<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:91422.wais]
IS DOD MEETING JOINT STRIKE FIGHTER [JSF] INTERNATIONAL COOPERATIVE
PROGRAM GOALS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON NATIONAL SECURITY,
EMERGING THREATS AND INTERNATIONAL
RELATIONS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JULY 21, 2003
__________
Serial No. 108-94
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on National Security, Emerging Threats and International
Relations
CHRISTOPHER SHAYS, Connecticut, Chairman
MICHAEL R. TURNER, Ohio
DAN BURTON, Indiana DENNIS J. KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio TOM LANTOS, California
RON LEWIS, Kentucky BERNARD SANDERS, Vermont
TODD RUSSELL PLATTS, Pennsylvania STEPHEN F. LYNCH, Massachusetts
ADAM H. PUTNAM, Florida CAROLYN B. MALONEY, New York
EDWARD L. SCHROCK, Virginia LINDA T. SANCHEZ, California
JOHN J. DUNCAN, Jr., Tennessee C.A. ``DUTCH'' RUPPERSBERGER,
TIM MURPHY, Pennsylvania Maryland
WILLIAM J. JANKLOW, South Dakota CHRIS BELL, Texas
JOHN F. TIERNEY, Massachusetts
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Lawrence J. Halloran, Staff Director and Counsel
Thomas Costa, Professional Staff Member
Robert A. Briggs, Clerk
David Rapallo, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on July 21, 2003.................................... 1
Statement of:
Hudson, Major General John L. ``Jack'', Program Manager,
Joint Strike Fighter [JSF] Program, Department of Defense.. 48
Patrick, Suzanne, Deputy Under Secretary, Acquisition,
Technology and Logistics (Industrial Policy), Department of
Defense.................................................... 40
Schinasi, Katherine V., Director, Acquisition and Sourcing
Management, U.S. General Accounting Office, accompanied by
Brian Mullins, Senior Defense Analyst, Acquisition and
Sourcing Management, U.S. General Accounting Office........ 10
Volkman, Al, Director, Acquisition, Technology and Logistics
(International Cooperation), Department of Defense......... 33
Letters, statements, etc., submitted for the record by:
Hudson, Major General John L. ``Jack'', Program Manager,
Joint Strike Fighter [JSF] Program, Department of Defense,
prepared statement of...................................... 50
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio, prepared statement of................... 6
Patrick, Suzanne, Deputy Under Secretary, Acquisition,
Technology and Logistics (Industrial Policy), Department of
Defense, prepared statement of............................. 43
Schinasi, Katherine V., Director, Acquisition and Sourcing
Management, U.S. General Accounting Office, prepared
statement of............................................... 14
Shays, Hon. Christopher, a Representative in Congress from
the State of Connecticut, prepared statement of............ 3
Volkman, Al, Director, Acquisition, Technology and Logistics
(International Cooperation), Department of Defense,
prepared statement of...................................... 35
IS DOD MEETING JOINT STRIKE FIGHTER [JSF] INTERNATIONAL COOPERATIVE
PROGRAM GOALS?
----------
MONDAY, JULY 21, 2003
House of Representatives,
Subcommittee on National Security, Emerging Threats
and International Relations,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 11 a.m., in
room 2154, Rayburn House Office Building, Hon. Michael R.
Turner (vice chairman of the subcommittee) presiding.
Present: Representatives Shays, Turner, Schrock, and
Kucinich.
Staff present: Lawrence Halloran, staff director and
counsel; J. Vincent Chase, chief investigator; Thomas Costa,
professional staff member; Robert A. Briggs, clerk; Joe
McGowen, detailee; Chris Skaluba, fellow; David Rapallo,
minority counsel; and Jean Gosa, minority assistant clerk.
Mr. Turner. Good morning. A quorum being present, the
Subcommittee on National Security, Emerging Threats and
International Relations hearing entitled, ``Is DOD Meeting
Joint Strike Fighter [JSF], International Cooperative Program
Goals,'' is called to order.
The Joint Strike Fighter [JSF], could be a model for 21st
century system acquisition, promising three-planes-in-one
jointness, low risk development strategies, and unprecedented
international participation. Or it could fall prey to the same
cost growth, schedule delays, and inter-service disputes that
plagued so many cold war procurements.
In previous hearings on the JSF programs, we examined
efforts to implement a knowledge-based development cycle,
allowing technology maturity and design stability, not external
funding deadlines, to drive the program forward. Today, we ask
whether international participation and technology sharing are
being managed so as to maximize benefits and minimize risk to
the Department of Defense's largest cooperation program.
