Preying on the Taxpayer: the F-22A Raptor

8/14/2019 Preying on the Taxpayer: the F-22A Raptor

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Project On Government Oversight

Preying on the Taxpayer:The F-22A Raptor

July 25, 2006

666 1 1 th W, Suite 500 Washington, DC 20001-4542 (202) 347-1122Fax: (202) 347-1116 E-mail: [email protected] www.pogo.orgPOG O is a 501(c)3 organizat ion


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TABLE OF CONTENTS

INTRODUCTIONTHE TROUBLED F-22ATHE MISLEADING LOCKHEED EMAILMULTIYEAR PROCUREMENT REQUIREMENTSEVIDENCE THAT THE F-22A PROGRAM IS NOT RIPE FOR MYP STATUSA FINANCIAL CONFLICT OF INTEREST?2CANCELLATION COSTS - HOW TO BUY A LEMON4CONCLUSION6RECOMMENDATIONS6


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APPENDICES

Appendix A:

Appendix B:

Appendix C:

Appendix D:

Appendix E:

Appendix F:

Appendix G :

Appendix H :

June 26, 2006, Letter to The Ho no rable C.W. Bill Young , Chairman, Ho useSubcommittee on Defense, Committee on A ppropriat ions from D avid M. Wa lker,Comptro ller Gen eral of the United States Go vernment Acc ounta bili ty Office(GAO-06-455R) .February 16, 2006, F-22 O IPT [Overarc hing Integra ted Product Team] Brief(Selected Slides) , Maj. Genera l Rick Lewis, United States A ir Forc e."F-22A Multiyear Pro curement Business Case An alysis" (IDA Pa per P-4116),Ins t i tute for D efense Ana lyses.

June 15, 2006, Email to Selected Senate Sta ff Members from Jac k O verstreet ,Vice P resident, Legislat ive Affairs , Aviat ion Systems, Loc kheed Ma rt inCorpora t ion.Background o n EDO Corpora t ion an d Admira l Dennis Bla i r (Ret. ), P res ident ,Ins t i tute for D efense Ana lyses.June 22, 2006, Con gression al Record, Senate Debate on Sena tor SaxbyChambliss ' Amendment (Am endment 4261) to Authorize Mult iyear P roc urementof the F-22A.Selected documen ts f rom Chris topher Bolkcom, Special is t in Nat ion al Defense,Cong ress iona l Research Service.November 9, 2005, Selected Excerpts from: "G aining an Understan ding o fEst imating Systems and Co ntrols" by Larry Chana y, Defense Contrac t AuditAgency.

Appendix I: August 20, 2001, Letter to The Hono rable Duncan Hunter, Chairman, Comm itteeon Armed Services f rom The Hono rable Chris topher Shays, Chairman,Subcomm it tee on N at ion al Secur ity, Veterans Affairs and Interna t iona l Relat ions .


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INTRODUCTIONIn June 2006, the Senate passed an a mendment to the National Defense Authorizat ion Act forFiscal Year 2007 which authorized the go vernment to purchase 20 F-22A 1 Raptor f ighter jetseach year for 2008, 2009, an d 2010 using a mult iyear procurement (MYP ) s tra tegy.Lockheed Mart in (Lo ckheed), the lead con tracto r on the F-22A progra m, lobbied aggressively tosecure the MYP deal. If Lockheed is able to secure MYP status, i t would essent ially lock thegovern ment into buying 60 more o f the troubled F-22A's and minimize the possibili ty that theprogra m co uld suffer further funding cuts. An M YP would also result in the American taxpayerspaying Lo ckheed $1 bill ion m ore than they would under the normal ann ual procurement process.(Appendix A)In the lead up to the Senate vote an d related budget debates in the House, the Con gression alResearch Service (CRS), Government Accountabili ty Office (GAO), Congressional BudgetO ffice (CBO ), and Ins t i tute for Defense An alyses (IDA) were tasked with evaluat ing whether ornot the F-22A program m et the s ix legal requirements for an MYP strategy. In order for MYPstatus to be gra nted, a program must meet all s ix requirements. The CRS, GAO , and CBO allprovide evidence that the F-22A prog ram is n ot yet r ipe for this type of f inanc ing s cheme andthat putt ing the F-22A into an MYP at this s tage wo uld be premature. Doc uments obtain ed by theProjec t On G overnment Overs ight (PO G O ) show tha t even the Air Force ra i sed s ign i fican tquest ions a s la te as February 2006 about whether the F-22A wo uld meet all the MYPrequirements. (Appendix B, pag es 17-18)O nly on e opinion , that o f IDA, differed from the res t . IDA con cluded that the governm ent wo uldsave abo ut 2.5% tota ling aro und $225 million to $23 5 million by using the s tra tegy.(Appendix C) In the hours leading up to the debate on the P entag on budget bill , Loc kheed'slobbyists and i ts Cong ressiona l supporters promo ted the surpris ing f inding o f IDA, a federallyfunded non-prof i t ins t i tute that con ducts research for the federal governmen t. Loc kheed sent anemail to Sena te off ices claiming the IDA had found that the F-22A would meet all therequirements for an MYP . (Appendix D) This claim appears to be based on a misreading o f theIDA report.What wa s no t known a t the t ime of the MYP vote was that IDA President Admiral Dennis C.Blair , USN (Ret.) , i s on the Boa rd of Directors an d a s ign if ica nt f inan cial beneficiary of anF-22A subco ntra ctor . As o f July 5, 2006, Blair o wned 1,787 shares of s to ck a nd 3 0,000 s tockopt ion s in EDO Co rporat io n, which man ufactures essent ial suspensio n an d release equipment forthe F-22A. As a result , Blair himself s tood to f inanc ially prof i t f rom a favorable MYP decis ionfor the F-22A. (Appendix E)

