Rising F-35 costs not too shocking
Rising cost estimates
Here are Pentagon estimates of the total cost for development and acquisition of the F-35. The original estimate in 2001 dollars was $177.1 billion. These estimates take inflation into account.
October 2001: $226.5 billion
June 2004: $245 billion
December 2005: $276.5 billion
December 2006: $299.9 billion
December 2007: $298.8 billion
December 2009: $328.3 billion
June 2010: $382.4 billion
Sources: Defense Department, selected acquisition reports
What does an F-35 cost?
That depends on how you define cost. The Defense Department, the military and industry have different ways of measuring the cost of military aircraft. Some common definitions include:
Program Acquisition Unit Cost: Includes all costs of research, development and testing; all tooling, equipment and facilities needed for development and production; support equipment, technical manuals, training equipment and factory training; initial spare parts orders and construction of military facilities such as hangars and repair shops. The total cost is divided by the number of planes to be purchased. This estimate for the F-35 in 2002 was $62 million. This year, it was $155.6 million.
Average Program Unit Cost: Does not include the cost of research, development and testing — about $50 billion in the case of the F-35 — or the cost of military facilities. This estimate in 2002 was $50 million. This year, it was $134 billion.
Recurring Unit Flyaway Cost: Only includes the production costs of the airplane. This estimate in 2010 dollars is $60 million to $85 million, according to Lockheed.
By BOB COX
Saturday, Jun. 12, 2010
rcox@star-telegram.com
It should have come as no surprise when the Pentagon recently reported that the cost of developing and building the F-35 joint strike fighter will probably be double the original cost estimate.
Long before the JSF development contract was awarded to Lockheed Martin in October 2001, observers warned that the Defense Department was moving too fast, that the technology was unproven, that the schedule was way too ambitious and that the cost estimates were wildly optimistic.
And that’s pretty much what Ashton Carter, the Pentagon’s top weapons buyer, told Congress recently to explain why the average cost of acquiring each F-35 had soared from $62 million in 2001 to $155 million, according to the latest estimates.
In a June 1 memo outlining reasons for continuing the F-35 program and what the government was doing to control costs, Carter said the government had used “unrealistic estimates for cost and schedule,” began with “flawed programmatic and technological assumptions” and exhibited “excessive optimism” about what could be accomplished and when.
Shocking? Not really.
Early warnings
“People that really knew about this could have predicted the way it has gone,” said Michael Sullivan, director of acquisition auditing for the Government Accountability Office. “It’s pretty much a typical [defense] acquisition.”
The Pentagon and Congress ignored plenty of warnings. The Congressional Budget Office reported in March 1999 that JSF costs might be underestimated by as much as 50 percent.
A year later, the GAO told Congress: “To allow the JSF to proceed as planned — without maturing critical technologies — would perpetuate conditions that have led to cost growth and schedule delays in many prior DoD weapons system acquisition programs.” The GAO issued pretty much the same warning a year later, just before the contract was awarded.
“These increases were as predictable as the sunrise, and we’re not done yet,” said Winslow Wheeler, analyst for the Center for Defense Information and formerly a longtime Senate defense staff member.
The magnitude of the increases in F-35 costs are mind-boggling to anyone accustomed to such real-world undertakings as buying a car, building a house or even running a business.
In 2001 the Pentagon estimated that it would cost $177.1 billion, or $62 million per aircraft, to develop the F-35 and build 2,866 planes. Assuming some inflation and other cost increases, the price tag was projected to rise to $226.5 billion, or $79 million per aircraft.
Those figures have increased almost yearly. Pentagon number crunchers now estimate the development, production and all other costs of acquiring 2,457 F-35s (about 400 fewer than originally planned) could total $382.4 billion, or $155.6 million per aircraft.
Lockheed has made progress getting airplanes built and into flight testing, which in some cases was as much as a year behind schedule. But even at the current pace, the company will have completed only about 5 percent of planned testing by year’s end.
Once due to be completed by 2012, flight testing now is scheduled to last until 2016, meaning that much remains to be learned about the aircraft and its systems and that much could be discovered to be wrong and costly to fix.
Design changes
Many factors have contributed to F-35 cost growth. Little more than a year into the design effort, and after work had begun on manufacturing test aircraft, engineering teams for Lockheed and other contractors found that their design was too heavy. That necessitated a complete redesign that added a minimum of two years and several billion dollars in costs.
The redesign rippled through to suppliers, who were already making parts that had to be scrapped, or who had ordered manufacturing tools and equipment.
There have been cost increases for Pratt & Whitney’s engine development efforts, which are part of the overall F-35 cost. The need to redesign failed engine components set back testing of the F-35B, a version for short takeoffs and vertical landings, by about a year.
But based on reviews of the Pentagon’s periodic reports, much of the cost increases have been due to underestimating the complexity of the F-35 program and the time and costs involved. The most recent projected cost increase of $50 billion-plus is simply a more conservative view of what it will cost to build the planes in future years based on past experience.
The GAO’s Sullivan said the Pentagon and Lockheed had convinced themselves that they had learned what not to do from their experience with the long-delayed and costly F-22 program.
“The capabilities of the F-35 wouldn’t be pushing the boundaries the way the F-22 did,” Sullivan said. “This looked like a simpler process.”
Lockheed officials insist that the government’s cost projections are way too pessimistic. The negotiations for the next batch of 32 airplanes, Lockheed spokesman Chris Geisel said, should result in a price at least 20 percent below government estimates.
When the F-35 development contract was awarded to the Lockheed team, the Pentagon said the contractors would “implement innovative management and business practices focusing on achieving affordable unit flyaway costs.”
But nearly nine years later, the Pentagon is singing a different tune. In the June 1 memo to Congress, Carter was critical of Lockheed’s performance in several areas.
Lockheed’s internal, government-mandated system for monitoring schedule, work progress and costs “was determined to be noncompliant with [Defense Department] standards. This situation is disappointing and unacceptable,” Carter’s memo said.
That means that Lockheed management had no good way of telling whether work was being done on schedule, what it was costing and reporting that information on a timely basis to the government. Lockheed’s net profit payments, which until recently were regularly awarded, were supposed to be based on its ability to monitor progress and costs and to report accurately to the government.
Similarly, Carter said Lockheed and the Pentagon office overseeing the F-35 program did not have good “risk management mechanisms” in place to alert company and government officials about technical or schedule problems that needed immediate attention.
Geisel said the company is “working closely” with the Defense Department “to develop a corrective action plan that will address all issues and lead to resolution of all concerns” about Lockheed’s cost and progress benchmarking system, called the “earned value management system.” He said Lockheed officials expect approval of their plan “in the near future and we will diligently work to meet the established milestones.”
Geisel also said Lockheed has worked out a risk-management system with the military services and the Pentagon’s F-35 program managers that addresses Carter’s criticism.
Carter’s message to Congress is that the Pentagon is now taking a much more realistic approach to managing the program and will “make every possible effort to reduce the program costs forecast in these estimates.”
BOB COX, 817-390-7723
Read more: http://www.star-telegram.com/2010/06/12/2259308/rising-f-35-costs-not-too-shocking.html#ixzz0qeyGTWSG
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