of 
these factors, the JET II said, would be a 30-month slip in the 
completion of flight test relative to the JPO plan from the summer of 
2009.
    Additionally, the IMRT review identified a large number of 
conditions that would need to be satisfied in order for the production 
ramp-up planned at that time by the JPO and the contractor to be 
achieved. At about the same time, the JAT review noted substantial cost 
growth in the F135 JSF engine program and identified measures to 
arrest, and possibly reverse, that cost growth.
    None of these reviews discovered fundamental technological or 
manufacturing problems with the JSF program, or any change in the 
aircraft's projected military capabilities. However, all of these 
inputs suggested that a DOD-wide review of the JSF program was 
warranted. Further, it was clear that if the JET II estimate was 
correct, the JSF program would have a critical Nunn-McCurdy breach.
    The review, which began in November 2009, was therefore undertaken 
as though JSF was in Nunn-McCurdy breach. I will describe some of the 
findings of the review and the management steps taken to date as a 
result. Most of the important ones were described by Secretary Gates in 
his budget testimony to this committee. They are organized according to 
their respective stages in the life of the program: development, 
initial production, and full-rate production. I will also describe how 
the actions we are taking reflect the DOD's acquisition reform focus, 
and the intent of the Weapon Systems Acquisition Reform Act (WSARA) 
spearheaded by this committee.
                        jsf development program
    When we met with the committee in December, we described how the 
DOD's leadership was presented with two different forecasts about how 
the JSF program would unfold in the next few years: one from the JPO 
and contractor, and another from the CAPE-led JET II.
    The JET II forecasted, among other things, a longer (by 30 months 
as measured to the end of developmental flight testing) and more 
expensive (by $3 billion over the Future Years Defense Program) 
development phase than the JPO. We explained that the DOD was trying to 
reconcile these two forecasts.
    As part of the budget process, Secretary Gates determined that the 
JET II estimate, suitably revised, was the more realistic forecast to 
use for budgeting purposes and directed that the program be 
restructured around the JET II forecast. The use of this independent 
cost estimate (JET II) is consistent with the WSARA of 2009.
    Secretary Gates also directed several steps to partially restore 
the SDD schedule. First, he directed the procurement of an additional 
carrier version aircraft to be used for flight testing. This additional 
asset will help complete the required flight tests sooner and more 
efficiently. Second, he directed that three early production jets 
planned for operational test be loaned to developmental test, adding 
further assets to the flight test program. We are still working on the 
details of this loan of aircraft to ensure that it does not have an 
impact on operational test, as Dr. Gilmore will discuss.
    Third, Secretary Gates directed the addition of another software 
integration line to the program. This is intended to prevent the 
building of the mission systems software from becoming a limiting 
factor on the development schedule.
    The JET II team estimates that these three steps, taken together, 
can restore 17 months to the development schedule; that is, reverse 
what would have been a forecasted 30-month delay in the completion of 
flight test to 13 months, meaning that it will complete in March 2015. 
This revised JET II forecast, then, became the final basis for the 
DOD's budget submission.
    I would like to emphasize two things about this restructuring of 
the development program. First, adding aircraft, software engineering 
capability, and other resources to the development program to arrest 
the trend identified by the revised JET II forecast costs money. It did 
not seem reasonable that the taxpayer should bear the entire cost of 
this failure of the program to meet expectations. That is why Secretary 
Gates decided to withhold $614 million in fee from the Lockheed Martin 
SDD contract.
    Second, while recovering 17 of the 30 months of projected 
development program timeline stretch is a constructive result of the 
JET process's look over the past 2 years of the JSF's performance, 
these are estimates, and reality will get a vote. The next 2 years will 
be critical ones for JSF, with delivery of test aircraft to Patuxent 
River and Edwards AFB, completion and analysis of hundreds of test 
flights, and commencement of flight training at Eglin AFB this year, 
and a number of key milestones in 2011, including:

         Initial Marine Short Take Off and Vertical Landing 
        (STOVL) sea trials with Navy amphibious assault ship (Landing 
        Helicopter Dock);
         Completion of initial land-based carrier catapult and 
        arrested landing testing at Lakehurst, NJ and Patuxent River, 
        MD.
         Release of Block 2 software to flight test;
         Completion of static structural testing of all three 
        variants;
         Mission training initiated at Eglin AFB with Block 1 
        software;
         Delivery of all LRIP 2 (12 aircraft) and at least 13 
        of 17 LRIP 3 U.S. and Partner aircraft.

    The DOD has challenged the contractor to improve upon the revised 
JET II estimate, and they have accepted that challenge. The current 
program plan, as revised, stands up the first training squadron at 
Eglin AFB in 2011, and delivers operational aircraft to operational 
squadrons for the Marine Corps 2012, the Air Force in 2013, and the 
Navy in 2014.
    One final note regards Initial Operating Capability (IOC). The IOCs 
are determined by the Services based on both the program's performance 
and how the Services define IOC. Each Service has a somewhat different 
definition, depending on what capabilities they intend to have at IOC, 
their operational test and training requirements, and the number of 
aircraft they require for IOC. Since the restructuring, the Services 
have specified these definitions.
    At this time, based on the revised JET II schedule for the end of 
developmental and operational test, and their definitions of IOC, the 
Services are projecting IOCs of 2012 for the Marine Corps, and 2016 for 
the Air Force and Navy.
                         jsf initial production
    The IMRT examined the transition from development to production. 
For JSF, there is a great deal of ``concurrency,'' meaning that 
development activities like flight testing are still going when 
production begins. The IMRT identified a large number of conditions 
that would have to be satisfied in order for the planned production 
ramp to be achieved, and recommended that the program adopt a somewhat 
flatter and smoother ramp. The JET II accepted this revised ramp and 
then moved it later in time in accordance with the delayed progress of 
the development program.
    Secretary Gates decided to budget to the revised JET II ramp, and 
the fiscal year 2011 budget submission reflects this later, slower 
ramp-up to full-rate production for JSF. As mentioned above, budgeting 
to this revised JET II estimate is consonant with the WSARA. This 
approach has three consequences:
    First, it lowers risk by reducing concurrency.
    But second, the early aircraft will be more expensive, since they 
will be produced in smaller annual lots.
    Third, this is--again--an estimate. Obviously we would like the 
program to perform better than the revised JET II estimate. That is why 
we are protecting the option to produce 48 aircraft, not 43, in fiscal 
year 2011. This will be determined in negotiations with the contractor, 
which are ongoing. These negotiations include the transitioning of the 
LRIP contracts for JSF to fixed price at an earlier date. Obviously we 
think the taxpayer would want us to get more and cheaper aircraft than 
the JET II estimates.
    The pattern here is the same as noted above for development: DOD is 
budgeting to the independent cost estimate, but challenging the 
contractor to do better than the estimate.
            jsf full-rate production and nunn-mccurdy breach
    Finally, I would like to address full-rate production and the JSF 
program's breach of the critical Nunn-McCurdy threshold for unit cost.
    After several years of low-rate initial production (LRIP), JSF will 
enter full-rate production and produce 2,443 jets for the U.S. and 730 
for international partners.
    The JSF program has been approaching the Nunn-McCurdy threshold for 
several years. As the DOD began reviewing the program in detail in 
November 2009, it became apparent that if the JET II estimate was 
right, the cost increases it was projecting, together with other 
factors, would cause the JSF program to breach the threshold.
    This means that the average price of a JSF aircraft as estimated by 
the JET--the overall cost of the program averaged over all the years of 
production divided by the number of aircraft--would be more than 50 
percent higher (in inflation-adjusted dollars) than it was projected to 
be back in 2001 when the program began.
    I expect that Air Force Secretary Donley will formally notify 
Congress of JSF's Nunn-McCurdy breach within days. The thorough review 
of a program required under the Nunn-McCurdy law will be a continuation 
of the process begun in November, when the JET II estimate indicated 
the shortcomings of the program over the past years.
    There are a number of factors contributing to the cost growth 
estimate: larger than-planned development costs driven by STOVL variant 
weight growth and longer forecasted development schedule; increase in 
labor and overhead rates; degradation of airframe commonality; lower 
production quantities; increases in commodity prices (particularly 
titanium); and major subcontractor cost growth. Ms. Fox will describe 
the CAPE's estimate of these costs during her testimony.
                            the way forward
    Mr. Chairman, Senator McCain, and members of the committee, clearly 
the JET II and other studies conducted over the past year indicate that 
the JSF program fell short of expectations and must be restored to 
affordability and a stable schedule.
    Looking ahead to the coming years, several management measures will 
be critical, and Secretary Gates has elevated the position of the JSF 
Program Executive Officer to three-star rank to reflect a need for 
experienced, vigorous management. The JPO, with oversight from the 
Office of the Secretary of Defense, will need to take a number of 
critical steps in three areas:

      1. The developmental test program and the lead-up to IOC.
      2. The ramp-up to full-rate production; and
      3. Addressing the Nunn-McCurdy cost growth.

    In regard to the developmental test program and the lead up to IOC: 
First, as I noted earlier, it is important to provide the new test 
assets and software capabilities to the development program, as 
directed by Secretary Gates, so there will not be further delays in the 
completion of flight test. Second, the contractor must be held to 
account to meet or exceed a defined set of milestones connected to fee 
on the development contract. These negotiations are underway. Third, 
the program will need to deal promptly with issues that arise during 
flight testing--and experience shows there will be such issues.
    In regard to the ramp up to full-rate production: the LRIP 4 
contract covering fiscal year 2011 should provide for pricing that 
meets or exceeds the JET II-based plan of 43 aircraft. These 
negotiations are also underway. LRIP contracts should transition to a 
fixed-price structure reflecting the need for the contractor to control 
costs and not simply pass them on to the DOD. The Director of Defense 
Procurement and Acquisition Policy will be conducting a ``should-cost'' 
analysis to prepare for LRIP 5.
    In regard to addressing Nunn-McCurdy cost growth: Affordability 
must be aggressively and relentlessly pursued by all three airframe 
contractors--Lockheed-Martin, Northrop Grumman, and BAE Systems--and 
the F135 engine prime, Pratt & Whitney. As part of our continuing 
``should cost'' analysis, we will be looking at the cost structure of 
JSF in all its aspects--assembly, parts supplies, staffing, overheads 
and indirect costs, cash flows, contract structures, fees, and 
lifecycle costs.
    More fundamentally, the program management, contractors, and the 
DOD need to surface candidly and openly issues with this program as 
they arise, so that Congress is aware of them and they can be 
addressed. I pledge that we will keep this committee fully and promptly 
informed of this program's progress. We will also keep our 
international partners fully and promptly informed. The program will 
benefit from the fresh eyes and experienced managerial hand of a three-
star Program Executive Officer.
    The military capability of JSF will ensure that this aircraft will 
be the backbone of U.S. combat air superiority for the next generation 
and, as I stated earlier, the technological capabilities of the 
aircraft are sound. But its affordability must be restored.
    Thank you and I look forward to answering any questions you might 
have.

    Chairman Levin. Thank you, Secretary Carter. Are there any 
other opening statements from any of the other panelists?
    Ms. Fox.

STATEMENT OF HON. CHRISTINE H. FOX, DIRECTOR OF COST ASSESSMENT 
 AND PROGRAM EVALUATION, DEPARTMENT OF DEFENSE; ACCOMPANIED BY 
FRED JANICKI, DIRECTOR, WEAPON SYSTEMS COST ANALYSIS DIVISION, 
 COST ASSESSMENT AND PROGRAM EVALUATION, DEPARTMENT OF DEFENSE

    Ms. Fox. Thank you, Mr. Chairman. Mr. Chairman, Senator 
McCain, and distinguished members of the committee, thank you 
for the opportunity to appear before you to discuss the 
analytic basis for the restructuring of the JSF program that 
Dr. Carter has just described.
    The analysis has been led by the CAPE directorate and the 
study team's lead, Fred Janicki, is here with me. Today I 
will----
    Chairman Levin. Let me interrupt you if I could.
    Ms. Fox. Yes, sir.
    Chairman Levin. Give us an idea as to how long your opening 
statement will be?
    Ms. Fox. Less than 5 minutes, sir.
    Chairman Levin. Are there any other opening statements?
    Ms. Fox. Yes, sir.
    Chairman Levin. One other opening?
    Dr. Gilmore. Less than 5 minutes.
    Chairman Levin. Less than 5 minutes.
    Dr. Gilmore. I can do it in a minute if that's what you 
want.
    Chairman Levin. That would be fine. Is that all right?
    If you can boil them down and as I mentioned before, in 
terms of the Senators, we're going to call on Senators in the 
same order as they arrived for the first hearing, so 
everybody's not confused hopefully by the order of recognition.
    So, Ms. Fox, please.
    Ms. Fox. Let me try to shorten my statement, sir. A couple 
things about the ICE process that I would like you to know. We 
built, of course, on the methodologies that the CAPE and former 
Cost Analysis Improvement Group organization have used for many 
years, but for JSF, I think it's important for you to know that 
we went one step further and built a team of experts from the 
defense tactical aircraft community.
    So this review was not done just in CAPE alone, but instead 
we involved multi-governmental experts drawn from the Navy, Air 
Force, and OSD staffs. The members of that team provided 
technical expertise across the areas of air vehicle and mission 
systems engineering, test, and cost estimation. So this was 
quite an expert team that looked at this.
    Dr. Carter has gone through the JET I/JET II history, so I 
won't do that again, but I would like to talk about what the 
estimate actually means. It is difficult to mathematically 
calculate the precise confidence levels associated with ICEs 
prepared for major acquisition programs.
    Based on the rigor of the methods used in building the 
estimate, the strong adherence to the collection, use of 
historical cost information, and the review of applied 
assumptions, we project that it is about equally likely that 
the JET II estimate will prove too low or too high for 
execution of the restructured program as described.
    I would also like to comment here on the documentation of 
the JET II work. Normally, we would document the results of an 
ICE, such as JET II, in a written report. In the case of JET 
II, however, we pulled the results into a summary-level 
briefing as quickly as possible to present to DOD leadership.
    That briefing, the same briefing that has been provided to 
you, immediately prompted Dr. Carter to create a JSF Task 
Force. From that point forward, these same analysts were deeply 
engaged in guiding the program restructuring and have not been 
given the opportunity to write a report.
    I believe that this combination of cost estimation as an 
independent activity and then using it to guide the program 
restructuring is a direct result of the WSARA legislation and 
something new for CAPE to grapple with. We prefer to document 
our work in written reports and hope to return to that practice 
in the future as we add staff and time permitting.
    I was going to briefly summarize the restructuring that Dr. 
Carter has already gone through, but in the interest of time, 
let me focus just a minute again on the costs, just to be sure 
that my answer earlier was clear, if I might.
    The program restructuring, based on the JET II cost 
estimate and the production rates estimated by the IMRT, will 
result in a critical Nunn-McCurdy breach of greater than 50 
percent when measured from the original acquisition program 
baseline established for the program in 2001.
    We have been preparing for this breach ever since the JET 
II results became available in October 2009. Even though that 
formal declaration has not been made to you, we anticipate it 
will be made to you within days and the DOD plans to complete 
the recertification review of the restructured program by June 
2010.
    Let me go over some of these numbers again. In 2001, at the 
time of the Milestone B approval for the program, the JSF 
average procurement unit cost was projected to be $50.2 million 
in constant base-year 2002 dollars. This figure was based on a 
total anticipated U.S. procurement of 2,852 JSF aircraft, 
including all three variants, Air Force, Navy, Marine Corps.
    The number to be procured was revised in August 2002 to 
2,443. That number, 2,443, holds to this day. The revision was 
in response to Navy/Marine Corps tactical aircraft (TACAIR) 
integration. The latest JSF acquisition program baseline, dated 
March 2007, projected an average procurement unit cost of $69.2 
million in baseline 2002 dollars.
    We currently anticipate that that average procurement unit 
cost for the restructured program, based on the total still of 
2,443 jets, will fall in the range of $80 to $95 million base 
year 2002. We are in the process of determining that number and 
it will be included in the restructured program in the Nunn-
McCurdy review that has been initiated already.
    I would like to focus a minute on the perceptions of the 
program that result from the restructuring and make clear to 
you that the projected delay in completion of the Developmental 
Flight Test Program in our view in CAPE should not be 
interpreted as a signal that the JSF program has insurmountable 
technical problems. The result of our reviews instead reflect 
the program's complexity and the risks remaining in its 
development activities.
    I know that this is not the goal. However, development 
delays such as the ones that JSF is experiencing have been 
experienced by other aircraft programs, and these programs 
ultimately produced aircraft that are valuable to the DOD.
    For example, the C-17 experienced significant development 
problems beginning in the late 1980s and continuing through the 
1990s. These problems raised questions about cost 
effectiveness. In response, DOD restructured the program and 
reduced the aircraft order until the problems were resolved in 
the mid-1990s.
    Similarly, the F-22 program repeatedly failed to meet key 
performance, schedule, and cost goals. In response, DOD 
restructured the development program and reduced production 
aircraft quantities. Ultimately, the contractor was able to 
overcome these challenges and produce a capable aircraft.
    We are restructuring the JSF program in a very early stage, 
and we believe that is consistent with the goals of WSARA. The 
ICEs and the results of the IMRT were taken very seriously and 
were acted upon by Secretary Gates as soon as we heard about 
them. DOD now has a realistic fiscal path and plan for this 
important TACAIR program.
    Thank you again for the opportunity to appear before you.
    [The prepared statement of Ms. Fox follows:]
                 Prepared Statement by Christine H. Fox
    Mr. Chairman, Senator McCain, and distinguished members of the 
committee, thank you for the opportunity to appear before you to 
discuss the analytic basis for the restructuring of the JSF program. 
The analysis has been led by analysts and managers in Cost Assessment 
and Program Evaluation (CAPE). Today, I will give you a sense for how 
the analysis was conducted, its overall findings, and the implications 
for the program going forward.
    CAPE conducts independent cost estimates for major weapons systems. 
Your Weapons System Acquisition Reform Act recently increased the 
responsibility and authority of our organization in the conduct of 
these independent cost estimates. Our work is building on the 
experience and expertise of the Cost Analysis Improvement Group, who 
has been conducting these reviews since 1972. Independent cost 
estimates are conducted by using a combination of historical 
precedence, results of extensive site visits for all major components 
of the program, and the actual performance of that program to date. It 
is a careful, painstaking analysis that looks at all aspects of a 
program.
    For JSF, we went one step further and built a team of experts from 
the defense tactical aircraft community. Specifically, the Joint 
Estimating Team (JET) was composed of multifunctional government 
experts drawn from the Navy, Air Force, and OSD staffs. The members of 
the team provided technical expertise across the areas of air vehicle 
and mission systems engineering, testing, and cost estimation.
    The JET conducted two reviews. The first, JET I, was conducted in 
2008. The results of JET I informed the fiscal year 2010 President's 
budget. The full cost of development in fiscal year 2010 as predicted 
by JET I was submitted in the fiscal year 2010 President's budget. To 
inform the 2011 program review and budget submission, the Deputy 
Secretary of Defense asked CAPE to lead an update of the original JET 
report last summer. This team, JET II, began its review in July 2009. 
Given that the aircraft is still in the early stages of flight testing, 
the group focused its efforts on examining the resources required by, 
and the planned schedule for completing, the System Development and 
Demonstration (SDD) phase of the program. Additionally, the team 
updated the previous JET estimates of JSF production, fielding, and 
support costs. Consistent with the methodologies used in independent 
cost estimation, the JET II conducted comprehensive on-site reviews 
with the prime contractor and each of the major subcontractors in the 
JSF program. Through those discussions, the team obtained detailed 
information on the program's progress to date, enabling it to 
incorporate the most current information into its cost estimate. The 
team compared the data gleaned from these interviews with the 
development and production costs and schedules of previous Department 
of Defense (DOD) manned tactical fighter aircraft programs. As with any 
cost estimate developed in CAPE, our objective was to forecast the 
likely path of events going forward, given the capability requirements 
and the current status of the program. The JSF cost and schedule 
estimates developed by the JET II team are based directly on DOD's 
experience in developing and procuring comparable manned tactical 
fighter aircraft such as the F-22 and the F-18, adjusted to reflect the 
actual costs incurred in the JSF program to date and the program's 
projected acquisition schedule.
    It is difficult to calculate mathematically the precise confidence 
levels associated with CAPE life-cycle cost estimates prepared for 
major acquisition programs. Based on the rigor in methods used in 
building CAPE estimates, the strong adherence to the collection and use 
of historical cost information, and the review of applied assumptions, 
we project that it is about equally likely that the JSF joint estimate 
will prove too low or too high for execution of the restructured 
program as described.
    I would like to comment here on the documentation of the JET II 
work. Normally, we would document the results of an important 
independent cost estimate such as JET II in a written report. In the 
case of JET II, however, we pulled the results into a summary level 
briefing as quickly as possible to present to DOD leadership. This 
briefing, the same briefing that has been provided to your staff, 
prompted Dr. Carter to create a JSF Task Force as soon as the JET II 
results became available. From that point forward, these same analysts 
were deeply engaged in guiding the program restructuring and have not 
been given an opportunity to write a report. We prefer to document our 
work in written reports and hope to return to that practice for the JSF 
program in the future, time-permitting.
    The restructuring led by CAPE also considered results of the 
Independent Manufacturing Review Team, commissioned by the Under 
Secretary of Defense for Acquisition, Technology, and Logistics, and 
discussed in Dr. Carter's testimony. In summary, the Independent 
Manufacturing Review Team assessed that the rate of production of F-35s 
in the Future Years Defense Program (FYDP) years should be slower than 
originally planned, and that fewer aircraft should be acquired in the 
early years until specific manufacturing processes and management tools 
are put in place and demonstrated in the program. Like the JET 
estimate, the IMRT ramp is an estimate and we would like the contractor 
to exceed that ramp if possible.
    Given the results of both JET I and JET II as well as the IMRT, we 
found it necessary to significantly restructure the program in the 
preparation of the fiscal year 2011 President's Budget request. 
Specifically, we:

      1. Extended the development phase through completion of 
developmental testing to March 2015.

    This is a 13-month extension over the contractor's development 
schedule plans from Summer, 2009. We included the acquisition of one 
additional developmental carrier-based JSF test aircraft, allocated 
three additional production aircraft to the JSF development program to 
accelerate completion of developmental flight testing, and provided 
funding for an additional software development and testing line in the 
program. These actions are all necessary to achieve the new March 2015 
date for completion of the development testing. The additional cost to 
this development phase of the program is $2.8 billion. The contractor 
will incur a portion of these additional costs as Dr. Carter described.

      2. Delayed an increase in the production ramp.

    In accordance with the IMRT recommendations, we reduced the planned 
procurement of JSFs by 122 aircraft in the fiscal years 2011-2015 FYDP. 
Given the additional time necessary for the development program, this 
reduction in aircraft procurement quantities in the FYDP reduces the 
number of aircraft delivered prior to completion of testing. The 
contractor team will be given the opportunity to exceed this prediction 
and produce more aircraft than planned in the restructured program 
based on demonstrated progress in implementing and maturing 
manufacturing processes, and a demonstrated ability to produce and 
deliver JSF aircraft to the government at lower cost.

