The F-35 and the Captured State: The Pentagon lacks information to even start driving down costs
(Source: Project On Government Oversight; posted June 10, 2019)

By Dan Grazier
Lockheed Martin has turned the Pentagon into a beggar agency, at the mercy of defense contractors and unable to find out how or where taxpayer dollars are being spent, POGO reports. This is the company’s huge F-35 plant in Ft. Worth, Texas. (Flickr photo by Angel DelCueto)
Lockheed Martin has turned the Pentagon into a beggar agency, at the mercy of defense contractors and unable to find out how or where taxpayer dollars are being spent. A recent Government Accountability Office (GAO) report sheds new light on the level of control Lockheed Martin, prime contractor for the F-35 Joint Strike Fighter, wields over management and operations for the entire life of the program—and how this has impeded attempts to cut costs and increase accountability, and has hamstrung the troubled program’s overall effectiveness.

By design, the services can’t independently perform many of the most basic functions needed to properly employ the most expensive weapon system in history. Lockheed Martin accomplished this with the assistance of compliant Pentagon officials nearly two decades ago, securing lopsided contracts that give the company control over the technical data rights of the program, meaning it retains ownership of the design details and software code.

The government is now in a position where it would have to negotiate a substantial fee with Lockheed Martin to buy this information. The contracts also allow Lockheed Martin to withhold essential information about the F-35 and its support system—and it takes advantage of that—so, for example, it keeps the government from even knowing the costs of any of the spare parts it has to buy from the company. That means the government doesn’t have the information it needs to seek competing bids from other contractors to drive down the costs of sustaining the program, leaving it at the mercy of Lockheed Martin. And, on top of that, neither the company nor the government seem to be able to keep track of these parts.

The F-35’s low readiness rates call into question Lockheed Martin’s management of the program, since, as the GAO points out front and center in the report, a shortage of spare parts and limited repair capacity hinder the effectiveness of the program. The GAO confirmed POGO’s March 2019 finding that all F-35 variants suffer from appallingly low “fully mission capable” rates, which is the most significant measure of a fleet’s combat-readiness. The Navy’s fleet of F-35Cs, for example, was ready to perform all of its assigned tasks just 2 percent of the time throughout 2018.

Members of Congress have taken note of these inherent flaws in the F-35 program. As reported by Bloomberg, the House Appropriations Committee is threatening to withhold funding for the program until the Pentagon and Lockheed Martin can agree to terms for the sale of all the cost and technical data rights for the F-35 program. This is an important step that, so long as Congress holds firm, would likely help drive down costs and make the program far more effective.

As the GAO notes, the Pentagon has outsourced crucial F-35 support functions to Lockheed Martin, from managing repairs and spare parts, to pilot training, to technical support. Reasonable people might wonder what the Air Force, Navy, and Marine Corps do when it comes to the F-35, since they have contracted Lockheed Martin to do nearly everything.

Lockheed Martin declined to comment.

Spare Parts Pricing Scheme Shields Lockheed from Scrutiny

The Pentagon has a long history of massively overpaying for spare parts. Who doesn’t remember the $640 toilet seat or the $7,622 coffee maker? The tradition remains alive and well, as demonstrated by the May 2019 revelation that aerospace component manufacturer TransDigm has been marking up the prices for parts it sold to the Pentagon by as much as 4,451 percent.

The Truthful Cost or Pricing Data statute (formerly known as the Truth in Negotiations Act) and the Cost Accounting Standards Board are meant to protect taxpayers by requiring companies to show the prices they’re charging the government are fair and reasonable. But the GAO report shows that broadly-worded support contracts are used to hide the costs from the public and even the government, rather than providing replacement parts at reasonable costs.

Rather than buying spare parts directly from the manufacturers, the Pentagon pays Lockheed Martin for access to a pool of spares the company manages; Lockheed Martin doesn’t build each part, but buys them from suppliers across the country. According to the GAO, the company runs “the F-35 supply chain and is responsible for allocating parts to F-35 sites and participants based on contracted requirements, such as numbers of aircraft and planned flying hours, and program business rules.”

This set of Lockheed Martin’s responsibilities is where some of the problems come in. For example, Pentagon acquisition officials recently criticized a collection of companies for price-gouging on spare parts, including TransDigm subsidiary Esterline, which builds clamps, high-temperature seals, and stealth products for the F-35. (Esterline is one of approximately 200 subcontractors for the program.)