1 The Air Force c hanged the designat ion of the F/A-22 to F-22A in 2005.1


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THE TROUBLED F-22AIn recent years, PO G O has quest ioned the ability of Lockheed Mart in to m eet i ts goa ls for thetroubled F-22 fighter jet program. Since its conception in 1986, the Air Force's F-22A Raptorf ighter jet has been the focus of co nt inued debate. The aircraf t was or igina lly intended to replacethe aging F-15 f ighter and c reate superior i ty in air- to-air com bat operat ion s. The F-22A,origin ally called the Advance Tac t ical Fighter (ATF), was design ed to comba t air threats posedby the Soviet Union. As the progra m to ok sha pe, the Kremlin fell and the a ir superior i ty threatfrom the Soviet Union van ished. With a diminishing a ir- to-air combat missio n, the Air Force hasassign ed the F-22A new ro les of a ir- to-groun d comba t and intelligenc e gathering. As a result , theaircra f t cont inues to undergo moderniz at ion, an d will for several more years.But even if the F-22A were already adequately designed for to day's missions , the program hasfaced mult iple set-backs, and con tinues to do so . Problems rang e from technical f laws (despite20 years of research an d development) to a c os t that is higher per ai rcra f t than a ny other inhistory, totaling over $65.4 billion dollars to date.' The Air Force's original intent had been toac quire 750 ai rcra f t for their invento ry. Today, that n umber is 183. 3 This drop in numbers is dueprimarily to the technica l diff icult ies an d repeated cost overruns in the progra m. The cost o f theaircra f t has t r ipled while, in respon se, the number of a i rcraf t requested has decreased.In addi t ion to a n exorbi tant co s t-per-ai rcra f t , the Pen tago n recently completed a Follow-onIndependent Test and Evaluat ion (FO T&E) on the F-22A's exis t ing systems that found 75unresolved deficiencies. (Appendix B) N ew problems that ha ve cro pped up include faultyco ckpit actuato rs which trapped a pilot in the jet, and he had to be rescued from his c ockpitwith chainsaws; uncomman ded nose landing gear re t r ac t ions , which recent ly caused an a i r craf t tofall on i ts main weapo ns bay doo rs li terally fall ing on i ts fac e; and co nc erns a bout the heatt reatment o f the boom s, which ma y cause s t ructural crac king. These problems have been repor tedto Co ng ress by CRS, GAO , and even the Air Forc e. Pro blems have also been identif ied by thePentago n 's Direc tor of O pera t iona l Tes t and Evalua t ion (DO T&E).Acc ording to C RS, the F-22A has his tor ically exper ienced problems with the Avionic s ,Airframe, Eng ine, Cockpit Cano py, an d Maintena nc e and Support Requirements . Theseproblems do not inc orpora te the co st of Class A mishaps to the aircraf t . (A Class A mishap is onethat results in over $1 million dollars in damag e.) The F-22A has ha d three Class A mishaps overthe pas t two years . (Appendix G)

2 "F-22A Raptor ," Congressiona l Research Service, RL31673 , Page 4, May 24, 2006,http://www.fas.org/sgp/crs/weapons/RL31673.pdf (Downloaded July 24, 2006); "Defense Acquisit ions: ActionsNeeded to G et Bet ter Results on Weapons Systems Investment ," GAO Wri t ten Test imony before House ArmedServices Com mittee, G AO -06-585T, April 5, 2006, http://www.gao .gov/new.items/d06585t.pdf (Down loaded July24, 2006).3 "F-22A Raptor ."

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THE MISLEADING LOCKHEED EMAILWith this troubled history as a backdrop, on June 15, 2006, Lockheed Martin Vice President ofLegislat ive Affairs Jack O verstreet sent an email to senior Sen ate s taff members t i t led"Chambliss F-22 Multiyear Amendment." (Appendix D) In a shoc kingly transparen t s ign o f howthe nation's military industrial complex functions, the email contained a copy of Senator SaxbyChambliss' ( R-GA) amendment, even though Senator Chambliss had not yet introduced it. Theemail requested, "PLEASE VOTE 'YES' ON THE PROPOSED CHAMBLISS AMENDMENTON F-22 MULTIYEAR PROCUREMENT."The email further s ta tes that IDA foun d that the F-22A meets all s ix of the entran ce cr i ter ia forMYP. The email contained multiple attachments, including the text of the amendment in normallegislat ive format, talking poin ts , and fast fact sheets to w hich Senato rs co uld refer. The email, ofco urse, did not include the evidence from CR S, GAO , CBO, DCAA, or even the Air Force,challenging the prog ram's co mplian ce with the legal requirements for MYP status.Loc kheed's claim in i ts ema il that IDA c on cluded the F-22A meets all MYP requirementsappears to have been based on a misinterpretat ion of the IDA report . IDA limited its an alysis toon ly one requirement that there be cost s avings . However, IDA a t tached two un at tr ibuteddocumen ts at the end of i ts report that asser t the F-22A meets all s ix requirements. Because theauthor o f these documen ts is no t clearly identif ied, the wrong impression a ppears to have beenreached that they are IDA con clusions. In fact , however, these are Pen tago n exhibi ts for theFY2007 President 's Budget an d not independent an alyses by IDA.Shortly af ter Loc kheed's email was sent , Senator Cha mbliss introduced the amendment to theNation al Defense Authorizat ion A ct for Fiscal Year 2007 to gra nt the F-22A mult iyearprocurement s ta tus. (Appendix F) Based on the t iming o f the email and i ts con tent , it appearsthat Loc kheed Mart in was involved in the process a nd l ikely draf ted the amen dment themselves.The amendment s ta tes that the F-22A prog ram is in a cc ordan ce with Sect ion 2306(b) of Ti t le 10of the United States Code (U SC), which sets for th the s ix legal requirements that must be m et toqualify for MYP status .

