Payment Integrity: Federal Agencies' Estimates of FY 2019 Improper Payments

From fiscal year 2003 through 2016, a government-wide estimate and rate had been included in government-wide financial reports based on the programs and activities that reported estimates. However, financial reports for fiscal years 2017 and 2018 did not include a government-wide improper payment estimate or rate. Agency-reported improper payment estimates are posted on the Office of Management and Budget's Paymentaccuracy.gov website.

IPERA requires IGs to annually determine and report on whether executive branch agencies complied with six IPERA criteria, such as conducting risk assessments and publishing and meeting improper payment reduction targets.

This report summarizes (1) federal agencies' reported improper payment estimates for fiscal years 2018 and 2019, and reasons for substantial changes between years, and (2) CFO Act agencies compliance with IPERA criteria for fiscal year 2018, as determined by their IGs, and overall compliance trends for fiscal years 2016 through 2018. GAO summarized (1) improper payment estimates from agency financial reports and Paymentaccuracy.gov and (2) information on CFO Act agencies' IPERA compliance reported in IGs' fiscal year 2018 IPERA compliance reports and prior GAO reports.

Agency-reported improper payment estimates for fiscal year 2019 totaled about $175 billion, based on improper payment estimates reported by federal programs, an increase from the fiscal year 2018 total of $151 billion. Of the $175 billion, about $121 billion (approximately 69 percent) was concentrated in three program areas: (1) Medicaid, (2) Medicare, and (3) Earned Income Tax Credit. About $74.6 billion (approximately 42.7 percent) of the government-wide estimate was reported as monetary loss, an amount that should not have been paid and in theory should or could be recovered. However, the federal government's ability to understand the full scope of its improper payments is hindered by incomplete, unreliable, or understated agency estimates; risk assessments that may not accurately assess the risk of improper payment; and agencies not complying with reporting and other requirements in the Improper Payments Elimination and Recovery Act of 2010 (IPERA).

Eight years after the implementation of IPERA, half of the 24 Chief Financial Officers Act of 1990 (CFO Act) agencies—whose estimates account for over 99 percent of the federal government's reported estimated improper payments—complied with IPERA overall for fiscal year 2018, as reported by their inspectors general (IG). Based on the IGs' fiscal year 2018 compliance reports, agencies were most frequently reported as noncompliant with the requirement to publish and meet annual targets for improper payment reduction. Out of the 14 agencies for which this requirement was applicable, eight agencies were noncompliant. The second most-frequently reported area of noncompliance related to the requirement for agencies' reported improper payment rates to be below 10 percent for programs that published estimates. Out of the 15 agencies for which this requirement was applicable, five agencies were noncompliant.

Chief Financial Officers Act of 1990 Agencies' Fiscal Year 2018 Compliance with IPERA Criteria, as Reported by Their IGs

The IGs reported that 21 programs were noncompliant with IPERA for each of the past 3 fiscal years (2016–2018). These programs represented about $78 billion, or approximately 52 percent of the $151 billion government-wide reported improper payment estimates for fiscal year 2018.

Improper payments—payments that should not have been made or that  were made in incorrect amounts—continue to be an area of fiscal concern  in the federal government. Improper payments have been estimated to  total almost $1.7 trillion government-wide from fiscal years 2003 through  2019. We have reported that improper payment estimates themselves  may not be reliable because the federal government is unable to  determine the full extent to which improper payments occur and  reasonably ensure that appropriate actions are taken to reduce them.  From fiscal years 2003 through 2016, a government-wide improper  payment estimate and rate had been included in the government-wide  financial reports based on the programs and activities that reported  estimates. However, government-wide financial reports for fiscal years  2017 and 2018 did not include a government-wide improper payment  estimate or improper payment rate.

The Improper Payments Elimination and Recovery Act of 2010 (IPERA),  among other things, requires federal agencies’ inspectors general (IG) to  annually determine and report on whether the agencies under their  jurisdiction have complied with IPERA criteria. IGs’ annual IPERA  compliance reports help reasonably ensure that improper payment  estimates are accurate, reliable, and complete and that Congress has  information on agencies’ efforts to address improper payments. We  previously reported on agencies’ compliance with IPERA for fiscal years  2011 through 2017, as reported by the agencies’ IGs.

We performed our work under the authority of the Comptroller General to  conduct evaluations on his own initiative and to assist Congress with its  oversight responsibilities. This report (1) summarizes federal agencies’  reported improper payment estimates for fiscal years 2018 and 2019,  and the reasons they identified for substantial changes between years,  and (2) discusses the extent to which Chief Financial Officers Act of 1990  (CFO Act) agencies complied with the six IPERA criteria for fiscal year  2018, and overall IPERA compliance trends evident for fiscal years 2016  through 2018, as reported by their IGs.

To summarize federal agencies’ improper payment estimates for fiscal  years 2018 and 2019, we compiled improper payment estimates from  agency financial reports (AFR) or performance and accountability reports  (PAR) and the Office of Management and Budget’s (OMB)  Paymentaccuracy.gov website. We summarized and compared the  estimates to identify any substantial changes that occurred between the 2  fiscal years. For such changes, we reviewed the agency’s AFR and PAR  to determine the reason(s), if any, that the agency identified.

To determine the extent to which CFO Act agencies complied with the six  criteria listed in IPERA for fiscal year 2018, we reviewed the IPERA  compliance reports that the agencies’ respective IGs issued. We  summarized compliance information from the fiscal year 2018 reports and  used information from our prior reports on IPERA compliance to identify  compliance trends in fiscal years 2016 through 2018. We corroborated  the results of our analysis with the CFO Act agencies and their IGs.  Based on the CFO Act agencies’ AFRs and PARs and their IGs’ IPERA  compliance reports for fiscal years 2016 through 2018, we identified the  agency programs reported as noncompliant for 3 or more consecutive  years as of fiscal year 2018 and the related estimate of improper  payments associated with those programs for fiscal year 2018. We  focused on the 24 CFO Act agencies because the improper payment  estimates for those agencies accounted for over 99 percent of the federal  government’s reported estimated improper payments for fiscal year 2018.

We conducted this performance audit from July 2019 to March 2020 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.

The Improper Payments Information Act of 2002 (IPIA), as amended by  IPERA and the Improper Payments Elimination and Recovery  Improvement Act of 2012, requires executive branch agencies, among  other things, to (1) review all programs and activities and identify those  that may be susceptible to significant improper payments (commonly  referred to as conducting a risk assessment), (2) publish improper  payment estimates for those programs and activities that the agency  identified as being susceptible to significant improper payments, (3)  implement corrective actions to reduce improper payments and set  reduction targets, and (4) report on the results of addressing the  foregoing requirements.

IPERA also requires executive agencies’ IGs to annually determine and  report on whether their respective agencies complied with six IPERA- related criteria. If an agency does not meet one or more of the six IPERA  criteria for any of its programs or activities, the IG considers the agency to  be noncompliant overall. The six criteria are as follows:  1.  publish a financial report in the form and including all content  required by OMB—typically an AFR or a PAR—for the most recent  fiscal year, and post that report on the agency website;  2.  conduct a program-specific risk assessment, if required, for each  program or activity that conforms with IPIA, as amended;  3.  publish improper payment estimates for all programs and activities  deemed susceptible to significant improper payments;  4.  publish corrective action plans for those programs and activities  assessed to be susceptible to significant improper payments;  5.  publish and meet annual reduction targets for all programs and  activities assessed to be at risk for significant improper payments; and  6.  report a gross improper payment rate of less than 10 percent for  each program and activity for which an improper payment estimate  was published.

As described above, not all criteria are applicable to every agency. For  example, if an agency publishes a financial report and conducts a risk  assessment and determines that none of its programs or activities are  susceptible to significant improper payments, then the remaining criteria  would not be applicable.

OMB plays a key role in implementing laws related to improper payment  reporting. As required by statute, OMB has established guidance for  federal agencies on estimating, reporting, reducing, and recovering  improper payments. Such guidance includes OMB Circular A-123  Appendix C, Requirements for Payment Integrity Improvement, which  also includes guidance to IGs on determining agency compliance with  IPERA. The Council of the Inspectors General on Integrity and  Efficiency (CIGIE) also published guidance in July 2019 to assist IGs who  are required to conduct an annual improper payment review under  IPERA.

We continued to report improper payments as a material weakness in  internal control in our audit report on the U.S. government’s consolidated  financial statements for fiscal years 2018 and 2017 because of the federal  government’s inability to determine the full extent to which improper  payments occur and reasonably ensure that appropriate actions are taken  to reduce them. We have also reported that estimation of improper  payments is key to understanding the extent of the problem and to  developing effective corrective actions to address it. However, the  government’s ability to understand the full scope of its improper payments  is hindered by incomplete, unreliable, or understated estimates; risk  assessments that may not accurately assess the risk of improper  payment; and noncompliance with criteria listed in IPERA. For example,  we previously reported that issues and inconsistencies we identified in  selected agencies’ processes for estimating improper payments may  affect the quality of their estimates. In addition, certain IGs have  reported issues with their agencies’ reported improper payment estimates  that were caused by insufficient sampling methods and flawed estimation  methodologies for calculating and reporting improper payment estimates.