      3. Will declare a critical Nunn-McCurdy breach.

    The program restructuring, based on the JET II cost estimate and 
the production rates recommended by the IMRT, will result in a critical 
Nunn-McCurdy breach of greater than 50 percent when measured from the 
original acquisition program baseline established for the JSF program 
in 2001. We have been preparing for this breach ever since the JET II 
results became available in October 2009. The formal declaration of the 
breach to Congress is anticipated by April 1, and DOD plans to complete 
certification review of the restructured JSF program by June 2010.
    In 2001, at the time of Milestone B approval for the program, the 
JSF average procurement unit cost was projected to be $50.2 million in 
constant, base-year 2002 dollars. This figure was based on a total 
anticipated U.S. procurement of 2,852 JSF aircraft, including all three 
variants--for Air Force, Marine Corps, and Navy. The number of aircraft 
to be procured was revised in August 2002 to 2,443. This revision was 
in response to plans for Navy/Marine Corps tactical aircraft 
integration. The latest JSF acquisition program baseline, dated March 
2007, projected an average procurement unit cost figure of $69.2 
million (budget year 2002 $).
    We currently anticipate that average procurement unit cost figure 
for the restructured JSF program in the fiscal year 2011 President's 
budget, based on a total planned U.S. procurement of 2,443 JSFs, 
including all variants, will fall in the range of $80-$95 million (BY 
2002 $). DOD is in the process of determining the specific average 
procurement unit cost figure to be included in the restructured JSF 
program baseline based on the Nunn-McCurdy review process that has 
already been initiated in DOD. The specific average procurement unit 
cost figure will be determined based on review of the latest program 
plans and cost information for those aspects of the program that affect 
primarily the years beyond 2015--including requirements for full-rate 
production tooling, support equipment, sparing of critical subsystems, 
and the effects of high annual procurement and production rates on 
efficiencies and costs. The specific APUC figure will be included in 
the final JSF Nunn-McCurdy certification package to be delivered to 
Congress in early June 2010.
    Finally, I would like to focus a minute on the perceptions of the 
JSF program that result from this restructuring. The projected delay in 
completion of the developmental flight test program should not be 
interpreted as a signal that the JSF program has insurmountable 
technical problems. The results of our reviews instead reflect the 
program's complexity and the risks remaining in its development 
activities.
    Development delays such as the ones the JSF program is currently 
experiencing have been experienced by other aircraft programs. These 
programs ultimately produced aircraft that are valuable to the DOD. For 
example, the C-17 program experienced significant development problems 
beginning in the late 1980s and continuing through the early 1990s. 
These problems raised questions about cost effectiveness. In response, 
DOD restructured the program and reduced the aircraft order until the 
problems were resolved in the mid-1990s. Similarly, the F-22 program 
repeatedly failed to meet key performance, schedule, and cost goals 
throughout its development program. In response, DOD restructured the 
development program and reduced production aircraft. Ultimately, the 
contractor was able to overcome these challenges and produce a capable 
aircraft.
    We believe that the restructuring of the JSF program at this early 
stage is consistent with the goals of WSARA. The independent cost 
estimates and the results of the IMRT were taken very seriously and 
acted upon by Secretary Gates. DOD now has a realistic fiscal plan for 
this important tactical aircraft program. Thank you again for the 
opportunity to appear before you today.

    Chairman Levin. Thank you very much, Ms. Fox. Dr. Gilmore, 
you wanted to go next.
    Dr. Gilmore. I will make it brief.
    Chairman Levin. Thank you.

 STATEMENT OF HON. J. MICHAEL GILMORE, DIRECTOR OF OPERATIONAL 
           TEST AND EVALUATION, DEPARTMENT OF DEFENSE

    Dr. Gilmore. Mr. Chairman, Senator McCain, members of the 
committee, my primary concern has been assuring that we can 
begin operational testing on whatever schedule was 
contemplated. Currently, that would be right around January 
2015, completed in a reasonable amount of time.
    Currently, we'd anticipate completing it in April 2016, and 
that the testing can be sufficiently robust to demonstrate that 
the Air Force, Navy, and Marine Corps are getting aircraft that 
will provide the combat capability they need.
    To do that, we'd need to make sure that we have a robust 
developmental test program. If we do not have that robust 
developmental test program, the problems that should have been 
discovered in developmental testing and fixed in developmental 
testing will instead be discovered during operational testing 
which, unfortunately, has been the case in many of our programs 
when they are much more expensive and time consuming to fix.
    In that regard, the direction that Secretary Carter has 
given to provide additional flight test aircraft, provide 
additional resources and time to develop, deliver, and test 
software effectively and to account realistically in the 
restructured program for the inevitable discovery of problems 
during flight test. To provide the additional engineering and 
other resources needed to maintain an adequate pace of testing 
are just absolutely key. The 13-month schedule extension in the 
restructured program is absolutely key, in my view, to having 
that robust developmental test program that will enable us to 
not discover a bunch of problems at operational testing.
    Thank you.
    [The prepared statement of Dr. Gilmore follows:]
              Prepared Statement by Dr. J. Michael Gilmore
    Good morning Mr. Chairman, Senator McCain, and members of the 
committee. Thank you for the opportunity to appear before you today to 
discuss the Joint Strike Fighter (JSF) program.
    In my view, the primary issues in the JSF program have been late 
delivery of test aircraft and the failure to adjust to that reality by 
building and resourcing realistic system development and test plans, as 
well as plans for producing and delivering aircraft. These problems 
have increased concurrency between testing and production beyond what 
was originally expected and beyond historical precedent. The resultant 
delays relative to unrealistic plans and the associated increase in 
costs to complete development created the need to restructure the 
program, which is in progress. In my fiscal year 2009 Annual Report, I 
assessed that completion of Initial Operational Test and Evaluation 
(IOT&E) of the most capable combat capability now formally planned (the 
so-called Block 3 aircraft) could occur in early to mid-2016, provided 
certain changes are made to specific aspects of the program. Key 
changes needed include providing sufficient flight test aircraft, 
providing the resources and time needed to develop, deliver, and test 
effective software, accounting realistically for the inevitable 
discovery of problems during flight testing, and providing the 
engineering and other resources needed to maintain an adequate pace of 
testing. I would like to review the status of these issues as I 
understand them today:

         Sufficient flight test aircraft. In the past fiscal 
        year the program failed to meet the planned goals for testing, 
        primarily due to the late delivery of test aircraft. As of 
        today, 3 of the 12 previously planned flight test aircraft 
        operate at one of the government test centers. Expectations at 
        this time last year were that 10 flight test aircraft would 
        have begun productive flight test activity by now, with the 
        final 2 following in the next 90 days. The program office now 
        projects that all 12 of the previously planned developmental 
        flight test aircraft will ferry to test centers by February, 
        2011. More test aircraft, generated from production lots, are 
        needed to complete Block 3 development. I agree with the 
        assessment of the Joint Estimating Team that 2 C-model 
        aircraft, 1 A-model aircraft, and at least 1 B-model aircraft 
        are needed in addition to the 12 previously planned 
        developmental test aircraft to complete developmental testing 
        in March 2015. Using production aircraft as developmental 
        flight test assets, however, needs to be carefully managed to 
        assure the original purposes for those aircraft, including 
        operational test and evaluation, can still be met, either by 
        returning the borrowed aircraft, or replacing them with other 
        production aircraft.
         Software development and test. The delivery schedules 
        for the remaining mission systems software Blocks 1, 2, and 3 
        have recently been extended by more than 1 year each compared 
        to the plans existing at this time last year. The late delivery 
        of test aircraft has, so far, masked the effect of delays in 
        software development. Extending the Cooperative Avionics Test 
        Bed availability through the end of developmental testing was a 
        good decision, as the test bed will continue to provide risk 
        reduction. I understand the contractor has also proposed 
        creating a new, additional software integration and test line. 
        Although a lack of software integration and test resources was 
        not identified previously as a problem by program management, 
        the new test line will be very useful provided the contractor 
        has the manpower to operate it and simultaneously accomplish 
        multiple integration activities. However, the reality is that 
        flight test of the essential warfighting capabilities has yet 
        to start. Mission systems flight test in F-35 aircraft begins 
        when aircraft BF-4, the first of four previously planned 
        mission systems test aircraft, ferries to a test center. This 
        is currently planned to occur in May of this year. Only one of 
        the remaining three previously planned aircraft is expected to 
        ferry before the end of 2010, with the final two delivering 
        early in 2011. By mid-2011, flight test is planned to 
        transition from Block 1 to Block 2 capabilities--this will be 
        an important point where the program will deal with the 
        realities of software performance in the first significant 
        combat capability available. Throughout this testing, the 
        program needs to assure software is released to flight test 
        only when it is ready and prepare to cope with the many 
        problems that will be discovered during flight testing; this 
        has been the case with all complex programs of this kind.
         Realistic Schedules and Sufficient Resources. The 
        program's ability to maintain an adequate pace of testing is 
        dependent on how the government and contractors manage several 
        aspects of the planned verification strategy.

                 Integration of multiple test venues. The 
                fundamental test strategy is to integrate multiple test 
                venues, including the corporate labs and the 
                Cooperative Avionics Test Bed, while using F-35 flight 
                test as a ``capstone'' event. Effective orchestration 
                of these venues and this build-up process is critical 
                to assure efficient use of flight test sorties. We have 
                yet to see how the process being put in place will cope 
                with multiple events for three different variants 
                operating at two flight test centers. Ultimately, those 
                responsible for issuing, or rescinding, flight 
                clearances will need time and resources to examine the 
                data and, if necessary, request and receive additional 
                information. This has already been the case with the 
                Short-Takeoff/Vertical-Landing (STOVL) aircraft testing 
                being conducted at Patuxent River. The contractor 
                predicted early last December that full STOVL flight 
                clearance would be achieved by the end of 2009. That 
                clearance had not yet been achieved as of March 9, 
                2010, although we hope it is imminent. The decision 
                cycle for understanding flight test results and 
                achieving flight clearance will be under considerable 
                pressure in the coming months, and will require 
                continual supervision in order to meet test goals.
                 Accreditation of models. The testing strategy 
                puts a high premium on accreditation of the labs and 
                models that the program plans to use in the build-up to 
                flight test. As of November 2009, about 40 percent of 
                the currently-planned model accreditation activities 
                are planned to complete in 2013 or thereafter. While 
                this gives the program time to incorporate performance 
                data from flight tests in the accreditation process, it 
                also highlights the limited margin available if the 
                models and labs cannot play the intended role of 
                limiting flight test sorties to a minimum amount.
                 Resources at the flight test centers. Flight 
                test center resources are also a specific area for 
                continued examination. Adequate spare parts, trained 
                personnel, and training/mission rehearsal tools are 
                essential to reaching the eventual pace of flight test 
                events totaling over 140 per month. While early results 
                in the area of spare parts usage and availability for 
                the three aircraft now flying at Patuxent River are 
                encouraging, managing adequate resources at two flight 
                test centers after the upcoming test aircraft 
                deliveries requires considerable focus and early 
                response as issues arise; again, this has been the case 
                with other programs of this complexity. A high fidelity 
                mission simulator located at the primary flight testing 
                center, which I understand is being considered by the 
                program office, will also be key to sustaining an 
                adequate pace of testing.
                 Margin for discoveries. While it is difficult 
                to determine what level of additional schedule is 
                needed for issues yet to be identified, it is important 
                to acknowledge that this is the reality of testing--we 
                will discover problems and need to make adjustments. 
                Engine performance in ground tests, deficiencies in the 
                flight control surface actuators, and slow progress 
                towards the first vertical landing are examples that 
                have already occurred. A more recent example is the 
                need to modify C-model test aircraft and change the 
                design of the keel beam area for production aircraft. I 
                understand the program is now incorporating short 
                periods of downtime in its revised test plans for 
                modifying test aircraft based on discovery of problems. 
                Combined with planning for a realistic number of refly 
                and regression test sorties, these components of 
                planning are the margin for discovery. I note that, 
                while the planned flight testing refly and regression 
                rates were recently increased by a modest amount, they 
                remain below historical experience.

    I want to briefly mention a system vulnerability issue. The program 
office is executing a comprehensive, robust, and fully funded live fire 
test plan. However, the program's recent removal of shutoff fuses for 
engine fueldraulics lines, coupled with the prior removal of dry bay 
fire extinguishers, has increased the likelihood of aircraft combat 
losses from ballistic threat-induced fires. F-35 live-fire testing to 
date has shown that threat impact into fuel tanks results in sustained 
fires. In addition, the F-35 will be more vulnerable to typical non-
combat fires caused by fuel leaks and other system failures without the 
fire-suppression systems. At present, only the integrated power plant 
bay has a fire suppression system. Though the configuration control 
process has approved the program office's request to remove these 
safety systems as an acceptable system trade to balance weight, cost, 
and risk, I remain concerned regarding the aircraft's vulnerability to 
threat-induced and safety-related fires.
    In conclusion, establishing realistic plans and adjusting to new 
realities revealed through flight test is essential as we move forward 
in the JSF program. Restructuring the test program and funding 
development consistent with the Joint Estimating Team's analysis are 
essential steps being taken now. In my view, the program needs to 
adjust continually to balance the pressure to complete testing on 
schedule and the need to demonstrate that the combat performance needed 
by the Navy, Marines, and Air Force has been achieved. The demonstrated 
performance of the aircraft should have the greatest influence on the 
decisions and adjustments that need to be made as the program 
progresses.
                                 ______
                                 
    [The prepared statement of General Moore follows:]
            Prepared Statement by Maj. Gen. C.D. Moore, USAF
    Mr. Chairman and distinguished members of the committee, I 
appreciate your invitation to present an update on the F-35 Lightning 
II Program status.
    The F-35 is the Department of Defense's (DOD) largest cooperative 
program, with eight other Partner countries participating under 
Memorandums of Understanding for System Development and Demonstration 
(SDD) and for Production, Sustainment and Follow-on Development. The 
eight Partner countries include the United Kingdom, Italy, The 
Netherlands, Turkey, Canada, Australia, Denmark, and Norway. In 
addition, Israel submitted a Letter of Request in July 2009 for unique 
development scope and acquisition of 75 aircraft beginning no earlier 
than Low Rate Initial Production (LRIP) 6. Several other Foreign 
Military Sales type study efforts continue for other nations outside 
the Partnership. Through fiscal year 2010, the eight International 
Partners will have provided approximately $4.4 billion of their $4.5 
billion commitment to the SDD phase of the program.
    The F-35 program has made progress towards providing the Air Force, 
Navy and Marines as well as our Partners a stealthy, long-range, multi-
role 5th generation fighter. As a multi-role fighter, the F-35 will 
greatly enhance operational capability and tactical flexibility of the 
combatant commanders by providing a 5th generation fighter family that 
can be deployed from main operating bases, austere bases and aircraft 
carriers. The F-35's design incorporates leading edge stealth, 
propulsion, mission systems sensors, interoperability and 
supportability technology. It is these technologies and capabilities 
that will provide the warfighters with a long-range, day-one, strike 
fighter that is capable of executing the essential missions of 
Strategic and Tactical Suppression/Destruction of Enemy Air Defenses, 
Strategic Attack, Interdiction, Offensive and Defensive Counter Air, 
Tactical Intelligence, Surveillance and Reconnaissance and Close Air 
Support.
    The F-35 is in its ninth year of the SDD phase. The program 
continues technical progress focused on developing and delivering a 
phased block implementation of software-intensive mission systems 
capabilities. Technical risks are understood and being addressed. All 
variants are projected to meet their respective key performance 
parameters. The program has issued procurement contracts for three lots 
of LRIP aircraft and will commence LRIP 4 negotiations soon. We have 
experienced manufacturing delays in completing the developmental test 
aircraft; however, the metrics indicate the production line is maturing 
and we expect deliveries to recover to contractual schedule by LRIP 3 
completion in late 2011. We also expect to start training operations at 
Eglin Air Force Base in late 2010 with LRIP 1 aircraft.
    Along with many important accomplishments, the program has 
experienced challenges and disappointments in the transition from 
development to production. Development program shortfalls, notably late 
delivery of aircraft to flight test and related test schedule delays, 
drove the program restructure announced last month. Key aspects of the 
restructure include: extending the development test schedule to March 
2015 and moving Milestone C (Full-Rate Production) to April 2016, 
commensurate with completion of Initial Operational Test and 
Evaluation; extending LRIP production further; adding one incrementally 
funded carrier variant to the SDD program in order to expand 
development testing capacity; expanding JSF software integration 
capability by adding an additional software integration line; utilizing 
three LRIP aircraft in support of development testing; fully funding 
the SDD program to the OSD Joint Estimating Team's (JET) estimate; and 
lowering the planned procurement quantity profile through 2015. The 
remaining fee pool on the SDD air system prime contract will be 
converted to a performance incentive construct. The new fee construct 
will establish a balanced and objective incentive structure based on 
the contractor's performance in attaining milestone schedule events and 
cost targets. It is important to note that the DOD did not uncover any 
technology or manufacturing show-stoppers in its review, and did not 
descope performance requirements during the restructure process.
    I'm confident and optimistic in the wake of the restructure--
technical progress remains sound based on all key indicators, and I 
believe the added time and resources will alleviate schedule pressures 
that have been building for the past few years. The program's near-term 
focus will be refinement of the restructure to include establishing a 
revised flight test schedule, negotiating over target baselines with 
the prime contractors, and incentivizing them to meet their commitments 
below target costs.
    A snapshot of technical progress follows:

         SDD airframe and vehicle systems design is 100 percent 
        complete.
         Five SDD jets have flown a total of 216 hours over 160 
        flights through March 8, 2010.
         Fifteen of the 19 ground and flight test articles have 
        completed fabrication and been delivered from the factory to 
        final assembly or the test team at Fort Worth, and all SDD 
        aircraft will be ferried to their respective test centers 
        inside the coming year. In total, 43 SDD and LRIP aircraft 
        (including 3 International Partner LRIP jets) are completed or 
        in-work. We await Defense Acquisition Board approval for LRIP 4 
        full funding this spring.
         Approximately 82 percent (15.4M lines of code) of all 
        F-35 software is coded. The first SDD aircraft (AA-1) with its 
        Block 0.1 configuration has more code than was developed for 
        the F-22 during its SDD phase. We have completed the 
        qualification testing for the avionics and flight systems 
        components for the three variants, and are 63 percent complete 
        with the full life durability testing of those components. 
        Systems integration testing continues on plan via the flying 
        test beds, a Cooperative Avionics Test Bed, and extensive 
        ground-lab testing, with over 150,000 hours of ground-lab 
        testing completed to date. Those facilities, part of the large 
        upfront investment in F-35 design and development, are reducing 
        risk faster than any previous legacy program at the same point. 
        Specifically:
         All variants are within the 3 percent weight growth 
        projection.
         BG-1, the STOVL structural test article, has completed 
        test faster than legacy systems with only one minor finding.
         AG-1, the conventional take-off and landing structural 
        test article began testing 31 July 2009 and is now 76 percent 
        complete with no problems discovered to date.
         The full-scale pole model has completed testing with 
        no issues, and has verified the accuracy of the F-35 signature 
        predictions and indicated satisfactory margin to the key 
        performance parameter for signature.
         Software productivity has surpassed expectations 
        according to all measures including the JET's assessment, and 
        is demonstrating orders of magnitude better software stability 
        at equivalent points compared to legacy programs.
         The F135 engine development program has completed over 
        13,000 ground test hours and has flown without incident over 
        160 times. The prior third-turbine blade failure has been 
        effectively addressed as have other lesser significant test 
        findings. In addition, we are executing the F136 engine 
        development program in accordance with appropriated funding 
        while recognizing that DOD does not intend to continue the 
        development next year. The F136 pre-SDD engines have completed 
        over 500 hours of test to reduce risk on their design; the 
        first two SDD engines, while experiencing some test problems 
        last year, have now completed 114 hours of test and advanced 
        the knowledge of their design.

    There is no doubt that the initial SDD jets have taken longer to 
build and ferry to the test centers than originally planned. I believe, 
however, the prime contractor teams have improved their manufacturing 
processes and are poised to demonstrate stable and efficient 
production, a robust design, a highly reliable and sustainable system, 
and most importantly, an extremely lethal and survivable 5th generation 
fighter.
    Joint development of the F-35 is providing the Services and 
coalition partners with an affordable weapon system that meets the 
needs of the warfighters. Analyses show F-35 will exceed legacy 
capability before delivery of our final software spiral.
    Thank you again for this opportunity to appear today. I am looking 
forward to working with you on behalf of the entire F-35 team and more 
importantly, our ultimate customer, the F-35 warfighter.

    Chairman Levin. Thank you very much.
    Mr. Sullivan.

