Audit of F‑35 Ready for‑Issue Spare Parts and Sustainment Performance Incentive Fees
(Source: DoD Inspector-General; dated June 13, issued June 18, 2019)
We determined whether the DoD received Ready‑For‑Issue (RFI) spare parts for the F‑35 Joint Strike Fighter (F‑35) in accordance with contract requirements and paid sustainment performance incentive fees according to the incentive fee plan.

Background

The F‑35 program is the DoD’s largest acquisition program. The F‑35 is a supersonic, low observable stealth fighter capable of executing multi‑role missions. The F‑35 has three variants: the F‑35A, F‑35B, and F‑35C. The program is a joint, multi‑national program involving the Air Force, Navy, Marine Corps, and eight international partners. The estimated acquisition cost for the F‑35 program is over $406 billion.

Lockheed Martin, the prime contractor for aircraft production, is required to deliver RFI F‑35 spare parts, such as wheel, seat, and window assemblies, as part of the F‑35 sustainment contract. According to the contract, RFI means that spare parts: 1) are ready for aircraft maintenance personnel to install on the aircraft, and 2) have an Electronic Equipment Logbook (EEL) assigned, which includes information such as part history and remaining life (hours). For this report, spare parts without an EEL are referred to as “non‑RFI.”

Additionally, the 2016, 2017, and 2018 sustainment contracts each contained a clause establishing performance metrics to evaluate the contractor’s ability to sustain F‑35 fleet operations. The Joint Program Office (JPO) paid performance incentive fees based on the contractor’s ability to meet three performance metrics, all of which are related to the number of hours the aircraft are “available” for use, or aircraft availability hours.

Finding

We determined that the DoD did not receive RFI F‑35 spare parts in accordance with contract requirements and paid performance incentive fees on the sustainment contracts based on inflated and unverified F‑35A aircraft availability hours. This occurred because the JPO did not conduct adequate oversight of contractor performance related to receiving F‑35 spare parts and aircraft availability hours.

Specifically, the JPO did not:
-- resolve contractor non‑performance related to the delivery of non‑RFI spare parts since 2015;

-- verify that contracting officer representatives (CORs) collected and reported information to the contracting officer on the number of non‑RFI spare parts received, the manual processes used by the DoD to keep aircraft flying when non‑RFI spare parts are used, and the number of aircraft availability hours reported at each F‑35 site to assess contractor performance; and

-- assign CORs at all F‑35 sites and consolidate information from the CORs and the Defense Contract Management Agency (DCMA) to identify systemic problems on the sustainment contracts.

As a result, the DoD received non‑RFI spare parts and spent up to $303 million in DoD labor costs since 2015, and it will continue to pay up to $55 million annually for non‑RFI spare parts until the non‑RFI spare parts issue is resolved. In addition, the lack of available RFI spare parts could result in the F‑35 fleet being unable to perform required operational and training missions.

Furthermore, until the DoD addresses the delivery of non‑RFI spare parts, the use of manual processes to mitigate non‑RFI problems creates a life and safety concern for aircrews. The concern occurs if DoD personnel make mistakes on the number of hours the spare part was flown when manually tracking hours for limited life non‑RFI spare parts. Finally, the DoD has potentially overpaid $10.6 million in performance incentive fees by not independently collecting and verifying aircraft availability hours.

Recommendations

We recommend that the Program Executive Officer for the F‑35 JPO:

-- In coordination with the DCMA, pursue compensation from the contractor for costs of non‑RFI spare parts that have been delivered since 2015 on the sustainment contracts.

-- Direct the Contracting Officer to add language to the future F‑35 sustainment contracts to allow the DoD to collect compensation for each non‑RFI spare part provided by the contractor.

-- Direct the Lead COR (LCOR) to update the Quality Assurance Surveillance Plan (QASP), approve the site surveillance plans, and require the CORs to provide monthly information on contractor performance, including the number of non‑RFI spare parts received; the manual processes used by the DoD to correct non‑RFI problems; the manual processes used by the F‑35 sites to keep aircraft flying when non‑RFI spare parts are used and the associated increase in availability hours; and the total F‑35 aircraft availability hours.

-- Direct the LCOR to assign CORs to provide oversight at all F‑35 sites and collect contractor performance data from the CORs and the DCMA to identify systemic contractor performance problems.

Management Comments and Our Response

The Program Executive Officer agreed with our finding and recommendations. The Program Executive Officer stated that the JPO will:

-- Work with the DCMA to collect data associated with non‑RFI problems to support a consideration (compensation) package for the Lockheed Martin contracts, dating back to December 2015.

-- Work on the development of a compensation package to include the potential monetary benefits associated with the non‑RFI problems.

-- Work with the DCMA on the strategy and timeline for engagement with Lockheed Martin on the consideration (compensation) package, for the non‑RFI problems.

-- Evaluate contractual alternatives for the sustainment contracts to allow for the DoD to be compensated for future non‑RFI spare parts delivered by the contractor.

-- Develop an electronic QASP and data repository for F‑35 QASP reports and audits.

-- Assign CORs to provide oversight at all F‑35 sites and track systemic contractor performance problems.

Comments from the Program Executive Officer addressed all recommendations. Therefore, the recommendations are resolved but will remain open until we verify that the planned actions have been completed.

This report is a result of Project No. D2018‑D000AT‑0162.000.



Click here for the full report (36 PDF pages), on the DoD IG website.

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