Federal Agencies’ Estimates of Fiscal Year 2019 Improper Payments Totaled $175 Billion

Based on agencies that reported improper payment estimates in their  AFRs and PARs, government-wide estimated improper payments for  fiscal years 2019 and 2018 totaled about $175 billion and $151 billion,  respectively. See appendix I for the reported amounts by agency and  program for fiscal years 2019 and 2018. As shown in figure 1, of the $175  billion for fiscal year 2019, about $121 billion (approximately 69 percent)  is concentrated in three program areas: (1) Medicaid, totaling about $57.4  billion (approximately 32.8 percent); (2) Medicare (comprised of three  reported programs: Fee-for-Service (Parts A and B), Advantage (Part C),  and Prescription Drug (Part D)), totaling about $46.2 billion  (approximately 26.5 percent); and (3) Earned Income Tax Credit (EITC),  totaling about $17.4 billion (approximately 9.9 percent).

Key information contained in agency AFRs and PARs regarding the types  and causes of fiscal year 2019 estimates of improper payments, and  reasons for significant changes in reported estimates from fiscal year  2018, are summarized as follows:

The $175 billion total reported government-wide estimates for fiscal  year 2019 is broken down per OMB’s Paymentaccuracy.gov Data Call  Instructions by type as follows: overpayments, totaling about $79.1 billion (approximately 45.2 underpayments, totaling about $12.9 billion (approximately 7.4 unknown, totaling about $74.1 billion (approximately 42.4  technically improper due to statute or regulation, totaling about  $8.7 billion (approximately 5 percent).

About $74.6 billion (approximately 42.7 percent) of the government- wide estimates was reported as monetary loss.

About $151.2 billion (approximately 86.6 percent) of the reported  government-wide improper payment estimates for fiscal year 2019  related to root causes that occurred in the three areas below. See  appendix II for details on the root causes that agencies identified for  their reported improper payment estimates for fiscal year 2019.

Insufficient documentation to determine payment accuracy.  About $74.1 billion (approximately 42.4 percent) resulted from  situations where the agency lacked supporting documentation  necessary to verify the accuracy of the payments.

Administrative or process error. About $39.1 billion  (approximately 22.4 percent) resulted from incorrect data entry,  classifying, or processing of applications or payments.

Inability to authenticate eligibility. About $38 billion  (approximately 21.8 percent) resulted from the agency not being  able to authenticate eligibility criteria.

The fiscal year 2019 total reported government-wide estimated  improper payments, among programs that reported estimates,  increased by about $24 billion from the fiscal year 2018 total reported.  While decreases in estimated improper payments were reported for  several programs, these were offset by increases for certain other  programs. Between fiscal years 2018 and 2019, six programs had an  increase and five programs had a decrease of over $1 billion in  estimated improper payments. Appendix III provides information on all  the programs that had a substantial change in estimated improper  payments between fiscal years 2018 and 2019 and the reasons for  those changes as reported in agency AFRs. Examples of substantial  changes in improper payments and the reasons for such changes that  agencies provided in their AFRs include the following:

Department of Health and Human Services (HHS) reported an  increase in the total estimated improper payments for the  Medicaid program in excess of $21.1 billion for fiscal year 2019.  The majority of the increase in the total estimated improper  payments for the Medicaid program was due to HHS’s  reintegration of the eligibility component of the Payment Error  Rate Measurement (PERM) for Medicaid for fiscal year 2019.  From fiscal years 2015 through 2018, HHS did not estimate  improper payments attributed to eligibility determinations, but did  include a proxy estimate, which was the last reported rate in fiscal  year 2014 for the eligibility component, while HHS worked to  update this component.

For fiscal year 2019, HHS estimated improper payments attributed  to eligibility determinations in 17 states (about one-third of all  states). HHS’s national eligibility estimated improper payment rate  still includes a proxy estimate for 34 remaining states that have  not yet been measured since the reintegration of the PERM  eligibility component.

HHS reported that most eligibility errors identified through the new  measurement process were due to insufficient documentation to  verify eligibility or noncompliance with eligibility redetermination  requirements. HHS also reported that these insufficient  documentation situations were related primarily to income or  resource verifications. HHS’s fiscal year 2019 AFR noted that  another significant cause for estimated Medicaid improper  payments is errors resulting from state noncompliance with  provider screening and enrollment requirements.

The Department of the Treasury (Treasury) began reporting  improper payment estimates for fiscal year 2019 for two programs  deemed newly susceptible to significant improper payments.  Specifically, Treasury reported about $7.2 billion and $2.1 billion in  improper payment estimates for Additional Child Tax Credit and  American Opportunity Tax Credit, respectively.

In addition, HHS reported a decrease in the total estimated  improper payments for the Medicare Fee-for-Service (Parts A and  B) program of about $2.7 billion. According to HHS’s fiscal year  2019 AFR, the decrease in the estimate is due to a reduction in  estimated improper payments for home health; Medicare Fee-for- Service Part B; and Durable Medical Equipment, Prosthetics,  Orthotics, and Supplies claims.

As stated earlier, the federal government’s ability to understand the full  scope of its improper payments is hindered by incomplete, unreliable, or  understated agency estimates and risk assessments that may not  accurately assess the risk of improper payment. For example,  certain federal programs and activities that agencies determined to be  at risk for significant improper payments did not report estimates of  improper payments for fiscal year 2019, including the Premium Tax  Credit and Temporary Assistance for Needy Families programs, and as we previously reported, the Department of Defense (DOD) lacks  quality assurance procedures to ensure the completeness and  accuracy of the payment populations from which it develops improper  payment estimates.

CFO Act Agencies’ Reported Compliance with IPERA

Half of the CFO Act Agencies Were Reported as Compliant for Fiscal Year 2018

Eight years after the implementation of IPERA, half of the 24 CFO Act  agencies were compliant with IPERA overall for fiscal year 2018, as  reported by their IGs. See appendix IV for each CFO Act agency’s overall  compliance with IPERA. With regard to the six IPERA criteria, as shown  in figure 2, IGs reported all agencies as compliant with the requirement to  conduct program-specific risk assessments if it was applicable to the  agency. In addition, 22 of 24 agencies (92 percent) met the requirement  to publish a PAR or AFR.

Based on the IGs’ fiscal year 2018 compliance reports, agencies were  most frequently reported as noncompliant with the IPERA requirement to  publish and meet annual targets for improper payment reduction. Out of  the 14 agencies for which this requirement was applicable, IGs for eight  agencies (57 percent) reported that their agencies were noncompliant.  The second most-frequently reported area of noncompliance related to  the IPERA requirement for agencies’ reported improper payment rates to  be below 10 percent for programs that published estimates. Out of the 15  agencies for which this requirement was applicable, IGs for five agencies  (33 percent) reported that their agencies were noncompliant. See  appendix IV for additional details on each CFO Act agency’s compliance  with the six IPERA criteria for fiscal year 2018, as reported by their IG.

In addition, IGs for certain CFO Act agencies reported quality issues in  their agencies’ reporting of improper payment data. Although the issues  did not result in noncompliance with the related IPERA criterion, the IGs  noted these as areas that need improvement. For example, one agency reported inaccurate amounts for identified and recaptured improper  payments in its AFR. However, the IG reported that the agency was  compliant with the IPERA criterion for publishing financial information in a  PAR or AFR. Another agency’s IG reported that its agency did not  accurately evaluate its corrective actions’ effectiveness in recapturing  improper payments. However, the IG reported that the agency was  compliant with the IPERA criterion to publish corrective action plans. As  we stated above pertaining to the IGs’ determination of compliance with  IPERA criteria, these determinations are based on whether the agency  met the requirements and is not a judgment on the quality of the work  conducted in order to meet those requirements.

Trends in Reported Overall IPERA Compliance for Fiscal Years 2016 through 2018

As stated above, IGs for 12 of the 24 CFO Act agencies reported that  their agencies were compliant with IPERA overall for fiscal year 2018. As  shown in figure 3, this is an increase from 10 agencies reported as  compliant for fiscal year 2017, and 11 agencies reported as compliant for  fiscal year 2016. The improvement in IPERA compliance is attributable to  the Departments of Commerce and Education, which were reported by  their IGs as noncompliant in fiscal year 2017 but compliant in fiscal year  2018. No agencies that IGs reported as compliant in fiscal year 2017  were reported as noncompliant in fiscal year 2018.

In addition, the IGs reported that 21 programs within these agencies were  noncompliant with IPERA for each of the past 3 fiscal years (2016–2018).  Improper payment estimates for these programs totaled about $78 billion,  representing approximately 52 percent of the $151 billion government- wide reported improper payment estimates for fiscal year 2018. As shown  in table 1, this includes improper payment estimates for Medicaid of about  $36 billion and for EITC of about $18 billion.

As shown in figure 4, the number of programs reported as noncompliant  with IPERA for 3 or more consecutive years has increased since fiscal  year 2016. Specifically, the number of programs reported as  noncompliant for 3 or more consecutive years increased from 14  programs in fiscal year 2016 to 18 programs in fiscal year 2017 and 21  programs in fiscal year 2018. The reported improper payment estimates  for these programs totaled about $109 billion for fiscal year 2016, $74  billion for fiscal year 2017, and $78 billion for fiscal year 2018. The total  improper payment estimates for programs reported as noncompliant for 3  or more consecutive years decreased for fiscal 2017 primarily because  the Medicare Fee-for-Service program, with about $41 billion of improper  payments in fiscal year 2016, was reported as compliant beginning fiscal  year 2017.

We provided a draft of this report to OMB and CIGIE for review and  comment. CIGIE stated that it had no comments. OMB did not provide  any comments.