STATEMENT OF MICHAEL SULLIVAN, DIRECTOR OF THE ACQUISITION AND 
   SOURCING MANAGEMENT TEAM, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Sullivan. Thank you. I'll be very brief, as well.
    GAO has looked at the restructuring efforts that DOD has 
undertaken and we think they do go a long way to getting at 
what the problems are.
    However, we still believe there's substantial overlap 
across development, test, and production activities and there's 
still significant risk on the program. Slowed by late aircraft 
deliveries, technical problems, and low productivity, the 
flight test program, for example, only completed 10 percent of 
the sorties that they had planned for in 2009.
    The problem that we see with the aircraft now is not 
necessarily technological in nature and it's not necessarily 
unknowns, if you will, but it's about manufacturing the 
aircraft. The estimates that they had for the time and the 
manpower it would take to manufacture the aircraft were very 
optimistic.
    I think the JET analysis is finally getting the actuals 
that they have in the program now are finally beginning to 
appear more--I think the cost and schedule estimate is now a 
lot more reasonable.
    I will just throw one metric out. Back when they started 
engineering and manufacturing development in 2001, I think that 
they were estimating somewhere around a million labor hours to 
complete the development program and manufacture aircraft and 
the estimate is well over 2 million labor hours today. So 
that's one example of what's happened on this program.
    The flight test program is still nascent, it hasn't really 
begun and once that begins, there's going to be more design 
changes. There will probably be more delays as a result of 
that.
    So just to summarize, I think that the JET Team got as 
realistic as they can get at this time. However, there's still 
a lot of risks in the manufacturing of development aircraft. 
One other thing I think that's important is that the DOD did 
take more aircraft out of the near-term years which we think is 
a way to mitigate risk. However, they're still going to be 
purchasing about 300 procurement aircraft before they're done 
with development tests.
    [The prepared statement of Mr. Sullivan follows:]
                 Prepared Statement by Michael Sullivan
    Mr. Chairman and members of the committee:
    Thank you for the opportunity to discuss our work on the F-35 
Lightning II, also known as the Joint Strike Fighter (JSF). The JSF is 
the Department of Defense's (DOD) most costly and ambitious aircraft 
acquisition. DOD is seeking to simultaneously develop and field three 
aircraft variants for the Air Force, Navy, Marine Corps, and eight 
international partners. The JSF program is to provide critical 
replacement aircraft that will serve as the heart of future tactical 
air forces. It will require a long-term commitment to very large annual 
funding outlays. The current estimated investment is $323 billion to 
develop and procure 2,457 aircraft.
    Through March 2009, GAO has issued five annual reviews of the JSF 
program under congressional mandate.\1\ We have consistently reported 
on the elevated risk of poor program outcomes from the substantial 
overlap of development, test, and production activities and our 
concerns about the Government investing in large numbers of production 
aircraft before variant designs are proven and performance verified in 
testing. In our March 2009 report,\2\ we again noted development cost 
increases, additional delays in manufacturing and testing schedules, 
and the government's increased financial risk from plans to increase 
procurement in advance of testing. DOD concurred with, but has not yet 
implemented, our two recommendations to report on plans for 
transitioning from cost-reimbursement to fixed-price contracts for 
aircraft procurement and to ensure that the prime contractor performs 
detailed schedule risk analyses to provide important insight into use 
of management reserve funds and manufacturing progress.
---------------------------------------------------------------------------
    \1\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 213 (2004).
    \2\ GAO, Joint Strike Fighter: Accelerating Procurement before 
Completing Development Increases the Government's Financial Risk, GAO-
09-303 (Washington, DC: Mar. 12, 2009).
---------------------------------------------------------------------------
    This testimony is based on our sixth annual review, which will be 
released later this month. GAO's work for this report began under a 
request from the Chairman and Ranking Member of the House Armed 
Services Air and Land Subcommittee. Subsequently, we received a new 
mandate in the National Defense Authorization Act for Fiscal Year 2010 
to annually review the JSF program through 2015.\3\ We examined: (1) 
program cost, schedule, and performance; (2) manufacturing plans and 
results; and (3) test plans and progress. To conduct this work, we 
tracked and compared current cost and schedule estimates with those of 
prior years, identified changes, and determined causes. We obtained 
program status reports, manufacturing data, and test planning 
documents. We conducted our own analyses of the information. We 
discussed results to date and future plans to complete JSF development 
and move further into procurement with DOD, JSF, and contractor 
officials. We conducted this performance audit from May 2009 to March 
2010. Our work was performed in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives.
---------------------------------------------------------------------------
    \3\ National Defense Authorization Act for Fiscal Year 2010, Pub. 
L. No. 111-84 Sec. 244 (2009).
---------------------------------------------------------------------------
    In brief, Mr. Chairman, our work has found that, although the 
department has recently directed a number of strong actions that should 
improve JSF program outcomes in the future, development costs have 
continued to increase and key events were missed. Although improving, 
manufacturing inefficiencies and parts problems persist, slowing 
delivery of test aircraft and, in turn, delaying development flight 
tests. DOD's restructuring actions should help, but there is still 
substantial overlap of development, test, and production activities 
while DOD continues to push ahead and invest in large quantities of 
production aircraft far ahead of completing testing. In light of these 
circumstances, we are recommending in our forthcoming JSF report that 
DOD: (1) make a new, comprehensive and independent assessment of the 
costs and schedule to complete the program, including military 
construction, JSF-related expenses in other budgets, and life cycle 
costs; and (2) reassess warfighter requirements and, if necessary, 
defer some capabilities to future increments. GAO will also suggest 
that Congress consider requiring that DOD establish a management tool 
for tying annual procurement requests to demonstrated progress in 
testing and manufacturing. The report is currently at DOD for comment 
which we expect to receive soon.
    cost increases and schedule delays increase risk of not meeting 
                    warfighter requirements on time
    The JSF program continues to struggle with increased costs and 
slowed progress--negative outcomes that were foreseeable as events have 
unfolded over several years. Total estimated acquisition costs have 
increased $46 billion and development extended 2\1/2\ years, compared 
to the program baseline approved in 2007. DOD is now taking some 
positive steps that, if effectively implemented, should improve 
outcomes and provide more realistic cost and schedule estimates. 
Officials increased time and funding for system development, added 4 
aircraft to the flight test program, and reduced near-term procurement 
quantities by 122 aircraft. Restructuring is not done and further cost 
growth and schedule extensions are likely. There is a substantial risk 
that the program will not deliver the expected number of aircraft and 
required capabilities on time. Dates for achieving initial operational 
capabilities may have to be extended or some requirements deferred to 
future upgrades. Also, aircraft unit costs will likely exceed the 
thresholds established by the statutory provision commonly referred to 
as Nunn-McCurdy \4\ and require the Department to certify the need for 
the JSF to Congress. Program setbacks in costs, deliveries, and 
performance directly impact modernization plans and retirement 
schedules of the legacy aircraft the JSF is slated to replace.
---------------------------------------------------------------------------
    \4\ 10 U.S.C. Sec. 2433 establishes the requirement for DOD to 
perform unit cost reports on major defense acquisition programs or 
designated major defense subprograms. If a program exceeds cost growth 
thresholds specified in the law, this is known as a Nunn-McCurdy 
breach. DOD is required to report breaches to Congress and, in certain 
circumstances, DOD must reassess the need for the program and submit a 
certification to Congress in order to continue with acquisition.
---------------------------------------------------------------------------
    Table 1 summarizes changes in program cost, quantities, and 
schedules at key stages of acquisition. The 2004 replan estimates 
reflect a quantity reduction and a major restructuring of the program 
after integration efforts and design review identified significant 
weight problems. The 2007 data is the current approved acquisition 
baseline and the 2011 budget request reflects cost increases stemming 
from a major reassessment of the program by a joint team comprised of 
OSD, Air Force, and Navy representatives.
      
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    Table 2 shows the extension of major milestone dates for completing 
key acquisition activities. The February 2010 restructure reflects the 
direction ordered by the Secretary in an acquisition decision 
memorandum issued on February 24 and revised on March 3. Completing 
system development and approving full-rate production is now expected 
in April 2016, about 2\1/2\ years later than planned in the acquisition 
program baseline approved in 2007.
      
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  manufacturing and engineering challenges continue to slow aircraft 
          deliveries and hold the production schedule at risk
    Manufacturing JSF test aircraft continues to take more time, money, 
and effort than budgeted. 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. Some improvement is noted, but continuing 
manufacturing inefficiencies, parts problems, and engineering technical 
changes indicate that design and production processes may lack the 
maturity needed to efficiently produce aircraft at planned rates. An 
independent manufacturing review team determined that the planned 
production ramp rate was unachievable absent significant improvements. 
While the restructuring has reduced near-term procurement, annual 
aircraft quantities are still substantial. In addition, the program is 
procuring a substantial number of low rate production (LRIP) aircraft 
using cost-reimbursement contracts, a contract type that places most of 
the cost risk on the government.\5\ Continued use of cost reimbursement 
contracts beyond initial LRIP quantities indicate that uncertainties in 
contract performance exist that do not permit costs to be estimated 
with sufficient accuracy for the contractor to assume the risk under a 
fixed-price contract. Figure 1 compares labor hour estimates for test 
aircraft in 2007 and the revised manufacturing plan in 2009.
---------------------------------------------------------------------------
    \5\ According to the Federal Acquisition Regulation, this contract 
type is suitable for use only when uncertainties in contract 
performance do not permit costs to be estimated with sufficient 
accuracy to use a fixed-price contract. Federal Acquisition Regulation 
Sec. 16.301-2.
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little progress in development testing while program continues to face 
                          technical challenges
    Although DOD's restructuring actions should help, there is still 
substantial overlap of development, test, and production activities 
while DOD continues to push ahead and invest in large quantities of 
production aircraft before variant designs are proven and system 
performance verified. Given the extended development time and reduced 
near-term procurement, DOD still intends to procure up to 307 aircraft 
at an estimated cost of $58.2 billion before completing development 
flight testing by the beginning of fiscal year 2015 (see figure 2). At 
the same time, progress on flight testing is behind schedule--slowed by 
late aircraft deliveries and low productivity, the flight test program 
completed only 10 percent of the sorties planned during 2009. Other 
technical challenges include: (1) relying on an extensive but largely 
unproven and unaccredited network of ground test laboratories and 
simulation models to evaluate system performance; (2) developing and 
integrating very large and complex software requirements; and (3) 
maturing several critical technologies essential to meet operational 
performance and logistical support requirements. Collectively, testing 
and technical challenges will likely add more costs and time to 
development, slowing delivery of capabilities to warfighters and 
hampering start up of pilot and maintainer training and initial 
operational testing.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
                           concluding remarks
    The JSF is DOD's largest and most complex acquisition program and a 
linchpin of the United States and its allies' long-term plans to 
modernize tactical air forces. It will require exceptional levels of 
funding for a sustained period through 2034, competing against other 
defense and non-defense priorities for the federal discretionary 
dollar. DOD leadership has taken some recent positive steps that, if 
effectively implemented, should improve outcomes and provide for a more 
realistic, executable program. However, we believe additional steps are 
needed to ensure the JSF program is able to meet warfighter 
expectations. To date, the Department does not have a full, 
comprehensive cost estimate for completing the program. Credible cost 
and schedule estimates are critical because they allow DOD management 
to make sound trade-off decisions against competing demands and allow 
Congress to perform oversight and to hold DOD accountable. Because of 
the significance that the JSF is expected to have on the future of the 
tactical aircraft fleet, the services should have a high degree of 
confidence in their ability to meet their initial operational 
capability requirements and to acquire JSFs in quantity so that DOD can 
plan its overall tactical aircraft force structure strategy. However, 
the Department has not defined what are reasonable expectations for 
achieving initial operational capabilities for each of the services 
given the substantial changes to the program already experienced and 
future changes directed by the recent restructuring.
    Finally, while the Department has reduced near-term procurement 
quantities, there is still substantial overlap of development, test, 
and production activities now stretching into 2016. Constant program 
changes and turbulence have made it difficult to accurately and 
confidently measure progress and maturity of the aircraft system. The 
program has often fallen short of expectations in regards to its annual 
plans. Tying annual investments more directly to demonstrated progress 
in developing, testing, and manufacturing aircraft may be a prudent 
fiscal measure for ensuring government funds are invested wisely.
    In light of these circumstances, we are recommending in our 
forthcoming JSF report that DOD: (1) make a new, comprehensive and 
independent assessment of the costs and schedule to complete the 
program, including military construction, JSF-related expenses in other 
budgets, and life cycle costs; and (2) reassess warfighter requirements 
and, if necessary, defer some capabilities to future increments. GAO 
may also have a matter for congressional consideration to address some 
of the issues raised in this testimony.
    Mr. Chairman, this completes my prepared statement. I would be 
pleased to respond to any questions you or other members of the 
committee may have.
    For further information on this statement, please contact Michael 
Sullivan at (202) 512-4841 or sullivanm@gao.gov. Contact points for our 
Office of Congressional Relations and Public Affairs may be found on 
the last page of this statement. Individuals making key contributions 
to this statement are Bruce Fairbairn, Ridge Bowman, Charlie Shivers, 
David Adams, Lindsay Taylor, W. Kendal Roberts, Matt Lea, and Greg 
Campbell.