MULTIYEAR PROCUREMENT REQUIREMENTSA mult iyear proc urement is , acc ording to the Defense Acquisi t ion Un iversi ty, a "method ofcom peti tively purchasing up to 5 years ' requirements in o ne co ntrac t , which is funded an nuallyas appropriations permit."4

4 "Glossary of Defense Acquisi t ion Acron yms & Terms," Defense Acquisi t ion Universi ty, 12 t h Edition , July2005, http://www.dau.mil/pubs/gloss ary/12th_G lossa ry_2005.pdf (Dow nloa ded July 24, 2006).3


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But there are s ign if ican t r isks to using an M YP for proc urement:A mult iyear con t rac t in compar i son to a ser ies of success ive ann ual con t rac t s offers cos tsaving s and a s table proc urement ra te. However, this form of con tract ing also bearssignif ican t r isks. MYP reduces c ong ressiona l budgetary flexibili ty, both for the instan tprogra m and ac ross o ther prog rams within the defense portfolio. Though mult iyearprogra ms are funded on a n a nn ual bas is , they tend to require greater budgetary author i tyin the earlier years of the procurement. The Go vernment also bears the r isk of prog ramca nc ellat ion , which can be qui te high in the ear l ier years of the prog ram. In cer tain c ases ,the requirement for design s tabil ity can also be a barr ier to techn olog y inser t ion.(Appendix C, pag e 9)

To mit igate these r isks, the governm ent established Title 10 U.S.C. 2306 (b),5 which sets for ths ix legal cr i ter ia that must be met for MYP status to be g ran ted. The cr i ter ia a re:(1 ) That the use of such a c on tract will result in substan t ial savings o f the total ant ic ipatedcos t s of ca r ry ing out the program through annual con t rac t s .(2) That the minimum n eed for the property to be purchased is expected to rema insubstant ially uncha ng ed during the con templated con tract per iod in terms of product ionrate, procurement ra te, an d total quant i t ies .(3 ) That there is a reason able expectat ion that througho ut the con templated con tractper iod the head of the agen cy will request funding for the co ntrac t at the level required toavoid cont rac t canc ella tion.(4) That there is a s table design for the proper ty to be ac quired an d that the technica l r isksasso ciated with such proper ty are no t excess ive.(5) That the es t imates of both the cos t of the contra ct an d the an t icipated co s t avoidan cethrough the use of a mult iyear co ntrac t are realis t ic.(6) In the case of a purchase by the Depar tment of Defense, that the use of such a c on tractwill promote the n at ion al secur i ty of the United States .

EVIDENCE THAT THE F-22A PROGRAM IS NOT RIPE FOR MYP STATUSWith the exception of IDA, the ana lysts tasked with evaluat ing the F-22A progra m for MY Pstatus found, to varying degrees, that the progra m does n ot meet all of the requirements for MYP .This inc ludes the Air Fo rce itself.

51 0 U . S . C . 2 3 0 6 ( b ) , h tt p : // f rw e b g a t e . a c c e s s .g p o . g o v / c g i b i n / g e t d o c . c g i ? d b n a m e = b r o w s e _ u s c & d o c i d = C i t e : + 1 0 U S C 2 3 0 6 ( b ) ( D o w n l o a d e d J u l y 2 4 , 2 0 0 6 ) .

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Requ irement 1: Tha t the use of such a contract will result in substantial savings of the totalanticipated costs of carrying out the program through annual contracts.G A O

"We do not believe this condition has been met. The Air Forc e has no t yet co mpletedan est imate o f mult iyear procurement saving s but has s ta ted that i t expects a maximumsavings under its "best case" scenario of about 5 to 6 percent. It is expected to provide afinal estimate to the Congress in May 2006. According to the CBO, substantial savingswas defined in the past as a t least 1 0 percent; however, the current law does n ot definesubstantial. We would point out, however, that the unit cost to procure remainingF-22As has increased 8 percent when comparing the fiscal year 2007 budget (usingmultiyear procurement) to the fiscal year 2006 budget (without multiyearprocurement). The unit procurement co sts to co mplete the F-22A program in f iscal year2006 was $166 million per a ircraf t for 56 aircra f t . The unit procurement co st to c ompletethe program in f iscal year 2007 using mult iyear pro curement inc reased to $179 millionfor 60 aircra f t . The mult iyear plan proposes buying 20 aircraf t eac h in f iscal years 2008through 2010 w hereas the f iscal year 2006 budget terminated procurement in 2008. Theinefficiencies connected with extending the program by 2 years will add over $1billion to the budget." [Emphasis added] (Appendix A)

CRS"There may be reaso ns for some to quest ion the feasibility of achieving IDA's est imated$225 million MYP saving s. For example,

There has been co nsis tent an d notewo rthy disagreemen t between the Air Forcean d the Off ice of the Secretary of Defense (O SD) on F-22 cost es t imat ing .Con gress requested an independent cos t es t imate, which DoD hired IDA toexecute.IDA's estimate of F-22 costs is different from OSD's and the Air Force'sest imates .In the December 31 , 2004, Selected Acquis i t ion Report (SAR) Do D repor ted thata two-year MYP (for product ion lots seven an d eight) the Air Forcean t ic ipated pursuing would have saved $458.9 million o ver ann ualprocurement. This level of est imated saving s for a two-year MYP isapproximately twice the f igure IDA est imates the Air Forc e may s avethrough a three-year MYP . Such dispar i ty in es t imates may sug gest tosome o bservers poor assumpt ions , tools , o r methodolog ies for MYP cos tsavings es t imates .The basis of some Air Fo rce c os t es t imates is unc lear . For example, the Air Forceplan s to a cquire two addi t iona l F-22 ai rcraf t with the ant icipated $225million in MYP saving s. Acco rding to D oD's la test est imate, the F-22'sAverage P roc urement Unit Cost is $185.4 million in FY2005 dollars . Bythis figure, two F-22's would cos t $370.8 million .