We also provided the full draft for review and comment to agencies and  respective IG offices we met with throughout the course of this work. In  addition, we sent summary facts to other agencies that had substantial  changes in reported improper payment estimates between fiscal years  2018 and 2019 (as shown in app. III), and provided the full draft for review  and comment, upon request, to those agencies. We received written  comments from the U.S. Agency for International Development, which is  reproduced in appendix V. The Department of Health and Human  Services, Department of Veterans Affairs, and the Social Security  Administration’s Office of Inspector General provided technical  comments, which we incorporated in the report as appropriate. The  remaining agencies and IG offices informed us that they had no  comments.

We are sending copies of this report to the appropriate congressional  committees, the Director of the Office of Management and Budget, the  Chairman of the Council of the Inspectors General on Integrity and  Efficiency, and other interested parties. In addition, the report is available  at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix VI.

Appendix I: Reported Improper Payment Estimates and Rates by Agency and Program for Fiscal Years 2019 and 2018

Table 2 details the improper payment estimates and rates that federal  agencies reported to the Office of Management and Budget or in their  agency financial reports or performance and accountability reports for  fiscal years 2019 and 2018. In addition, as shown in the table 2, 17  programs had a substantial change in their reported improper payment  estimates or rates between fiscal years 2018 and 2019. The reasons for  the changes, as reported in the agency financial reports, are detailed in  appendix III.

Appendix II: Agency-Reported Root Causes for Improper Payment Estimates for Fiscal Year 2019

Table 3 shows the government-wide agency-reported improper payment  estimates and rates for fiscal year 2019, grouped by Office of  Management and Budget (OMB) improper payment root cause  categories.

OMB defines the root cause categories as follows:  Insufficient documentation to determine: For this category, there is  a lack of supporting documentation necessary to verify the accuracy  of a payment identified in the improper payment testing sample. For  example, a program does not have documentation to support a  beneficiary’s eligibility for a benefit, and without that particular  documentation, the agency is unable to discern that the payment was  for the correct amount or went to the right recipient.

Administrative or process errors: In this category, errors were  caused by incorrect data entry, classifying, or processing of  applications or payments. For example, an eligible beneficiary  receives a payment that is too high or too low because of a data entry  mistake (such as transposing a number) or an agency enters an  incorrect invoice amount into its financial system.

Inability to authenticate eligibility: In this category, an improper  payment is made because the agency is unable to authenticate  eligibility criteria. These types of errors include but are not limited to  (1) inability to access data and (2) data needed do not exist.

Program design or structural issue: For this category, improper  payments result from the design of the program or a structural issue.  For example, a scenario in which a program has a statutory (or  regulatory) requirement to pay benefits when due, regardless of  whether all the information has been received to confirm payment  accuracy.

Medical necessity: For this category, a medical provider delivers a  service or item that does not meet coverage requirements for medical  necessity (for example, providing a power wheelchair to a patient  whose medical record does not support meeting coverage  requirements for a power wheelchair).

Failure to verify data: In this category, the agency (federal, state, or  local), or another party administering federal dollars, fails to verify  appropriate data to determine whether a recipient should be receiving  a payment, even though such data exist in government or third-party  databases. In these situations, the data needed exist, and the agency  or other party administrating federal dollars had access to them but  did not check the payment against those data prior to making the  payment.

Other reason: This category covers when the improper payment  does not meet any of the above categories.

Appendix III: Programs with Substantial Changes in Reported Improper Payment Estimates or Rates from Fiscal Year 2018 to Fiscal Year 2019

Table 4 shows the 17 programs that had a substantial change in the  improper payment estimates or rates between fiscal years 2018 and  2019, and the reasons for those changes, as reported in the agency  financial reports.

Appendix IV: Fiscal Year 2018 CFO Act Agencies’ IPERA Compliance as Reported by Their Inspectors General

Figure 5 details the Chief Financial Officers Act of 1990 (CFO Act)  agencies’ overall compliance with the Improper Payments Elimination and  Recovery Act of 2010 (IPERA), as well as the agencies’ compliance with  each of the six IPERA criteria for fiscal year 2018, as reported by their  inspectors general.

Appendix V: Comments from the U.S. Agency for International Development

Appendix VI: GAO Contact and Staff Acknowledgments

Beryl H. Davis, (202) 512-2623 or davisbh@gao.gov  In addition to the contact named above, Matt Valenta (Assistant Director),  Cherry Vasquez (Auditor in Charge), Pat Frey, Jason Kelly, Jim Kernen,  Anne Thomas, Judy Tsan, and Landon Western made key contributions  to this report.

In fiscal year 2019, agencies across government made an estimated $175 billion in improper payments—payments that should not have been made or were made in the incorrect amount. But this total comes from individual agency estimates, which aren’t all reliable.

We also looked at inspectors general reports on agencies’ compliance with a law intended to address improper payments. The law has several requirements, including assessing improper payment risk for agency programs, and publishing and meeting targets for improper payment rates. Based on the reports, about half of the major agencies complied with all the requirements in fiscal year 2018.


F-35 Joint Strike Fighter: Action Needed to Improve Reliability and Prepare for Modernization Efforts

In 2018, DOD sent an F-35 aircraft to its first combat mission and started initial operational testing. DOD now plans to spend over $270 billion to buy more than 2,000 F-35 aircraft over the next 26 years. Since 2011, GAO has found the need for more attention to the F-35's R&M performance to achieve an operationally suitable system.

The National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to review the F-35 acquisition program until it reaches full-rate production. This is GAO's fourth report under this provision. This report assesses, among other objectives, (1) the program's progress in meeting R&M requirements (such as mission reliability) and (2) its plans for spending on new capabilities. GAO reviewed and analyzed management reports and historical test data; discussed key aspects of F-35 development with program management and contractor officials; and compared acquisition plans to DOD policies and GAO acquisition best practices.

The F-35 program has made slow, sustained progress in improving the aircraft's reliability and maintainability (R&M). The F-35 aircraft (see figure) are assessed against eight R&M metrics, which indicate how much time the aircraft will be in maintenance rather than operations. Half of these metrics are not meeting targets. While the Department of Defense (DOD) has a plan for improving R&M, its guidance is not in line with GAO's acquisition best practices or federal internal control standards as it does not include specific, measurable objectives, align improvement projects to meet those objectives, and prioritize funding. If the R&M requirements are not met, the warfighter may have to settle for a less reliable and more costly aircraft than originally envisioned.

In 2019, the F-35 program will start modernization efforts—estimated to cost $10.5 billion—for new capabilities to address evolving threats, without a complete business case, or a baseline cost and schedule estimate. Key documents for establishing the business case, such as an independent cost estimate and an independent technology assessment, will not be complete until after the program plans to award development contracts (see figure).

Without a business case—consistent with acquisition best practices—program officials will not have a high level of confidence that the risk of committing to development has been reduced adequately prior to contract awards. Moving ahead without a business case puts F-35 modernization at risk of experiencing cost and schedule overruns similar to those experienced by the original F-35 program during its development.

GAO is making five recommendations to DOD, including that it identify specific and measurable R&M improvement objectives, align improvement projects, and prioritize resources to meet them. In addition, DOD should complete its business case for modernization before beginning additional development efforts. DOD did not concur with this recommendation, but did concur with the R&M recommendations and plans to take action to address them.

In 2018, the F-35 Lightning II program—also known as the Joint Strike  Fighter—saw its first combat mission and began operational testing. The  Department of Defense (DOD) is now in its 18th year of developing this  family of fifth-generation strike fighter aircraft for the United States Air  Force, Marine Corps, and Navy, as well as eight international partners.  The F-35’s key capabilities include low-observable, or stealth technology  combined with advanced sensors and computer networking capabilities. It  is DOD’s largest acquisition program in U.S. military history, with total  acquisition costs expected to exceed $406 billion. Currently, the program  plans to acquire a total of 2,470 aircraft through fiscal year 2044.

Developmental testing for the baseline program is now complete, but the  F-35 is still facing affordability and reliability challenges. We have  reported on the program’s challenges in the past and made  recommendations for improvement. DOD has taken action to address  some, but not all, of our recommendations. For a comprehensive list of  our recommendations and a summary of DOD’s actions in response, see  appendix I. In addition, a list of related GAO products is included at the  end of the report.

The National Defense Authorization Act for Fiscal Year 2015 included a  provision for GAO to review the F-35 program annually until the program  reaches full-rate production. This is our fourth report under that  provision. In this report, we (1) provide information on the program’s  progress toward completing testing of the baseline aircraft; (2) assess the  aircraft’s current Reliability and Maintainability (R&M) status; (3) assess  the program’s modernization efforts (to add new aircraft capabilities),  known as Block 4; and (4) provide information on the program’s  production costs and efficiency initiatives.

To provide information on what progress the program has made in  testing, we reviewed test event status and schedules, program  briefings, and internal DOD briefings. We discussed key aspects of  the F-35’s test progress with DOD officials, contractor representatives,  and pilots.

To assess the F-35’s R&M, we analyzed monthly contractor R&M  reports and compared these to program requirements. We also  interviewed DOD officials and contractor representatives.

To assess the program’s modernization efforts, we reviewed  documents that should be completed prior to awarding a development  contract, according to weapon acquisition best practices identified by  GAO. We interviewed DOD officials and contractor representatives  regarding the program’s modernization activities and future plans.

To provide information on production progress, we collected and  analyzed production performance data from the program office, the  prime aircraft contractor, and the prime engine contractor.

We determined that all the data we used were sufficiently reliable for the  purposes of our reporting objectives. For example, we collected and  analyzed the program’s R&M monthly data for calendar year 2018 and  corroborated these reports by interviewing contractor representatives and  DOD oversight offices such as the Director, Operational Test and  Evaluation (DOT&E). In addition, we reviewed official program  documentation on the Block 4 efforts and corroborated these with  information officials across DOD involved in the effort, conveyed, such as  the Air Force Integration Office and the Naval Air Warfare Division  regarding Block 4. Appendix II contains a detailed description of our  scope and methodology.