    Chairman Levin. Thank you very much, Mr. Sullivan. Let's 
try an 8-minute first round and I'll yield to Senator McCain.
    Senator McCain. I thank you, Mr. Chairman, and I appreciate 
it.
    Very briefly, Ms. Fox, you give as examples of success the 
C-17 and the F-22. Both of them had significant cost overruns, 
but you also mention that they resulted in decreased production 
numbers.
    Do you anticipate the same thing to happen with the JSF?
    Ms. Fox. Sir, I'm not trying to suggest that we're going to 
decrease production.
    Senator McCain. You suggested that they were successful 
programs and both of them resulted in less numbers produced and 
higher unit costs.
    Ms. Fox. Yes, sir, absolutely. The only comparison was that 
the program is not based on a technical problem. Those programs 
looked very troubled in the same stages and they developed 
capable aircraft in the end game.
    Senator McCain. They developed capable aircraft, Ms. Fox, 
but with incredibly high costs, far higher than initial 
estimates which is one of the reasons why we've been as engaged 
as we have. I'm astonished you would use that as some kind of 
success story because they overcame technical problems but the 
unit costs almost doubled or more, is that right, Mr. Sullivan?
    Mr. Sullivan. Well, I----
    Senator McCain. Of the F-22 and C-17 and the delays were 
enormous.
    Mr. Sullivan. Yes, sir.
    Senator McCain. So you know, I don't get it.
    Ms. Fox. Sorry, sir. I was not trying to suggest that this 
is the goal. In fact, I tried to say the cost is clearly a 
tremendous problem and I believe that the costs that we have 
estimated are as realistic as we can be and are trying to put 
that forward for everyone to look at. It's merely that the JSF 
program is producing technically capable aircraft.
    Senator McCain. If you follow the example of the F-22 and 
the C-17, the units' numbers produced go down and the unit 
costs continues way up.
    Mr. Sullivan, you indicated in your remarks that basically 
this reduction in official timeline to 17 months versus the 30-
month delay savings is fraught with risk, is that correct?
    Mr. Sullivan. Yes. What the GAO has looked at is that 
there's still incredible risk in just manufacturing the 
aircraft and in having a test program that really hasn't 
started yet.
    Senator McCain. Basically what we're doing here to reduce 
this delay is putting aircraft out into operational mode 
without having completed the originally planned testing and 
evaluation, is that correct?
    Mr. Sullivan. I think as they ramp up, as I said, they'll 
have procured about 300 aircraft, even given the restructuring 
here, before they've completed developmental flight testing. So 
to us, that's still significant risk in the program.
    This is a mitigated risk, I think, because they added--the 
other thing they did was they added test assets. So they'll be 
able to burn down the test points, the tasks, probably a little 
bit faster but still very risky.
    Senator McCain. Could I just again go through this cost 
thing, you're asking $205 million for one strike fighter in the 
additional budget request, yet we're alleging that the cost 
will be $80 to $90 million per copy.
    Isn't it a bit elusive to say that when clearly in the 
first couple of blocks the costs will be very high and the 
examples that Ms. Fox just stated, we will purchase less than 
we had originally planned. Easily these unit costs could not be 
at $85 or $90 million, they would be dramatically higher, if 
precedent holds true here?
    Mr. Sullivan. I would argue that they really don't know yet 
because one good indicator of that at this point is that 
they're still operating under cost-plus contracts to procure 
these aircraft. That means that the contractor's not willing to 
commit to a unit price at this time.
    Senator McCain. I wonder, Secretary Carter, when the 
contractor is willing to submit a unit cost?
    Dr. Carter. It's a good question and a good indicator of 
how--of the contractor's own estimation of the stability of the 
line and we're in discussions about that. Not later than LRIP 5 
will I require a fixed price.
    Senator McCain. How long will that be?
    Dr. Carter. That will be next year. So you're right. Up 
until now, the LRIP contracts have been cost-plus. I think it's 
time, and good discipline suggests, that we transition the LRIP 
contracts to fixed price.
    That puts a burden, obviously, on the manufacturer to 
control costs and to be able to know what these unit costs are 
because then if they overrun, it's on their budget, not on our 
budget, which is the whole point of fixed-price contracting at 
this stage. It's the healthy thing to do.
    Senator McCain. I thank the chairman for allowing me this 
time.
    General Moore, you're confident in the plans that have been 
described to this committee, that you're going to buy 2,400 
planes and then some and that the unit costs will not increase 
further, and you will have the OT&E successfully completed 
while the aircraft are in an operational mode without having to 
go back and retrofit it rather significantly and expensively?
    General Moore. Senator, if I can take on those questions. 
First of all, for the unit cost. I am confident as the program 
manager that we will be able to do better based on those cost 
estimates. That's what I've been challenged to do by the DOD 
and I intend to do so.
    Senator McCain. You're confident we will buy this number?
    General Moore. I'm sorry, sir?
    Senator McCain. You're confident we will buy this number of 
aircraft?
    General Moore. I'm confident that we'll be able to continue 
reducing the costs, as we've projected, as we negotiate the 
future contracts as we're doing right now with LRIP 4.
    Senator McCain. You're confident there will be no further 
delays?
    General Moore. I'm confident that, given the schedule 
that's been laid out, that we now have reasonable margin to 
deliver the full capability of the aircraft within the schedule 
and within the budget that's been allocated.
    Senator McCain. I thank the witnesses and I thank you, Mr. 
Chairman, for holding this hearing. Obviously we have a lot of 
monitoring to do and I am very grateful that you held this 
hearing. I think it's been very helpful and I would like to 
submit follow- up questions to the witnesses.
    Chairman Levin. Thank you. We will keep the record open for 
your questions and questions of other Senators. Let me begin my 
questioning with looking backward in time.
    What caused these huge errors in these estimates? These are 
60 to 90 percent increases. These breaches are 50 percent plus 
and that, of course, triggers Nunn-McCurdy, but there's more 
than 50 percent increases. They're somewhere between 60 and 90 
percent increases.
    How do we deter this? Who's accountable for that? Whose 
mistakes are those and who's paying a price?
    Dr. Carter. If I may, let me do some of the diagnosis first 
and then the treatment. In the development phase--what's 
basically been going on for the past couple years is that when 
it comes time to put the pieces together down in Fort Worth, on 
occasion they don't quite fit together.
    That's because when they were designed, the matchup wasn't 
done just right and all of this is perfectly normal and that 
leads to what I refer to in here as the Class 2 change traffic, 
meaning that the pieces, the design of the pieces has to be 
changed.
    You're not changing the capabilities of the aircraft in any 
way. You're just trying to make the thing fit together. There 
has been a lot of change traffic on the line. Every time----
    Chairman Levin. I don't know what that means, ``change 
traffic on the line.''
    Dr. Carter. I'm sorry, it just means----
    Chairman Levin. You're changing the design, the 
requirements?
    Dr. Carter. Changing the design of the pieces so that they 
fit together and then it takes engineers to do those changes. 
It takes time to do those changes. Everybody else waits around 
while those changes are made. So it introduces inefficiency on 
the line. It may seem mundane, but this is the kind of thing 
that has driven the slow delivery of aircraft to test and----
    Chairman Levin. I'm not talking about slow delivery. I'm 
talking about these huge cost overruns here.
    Dr. Carter. I'm sorry. Then I was going to get to the 
second part.
    Chairman Levin. Since March 2007, it's gone up from 15 to 
35 percent. In other words, in 2007 it was about $70 million a 
copy in 2002 constant dollars, now it's $80 to $95 million. So 
it's gone up from $10 to $25 million estimate constant dollars 
in the last 3 years.
    Dr. Carter. Yes.
    Chairman Levin. Is that still your----
    Dr. Carter. Yes, yes, that's right.
    Chairman Levin. Are you satisfied with that?
    Dr. Carter. I'm not satisfied with it, but the--I'm sorry. 
You were asking then the contributory causes to the unit cost 
growth in the aircraft and there again, there are several of 
those.
    First, and very significantly was the larger than planned 
development costs for the STOVL version because of the weight 
growth in that variant. That occurred several years ago, and 
the longer than forecasted development schedule which I've 
already described, increase in labor and overhead rates, and 
degradation of airframe commonality.
    Chairman Levin. Increase in labor and overhead rates, now 
weren't they foreseeable?
    Dr. Carter. They were not foreseen.
    Chairman Levin. No, I said were they foreseeable?
    Was there a buy-in here? Is this a historic, traditional 
buy-in that someone bids low, gets a huge contract, and then we 
pay the price down the line? Is that what's going on here?
    Dr. Carter. That has certainly been something that's 
occurred in the past.
    Chairman Levin. No, in this one?
    Dr. Carter. It may have been the case with this one.
    Chairman Levin. On this one, Secretary Carter.
    Dr. Carter. It's a pattern that would match that but I 
can't speak to that in this instance.
    Chairman Levin. Who's going to determine whether that's 
true and what action will we take against people who bought it 
in?
    Dr. Carter. For this program, we're going to aggressively 
manage from this point forward. For new programs we're going to 
follow the instructions you gave us in the WSARA and do 
independent cost estimating from the very beginning.
    So when the program starts out there isn't an opportunity 
for buy-out, buy-in because Ms. Fox's organization has already 
done the cost estimate. But we are where we are in the JSF 
program and from where we are now we need to try to wrestle 
these costs down.
    Chairman Levin. Now there was great concurrency that you 
made reference to in this program and that means that there's 
great risks. That concurrency, I gather, has been somewhat 
reduced by the sloping, reduced by the number of--I believe the 
other way was that what we're going to have more planes that 
are going to be tested.
    Dr. Carter. Correct.
    Chairman Levin. But in any event, let me ask you, Dr. 
Gilmore, is the level of concurrency now have acceptable risk?
    Dr. Gilmore. The level of the concurrency, I think, is 
still unprecedented in these kinds of programs. We'll have 
bought, even with the reduction and the production ramp, more 
aircraft here at a given point in time since the beginning of 
flight testing than we did, for example, in the F-16 program 
where we bought a couple thousand aircraft. So I would demure 
on judging whether the amount of concurrency----
    Chairman Levin. Who's going to give us the judgment if not 
you?
    Dr. Gilmore. I think that's up to the Defense Acquisition 
Executive and the Secretary. I'm the evaluator of the 
capability of the aircraft and I know I'm passing the buck 
but--I think I have to, otherwise I won't be viewed as 
objective.
    Chairman Levin. That's okay. All right. Is the level of 
concurrency acceptable here, Secretary Carter, and why?
    Dr. Carter. The level of concurrency is unprecedented. It 
is reduced as a result of these actions. We are judging that 
the schedule that we're giving you is realistic, it's not 
optimistic. I think Ms. Fox has emphasized this is not the 
worst case estimate. This is the 50 percent estimate on her 
part.
    I don't want to leave anybody with the wrong impression. 
The concurrency that remains in the program, though less, is 
worrying and has to be managed. The theory of the case here, a 
perfectly reasonable one in general, was that we have gotten to 
the point now in modeling and simulation that we should be able 
to confidently enter production before we have completed 
testing fully.
    That's the theory of the case that's been with the JSF 
program from the very beginning, unprecedented. We have found 
that in some respects that aspiration, so far in the program 
has not always been achieved. That's why we're trying to take 
some of the aggressiveness out of the program at this point, 
but it's still aggressive. As I said earlier, reality will have 
a vote here and----
    Chairman Levin. Yes, but you shorten the development period 
without--it seems to me that if anything, that increases the 
concurrency, it doesn't usually decrease it. You knew how much 
modeling and simulation was going to be going on in this 
program right from the beginning I assume. Why isn't the 
shortening of that development period, that 30 months to 13 
months, why isn't that an increase in the concurrency level?
    Dr. Carter. The reduction from 30 to 13 months, it just 
means doing exactly the same testing that we were going to do 
in 30 months in 13 months. That's good.
    Chairman Levin. So the number of tests----
    Dr. Carter. The number of test points is the same. One 
progresses through them more rapidly because you have more 
tester sources.
    Chairman Levin. I guess Senator Thune is next according to 
my list.
    Senator Thune. Thank you, Mr. Chairman. Secretary Carter, I 
support the F-35 and the program. I believe it's an extremely 
important program and that we have to do everything that we can 
to prevent or mitigate the so-called fighter gap that we have 
coming at us in the not too distant future.
    I'm very concerned about these development delays and 
potential reductions in the number of aircraft that are planned 
for the program. I'm consistently told by my South Dakota Air 
National Guard constituents that their F-16s aren't going to 
last forever. So I want to do everything I can to have the F-35 
program reach full-rate production with its fully designed 
combat capability as soon as is reasonably possible.
    The question is, when do you see actually having full 
strength squadrons of training jets for the various training 
wings? When do you realistically foresee this program actually 
reaching full-rate production?
    Dr. Carter. I don't want to speak for the Services who will 
determine where, how, when, and if they actually field their 
aircraft. From the program's point of view, for the Air Force 
we will begin delivering aircraft to the Air Force in 2013. As 
I mentioned, the Air Force's current intention based upon the 
revised schedule is to go to IOC in 2016.
    Senator Thune. Okay.
    Dr. Carter. That is with the full capability that they 
always intended which is now the mission systems capability 
embodied in the Block III software. But that capability and 
after completion of OT&E, that's how they are defining IOC in 
the Air Force.
    Senator Thune. There's been a lot said and will be said 
about the effect of the JSF on the Air Force. It's sometimes 
easier to forget, though, the importance and what it means to 
the Navy and Marine Corps.
    The JSF represents the future of both the Navy and Marine 
Corps strike fighter force. We know about the significant 
delays and cost overruns. But there are recent news reports 
that also indicate an increase in aircraft operating costs once 
they're finally delivered.
    In fact, there was a recent article in Defense News that 
stated that, ``each flight hour flown by Navy and Marine Corps 
versions of the F-35 will cost about $31,000 in 2029 compared 
with about $19,000 per flight hour for the Services, the 
current F/A-18 Hornets and the Harriers.''
    Admiral Roughead at a recent Navy Association's annual 
symposium was quoted as saying, ``we must ensure that we do not 
deliver an unaffordable fleet to the next generation of leaders 
less they burn us in effigy at this dinner 20 years from now.'' 
At the same time Lockheed Martin is claiming that support costs 
for the F-35 will be significantly lower than those for the F-
16, F/A-18, and the AV-8B.
    Can you set the record straight about what you really 
expect the operating costs to be compared to current fighters? 
Will DOD be able to afford those operations and maintenance 
costs in the future?
    Dr. Carter. I can't as I sit here right now because I--you 
are pointing to, for the sustainment costs the same kind of 
discrepancy that I was describing for the development costs 
that we have. I know Naval Air Systems Command has done an 
estimate of the total ownership cost of the F-35 and then there 
is a contractor and JPO estimate and what I--these are for the 
out years. So it seems in the distant future.
    But what we do now will determine how much we pay then and 
we owe it to the taxpayer then to control those costs. CAPE, 
and Ms. Fox may wish to speak to this, is having the same ICE 
done now for the sustainment phase as we've done and are doing 
for the production phase, the ramp-up to production and then 
development phase.
    So I cannot give you an answer now. I hope to give you a 
credible answer in the future. That's a lot of money out there 
to maintain a fleet even as it costs a lot of money to make the 
fleet in the first place. We owe it to you to control those 
costs.
    Senator Thune. Ms. Fox, do you have anything to add to 
that?
    Ms. Fox. Yes, sir. I would just like to add that an 
assessment of operations and support (O&S) will be part of the 
certification review we'll do for the Nunn-McCurdy. We will 
have as good an estimate as possible for you as soon as we've 
finished that.
    Senator Thune. Okay, thanks. Over the past several years 
the trend I've noticed is that these increasing costs of 
procurement along with an increased timeline in obtaining a lot 
of these systems. This isn't a unique phenomenon to the JSF. It 
inevitably causes an increase in costs and thereby reduces the 
number of items we can buy. This year, like any other, we have 
substantial procurement initiatives including the JSF and a new 
tanker for example.
    My question is, and this is the broader, bigger picture. It 
obviously pertains to the JSF but other procurement programs as 
well, and that is, what steps is the DOD taking in order to 
control costs on these systems and increase numbers of units 
versus the increasing costs and decreasing numbers of the 
weapons systems that it procures?
    Dr. Carter. Good question and two answers to it. You are 
rightly speaking about what we are doing in acquisition reform 
at the back end of programs. You know we have a lot of good 
practice and that was the principle intent of the WSARA, to 
help us start programs better so they don't get into trouble. 
We have what we have now, our portfolio of programs, what are 
we doing to make sure that they deliver. JSF is a perfectly 
good example. We're past the beginning point now in many ways 
of JSF.
    Senator Thune. Right.
    Dr. Carter. We are looking very carefully now and very 
aggressively at the cost structure of our programs, the 
contract structure as between cost-plus and fixed-price. I 
mentioned earlier our overheads and indirects. All the ways 
that we can squeeze 2 percent here and 3 percent there and 4 
percent there, and pretty soon you're talking about a very 
serious amount of money. So management acuity and 
relentlessness in the middle part of the programs is very 
important.
    Finally, there's a form of acquisition reform that 
Secretary Gates has emphasized also, which is the discipline to 
stop doing things that we have enough of or that aren't working 
or that are single purpose capabilities. This year we'll be 
proposing to end some programs and that's always a difficult 
thing to do.
    Every time we can stop buying something we don't need it 
frees up money for exactly what you say, more money for the 
things that we do need. More units of a program that is 
performing well and that we could buy more of.
    So acquisition reform has to go across the whole spectrum, 
not just at the birthing of programs but right through and into 
having the discipline to stop doing something when it's time to 
stop doing something.
    Senator Thune. It just seems like this has become a 
recurring theme and a recurring story. It's unfortunate that if 
you have programs that are coming in way over budget and that 
you don't need, we shouldn't be funding them.
    At the same time, you hate to not fund programs because 
other programs are so far over budget and these increasing 
costs and over runs and delays, it seems like your acquisition 
process is in desperate need of a new model.
    I wanted to make that observation for the record and raise 
that question with you. So thank you. Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator.
    Senator Lieberman.
    Senator Lieberman. Thanks, Mr. Chairman. Thanks to the 
witnesses. I apologize that I had a couple of other meetings 
that I've been running back and forth from. But I think I have 
the drift of the testimony.
    Secretary Carter, I wanted to ask you first a question that 
is probably simple but I think essential which is, what will 
the $2.8 billion increase in the JSF programs budget bring 
total SDD costs to? What degree of confidence do you now have 
in that estimate for total SDD costs by the April 2016 
completion date you've set?
    Dr. Carter. Senator, I'm going to ask General Moore, do you 
have that number?
    General Moore. The total cost in this will be $50 billion, 
for the total SDD cost.
    Senator Lieberman. The total cost will be $50 billion. 
That's by that April 2016 date that we're talking about?
    General Moore. Yes, sir.
    Senator Lieberman. Okay, thank you.
    Dr. Carter. Just to be clear General Moore is talking about 
the total cost from the beginning of the program all the way to 
the end of SDD.
    Senator Lieberman. Right.
    Dr. Carter. The $2.8 billion is in addition to the program 
relative to what was projected over the FYDP, sorry about the 
technicality----
    Senator Lieberman. That's okay.
    Dr. Carter.--but just reconciling----
    Senator Lieberman. I understand and I thank you for that 
clarification.
    Second, as you all know very well, alongside the consensus 
of support there has been for the JSF here in Congress, there 
is a subpart that has been much in conflict and that is the 
question of whether there's an alternative engine built. It 
looks like we're going to have that conflict again this time.
    I want to make a general statement and ask some questions. 
Which is, that this conflict and the idea of building an 
alternate engine and the costs associated with it, it seems to 
me gets more exacerbated or at least the argument against the 
alternate engine gets stronger because of the cost increases in 
the overall program.
    Ms. Fox, I'm going to quote from the information memorandum 
that you did on this question a short while ago: ``The 
Department has not funded an alternate engine for the JSF 
program since 2007 because in the Department's view a second 
engine is unnecessary and too costly. This position is most 
recently reflected in the fiscal year 2011 President's budget 
submission which once again does not include funding for the 
JSF F136 alternate engine. The Department's position is based 
in part on updated analyses which continue to show that the 
business case for a JSF alternate engine is not compelling and 
that the alternate engine program would require a significant 
DOD investment of additional resources within the FYDP.''
    Later on in the report you say CAPE analysis shows that it 
would require a DOD investment of $2.9 billion over the next 
years to get the alternate engine in position for competition. 
Incidentally, that is set alongside the estimate of your 
predecessor in 2007 who said that the alternate engine would 
require another $1.2 billion at that point in development 
funding before it was ready to compete.
    In the 3 years since then we have spent $1.3 billion on the 
alternate engine and now you're estimating an additional $2.9 
billion in the coming FYDP. So have I got that all right?
    Ms. Fox. Yes, sir, you do. There's a few changes. First of 
all, in apples to apples, assuming competition in 2014----
    Senator Lieberman. Right.
    Ms. Fox.--when you account for the additional funds 
Congress has given, we now estimate that it's at a break-even 
point for cost in terms of the long-term procurement of a 
second engine.
    But the initial investment that would be required, and now 
we project with the restructured program, that competition 
would move to 2017. So I'm sorry for the difference in dates. 
But to account for that, that additional investment is 
necessary not only to complete the development program for the 
alternate engine but also to fund the component improvement 
program you would need to maintain the engine's currency.
    You would need to perform directed buys from the engine's 
primary and second sources to prepare for a competition. You'd 
have to procure tooling, support equipment, and spares. That's 
all in the $2.9 billion.
    Senator Lieberman. That's all in the $2.9 billion?
    Ms. Fox. Yes, sir.
    Senator Lieberman. When Admiral Roughead was before the 
committee a couple of weeks ago, he said he had real space 
concerns; what would be necessary to employ the back-up and 
support for the alternate engine for the Navy and Marine Corps.
    Okay, I want to end with a broader question to you 
Secretary Carter, and maybe it's been touched on. But just to 
give you a chance to talk more generally.
    Obviously you served in the DOD before you were in this 
position. We have continued to be troubled, hounded, 
frustrated, and infuriated by the fact that these systems that 
we need so much are costing so much more than we expect, hoped, 
estimated, let alone arrive late.
    Forgive this question, but to the best of your ability what 
the heck is going on? In other words, is this happening 
because, as some of us think, probably conventionally, 
simplistically speaking that we ought to be moving along the 
spectrum much more toward fixed-price contracts from cost-plus?
    Is it happening because DOD and we are accepting estimates, 
initial estimates of a cost of programs that are simply not 
realistic? At this point, in this round of your service, what's 
your explanation of what's happening? Because I know you want 
very much to stop it from happening.
    Dr. Carter. It is pervasive. Secretary Gates says about 
acquisition reform, there's no silver bullet, I wish there 
were. It is pervasive. We've always had problems with the 
acquisition reform system as long as I've been associated with 
it.
    I think there are two things that are critically important 
to attend to now. One is, that it seems to me that the last 
decade of double digit year-on-year growth in the Defense 
budget, which has been terrific in lots of ways for DOD in 
terms of being able to buy more capability and enhance our 
military capabilities, has also engendered, and this is human 
nature, an erosion of discipline.
    It's been easy to solve problems with money. You see that 
in programs where they slip a little bit, throw a little bit 
more money, a technological problem, throw a little bit more 
money in. We need to be much more vigilant about how we use 
money to solve our problems.
    You know Einstein said his work was 90 percent perspiration 
and 10 percent inspiration as opposed to an acquisition 
executive's is 99 percent perspiration and 1 percent 
inspiration. You just have to keep hammering away at these 
things and be disciplined and be willing to say as Ms. Fox's 
organization does, ``hey, wait a minute, this doesn't look 
right.''
    I don't mean to sound too abstract about it but we have to 
have good people. In the last 10 or 15 years, and this has been 
widely reported and documented, the acquisition cadre in both 
the civilian side and uniformed side has been allowed to 
dwindle away and our workforce is older than it ought to be.
    Nothing wrong with that, they're experienced but older 
people at some point leave the DOD and then what do we have. So 
I'm trying to pay a lot of attention to drawing into service 
the people we need, the program managers, the cost estimators, 
the engineers, the systems engineers, and so forth that will 
make the system better. Then there are all the changes to the 
system itself, including those that were included in the WSARA 
legislation.
    I guess what I was going to say is, you can have the best 
system in the world and if it's not populated by the right 
people and you don't have the discipline to recognize and 
surface problems when they arise and try to address them, you 
can have milestones, landmarks, this kind of independent 
estimate, that kind of independent estimate, and you're not 
going to get anywhere. We're trying to just do the blocking and 
tackling that delivers value to the taxpayer.
    Senator Lieberman. I appreciate that answer. I think it was 
important and candid and the obvious reality in terms of the 
mentality that you solve every real problem with more money is 
that with the enormous deficits and long-term debt the country 
is running, we're just coming to a point where the broad 
consensus in support of defense spending is going to begin to 
break or at least be under real pressure that's going to deny 
the kind of funding that's been available.
    I'm fearful up until now and so the work that you're doing 
is really critically important. Of course every dollar you save 
is a dollar that might be spent for instance on additional 
personnel which I think we still need.
    So anyway, my time's up. I thank you very much.
    Chairman Levin. Thank you, Senator Lieberman. Since we 
claim Thomas Edison as a son of Michigan, the perspiration/
inspiration comment we claim and believe it was Edison's not 
Einstein's.
    Dr. Carter. I'm sorry, I'm sure you're right.
    Chairman Levin. Senator Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman. Secretary 
Carter, as I hear you talk about the average age of the 
workforce in the acquisition department, and I think about the 
average age of the U.S. Senate, we're both headed in that 
direction, I guess.
    Chairman Levin. That's off the record by the way. 
[Laughter.]
    Senator Chambliss. We're all dealing with experience, Mr. 
Chairman.
    Chairman Levin. That's on the record. [Laughter.]
    Senator Chambliss. Mr. Sullivan, your statement relative to 
the cost of this airplane being unknown is not new. You've 
testified to that effect over and over particularly last year 
as we were going through the defense authorization process as 
well as the appropriation process, and with the ongoing debate 
over the F-22.
    You noted in your written statement that DOD does not have 
a full comprehensive cost estimate for completing the program. 
You validated that statement again today and in fact, in April 
of last year you made a statement on National Public Radio (aka 
NPR) that when all is said and done that the price of the 
nearly 2,500 F-35s could approach $140 million for each plane. 
Do you still stand by that statement?
    Mr. Sullivan. Frankly, right now, I don't remember having 
said that. I'm not sure what you're referring to.
    Senator Chambliss. Okay.
    Mr. Sullivan. But at any rate, no, I don't think that 
sounds right.
    Senator Chambliss. Okay, would you concur with the JET's 
estimate that Ms. Fox alluded to, relative to the plane in 2001 
dollars, I believe, Ms. Fox, you said.
    Ms. Fox. 2002, sir.
    Senator Chambliss. 2002 dollars would be in the range of 
$80 million. Is that a fair statement in your opinion?
    Mr. Sullivan. Right now, I have numbers here that are then-
years. So I don't--it would be apples to oranges. But the 
average procurement unit cost that we've calculated is about 
$112 million.
    Senator Chambliss. Okay, well that----
    Mr. Sullivan. So that would be----
    Senator Chambliss. You've answered my question because that 
was going to be my point. When we talk about today's dollar----
    Mr. Sullivan. Right.
    Senator Chambliss.--we're looking at somewhere $112 
million, and that's an average cost?
    Mr. Sullivan. Yes.
    Senator Chambliss. That's assuming that the perfect storm 
occurs and that every timeline is met and the test phase is 
conducted within the times that we've talked about here.
    Finally then, Mr. Sullivan, let me ask you about this 
timeline of reducing 30 months of testing down to 13 months. 
This is a very sophisticated airplane, we know that. You've had 
experience with other weapons systems at the DOD. Do you know 
of any other weapons system that has been able to reduce its 
testing time from 30 months down to 13 months?
    Mr. Sullivan. Just to qualify that a little bit, it's an 
increase to an existing plan. The way that they came about 
that--the pull back was by adding new assets.
    Senator Chambliss. So actually it's an increase----
    Mr. Sullivan. --not increase----
    Senator Chambliss. --it seems relatively optimistic to me 
though.
    I think it will be a challenge for them especially given 
this aircraft is laden with software. I think that's going to 
be one of the long poles in the tent.
    Dr. Gilmore. Senator, could I just observe in that regard?
    Senator Chambliss. Sure.
    Dr. Gilmore. The total testing program is not going to span 
in excess of 60 months. The question was, whether we would 
extend from 53 months, which had been planned as of about a 
year ago to 80 months versus expand from 50 months to over 60 
months. 60 months is in line with past experience in these 
kinds of complex programs. I hope that clarifies what the 
duration of the testing program is going to be.
    Senator Chambliss. Right, I understand that. Dr. Carter, in 
your written statement you state that the current IOC dates for 
the Marine Corps and the F-35 is 2012. The Navy is 2016, the 
Air Force 2016, is that correct? Dr. Carter, that's a 2-year 
delay for the Navy and a 3-year delay for the Air Force over 
what was advertised only a month ago, isn't that right?
    Dr. Carter. If you're referring to testimony given, I'm not 
quite sure what the baseline is. It certainly is an increase 
over what you--what I'm saying today is an increase over what 
you've heard in the past because the Services have taken the 
revised JET II estimate as the most realistic plan we can give 
them for when we'll deliver them jets.
    Then they have done their separate things with respect to 
defining IOC. So they have adjusted their IOC dates in 
accordance with the change in the program. So I'm sure it's 
different from what has been said before.
    Senator Chambliss. Why did it take OSD over a year to 
validate the JET report of October 2008?
    Dr. Carter. There were actually two separate JET reports, 
both of them valid now, I think.
    Senator Chambliss. Both of them were basically the same, 
they reached the same conclusion.
    Dr. Carter. Exactly, what made the second one, although it 
had the similar content, more serious, Senator, was that it was 
a year later. So the problems noted in the fall of 2008 had 
continued into the fall of 2009. It was reporting essentially 
the same dynamic going on on the assembly line but since it 
came a year later it was saying that this has been going on not 
just for 1 year, which is what DOD knew in October 2008, but 2 
years.
    Two years is much more serious than 1 year. Same content 
but a year later you're still getting the same news, you really 
need to be more worried than you were earlier.
    Senator Chambliss. When did you become aware of the 2008 
JET report?
    Dr. Carter. Shortly after I got into office which was a few 
months before--it was around the same time that the Deputy 
Secretary of Defense ordered up a new JET estimate recognizing 
that the 2008 estimate was serious. Bill Lynn, the Deputy 
Secretary of Defense, said we'd better do it again.
    It was done again in October by Ms. Fox's, or under her 
leadership, and it showed what it showed. Which is, whoops, 
this wasn't just something that--you know it was true in 
October 2008, it's October 2009, it's still true. That's why it 
was more serious this year.
    Senator Chambliss. Was that 2008 report pretty widely known 
throughout the DOD?
    Dr. Carter. It certainly was known to my office. I believe 
it was, my understanding is it was also briefed to Congress 
last year as well. I think it was pretty widely circulated.
    Senator Chambliss. My concern is, that during the debate 
over the F-22 last year two issues were front and center. One 
being, that the cost of the F-22 got way out of line. The last 
contract on the F-22, the last lot was $140 million per copy. 
Certainly that's $28 million difference in what Mr. Sullivan 
estimates that today's dollars is going to be for the purchase 
of the F-35.
    But it's not materially different when you consider that 
the F-22 has significantly more capability particularly from an 
air superiority standpoint. I'm curious as to why that wasn't 
talked about during the debate last year on the F-22. Do you 
have any recollection of that?
    Dr. Carter. I can't speak to that because I wasn't in 
office at the time. I do know from the records what transpired 
after the first JET estimate, which was that Secretary Gates 
added, recognizing that there had been this poor performance in 
the program, added $476 million to the fiscal year 2010. Said 
oops, we'd better adjust our budget in fiscal year 2010 to take 
account of the CAPE estimate.
    He did not adjust the entire out-year budget as we are 
doing this year because he only had the first JET estimate 
which showed that there was trouble going on for a year. This 
year, knowing that trouble's gone on for 2 years, he directed 
that we adjust the budget to reflect the CAPE estimate not only 
in fiscal year 2011 but throughout the out-years.
    It's a more serious action taken in response to more 
serious news which is a second JET estimate that says the same 
thing that the first one did a year earlier. So he took actions 
in both years, they were different actions but proportional to 
the information he had at the time.
    Senator Chambliss. I have some additional questions, Mr. 
Chairman, I want to submit for the record. But I think it's 
pretty obvious to all of the panel members how serious this 
issue is to us. We're committed to this program, it's a great 
airplane and we have to have it. We, Ms. Fox, don't want to go 
down that trail that Senator McCain talked to you about of 
reducing the buy. We can't afford to reduce the buy.
    We just had testimony that the reduction in TACAIR for 
Northern Command has already caused us to have to call on the 
Canadians. If we don't get these costs under control then who 
knows where we're going to go. But we can't do without this 
airplane. The assets of this airplane are so superior to any 
other asset that we have outside the F-22.
    With the Russians now coming out with an airplane that they 
say is comparable to the F-22, and it didn't even mention the 
F-35. They assume it's superior to the F-35.
    It's imperative that we continue down the track of trying 
to get these costs under control. I appreciate all of you 
working as hard as you have and being as frank as you have with 
respect to this program. So thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator Chambliss.
    Senator McCaskill.
    Senator McCaskill. I know that there's been talk about unit 
cost and I was here for the previous testimony about unit cost, 
Ms. Fox, but I've not heard an estimate for the entire program 
including military construction (MILCON). Can somebody give me 
that number?
    Ms. Fox. Yes, ma'am, I'm sorry I don't have that number. We 
will get back to you, I don't believe we have that number with 
us today.
    [The information referred to follows:]

    In base year 2002, the current estimate for military construction 
(MILCON) costs is $0.5 billion. These are system-specific MILCON costs 
and would not include broader costs such as establishing new bases. 
This is less than a quarter of 1 percent of the total of development, 
production, and MILCON cost which is currently estimated to range from 
$239 billion to $278 billion. MILCON costs will be evaluated as part of 
the Nunn-McCurdy cost recertification.

