Index

Embargoed Until Release by the

House Committee on Government Reform

 

 

 

 

 

Statement of

 

George R. Schneiter

 

Director, Strategic and Tactical Systems

Office of the Under Secretary of Defense for Acquisition, Technology and Logistics

 

 

Before the

Subcommittee on National Security, Veterans Affairs, and International Relations

of the

House Committee on Government Reform

 

on

 

F-22 Cost Controls: Will Production Cost Savings Materialize?

 

June 15, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embargoed Until release by the

House Committee on Government Reform

 

 

 

 

 

 

 

Mr.Chairman, members of the committee, thank you for the opportunity to discuss with you the Department of Defense’s efforts to control and monitor the cost of the F-22 aircraft program, particularly with regard to the Production Cost Reduction Plans (PCRPs).

As you know, the F-22 is a technically challenging development program with the goal of providing a tactical fighter aircraft with unprecedented capabilities in the areas of low observability, the ability to fly supersonically without afterburner, and advanced avionics and sensors. The F-22 is intended to ensure that our air forces remain dominant in the 21st century.

A program as technically challenging as the F-22 brings with it a concomitant challenge regarding cost and schedule performance. Section 217 of the National Defense Authorization Act for Fiscal Year 1998 imposed separate cost caps on the Engineering and Manufacturing Development (EMD) phase (now $20.4 billion) and on the production phase (now $37.6 billion) of the program.

Thus far, the program has demonstrated technical progress that meets or exceeds the technical performance measures established for the program. However, during this calendar year, progress on the program has been impeded by delays in static structural testing, delamination issues with composite parts, a professional engineer’s strike at the Boeing Company, and more recently by cracking of the aircraft canopies. All of these factors have affected the pace of flight testing at a time when a more aggressive flight test tempo was planned. The good news is that only the canopy issue remains unresolved at this time, but significant progress is being made toward a solution. Mrs. Druyun will cover the technical status of the program more thoroughly in her statement. Despite these slow-downs, the Air Force is continuing to aggressively pursue the test program so they can successfully complete the key exit criteria established for the Low Rate Initial Production decision planned for December of this year.

In June 1996, the Air Force established an F-22 Joint Estimating Team (JET). One task assigned the JET was to produce a solid estimate of the cost of completing the F-22 EMD and production programs. The JET was later directed to identify cost-reduction initiatives that would enable the F-22 program to be completed within established budgetary limits. The latter assignment gave rise to the restructuring of the F-22 program, to a set of cost-reduction initiatives (some of which are yet to be defined), and to a memorandum of agreement between the Air Force and the prime contractors designed to motivate the prime contractors to achieve prices consistent with planned F-22 resources. This part of the JET plan focused on production affordability for attaining unit cost goals jointly agreed to by the F-22 government and contractor teams. A key aspect of this strategy was a plan to use industry and government investments to reduce unit costs. The same strategy had been successfully employed to drive down production costs on the C-17.

As a result of the Defense Acquisition Executive’s review of the F-22 program in December 1998, the Acquisition Decision Memorandum signed by the Under Secretary of Defense for Acquisition, Technology and Logistics (USD (AT&L)) approved the go-ahead for production of the two-aircraft lot, and reiterated the importance of maintaining continued emphasis on executing the F-22 program within the congressional cost caps. The USD (AT&L) challenged the Air Force and its contractors to continue efforts to reduce costs. He also directed the Air Force to provide him quarterly briefings on development and production cost status. The Department has used these special quarterly reviews to examine cost and schedule trends over shorter periods and to track program status to a higher degree of fidelity.

The Office of the Secretary of Defense (OSD) estimates of November 1998 and December 1999 included assessments of the effects of the PCRPs. Broadly, the estimates were prepared in two steps:

    1. The recurring costs incurred to date on EMD units were used to forecast production costs. These "actual" costs reflect the degree of success, or lack thereof, of PCRPs that have been implemented to date.
    2. A separate estimate of the savings to be expected from the still-unimplemented PCRPs was computed.

The final production estimate was the net of these.

All of the contractor, Air Force, and OSD estimators that looked into the effects of the PCRPs agree that they will have a significant effect on cost, and are well worth undertaking. These points are not at issue. There have been, and are, disagreements about the magnitude of the reductions that will be achieved by the PCRPs. These have centered on the savings that will be realized on PCRPs that have been defined, and the allowances that should be made for savings on PCRPs that have not yet been fully defined. The OSD staff generally favored lower realization rates and was not willing to take large reductions on the basis of PCRPs that had not yet been fully defined. There also have been disagreements about what the cost experience to date implies for the future, apart from the PCRPs. The key disagreements have had to do with how rapidly the cost of purchased materials and subsystems will decline from the levels observed in EMD and on the first lot of Production Representative Test Vehicles.

The Department continues to employ the best oversight and insight tools available to it to ensure that the F-22 program will be accomplished for an acceptable cost and on an acceptable schedule.

The Department’s senior leadership believes it has made a commitment to the Congress and the American taxpayer to achieve this objective.