At our request, the General Accounting Office [GAO],
examined the complex set of relationships between the JSF
program and its eight international partners. They assessed how
DOD measures expected cost-sharing benefits, manages foreign
partner expectations, and mitigates the risks of significant
technology transfers. Their report, which has been released,
finds the JSF program in need of stronger management and
oversight, because international participants currently have no
requirement or incentive to share in cost growth. GAO also
found that the Department of Defense has insufficient knowledge
about contractor activities to anticipate and mitigate risks
associated with technology transfers. And the countries that
are currently our eight international are the United Kingdom,
which is a full collaborative level 1 partner, Italy and the
Netherlands are level 2 partners, Turkey, Norway, Australia,
Canada, and Denmark are level 3 partners.
In meeting our national and global security obligations,
collaborative programs with allies offer the potential for
common doctrine, shared training, and far greater operational
integration in combat. That level of collaboration also demands
greater access to sensitive defense technologies than we are
accustomed. It also may demand technology transfers at a pace
and volume our current laws, regulations, and management
systems cannot handle safely.
Others in the Department of Defense and defense ministries
in other nations are watching the JSF for signs that
collaboration is worth emulating in other programs.
For the Joint Strike Fighter to fly as the new standard for
efficient, affordable, truly joint acquisition, management of
international participation and technology transfers must be
improved. As vice chairman of this subcommittee as well as a
member of the Armed Services Committee, I am very interested in
the continued monitoring of this program.
Today, witnesses from GAO and the Department of Defense
will discuss these important issues and efforts to strengthen
management of the Joint Strike Fighter program. We welcome
them, and we look forward to their testimony.
And we have with us today Mr. Kucinich, who is the ranking
member on this subcommittee, and Mr. Schrock, who is also in
attendance and a member of the subcommittee. The individuals
testifying for us today are Katherine Schinasi, Director,
Acquisition and Sourcing Management, U.S. General Accounting
Office. She is accompanied by Brian Mullins, who is the Senior
Defense Analyst, Acquisition and Source Management, U.S.
General Accounting Office. Mr. Al Volkman, Director,
Acquisition, Technology, and Logistics, International
Cooperation, Department of Defense. Ms. Suzanne Patrick, Deputy
Under Secretary, Acquisition, Technology and Logistics,
Industrial Policy, Department of Defense. And Major General
John L. Hudson, Program Manager, Joint Strike Fighter [JSF],
Program, Department of Defense.
Mr. Kucinich, would you have an opening statement?
[The prepared statement of Hon. Christopher Shays follows:]
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Mr. Kucinich. Thank you very much, Mr. Chairman. I want to
thank you for calling this hearing on the Joint Strike Fighter
program, and welcome the witnesses to this hearing.
I would like to raise two issues regarding this topic that
I hope our witnesses can address. First is the issue of cost
sharing.
As we learned in earlier hearings on this program and the
F-22, the increasing cost of aircraft development and
production programs is one of the most reliable events in
Washington. As we have seen over and over again, DOD is not
capable of accurately predicting cost increases, and its
efforts to effectively control them are, frankly, lacking
intent and competence. I believe any serious person examining
DOD's track record would agree.
For example, as we learned at our last hearing, F-22
production costs have increased by nearly $20 billion since
1996, and the number of planes the Pentagon can afford within
the congressional cost cap for this program has plummeted to
less than a third of their original goal.
Today, the subcommittee will focus on the Joint Strike
Fighter program. I look forward to the testimony of the U.S.
General Accounting Office, which will release a new report on
the implications of the international cost sharing agreement of
the JSF program.
As the GAO report demonstrates, international involvement
in the program has benefits and risks. On the one hand, foreign
governments will share at least some of the cost of the
program. However, the GAO report concludes that this cost
sharing arrangement is by no means ideal. While the inclusion
of international partners is intended to defray some costs, the
GAO report finds that partner countries are not required to
share any future program cost increases.
As we know from our past experience, staggering cost
increases are a guarantee in aircraft development programs. For
the JSF cost sharing arrangement to allow foreign partners to
be exempt from future cost increases seems to ignore reality
and submit the American taxpayer to an unfair burden.
Indeed, GAO concluded that if costs increase, which is a
virtual certainty, ``the burden may fall almost entirely on the
United States.'' I hope our witnesses can address this concern.
My second concern is that the Pentagon's current plan for
developing and producing aircraft will do nothing to address
the fundamental problem with our military's rapidly aging
fleet. As the average age of our fleet continues to grow,
maintenance costs will continue to soar, and the effectiveness
of the U.S. military will decline.
Buying only a few hundred expensive planes from the F-22
and JSF programs will not decrease the average age of our
planes. To the contrary, under the Pentagon's current plan, the
average age of U.S. aircraft will continue to grow.
Mr. Chairman, these may seem like obvious problems, but I
have yet to hear an obvious explanation for how the Pentagon
intends to address them. And, until I do, I cannot support the
administration's current plan for aircraft development and/or
acquisition.