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G AAO has co nsis tently argued that the F-22 program sho uld have con ducted morethorough testing before entering production. For example, the GAO hasarg ued that "The F-22 entered production without ensuring pro ductionprocesses were in control." If true, this less-than-mature productionprocess co uld be respons ible for the F-22's curren t technica l problems,which add to program c ost , and may reduce projected MYP saving s."(Appendix G)CBO

"Deferr ing recog nit ion o f the full cos t of the assets being purcha sed would understate thenature of the governm ent 's obligat io ns, potent ially dis tor t ing budgetary cho ices bymaking the prog ram appear less expensive than i t is , an d would constra in budgetaryflexibility in s ubsequent yea rs." 6IDA-A "For the MYP BCA [Business Case Ana lysis] IDA estimated the savings to be 2.2

percent of procurement costs . We present MYP saving s in the co ntext of totalprocurement c ost ." [Emphasis in or ig inal] (Appendix C)Requirement 2: That the m inimum need for the property to be purchased is expected toremain substantially unchanged during the contemplated contract period in terms ofproduction rate, procurem ent rate, and total quantities.G A O

"We do not believe this condition has been met. The planned quan ti t ies o f F-22Ashave chan ged substant ially over t ime s tar t ing with a requirement for 750 at prog ram sta r tto the current plann ed quanti ty of 183. The Air Force s t i ll includes the F-22A as o ne o f i tshighest pr ior i ty systems and co ntinues to s ta te a need for 381 aircra f t , leaving a gap o f198 aircraft. However, in the last two years the quantities have changed twice. InDecember 2004, OSD determined that procurement o f F-22As had to be terminated infiscal year 2008 in o rder to sa ve $10.5 billion. O SD stated this wa s all the F-22s thatco uld be afforded. Then in December 2005, O SD chan ged the quanti t ies ag ain inc reasingthem to 183 aircraf t , adding o ver $1 bill ion to the F-22A budget. This tension betweenO SD an d the Air Forc e will apparently co nt inue into future budgets and quan t i t ies andco uld chang e aga in given the potent ial for fur ther deman ds on l imited go vernmentresources throug h the 2010 t imeframe (Wa r on Terror , future natural disas ters , agingpopulat ion, and man y others) . This discon nect between quanti t ies needed and quan ti t iesthat can be afforded is a major co ntr ibutor to the broken F-22A business ca se and webelieve it needs to be resolved before addi t iona l funds a re author ized for pro curement o r

6 Statement of Donald B. Marron, "The Air Force 's Propos al for Proc ur ing F-22 Fighters," Congressiona lBudget Office, March 28 2006, http://www.cbo.gov/ftpdocs/71xx/doc7104/03-28-F-22.pdf (Downloaded July 24,2006).6


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modernization. Until the disconnect between needs and affordability can be solved andquan tities are firmly established, it is difficult to determin e what ro le the F-22A shouldhave. Other alternatives (JUCAS, F-15s, JSFs) might provide sufficient ground attackcapa bili t ies a nd c ould result in further reductions in F-22A if i ts pr imary ro le is a irsuperiority." [Emphasis added] (Appendix A)CRS ".. . the F-22A prog ram has experienced no teworthy turbulence between the FY05 an dFY07 budget requests . Total prog ram budget, annual budget requests , total inventory,ann ual procurement ra te, an d program dura t ion have all chan ged. .. . Con sidering thechan ges to the F-22A progr am that have occurred, and cha ng es which are being proposed,some may question the Air Force's ability to comply with some provisions of 10 USC2306(b)(a) , including pro vision (2) . . . ." (Appendix G )Requirement 3: That there is a reasonable expectation that throughout the contemplatedcontract period the head of the agency w ill request funding for the contract at the levelrequired to avoid contract cancellation.G AO "We do not believe this condition has been met." The G AO further s ta ted, "The AirForce ha s indica ted that i ts mult iyear budget is curren tly under funded by $674 million."[Emphasis added] (Appendix A)CRS- "Considering the chang es to the F-22A progra m that have oc curred, and cha ng es whichare being proposed, some m ay question the Air Force's ability to comply w ith some

provisions of 10 U SC 230 6(b)(a), including provision (2) ... and (3)." [Emphasisadded] (Appendix G )CBO ".. . the funding pro vided eac h year wo uld no t be suff icient to co mplete the ai rcra f tordered that year , and the Air Force wo uld have to seek addi t ional appropr iat ion s in thefuture to o btain funct ion al a ircraf t . .. . The Air Force wo uld commit to the purchase o f 20aircra f t per year for three years , with the r ight to c an cel the remain der of the order at theend of each year . But it is not requesting app ropriations sufficient to cover thepotential cancellation liability. Under that proposa l for multiyear procurem ent, the

Air Force w ould have to seek add itional appropriations in the future even if adecision was made to cancel the contract." [Emphasis added]

7 Ibid.

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Air ForcePO G O rec ently acquired a February 2006 Air Force presentat ion sho wing unr esolvedissues con cerning the s tabili ty of funding for the F-22A program , the third requirement for MYPstatus. The Air Force ra ted the program 's abili ty to meet the "Stable Funding" requirement"Yellow" as i t will need to ac quire waivers from the O ffice of the Secretary of Defense (O SD)because the MYP does no t include full funding a s required or funding for con tract ca ncellat ion.(Appendix B)Requ irement 4: Tha t there is a stable design for the property to be acquired and th at thetechnical risks associated with such property are not excessive.G AO "While the design for the baseline F-22A aircra f t , designed primarily for an airsuperior i ty role, is s table, the design for the gr ound a t tack ca pabili ty to be added has no t

been demonstrated and thus cannot be considered 'stable." (Appendix A)CRS CRS has highlighted man y problems over the years with the F-22A. Most recen tly, i t hasdiscussed diff icult ies with the Structures Retrof i t Prog ram (SRP), forwa rd boo m heat t reatmen t ,the cano py actuator , Air Recharge System (ARS), an d the no se landing g ear . These issues remainunso lved. The CRS stated that the Air Force has reported f ive technical problems currently beingexperienced in the F-22A progra m:

