Bad Watchdog Season 2 launches June 20.

Championing Responsible National Security Policy
|
Investigation

Spare Us the F-35 Parts Mismanagement

Documents reveal lack of accountability of parts and equipment purchased for the F-35 program.
(Photo: U.S. Air Force / Staff Sgt. Jensen Stidham)

As Congress continues to pour money into the F-35 Joint Strike Fighter, significant questions remain about where billions of dollars already sunk into the program have gone. In what appears to be another case of throwing good money after bad, the Senate Armed Services Committee recently authorized $9.1 billion to purchase 95 F-35s in 2021, 14 more than the Pentagon had requested. The potential production boost comes even as members of Congress are raising concerns about the program’s ability to accurately track and manage spare parts through the supply chain. Spare parts mismanagement alone has resulted in $300 million in extra labor charges. This problem will only get worse as the size of the fleet increases. A trove of documents obtained by the Project On Government Oversight are additional evidence that the F-35 program is plagued with poor management and lax accountability.

Program officials estimate there may be $18.63 billion or more worth of taxpayer-funded F-35 property around the world that is not properly accounted for.

The F-35 program is the largest acquisition program in history, with an expected total cost of $1.5 trillion. Being too big to cancel, combined with the fact that the program’s architects deliberately scattered subcontracts across 45 states, ensures the program’s survival in the face of any political push-back and despite its dubious real-world value and performance shortcomings. Being too big to cancel is also encouraging break downs in basic principles of program management. Several insiders told POGO that program executives have developed an anything-goes attitude that has led to mismanagement, a lack of accountability, and wasted tax dollars.

Golf Carts, Big Screen TVs, and Parts Soaking in Rain Water

There is reason to be suspicious about what has been purchased to date according to several sources within the program who have spoken with POGO. Documents recently obtained by POGO show that during a site visit to the Marine Corps Air Station in Beaufort, South Carolina, F-35 program officials found offices and warehouses full of equipment that was, among other things, not authorized for purchase per the Pentagon’s contract with Lockheed Martin, the contractor building the F-35. They also found offices equipped with large screen televisions and printers that could not be reconciled with any contract authority.

Unauthorized purchase of vehicles was also a problem. All government funded vehicles must be purchased through the General Services Administration (GSA) according to federal regulations. These rules exist to ensure a degree of standardization of vehicles within the government and to secure the lowest prices. Those rules seem to have been ignored at Arizona’s Luke Air Force Base, where government inspectors found golf carts and even a bicycle improperly purchased by Lockheed Martin security employees. For instance, Lockheed Martin employees directly purchased a Polaris GEM electric golf cart for $15,597.50 in 2015 and then billed the government for it even though they should have gone through GSA, which does offer similar vehicles. Lockheed Martin charged the taxpayers $16,933.94, which included taxes and document fees.

Parts and equipment for the F-35 program are also frequently mislabeled or not protected from the elements. During a January 2017 tour of Edwards Air Force Base in California, inspectors found boxes of F-35 support equipment estimated at $500,000 stacked outside, soaked by recent rains, and allowed to sit in standing water. The equipment was eventually recovered, but only after government inspectors repeatedly raised concerns.

During a January 2017 tour of Edwards Air Force Base in California, inspectors found boxes of F-35 support equipment estimated at $500,000 stacked outside, soaked by recent rains, and allowed to sit in standing water.
(Photos: Obtained by POGO)

Lack of Government Records Inhibits Accountability

The problems found in South Carolina, Arizona, and California reflect broader systemic issues in the F-35 program. A March 2019 report by the Department of Defense inspector general, for instance, found that the government could not properly account for 3.45 million items valued at $2.1 billion—but hidden within a footnote is an indication that these headline-grabbing figures merely scratch the surface of the issue. The figures cited are only for the Fort Worth production facility.

As the largest F-35 facility, Fort Worth serves as the logical place to begin an investigation of this kind, but it shouldn’t be the end. This is particularly true because, if Fort Worth—the centerpiece production facility that should be a showcase of best practices—has such egregious problems accounting for billions of dollars’ worth of government property, how much more of a problem are other facilities around the country having? Not mentioned in the inspector general report are the 9 U.S. bases currently operating the F-35 and more than 350 supplier facilities for the program. The inspector general’s investigation was also limited to just eight F-35 contracts. Since the program’s 2001 inception, 53 contracts have been awarded to Lockheed Martin and at least 14 so far to Raytheon Technologies’ Pratt & Whitney division. Based on the number of contracts over nearly 20 years, program officials estimate there may be $18.63 billion or more worth of taxpayer-funded F-35 property around the world that is not accounted for.