I thank you, Mr. Chairman. And, once again, thank you for
making this hearing possible.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. Turner. I ask for unanimous consent that all members of
the subcommittee be permitted to place any opening statement in
the record, and that the record remain open for 3 days for that
purpose. Without objection, so ordered. I ask further unanimous
consent that all witnesses be permitted to include their
written statements in the record. And without objection, so
ordered.
Turning then to the administration of the oath. If the
witnesses would stand.
[Witnesses sworn.]
Mr. Turner. Note for the record that the witnesses
responded in the affirmative. Thank you.
During the testimony, the lights that appear before you
will mark off 5-minute increments. Each of you will have 10
minutes for your presentation before the committee. We will
begin with Katherine Schinasi. Thank you.
STATEMENT OF KATHERINE V. SCHINASI, DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE,
ACCOMPANIED BY BRIAN MULLINS, SENIOR DEFENSE ANALYST,
ACQUISITION AND SOURCING MANAGEMENT, U.S. GENERAL ACCOUNTING
OFFICE
Ms. Schinasi. Thank you, Mr. Chairman, and members of the
subcommittee. I am pleased to be here today to discuss the
Joint Strike Fighter program's international acquisition
strategy. With your permission, I would like to summarize my
statement, and then, as you indicated, have the entire text put
in the record.
DOD views the Joint Strike Fighter program as both a model
for acquisition reform and as an example for the future of
international cooperation. We have previously reported to the
subcommittee on how the Joint Strike Fighter program is being
managed relative to best practices for product development.
Today, I would like to focus my remarks on the international
structure of the Joint Strike Fighter program, the benefits and
challenges cooperative development brings to the overall
acquisition approach, and the opportunity DOD has to achieve
critical program goals.
As we found in our earlier assessments of how well the
Joint Strike Fighter program is meeting its cost schedule and
performance goals, we have again determined that one of the
keys to lowering risks of managing the international
participants in this program is having sufficient knowledge on
which to base decisions. The Joint Strike Fighter program is
structured on a multi-tiered set of relationships involving
both government and industry from the United States and eight
partner countries. We prepared a chart that illustrates the
significant relationships between the participants.
At the top level, there is a framework MOU and supplemental
memorandums of agreement between the Department of Defense and
each of the partner countries' departments of defense that
identify the roles, responsibilities, and expected benefits for
all participants. And I would be happy to answer questions
about this chart as we go through the Q and A session.
The current agreement covers only the system development
and demonstration phase, which was begun with the contract
award to Lockheed Martin, the prime contractor, in October
2001, and is scheduled to run about 10 years at an estimated
cost of $33 billion. Additional agreements will need to be
negotiated for the production phase of the Joint Strike Fighter
program.
The United States and its foreign partners expect to
realize a variety of benefits from cooperation on the Joint
Strike Fighter program. The United States expects to benefit
from partner contributions and potential future aircraft sales
through access to industrial capabilities in partner countries
and through improved interoperability with allies once the
aircraft is fielded. Partner governments expect to obtain an
aircraft that they could not afford to develop on their own and
to benefit from increased access to Joint Strike Fighter
program data and technology transferred from U.S. aerospace
companies to their national industries.
Because of the significant expectations partners have
regarding government and industry return, the Joint Strike
Fighter Program Office and Lockheed Martin face significant
challenges in balancing these expectations against other
program goals. Achieving program goals for cost, schedule, and
performance requires that subcontracts be awarded to companies
who can deliver quality products on time and at cost. In
addition, the Program Office and DOD must balance the need to
transfer sufficient technology to foreign companies to perform
successfully in a timely fashion while adhering to the broader
U.S. disclosure and export control safeguards.
Although the Program Office and Lockheed Martin have
anticipated some of these challenges and are developing plans
to address them, some decisions have already been taken that
depart from early goals. Let me briefly address these.
First, industrial participation. As the prime contractor,
Lockheed Martin makes the key subcontracting decisions and
therefore bears the primary responsibility for managing partner
expectations. The approach Lockheed Martin has put in place is
referred to as best value. Best value is meant to differentiate
this program from earlier cooperative ventures in which a share
of work was guaranteed for a certain level of investment. Best
value is meant to focus more heavily on the use of competition.
Lockheed Martin performed assessments for many of the
partners to determine the ability of their industries to
compete for JSF contracts, and then signed agreements with some
partner governments and suppliers to document the opportunities
they would have to bid for JSF contracts as well as the
potential value of those contracts.
Lockheed Martin has modified that concept a bit, and has
now adopted what they call a strategic best value sourcing
plan, which appears to modify the original best value approach
by allowing work packages to be directly awarded to industry
and partner countries where contract awards to date have not
met partner expectations. While there are predetermined cost
goals under these strategic awards, there are concerns that
this represents a departure from the competitive approach.