    Senator McCaskill. I think we need to know that number. I'm 
a little worried that you would come to this hearing without 
that number, to be honest with you. Knowing that this was going 
to be all about the costs and the problems associated with this 
program.
    I think everybody having a handle on what the overall costs 
are compared to what they were predicted to be. We're stuck. 
I'm sure this is going to be a great jet but we better learn 
from this. We don't want to do this again.
    You know we have the potential if we don't have 
competition, which you know I'm a big fan of the product that 
Boeing puts in the air. But we have the tanker coming up and 
just for accountability purposes I think whenever this group of 
people assembles you ought to have a number of what the overall 
program's going to be.
    Let me talk about two things briefly. First is the 
shortfall. As you might imagine, the home of the F/A-18s in St. 
Louis, I know what that tactical aircraft means to our Services 
now. I know that as you talked about more and cheaper, 
Secretary Carter, there is a shortfall.
    It has been difficult to get a handle on the shortfall but 
now learning today that the initial operational planes are not 
going to be until 2016 for the Navy, and knowing we have 11 
carriers to fill, it's just hard for me to believe that you all 
are still maintaining that there's only 100 shortfall. Do you 
have a number that you all are comfortable with having a 
shortfall?
    Dr. Carter. Let me ask Ms. Fox specifically to address the 
shortfall issue because she's done a lot of analysis on that. 
Let me just back up to the point you made. You're absolute 
right except the point about total ownership cost.
    We have to take into account and manage the fielding, your 
point about MILCON and the other associated total ownership 
costs of the JSF, not just the cost to build it. We've been 
addressing the cost to build it mostly in this hearing.
    To be quite honest and your question reveals this, 
internally we are going to turn to the total ownership cost. We 
have a couple estimates of that that differ among themselves 
and we need to try to reconcile them. Not just so that we have 
a number, but so that we have a plan for reducing that number 
because somebody is going to end up owning these things and 
they ought to have a reasonable cost of ownership.
    With respect to the F/A-18 and the JSF issue, we've done a 
lot of analysis on that question. Let me ask Ms. Fox if she 
would address that.
    Senator McCaskill. You know I'm headed towards the ultimate 
question here, with multi-year we'll save money. We have a big 
enough shortfall--I know you all have asked for an extension. 
We need to get to the multi-year. You know you will end up 
buying that many jets, you know you are.
    I mean this thing has gotten moved and it would be great if 
I could go to lunch today with you all saying, yes, we think 
multi-year is the right way to go.
    Dr. Carter. Why don't you speak to that--and then I'm happy 
to speak to the multi-year issue.
    Senator McCaskill. Thank you.
    Ms. Fox. Yes ma'am, we are concerned about the JSF 
shortfall for all the Services as a result of the 
restructuring. We're in the process of doing an analysis there. 
The number you quote of 100 is an old number, it doesn't 
reflect the restructuring. We're looking at that right now. 
Again, I apologize, but I don't have a final analysis for you.
    Back to the overall costs, we will have an assessment of 
O&S costs of the JSF program in the Nunn-McCurdy certification. 
You added MILCON, I think that's a very good thing to add, but 
I just wanted to alert you that these are challenging things to 
estimate this early in the program, but we owe everyone an O&S 
estimate for sure. We owe everyone an estimate working with the 
Services on the implications of the restructuring on their JSF 
inventory.
    Senator McCaskill. Since we don't know, we know it's not 
100 now, but we don't have a number. Secretary Carter, multi-
year?
    Dr. Carter. If I may address the question of multi-year 
procurement for the F/A-18 arises anew and appropriately 
because we have  made  the  decisions  in  the  program  review 
 to  procure  more  F/A-18E/F versions and also the Growler 
electronic attack version in order to recapitalize the 
expeditionary electronic attack fleet now represented by the 
Prowlers.
    Since we're buying more, we have asked the question of the 
manufacturer, give us a price. We've indicated that the 
threshold of interest is 10 percent, that's just the threshold 
of interest. We would look for savings in the teens in order 
for that to be an interesting proposition to the DOD and for 
the taxpayer. Given that it's a multi-year commitment, there 
would have to be savings there. The Department of the Navy is 
in discussions with Boeing over that very point.
    Senator McCaskill. I'm glad you're in discussions and you 
know, I know that 10 is the threshold but with all due respect, 
I hate to say I told you so. But you know, I kind of knew that 
100 wasn't real. If you just look, if you step back with common 
sense and look at the JSF program, and looking at my friend 
from the GAO here because I know he wants to nod right now. It 
wasn't going to be on time and it was going to keep getting 
pushed back. We have those 11 carriers.
    Frankly, if we save money with a multi-year we ought to 
save the money if we're going to buy the jets. This notion that 
we have to get into the teens of savings for multi-year, I 
don't know what we accomplish if we end up buying them anyway. 
If it's going to save money to do multi-year and we know we're 
going to buy them, by all means let's do it.
    My final question is hard. I need somebody to do an 
estimate on the problems associated with this program. We're 
going to have a Nunn-McCurdy breach. I need to know whose fault 
it is.
    You know this is too big to fail, this program. We're going 
to push money across the table, we're going to push back 
timelines, we're going to push money across the table.
    I need to figure out, I think we all need to figure out 
whose fault is it? Is it the contractor's fault? How much of 
the fault is the military's? Were they changing things during 
the process, were there delays that the military is responsible 
for? Is anybody in charge of figuring out whose fault this was?
    Second, if it's the contractor's fault, I know we've 
withheld one payment. Are there other penalties that you're 
envisioning that the contractor pays for these mistakes? You 
know this isn't no harm, no foul.
    Somebody needs to be held accountable. What worries me, is 
we all sit around and shrug: ``well we can't do anything about 
it, well, we got to spend more.'' No one ever is held 
accountable. I want to know who is going to be held accountable 
and whose fault it was.
    Dr. Carter. I will address that. First of all, whose fault 
it was, who's accountable for it? I actually think that there 
is responsibility on both the government's side and the 
contractor's side.
    It's our job to get the best business deal. It's our job to 
surface problems. It's our job to tell the truth and not an 
optimistic story. That has not always been done in the course 
of this program. Then it's the contractor's job to perform. So 
there have been failures on both sides.
    I will say that as soon as I got the JET II estimate I went 
to the contractor and the leadership of that contractor, who 
recognized immediately as I did the seriousness of the analysis 
represented by CAPE, rolled up his sleeves in the same spirit I 
was. I have to commend him for that.
    It would have been better if we didn't have to find this 
out in October 2009. But there was immediate recognition of the 
importance of the problem and a willingness to acknowledge it 
and get on with solving it. I wanted to say that because I'm 
grateful that was the response of the contractor to the JET 
report.
    Senator McCaskill. If would indulge one more question and I 
know Mr. LeMieux you're waiting, and it's lunchtime.
    Is it unreasonable for us to ask for someone to give us 
names? Is somebody being demoted? Has someone lost their job? 
Is there something happening on the contractor side in terms of 
accountability?
    These are multi-million dollar mistakes. We need every 
penny of that money right now in terms of the economic strength 
of this Nation. While our economic strength is sapped, our 
strength is not just military. I'm very proud of our military 
and the work all of you do. But this really--I mean, can't we 
get some names and whose fault it is?
    Dr. Carter. On the government side, Secretary Gates has 
taken some steps to strengthen the program management and 
specifically to upgrade the program manager on the JSF to a 
three-star position. We'll be continuing to try to strengthen--
--
    Senator McCaskill. I don't want to know about who's getting 
promoted. I want to know about who's getting demoted. That's 
what I want to know about. I want to know if anybody has been 
held accountable. If you all would get back to me with that I 
would appreciate it. Thank you, Secretary Carter. Thank you, 
Mr. Chairman.
    [The information referred to follows:]

    The major personnel action relative to the Joint Strike Fighter 
(JSF) program was the Secretary elevating the JSF Program Executive 
Officer (PEO) to a three-star billet. The two-star PEO was removed and 
now a three-star Admiral is in charge. Having a three-star flag officer 
as the PEO affords the billet the appropriate level of experience and 
responsibility for this large, important, and very challenging program. 
The Department concluded the JSF Nunn-McCurdy review and certified to 
Congress on June 1, 2010. The thorough review included a comprehensive 
root cause analysis of the causes of the Nunn-McCurdy cost breach. The 
root cause analysis identified the major factors which led to the 
increase over the baseline cost estimates from 2001. These factors 
occurred and accumulated over many years and involved programmatic, 
technical, and executive decisions made on the government and 
contractor side. No individuals from the government were demoted as a 
result of the Nunn-McCurdy review. The review resulted in numerous 
management and programmatic recommendations that we are currently 
executing.

    Chairman Levin. Thank you. Is it not true that General 
Heinz was relieved of duty as the----
    Dr. Carter. The program manager, Senator, was removed and 
that is why a three-star program manager will be appointed in 
his place.
    Chairman Levin. If I could just take from Senator LeMieux 
10 seconds further on this because I was pressing them for the 
same question before. I interrupted Secretary Carter when he 
gave me the first two reasons for these huge cost overruns.
    He listed two and I would, following what you're pressing 
for ask you, Secretary Carter, for the record, to give us all 
of the causes that you began to identify, you said there were 
engineering changes. You then said there were labor costs that 
went up. Give us all of the reasons, if you would, for the 
record as to this 60 to 90 percent increase in the unit cost.
    [The information referred to follows:]

    The reasons for the Unit Cost Growth included larger-than-planned 
development costs driven by weight growth and a longer forecasted 
development schedule, increases in engineering and manufacturing labor 
hours, increase in labor and overhead rates, degradation of airframe 
commonality, lower production quantities, increases in commodity prices 
(particularly titanium), major subcontractor cost growth, and the 
impact of revised inflation indices all contributed to the unit cost 
increases. In addition, factors that were driven by substantially 
higher contractor change traffic (i.e., changes in design not resulting 
from changes in requirements or capability), which led to increased 
engineering and software staffing, extended manufacturing span times, 
and delayed delivery of aircraft to flight test, led to a further slip 
of the development and flight test program.
    If additional causes of cost growth are discovered in the 
anticipated Nunn-McCurdy review they will be detailed as a result of 
that review process, and those results will be provided to Congress.

    Chairman Levin. Senator LeMieux.
    Senator LeMieux. Thank you, Mr. Chairman. I want to commend 
Senator McCaskill on always being vigilant on these cost 
issues. We need more of that in this chamber. I'm new to the 
Senate so you will forgive me for not being an expert on these 
topics.
    My understanding of this project and, Mr. Secretary, 
perhaps you can make sure that I have my numbers straight, is 
that this project started in 1995? We're 38 percent over 
budget, $18 billion?
    Dr. Carter. We're more than that on the SDD program if 
you're talking about--more than that on the SDD program.
    Senator LeMieux. Do you know what it is?
    Dr. Carter. I'm going to ask Ms. Fox.
    Ms. Fox. I'm sorry sir, I don't have the data back to 1995. 
The SDD program is at $50 billion in the current estimate. We 
added $3 billion, $2.8 billion to it for this review, but I 
believe it had gone up before. So I'd have to get you a total.
    [The information referred to follows:]

    Pre-System Development and Demonstration (SDD) activities did begin 
in the mid-1990s; however, the program was baselined in October 2001 at 
the time of the SDD contract award. At that time, the development costs 
were estimated to be $32 billion (FY$02). The current estimate is $45 
billion (FY$02), an increase of about 40 percent.

    Senator LeMieux. So it's more. If you could submit that for 
the record. You know we're very excited in Florida about 
getting this JSF, getting it to Eglin. You know we're very 
proud of our military bases in Florida with the world's largest 
Air Force base, we look forward to getting them there.
    But I think the American people, if they knew about this, 
would be shocked about how long it's taken to build this plane 
and get it in the air. We don't yet have one ready to operate 
as I understand, we just have test planes, is that correct?
    Dr. Carter. There are aircraft flying, they are all test 
aircraft.
    Senator LeMieux. Right. We're hoping to get a plane to the 
Marines by 2012?
    Dr. Carter. That is correct.
    Senator LeMieux. That's still a good target date?
    Dr. Carter. For the Marines, yes, sir.
    Senator LeMieux. So we started this program in 1995 and 
we're going to get a plane delivered in 2012. It occurs to me 
that we went to the moon faster then developing this plane. To 
be this far over budget, more than $18 billion, more than 38 
percent, I appreciate the comments of my colleagues about 
accountability.
    Mr. Chairman, it bespeaks to a larger problem with 
procurement. I appreciate your comments about using business 
models but this would not happen in the business world. If it 
did, a company would fail if they did this.
    I commend the chairman and you may have done this before so 
if you have, I apologize for not knowing about it, but for us 
to have a hearing on procurement, to bring in large companies 
who buy billions of dollars of goods and services and bring our 
friends from the DOD in to have them hear what's being done in 
the private sector.
    I can just tell you from my private sector experience, I've 
had the opportunity and the honor to run a large law firm, 
nothing comparable, we talked in millions not billions. But 
when you do procurement there's carrots and there's sticks. In 
these processes the vendor should be held accountable.
    I understand there's mission creep problems, too, which 
caused these overruns but defining a goal and setting a 
specification that stays static and not creeping with that 
specification. Then when the vendor comes in over, they bear 
the responsibility unless it's our responsibility, which we 
have to work on that side of it also.
    This is a needed plane. We need to get them as quickly as 
we can and I'm supportive of the plane. But these types of 
numbers in this environment, when this country is going broke 
with $12.4 trillion in debt and we we are going to add another 
$10 trillion to the debt this decade, is not sustainable.
    You have a very difficult job and I'm appreciative of your 
service. It seems like we have to do better. So I'm sorry, 
that's not a question, that's more of a comment. But I'm 
becoming increasingly concerned about this as I watch it.
    Give me some hope, Secretary Carter, about where we are 
with this program and where we'll be with procurement going 
forward.
    Dr. Carter. I can give you realism and I think that's what 
we're trying to do with the revised JET II estimate, to be 
realistic about what we can project to you and about the 
progress of this program.
    I have the aspiration, we all ought to have the aspiration 
to do better than the projection if we possibly can. That will 
be a matter of discipline. It'll be a matter of negotiation and 
performance.
    I agree with you, the picture that we painted at the 
beginning of our testimony today is unacceptable. We're paying 
more than we said and asking you to pay more then we said you 
were going to have to pay. That's unacceptable and we need to 
wrestle this back into some sort of realistic box. I think the 
best I can offer you, or what we're trying to offer is realism, 
not optimism but realism.
    Senator LeMieux. In going forward, learning the lessons of 
this plane as well as the F-22 and other procurement, are we 
going to change the way that we do procurement in the DOD?
    Dr. Carter. I think we have to, in fact, we are making a 
number of changes that were written into law. The WSARA last 
year that prescribed a number of changes to improve the 
acquisition system, all of those are in process now. Some of 
them are in my office, some of them are in Ms. Fox's office.
    In a sense what you see today is a reflection of what was 
written in the legislation that came out of this committee last 
year. Namely, that we should start doing ICEs and taking them 
seriously. That's what we're trying to do, perhaps belatedly, 
but that's what we're trying to do here in the JSF program.
    Senator LeMieux. Now, Secretary Carter and Ms. Fox, is 
there something that you have not yet implemented that you need 
to implement when we get to the next procurement? I'm sure you 
don't and I'm know that the chairman doesn't ever want to be 
here in the future with another program that's over budget and 
not on time.
    Do you have all the tools you need? Are all the mechanisms 
in place? Have we learned enough to know that that's not going 
to happen again?
    Dr. Carter. I think that the sort of bureaucratic structure 
is there to do better. All the structure, all the boxes don't 
matter unless you have two other things.
    One is the discipline to surface problems and solve them in 
a candid manner. Again, we're trying to do that here on the JSF 
program, maybe belatedly, but surface them and solve them.
    The other thing, as I mentioned earlier, is good people. 
That is something that we're still working on that will take 
years to rebuild the acquisition cadre in the DOD so that they 
have all the engineering skills, systems engineering skills, 
contracting officers, pricers, and all the things that it takes 
to replicate what you rightly suggest in the private sector 
would be a matter of course.
    Senator LeMieux. Do we need to pay these folks more? We'd 
be a lot more efficient to put together a squad of the best and 
brightest people in the world working for us. If it cost us 
some millions of dollars and we saved billions, it'd be good 
for the taxpayer. When you say rebuild, do we not have the 
talent we need?
    Dr. Carter. We don't either on the civilian side or on the 
uniformed side, I think it's widely recognized. On the civilian 
side, we reduced the numbers about a decade ago without 
adequate care to preserving key skills and quality. We're 
trying to rebuild. Something similar happened in the armed 
services.
    What's important there is that a major or colonel who has 
acquisition expertise as something they think they're pretty 
good at and an aspiration to become a general officer can see a 
pyramid that they can go up in the acquisition field.
    We're having a lot of experience now with seeing what the 
market is like for people wanting to come into government work 
and acquisitions because of some initiatives that came out of 
this committee; we are hiring or in-sourcing 20,000 people into 
the acquisition workforce.
    We can't pay them what they can get outside. We take too 
long to hire them and it's a cumbersome system to join the 
government. But what we have going for us, what you see again 
and again and again is the mission, the mission.
    They come in and say, ``boy, now I'm doing something that 
really matters, contributing to national security.'' That's our 
hook, that's all we have. We can't pay them a lot. It's 
frustrating to work in the government and all the rest of it. 
But the mission, that's our hook.
    Senator LeMieux. Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator LeMieux. We as 
a committee, as Secretary Carter said, adopted, led the way to 
get the major acquisition reform into law last year. It's 
hopefully just about fully implemented now.
    Ms. Fox is here because her office was created for exactly 
this reason, to do the same kind of work in the area of cost as 
Dr. Gilmore's office does in terms of OT&E. So these were major 
changes that took place.
    You're absolutely right, we were not doing business the way 
businesses would do it. We're trying through that law and 
hopefully through full implementation of that law as you point 
out is so essential, to change not just the words on a page 
that will hopefully make a big difference but the culture in 
the building.
    That 20,000 figure comes as a startling number to a lot of 
people. When we talk about adding 20,000 government employees, 
that has a very negative effect in the minds of some folks. But 
we know how badly this acquisition corps was damaged and was 
reduced during the previous decade.
    We're going to reverse that. The President's determined to 
reverse it. Our law reverses it. We put some provisions in that 
law that will strongly promote the rebuidling of that 
acquisition capability.
    One of the things that is critically important here in 
terms of keeping costs down is competition. The whole argument 
now on the second engine for that JSF is, are we going to have 
competition or not and the value of the competition is 
critically important.
    Those of us that favor the second engine do it not because 
we have any back-home interest. I don't. It's because we 
believe that without competition we're going to see that same 
kind of upward curve on that engine if it's going to be sole-
sourced, which it is, as we see now with the JSF.
    We're basically at the mercy of a contractor. We all want 
the plane for the reasons you give. We want that plane but the 
number hasn't changed in the last 2 years. Once you tell a 
contractor we're buying 2,417 planes, okay, now what? Where's 
the leverage?
    I don't know what the leverage is on this contractor 
myself, I don't see the leverage. You know you testified, Dr. 
Carter, that--and by the way, one other thing about 
competition, we wrote that right into our law that we passed 
here last year.
    The Secretary of Defense shall ensure the acquisition 
strategy for each major defense acquisition program includes 
measures to ensure competition or the option of competition at 
both the prime contract level and the subcontract level 
throughout the life cycle of such a program.
    Now one of the questions I was going to ask is to what 
extent we're going to do that at least at the subcontract 
level. In this case we've done that with some shipbuilding now 
where the Secretary has decided he's going to sole source two 
ships.
    The problem with that is, where's the competition going to 
be with those two ships, with those shipyards? If you don't 
have two shipyards, but you only have one, you're at their 
mercy again. That's what my fear is here.
    Dr. Carter in his testimony said that we're going to ask 
Lockheed Martin to share in some of the cost increases. We're 
going to ask them. Where's the leverage, Secretary Carter?
    Dr. Carter. We don't have to ask about award fees. That was 
a specific reference to an award fee that is at the will of the 
government. That was a polite way of saying that the award fee 
was being withheld.
    In general, I'll be very candid for this program. It's in 
the interests of the performers to have a successful program. 
Because otherwise, the international customers and the Services 
are going to buy fewer jets.
    The danger of poor performance is that you sell less. It's 
obviously in the interests of the performers of the program to 
sell more jets sooner and therefore to move that ramp over, 
that I spoke of earlier, and get up that ramp as soon as 
possible. That is the principle reason why performance of a 
kind that we seek is also, if we set the circumstances right, 
in the interests of the performers as well.
    Chairman Levin. That has not historically stopped buy-ins 
in the past and I'm afraid it continues that way. I just worry 
greatly about where we're going with this program. I'm 
appreciative of the effort that you are making now to be 
realistic on these numbers.
    We might as well know the facts of this program. You've 
given them to us the best you can. The facts are painful 
because you have a 60 to 90 percent increase in the projected 
cost each plane at the 2,400 number in constant dollars.
    That is, as Senator LeMieux says, a painful bit of news 
that the taxpayers are not going to be particularly happy to 
hear. It's better that we not sugar-coat it, however. It's 
better that we let them know, let the country know, and that's 
what this hearing is all about, exactly what kinds of problems 
that we foresee in an honest way and we think you've done that 
now.
    I understand your answer earlier, Ms. Fox, you were 
attempting when you made reference to the earlier planes and 
the fact that their numbers were reduced, you were not holding 
that up as a role model here.
    What you're saying was, that we have produced planes that 
cost us more than planned, took us longer than planned, but 
were able to carry out their mission in an effective way. 
That's what I gather you were pointing to.
    But my question is in relation to that. This $200 million 
figure for these developmental planes, if you estimate in 
constant dollars a plane will be costing $80 to $95 million, 
and your first planes are costing two to three times that much, 
is that about normal for these kinds of programs?
    Are your first planes generally that much more than when 
you get to full-rate production? Do you have any way of 
measuring that for us?
    Ms. Fox. We do have a way of measuring that. I don't have 
the measurements with me, but we will get back to you. My short 
answer would be yes. There are 2,443 aircraft overall, but 
we've reduced the ramp very sharply in restructuring, so the 
initial buy is actually much, much smaller.
    [The information referred to follows:]

    It is typical in a unique military aircraft production line that 
early production units will cost more than latter production units. 
This reflects the effects of learning curves--as a production line 
matures, production processes become increasingly efficient. In 
addition, fixed costs are increasingly spread over larger aircraft 
quantities. These collective effects create downward pressure on unit 
prices. As an illustration, the current average procurement unit cost 
is estimated to fall within a range of $79 million to $95 million 
(FY$02) for the total production buy. In contrast, the unit cost of 
early production aircraft procured in fiscal year 2015 and prior years 
is $141 million (FY$02).

