Senate Expresses Concern About Proposed F-35 Block Buy
By: Dan Grazier | June 8, 2016
Lockheed Martin and the F-35 Joint Program Office want to double-down on the controversial acquisition strategy called concurrency. The two have been working together to convince Congress to approve a block buy of the F-35 Joint Strike Fighter which will only serve to compound an already massively expensive problem. But Congress appears to be questioning the wisdom of a block buy. While the decision is still a year away, the Senate Appropriations Committee recently issued the first sign of resistance in its 2017 Defense Appropriation Bill report.
The F-35 Joint Program Office and Lockheed Martin have expressed a strong desire for Congress to approve a three-year plan to purchase more than 460 new planes. In most cases where the Pentagon wants to enter into long term purchase plans for weapons, it uses something called a “multiyear procurement,” which has statutory requirements for design stability and cost savings. But in this instance the program office is asking Congress to approve a “block buy,” which doesn’t have those statutory requirements and therefore provides significantly fewer protections for the troops who will be using the equipment and the taxpayers who will be paying for it. The program’s executive officer claims a block buy would not commit the government to purchasing any planes, but would simply allow the contractor to purchase the necessary parts for that many. The Government Accountability Office (GAO) acknowledged the potential supply benefits in a recent report. In the end, though, the GAO came out against any kind of long-term commitment, saying it would limit Congress’s options in the future. The F-35 block buy, combined with other long-term purchase agreements, would consume nearly half of the discretionary budget.
The program office also claims a block buy would save approximately $2 billion. But according to a Congressional Research Service report, block buy contract savings can be lower than those promised under multiyear procurements. One of the problems with concurrency—the overlap of development and production—is that systems built early in the process later have to be modified to incorporate the latest design updates and correct flaws uncovered during testing. This comes at a significant cost to taxpayers. Last year the GAO estimated those upgrades and changes, called “concurrency costs,” would add $1.7 billion. That means the $2 billion savings promised by the program office for a block buy would be nearly cancelled out by the costs to upgrade the planes down the road. More recent estimates released by the Pentagon show these costs have increased by 4 percent during the past year.
So far, Senate appropriators aren’t convinced that the savings are really there. Their report notes the Department of Defense “has not completed a formal review of such a strategy.” The Committee goes on to recommend that the Under Secretary of Defense for Acquisition, Technology, and Logistics conduct such a review before sending a request for a production increase to Congress.
The Senate appropriators are correct in their hesitancy: consideration of a block buy or multiyear procurement is still incredibly premature. The F-35 program is officially still in Low Rate Initial Production, a phase during development intended to refine the manufacturing process and produce enough planes for combat testing. It is also intended to provide enough production-representative vehicles to support Initial Operational Test & Evaluation (IOT&E). According to federal law, increasing to Full-Rate Production can only occur after IOT&E.
The program is not expected to begin IOT&E until 2018 and, as we have previously reported, this process will not be complete before the first half of 2022. The F-35 program has already subverted the entire acquisition process by standing up operational squadrons before basic flight testing has been completed. Buying several hundred more planes before they have been fully developed will only make things worse.
The point can’t be made often enough that the Joint Program Office and Lockheed Martin want a block buy and not a multiyear purchase contract. Congress typically authorizes most weapons buying programs on a year-by-year basis to ensure proper oversight and to maintain incentives for the contractor to produce satisfactory results. According to Title 10 U.S.C., Section 2306b, a program is eligible for multiyear procurement if the contract promotes national security, results in substantial savings, has little chance of being reduced, and has a stable design.
The F-35 seems to be failing at least two of the first three criteria and is most certainly failing the fourth. The Director of Operational Test & Evaluation, in his 2015 annual report, detailed all the operational testing yet to be completed, the results of which are essential to making an informed final production decision. The necessary testing report will not be completed until 2022 at the earliest. F-35 Chief Lt. Gen. Christopher Bogdan says testing doesn’t need to be completed to enter into either option and denies that the pursuit of a block buy is an attempt to avoid Congressional oversight. But should Congress approve a block buy, the program would not face the same rigorous review that occurs each year when a multiyear purchase is affirmed by both the armed services and appropriations committees.
Any production increase at this point would certainly violate the spirit, and perhaps even the actual letter, of federal law. Because an exact definition of what constitutes the line between low rate and full production doesn’t exist, program officials and defense contractors have plenty of room to wiggle. But committing the government to purchasing 460 more planes in addition to the nearly 200 already in service plus the 63 planned in the next fiscal year represents approximately 30 percent of the planned 2,443 total buy. Thirty percent of the total number of planes certainly gives the appearance of moving beyond low rate production. Unsurprisingly, the program is trying to exploit the similarly lax legislative standards for block buys.
The Senate’s rebuke of the program, even in such a mild form, is quite refreshing. We encourage our elected officials to continue to hold firm in preventing further production increases until the testing process is complete.