The second set of expectations in this Joint Strike Fighter
program relates to technology. The United States has committed
to design, develop, and qualify aircraft for the partners that
are as common to the U.S. Joint Strike Fighter configuration as
possible, within national disclosure policy boundaries. DOD,
the Joint Strike Fighter Program Office, and Lockheed Martin
have taken a number of steps to anticipate and solve problems
associated with technology transfers, including requests for
exceptions from the national disclosure policy. However,
partners continue to express concern about the pace of
information sharing and decisionmaking, particularly relating
to the Joint Strike Fighter support concept.
In addition to timely and favorable disclosure decisions,
the Joint Strike Fighter contractors must receive authorization
to transfer data and technology through the export licensing
process. Export authorizations for critical suppliers need to
have timely planning, preparation, and disposition to help
avoid schedule delays and cost increases. Without proper
planning, there could be pressure to expedite reviews and
approvals to support program schedules. Planning could also
help identify alternative sources for critical contracts to
prevent problems in the event that technology transfer
approvals are disallowed. Lockheed Martin has already added
resources to address the volume of authorizations, but it has
not yet completed a required long-term industrial participation
plan that could help identify mitigation strategies.
Finally, let me touch briefly on the impact of technical
issues in the program. At its recent preliminary design review,
the Joint Strike Fighter program uncovered problems with regard
to aircraft weight, design maturity, and weapons integration.
These problems with their resulting cost increases are common
in DOD programs. However, partners have less control over
program decisions that both cause and result from a lack of
knowledge, while the impact may be more substantial as they
cannot as easily adjust to these changes.
In summary, the Joint Strike Fighter program is not immune
to problems that have historically plagued DOD systems
acquisitions. International participation in the program, while
providing benefits, makes managing these challenges more
difficult and places additional risk on DOD and the prime
contractor. Because Lockheed Martin bears the responsibility
for managing partner industrial expectations, it will be forced
to balance its ability to meet partner expectations, which
could be key to securing future sales and profitability,
against program milestones and the company's ability to collect
award fees.
In turn, DOD must be prepared to balance risks resulting
from contractor decisions against the national obligations set
forth in agreements with partner governments and the need to
protect some of the most sensitive U.S. military technology.
While some steps have been taken to position the JSF program
for success, given its size and importance, additional
attention from DOD and the Program Office would help decrease
the risks associated with implementing the international
program.
In the report we are releasing today to this subcommittee,
we recommend that DOD ensure that the JSF Program Office and
its prime contractors have sufficient information on
international supplier planning to fully anticipate and
mitigate the risks associated with technology transfer, and
that information concerning the selection and management of
suppliers is available, closely monitored, and used to improve
program outcomes. Toward this end, DOD and the Joint Strike
Fighter Program Office need to maintain a significant knowledge
base to enable adequate oversight and control.
Mr. Chairman, this concludes my summary, and I would be
happy to take your questions.
[Note.--The GAO report entitled, ``Joint Strike Fighter
Acquisition, Cooperative Porgram Needs Greater Oversight to
Ensure Goals Are Met,'' may be found in subcommittee files.]
[The prepared statement of Ms. Schinasi follows:]
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Mr. Turner. Thank you very much.
Mr. Volkman.
STATEMENT OF AL VOLKMAN, DIRECTOR, ACQUISITION, TECHNOLOGY AND
LOGISTICS (INTERNATIONAL COOPERATION), DEPARTMENT OF DEFENSE
Mr. Volkman. Mr. Chairman, members of the panel, thank you
for this opportunity to share my views regarding the Joint
Strike Fighter program. The Joint Strike Fighter program is a
new benchmark for cooperative research, development, and
production between the Department of Defense and our allies.
DOD concurs with the GAO report, agrees with the report's
recommendations, and will work closely with the Joint Strike
Fighter Program Office, our partner nations, and JSF
contractors to achieve effective program oversight.
The core objectives of armament cooperation for programs
like JSF are to increase military effectiveness through
standardization and interoperability, and to reduce weapon
acquisition costs by avoiding duplication of development
efforts with our allies. The United States will benefit from
sharing JSF program costs, improving interoperability with key
allies, gaining access to selected foreign industrial
capabilities, and increasing international sales potential. Our
Joint Strike Fighter partners will benefit from cooperatively
developing and acquiring an affordable next generation strike
fighter weapons capability, participating in the day-to-day
management of the program, and building long-term industrial
relationships with U.S. aerospace companies.
The JSF international program structure is based on a
complex set of relationships involving both government and
industry from the United States and our eight partner nations.