We conducted this performance audit from June 2018 to April 2019 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.

DOD began the F-35 development program in October 2001 with plans to  produce next-generation aircraft to replace aging aircraft in the military  services’ inventories. Figure 1 shows the F-35 in flight.

The program has developed and is delivering three variants of the F-35  aircraft; the F-35A conventional takeoff and landing variant for the Air  Force, the F-35B short takeoff and vertical landing variant for the Marine  Corps, and the F-35C carrier-suitable variant for the Navy. The  characteristics of the services’ variants are similar, but each service’s  variant also has unique operating requirements. For example, the Marine  Corps requires that the F-35B be capable of operating from aircraft  carriers, amphibious ships, and main and austere operating bases alike,  requiring the ability to conduct short take offs and vertical landings.

In March 2005, we found that the F-35 program had started development  without adequate knowledge of the aircraft’s critical technologies or a  solid design. Further, DOD’s acquisition strategy called for high levels of  concurrency between development and production, which runs counter to  best practices for major defense acquisition programs. In our prior work,  we identified the F-35 program’s lack of adequate knowledge and high  levels of concurrency as the major drivers of the program’s significant  cost and schedule growth, and other performance shortfalls.

Since the development program began in 2001, it has been restructured  three times with revised cost and schedule estimates. The most recent  restructuring was initiated in 2010 when the program’s cost estimates  exceeded certain thresholds established by statute—a condition known  as a critical Nunn-McCurdy breach. DOD subsequently certified to  Congress in June 2010 that the program was essential to national  security and needed to continue. DOD then established a new acquisition  program baseline in 2012 that added $162.7 billion to the program’s cost  estimate and extended the original delivery schedule by 5-6 years. Since  then, the program’s cost and schedule estimates, as well as the expected  number of aircraft to be delivered, have remained relatively stable, as  shown in table 1.

Of the F-35’s $406 billion estimated acquisition cost, DOD needs a  majority of the funding ($270.3 billion) to purchase aircraft over the next  26 years. Of that future funding, the program plans to spend between  $9.6 billion and $14 billion each year through fiscal year 2031. In addition,  the program’s sustainment costs to operate and maintain the F-35 fleet  over the next 52 years are estimated to be $1.12 trillion.

Though the program’s total planned quantities have been relatively  stable, the program’s timeframes for procuring these aircraft have  changed multiple times. Since the start of development, the program has  pushed the procurement of more than half of the total aircraft planned into  the future, mostly due to significant concurrency between development  and production. Specifically, the program office had originally planned to  procure almost 2,000 aircraft by fiscal year 2019. However, according to  the current plan, by the end of 2019, the program will have procured just  over 500 aircraft.

The F-35 baseline aircraft development program was complete in April  2018, when developmental testing concluded. As we reported in June  2018, the program office reported it had met all nine of its capability  thresholds—or the minimum acceptable value for each capability—and  delivered three of those nine capabilities. However, we also reported that  the program has to complete operational testing before DOD can  determine if the six remaining capabilities have been delivered. The  purpose of operational testing is to assess the effectiveness, suitability,  survivability, lethality, and mission capability of the F-35, including the  information systems and the air vehicle, in an operationally representative  environment. Operational testing includes cyber security assessments,  some of which have been conducted.

Production of the F-35 began in 2007 while development was in its early  stages and before developmental flight testing had started. As a result of  this concurrent development, the 357 aircraft delivered through 2018 will  need retrofits to fix deficiencies and design issues found during testing.  The program’s total estimated cost of concurrency is $1.4 billion. The  program office plans for over 500 aircraft to be procured by the time  operational testing is completed. Until operational testing is complete,  there is a risk that additional problems with the aircraft may be identified.  As a result, the concurrency costs of retrofitting delivered aircraft could  increase.

The F-35 program started formal operational testing in December 2018  after a 3-month delay. This testing was delayed for two main reasons: (1)  to resolve critical deficiencies and (2) to accommodate an unexpected  grounding following the crash of an F-35B in September 2018. According  to a test official, the program expects to complete testing in December  2019, about three months later than planned due to delays with the  simulator that is used for more complex testing. Figure 2 shows the  program’s planned end to developmental testing and planned timeframes  for operational testing for 2012 and the past four years and the delays the  program has realized each year since the program was re-baselined in  2012.

The operational testing was delayed for the following two main reasons.

Resolution of deficiencies: First, before the program could begin  operational testing, it had to resolve critical deficiencies with the aircraft  that were identified during development testing. The program categorizes  deficiencies according to their potential impact on the aircraft’s  performance.

Category 1 deficiencies are considered critical and could jeopardize  safety, security, or another requirement.

Category 2 deficiencies are those that could impede or constrain  successful mission accomplishment.

In January 2018, the F-35 program had 966 open deficiencies—111  category 1 and 855 category 2. At that time, the program planned to  move forward before resolving all of them. In June 2018, we  recommended that the Secretary of Defense direct the F-35 program to  resolve all these deficiencies before the program’s October 2019 full-rate  production decision. According to DOD officials, over the past year, the  program has made progress in reducing the number of open deficiencies  by resolving, re-categorizing, closing, or combining them. For example, in  2018, the program resolved nearly 50 category 1 deficiencies and re- categorized over 50 others to category 2. As a result, the program  received approval from the Under Secretary of Defense for Acquisition  and Sustainment to begin formal operational testing with 13 category 1  deficiencies and almost 900 category 2 deficiencies. According to the  Program Executive Officer, none of the open category 1 deficiencies are  a safety of flight concern, and all of them have operational workarounds.

A current example of an open category 1 deficiency is with lines on the F- 35’s landing gear, which can rupture when a tire blows, potentially  causing loss of a major aircraft system such as the brakes. Such an event  requires some repair work to the landing gear, but contractor officials  explained that it is not a safety concern. According to the program office,  it is not a safety concern because the current workaround for this  deficiency is pilot training to avoid braking on the side of the blown tire.  Program test officials said that testing with deficiencies is not uncommon  and they will continue to work to address them, but some may not be fully  resolved for several years.

Unexpected grounding: In October 2018, the F-35 fleet was grounded  after the program identified a manufacturing fault with an engine fuel  tube—a component in the F-35 engine produced by Pratt & Whitney. The  fault was found in an inspection that stemmed from an F-35B crash in  September 2018. This was the first crash of an F-35. Of the 23  operational test aircraft, the program replaced the fuel tubes on 18 aircraft  by the start of operational testing in December 2018, which contributed to  the 3-month delay. This and other key technical risks are described in  more detail in appendix III.

In addition to starting operational testing and the unexpected grounding,  the program and the airframe contractor Lockheed Martin experienced  other major events over the past year, as shown in figure 3.

For example, the United States completed its first F-35 combat mission in  September 2018 when an F-35B successfully hit a target in Afghanistan.

The program took steps to mitigate delays to the start of operational  testing. For example, the program office, in coordination with DOT&E,  received approval to conduct some preoperational testing events starting  in January 2018, before the official start date in December. According to  DOT&E officials, the outcome of these preoperational test events should  count towards the completion of operational testing. This included cold  weather testing in Alaska, which took advantage of appropriate weather  conditions.

Despite the 3-month delay, program officials stated that they consider the  F-35 operational test schedule to be adequate for addressing schedule  risks, which pertain to unresolved deficiencies and potential problems  with the availability of test and support aircraft, ground systems, test  ranges, and necessary test models and simulations. According to a test  official, as of April 2019, some of these risks have been realized, such as  the delay with the simulator, and as a result, the end of operational testing  is now planned for December 2019. In addition, there is the possibility of  new deficiencies emerging from operational testing.

Unresolved deficiencies: Existing or new deficiencies could  negatively affect test results. According to DOT&E officials, since the  start of operational testing, four new category 1 deficiencies have  been identified, bringing the total to 17. According to DOD officials, it  would not be unexpected during the course of operational testing for  the program to discover additional deficiencies that may require  resolution and re-testing.

Availability of test and support aircraft: According to test officials,  F-16s and F-18s are needed to represent adversaries during F-35  operational tests. These assets may not be available because they  also support other test programs. According to officials, the F-35  program does not have control over the availability of these aircraft  and must work with the Navy and Air Force to negotiate their use. In  addition, the limited availability of F-35 test aircraft, in part due to R&M  issues and shortages of replacement parts, may also pose a  challenge to completing test events, according to officials.

Availability of ground systems: Ground systems required for  operational testing, such as the DOT&E developed Radar Signal  Emulators, are late in development and may not be available when  required. According to DOT&E officials, the emulators imitate modern  threat radar capabilities of adversarial nations but their integration with  the test range is approximately a year behind schedule. The program  is currently using other threat simulators. DOT&E officials stated that  they are working to have the radars ready by the spring of 2019, when  needed.

Availability of test ranges: Test officials at Edwards Air Force Base  expressed concern about the availability of test ranges, which the F- 35 program shares with other programs. According to test officials, the  F-35 was the fifth in line, in terms of priority, to use the range at  Edwards Air Force Base, as of October 2018. DOT&E officials,  however, stated that they did not observe any range availability issues  during the F-35’s first month of operational testing.

Availability of test models and simulations: According to program  officials, the program’s testing simulator, which runs the F-35’s  mission systems software and provides test scenarios that cannot be  replicated in a real-world environment, will not be complete until at  least November 2019. Completion of the testing simulator was  originally scheduled for the end of 2017.