"Structures Retrofit Program. SRP is a plann ed improvement effor t required to ma na geweapon system service l i fe an d ensure the ai rcra f t meets the design service l ife of 8,000flight hours . As service l i fe def iciencies were ident if ied during Eng ineer ing,Man ufactur ing a nd Development (EMD) s t ructural tes t ing , (mid fuselag e, eng ine bay, af tboom, forward boom, wing leading edge) cor rect ions were incorpora ted in to theproduct ion l ine. The SRP retrof i ts those ai rcra f t delivered pr ior to the inc orpora t ion o f allco rrect ive act ions into the product ion process (a i rcraf t 4010-4083). Work will begin asear ly as Janua ry 2007 an d is scheduled to co nc lude in 2010.Forward Boom H eat Treat Issue. In December 2005, the Air Forc e was no t ified thatsom e t i tanium forward boo m frames were n ot properly heat-treated. This improper heatt reatment crea ted the potent ial for forward boo m frames with an oma lous mater ialproper t ies (e.g. extensive cra cking ) in ai rcra f t 4017-4107. Immediate s tudies indicatedthis is not a sa fety of fl ight issue, but the cos t of inspect ion s a nd s teps poten t ially requiredto address this ano maly are current ly unknown .Canopy Actuator. O n 10 Apr 06, an F-22A gro und-abor ted because the ca no py wouldno t open. This problem was ca used by screws bac king o ut of the internal lockingmechan ism in the can opy actuato r . An inspect ion for potent ially faulty ac tuatorsident ified 42 potent ially faulty ac tuators (3 5 ins talled on F-22As an d 7 spares) . A 30-dayrepet it ive mechanica l inspect ion has been implemented to ensure proper operat ion of the

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actuato rs a nd po tent ially faulty actuators will be replaced throug h retrofi t expected to beco mplete by February 2007.Air Recharge System. The Air Recharg e System (ARS) experienced three problems:leakage, auto- igni t ion fai lures, and a n ARS rupture during flight. The ARS replenishesthe Stored Energy System a fter eng ine s tar t . Fixes to these problems have been ini t ia ted.Nose Landing Gear. O n 11 M ay 06, an F-22A (aircraf t 4020) experienced anunco mman ded no se landing gear retract ion and the nose of the aircra f t fell to the gro und,landing on the main weapons bay doors . A s imila r inc ident oc cur red on 18 Ma r 2003 toaircra f t 4008. The technica l solut ion preventing unco mman ded nose gear retract ion s hasbeen inco rporated into the production pro cess a nd is being f ielded throughout the fleet .The findings o f Safety Invest igat io n Bo ard are pending.In addit ion to those problems reported, a t least one productio n issue may also warra ntcon cern. The F-22 aircra f t exit ing the Loc kheed Mart in f inal assembly plant ha veexperienced an in crease in g ross ta keoff weight of 800 lbs from the beginning ofproduct ion to the present . Inc reased weight reduces ai rc raf t performa nc e.I t may be useful to n ote that the technica l problems identif ied above a re those that a recurrently known , and reported. As mention ed in test imon y before the Senate ArmedServices Committee on M arch 28 2006, the t i tanium problem that the Air Forcediscovered in December 2005 was not reported to Co ng ress unt i l March 2006. Based onthis experience, i t may be that a ddit ion al technical pro blems exist in the F-22A prog ramof which Cong ress has no t yet been informed. Further, the Go vernment Acc ounta bili tyO ffice (GA O ) and others have expressed con cern that the Air Force 's plan to integra te anew, mult i-mode, ai r- to-groun d ca pable AESA (Agile, Electron ically Steered Array)radar into the F-22 could present unforeseen a nd sign if ican t technical challenges. The AirForce does no t share the GAO 's concern , and a rgues tha t modern iz ing the F-22 radar i sno more c hallenging than, for example, retrofi t t ing exist ing F/A-18/E/F Super Horn etswith new AESA radars .Technical problems experienced historicallyAcc ording to the G AO , increa sed labor rates co upled with technica l problems associa tedwith avionics , ai rf rame, and eng ines have caused 70% of the F-22 cost g rowth.Avionics: overco ming avion ics sof tware ins tabil i ty was a key challeng e that led to anextension o f the EMD phase (engineer ing , man ufactur ing an d developmen t) .Airframe: Loc kheed Mart in exper ienced a number of technic al challenges with the F-22airf rame, including buffet ing of the ver t ica l tai l f in, a separat ion of ma ter ials in ho r izon taltai l fin, and "bumps on external shape due to repac kagin g intern al sys tems."

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Engine: F119 engin e fuel con sumption has been unsa t isfactory, and problems wereexperienced with the engine's core combustor, which did not demonstrate desiredtemperature levels. Ano ther disappointment w as m anufac turing pro blems with fuel-airheat exchan gers which reduced effect iveness .Cockpit Canopy: The F-22 has experienced on-go ing c hallenges w ith the co ckpitca no py, including cra cking a nd reliabili ty.Maintenance and Support R equirements: The F-22 does n ot m eet the Air Force AirliftKey Performa nc e Pa rameter (KP P) o f 8 C-141 equivalents to mo ve a F-22 squadron . 8.8C-141 equivalents a re required. Further, mean t ime between ma intenan ce is 3 to 5 t imesthe Air Force requirement of 2 flight hours between main tenan ce.Although i t is diff icult to draw a direct co rrelat ion between technical problems an daircra f t ac cidents (also kno wn a s mishaps) , the F-22 mishap rate may be notewo rthy, an dmay reflect on the technical c halleng es exper ienced. The F-22 prog ram experienced threeClass A mishaps (>$1 million in dam age) in 14 m on ths." (Appendix G)

