F-35 Math: Shoddy accounting…but only if you’re a taxpayer
(Source: Project On Government Oversight; posted July 29, 2020)
If you want to know one reason why Lockheed’s F-35 fighter program—at $400 billion, the most costly weapon system in world history—is so screwed up, check out this line from Theresa Hull, an assistant inspector general at the Defense Department: “The DoD is in an environment in which it is dependent on Lockheed Martin for information related to the F-35, including contractor performance, because the government did not maintain its own data,” she told the House Oversight and Reform Committee July 22.

Did you catch that? “…dependent on Lockheed Martin for information related to the F-35, including contractor performance…” (Italics are The Bunker’s.)

Like so much involving Pentagon procurement, this gets complicated. But try to follow along. It highlights what is effectively a tacit alliance between weapons-sellers and weapon-buyer, to the detriment of the taxpayer footing the bill.

About 1,000 of the F-35’s 50,000 parts, roughly 2%, are deemed critical and need to be accompanied by digital documentation to ensure they don’t exceed usage limits. Without such data, such parts “can create life and safety concerns for aircrews,” Hull said.

These so-called “ready-for-issue” parts are supposed to arrive at Air Force bases from Lockheed ready for installation aboard F-35s. “Non-RFI” parts are supposed to be set aside and not used aboard aircraft until they comply with the contractually-required standards. But the military has been ignoring that rule for years, and installing non-RFI parts aboard F-35s.

The Pentagon spent up to $303 million between 2015 and 2018 to bring those non-RFI spare parts up to the required RFI standard that taxpayers paid Lockheed to meet. In June 2018, for example, Lockheed delivered 263 supposedly-RFI spare parts to Arizona’s Luke Air Force Base, but only 50 of them—19%—actually were RFI. Taxpayers continue to pay about $1 million a week to correct a problem, according to Hull, that wouldn’t exist if Lockheed fulfilled its contractual obligations.

Given the amazing complexity of the F-35 and its accompanying bookkeeping, it costs U.S. taxpayers between $7,000 and $11,000 each time Pentagon personnel have to bring a non-RFI part up to standard. The military has adopted informal work-around measures to deal with the problem. “The DoD’s use of local guidance and ad hoc manual processes allowed aircraft to fly and complete missions instead of the DoD grounding aircraft due to receiving non-RFI parts from Lockheed Martin,” Hull said. The military formally approved F-35s flying with non-RFI parts in October 2018; it had been allowed informally since August 2017.

The kicker to all this contracting drama is that F-35s are flying that don’t meet what’s called for in the contract between the Pentagon and Lockheed. That, in turn, leads to overstated readiness rates for the aircraft. In one Air Force unit, for example, 20 of 22 F-35s had 172 non-RFI parts installed among them, allowing them to be deemed ready to fly.

“This resulted in inflated aircraft-availability hours used to pay the contractor incentive fees for those 20 aircraft on that day,” Hull said. In fact, she added, because the Pentagon does not collect such data, it “relied solely on contractor-reported information on availability hours to pay Lockheed Martin $32 million of the $38 million in performance incentive fees for 2017 and 2018.” Betcha wish 84% of your bonus—assuming you get one—was based on your own assessment of how good of a job you’re doing.

Lockheed’s revenues for the second quarter of the year were up 12%, to $16.2 billion, the company reported last week. Earnings were up 14%. “Second quarter, we saw strong growth across F-35,” Kenneth Possenriede, Lockheed’s chief financial officer, told financial analysts July 21. “Really strong production growth in the second quarter, and sustainment is up as well. And so, for the year, we're looking at double-digit growth for F-35.”

“…and sustainment is up as well.”

Now you know part of the reason why.


Pentagon IG Details Lockheed Contract Failings on F-35 Parts

Click here for our July 24 report on Theresa Hill’s testimony.


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