Any additional delays in operational testing could affect another upcoming  program decision: DOD’s decision to begin full-rate production in  December 2019. This decision is typically made after operational testing  is completed.

The F-35 Program Is Still Not Meeting All Reliability and Maintainability Targets

The F-35 program has made slow, sustained progress in improving the F- 35’s R&M. R&M determines the likelihood that the aircraft will be in  maintenance rather than available for operations. Each F-35 aircraft  variant is measured against eight R&M metrics, four of which are in part  of the contract. All F-35 variants are generally performing near or above  targets for half of the R&M metrics while the other four are still falling  short, which is the same as last year. While the program is on track to  meet the targets for half of the metrics, the program has not taken  adequate steps to ensure the targets for the others will be met. While  DOD has an action plan to improve R&M, its guidance does not define  specific, measurable objectives for what the desired goals for the F-35’s  R&M performance should be. Furthermore, the program office has not  prioritized funding for projects that will improve the R&M metrics that are  not meeting their targets.

The F-35 Program Is Meeting, or Close to Meeting, Half of Its Targets

All F-35 variants are measured against eight R&M metrics’ targeted  performance levels, and all variants are generally performing near or  above targets for four of the eight R&M metrics. This represents little  change from their overall performance last year. All eight R&M metrics  are described in the program’s Operational Requirements Document  (ORD)—the document that outlines the requirements DOD and the  military services agreed the F-35 should meet. However, in December  2018, DOT&E reported that, although performance for the four under- performing metrics has shown slow growth over the years, none of these  metrics were meeting interim goals needed to reach requirements at each  variant’s maturity. Each F-35 variants’ R&M performance against these  metrics’ targets is shown in table 2.

Since the program began tracking R&M performance in 2009, the  program has seen small, annual improvements. Over the past year, all  variants showed a slight improvement in targeted performance levels for  one metric, the mean flight hours between failures (design controlled), but  saw little or no discernable improvement for the four metrics not meeting  targets. However, based on current performance, the program does not  expect to meet those targets by full aircraft maturity. According to F-35  program officials, the ORD R&M metrics should be re-evaluated to  determine more realistic R&M performance metrics, but they have not yet  taken actions to do so. Until it does so, the program office remains  accountable for ensuring those ORD R&M metrics are achieved.

In June 2018, we recommended that the F-35 program identify what  steps it needs to take to ensure the F-35 aircraft meet R&M requirements  before each variant reaches maturity and update its R&M Improvement  Program (RMIP)—DOD’s action plan for prioritizing and funding R&M  improvement projects—with these steps. DOD concurred with our  recommendation but has yet to take substantive actions to address it. It  did, however, complete 16 improvement projects since we last reported  on this. Despite completing these projects, there were not significant  gains in the R&M metrics not meeting targets. Program officials advised,  however, that measurable improvements in R&M can take time to  manifest. To speed this process, the program is accelerating planned  upgrades to older aircraft where appropriate, which officials stated should  translate to an overall improvement in the program’s R&M performance.

The F-35 Program Office’s Improvement Plan Does Not Address Under- Performing Metrics

The F-35 program office has estimated that implementing all of the  identified improvement projects currently contained in its RMIP could  result in potential life cycle cost savings of over $9.2 billion by improving  the F-35’s R&M. As of December 2018, the guidance the F-35 program  office has used to implement the RMIP does not define specific,  measurable objectives for what the desired goals for the F-35’s R&M  performance should be or align improvement projects with R&M goals.  Furthermore, the RMIP has not been a funding priority.

Federal internal control standards state that programs should define  objectives when implementing programs such as the RMIP. Although  the F-35 program RMIP’s guidance has a general goal of improving R&M,  it does not identify achieving the targets for the eight R&M metrics the  program tracks as an objective. Program officials acknowledged that the  RMIP’s guidance does not include such an objective. Instead, officials are  using the RMIP to prioritize and fund projects that will improve aircraft  availability and mission capability—neither of which are included in the  eight R&M metrics, but are necessary and important initiatives. Officials  stated that by prioritizing these projects, they will eventually improve  performance under all R&M metrics, including the four that are not  meeting targets. The RMIP’s guidance, however, does not discuss these  priorities or align improvement projects with the eight R&M metrics.

In our prior work on weapon system acquisitions, we have identified a  number of best practices for improving program outcomes, such as  clearly establishing well-defined requirements and securing stable funding  that matches resources to requirements. The F-35 program office has  not prioritized or dedicated funding in its budget to improve R&M in part  because program officials explained that they have been focused on  initiatives intended to lower the cost of the aircraft. Further, any current  funding for R&M improvement projects comes from the program’s  operation and maintenance funds, which are only available for one fiscal  year. Officials further explained that, if such funding runs out or is used by  the program for other efforts, then R&M projects will go unfunded or be  suspended until new funding is available. In fiscal year 2018, for example,  while some R&M improvement projects were completed, several other  projects were suspended when that year’s funding ran out. According to  officials, these projects may not be started back up until fiscal year 2019.  In addition, most of the R&M improvement projects that were approved in  fiscal year 2018 were not funded. For example, as of December 2018,  according to a contractor representative, all of the identified improvement  projects currently unfunded in the program’s RMIP would cost about $30  million to implement, but are on hold and waiting to be funded.

Program officials stated that they are in the process of revising the RMIP  and have considered including more specific objectives, such as a focus  on improving aircraft availability and mission capability and a focus on  improving R&M performance where the ORD R&M metrics’ targets are  not being met. Additionally, in its 2019 annual lifecycle sustainment plan,  the program office noted that a dedicated annual budget for R&M  improvement projects would benefit the program. According to the  program, any revisions to the RMIP and changes to how it will be funded,  however, will not be complete until April 2019 or later.

Without defining measurable objectives in its RMIP guidance for meeting  all eight R&M metrics and aligning which improvement projects will  ensure those metrics are met, the program is at risk of not fully meeting  its R&M goals. Further, without prioritizing funding for improving R&M,  projects may continue to be either prematurely suspended or never get  underway. As a result, the warfighter may accept aircraft that (1) are less  reliable than originally described in the program’s ORD, and (2) have  operation and sustainment costs that may raise affordability questions.

The F-35 Program Will Start Block 4 Modernization without a Complete Business Case

With development of the baseline program complete, the program is  transitioning to early development and testing for modernization efforts  known as Block 4, which are expected to cost about $10.5 billion. The F- 35 program plans to award Block 4 development contracts starting in May  2019, before completing a business case—a baseline cost and schedule  estimate to track the program’s performance going forward. In doing so,  the program will commit resources without adequate knowledge of Block  4’s full cost, schedule, and level of technology maturity, putting Block 4 at  risk of experiencing cost and schedule overruns similar to those  experienced by the baseline program during its development.

The F-35 Program Is Transitioning to Early Block 4 Development and Testing

The National Defense Authorization Act for Fiscal Year 2017 required  DOD to submit a report containing certain elements of an acquisition  program baseline—in essence, a full program business case—to include  the cost, schedule, and performance information for Block 4. In 2018, we  found that DOD’s report to Congress was incomplete but included  information on some elements of the Block 4 acquisition program  baseline. In its report, DOD stated that the acquisition program baseline  would continue to be refined over the next year. As a result, we presented  a matter for congressional consideration to restrict Block 4 funding until  the program established a complete business case.

DOD’s report to Congress also outlined the F-35 program office’s new  development approach to deliver Block 4 capabilities—new requirements  beyond the baseline aircraft capabilities to address evolving threats. As  we reported in June 2018, this new approach, meant to deliver  capabilities to the warfighter faster, is referred to as Continuous Capability  Development and Delivery (C2D2). This approach consists of 6-month  development cycles in which small groups of capabilities will be  developed, tested, and delivered as they are matured.

In January 2018, the F-35 program started using this C2D2 approach to  develop and test software updates to address deficiencies identified  during testing. According to the contractor, the first two software updates  also established a foundation for new Block 4 capabilities to be fully  developed later. According to program officials, as of December 2018, the  program has executed contract actions valued over $1.4 billion to  establish testing facilities and support early Block 4 development of  capabilities the program plans to deliver through 2024. According to  DOD’s January report, results from this work will help the program inform  its Block 4 business case.

The F-35 Program Will Start Block 4 Development without a Full Business Case

The F-35 program plans to award Block 4 development contracts without  knowledge of the effort’s full cost or the maturity of critical technologies.  Over the past year, the program has been working to complete its  business case for Block 4, including incorporating Block 4 activities into  its acquisition strategy—which was approved in October 2018. However,  three key Block 4 business case documents will not be ready before the  program’s planned May 2019 contract awards for development efforts.

Independent technology readiness assessment: Although the  contracts for Block 4 development efforts are planned to be awarded  in May 2019, the program will not conduct an independent technology  readiness assessment by that time. A technology readiness  assessment is a systematic, evidence-based process that evaluates  the maturity of hardware and software technologies critical to the  performance of a larger system or the fulfillment of the key objectives  of an acquisition program. According to a program official, the  program will conduct its own assessments on a rolling basis as initial  capabilities are developed. The official stated that technologies will  not be integrated into the aircraft until they are adequately mature.  The program office plans to conduct a partial assessment of initial  capabilities sometime between October and December 2019 with  additional assessments to follow. However, without an independent  technology readiness assessment, the program has not identified  potential critical technology elements and as a result, may be at risk of  delaying the delivery of new capabilities.