Air ForceThe Air Forc e presentat ion pro vides evidence that the moderniz at ion of systems essent ialto the new mission of the F-22A has yet to be completed. The main c on cern is a n ew radarsystem, which is con sidered by the Air Force to be integral to the F-22A's groun d-at tack an dintelligence ga thering c apabili ties.' The radar system is n ot even scheduled to be received by theAir Forc e unti l November 2006, and the software is n ot sc heduled to be co mpleted unti l 2010.The nature o f this funding es tablishes the case tha t the F-22A is s t i l l receiving, an d will con t inueto rec eive, essen tial upgra des that are still being developed and ha ve yet to be tested. Thisultimately affects the F-22A's ability to prove that the pro gra m co mplies with the "StableDesign" requirement. (Appendix B)Requ irement 5: Tha t the estimates of both the cost of the contract and the anticipated costavoidance through the use of a multiyear contract are realistic.G AO "We believe this is questionable at this t ime an d will require the Air Force to submit adetai led an d independent es t imate of the co s t an d will require som e evidenc e that thecon tracto r is willing to s ign up to this co st ." [Emphasis added] (Appendix A)

8 PO G O real izes that the F-22A modernizat ion plan i s co nsidered a separate program from the MYP.However, the radar system is in tegral to the ca paci ty of the ai rcra ft to meet i t s mission, and therefore i s relevant tothe stability of design for the airc raft.10


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CRS "The DoD has reported 10 cos t over-runs in the F-22 program . (DoD is required to reportco st overruns in the SAR when the cos t est imate is 15% higher than past SAR.)Adjust ing for inflat ion, the prog ram unit ac quisi tion c ost (P UAC) est imate in 1991 was$114 m illion per a ircraf t ($05) and in 2006 the est imate was $3 54 million per a ircraf t($05). In r eal terms, this represents a per-aircraf t increase o f over 200%."(Appendix G )DCAA A November 9, 2005, Defense Contra ct Audit Agenc y (DCAA) presentat ion ' conc ludedthere is "Moderate to high r isk . .. [ in] Cos t Est imate Development" af ter discovering $141million in unsupported, inaccura te, and defect ive data in Air Fo rce F-22A cost est imates.(Appendix H)House G overnmen t Reform Subcom mittee on N ationa l Securi ty Chairman C hris topher ShaysThe Air Force has a his tory o f not providing a ccura te cost est imates, and there is li t t lereaso n to believe that i t will be any mo re acc urate for this roun d of procurement. For ins tan ce,f ive years ago , the House Go vernment Reform Subcomm ittee on N ationa l Securi ty was frustratedin get t ing a ccura te F-22A progra m co st est imates from the Air Force. The Subcommittee hadtasked the G AO with reviewing the F-22A progra m's cost reduction plans. What the G AO foundwas a $7 bill ion varianc e between the Air Force 's cost est imates an d those made by the O ffice ofthe Secretary of Defense's Cost Ana lysis Improvement G roup. On August 20, 2001,Subcommittee Chairman Chris Shays wrote to House Armed Services Chairman D unca n Hunterthat , ". . . as you proc eed with your deliberat ions o n the pac e an d sco pe of the F-22A progra m,please be advised we can have li t t le con fidenc e in the accurac y of production c ost est imates an dless co nfidence in the legi t imacy of projected production co st saving s based on those est imates."(Appendix I)Requirement 6: In the case of a purchase by the Department of Defense, that the use ofsuch a contract will prom ote the national security of the United States.

At the end of the day, perhaps the most importan t quest ion remains why are wecon t inuing to fund a Co ld War-era weapon that was des igned to counter the next-genera t ionSoviet f ighters that were never co nstructed? In fact , the GAO stated, "Based o n o ur review, inour opinio n, the DO D has no t demonstra ted the need or value for ma king fur ther investments inthe F-22A prog ram." (Appendix A) While the f inal requirement of the law that i t promotes thena t iona l secur i ty of the United States is a m at ter of judgmen t an d is not quan t ifiable, theballoo ning co s ts of this ai rcraf t render i t impossible to meet the Air Forc e's own s tatedrequirements for 381 F-22A's "in order to meet the needs of the warfighter ." If it is too expensiveto buy enough a i rcraf t to meet our na t iona l secur ity needs, this cer tainly challeng es theassumption that the final requirement has been met.

9 The Defense Contrac t Audi t Agency is the Pentagon 's audi t agency.11


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A FINANCIAL CONFLICT OF INTEREST?In early 2006, the Pentago n's O ffice of the Under Secretary of Defense, Acquisi t ion , Technologyan d Log ist ics requested that a report be prepared by IDA. IDA is a federally funded research an ddevelopment c enter (FFRDC) which has as sis ted the DO D sinc e i t was established in 1947 bySecretary of Defense James Fo rres tal .10 IDA states that i t does n ot wo rk for the private industryan d that i t takes ". ..great pr ide in the high caliber and t imelessness o f i ts ana lyses, which areproduced in an atmo sphere that enco urages independent thinking a nd object ive results ."11 Thereport , "F-22 Mult iyear Pro curement Business C ase An alysis ," found that the F-22A prog rammet all the cr i ter ia n eeded for the prog ram to be purchas ed under a lucrat ive mult iyearprocurement (MYP ) s t r a tegy.Admiral Dennis C. Blair , USN (Ret.) , joined IDA in O ctober 2002 and was promo ted toPresident just on e year la ter . Also in O ctober 2002, Admiral Blair joined, and st i ll s i ts on , theBoard of Direc tors fo r defense con t rac to r EDO Corpora t ion , a subcont rac to r on the F-22A.12Acc ording to EDO ' s websi te, EDO man ufactures essent ial suspension a nd release equipment forthe F-22A. The LAU-14/2 AMRA AM Vert ical Eject Launc her is the compon ent of the F-22Athat carries and ejects the AIM-120C missiles.' He currently controls 1,787 shares of stock and30,000 stock option s in ED O , worth well over half a million do llars if he chose to exercise thoseoptions . (Appendix E)As a subcon tracto r on the F-22A, EDO has a s ignif ican t finan cial s take in a mult iyearprocurement for the F-22A program. According to a n an a lys is by PO G O , Lockheed Mar t in hasawa rded EDO w ith approximately $90 million in co ntrac ts for co mpon ents for the F-22A, $68.4million o f which have been awar ded since Admiral Blair joined EDO .An MY P ca n s ign if ican tly impact the value of the compa ny's s tock over t ime as investorsperceive that such a c on tract will provide s tabili ty of revenues. According to on e report:"mult i-year con tracts substan t ially increase s toc k valuat ions due to investor perception o f

10 "About IDA ," Insti tute for Defense Ana lyses, 2005, http://www.ida.org/IDAnew/Welco me/history.html(Dow nloa ded July 24, 2006).1 1 Ibid.