Foreign and domestic suppliers compete for JSF work under a
best value approach implemented through the three prime
contractors, Lockheed Martin, Pratt and Whitney, and General
Electric. The benefits obtained through the JSF international
program are substantial. However, DOD recognizes that
successfully implementing JSF cooperation will be challenging.
Three challenges are mentioned in the GAO report: Possible
future program cost increases. The JSF Program Director has and
will continue to use various program management tools, frequent
partner meetings and discussions, and contract incentives to
keep the system development and demonstration effort under the
cost ceiling of $33.23 billion. DOD's experience indicates that
international cooperative system development programs such as
JSF have usually been successful in equitably sharing proposed
cost ceiling increases if DOD is able to make a good case to
Congress and the partners that the additional funds provided
will result in the fielding of a needed defense capability.
Technology transfer. DOD is using available NATO exemptions
in expediting and precoordinating reviews of individual export
licenses to ensure timely, comprehensive JSF export
authorizations take place. Additionally, in October 2002, the
Department of State approved Lockheed Martin's global project
authorization request to accelerate export approvals for
nonsensitive, unclassified, technical data associated with JSF
subcontracting activities. None of our export control
mechanisms have been compromised, but rather have been
streamlined and transformed into a more workable process that
all JSF stakeholders have agreed to follow.
Participant return on investment expectations. If partner
industrial expectations conflict with program costs, schedule,
and performance goals, the JSF Program Director and the Under
Secretary of Defense for Acquisition, Technology, and Logistics
in concert with prime contractors will employ their best
efforts to identify, assess, and resolve partner industrial
participation issues.
DOD's leadership is fully committed to ensuring the success
of the Joint Strike Fighter. The Joint Strike Fighter is DOD's
largest international cooperative program by any measure, and
has the full support of the Secretary of Defense and my boss,
Mike Wynne, our Acting Under Secretary of Defense for
Acquisition, Technology, and Logistics. Mr. Wynne, Ms. Patrick,
and I will continue to work closely with Major General Hudson
and his program team as well as other key U.S. Government
stakeholders to ensure that the GAO's recommendations are
implemented and that the program meets or exceeds DOD and
partner objectives.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Volkman follows:]
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Mr. Turner. Thank you, Mr. Volkman.
I want to acknowledge that our chairman, Chris Shays, has
joined us. We will now move on to Ms. Patrick.
STATEMENT OF SUZANNE PATRICK, DEPUTY UNDER SECRETARY,
ACQUISITION, TECHNOLOGY AND LOGISTICS (INDUSTRIAL POLICY),
DEPARTMENT OF DEFENSE
Ms. Patrick. Good afternoon, Mr. Chairman, and members of
the committee. I appreciate the opportunity to share with you
my assessment of international industrial participation in the
JSF program as well as my thoughts on the importance of this
program for the global defense industrial base and coalition
warfare.
As you highlighted in your letter asking us to testify, Mr.
Chairman, the Joint Strike Fighter program was conceived as an
international cooperative development and acquisition program
in order to attract financial investment to share the cost
burden, to enhance interoperability with allies, to leverage
technological innovation from partner countries, and to promote
the eventual foreign sales of the aircraft.
With affordability as the linchpin of the program, it was
critical at the outset to take extraordinary and unprecedented
measures to control costs. This program's international
contracting strategy is a fundamental departure from offsets.
Its best value sourcing strategy where foreign companies have
to compete their way on to the program on an equal basis with
U.S. companies has in fact elicited complaints by foreign
governments and defense firms. That said, we believe that this
program is providing appropriate access and great potential to
partner countries.
The JSF international acquisition strategy is unprecedented
in the program investment it was able to attract from partner
countries, and companies in the case of Denmark, and in the
opportunity it presents for partner companies to participate in
the global industrial base supporting a state-of-the-art, cost
effective, and well-funded program. This program provides the
opportunity for participating companies to produce components
of JSF not only for their own or consortia operational
requirements, the F-16 model, but also near-term, for the much
larger United States and United Kingdom JSF inventories with
the promise of content on all worldwide JSF inventories
produced well into the first half of this century.
Our assessment of the impact of the JSF program on the
partner countries and companies has made clear some of the
challenges associated with its revolutionary international
acquisition strategy. Partner countries that had early active
and far-reaching government involvement in structuring an in-
country industrial strategy for the JSF program have had the
most success in gaining program content to date, Canada and the
United Kingdom. The extent to which partner countries were
committed to purchasing JSF for their own forces also made for
better results. Countries committed to purchasing the aircraft
for themselves have greater incentive in helping to market the
aircraft elsewhere for reasons of investment recoupment, return
levies from nonpartner sales, and larger incremental revenues
for their participating companies. In addition, in the cases
where a mix of JSF and Eurofighter aircraft are envisioned,
countries with clear plans such as Italy were better able to
referee industrial interests attached to the two platforms.