The global spares pool process also obscures the costs for the individual parts. Government officials need to know the prices of these components. But they have to negotiate for them because “the contracts have not been written to require those data from the outset of the program,” and they haven’t been able to get this information “because of the high price [Lockheed Martin] would have charged the government for these data,” according to the GAO. This is potentially quite the subterfuge. It calls into question whether Lockheed Martin actually has the information readily at hand.

Similar cases show that the government and contractors account for property like spare parts using different accounting systems. When Boeing was found to be overcharging the Army for helicopter parts in 2011, investigators found the company was using three separate accounting systems, none of which worked together, to track the same parts. They also found that no one had reconciled the data in the different databases. Lockheed Martin similarly does not have a single database for all F-35 parts and, according to the GAO, the information it does have is not in a “readily usable format for property accountability purposes.”

The company boasts on its website about the economic impact of the program, touting suppliers in 45 states and Puerto Rico that build F-35 parts. These suppliers need to be paid, presumably based on prices negotiated between them and Lockheed Martin, which means someone in the company must know the price for each and every part.

The Pentagon should not have to beg for this information, and had government contracting officials included a provision in the original contract requiring the company to provide this information, they would not be in this position today.

The Pentagon Has No Idea How Many F-35 Parts It Has or Where They Are

Lockheed Martin does not appear to be fulfilling its responsibilities in managing the supply of spare parts. This has a direct impact on the effectiveness of the aircraft. Citing data from the company, the GAO reports that fleet-wide, between May and November 2018, F-35s “were unable to fly 29.7 percent of the time due to spare parts shortages.” This is nearly three times the 10 percent target rate Pentagon officials established as necessary for the program to meet the services’ performance needs. The report notes that spare parts shortages will likely get worse before they get better, and will continue to hamper readiness.

At the core of the matter is the simple fact, as was recently uncovered in a Pentagon Inspector General report, that the Pentagon doesn’t know where all the parts are within the F-35 supply chain.

Lockheed Martin manages the supply chain through a “proprietary database” government officials cannot access. Department of Defense regulations require the services to maintain accountability of all physical property, whether it is controlled by the government or the contractor. F-35 program officials appear to have simply ignored these regulations.

In response to pressure from Capitol Hill, the Pentagon is trying to reduce F-35 operating costs, in light of the Pentagon’s top weapons buyer’s admission that the program’s long-term support costs are unaffordable. Replacement part costs are factored into the program’s cost per flying hour. The GAO points out that it would not be possible to reduce the overall cost per flying hour while spending more to purchase a larger pool of spare parts to mitigate the spares shortage.

Meanwhile, the rush to acquire aircraft before developing the necessary support capabilities has stretched demand for spare parts beyond the available supply, according to the GAO. And as more aircraft are produced and enter active service, demand for replacement parts will increase.

There are few signs program officials are taking the steps necessary to correct the imbalance.

In addition, having all the information about the prices, quantities, and locations of all spare parts is critical for the program to be properly audited, which the GAO raises repeatedly. Officials in the Defense Contract Management Agency told GAO investigators that in order to increase readiness and reduce costs, the Pentagon “must have an understanding of the F-35 spare parts it owns, where those parts are located, and how those parts are being used to support the weapon system.” As of December 2018, the F-35 program has not entered the required information into a property database because officials can’t get the data they need to fill it.

It will take a great deal of time and money for the government to be able to get the data it needs from Lockheed Martin even if Congress follows through on its threats to withhold funding from the program until they work out a deal.

Company officials claim it would take more than 450,000 hours to sift through their records and format the data to suit the government’s needs. According to a GAO official, because the original contract did not require Lockheed Martin to provide this information, doing so now would constitute a change to the contract, which the government would have to pay for. Again, acquiring the full data rights for the F-35 at the outset would have prevented this situation.

The fact that no one seems to be able to track spare parts through the F-35’s supply chain raises new questions about the functionality of the Autonomic Information Logistics System (ALIS), one of the most troublesome aspects of the program. Lockheed Martin, which owns and operates ALIS, calls it the F-35 enterprise’s “IT backbone.” ALIS is the ground-based computer network meant to combine mission planning, training data, maintenance management, and supply chain operations. It is designed to automatically order spare parts based on information generated through the aircraft’s embedded diagnostic system and then track them as they move through the logistics network.