1 2Admiral Dennis C. Blai r and James Ro th Join Board of Directors of EDO Corpora t ion," EDOCorporation Press Release, October 1, 2002, http://www.edocorp.com/pr2002/02r1001_2.htm (Downloaded July 24,2006).1 3 " Corporate Overview," EDO Corporat ion, ht tp://www.edocorp.com/CorporateO verview.htm(Dow nloa ded July 24, 2006).

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controlled risk."' A National Defense University study on the Aircraft industry noted: "If theF-22 proc eeds with production as expected, a mult i-year con tract wo uld provide a neededfinancial boost to Lockheed-Martin."'Admiral Blair became director of EDO the same month that he began working at IDA. He servesas Chairman of the Compensation Committee and is a member of the pension investmentcom mittee. As a member of the Board of Directors he is an essent ial f igure in the s tructuring,direct ion, and overall success o f EDO .IDA is a regis tered FFRDC and is co nsidered a contra ctor o f the Federal government. As aco ntrac tor , IDA does no t fall under the same co nflict of interes t rules as federal employees.PO G O con tacted IDA to determine their co nflic t of interest polic ies, and received an emails ta t ing, "Due to the na ture of our wo rk at the Inst i tute for D efense An alyses, we are unable toprovide information a bout con flic t of interest polic ies or forms . If you are seeking generalinformation about IDA, please vis i t our websi te at www.ida.org." (Appendix E) After furtherresearch, PO G O discovered that FFRDCs such as IDA have enjoyed the credibili ty of beingregarded as an arm o f the govern ment, yet they are not subject to any such legal res tr ict ions .I t is impor tan t to emphas ize tha t PO G O is in no way sugges t ing tha t Admira l Bla i r has vio la tedany laws o r regulat ions. There is a disco nn ect between the perception that FFRDCs have tocom ply with conflic t of interest laws a nd the reali ty. This problem is worth Co ngr ess ' fur therattention.While this is perfectly legal, i t ra ises man y ethical con cerns. IDA's report has been ci ted byLockheed Mart in, mult iple Senators, an d the Air Force as the primary evidence that the MYP ofthe F-22A will save the American ta xpayer millions of dollars . On the floo r of the Senate, man ySenato rs claimed that the informa tion provided by IDA was mo re acc urate than that provided bythe GAO.' IDA's report, in fact, was the pivotal document upon which MYP status for theF-22A was gra nted by the Sena te.

14McAleese, James, "Defense Indust ry Models Must Chang e to D raw N ew Investors," National Defense,June 2001, http://www.nationaldefensemagazine.org issues/2001/Jun/Defense_Industry.htm (Downloaded July 24,2006).1 5 "Aircra ft;" Industrial College of the Armed Forc es, Industry Studies Pro gra m, http://www.ndu.edu/icaf/indust ry/1S2001/ai rcraft .htm (Down loaded July 24, 2006).16 Congressional Record, June 22, 2006, http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2006_record&page=S6338&posi t ion=al l (Do wnloaded July 24, 2006).

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CANCELLATION COSTS HOW TO BUY A LEMONThe decis ion last year by Con gress to fully fund the C-130J mult iyear procurement o ffers arelevant lesson for the current debate on the F-22A that is a lesson on how the Air Force isforcing the American taxpayer to buy i ts lemon s. Having succeeded in misleading Co ngr ess onthe C-130J deal, the Air Force and Lo ckheed Mart in are putt ing the same playbook into a ct ion onthe F-22A. On e of those plays is to lock the America n ta xpayer into buying the Air Forc e 's petprojects , then c reate the impression that ca ncellat ion is imposs ible.The C-130J is such a fai lure that the DOD soug ht i ts terminat ion un der Prog ram Budget Decis ion753, agains t the wishes of the Air Force. In 2005, although P O G O released a co py of the C-130Jcon tract show ing a c anc ellat ion ceiling of $440 million , the Air Forc e misinformed the Secretaryof Defense and Co ngr ess, s ta t ing that i t would cost $1.78 billion to can cel the con tract ." In June2006, The Pentag on IG (DO D IG) issued a report con firming that $440 million was the most i twould cost to can cel the contra ct , not ing: "By defini t ion, a con tract ca nc ellat ion ceilingrepresents the Government's maximum liability."'As a result of the Air Force 's misleading claims a bout the C-130J, the American taxpayer is no wlocked in to paying an addit ional $4 b il lion o n an a i r craf t that ca nno t even be t aken in to combat .Indeed, as the New Y ork Times reported last year, the C-130J's pr imary use appears to be that i tcreates a dded just ificat ion to keep cer tain U.S. military bases o pen (beca use the C-130J must bedeployed domestically), helping M embers of Con gress who are f ighting bas e closures." As theDO D IG no ted in a June 2006 repor t , " .. . ten years a f ter the f irs t awa rd in 1995, the con tracto rwas still delivering non-compliant aircraft."'As with the F-22A, the DO D IG repor t on the C-130J found that the Air Forc e fai led to requestca nc ellat ion funds as is required under multiyear procurement rules and then issuedinaccura te can cella t ion es t imates :. .. the FY 2006 Pres ident 's Budget did not include sufficient funds to terminate the AirForc e C-130J ai rcraf t proc urement and ac celerate the Marine Corps KC-130J ai rcraf tprocurement if the unsupported cost estimate was valid.'