    Ms. Fox. One of the leverage points we actually have on the 
contractor is that ramp. They want to push the ramp up, get the 
unit cost down, and push jets out. We are holding them back 
based on the analysis we've done, the review of the IMRT, and 
the desire to keep pressure on this unprecedented concurrency. 
So it is about right.
    Sir, if I could add, in my short time in this position, one 
of the most important things I think about the WSARA 
legislation is the----
    Chairman Levin. That's the Acquisition Reform Bill you're 
referring to?
    Ms. Fox. Yes sir, I'm sorry.
    Chairman Levin. It's all right.
    Ms. Fox. The ICE at the beginning of a program, I think, is 
going to prove in the future to be a very critical thing for us 
all to look at. Because based on historical performance, the 
JSF program is actually not inconsistent with what's been 
achieved in the past. An ICE at the very beginning would have 
allowed us to look at this and understand what we were going 
toward.
    Chairman Levin. Now is in place?
    Ms. Fox. Yes, sir.
    Chairman Levin. I made reference in my opening statement to 
the IMRT that late last summer said that on the JSF program, 
``affordability is no longer embraced as a core pillar''. That 
is a completely unacceptable premise for us to proceed on.
    Secretary Carter, you today said that you're going to be 
relentlessly pursuing affordability. Which means, I think, that 
you've rejected that quote from the IMRT's presentation. Is 
that correct? Were you familiar with that comment?
    Dr. Carter. Absolutely, and that review was charted by my 
office. What they were reporting was that the program had lost 
sight of affordability as a key ingredient and I couldn't agree 
more. Their report and that statement in their report was 
important input to us as we restructured the program.
    Chairman Levin. The IMRT identified a series of milestones 
called Production Integrated Transition Implementation Plan. I 
will not try to even pronounce that acronym.
    That plan was intended to get the program back on a 
reasonable schedule. Among the action items were completing a 
program risk management plan, completing a business systems 
modernization plan, a Pratt & Whitney milestone action plan, 
and a Pratt & Whitney risk management plan.
    Those were, I think, to be completed or were scheduled to 
be completed, General, I think, this question goes to you, by 
the end of last month. Where are those?
    General Moore. Senator, there are actually 20 action items 
associated with the IMRT. Some are process related, some are 
product related, some are government, some are contractor. As 
far as the risk management activities, those did occur on 
schedule. We have a comprehensive risk management program 
tracking over 300 technical risks on the program to include 
engines and aircraft. That has occurred.
    Chairman Levin. What I made reference to, those plans were 
filed on schedule?
    General Moore. Yes, sir, we understand all the risks on the 
program and we are tracking those to closure as well as the 
other 19 actions on the IMRT.
    Chairman Levin. Okay, but more specifically, were those 
plans completed on schedule?
    General Moore. Yes, sir, they were completed last month.
    Chairman Levin. Thank you, Senator LeMieux.
    Senator LeMieux. Thank you, Mr. Chairman, and I appreciate 
the law that was passed and thank you for providing that 
information to me. I just want to make a couple quick points.
    When I talk to people who are on the vendor side and they 
talk to me off the record, the view that they have is that the 
DOD gets gamed on these bids. That they bid low knowing that 
there's going to be mission creep. This is not unfamiliar to 
other parts of the world. Then they know there's going to be, 
for lack of a better term, change orders. That's where they can 
make up the difference.
    When I was speaking with you earlier about how we can 
control costs, making sure that the mission doesn't creep, 
certainly seems to be a big part of this. When something goes 
on for 15, 17 years, you're going to have change because the 
technology's going to change, the demands of the current time 
are going to change. The longer the project goes the more it 
seems like it's going to be cost overruns.
    I want you to address that in a moment if you would about 
how you keep these project static if you can and without 
sacrificing safety, make sure that we try to end these projects 
in the future quicker.
    The second thing I wanted to mention is putting pressure on 
the vendor. What will be done in the future to make sure that 
these contracts we negotiate give you the opportunity to put 
pressure on the vendor?
    In the business world, like manufacturing and suppliers for 
manufacturers, in the automobile industry, the prime vendors 
are constantly going back to them and saying you have to make 
it for less; to the point where they don't think they can make 
any money.
    Constantly beating them up over price. Constantly saying 
I'm going to go to another company. Constantly putting pressure 
on them which spurs innovation for that company to find a way, 
to wring out inefficiencies and get something done as quickly 
as possible.
    Are there people working for you who have that experience, 
who are going to the vendor over time and pressuring the heck 
out of the vendor to wring out inefficiencies and do things 
cheaper?
    Do you have the flexibility in your contract to make them 
do things cheaper? Will your contracts going forward give you 
all of the tools that you need to put you more in a setting as 
if you were a large company so that we can get the most cost 
effective product possible?
    Dr. Carter. Senator, you put your finger on just about 
every major issue of acquisition policy and practice. I'll try 
to address the three major ones that you pointed to.
    The first was the practice, which does occur, of bidding 
low. Then you have yourself a program which the country depends 
upon and then the cost goes up, but we still have the program.
    That dynamic is one that the WSARA was intended to 
interdict by having us--requiring us--to do a realistic cost 
estimate up front so that we wouldn't be just buying the, so to 
speak, cost estimate of the vendor. We need to keep at that, 
and we now have a mechanism for doing that.
    About changing requirements, that's something we also have 
to be vigilant about so that you don't come in and decide later 
that that wasn't really what you wanted, you want more and 
it'll cost you more. That's connected to your point about 
pressure on the vendor.
    In one way at least it's worth noting which is in contract 
structure. That is the dynamic between the government and the 
contractor in a cost-plus contract versus a fixed-price 
contract. Both contract types are appropriate in different 
circumstances.
    But if you're in a circumstance where you know pretty much 
on the government side on what you want and you're not going to 
change that and it's a fairly well-defined article, then it's 
reasonable to ask the vendor to give a fixed price. Then the 
burden is on them to control their costs.
    Senator LeMieux. Which is great.
    Dr. Carter. Correct, and we want to do more and more of 
that. That is unreasonable when we don't know what we want. 
Sometimes we don't know what we want for a good reason because 
we're doing a development and an exploratory development of a 
new military capability. It's fine to have that be a cost plus 
environment.
    But elsewhere we're trying to do more of our transactions 
in a fixed price way for just the reason you say because that 
requires everybody to get real. We have to get real about what 
we want and not change it. The contractor needs to get real 
about what it costs to deliver it.
    Senator LeMieux. Can I interrupt you for 1 second?
    Dr. Carter. Absolutely.
    Senator LeMieux. When we don't know what we want but we're 
in the developmental stage, are we making the vendor bear some 
of that cost? Because you know if I'm a big defense contractor 
and I know that I have an opportunity to get the F-35 for 20 or 
30 years, this becomes the signature program of this contractor 
if they win this award. I would think that they, just like any 
company that's doing research and development (R&D), they have 
to bear some of that expense. You have a big prize out there 
that should give them some incentive to bear some of those 
costs on their own.
    Dr. Carter. The traditional practice for a development that 
really requires some invention and therefore whose future 
unfolding is legitimately uncertain, is to audit and reimburse 
the contractor's costs and add to that a fee. As I said, that's 
appropriate in a circumstance when it's not reasonable to 
expect the vendor to give you a price because you don't know 
exactly what you want or whether you can even get it.
    As where we are coming in the JSF program, to the ramp-up 
to production, it is now reasonable to say to the contractor, 
give me a price for the next lot of jets. You figure it out and 
then we'll hold you to that price. Because the line is now 
mature enough that it should be possible to price its 
performance in advance.
    Senator LeMieux. There are two points. One is, and then 
I'll conclude, Mr. Chairman, is that the traditional practice 
of paying them for their development of a product that they're 
going to then sell to us doesn't seem to make a lot of sense to 
me looking at it from a private sector perspective.
    I understand that sometimes that might have to be the way 
it is because it's just too big an expense for them to bear. 
But I would encourage you in the future, these contractors want 
this work, to use your power as the purchaser to extract 
concessions out of them on the front side too to see if they'll 
help finance some of this R&D.
    On the question of creep and making sure that we don't have 
scope creep. Are we at a disadvantage on our side in that the 
vendor stays constant but folks like you and others similar to 
you rotate out and there will be a new Secretary so-and-so, and 
a new Ms. so-and-so, and a new General so-and-so, and we don't 
have the constancy on our side? Do we need to think and maybe 
it has already been done creatively to make sure there's 
something on our side that gives us continuity as well?
    Dr. Carter. Excellent point, people do change jobs rapidly, 
more rapidly in government than in industry. Programs take a 
long time and the commitments need to remain solid over that 
time. So it's important that as people come into these jobs, 
respect the commitments that were made by predecessors in the 
interests of stability in a program unless there's really 
something wrong or the circumstances have changed.
    It gets back to another point you made though that's 
important which is how long these programs take. I think that 
time is the variable that we do not manage enough, in general, 
in our programs.
    The dynamic is this: if you have a program that runs into 
trouble, the first thing to do is come and get more money for 
it. But there's only so much money every year, that only goes 
so far. Then your next step, if you can't get more money, is to 
slip the program to the right. So these things stretch out to 
the right. An 11-year program is 10 percent more expensive than 
a 10-year program. In general they run at a kind of level of 
effort.
    That's concerning to me. So not only by the time you get 
the thing, it might not be what you want or we've forgotten why 
we bought it in the first place, or it's more expensive than it 
should be. So managing to the variable of time is an important 
idea. I appreciate your raising it.
    Senator LeMieux. I thank you all and I thank you for your 
service and your focus on these important issues. Thank you, 
Mr. Chairman.
    Chairman Levin. Thank you very much, Senator LeMieux. On 
that important point that Senator LeMieux raised about the 
creep of requirements--those increases, what we did in this 
bill was to put--we created a board, a Configuration Board it's 
called, to make sure that if there is a proposed change in a 
mission or in a requirement, it goes to the board for approval, 
so it doesn't creep the way Senator LeMieux pointed out.
    We understand it's pretty slow getting those boards going. 
I just wanted to remind you that my staff has looked into this 
and it's not moving as quickly as we would like. If you want to 
comment you can but I want to just let you know that's been our 
concern.
    Dr. Carter. My only comment is that it's an incredibly 
important idea and I will look into it and get back to you.
    [The information referred to follows:]

    Consistent with section 814 of the Duncan Hunter National Defense 
Authorization Act for Fiscal Year 2009, the Department of Defense (DOD) 
acquisition policy requires the Acquisition Executive of each DOD 
component to establish and chair a Configuration Steering Board (CSB) 
with broad executive membership from the office of the Under Secretary 
of Defense (Acquisition, Technology, and Logistics and the Joint Staff. 
CSBs are required to meet at least annually to review all requirements 
changes for ACAT 1 and 1A programs in development that have the 
potential to result in cost and schedule impacts on the program. Such 
changes will generally be rejected, deferring them to future blocks or 
increments. On a roughly annual basis, program managers (PMs) and 
program executive officers (PEOs) are also required to identify and 
propose descoping options to the CSB that reduce program cost or 
moderate requirements. This policy has been actively implemented at the 
component level. Examples follow:

         Army acquisition policy directs a CSB to be conducted 
        whenever an event is anticipated that could cause significant 
        deviation from parameters in a program's approved Acquisition 
        Program Baseline (APB). In the absence of a triggering event, 
        programs undergo a yearly ``descoping'' CSB where PEOs and PMs 
        present options for reducing cost or moderating requirements 
        for the Milestone Decision Authority's consideration. In 
        calendar year 2009, the Army conducted 13 CSBs.
         The Air Force applies a similarly aggressive CSB 
        policy in a two-tier approach based on monthly program analysis 
        to conduct either ``event driven'' or yearly CSBs. The CSB 
        requirement for all Air Force Aircraft Major Defense 
        Acquisition Program (MDAP) and MAIS programs was met for 
        calendar year 2009.
         The Navy requires a CSB for each MDAP annually. In 
        calendar year 2009, the Navy conducted 33 CSBs out of 45 
        possible for ACAT I programs. So far in calendar year 2010, the 
        Navy has conducted 14 CSBs out of 44 possible ACAT I programs. 
        The Navy has another 30 CSBs scheduled to be conducted in the 
        next 3 months.

    Chairman Levin. All right, thank you. Then also, Ms. Fox, 
you said that now an engine competition under your business 
case will achieve a break even point which is important news. 
It's also important that we know the assumption that you made 
relative to the savings of competition. What percent savings 
did you assume?
    Ms. Fox. Sir, let me ask my colleague if we have that 
number. Perhaps I could invite Mr. Janicki to answer your 
question since he did the analysis.
    Chairman Levin. Sure. Can you just tell us who you are?
    Mr. Janicki. I'm Fred Janicki. I led the JET team and I 
work for Ms. Fox.
    Chairman Levin. Okay.
    Mr. Janicki. The 2007 study, we evaluated that we would 
need 21 percent to break even. Now for the updated study, we 
did not go in and determine what savings would be needed. For 
the new study, the 2010 study we have not determined that.
    Chairman Levin. Have not, okay.
    Mr. Janicki. No, sir.
    Ms. Fox. But in the past study, we assume the 21 percent, 
sir.
    Chairman Levin. From what? 21 percent----
    Ms. Fox. Percent of savings from competition.
    Chairman Levin. Over the----
    Ms. Fox. For a competition that would start in 2014.
    Chairman Levin. Over the life of the contract?
    Ms. Fox. That's right.
    Chairman Levin. Are you all set, George? We're set, okay.
    Thank you all. It's been a long hearing, we want to 
particularly thank our reporter. We don't often do that but 
it's a little longer than planned so once in a while we 
remember to say thanks to people who keep us going here.
    We appreciate your coming to visit us today and there will 
be questions for the record and we'll stand adjourned.
    [Questions for the record with answers supplied follow:]
               Questions Submitted by Senator Carl Levin
                              Cost Sharing
    1. Senator Levin. Secretary Carter, Secretary Gates announced that 
you have asked Lockheed Martin to share in some of the cost increases 
that the independent reviews are predicting for the F-35 program. Where 
do you stand in these negotiations?
    Dr. Carter. Relative to the System Development and Demonstration 
(SDD) Program, the Department of Defense (DOD) is challenging Lockheed 
Martin to meet program needs through application of the remaining fee 
to reward accomplishment of key schedule and cost objectives. The 
previous SDD incentive structure is being restructured and the 
remaining $614 million is being converted to event-based fee that will 
reward measurable progress against significant schedule events and 
ensure event-based fees, to include completion at or under the estimate 
at completion, are paid only if the events are accomplished in order to 
support the restructured contract performance. $379 million of the fee 
has been allocated to meeting objective contract performance 
milestones. The balance of the potential fee may be earned only if the 
contractor's cost at completion is at or below the restructured 
contract cost.
    The Low Rate Initial Production (LRIP) Lot 4 fiscal year 2010 
procurement contract is being negotiated as a fixed-price-type 
contract. The transition to a fixed-price contract is earlier than 
previously planned and shifts the burden of contract performance risk 
to the contractor.

    2. Senator Levin. Secretary Carter, what, if any, commitment has 
Lockheed Martin made to sharing in any increased costs?
    Dr. Carter. Relative to the SDD Program, DOD is challenging 
Lockheed Martin to meet program needs through application of the 
remaining fee ($614 million) to reward accomplishment of key schedule 
and cost objectives. The previous SDD incentive structure is being 
restructured and the remaining $614 million is being converted to 
event-based fee that will reward only key schedule and cost goals/
events that support successfully finishing the development program 
within the current estimate. If the contractor fails to meet the 
criteria established by the Government, it will forfeit fee.
    The LRIP Lot 4 fiscal year 2010 procurement contracts are being 
negotiated as fixed-price incentive-fee-type contracts. The transition 
to a fixed-price contract is earlier than previously planned and shifts 
the burden of contract performance risk to the contractor.

    3. Senator Levin. Secretary Carter, will you award the fiscal year 
2010 production contract without such an agreement?
    Dr. Carter. The Acquisition Decision Memorandum authorizing full 
funding for Lot 4 is currently being reviewed for my signature, and I 
anticipate that the contract will be awarded this summer. Intensive 
negotiations are underway to strike a deal in the best interest of the 
Government. With the LRIP 4 contract, the program will transition to 
fixed-price incentive fee contracts reflecting the maturity of the 
airframe and engine, as well as signifying a commitment on the part of 
the contractors to control costs and maintain a focus on affordability.

          independent manufacturing review team-affordability
    4. Senator Levin. Secretary Carter, in my opening statement, I 
mentioned that the Independent Manufacturing Review Team (IMRT) had 
observed that, on the Joint Strike Fighter (JSF) program, 
``Affordability is no longer embraced as a core pillar.'' Why should 
Congress, or DOD for that matter, continue to support a program that 
has lost the affordability upon which the program was sold as the 
solution to modernizing all three components of our tactical fighter 
force structure?
    Dr. Carter. The IMRT review was helpful in identifying areas that 
the contractor and the government needed to refocus on to ensure the 
success of the JSF program. Affordability was a core pillar of the JSF 
program at inception and the Department is taking the necessary actions 
to ensure that the government and contractor team restore affordability 
as a core pillar as the program moves forward. Additionally, the 
program is undergoing a significant restructure as a result of the 
findings and recommendations from the Nunn McCurdy review. Paramount 
among those recommendations is a renewed focus on restoring program 
affordability. In the Nunn McCurdy Acquisition Decision Memorandum, 
dated June 3, 2010, Dr. Carter directed the IMRT to update their 2009 
assessment with particular emphasis on a fully integrated comprehensive 
affordability plan, maximum achievable and optimal ramp rate goals and 
restrictions, and the contractor organization and skill sets required 
in key enterprise activities to achieve those ramp rates. He also 
directed the Services and JSF Program Executive Officer to more closely 
manage affordability with a focus on successful management of cost and 
manufacturing risks identified by the IMRT as well as the F135 Joint 
Assessment Team (JAT). Additionally, it was directed that the LRIP Lot 
4 contract for air systems and engines transition to a Fixed Price 
Incentive Firm Target contract. Dr. Carter has taken an active and 
aggressive role in making sure that this contract meets our 
affordability goals and provides a best value for the government. The 
costs have gradually been built into the program over time, partly as a 
result of a loss of focus on affordability.

    5. Senator Levin. Secretary Carter, what specific actions have you 
taken, or do you intend to take, to restore affordability to the center 
of the program?
    Dr. Carter. DOD is restructuring the remaining $614 million in 
award fee and revising the SDD contract structure to reward measurable 
progress against significant schedule events and ensure event-based 
fees, to include completion at or under the estimate at completion, are 
paid only if the events are accomplished in order to support the 
restructured contract performance. DOD is also focused on transitioning 
to a fixed price structure for procurement contracts sooner than 
originally planned, specifically the LRIP Lot 4 contract. Finally, the 
program restructure was premised on introducing more realistic cost 
estimates for development and production. Having a better understanding 
of what the various elements of the program should cost is a critical 
step in managing affordability.

    6. Senator Levin. Secretary Carter, is this lack of focus a major 
reason for the potential Nunn-McCurdy breach on this program?
    Dr. Carter. Subsequent to this hearing, I directed a review of the 
JSF program using the Nunn-McCurdy criteria. As called for in the 
Weapon Systems Acquisition Reform Act (WSARA), the Department conducted 
a root cause analysis and assessment. The JSF program's estimated 
average procurement unit cost has increased significantly over the past 
8 years, and this is the reason the program is in Nunn-McCurdy breach. 
The increase in estimated unit cost is driven by a combination of 
flawed programmatic and technological assumptions at program inception 
that led to artificially low initial cost and schedule estimates, 
higher material costs, a decrease in the quantity of aircraft planned 
for purchase, and changes in inflation assumptions. Production 
planning, contractor commitments, production process improvement, 
quantity changes, material cost, international partner commitments, 
foreign military sales, overhead rates, and interest rates will 
ultimately affect unit cost more than the development and test 
challenges the program is currently addressing. The cost estimates in 
this Nunn-McCurdy review are being conducted at a time when the program 
is just beginning to produce aircraft and before development and 
testing are complete. These estimates are therefore forecasts of a 
future production process that will unfold over the next 25 years. They 
therefore carry with them the uncertainty inherent in such a long-term 
forecasting process, but I believe they provide the most realistic 
foundation available for our planning and management. At the same time, 
the JSF program under its new management structure should strive to 
reduce the program costs forecast in these estimates. I believe that 
costs have gradually been built into the program over time, and that 
with disciplined management they can be removed.

     government accountability office access to independent reviews
    7. Senator Levin. Mr. Sullivan, to what extent have you and your 
team had visibility into the efforts of the various reviews that DOD 
conducted on the JSF independent of the program office in the past 
year?
    Mr. Sullivan. The team generally had poor visibility into the 
independent reviews conducted by the Joint Estimating Team (JET), IMRT, 
and the F135 Engine JAT until very late. We made repeated requests for 
this information starting in November 2009, but were not briefed and 
provided supporting documentation by DOD until February 25, 2010. This 
occurred while our draft report was in processing and we ended up 
delaying issuance by 1 week, in part, so we could provide more current 
and accurate information about these important reviews. We did not, 
however, have sufficient time to do the necessary follow-up work and 
analysis to fully evaluate the reviews and their significance to the 
JSF program.

    8. Senator Levin. Mr. Sullivan, are there particular conclusions 
from the independent reviews with which you and your team particularly 
agree or disagree?
    Mr. Sullivan. While we have not yet fully evaluated the independent 
reviews, we largely agree with each review's overall conclusions, major 
findings, and recommended improvements. Each review helped confirm our 
own assessments of issues related to cost and schedule, manufacturing, 
and the primary engine. Our next annual review to begin soon will look 
in more detail at the results and improvement plans from these three 
reviews.

         We agree with the JET's conclusion that the program 
        assessments of cost, schedule, manufacturing span times, and 
        flight test plans were over-optimistic. We have reported 
        increasing costs and delayed schedules for a number of years 
        and a need for a comprehensive, independent assessment of total 
        program costs, one that the Department is now doing. We've also 
        reported increases in time and labor hours needed to 
        manufacture test aircraft that have delayed deliveries and the 
        development flight test program. We agree with the JET's 
        assertion that development will take more time than the program 
        was estimating and its findings on the program's overly 
        optimistic assumptions. As we reported in March 2010, the 
        program had completed only 10 percent of its planned flight 
        test for fiscal year 2009 and only 3 percent of the program 
        overall. We had noted in our March 2008 report that the 
        program's decision to cancel two test aircraft as a result of 
        the Mid-Course Risk Reduction Plan would add significant risk 
        to the program. The recent addition of another test aircraft 
        back into the development program and the allocation of up to 
        three LRIP aircraft effectively confirmed our own earlier 
        concerns about the risk reduction plan. The JET also noted the 
        program's overly optimistic plan for reducing engineering 
        staffing levels and projections for software productivity. We 
        support the JET's assumptions which are based more on actual 
        program performance and legacy aircraft experience. 
        Furthermore, we have previously reported on the risks of 
        concurrency and that the procurement rate should be slowed and 
        were pleased to note the JET's recommendation--and DOD's 
        subsequent action--to reduce near-term production quantities.
         The IMRT analysis also effectively confirmed many of 
        our previous concerns regarding the JSF manufacturing program. 
        The IMRT reported that the program's planned increase in 
        production was unachievable based on the program's past 
        performance and current manufacturing processes. Further, the 
        IMRT concluded that the prime contractor would need to address 
        a large number of conditions in order to achieve its planned 
        full-rate production ramp-up. The manufacturing effort has been 
        plagued by parts shortages caused largely by design changes and 
        an immature supplier base. Given all of the challenges facing 
        the program, we said that moving forward with the current plan 
        for ramping up production does not seem prudent.
         While we have not reviewed the JAT findings in detail 
        nor talked to the principals involved in the study, our work 
        identified escalating engine costs, reduced management 
        reserves, and slowed technical progress and would agree with 
        the JAT that substantial cost reduction initiatives are needed.

    9. Senator Levin. Mr. Sullivan, have you had sufficient time to 
assess the restructured program, and if so, what are your conclusions?
    Mr. Sullivan. Given that we did not obtain the information on the 
restructuring and the related independent reviews until recently and 
only a short time before our report was issued, we have not had 
sufficient time to fully assess the restructured program. Nonetheless, 
we are encouraged by the positive steps taken by DOD and testified that 
these actions, if effectively implemented, should significantly improve 
program outcomes and provide more realistic cost and schedule 
projections. In particular, reducing near-term procurement quantities, 
extending development, and adding four aircraft to support the 
development test program (one new test jet and use of three production 
jets) increases the chance of successful outcomes. However, the 
production ramp-up remains overly optimistic considering program 
problems. Also, the program is still highly concurrent. Due to the 
program's recent critical Nunn-McCurdy breach, the program is 
processing a complete Independent Cost Estimate. We plan to more fully 
assess the restructuring as it unfolds over the next year and provide 
more details in our March 2011 report.

 independent manufacturing review team-short takeoff/vertical landing 
                               immaturity
    10. Senator Levin. Dr. Gilmore, the IMRT highlighted a concern 
about maturity of the short takeoff/vertical landing (STOVL), variant 
of the aircraft, the F-35B. This is the aircraft slated for the Marine 
Corps, and is scheduled to achieve initial operational capability (IOC) 
before the Air Force variant F-35A, which was the next variant 
scheduled to achieve IOC. The IMRT expressed a concern about the 
immaturity of the F-35B flight testing capability. I presume this to 
mean that the IMRT considers the F-35B variant to be closer in the 
development process than the conventional takeoff and landing (CTOL) 
variant for the Air Force F-35A. This might lead one to the conclusion 
that we could reduce concurrency and risk by fielding the F-35A before 
we field the F-35B. From your perspective as the Director of 
Operational Testing and Evaluation, is this a concern for you?
    Dr. Gilmore. The test program is designed for concurrent flight 
sciences testing of the F-35B and F-35A in order to take advantage of 
common flight sciences test points. F-35B flight test is intended to 
lead CTOL flight testing in these common test point regimes. It is not 
clear at this point that reversing this relationship would necessarily 
reduce risk in the program. However, the F-35B, due to the STOVL 
system, is inherently more complex than the F-35A CTOL variant. F-35B 
flight test has achieved the first vertical landing and short takeoff 
within a limited, developmental flight test envelope with a significant 
amount of envelope expansion yet to be accomplished. The first 
production representative F-35A SDD flight test aircraft (AF-1), has 
not yet ferried to the Edwards AFB, California test center; that is 
planned to occur by early May 2010. It would be prudent to evaluate the 
progress made in flight testing of the two variants near the end of 
this year, and determine on the basis of that evaluation which variant 
can make better progress as the lead system.

    11. Senator Levin. Dr. Gilmore, do you believe that shifting the 
program to field the Air Force F-35A variant first would reduce 
concerns about the testing program?
    Dr. Gilmore. Referring to the answer to question 10, it is not 
clear at this time that shifting the program to field the F-35A first 
would reduce concerns about the ability to execute the test program. 
The test strategy depends on commonality between the two variants in 
certain (but not all) disciplines of flight sciences testing, with the 
F-35B leading the F-35A. The F-35B is, however, more complex than the 
F-35A CTOL variant. It would be prudent to reevaluate the test strategy 
towards the end of this year to determine whether the current leader-
follower relationship remains the best approach.

    12. Senator Levin. Secretary Carter, did you consider delaying the 
F-35B and proceeding with the F-35A as a means of simplifying the 
program and increasing its chances of staying on some overall schedule?
    Dr. Carter. All aspects of the program were reviewed and considered 
during the Department's recent review that resulted in the current 
restructure. At this point in the development program, delaying the F-
35B, or any of the variants, would not necessarily improve schedule 
performance. In fact, the design of the F-35B is more mature than the 
F-35 A and C. Delays in the manufacture of the test aircraft is 
primarily due to the later than planned delivery of parts from 
suppliers. Those late parts are consistent across the three variants 
and delaying the build of one of the variants would not help regain 
schedule, in and of itself. As with any acquisition program, there is 
also the question of requirements. In the case of the F-35B, the Marine 
Corps is counting on the 5th generation capability that will be 
provided by JSF to replace legacy AV-8B and F/A-18 aircraft.