Finally, in these countries, the government, the military
services, and the industry were able to most effectively lobby
their parliamentary bodies on behalf of the program.
That said, the program is still bedeviled by the strategies
of industrial interests that would be better served by the
purchases of the Eurofighter which has made for something less
than a level playing field for the JSF program. In discussions
with partner countries and their companies, they complain that
the single most important factor to develop the playing field
has been the lateness and ineffectiveness of the global project
authorization. This had the greatest impact on those suppliers
that did not have well-established relationships pre-existing
with U.S. primes and first tier suppliers. Even Canada's
statutory advantage of exemption from U.S. ITAR regulations did
not eliminate their need for TAAs. Export control issues have
indeed plagued virtually all of the JSF international partners,
but in no case have these issues caused program schedule delays
or cost increases.
However, I hasten to point out that some of the strategies
used by partner countries and companies in their approaches to
JSF indicate that their strategies are no less revolutionary.
The Netherlands identified the JSF program as one of two
pillars on which it expects to build a world class aerospace
industry. Danish industry was so impressed with the
opportunities the program affords, that it invested in the
Systems Development and Demonstration Phase along with the
Danish government. Canada provides prized quality and business
certifications to JSF contractors, and Canadian company bids on
program opportunities will surpass 100 in its first year or so
as an SDD partner. Major Italian companies are sending about
100 of their engineers to be part of six Lockheed integrated
product teams in Dallas-Fort Worth and El Segundo. The Danish
firm Systematic has stationed several of its engineers at
Lockheed to demonstrate their expertise.
JSF Canada surveyed the U.S. JSF industrial base, visiting
the primes as well as second and third tier suppliers. The U.K.
Department of Trade and Industry surveyed its own potential
supplier base early in the program, as did Australia's JSF
Industry Advisory Council. In addition, Australia established
integrated capability teams to parallel Lockheed's IPTs for
maximum program conductivity.
To oversee industrial participation in the program, the
United Kingdom, Canada, and the Netherlands established JSF
organizations in their countries. Many partner countries have
also sponsored or cosponsored JSF industry base for their
suppliers.
The massive return potential to partner countries and
coalition warfighters from the program is already apparent.
Surely, a time traveler to 2030 would report back to present
government and corporate decisionmakers their successors'
disbelief that the international opportunities for the JSF
program were not clearly seen early in the program's history.
We also believe that some of the JSF programs' most important
disciples will be other U.S. program managers who refine their
international acquisition strategies based on the JSF program's
early lessons learned.
Evidence already abounds that the program is reshaping the
global defense industrial base. U.K. industry is undoubtedly
already reaping benefits from the substantive role they had in
some of the most challenging aspects of the JSF development.
Countries that chose to fund and focus discretionary R&D
investments on the program and have done well speak volumes
about the importance of R&D investment for innovation and
competitiveness. Transnational links are already being forged
among the partner countries and their companies which will
yield untold international defense industrial alliances, market
access, and technology spin-offs.
Finally, the program will dramatically increase the scale
of many small and mid-sized companies in the global defense
industrial base.
Above all, however, it is imperative to remember the
promise and importance of the JSF program to the American,
British, and other partner country warfighters. If we stay the
course with minor rudder adjustments, JSF will provide great
benefits to the U.S. and global defense industrial base and
warfighters alike. Not to do so would undermine U.S.
credibility in the global marketplace and among our most
important friends and allies.
Thank you, Mr. Chairman.
[The prepared statement of Ms. Patrick follows:]
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Mr. Turner. Thank you, Ms. Patrick.
Major General John L. Hudson. General.
STATEMENT OF MAJOR GENERAL JOHN L. ``JACK'' HUDSON, PROGRAM
MANAGER, JOINT STRIKE FIGHTER [JSF] PROGRAM, DEPARTMENT OF
DEFENSE
General Hudson. Mr. Chairman and other distinguished
members of the panel, I would like to thank you for inviting me
here today to share with you my views on the international
aspects of the Joint Strike Fighter program. I will give you a
brief summary of my statement, which will be entered into the
record.
Joint Strike Fighter will field, affordably, a weapons
system for the United States and our allied warfighters that
will be highly interoperable and enhance our future ability to
conduct coalition warfare in a highly effective manner. The
Joint Strike Fighter program has been international since the
concept demonstration phase of the program. As we entered the
current system development and demonstration phase of the
program in October 2001 by awarding of contracts to Lockheed
and Pratt and Whitney and the ongoing General Electric program,
we have continued that relationship with our close allies.
International cooperation has brought foreign investment to the
program which has saved U.S. taxpayers approximately $4.5
billion.