1 7 "Letter from P roject On G overnment O versight and Taxpayers for Commo n Sense to Secretary ofD e f e n s e D o n a l d R u m s f e ld , " F e b r u a r y 2 4 , 2 0 0 5 , h t t p : / / w w w . p o g o . o r g / m / c p / c p - R u m s f e l d - C 1 3 0 J - 0 2 2 4 2 0 0 5 . p d f(Down loaded July 24, 2006).

1 8 "Contract ing a nd Funding for the C-130J Aircraft Progra m," Depar tment of Defense Inspector General ,June 21, 2006, http://www.dodig .osd.mil/Audit/reports/FY06/06-093.pdf (Do wnloa ded July 24, 2006).19 Wa yne, Leslie, "The Flawed P lane Con gress Lo ves," New Y ork Times, Marc h 24, 2005.20 "Contracting and Funding for the C-130J Aircraft Prog ram," Depar tment of Defense Inspector G eneral ,June 21, 2006, http://www.dodig .osd.mil/Audit/reports/FY06/06-093.pdf (Do wnloa ded July 24, 2006).2 1 Ibid.

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O f course, request ing the cancellat ion co sts from Con gress wo uld require an ac curate, publiclyavailable figure subject to review an d debate. So far , the Air Forc e has n ot pro vided such a f igurefor i ts proposed F-22A mult iyear procurement, which co uld lead to the same exag geratedcan cellat ion est imates as the C-130J if the F-22A progr am fac es t rouble.Indeed, as recently as February 2006, a P ower P oint presentat ion from the Air Force showed thati ts plan was to g et a special waiver from the O ffice of the Secretary of Defense that would allowthe Air Force to fund can cellat ion c osts o uts ide the contra ct: "Termina t ion liabili ty and con tractcan cellat ion covered by Air Fo rce o utside F-22 budget authori ty. .. . Need O SD(C) wa iver toallow terminat ion liabili ty/can cellat ion ceiling to be a n un funded contin gent l iability." (AppendixB, page 18)In March 2006 Cong ressiona l test imony, the CBO descr ibed how ca ncellat ion of a mult iyearprocurement wo uld put the go vernment an d the taxpayer at grea ter r isk if funds were no t setaside:

But with no funds s et as ide specifically for c an cellat ion cos ts , the Air Forc e would haveto terminate or ders for some or a ll of the aircraf t that had already entered production if adecis ion wa s made to c anc el subsequent orders. Thus, if i t canceled the remaining yearsof the mult iyear con tract a t the end of the fi rs t year , the governmen t would not on ly forgothe aircraf t to be produced in la ter years but also would not rec eive all of the planes i t hadordered in the f irs t year an d the taxpayers ' investment in thos e ai rcra f t would be los t . Inpartic ular, at the end of the first year, the Air Forc e would have or dered 20 aircra ft. If thego vernment decided to ca nc el the contra ct at that point but had no t set as ide fundsspecif ica lly for can cellat ion co s ts , it would not on ly forgo the 40 ai rcraf t that had no tentered production, but, to free up funds for c anc ellat ion c osts , i t would have to s top wo rkon some o f the 20 aircraf t that had already been o rdered. The Air Force 's proposa l differsfrom the pract ice o f full up-fron t funding in two ways: i t seeks incrementa l funding forac quir ing ca pi tal assets , and i t provides for a mult iyear procuremen t without funding fo rpossible cancellation costs.22

The CBO fur ther s tated, "O n the bas is o f can cellat ion l iabil it ies for o ther mult iyear progra ms,that amo unt co uld be between 5 percent an d 15 percent o f contra ct co s ts . . .. Acc ording to theAirForce, the 60 airplanes w ould cost a bout $10.5 billion in total." As a result , can cellat ion cos tsco uld reac h as much a s $1.6 billion if i t follows the pattern set by other multiyear proc urements.23

22Statement of Donald B. Man-on, "The Air Force 's Pro posal for Pro cur ing F-22 Fighters," CongressionalBudget Office, March 28 2006, http://www.cbo.gov/ftpdocs/71xx/doc7104/03-28-F-22.pdf (Downloaded July 24,2006).23 Marron statement , pg 7.

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CONCLUSIONIn con clusion, i t is clear that independent cong ressiona l an alysts have signif ican t conc erns withaccepting the F-22A program as a candidate for multiyear procurement. Based on its ownresearch, PO G O does no t believe the F-22A progra m meets mult iyear procurement requirements,an d recommends that Con gress s t r ike lang uage authorizing the MYP unti l such t ime that theprogra m meets those requirements.

RECOMMENDATIONS1. PO G O reco mmends that the langua ge authorizing mult iyear procurement of the F-22A bestruck immediately, to be recon sidered on ly when the progra m ca n mo re thoroughlyjust ify i ts capabili t ies to fulf i ll the requirements of an MYP con tractual ag reement.2. Define "substant ial savings" in R equirement 1 of Tit le 10 U.S.C. Sect ion 2306(b). PO G Ofurther recom mends that substan t ial savings be defined as 10% , as has been done in thepast . Establishing 1 0% as a permanent defini t ion for substan t ial savings will provide areaso na ble measure of acc oun tabili ty rather than leaving the s tandard open tointerpretat ion.3. Require an independent ana lysis of ca ncellat ion co sts for the F-22A and a ll proposedmult iyear procuremen ts , and that those ana lyses be provided to Con gress before i tapproves an MYP . Furthermore, the Penta go n should be required to request funding toco ver those can cellat ion c os ts in the event the program is terminated.4. Apply federal con flict o f interes t laws to federally funded research an d developmen tcenters. These organ izat ion s are fully funded by the federal governmen t an d should berequired to meet the same ethics s tan dards as federal agen cies .

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Preying on the Taxpayer: the F-22A Raptor