    13. Senator Levin. General Moore, what would be the implications 
from the program's perspective of streamlining the program to bring the 
F-35A along faster than the F-35B?
    General Moore. At this point in the program, there are very limited 
options to accelerate development of the F-35A. The primary remaining 
effort is developmental flight testing and our flight test capacity at 
Edwards Air Force Base and Naval Air Station Patuxent River is 
sufficient to enable testing of all three variants concurrently. There 
would be little or no benefit to optimizing or prioritizing test of one 
variant at the expense of the others.

                        supply chain management
    14. Senator Levin. Secretary Carter, one of the challenges the 
private sector has faced and continues to face is dealing with a new 
business model incorporating a much greater contribution of the global 
supply chain to build weapons systems. The much publicized delays of 
Boeing on the B-787 have been attributed to the growing pains of 
managing this global supply chain, particularly as you are designing 
the aircraft. The IMRT concluded that managing the global supply chain 
process is a huge challenge for the JSF contractor team. It also 
concluded that the current funding process within DOD does not support 
a complex, large-scale international partner, global supplier program. 
What steps should the contractor team take to become better at global 
supply chain management?
    Dr. Carter. First, the contractor's Global Supplier Executive 
should develop and provide a plan for including long-lead advance 
procurement funding requirements in each year's budget to properly fund 
those globally manufactured parts that take a considerable time to 
manufacture and ensure their availability to the production line. The 
contractor should also develop a transition plan for the global supply 
chain with associated metrics for each critical capacity issue. In 
addition, the contractor needs to ensure the global supplier team has 
adequate resources as the program transitions to higher production 
rates. The entire global supply chain must be advised immediately of 
any engineering changes in order to take appropriate and timely action 
to support the production line. Finally, the contractor should develop 
international and domestic transportation plans (after an appropriate 
level of study) for their suppliers, factoring into their production 
schedule an appropriate amount of ``slack'' material/parts reserve to 
account for issues that arise from international transportation.

    15. Senator Levin. Secretary Carter, what steps should DOD take to 
be a better manager of such a program?
    Dr. Carter. DOD should develop the necessary expertise to recognize 
whether the prime contractor has the appropriate processes and 
resources in place to succeed with their global supply chain. We have 
already done that to some extent with the IMRT we chartered. DOD will 
continue to examine this particular issue with the appropriate 
expertise to make this part of the F-35 program a success.

                         new f-35 program risks
    16. Senator Levin. Secretary Carter, we understand that there may 
be some new risks that were first identified this year by the latest 
JET II. One of these was that expected delays in the schedule are 
apparently raising concerns about the maturity of the aircraft to 
support training of new pilots. Are there other new risks this year 
that have been identified by the JET and if so, is maturity of the 
aircraft to support training one of these?
    Dr. Carter. The JET II did not introduce any new risks. In general, 
they validated the risks previously identified. The JET II (and JET I) 
estimate did highlight development schedule risk, driven primarily by 
aircraft deliveries to the lest program and the ability of the test 
program to validate aircraft performance within that schedule. Delays 
in flight test do impact the maturity of the aircraft when training 
begins. The ongoing re-plan is feeding the pilot training syllabus to 
ensure the pilots going through F-35 training receive the safest, most 
robust training possible while the aircraft capabilities are expanded 
and validated through flight test.

    17. Senator Levin. Secretary Carter, what have you proposed in this 
restructured program to mitigate this risk?
    Dr. Carter. We have reduced the number of aircraft across the 
Future Years Defense Program (FYDP), thereby reducing the concurrency 
of the F-35 program. In addition, we added test aircraft and properly 
resourced the development program in funds and schedule to account for 
the various risks identified by JET I and II. We have delayed the 
Milestone C decision to April 2016, and the Navy and Air Force are 
moving their IOCs commensurate with this schedule extension. This will 
provide the program with an appropriate amount of time to recover from 
aircraft delivery delays and fully develop the F-35's maturity to 
appropriate levels.

             weapon systems acquisition reform act of 2009
    18. Senator Levin. Secretary Carter, leaving aside for the moment 
the issue of competition of the JSF alternate engine, the WSARA of 2009 
says the following about competition: ``The Secretary of Defense shall 
ensure that the acquisition strategy for each major defense acquisition 
program includes measures to ensure competition, or the option of 
competition, at both the prime contract level and the subcontract level 
(at such tier or tiers as are appropriate) of such program throughout 
the life-cycle of such program as a means to improve contractor 
performance . . .''
    I understand that you have taken a position on the alternate engine 
issue. However, there are a whole multitude of other prime contractor 
systems and subcontractor systems that would fit the mandate of the 
WSARA competition provision.
    What is the Department's plan for complying with this competition 
language in WSARA for all of the rest of the JSF program, including 
such items as logistics, training systems, ejections seats, avionics, 
or other major subsystems of the JSF?
    Dr. Carter. Suppliers throughout the world are competing to be part 
of the JSF program. We expect the competition to expand as JSF moves 
into full-rate production under fixed price contracts. The F-35 program 
will be continuing for many years, giving us ample opportunity to 
address this area, though there are many areas where competition, for a 
variety of reasons, wouldn't make sense for the Department or 
taxpayers.

                           software maturity
    19. Senator Levin. General Moore, one of the typical things that is 
done on complex software programs that run into performance or schedule 
troubles is for the software developers to delay functional capability 
to later releases of the software. From the outside, the software 
developers have maintained the schedule for software release X, but 
they have not maintained the content of software release X that they 
promised. This tends to paint too rosy a picture to the outside world 
of how well the development is going. Is this the case on the F-35?
    General Moore. While there has been some minor functionality 
shifted between software block releases, we are maintaining our planned 
capability releases while taking additional time to deliver and test 
those capabilities. This was a major consideration in the program 
restructure. Rather than deferring or deleting capabilities, the 
Department added resources (i.e., software personnel and an additional 
software test line) to our software development effort. The 
restructured SDD program provides the necessary resources and schedule 
margin to deliver full block capabilities to meet the warfighters' 
objectives.

    20. Senator Levin. General Moore, have the program and the 
contractor been delaying any functional capability to later software 
releases?
    General Moore. The basic block capabilities have remained stable 
during SDD. While there have been some minor functionality shifts 
between software block releases, we are maintaining our planned 
capability releases while taking additional time to deliver and test 
those capabilities. This was a major consideration in the program 
restructure. Rather than deferring or deleting capabilities, the 
Department added resources (i.e., software personnel and an additional 
software test line) to our software development effort.

    21. Senator Levin. Mr. Sullivan, does your review find that there 
have been delays in functional capability to later software releases?
    Mr. Sullivan. Yes, our review has found that there have been delays 
in delivering functional capability, including deferral of work to 
later software releases. Software is developed, integrated, tested, and 
released in five block increments. While approximately three-fourths of 
total expected software has been developed, only about 40 percent has 
completed the more challenging phase of integration and testing. During 
this overall development, software capabilities have been deferred or 
deleted due to software growth and integration challenges. The JSF 
program has experienced 40 percent software growth since the 
preliminary design review and 13 percent since critical design review. 
The JET reported that some growth has been offset by software deferral 
or deletion--up to 10 percent of program of record software content--in 
order to address schedule pressures. The program has also deferred 
capabilities to future blocks due to significant technical and 
integration challenges. Mission systems software, in particular, is 
behind schedule and has moved the communications, navigation, and 
identification subsystem from block 0.5 to block 1.0 due to integration 
challenges. In addition, Defense Contract Management Agency officials 
stated that voice recognition capabilities planned for block 0.5 BF-4 
first mission system aircraft would be deferred. JSF program officials 
also reported that 38 software severity 1 and 2 defects were moved from 
Block 0.5 to 1.0. This deferment strategy to meet schedule is doubtful 
given the consequences and probability of software risk being realized 
later in flight test. It also extends the overall schedule for 
completing and maturing related capabilities while adding costs to 
future efforts.

    22. Senator Levin. General Moore, General Fraser, head of the Air 
Force's Air Combat Command (ACC), has been quoted as saying that he 
could be forced to delay the Air Force's IOC date by 2 years or more, 
based not on delayed aircraft deliveries, but based on a lack of 
sufficient capability in the software delivered with those early 
aircraft. When will the JSF program be able to deliver the software to 
ACC that General Fraser believes is needed to achieve IOC?
    General Moore. Block 3 is planned to deliver to operational testing 
in late 2014. We expect Block 3 operational testing to complete in 
early 2016. I defer to the Services on their respective IOC plans.

              defense contract management agency problems
    23. Senator Levin. Secretary Carter, the IMRT highlighted a concern 
about a lack of consistent Defense Contract Management Agency (DCMA) 
engagement across the contractor sites. This would have been bad enough 
when we were building aircraft the old-fashioned way, but when we are 
trying to take advantage of a global supply chain to build an aircraft, 
such a situation is intolerable. What steps are you taking to correct 
this problem with DCMA?
    Dr. Carter. The DCMA has developed a new strategic plan for fiscal 
years 2009-2013 to address the lack of consistent engagement across 
contractor sites. This plan defines the key focus areas and specific 
steps being taken to improve the Agency's support to the DOD 
Acquisition Enterprise. To address increased customer demand for 
specialized skills, the DCMA is expanding their analytical capabilities 
in the areas of pricing, earned value management, and supply chain 
management. The Agency is continuing to improve management controls and 
consistency of operations and contractor engagement through deployment 
of a new organization alignment which establishes an Operations 
Directorate replacing the divisional structure and functionally 
realigning its core business activities into three functional 
Directorates: Contracting, Quality Assurance, and Engineering and 
Analysis. The Agency concept of operations implementing this 
realignment incorporates well-defined roles, responsibilities, and 
infrastructure to promote standardization, ensure proper alignment, and 
enhance mission performance. To provide focused and integrated 
acquisition insight to the Agency's customers, a Portfolio Integration 
and Analysis Directorate has also been established under the new 
organizational design. This new Directorate includes an Integration 
Support Division whose duties include integration and analysis of 
functional data to provide predictive strategic products and corporate 
technical and business system profiles to the Agency's customers. This 
overarching strategic approach is designed to ensure the Agency 
executes standard business processes and drives consistent supplier 
engagement activities.

                        fighter force structure
    24. Senator Levin. Ms. Fox, in my opening statement, I mentioned 
the possible impact that the delays in the F-35 program could have on 
the Air Force, Navy, and Marine Corps. Even under the last announced F-
35 schedule, the Services were already anticipating sizeable force 
structure gaps. What effect will the F-35 program delays have on the 
fighter force structure of the Services?
    Ms. Fox. The PB11 JSF restructure deferred the procurement of 122 
of the 483 aircraft planned for fiscal years 2011 through 2015 in PB10. 
55 of the 122 were Navy aircraft and 67 were Air Force aircraft. CAPE 
and the Services are assessing a potential capacity gap in the years 
prior to full delivery of the JSF. This effort will also examine the 
feasibility of mitigating a shortfall. These measures include achieving 
depot efficiencies to increase aircraft availability and service life 
extensions of existing aircraft.

    25. Senator Levin. Ms. Fox, why didn't the Quadrennial Defense 
Review (QDR) reach any conclusion about requirements for fighter force 
structure?
    Ms. Fox. The 2010 QDR identified 6 air superiority wing equivalents 
and 10-11 theater strike wing equivalents for the Air Force and 10 Navy 
carrier air wings and 6 Marine Corps fixed-wing Marine Air Groups (5 
Active Duty and 1 Reserve) for the Navy.

   joint assessment team review of the pratt & whitney engine program
    26. Senator Levin. Secretary Carter, earlier this year, you 
announced that you were commissioning a JAT to review cost and schedule 
issues with the Pratt & Whitney F135 engine program. What were the 
conclusions or recommendations of the JAT?
    Dr. Carter. The JAT determined that the cost growth projections are 
to a significant degree reversible. The JAT also determined that with 
investment in affordability and a commitment by the contractor, Pratt & 
Whitney (P&W) could realistically achieve their cost goals. The JAT 
recommendations focused on affordability investment, contracting 
actions, the Component Improvement Program, and risk management and 
readiness for production of the prime and subs, as well as other more 
detailed areas. The results of the JAT were briefed to professional 
staff members of the four congressional defense committees on February 
22, 2010. The backup information was provided to the congressional 
defense committees on March 5, 2010.

    27. Senator Levin. Secretary Carter, what part, if any, is the F135 
program playing in the cost, schedule, or performance issues with the 
F-35 program?
    Dr. Carter. The F135 program, from program baseline in 2001, is 
approximately 7.5 percent of the Average Unit Procurement Cost. From 
SAR 07 to SAR 09, the F135 program accounts for approximately 4.4 
percent of the increase in Average Unit Procurement Cost and 3.5 
percent of the Program Acquisition Unit Cost. While the F135 program 
has experienced delays, to date none of those delays have created a 
delay in the overall F-35 program. Initial Service Release was 
accomplished earlier this year and the engine has accumulated 13,400 
ground test hours and 219 flight test hours.

    28. Senator Levin. Secretary Carter, what, if any, commitment do 
you have from Pratt & Whitney leadership to correct the problems, or 
share in the additional costs of the F135 program?
    Dr. Carter. Pratt & Whitney leadership has committed to assist the 
Department in correcting the cost growth concerns on the F135 engine. 
In addition, they have agreed, from corporate funds, to fund a number 
of affordability initiatives that require investment in order to 
further reduce the cost of the F135 engine. The JAT proposed that with 
commitment and funding, the cost growth trends can be reversed, and I 
have challenged Pratt & Whitney to do so.
                                 ______
                                 
               Question Submitted by Senator Bill Nelson
                          f-35 program delays
    29. Senator Bill Nelson. Secretary Carter and General Moore, both 
of your written statements to the committee state that you expect F-35 
training operations to begin at Eglin Air Force Base in late 2010 with 
LRIP 1 aircraft. Have the F-35 program delays impacted the number of 
aircraft that will arrive and train at Eglin over time? Please provide 
a revised estimate of the total number of aircraft that will be based 
there and the arrival timeframe for each.
    Dr. Carter. The total number of aircraft to be based at Eglin Air 
Force Base (AFB) has not changed; however, program delays have impacted 
the delivery dates of the aircraft. The initial Record of Decision for 
Eglin AFB is for the beddown and limited operations of 59 aircraft (24 
CTOLs, 20 STOVLs, and 15 CVs). The first aircraft, Air Force CTOLs, are 
scheduled to arrive at Eglin before the end of calendar year 2010. 
Marine Corps STOVLs begin to arrive in early 2011 and Navy CVs will 
start arriving in mid-2012. Aircraft will continue arriving through 
2014.
    General Moore. Delays in production have had a direct impact on the 
timing of aircraft arrival at Eglin so that training will start later. 
However, the total number of planned aircraft remains the same and is 
restricted by the current Environmental Impact Statement. Approximate 
projections for cumulative aircraft at Eglin Air Force Base by year are 
as follows: 4 (2010); 30 (2011); 37 (2012); 51 (2013); and 46 (2014).
                                 ______
                                 
                Question Submitted by Senator Mark Udall
                     service life extension program
    30. Senator Udall. Secretary Carter, based on recent testimony 
before the House of Representatives, it appears the Air Force plans to 
modernize and renovate fourth generation aircraft using a Service Life 
Extension Program (SLEP) in order to bridge the capability gap until 
the F-35 becomes available. What does this year's budget request do to 
meet that goal and what would a SLEP include for the Nation's F-16s?
    Dr. Carter. The Air Force is closely monitoring fighter capability 
and capacity shortfalls. The Air Force is currently conducting full 
scale fatigue tests (FSFT) on the A-10 and F-15C, and starting a FSFT 
on the F-16 Block 50 in fiscal year 2011. These tests will increase the 
accuracy of determining the remaining service life of aircraft and 
continue to inform SLEP. SLEP combined with sustainment upgrades and a 
capability enhancement package for the F-16 Block 40-52 aircraft 
provides essentially the same capability as all-new ``4.5 Generation'' 
fighters at 10 to 15 percent of the cost.
                                 ______
                                 
            Questions Submitted by Senator Roland W. Burris
                       f-35 delay to marine corps
    31. Senator Burris. Secretary Carter and General Moore, the Air 
Force reports that the introduction of the F-35 to their operating 
forces is going to be delayed up to 24 months. Is the IOC of the F-35 
for the Marine Corps going to have to be delayed as well?
    Dr. Carter. The Marine Corps plans to IOC with a multi-mission 
support capable Block 2B aircraft as defined in the JSF operational 
requirements document (ORD) change 3. The aircraft, support, and 
ancillary equipment for training, test, and the first operational 
squadron were procured in fiscal years 2008, 2009, and 2010. With the 
recent program restructuring, IOC is now projected for December 2012 
for the Marine Corps. This is based on operational requirements and the 
associated metrics that encompass capabilities, equipment, training, 
and support. We will track and measure the progress of the program to 
meet Marine Corps requirements between now and December 2012 and ensure 
the Marine Corps has all the elements required for operational use of 
the F-35B. An IOC declaration will be dependent upon meeting these 
requirements.
    The F-35B Block 2B is far superior to any aircraft in the Marine 
Corps inventory. With VLO survivability, a powerful integrated sensor 
suite, fused information displays, interoperable joint connectivity, a 
precision weapon capability, and self protect anti-air weapons, it is a 
total package of capabilities. It will revolutionize our expeditionary 
Marine Corps air-ground combat power in all threat environments while 
enabling joint interoperability and reducing the reliance on supporting 
aircraft, tankers, and electronic warfare jammers.
    General Moore. I defer to the Services on their respective IOC 
plans.

    32. Senator Burris. Secretary Carter and General Moore, if the 
delay is 24 months, what is the plan to recapitalize the current F-18 
and AV-8B aircraft fleet for the Marine Corps?
    Dr. Carter. We are closely managing the flight hours and fatigue 
life of our tactical aircraft. Since 2004, we have provided guidance 
and actions to optimize aircraft utilization rates while maximizing 
training and operational opportunities. The F-18 A-D Inventory 
Management Forecasting Tool is used to project the combined effects of 
TACAIR transition plans, retirements, attrition, and pipeline 
requirements on the total F-18 A-D aircraft inventory. The model is 
updated with the most recent data and forecasts the strike fighter 
inventory compared to the existing requirements. Critical model 
variables include JSF deliveries, force structure, usage rates, life 
limits, depot turnaround time, fatigue life expended, catapult launches 
and arrested landings, and field landings.
    Faced with an increased shortfall, the Navy has continued to 
identify further opportunities to reduce its impact. The Marine Corps 
has modified its F-35 transition plan by transitioning some Hornet 
squadrons earlier and leveraging the service life remaining in the AV-
8B fleet. Management ``levers'' have been identified: accelerating the 
transition of five legacy F-18C squadrons to F-18 E/F; transitioning 
two additional F-18 C squadrons to F-18E/F using the remaining 
attrition F-18 E/F Reserve aircraft; and reducing the Navy Unit 
Deployment Program and Marine Corps Expeditionary F-18 A+/C/D squadrons 
from 12 to 10 aircraft per squadron. Some of these measures are 
dependent on reduced demand in Global Force Management requirements.
    We do not anticipate procuring fewer than 680 JSF aircraft for the 
Navy. Recapitalizing the Navy TACAIR inventory with the F-35B and F-35C 
aircraft provides a survivable ``Day One'' strike capability in a 
denied access environment that cannot be accomplished by current legacy 
aircraft. The Navy's desire is to acquire the JSF program of record at 
the programmed ramp to standup squadrons in the most efficient manner 
possible.
    General Moore. I defer to the Services on their respective IOC 
plans.

                 f-35 delay costs to national security
    33. Senator Burris. Secretary Carter and General Moore, as the gap 
for fighter aircraft grows, when will our national security position be 
seriously degraded?
    Dr. Carter. The Department has the necessary fighter aircraft 
capacity in the near-term to support our Nation's security needs. 
However, ongoing assessments forecast a potential decrease in our 
strike fighter capacity during JSF transition, unless further 
mitigation measures are implemented. Management initiatives being 
implemented by the Department prudently balance operational risks and 
requirements today, while seeking to fulfill future projected capacity 
and capability requirements. They also allow the Department to closely 
monitor progress toward reducing the shortfall and enable adjustments 
to the plan before making unnecessary and premature investments or 
force structure decisions. Additionally, the Department continues to 
assess the projected threats, capabilities, and geo-political (actors 
that combine to constitute our strike fighter requirements. On balance, 
I believe the force structure represented by our 30-year aviation plan 
maintains our national security position across the spectrum of 
challenges we are likely to face throughout the time period of the 
report, albeit with prudent risk where appropriate.
    General Moore. The Air Force is taking numerous steps to mitigate 
the fighter shortfall. These steps include options to maximize the 
service life of our legacy fighters while we aggressively manage the 
procurement of the F-35. We are confident these steps will ensure our 
national security risk never reaches the point where it is seriously 
degraded.

                            contractor costs
    34. Senator Burris. Ms. Fox, part of the JSF program overhaul 
includes adding $2.8 billion, while withholding $614 million in 
performance award fees. If we are injecting another $2.8 billion, what 
is really being withheld?
    Ms. Fox. JSF award fees are contractual incentives available to the 
Joint Program Office to reward desired contractor performance, 
according to the terms of the contract. These fees are normally awarded 
when the contractor meets or surpasses key performance goals.
    The Department decided to withhold the $614 million in award fees 
that were available for distribution for recent contract performance. 
This withhold applies to past performance.
    The $2.8 billion added to the JSF program will be budgeted to 
address critical developmental requirements going forward, beginning in 
fiscal year 2011. The Joint Program Office will review contract 
performance at appropriate times in the future in order to determine 
whether the contractor qualifies for and receives award fees.
                                 ______
                                 
               Questions Submitted by Senator John McCain
                            restructure plan
    35. Senator McCain. Secretary Carter, in 2008, the JET I estimated 
that the JSF program was 2 years behind the latest schedule; the 2009 
JET II revised that estimate and predicted a 30-month delay. Now, the 
DOD predicts that its plan to restructure the program, by reducing 
production numbers and providing additional funds for development, will 
extend the official timeline by only 13 months, not the 30 months the 
JET II team predicted the slip would be. Exactly where does that 17-
month savings come from? In other words, exactly how does adding the 
additional test aircraft and funding shorten the flight test schedule 
by 17 months?
    Dr. Carter. The Department has stated they want more realism in 
program estimates, but will refuse to accept the cost and operational 
consequences of a longer development program without doing everything 
possible to minimize them. The JET II projected an additional 30 months 
would be required to complete SDD because of F-35 schedule delays that 
resulted in an increasingly pressurized flight test schedule and other 
program execution assessments (e.g., engineering and software staffing, 
manufacturing span times, etc.). To mitigate that potential outcome, 
the Department is adding another SDD carrier variant flight test 
aircraft, adding a software integration line, and borrowing up to four 
LRIP aircraft for development flight test. Taking these factors into 
consideration, JET II revised its estimate.
    The Department believes these steps will help reduce the 30 months 
of additional JET-projected schedule requirements while providing 
adequate schedule margin. Under the restructured program, development 
test (DT) is planned to complete in March 2015, with Milestone C (full-
rate production) planned in April 2016 commensurate with the completion 
of initial operational test and evaluation (IOT&E). In PB11, the 
Department also added $2.8 billion RDT&E through the FYDP to fully fund 
to the JET II development estimate for the restructured program. The 
Department plans to incentivize the contractor to further improve on 
the revised cost and schedule position.

