The objective of this audit was to determine the extent that the F-35 Program Office’s Beyond Economical Repair (BER) process identified parts that were damaged and determined whether a part could be economically repaired, and whether a DoD official approved the contractor’s determination that a part could not be economically repaired.
The F-35 Program is a multiservice and multinational acquisition to develop and field the next-generation strike fighter aircraft, the F-35. The F-35 Program Office, led by the Program Executive Officer, is responsible for total life cycle management of the F-35 Joint Strike Fighter Program, including coordination of program objectives, requirements, schedules, and budgets. The prime contractor, Lockheed Martin Aeronautics, provides sustainment support for the F-35 aircraft, including supply, logistics, and maintenance.
The decision-making process that maintenance and supply organizations use to determine whether to repair a part, or to dispose of it and buy a new part is a complex one. The specific term “beyond economical repair” describes when a part generally should not be restored to a serviceable condition because the repair costs would exceed an agreed-upon percentage of the part’s total acquisition cost. Generally, the organization must weigh the cost to repair, the cost of buying a new part, the time to repair the part, the time to acquire a new part, and the overall readiness posture of the supported organization.
In 2017, the Defense Contract Management Agency (DCMA), the administrative contracting office for the F-35 sustainment contracts, announced an audit of the contractor’s BER process for the F-35 Program. The DCMA’s audit identified discrepancies in the contractor’s BER process that led to the DCMA issuing corrective action requests related to the contractor’s lack of data and documentation to support BER determinations. We performed this audit of the BER process, in part, because of these problems identified by the DCMA in 2017.
The F-35 Program Office did not implement a BER process that ensured that the decision to either replace or repair damaged parts was the most economical decision.
Specifically, from October 2001 through December 2019, F-35 Program Officials had not implemented a BER process that:
1) identified the replacement cost for repairable parts,
2) established a threshold for use in determining whether it was economical to repair a part, or
3) required DoD approval for replacing damaged parts that the contractor determined could not be economically repaired.
The F-35 Program officials had not implemented a complete BER process because:
-- F-35 Program Officials allowed the prime contractor to make the decisions on whether damaged parts were replaced or repaired, without DoD approval;
-- F-35 Contracting Officials did not include in the sustainment contracts a list for repairable parts (needed for BER analysis) until August 2019; and
-- DCMA officials had not validated the contractor’s responses to the DCMA’s corrective action requests to provide specific data and records for the BER process until April 27, 2020, so the DCMA would not rely on the contractor’s data or records before that time.
As a result, from January 2016 through June 2019, the prime contractor reported that it disposed of at least 688 parts, categorized as beyond economical repair and valued at $34.5 million, without DoD oversight or approval to ensure replacing the part was the most economical action.
Another result from the delay in implementing a process is that, as of February 2020, the F-35 Program Office had more than 500 parts waiting for a DoD official to approve the contractor’s determination that replacing the damaged part is the most economical decision.
A nonfunctioning BER process contributes to the reduction of available spare parts when a backlog of parts waiting for BER approval accumulate, which delays the final repair or replace decision and negatively affects warfighter readiness. The lack of available spare parts prevents the F-35 fleet from performing required operational and training missions.
We recommend that the Under Secretary of Defense for Acquisition and Sustainment (USD[A&S]) develop DoD-wide BER guidance, aligned with existing DoD guidance on repairing repairable parts, including considering non-cost factors.
In addition, we recommend that the F-35 Program Executive Officer direct officials to:
-- fully develop and formalize its BER process with specific goals, procedures, and metrics;
-- update sustainment contracts to incentivize repairing of repairable spare parts within specific timeframes; and
-- determine accurate costs for DoD replacement parts to use in making BER determinations.
Management Comments and Our Response
The Assistant Secretary of Defense for Sustainment (ASD[S]), responding for the Under Secretary of Defense for Acquisition and Sustainment and for the F-35 Program Executive Officer, agreed with the recommendations to develop DoD-wide guidance and update the sustainment contracts to incentivize repairing parts. Therefore, the recommendations are resolved but will remain open. We will close the recommendations once we receive documentation showing that the actions have been completed.
The ASD(S), responding for the F-35 Program Executive Officer, agreed with the recommendation to fully develop and formalize its BER process; however, the ASD(S) did not address the specifics of the recommendation.
The ASD(S) did not provide the F-35 Program Office’s specific goals for the BER process, whether the program office will create procedures for DoD personnel’s specific roles and responsibilities, or the specific data elements and other information that the contractor must provide to comply with the substantiating data requirement in the contract. Therefore, the recommendation is unresolved.
We request that the ASD(S) provide additional comments to the final report that identify the non-cost factors that DoD officials should consider when analyzing BER determinations and the desired outcome of the BER process.
The ASD(S), responding for the F-35 Program Executive Officer, agreed with the recommendation to determine accurate costs for DoD replacement parts; however, comments from the ASD(S) partially addressed the recommendation. The ASD(S) did not explain how the F-35 Program Office would “refine the cost data as the effort matures.” Therefore, the recommendation is unresolved.
We request that the ASD(S) provide additional comments to the final report that identify how the F-35 Program Office proposes to refine the sub-optimal pricing over time.
Click here for the full report (48 PDF pages), on the DoD IG website.