Despite federal regulations requiring the Department of Defense to maintain records of property paid for by the taxpayers, the only such records for the F-35 program are held by the program’s main contractors, Lockheed Martin and Pratt & Whitney. The Department of Defense inspector general found that the contractor records are missing key data points like part names and numbers. Without this basic information, the government cannot verify claims of purchases and property losses made by the contractors. The inspector general cited one example where the DOD “had no independent record to verify reported property losses that the prime contractor self‑reported as more than $271 million in Government property losses.” Other documents, obtained by POGO, show the extent to which items purchased for the program have been misplaced, mislabeled, and generally mishandled.

For more than a decade after the F-35 program began in October 2001, contractors largely had a free hand to purchase whatever they wanted. The services traditionally controlled such matters, but defense officials decided to try a different approach with the Joint Strike Fighter Program. The Pentagon structured the program in a way that gave the prime contractors broad responsibilities for the maintenance and sustainment of the F-35 fleet, and chose not to include controls to properly oversee and manage the program. It was part of the then-vogue Total System Performance Responsibility approach to managing weapons programs. Defense officials believed that approach would be more efficient by allowing contractors to bypass the Pentagon’s often-stifling bureaucracy and instead use their own business practices, which many believed to be more cost-effective, to manage the sustainment of complex weapon systems.

For the F-35 program, the Department of Defense relies on the prime contractors to operate a global pool of spare parts they purchase from the manufacturers. F-35 support contracts simply give the contractors a lump sum of money to support the fleet. Lockheed Martin delivers most replacement parts as part of a package containing all the components the company believes a unit will need during a given period. For example, the Pentagon awarded Lockheed Martin an open-ended contract on August 23, 2019, for $2.4 billion to provide “global spares packages, base spares packages, deployment spares packages, afloat spares packages and associated consumables.” The company delivers these parts to squadrons based on a complex algorithm that factors in the squadron’s deployment status and the impact of the missing part.

This figure represents a general depiction of the prioritization scheme for F-35 parts. Lockheed Martin delivers these parts to squadrons based on this scheme, which factors in the squadron’s deployment status and the impact of the missing part. 
(Source: GAO Report, GAO-19-321, F-35 Aircraft Sustainment: DOD Needs to Address Substantial Supply Chain Challenges.

The arrangement has not worked out in practice in the way the original designers envisioned. In April 2019, the Government Accountability Office reported widespread problems with the global supply chain for spare parts. Auditors found that, from May to November 2018, F-35s were unable to fly 30% of the time due to a shortage of spare parts. This was an out-of-commission rate three times higher than the Pentagon’s spare part shortage threshold to meet the service’s combat needs. It has now been revealed by program insiders that many of the needed spares had been purchased and were just sitting in warehouses around the country, but the deficient record keeping had prevented those who needed the parts from finding them. Even when the parts could be located, the poor record keeping prevented the maintenance crews from knowing whether the parts were usable or not. In general, maintenance crews have to keep track of aircraft parts to make sure they are not installing one that is damaged or does not have enough useful life left. These records are kept in electronic equipment logs. But the Defense Department inspector general reported in June 2019 that Lockheed Martin frequently delivers parts with records that are incomplete, inaccurate, or missing entirely. Maintenance crews compensated by creating their own records to track part usage to make sure they were not installing old or faulty parts. The extra labor involved has cost taxpayers $303 million since 2015 and will continue to cost up to $55 million a year until Lockheed Martin and the program managers clean up their act.

That is not the way the government should be buying or tracking spare parts for a weapons program. The services should be doing their own analysis of part usage to determine consumption rates. That analysis would then generate a list of needed parts to be purchased in the next contract. Programs like the F-15, F-16, and A-10 are supported in this manner. While direct comparisons are difficult to make due to fleet size and design complexity, these fleets continue to outperform Total System Performance Responsibility programs.

Part Shortages Driving Deployment Decisions, Others Deployed with 44% Incompatible Parts

Deployed squadrons rely on the packages of spare parts that maintainers use when a component fails on an aircraft. The contractors create the packages based on forecasts of projected needs. As a consequence of purchasing so many F-35s concurrently with development of the program, the services deploy multiple configurations of the aircraft. Not all parts are universal, though, so spares meant for one configuration of the F-35 won’t work in other configurations. This problem has ripple effects that impact deployments. For instance, the GAO reported that Air Force officials had to send older, less capable F-35s on a deployment to Japan in late 2017 so the aircraft could match the parts in the spares package, likely because it was easier to change the aircraft than it was to obtain an updated spares package from the already stressed supply system. In another instance identified by the GAO, maintenance crews on a 2018 Marine Corps F-35 squadron deployed on the USS Essex found that 44% of the parts in their spares package were incompatible with the aircraft they had aboard.

As POGO reported in June 2019, relying on the contractors to operate the global pool of spare parts made it impossible for the government to know the cost of the parts, or to even keep tabs on the location of the property owned by the taxpayers and needed by the services. Every piece of equipment purchased by the Department of Defense must be properly documented according to federal regulations. Specifically, for each delivery of property, the transaction must be recorded in a “Material Inspection and Receiving Report.” All of this information is then supposed to be entered into a government database so the location and usage of the parts can be tracked through the supply chain and for later auditing purposes.