                               capability
    36. Senator McCain. General Moore, since 2006, have there been any 
changes in the planned block capabilities or overall planned 
capabilities for any variant of the JSF? In answering this question, 
please provide a comparison of planned capabilities circa 2006 with 
capabilities associated with each planned block today. Please also 
highlight which of those planned capabilities circa 2006 are either no 
longer planned or have been moved to later blocks.
    General Moore. The basic approach to the overall functionality of 
the block plan has not changed markedly since 2006. Block 0.5 provides 
mission system functionality for basic flight; Block 1 supports initial 
training; Block 2 supports the Marine Corps IOC with basic close air 
support, interdiction, and initial air-to-air capability; and Block 3 
provides ORD mission coverage, which includes full suppression/
destruction of enemy air defenses, and offensive and defensive counter 
air.
    While there have been some minor functionality adjustments within 
blocks in the basic block plan, none have had a significant impact on 
the overall operational objectives of Blocks 1, 2, or 3. For example, 
the functionality moved from Block 2 to Block 3 was primarily advanced 
functionality to support the destruction of enemy air defense missions, 
and other functions that required the core processing technology 
refresh associated with LRIP 5 (Block 3 configuration).

                      initial operating capability
    37. Senator McCain. Secretary Carter, the Marine Corps expects to 
take delivery of its version of the JSF with IOC on 2012. You testified 
that the Navy and the Air Force are projecting IOC dates of 2016. Given 
the likelihood that development will probably not be completed until 
2017, exactly what kind of capabilities will those aircraft have?
    Dr. Carter. Block 0.5 provides mission system functionality for 
basic flight; Block 1 supports initial training; Block 2 supports 
Marine Corps IOC with basic close air support, interdiction, and 
initial air-to-air capability; and Block 3 provides ORD mission 
coverage, which includes full suppression/destruction of enemy air 
defenses, and offensive and defensive counter air. Navy and Air Force 
IOC dates are based on completion of IOT&E of Block 3 capability.

    38. Senator McCain. Secretary Carter, how meaningful will those 
capabilities be, given the fighter gaps the Departments of the Navy and 
the Air Force are forecasting?
    Dr. Carter. The capabilities of the F-35 will be very meaningful to 
the Department. The F-35 will provide fifth generation strike fighter 
capability and will be the backbone of the tactical aviation fleet not 
just for the Services but also for our international partners and 
allies.
    The Marine Corps will declare IOC with Block 2 software and basic 
close air support, interdiction, and initial air-to-air capability. 
These capabilities will exceed the capabilities of Their current AV-8B 
aircraft and will be upgradable to full Block 3 capability.
    When the Air Force and Navy declare IOC with Block 3, the F-35A and 
F-35C will have full air-to-air, interdiction, CAS, suppression of 
enemy air defenses, and tactical and strategic destruction of enemy air 
defenses capability. Further weapons capability will be limited by test 
asset capacity, and the Services are prioritizing new weapons and 
external weapon certifications to be completed within the schedule and 
budget constraints.

    39. Senator McCain. Secretary Carter, exactly when does the JSF 
exceed weapons-carrying capabilities of the fourth-generation aircraft 
they are replacing?
    Dr. Carter. The Marine Corps will declare IOC with Block 2 software 
and basic close air support, interdiction, and initial air-to-air 
capability, These capabilities will exceed the capabilities of their 
current AV-8B aircraft and will be upgradable to full Block 3 
capability. When the Air Force and Navy declare IOC with Block 3, the 
F-35A and F-35C will have full air-to-air, interdiction, CAS, 
suppression of enemy air defenses, and tactical and strategic 
destruction of enemy air defenses capability. Further weapons 
capability will be limited by test asset capacity, and the Services are 
prioritizing new weapons and external weapon certifications to be 
completed within the schedule and budget constraints.

                      low-rate initial production
    40. Senator McCain. Dr. Gilmore, you noted recently that the 
concurrency structured into the JSF program's test, production, and 
training plans has obscured the mission capability of LRIP aircraft and 
support systems. Do you believe that the revised plan improves the 
process by which the mission capability of LRIP systems will be 
accurately and credibly predicted well before delivery? Please explain 
your answer.
    Dr. Gilmore. By adding time and somewhat reducing the planned buys 
of production aircraft, the restructure provides the opportunity to 
better tie deliveries of aircraft to demonstrated progress in the 
flight test program. An Integrated Test Review (ITR) begins this week 
to analyze the new schedule and determine the critical paths to 
complete development goals and enter two mission-level tests, including 
IOT&E. The review process will yield insight into and provide a basis 
for how LRIP capabilities will be verified prior to delivery. During 
the ITR process, DOT&E will work to improve the users' understanding of 
the mission capability of each LRIP lot as well as assure that the test 
plans in place will verify what capability exists before delivery.

                        fixed-price contracting
    41. Senator McCain. Secretary Carter, exactly by when do you expect 
that the program will transition into using fixed-price-type production 
contracts?
    Dr. Carter. The program is attempting to transition to fixed-price 
production contracts for the LRIP Lot 4 contracts.

    42. Senator McCain. Secretary Carter, in 2008, the DOD concurred 
with a Government Accountability Office (GAO) recommendation that the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
(AT&L) report on a strategy to transition to a fixed-price-type 
contract. As GAO pointed out, without such a report, Congress will be 
unable to assess the extent to which the taxpayer could be exposed to 
production cost increases. Mindful of the substantial amount of 
concurrency that will remain in the test plan even after your Risk 
Mitigation Strategy is executed, what is your strategy to transition 
the program into fixed-price-type production contracting?
    Dr. Carter. The program is transitioning to fixed-price production 
contracts for the LRIP Lot 4 contracts. Negotiations are ongoing and 
are expected to be completed this summer.

                               award fees
    43. Senator McCain. Secretary Carter, on the JSF program, what is 
the history of award fees paid to the program's prime contractor since 
the beginning of SDD? Please express that as both a dollar amount and a 
percentage of the total fee available.
    Dr. Carter. For the Lockheed Martin development contract, the total 
fee available through the end of the October 2009 award fee period was 
$1.862.4 million and the total fee awarded is $1,528.3 million, so the 
contractor was awarded approximately 82 percent of the available award 
fee.

    44. Senator McCain. Secretary Carter, how much of the available 
fee, if any, remains to be earned on the prime contractor's efforts to 
develop the aircraft?
    Dr. Carter. The remaining fee for the contractor's development 
effort is $614 million. We are restructuring that $614 million and 
revising the SDD contract structure to reward measurable progress 
against significant schedule events and ensure event-based fees, to 
include completion at or under the estimate at completion, are paid 
only if the events are accomplished in order to support the 
restructured contract performance.

                    operational test and evaluation
    45. Senator McCain. Dr. Gilmore, what concerns, if any, do you have 
about the potential impact that the new plan to restructure the JSF, 
essentially comprised of reducing production numbers and adding funds 
for developmental testing, have on the proper conduct of operational 
testing?
    Dr. Gilmore. The restructure provides the opportunity to conduct 
the robust developmental test program that is a prerequisite for 
successful operational testing. As the restructured program proceeds, 
DOT&E will work to address the following concerns:

         Since the LRIP aircraft being added to the SDD flight 
        test fleets were originally intended for training and 
        operational test functions, we need to assure that they are 
        returned to the operational test team in time to meet the 
        operational test entry criteria.
         The training center will also have fewer aircraft to 
        accomplish the planned training of operational test crews; 
        therefore, the impact of this change needs to be clearly 
        understood and mitigated.
         An additional test line for software integration must 
        be procured to enable timely delivery of the remaining software 
        blocks. The contractor is acquiring equipment for the U.S. 
        Reprogramming Lab (USRL) that will be used to develop the 
        operational mission data load. The contractor intends to use 
        the USRL equipment for some software integration testing in 
        parallel with preparation of the equipment for delivery to the 
        USRL. We need to assure that use of the USRL to develop the 
        operational mission data load is not disrupted by this 
        approach.
         The plans for the Block 2 operational test and the 
        Block 3 IOT&E are not adequate without full accreditation of 
        the verification simulation for operational scenarios. The 
        opportunity exists during the restructure to correct resource 
        shortfalls associated with this important man-in-the-loop 
        simulation.

                        earned value management
    46. Senator McCain. Secretary Carter, what is your assessment of 
the prime contractor's earned value management system (EVMS) and how 
close the DOD is to formally allowing the DCMA to decertify the system 
or take other remedial action, pending a demonstration of progress in 
fixing documented deficiencies?
    Dr. Carter. Lockheed Martin Fort Worth is currently non-compliant 
with 19 of 32 EVMS guidelines. The Department considers this 
unacceptable. Lockheed Martin had developed a Corrective Action Plan 
that fell short of the Department's expectations. I have directed the 
DCMA to supplement the F-35 Joint Program Office's team with EVMS 
experts in working with Lockheed Martin to make sure we get this right. 
We are proactively working to obtain an improved, executable plan by 
June 30, 2010. If this date is not met, I will consult with the JPO and 
DCMA on what contractual or other remedies can be employed to achieve 
results we seek.

                 risk software development and testing
    47. Senator McCain. Dr. Gilmore, while the test plans associated 
with the initial software blocks, which provide relatively modest 
capability, are sufficiently defined, those associated with the later 
software Blocks 2 and 3 appear to lack fidelity. With their delivery 
delayed by more than a year, your observation that ``[t]he late 
delivery of test aircraft has, so far, masked the effect of delays in 
software development'' is salient. How significant is the possibility 
of a hidden software risk, that is, software and integration risks that 
no one can really see right now because flight testing has barely 
begun?
    Dr. Gilmore. The risk in developing, integrating, and flight 
testing software in the time allotted remains high. While recent 
developments such as accomplishing first flight of the first mission 
systems test aircraft, BF-4, are positive, all missions systems flight 
test remains to be accomplished. Recognition of the need for an 
additional software systems integration and test line and including it 
in the program restructure is an acknowledgement of that risk. Flight 
test of Block 1, which is planned to begin by the fourth quarter of 
this year, will provide the next key indication of the ability of the 
program to perform to schedule and meet requirements for delivered 
capability.

       international partners and cost, schedule, and performance
    48. Senator McCain. Secretary Carter, please describe what price 
effect any change in the procurement quantity of JSF aircraft sought by 
each of the program's international partners will have on the unit cost 
of the JSF under the overall program. In other words, please explain as 
specifically as possible, how elastic the unit cost of buying JSF 
aircraft under the overall program is to any change in the number of 
JSF aircraft that each of the program's international partners 
ultimately decide to buy.
    Dr. Carter. The elasticity of JSF prices to changes in 
international buy assumptions depends on how these changes are modeled. 
As a general approximation, we considered 25 percent, 50 percent, 75 
percent, and 100 percent reductions in international quantities and 
computed how the Program Acquisition Unit Cost (PAUC) and Average 
Procurement Unit Cost (APUC) would change in response to these 
reductions. We found that PAUC and APUC increased on average 1 percent 
for each 25 percent reduction in total partner procurement quantities. 
Smaller total production quantities imply less opportunity for cost 
improvement from worker learning and consequently, higher unit costs. 
In addition, program fixed costs are increasingly spread over a smaller 
base which increases average unit costs.
    A table showing the results of this analysis is attached.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    49. Senator McCain. Secretary Carter, what impact, if any, will the 
new plan to restructure the JSF program have on the dates by which each 
of the program's international partners can expect to take delivery of 
the aircraft and the cost at which each will ultimately buy them?
    Dr. Carter. The JSF restructure will not impact the dates by which 
each of the program's international partners can expect to take 
delivery of their planned aircraft procurements. The Department's 
restructure did revise the procurement profile, which does impact 
procurement costs. However, the partner's costs for aircraft will 
ultimately be determined by when each partner decides to actually 
execute their planned procurements.

    50. Senator McCain. Secretary Carter, does the new restructure plan 
have any impact on the capabilities of any JSF aircraft that any of the 
program's international partners intend to buy?
    Dr. Carter. The restructuring of the JSF program will not have any 
impact on the capabilities of the (JSF) aircraft the program's 
international partners intend to buy. The revised JSF program schedule 
may affect some countries' original plans regarding introduction of JSF 
capability into their force structure.
                                 ______
                                 
             Questions Submitted by Senator Saxby Chambliss
      initial operational capability for the joint strike fighter
    51. Senator Chambliss. Ms. Fox and Mr. Sullivan, in Secretary 
Carter's written testimony for this hearing, he announced that 
projected IOC dates for the three F-35 variants are as follows: the 
Marine Corps in 2012 and the Navy and the Air Force in 2016. Do you 
think these dates will be met and, if not, what do you expect the 
actual IOC dates for the three variants will be?
    Ms. Fox. Yes, in light of the changes to the program, the Services 
have reassessed their IOC dates. Each Service defines IOC depending on 
what capabilities it intends to have at IOC, operational test and 
training requirements, and the number of aircraft required. 
Specifically, the Marine Corps will reach IOC in 2012 and the Navy and 
the Air Force will reach IOC in 2016.
    Mr. Sullivan. Our March 2010 report states that JSF cost increases 
and schedule delays increase the risk that the program will not be able 
to meet warfighter capability and quantity requirements on time. At 
that time, the Marine Corps IOC date was March 2012, the Air Force's 
March 2013, and the Navy's March 2015. We recommended, and DOD 
concurred, that the military services conduct a detailed review of IOC 
requirements and reasonable, realistic timeframes for achieving them. 
Shortly after the Department announced it was restructuring the JSF 
program to add more time for development and to reduce near-term 
procurement, the Air Force and Navy indicated their intent to extend 
IOC dates, while the Marine Corps did not. We seriously question the 
Marine Corps ability to meet the 2012 IOC date, as it was previously 
defined as requiring 30 operational STOVL aircraft with interim 
warfighting capability.
    The likelihood of the Air Force and Navy meeting their extended IOC 
dates will depend on several factors. First, the program must continue 
to mature its manufacturing processes and speed up the production of 
aircraft. Development test aircraft are taking longer than planned to 
manufacture and the prime contractor has not come down the 
manufacturing learning curve as projected. As of January 2010, the 
program has only delivered four development flight test aircraft and 
has a backlog of production aircraft on order. The Air Force requires 
51 operational aircraft and the Navy 28 aircraft at IOC, all with full 
warfighting capability. Given that the program is still struggling to 
mature its production processes we believe it optimistic that it will 
be able to produce sufficient assets and fully test these quantities in 
time to meet even the extended service IOC dates.
    Another key factor is the progress of the development and initial 
operational flight test programs. Specifically, real progress must be 
made in the development flight test program demonstrated by the burning 
down of test flights, flight test hours, and test points. The flight 
test program has experienced significant delays because of late 
aircraft deliveries, technical problems, and low productivity. Only 3 
percent of its planned flight tests were completed as of the end of 
2009. The program does not expect to complete development flight 
testing of Block 2 capabilities-required for Marine Corps IOC--until 
mid-2012. The program does not expect to complete development flight 
testing of Block 3 full warfighting capabilities--required for the Air 
Force and Navy IOCs--until March 2015. Restructuring also extended 
operational testing. The Director of Operational Test and Evaluation 
(DOT&E) is now projecting completion of initial operational testing of 
the full warfighting capability by mid-2016, but only if additional 
test aircraft are added, software is delivered on time, and a strenuous 
pace of testing is maintained, something that both DOT&E and the JET 
question. DOT&E also reported that the mission capability of the 
initial production aircraft is unclear, creating planning problems for 
the Services that depend on these aircraft to meet IOC. Our report 
concluded that these actions, coupled with plans to reduce procurement 
in the near-term and utilize some production aircraft in development 
testing, could impinge on concurrent efforts to begin training pilots 
and maintainers, and could significantly overlap operational testing--
all efforts important to stand up the first operating units and meet 
warfighter capability and quantity requirements.
    An unknown factor is the number of problems to be discovered in 
testing and the program's ``success'' in fixing deficiencies. Past 
programs have shown that many problems are not discovered until flight 
testing. As such, the program is likely to experience setbacks as it 
discovers and completes the necessary technical or design fixes to 
address the problem. This could, in turn, delay the start or completion 
of operational testing. In this way, the likelihood of meeting IOC 
dates will depend to a large degree on the number and severity of 
problems discovered in development testing. While the restructuring 
adds new test assets and extends testing, the test schedule is still 
aggressive with little schedule margin for error. In addition, while 
the program's simulation labs may reduce the risk of discovering major 
issues in flight testing, the labs are unproven as a substitute for 
flight testing and most have yet to be accredited. Furthermore, while 
approximately three-fourths of software has been developed, only about 
40 percent has completed the more challenging phase of integration and 
testing.

    52. Senator Chambliss. Ms. Fox and Mr. Sullivan, do you expect it 
will be necessary to eliminate or defer certain capabilities on the 
different variants in order for those variants to meet the now 
advertised IOC dates?
    Ms. Fox. No. The Services define the deliveries and capability 
required to declare IOC. The Navy and Air Force have decided to declare 
IOC in 2016 after the conclusion of operational test, which is 
consistent with the restructured schedule. The Marine Corps remains 
committed to an interim capability in 2012.
    Mr. Sullivan. As discussed above, the Air Force and Navy are 
projecting an extension of their respective IOCs to 2016, while the 
Marine Corps' IOC date remains the same. The determination of IOC is 
primarily a Service responsibility. The progress of the schedule will 
largely determine what capabilities are available when each Service 
ultimately declares IOC. While the deferred Air Force and Navy IOC 
dates will provide more time for testing and fixing problems, we are 
not in a position to determine whether or not it will be necessary to 
eliminate or defer certain capabilities on the different variants. 
Based on prior test performance to date, with significantly less 
progress accomplished than planned, the program will have to improve to 
provide sufficient capabilities for IOC dates. In our March 2010 
report, we recommended that DOD reassess warfighter requirements and if 
necessary, defer some capabilities to future increments.
                                 ______
                                 
              Questions Submitted by Senator David Vitter
                     alternate engine for the f135
    53. Senator Vitter. Secretary Carter and Ms. Fox, I understand that 
the current projected cost of the F135 is in significant excess of its 
target value and has had continued cost growth. It seems to me that the 
competition would hold down the cost growth that you are experiencing 
now, and would hold down cost growth in future years. Why then is the 
DOD so adamant about abandoning competition by proposing to eliminate 
the alternate engine?
    Dr. Carter. The Department is firm in our view that the interests 
of the taxpayers, our military, our partner nations, and the integrity 
of the JSF program are best served by not pursuing a second engine. 
There is no guarantee that having two engines will create significant 
long-term savings to outweigh the significant near-term investment. The 
additional costs and the burden of maintaining two logistical systems 
are not necessarily offset by the potential savings generated through 
competition.
    Ms. Fox. While it is true that competition can be effective in 
managing major acquisition programs, it is not the only tool that the 
Department has available to manage key supplier relationships, as well 
as costs, in acquiring major systems. As part of the restructuring of 
the JSF program proposed in the fiscal year 2011 President's budget, we 
plan to improve the implementation of proven contract management 
principles and incentives related to costs, as well as insight into 
actual contractor cost performance, in the management of the entire JSF 
program, including the propulsion system.

                         acquisition shortfalls
    54. Senator Vitter. Secretary Carter, according to a McKinsey study 
released this month analyzing 33 major militaries in the world, the 
United States scored last in combat gear output per dollar spent. Do 
you agree with the study's assertions that the United States is one of 
the lowest performing countries in output per dollar spent?
    Dr. Carter. I do not agree with the study's assertion that the 
United States is one of the lowest performing countries in output per 
dollar spent. We do not agree with the methodology that was used to 
derive this conclusion.
    For instance, the ``Military Equipment Output'' metric used to 
calculate ``output'' per dollar spent does not adequately reflect the 
superior capabilities of the equipment used by the U.S. Armed Forces. 
For example, the study states that an F-22 or F-35 is equivalent to 3.6 
MiG-19s, first flown in 1953. We believe our newest fighters are much 
more capable than this comparison would suggest.
    Furthermore, the study's methodology uses France and the United 
Kingdom as having the ``ideal'' equipment mix, and then judges other 
countries' mixes against this benchmark. This does not take into 
account the very different types of global missions the United States 
prepares for that other countries do not.
    Due to inadequate consideration of U.S. capability advantages and 
the different mix of capabilities needed by the United States, the 
study incorrectly finds that the U.S. output per dollar spent ratio is 
lower than other countries'.
    These factors prevent the study from forming a reliable qualitative 
or quantitative judgment about the U.S. output per dollar spent.

    55. Senator Vitter. Secretary Carter, how do you plan on getting 
better value for the money DOD spends while still maintaining high 
quality weapon systems?
    Dr. Carter. First let me say that many programs do well in terms of 
cost, schedule, and performance, providing value to the warfighter and 
the taxpayer. But for those programs that do have cost and schedule 
growth or performance issues, one of the biggest drivers is unstable 
requirements.
    We are addressing requirements instability through increased 
partnering with the Joint Staff on requirements and through 
Configuration Steering Boards (CSBs). CSBs review all proposed 
requirements changes and any proposed significant technical 
configuration changes that could potentially impact cost and schedule 
for an MDAP. Such changes will generally be rejected, deferring them to 
future blocks or increments. Changes may not be approved unless funds 
are identified and schedule impacts mitigated. CSBs also create a 
collaborative forum for program managers to propose and describe 
reductions in requirements that can significantly lower cost without 
substantially reducing capability.
    The Department maintains high quality weapon systems by rigorously 
testing the capabilities that have been developed to assure that the 
system performs as advertised, and that we are adequately equipping the 
warfighter. Testing and evaluation is a critical process that must be 
thoroughly executed before entering into the more costly production 
phases. DOD acquisition policy requires the Director of Operational 
Test and Evaluation to conduct independent testing of all MDAPs to 
determine the operational effectiveness and suitability of a system 
under realistic operational conditions. The demonstration of critical 
technologies on which the system design is based is embedded in the 
overarching evaluation of operational effectiveness. Operational 
testing must be completed and the results assessed before a program may 
proceed to a full-rate production decision.
    Fostering greater use of CSBs and implementing robust testing and 
evaluation are just two areas among many where the Department is 
demonstrating its commitment to getting better value in its acquisition 
programs while still delivering high quality capabilities to the 
warfighter.

    56. Senator Vitter. Secretary Carter, what immediate reforms can 
you implement to get better value for acquisitions?
    Dr. Carter. There is no ``silver bullet'' strategy for reforming 
the acquisition system. The QDR identified several broad areas where 
the Department is focusing its reform efforts, including: setting 
reasonable requirements for new systems that do not stretch to the far 
limit of current technological boundaries; and maintaining budget 
stability through demanding cost, schedule, and performance realism 
while holding industry and ourselves accountable. Consistent with the 
Weapon Systems Acquisition Reform Act of 2009, the Department is 
implementing changes in the early, middle, and end phases of a 
program's lifecycle.
    In the early phases, the Department is addressing requirement 
overreach by subjecting each major program to a Materiel Development 
Decision before Milestone A, which will ensure early on that programs 
are based on approved requirements and a rigorous assessment of 
alternatives. Furthermore, through competitive prototyping and 
preliminary design reviews before Milestone B, technical risks will be 
reduced before progressing to the more costly phases.
    To foster budget stability through cost, schedule, and performance 
realism, the Department is implementing a number of tools to focus on 
the middle and end phases of a program's lifecycle. These include 
greater use of fixed-price, competitively awarded contracts where 
technological requirements are mature and well defined; forming 
Configuration Steering Boards to prevent requirements creep; initiating 
independent peer review processes to ensure consistency of approach, 
quality of contracting, and information sharing; and improving life 
cycle management and sustainment policy procedures with attention 
toward accurately estimating long-term ownership costs.
    These reforms will improve outcomes for our customer--the 
warfighter--and provide better value to the taxpayer.

    [Whereupon, at 1:35 p.m., the committee adjourned.]