Test and evaluation master plan: Although the F-35 program has  begun testing Block 4 capabilities, it does not have an approved test  and evaluation master plan. The test and evaluation master plan  documents the overall structure, strategy, and objectives of the test  program as well as the associated resources needed for execution. It  provides a framework for the program office to provide detailed test  plans and subsequently determine the resources needed. Test  officials have expressed concerns about the lack of an approved test  plan, uncertain funding, the number of test aircraft available, and the  draft test schedule, among other things. Officials were also concerned  as to whether the Block 4 test aircraft would be in the same  configuration as fielded aircraft, which are in earlier configurations  than the test fleet. Further, DOT&E stated in its annual report that it  considers the current Block 4 schedule to be high risk due to the large  amount of planned capabilities that will be developed and tested in 6- month development cycles. An approved, properly resourced test  plan is essential for planning and preparing for adequate testing of the  Block 4 capabilities. Without an approved test and evaluation master  plan, the F-35 program is providing the test authorities with  capabilities to be tested without giving them the necessary direction  on how to adequately prepare to conduct the tests. Specifically, test  officials stated the F-35 program office has not provided details on  which capabilities are planned for each testing development cycle  making it difficult to execute testing. While this is still a concern, F-35  program officials explained that over the past 3 months they have  been providing the test authorities with the direction needed to  conduct testing.

Independent cost estimate: The Block 4 independent cost estimate,  which details the program’s total estimated life cycle cost, is not  complete. In August 2017, we reported that DOD estimated the  development funding needed for the first phase of modernization for  Block 4 to be over $3.9 billion through 2022. Since then, the  program incorporated more scope and fidelity into the Block 4 cost  estimate, which has increased to $10.5 billion for Block 4 capabilities  planned through 2024. The program office has provided its Block 4  cost estimate to the Cost Assessment and Program Evaluation office  (CAPE) for an independent cost estimate. According to CAPE  officials, they will provide the independent cost estimate between  October and December 2019 to support the program’s full-rate  production decision, but this would occur several months after the  program plans to award the Block 4 development contracts. Without  an independent cost estimate, Congress does not have insight into  the full potential cost of the Block 4 effort.

The expected completion dates for these documents are between  October and December 2019, at the earliest. Figure 4 shows key Block 4  dates, the planned development contract awards, and planned  completion dates for the remaining business case documents.

Major defense acquisition programs generally follow DOD acquisition  policy, which states that prior to the release of a development contract  request for proposal, program officials should have confidence that  program requirements are firm. Program officials should also clearly state  that the risk of committing to development has been reduced or will be  adequately reduced prior to contract award. According to best practices  identified by GAO, without several of the business case documents  completed, program officials cannot have a high level of confidence that  the requirements are firm and that the risk to committing an estimated  $10.5 billion in funding to Block 4 has been adequately reduced.

According to program officials, business case documents have not been  completed because they took a step back to re-examine their approach  and the cost estimate for Block 4 that DOD established in 2017. Counter  to acquisition best practices, the program plans to initiate additional  development work before they acquire the requisite knowledge of the  necessary levels of technology maturity and funding. Program officials  have reported the planned modernization contracting efforts shown in  table 3.

If program officials move ahead with awarding Block 4 contracts without  gaining the knowledge that a full business case could would provide,  Block 4 modernization efforts will be at risk of experiencing the same kind  of cost and schedule growth the baseline development program  experienced.

The F-35’s Unit Cost Has Decreased and Its Production Rate Has Increased

With a few exceptions, the negotiated prices for all F-35 variants have  generally been decreasing with each production lot, and more aircraft are  being procured in each lot. In particular, the F-35A’s price has decreased  in each subsequent production lot, with the most recent price per aircraft  at $89 million in lot 11, as shown in figure 5 below.

In 2018, we reported that while the F-35 program faces affordability  challenges, it was investing in several projects to reduce production and  sustainment costs. According to DOD, to improve production  affordability, the F-35 program office is continuing to make investments to  lower the price of an F-35A to below $80 million by lot 13. To realize this  goal, the F-35 program office and the prime contractor are increasing the  production rate and investing in various initiatives to lower production  costs. For example:

According to the program office, it has invested a total of $320.3  million in efforts to improve manufacturing processes that it estimates  could result in up to $7.9 billion in savings over the life of the program.  In addition, the prime contractor has invested $90 million and plans to  invest an additional $25 million to lower its production costs.

DOD issued a contract announcement for economic order quantity  purchases for use in production lots 13-14. This approach involves  making large purchases of components that will be used across  multiple procurement lots of aircraft to reduce production costs by  buying components in bulk and achieving economies of scale. The  program had expected $1.2 billion in cost savings from this effort, but  according to estimates from the CAPE, cost savings will more likely  be $595 million.

In addition, according to program officials, once the program achieves  full-rate production, it plans to utilize a multi-year procurement strategy,  beginning in fiscal year 2021. This strategy is intended to have similar  benefits as the economic order quantity purchases by providing industry  with a stable, long-term demand.

According to Pratt & Whitney, the cost of the engine is also declining. For  example, the price of the F-35A and C engine dropped by $100,000 per  engine over the past year. The most recent negotiated price is $11.9  million per engine.

The F-35 airframe and engine contractors saw a significant increase in  their production rates in 2018, but faced some production challenges as  well. The airframe contractor—Lockheed Martin—increased its production  rate by 50 percent and delivered a total of 91 aircraft in 2018, with a total  of 267 aircraft on its production floor or in contract negotiations as of  December 2018, as shown in figure 6.

In addition, Lockheed Martin delivered more aircraft on time. In 2012,  none of the planned aircraft deliveries were on time whereas in 2018, 58  percent were on time. To incentivize the contractor to improve on-time  deliveries, the program office has added a performance incentive fee to  the lot 11 production contract. Table 4 shows some improvements in  Lockheed Martin’s production metrics since 2012 and over the past 2  years.

Between 2012 and 2017, Lockheed Martin saw some improvement for all  variants’ production metrics, with the F-35A showing improvements  through 2018. However, over the past year, several metrics for the F- 35Bs and F-35Cs saw a decline. According to Lockheed Martin, it faced  several challenges with the increased production rate which led to these  declines.

For example, since January 2018, the contractor hired around 900  new personnel, nearly 30 percent of its workforce, all of whom needed  training. According to officials, this influx of new personnel led to an  increase in the average labor hours for the F-35C and the number of  hours required for scrap, rework, and repair of the F-35B and F-35C.  According to the contractor, as the newly hired personnel gain more  experience in the production processes, the average labor hours it  takes to build an F-35C should start decreasing again.

The contractor faced several production quality issues and parts  delays, which it worked to address over the past year. For instance,  we reported last year that due to a fault in the production process,  Lockheed Martin halted deliveries after the Air Force identified  corrosion between the aircraft’s surface panels and the airframe  because Lockheed Martin did not apply primer when the panels were  attached. The program office stated that Lockheed Martin and the F- 35 Program Executive Officer reached a mutual agreement on the  cost to resolve this issue, the details of which have not been disclosed  publicly.

With the production rate increase, the supply chain was strained to  deliver parts on time, which led to increases in material shortages for  key components, such as the radar.

Pratt & Whitney has also increased production over the past year and has  shown similar manufacturing performance for the F-35 engine as in past  years; however, it had fewer on-time deliveries in 2018 due to the  challenges it faced, including an increase in the average number of  quality issues per engine. Pratt & Whitney’s production rate increased by  10 percent over the past year, with 81 engines delivered in 2018. Table 5  shows the trends in Pratt & Whitney production metrics’ performance.

According to Pratt & Whitney, its late engine deliveries increased in 2018  partially due to a subcontractor that did not have all of the needed tooling  in place to produce more F-35B engines. To address this and other  issues causing the late deliveries, Pratt & Whitney is taking lessons  learned from its other production facilities and applying them to the F-35’s  engine production.

The F-35 program has overcome significant hurdles in its 18 years of  development of the baseline aircraft, which was completed last year. One  recent hurdle that it overcame was resolving many critical deficiencies  found during developmental testing, which allowed the program to begin  operational testing this past December. Other hurdles remain, including  with the F-35’s reliability and maintainability (R&M). Four of the eight  R&M metrics continue to fall short of meeting performance targets.  Program officials stated that the Operational Requirements Document  (ORD) R&M targets need to be re-evaluated to determine more realistic  R&M performance metrics but have not yet taken actions to do so. Until  the program re-evaluates the targets, it is accountable for achieving those  requirements.

Furthermore, funding improvement efforts have not been a priority for the  program. As a result, over the past year, some projects were started,  several were halted while underway, and others are on hold, waiting for  funding. As long as targets under all of the R&M metrics continue to fall  short, the U.S. military services and the taxpayer will have to settle for  aircraft that are less reliable and more costly to maintain than originally  planned. Also, with continuing concerns about the program’s long-term  affordability, the program is missing a prime opportunity to infuse  affordability into the aircraft’s future with better R&M performance. As the  program is considering revisions to its R&M Improvement Program  (RMIP), it is in a good position to clearly define and communicate its R&M  objectives for the aircraft to meet the targets under all of its eight R&M  metrics. Until it does so, the program office will not know whether the  steps it is taking now are sufficient to ensure each F-35 variant achieves  its R&M requirements in the future.

As we have reported in the past, the F-35 program started its  development before it was ready. It is now at risk of doing the same thing  with the Block 4 modernization effort. Since we last reported in June  2018, the program has still not established a solid business case to  commit funding and other resources to developing new capabilities for the  aircraft. This could result in the program delivering technologies late and  over cost estimates. Finally, the program has committed a significant  amount of funding to support Block 4, but it has not completed an  independent cost estimate of the life-cycle cost. Consequently, Block 4  may follow in the footsteps of the F-35’s baseline program which saw  significant cost and schedule growth during its development. This  approach leaves the F-35 program, DOD, Congress, and the U.S. military  services without key information to make decisions regarding Block 4.