The international strategy we employed for the Joint Strike
Fighter program was vetted by the executive branch of our
government and coordinated with the Congress. We had as a
result a coordinated effort for the System, Development and
Demonstration phase which we are currently in. We have eight
cooperative partners on board, which includes the United
Kingdom, Italy, the Netherlands, Turkey, Australia, Canada,
Denmark, and Norway. These countries have invested their scarce
R&D resources into our program. We broke the old traditional
paradigm, and instead of offsets we are using a best value
approach so the weapons system will truly be affordable to
develop, procure, own, and operate.
Integrating our partners is indeed challenging. It started
out to be and will continue to be a win-win proposition for
both sides. Although complex, I can assure you that we have
found a proper balance between the benefits that our partners
derive from the program and the benefits that we incur as a
result of the relationship.
We are in full compliance with national disclosure policy,
and have arrangements in place that protects sensitive U.S.
technology while at the same time allowing prudent levels of
technology transfer to occur. A global project authorization is
in place. This allows a streamlined approval process for
unclassified and nonsensitive technology transfer. Department
of Defense and Department of State still fully focus on
requests for transfer of sensitive, unclassified and classified
information through the TAA process. Technology transfer is a
two-way street, and we the United States have been the
beneficiaries of these transfers by affording our companies the
opportunity to seek innovative and affordable technologies
anywhere in the world. We are working within the global
marketplace, and it has paid dividends for us.
An example of this reversion technology transfer is the
technology that our U.K. partner industries have brought to the
table in the form of short takeoff and vertical landing
expertise and know-how. Unlike most past cooperative
development programs, the Joint Strike Fighter Program Director
makes all final decisions on the program. The Program Director
consults with partner countries and ensures they have good
situational awareness of the program environment and
appropriate decision processes. The international agreements
provide a good balance of responsibilities and obligations.
A key enabler of affordability is the high commonality
designed into the Joint Strike Fighter weapons system between
the conventional short takeoff and landing, short takeoff and
vertical landing, and carrier variance. Another key enabler of
the affordability is the active, ongoing process to use cost as
an independent variable [CAIV], as a means to control cost. A
third is our well-founded requirements document in a joint
configuration steering board within DOD which manages and
controls Joint Strike Fighter requirements.
In summary, I would like to say that we are currently
meeting our international commitments utilizing a well-
structured international strategy that has found a proper
balance between national disclosure policy, affordability,
interoperability, and transformation for future coalition
warfare. We have a good understanding of the risks associated
with technology transfer, and we have risk mitigation plans in
place. We have implemented security agreements with our
partners on a government-to-government basis, and we are in
full compliance with national disclosure policy. We have a
full-time export compliance officer as well. It is a complex
arrangement, but our partnership is working and benefiting the
collective group.
I look forward to your questions and your continued support
of this superb weapons system.
[The prepared statement of General Hudson follows:]
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Mr. Turner. General, thank you very much.
We will now proceed with a 5-minute round of questions. And
we will go first to Mr. Schrock, who in addition to being a
member of this Subcommittee on National Security is also a
member of the Armed Services Committee.
Mr. Schrock. Thank you, Mr. Chairman. Thank you all for
being here. I am very interested in the Joint Strike Fighter
because I believe the finished product will no doubt be sited
in the district that I'm privileged to represent. And I know
nothing about airplanes, except when I get on them I fasten my
seat belt and get off at the end. But I was privileged to sit
in the simulator over in Crystal City, and I think even an
idiot like me who knows nothing about flying could fly that
thing. It is an absolutely amazing machine.
I read some of the information that was sent to us before
we came in here, and on page 5 of one of the statements it
said: U.S. policymakers have become increasingly interested in
pursuing acquisition and procurement programs with allies.
Help me understand that. I'm guessing some of the parts
that are going to go into the Joint Strike Fighter can only be
produced in a certain country, and they aren't produced here.
Why can't--I'm not trying to be isolationist, but why can't
producers in our country provide all the parts and systems that
are going to be needed in this new aircraft? I guess that would
be for the DOD folks.
Mr. Volkman. We are interested in cooperating with our
allies, because one of the benefits of cooperation with allies
is that we acquire the same equipment and we expect that in the
future that we will be operating in conflicts around the world
with allies, with our closest allies. And by acquiring--by
cooperating together, of course a major advantage of that is
that we have interoperability with our allies by result of
having the same equipment.
Certainly, another factor that goes into our desire to
cooperate in the development and production of equipment with
allies is the fact that in fact we would like our allies to
have a high military capability. One of the things that came
out of President Bush's NATO summit last November was an
agreement on the part of allies to engage in something called
the Prague Capabilities Commitment, which essentially is a
commitment on the part of our allies to try to increase--our
European allies, to try to increase their military capability.
And, clearly, programs like the Joint Strike Fighter will
contribute to a very high level of military capability with our
allies. And, as I said, the interoperability of equipment is
important.