If the government can’t track spare parts through the system and it would take Lockheed Martin employees 450,000 hours to gather that information, does ALIS really work? Not very well. As the Pentagon’s operational testing director wrote in his most recent annual report, “Most capabilities function as intended only with a high level of manual effort by ALIS administrators and maintenance personnel.”

The F-35’s complex stealth design creates additional challenges for program managers to be able to keep up with the demand for spares. The GAO discusses the aircraft’s canopy as just one example of the additional work needed to maintain stealth technology. Maintainers discovered the special stealth coating was peeling away from the transparent acrylic cockpit more frequently than expected. The manufacturer, GKN Aerospace, cannot build new canopies quickly enough to meet the services’ needs. When asked how frequently there are problems with the canopy coating, a GAO official responded that they could not provide any details beyond what is in the report.

Replacing broken parts is only one aspect of the spares challenge. Broken parts also need to be repaired, and program officials and Lockheed Martin have yet to develop an effective system to keep up with the volume of broken parts.

Repairs currently take more than six months, on average. This is more than twice the 60 to 90 days officials originally established as the program objective for repair time. The GAO reports a backlog of more than 4,300 broken parts in maintenance depots around the country. The capacity to work through these repairs was supposed to be in place by 2016, but now is not expected until 2024. The problem can be attributed in part to the rush to produce aircraft early in the program before designers could complete their work. There are at least 39 part combinations in the F-35 fleet because the aircraft design has changed so much over the course of the development process.

Because the logistics infrastructure can’t keep pace, harried maintenance crews at the squadron level are forced to resort to other means to get the parts they need to keep as many F-35s flight-worthy as possible. They evaluate the flight status of all the aircraft they have on hand. Aircraft in worse shape than the others become what are called “hangar queens.” Maintainers strip usable parts from them to replace other aircraft’s broken parts in a process called cannibalization. This is a common maintenance practice for all vehicle types across the services, but only to a certain level, and is generally infrequent for newer items. F-35 maintainers currently do this at a rate six times the expected level.

Global Demand for F-35 Parts Complicates Supply Challenges

The United States is hardly the only state captured by Lockheed Martin and the F-35 program. In addition to the U.S. Air Force, Navy, and Marine Corps, more than a dozen other countries’ militaries will fly the F-35. All of the partner military forces will, like the United States, pay for access to Lockheed Martin’s pool of replacement parts. This will compound the issue of spare part shortages. As F-35s proliferate around the globe, competition for the limited spare parts will increase.

Lockheed Martin officials have not put in place a fully developed process for prioritizing the delivery of parts when demand outpaces supply. Program officials have instead created a “set of business rules” to determine which unit takes priority when there are not enough parts to go around. For example, a part is deemed “Priority 1” if the F-35 can’t fly without it. In a Priority 1 case, the F-35 would receive a part before a unit that needs it to replenish its local spare inventory. If two F-35s need the same Priority 1 part, an aircraft deployed to a combat zone would receive the part before one in a training unit.

This scheme might work during peacetime. But it remains to be seen how well it works during a time of war, particularly a coalition war. The F-35 partner countries are those most likely join the United States in a military conflict. When that occurs, it is reasonable to presume that most, if not all, the partner countries would push their F-35s into combat, which would make them all top-priority for spares. As the noted business consultant Karen Martin has written, “When everything is a priority, nothing is a priority.” The GAO warns that all F-35s worldwide needing Priority 1 parts would create a situation where, “due to the lack of clarity within the existing rules,” all stakeholders would be tempted to overstate their need for a part or the aircraft’s combat status to jump positions in the priority list.

All of this is managed not by the governments involved, but by Lockheed Martin officials.

Troops and Taxpayers Need Better Deals

Pentagon contracting officials must negotiate deals that do not surrender control of major weapon systems as they did with F-35 program. The government should buy all the data rights for the equipment it purchases so the services are not at the mercy of contractors. And all decisions about the maintenance and support of weapons and equipment should be made within a wartime framework just as decisions about their actual combat capabilities are made.

Members of Congress should question the level of contractor support a program will require before voting to authorize it. As a rule, any weapon or piece of equipment that can’t be maintained or supported in the field by service members should be rejected.

The stark realities of combat, which are the only relevant basis for any decision about the military, preclude the use of contractors for field maintenance and support.

Commanders in the field should not be burdened with contract minutia—to say nothing of months-long waits for spare parts—when matters of life and death and victory and defeat are at stake.


Click here for the original story, with links, on the POGO website.

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