We are making the following five recommendations to the Department of  Defense:  The Secretary of Defense should ensure that the F-35 program office  assesses whether the ORD R&M targets are still feasible and revise the  ORD accordingly. (Recommendation 1)

The Secretary of Defense should ensure that the F-35 program office, as  it revises its RMIP, identifies specific and measurable R&M objectives in  its RMIP guidance. (Recommendation 2)

The Secretary of Defense should ensure that the F-35 program office, as  it revises its RMIP, identifies and documents which RMIP projects will  achieve the identified objectives of the RMIP guidance.  (Recommendation 3)

The Secretary of Defense should ensure that the F-35 program office  prioritizes funding for the RMIP. (Recommendation 4)

The Secretary of Defense should ensure that the F-35 program office  completes its business case, at least for the initial Block 4 capabilities  under development, before initiating additional development work, to  include: an independent cost estimate; an approved test and evaluation  master plan which addresses resources, aircraft shortfalls, and funding;  and an independent technology readiness assessment.  (Recommendation 5)

We provided a draft of this report to DOD for review and comment. Our  initial draft report contained only recommendations 2 through 5 above.  During the comment period, DOD officials provided additional information  about the program’s R&M performance concerning whether the ORD  targets continue to be feasible and should be re-examined. As a result,  we added our first recommendation above—that the F-35 program office  assess whether the ORD R&M targets are still feasible and revise the  ORD accordingly.

DOD provided written comments on our report, which are reprinted in  appendix IV. DOD concurred with our four recommendations on R&M but  did not concur with our last recommendation on the Block 4  modernization. DOD also provided technical comments, which were  incorporated as appropriate.

In concurring with our four R&M recommendations, DOD stated that it  would review its R&M requirements and possibly revise them, update its  RMIP guidance, and plan for R&M funding going forward.

DOD officials did not concur with our recommendation that the F-35  program office complete its business case before initiating additional  development work. DOD stated that the F-35 program office has  adequate cost, schedule, and technical maturity knowledge to begin the  development of initial Block 4 capabilities. DOD also outlined when some  of the remaining Block 4 business case documents would be complete.  As we stated in our report, these documents will not be complete until  after the contracts to initiate additional Block 4 development work will be  awarded.  We maintain that completing its business case before initiating  additional development work would put DOD and the program in a better  position to effectively and successfully develop Block 4 capabilities.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Under Secretary of Defense  for Acquisition and Sustainment, the Secretary of the Air Force, the  Secretary of the Navy, and the Commandant of the Marine Corps. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or sullivanm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.

Appendix I: Prior GAO Reports and DOD Actions

Key program event  Start of system  development and  demonstration approved.

Primary GAO   conclusions/recommendations  Critical technologies needed for key  aircraft performance elements are  not mature. We recommended that  the program should delay start of  system development until critical  technologies are matured to  acceptable levels.

DOD response   and actions  DOD did not concur with  our recommendation. DOD  did not delay the start of  system development and  demonstration stating  technologies were at  acceptable maturity levels  and that it will manage risks  in development.

Program sets in motion  plan to enter production in  2007 shortly after first flight  of the non-production  representative aircraft.

The program was entering  production with less than 1 percent  of testing complete. We  recommended that the program  delay investing in production until  flight testing shows that the Joint  Strike Fighter performs as  expected.

DOD partially concurred but  did not delay start of  production because it  believed the risk level was  appropriate.

The program was  restructured to reflect  findings from a recent  independent cost team and  independent manufacturing  review team. As a result,  development funds  increased, test aircraft were  added, the schedule was  extended, and the early  production rate decreased.

Costs and schedule delays  inhibited the program’s ability to  meet needs on time. We  recommended that the program  complete a comprehensive cost  estimate and assess warfighter and  initial operational capability  requirements. We suggested that  Congress require DOD to tie  annual procurement requests to  demonstrated progress.

DOD continued  restructuring, increasing  test resources, and  lowering the production  rate. Independent review  teams evaluated aircraft  and engine manufacturing  processes. Cost increases  later resulted in a Nunn- McCurdy breach. Military  services completed the  review of capability  requirements, as we  recommended.

The program incorporated  positive and more realistic  restructuring actions taken  since 2010, including more  time and funding for  development and deferred  procurement of more than  400 aircraft to future years.

The program was moving in the  right direction but needed to fully  validate design and operational  performance and at the same time  make the system affordable. We  did not make recommendations to  DOD in this report.

Key program event  The services established  initial operational  capabilities dates in 2013.  The Marine Corps and Air  Force planned to field initial  operational capabilities in  2015 and 2016,  respectively, and the Navy  planned to field its initial  capability in 2018.

Primary GAO   conclusions/recommendations  Delays in developmental flight  testing of the F-35’s critical  software may hinder delivery of the  warfighting capabilities to the  military services. We recommended  that DOD conduct an assessment  of the specific capabilities that can  be delivered and those that will not  likely be delivered to each of the  services by their established initial  operational capability dates.

DOD response   and actions  DOD concurred with our  recommendation. On June  22, 2015, the Under  Secretary of Defense for  Acquisition, Technology,  and Logistics issued a Joint  Strike Fighter software  development report, which  met the intent of GAO’s  recommendation.

DOD planned to begin what  it refers to as a block buy  contracting approach that  was anticipated to provide  cost savings. In addition,  DOD planned to manage  the follow-on modernization  program under the current  F-35 program baseline and  not as its own separate  major defense acquisition  program.

The terms and conditions of the  planned block buy and managing  follow-on modernization under the  current baseline could present  oversight challenges for Congress.  We recommended that the  Secretary of Defense hold a  milestone B review and manage  follow-on modernization as a  separate major defense acquisition  program.

DOD did not concur with  our recommendation. DOD  viewed modernization as a  continuation of the existing  program and the existing  oversight mechanisms,  including regularly  scheduled high-level  acquisition reviews, would  be used to manage the  effort.

The DOD F-35 program  office was considering  contracts for economic  order quantity of 2 years’  worth of aircraft parts  followed by a separate  annual contract for  procurement of lot-12  aircraft with annual options  for lot-13 and lot-14 aircraft.  However, as of January  2017, contractors stated  they were still negotiating  the terms of this contract;  therefore, the specific costs  and benefits remained  uncertain.

Program officials projected that the  program would only need $576.2  million in fiscal year 2018 to  complete baseline development. At  the same time, program officials  expected that more than $1.2 billion  could be needed to commit to Block  4 and economic order quantity in  fiscal year 2018. GAO  recommended DOD use historical  data to reassess the cost of  completing development of Block  3F, complete Block 3F testing  before soliciting contractor  proposals for Block 4 development,  and identify for Congress the cost  and benefits associated with  procuring economic order  quantities of parts.

DOD did not concur with  the first two  recommendations and  partially concurred with the  third while stating that it  had finalized the details of  DOD and contractor  investments associated  with an economic order  quantity purchase and  would brief Congress on  the details, including costs  and benefits of the finalized  economic order quantity  approach.

Key program event  The program office  determined that it could not  resolve all open  deficiencies found in  developmental testing  within the development  program, and they would  need to be resolved  through post-development  contract actions. DOD  provided a report to  Congress outlining  preliminary plans to  modernize the F-35. It  stated it planned to develop  a full acquisition program  baseline for the  modernization effort in 2018  and provide a report to  Congress by March 2019.

Primary GAO   conclusions/recommendations  The program office plans to resolve  a number of critical deficiencies  after full-rate production. We  recommended that the F-35  program office resolve all critical  deficiencies before making a full- rate production decision, and  identify steps needed to ensure the  F-35 meets reliability and  maintainability requirements before  each variant reaches maturity. We  also suggested that Congress  consider providing in future  appropriations that no funds shall  be available for obligation for F-35  Block 4 until DOD provides a report  setting forth its complete acquisition  program baseline for the Block 4  effort to the congressional defense  committees.

DOD response   and actions  DOD concurred with both  recommendations and  identified actions that it  would take in response.  The National Defense  Authorization Act for fiscal  year 2019 included a  provision limiting DOD from  obligating or expending  more than 75 percent of the  appropriations authorized  under the Act for the F-35  continuous capability  development and delivery  program until 15 days after  the Secretary of Defense  submits to the  congressional defense  committees a detailed cost  estimate and baseline  schedule.

Appendix II: Objectives, Scope, and Methodology

The National Defense Authorization Act for fiscal year 2015 included a  provision for GAO to review the F-35 acquisition program annually until  the program reaches full-rate production. This is the fourth report under  that provision. In this report, we (1) provide information on the program’s  progress toward completing testing of the baseline aircraft; (2) assess the  aircraft’s current reliability and maintainability (R&M) status; (3) assess  the program’s modernization efforts (to add new aircraft capabilities),  known as Block 4; and (4) provide information on the program’s  production costs and efficiency initiatives.

To provide information on progress in the F-35’s development, we  reviewed the program’s costs, schedule, and performance plans and  compared the actual progress in each area with the goals established in  its 2012 baseline to identify any significant trends. We also reviewed the  F-35’s selected acquisition report and its fiscal year 2019 budget request.  To assess progress in testing, we reviewed test results and associated  reports, program briefings, and internal DOD program analyses. We  interviewed officials from the program office, military test authorities, and  contractors—Lockheed Martin (airframe) and Pratt & Whitney (engine)— on key aspects of F-35 development progress, including flight testing,  future test plans, and recent findings from test events. We also  interviewed the Director, Operational Test and Evaluation office and F-35  program developmental and operational test pilots.