But the Pentagon had entered into a contract with Lockheed Martin that ceded control of the global supply of spare parts, including the management of logistics, to the contractor. As a result, Lockheed Martin retained control of what property records do exist in a proprietarydatabase called Maximo. Government personnel have no access to this database. Contractors are supposed to provide property records to government inspectors upon request, but the F-35 contractors do not do this often. Because the government contracting officials routinely do not include these records on the contract data requirement lists when negotiating F-35 production and sustainment contracts, Lockheed Martin and Pratt & Whitney make the government pay for the reports each time they are generated. Lockheed Martin estimated it would take 450,000 labor hours to provide all the records necessary for the government to properly track all the property associated with the F-35 program. The cost is invariably high enough to dissuade the Pentagon from pushing for the records.

When government inspectors traveled to several F-35 sites around the country to match records with property on hand, they found that in many cases no records could be found for property that had been delivered. Their efforts were additionally hampered by the fact that some items were either improperly marked with part numbers that did not match those in databases or were not marked at all.

All government property is supposed to have a data plate or etching that identifies the original equipment manufacturer’s number and in many cases an item’s specific serial number. These are the numbers that should be entered into the database. Auditors can then take a printout of the database, sometimes referred to as the consolidated memorandum of receipt, and attempt to match the record to the items on hand.

Doing so in the case of the F-35 program has proven to be a challenging endeavor. The difficulty arises over the part numbering scheme Lockheed Martin has created for the program. Lockheed Martin employees do not use manufacturer’s numbers for their own purposes. Instead, they use an internal tracking number based on a system they created that does not match the manufacturer’s number and is often not marked on the actual property. According to the company’s part and document numbering policy, the reasoning behind this is to “create a numbering scheme framework that can be adapted for all parts, documents, specs, drawings/3D-datasets, tooling, software and models for the F-35 program.”

Without basic information like part names and numbers, the government cannot verify claims of purchases and property losses made by contractors.

Aside from simple accountability, many aspects of property management are affected when manufacture’s part numbers are missing. It prevents government property managers from creating proper labels and electronic records to identify and track the maintenance records for individual components. Without such information, government employees attempting to match F-35 property records to the actual items on hand have little choice but to rely on Lockheed Martin employees to decode the records—when they are willing to do so, which, according to the GAO, is not often.

It’s important to point out that there is nothing new about a contractor creating its own numbering scheme for internal purposes. Lockheed Martin has been doing this for years with other programs. For example, the company uses a 12-digit tracking number for all parts associated with the F-16 program.

The problem is that the government does not maintain its own database with the standard part numbers, preventing the government from knowing what it has purchased and what is on hand. The Department of Defense inspector general says that without records, “the F-35 Program officials have no visibility over their property and cannot hold the prime contractor accountable for how it manages Government property, including property losses.”

Fixing this problem—which should never have been a problem to begin with—will be costly in both time and money. According to the GAO, “the prime contractor does not centrally maintain all the data, nor do they maintain the data in a readily usable format for property accountability purposes”—Lockheed Martin’s Maximo database uses the company’s tracking number rather than the standard original equipment manufacturer’s number. This is another instance where prohibitive costs intimidate government officials from probing too deeply into contractors’ business practices. Lockheed Martin’s mere threat to charge the Pentagon for the labor to create the necessary records has been enough to prevent DOD from demanding it.

For the time being, the Pentagon is at the mercy of Lockheed Martin when making decisions about future purchasing orders. If government officials do not know what parts they have, then they can’t know what purchases they need to make. They are left with no option but to take Lockheed Martin personnel at their word about what is needed. Surrendering the responsibility for purchasing parts and equipment to the contractor means it is virtually impossible to provide the oversight necessary to ensure taxpayers are not being overbilled for the same purchase or buying more than what is required, to say nothing about the maintenance crews from knowing whether or not they have the parts they need on hand.

Conclusion

There are some signs lawmakers are finally waking up to the seriousness of this problem. It featured prominently at a November 2019 joint hearing of the House subcommittees on Readiness and on Tactical Air and Land Forces, although it remains to be seen how or if members will follow through with their plans to ensure the government’s interests are properly addressed going forward.

The F-35 program serves as the ultimate example of corporate capture. Government contracting officials surrendered far too much control to the program’s prime contractors from the very beginning, and the ramifications are only now beginning to be understood. Future programs must include as part of the original contract provisions for the contractor to provide all the necessary intellectual property rights the government needs to independently manage the program throughout its lifespan. As the Pentagon begins looking to future major acquisitions, these lessons must be remembered so we can avoid making the same costly mistakes.