To assess the program’s progress in achieving its R&M targets, we  obtained and analyzed its monthly reports on R&M performance from  January 2018 through December 2018. We compared these to the  program’s R&M targets documented in the F-35 Operational  Requirements Document and the Joint Contract Specification. We  examined program data for the metrics’ performance across 12 months to  identify any trends. We assessed the reliability of this data by reviewing  supporting documentation and interviewing program office officials who  track reliability metrics and other knowledgeable DOD officials. We also  reviewed the program’s Reliability and Maintainability Improvement  Program’s guidance to determine if it contained specific and measurable  objectives and the projects needed to meet those objectives. We  determined that the R&M metric data were sufficiently reliable for our  purposes of determining whether the program will meet its targets.

To assess the program’s Block 4 modernization plans, we reviewed  documents that GAO best practices identify should be completed prior to  awarding a development contract. We interviewed DOD and program  office officials, and contractor representatives regarding the program’s  Block 4 activities to date and future plans. We compared the program’s  accomplishments over the past year and its future plans to the product  development best practices identified by GAO. We reviewed the fiscal  year 2019 budget request to identify costs associated with the Block 4  effort. We obtained contract documents for Block 4 activities between  March 2014 and December 2018 to determine the total amount of funding  that has been obligated to Block 4 and the scope of work that has been  contracted.

To provide information on ongoing manufacturing performance and the  program’s plans to achieve full rate production, we obtained and analyzed  the prime contractor’s production metrics and its aircraft delivery rates  and from 2012 through 2018. We compared this performance to the  program’s procurement plans from its selected acquisition reports since  2003. We reviewed metrics and briefings provided by the program office,  Lockheed Martin, Pratt & Whitney, and the Defense Contract  Management Agency to identify progress in improving manufacturing  processes. We analyzed changes in delivery dates for lot 10 aircraft  delivered in 2018. We discussed reasons for any delivery delays and  plans for improvement with officials from Lockheed Martin and Pratt &  Whitney. We obtained cost investment and savings estimates and  discussed cost and manufacturing efficiency initiatives, such as the  economic order quantity purchases, with the contractors and program  office officials to understand potential cost savings and plans. We also  obtained and analyzed metrics on parts and aircraft quality through  December 2018 and discussed steps taken to improve quality and  deliveries with Lockheed Martin and Pratt & Whitney officials. We  determined that the contractor’s production metrics and delivery dates  were sufficiently reliable for our purposes of determining production  efficiency and deliveries.

Appendix III: Status of Selected F-35 Technical Risks

The F-35 program continues to address technical risks discovered in  testing. Since our 2018 report, the program identified new risks with the  canopy, fuel tubes, and cockpit, described below. The program has also  incorporated design changes that have mitigated technical risks that we  previously highlighted. The status of the Department of Defense’s (DOD)  efforts to address these issues follows.

Canopy Coating De-laminations and Corrosions: The F-35 fleet has  experienced approximately 20 incidents of the canopy transparencies  delaminating after less than 100 flight hours. The contractor is currently  testing numerous solutions for the de-laminations, with intentions of  completing testing by January 2019.

F-35 aircraft are also experiencing canopy corrosion resulting from  moisture intrusion due to the aircraft’s adhesive cracking under pressure  and insufficient tape adhesion. The program has identified the need to  modify over 173 canopies over 4 years. The contractor has begun to  incorporate alternative material and tape into production, and released  standardized repair procedures to mitigate this issue.

Engine Fuel Tubes: In September 2018, a manufacturing fault in an  engine fuel tube caused an in-flight failure, which resulted in an F-35B  crash. The investigation identified several other life-limited fuel tubes in  each F-35 variant. The fleet was grounded while all aircraft were  inspected, and any fuel tubes identified were replaced or will be replaced  by June 2019.

Cockpit Display: In November 2018, operational test pilots experienced  the cockpit display freezing and blanking, and identified the problem as a  category 1 deficiency. The display issues occurred after a software  update. The start of operational testing was delayed until the contractor  could provide a software update to correct the problem, which was  accomplished with a work-around in December 2018.

Technical Risks Identified In Our Previous Reports

Helmet Mounted Display: During low-light flights, the Helmet Mounted  Display’s technology cannot display pure black, causing a green glow on  the screen which makes it difficult to see the full resolution of the night  vision video feed. The contractor is developing a new system to avoid this  effect, and the contractor delivered this system to the test fleet in  September 2018 with final flight testing planned through January 2019.  Figure 7 is a photograph of the Helmet Mounted Display.

Aerial refueling probes: The F-35B and F-35C variants use a “hose and  drogue” system in which an aerial refueling tanker aircraft extends a long,  flexible refueling hose and a parachute-like metal basket that provides  stability, the receiving aircraft then connects to the drogue basket with its  extendable refueling probe, as shown in figure 8. The refueling probe tips  are meant to break in the event there is a stress occurring during  refueling. However, the breaking is occurring more often than expected.  Since April 2014, more than 20 incidents have occurred where the F-35’s  aerial refueling probes broke off while conducting aerial refueling, leading  to a restriction of aerial refueling operations.

Tire service life: We reported in June 2018, the average service life of  tires on the F-35B is below 10 landings.  Lockheed Martin is currently  working with three tire manufacturers to develop a new design with the  goal of 20 landings. Testing of the new tires will occur throughout 2019.  Figure 9 shows an F-35B during a landing.

Life support system: The program has identified over 35 pilot  physiological events, of which nearly 30 occurred in-flight. An action team  made of government officials, contractors, and doctors completed their  work by May 2018. A root cause investigation did not identify any F-35  system deficiencies, but reported it was difficult to fully determine the  problem due to a lack of real-time data. Contracting officials stated that  this is partially because the technology has not yet been developed to  monitor pilot’s health in flight, in real time. The prime contractor continues  to try to develop a means to monitor pilot health.

Appendix IV: Comments from the Department of Defense

Appendix V: GAO Contact and Staff Acknowledgments

In addition to the contact named above, the following staff members  made key contributions to this report: Justin Jaynes (Assistant Director),  Jennifer Baker, Emily Bond, Brandon Booth, Erin Butkowski, Matthew T.  Crosby, Desirée E. Cunningham, R. Eli DeVan, Laura Jezewski, Jennifer  Leotta, Meghan Perez, Hai Tran, Abby Volk, Mary Weiland, Alyssa Weir,  and Robin M. Wilson.

F-35 Joint Strike Fighter: Development is Nearly Complete, but  Deficiencies Found in Testing Need to Be Resolved. GAO-18-321.  Washington, D.C.: June 5, 2015.

Warfighter Support: DOD Needs to Share F-35 Operational Lessons  Across the Military Services. GAO-18-464R. Washington, D.C.: April 25,  2018.

F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting  Readiness and Cost Transparency. GAO-18-75. Washington, D.C.:  October 26, 2017.

F-35 Joint Strike Fighter: DOD’s Proposed Follow-on Modernization  Acquisition Strategy Reflects an Incremental Approach Although Plans  Are Not Yet Finalized. GAO-17-690R. Washington, D.C.: August 8, 2017.

F-35 Joint Strike Fighter: DOD Needs to Complete Developmental  Testing Before Making Significant New Investments. GAO-17-351.  Washington, D.C.: April 24, 2017.

F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans  to Begin Development of New Capabilities. GAO-16-390. Washington,  D.C.: April 14, 2016.

F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its  Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016.

F-35 Joint Strike Fighter: Preliminary Observations on Program Progress.  GAO-16-489T. Washington, D.C.: March 23, 2016.

F-35 Joint Strike Fighter: Assessment Needed to Address Affordability  Challenges. GAO-15-364. Washington, D.C.: April 14, 2015.

F-35 Sustainment: Need for Affordable Strategy, Greater Attention to  Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.:  September 23, 2014.

F-35 Joint Strike Fighter: Slower Than Expected Progress in Software  Testing May Limit Initial Warfighting Capabilities. GAO-14-468T.  Washington, D.C.: March 26, 2014.

F-35 Joint Strike Fighter: Problems Completing Software Testing May  Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322.  Washington, D.C.: March 24, 2014.

F-35 Joint Strike Fighter: Restructuring Has Improved the Program, but  Affordability Challenges and Other Risks Remain. GAO-13-690T.  Washington, D.C.: June 19, 2013.

F-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term  Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March  11, 2013.

Fighter Aircraft: Better Cost Estimates Needed for Extending the Service  Life of Selected F-16s and F/A-18s. GAO-13-51. Washington, D.C.:  November 15, 2012.

Joint Strike Fighter: DOD Actions Needed to Further Enhance  Restructuring and Address Affordability Risks. GAO-12-437. Washington,  D.C.: June 14, 2012.

Joint Strike Fighter: Restructuring Added Resources and Reduced Risk,  but Concurrency Is Still a Major Concern. GAO-12-525T. Washington,  D.C.: March 20, 2012.

DOD plans to spend over $270 billion to buy more than 2,000 F-35 aircraft over the next 26 years.

In this year's review, among other things, we found the F-35 program:

Made slow, consistent progress on reliability and maintainability. But, it has not met 4 of 8 targets, which suggests the aircraft will be less reliable and more costly to maintain.

Will start a modernization effort—now estimated at $10.5 billion—without a complete business case and while still developing key technologies. This increases the risk of cost increases and delays.

We made 5 recommendations, including that the program clarify and improve its reliability plans.