And I could go on, but just to briefly finish, clearly the
fact that our allies contribute to the cost of an expensive
development program has been recognized by the General
Accounting Office as a major benefit of the Joint Strike
Fighter program, and the technology that comes from our allies
is very important. As General Hudson said in his statement,
much of the vertical takeoff and landing technology that will
be used for that aspect of the Joint Strike Fighter program in
fact originated in the United Kingdom and still resides there.
So these are all reasons why we believe it is important to have
cooperative programs with our allies.
Mr. Schrock. And I completely agree with that. And I agree
with the cost sharing, but I think Mr. Kucinich mentioned some
of the cost overruns. And as I read some of the information
here--and correct me if I'm wrong--if there are cost overruns,
the United States is the one--the United States company is the
one who bears the burden of that cost increase. Is that true?
And how do we assure ourselves that technology--we are not
going to be transferring technology that we don't want some bad
guy to get somewhere because our friend today could be our
enemy tomorrow? How do we balance that to make sure that
doesn't happen? The cost overruns concern me, too. Why aren't
the other countries and those companies sharing in the burden
of that as well?
Mr. Volkman. I think I would like General Hudson to share
in my answer. But I will just answer briefly by saying that
regarding cost overruns, we will make a decision in
consultation with the other partner nations. We will try to
avoid cost overruns. That cost overruns would not be borne by
the contractors who are participating in the program, so far as
I know, but would be governments would have to decide whether
to fund those cost overruns. We would try to minimize the
opportunity for a cost overrun. Clearly, if we had to fund an
overrun or thought it was the right thing to do, we would have
to come to the Congress; then Congress would have to approve
the funding of the overrun for the U.S. share. And then, of
course, we would consult with our allies and come to some
determination as to whether they would fund their share of the
cost overrun just as the United States will have to make a
decision as to whether to share--to fund a share of the cost
overrun.
Technology transfer. We are being extremely thorough in
working with the Department of State who has, in most cases,
the final say in what technologies are transferred. So we have
gone through a very deliberative process in deciding which
technology should be transferred, and we will in the future.
Mr. Schrock. Answer me if I am correct or wrong on this
one. I'm guessing the overruns are created because, from the
time somebody has the concept, the thought in their brain about
the Joint Strike Fighter, to the time it lands at a base
somewhere is many, many, many years because of all the
technology increases that occur. Why put an old piece of
technology in something that is going to be flying in eight or
9 or 10 or 11 years. And isn't that the reason for a lot of
those cost overruns?
General Hudson. Yes, sir. If I may, I would like to
followup on Mr. Volkman's answer.
Mr. Schrock. Sure.
General Hudson. In terms of the development cost, what the
GAO reported about is accurate. The partner countries are not
obliged to share with us any potential future cost overruns.
However, we have the option to go to them, DOD can go to them
and ask for their sharing in this. It is----
Mr. Schrock. Why would they do that?
General Hudson. Well, it would be to their benefit, sir, to
ensure that we indeed have an affordable effective weapons
system to be able to be deployed to the fleet. There are a
couple other things that we bring to the table here to help
control costs. One of them is, the application of cost is an
independent variable. For example, if we are going through the
development program and we see that we can meet 90 percent of
one of our 430 specification points with a certain amount of
costs and that the last 10 percent is really expensive, we
would look at the operational analysis there and maybe we
wouldn't go for that last 10 percent and that helps us avoid
excessive cost on the program.
Mr. Schrock. I see.
General Hudson. The other is, we have a joint and
international configuration steering board that meets several
times each year. We look at evolving requirements and study
their potential cost impact on the program. That gives us a
very disciplined and rigorous method to control requirements on
the program, and we ensure that we are doing the right thing in
terms of transmitting those requirements to our prime
contractors.
I would also like to mention that both Lockheed and Pratt
and Whitney and General Electric conducted market surveys if
capabilities exist in other countries in order to figure out
where the world class capabilities are that exist in companies
outside the United States. For example, the short takeoff and
vertical landing technology that comes from the United Kingdom,
the lift fan technology that powers the Marine Corps variant
are examples of things that come to the table from companies in
other countries. We find that there are indeed niche
capabilities out there in other countries. I hold Lockheed,
Pratt and Whitney, and General Electric accountable for their
cost, schedule, and technical performance on the programs. So
it is to their advantage to indeed find the companies out there
that help them provide the best value to the United States and
our coalition allies.
Mr. Schrock. Thank you, very much.
Thank you, Mr. Chairman.
Mr. Turner. Mr. Kucinich.
Mr. Kucinich. Question to Ms. Schinasi. In GAO's opinion,
is it likely that costs will rise in the JSF program?
Ms. Schinasi. Yes.
Mr. Kucinich. And then, based on GAO's past experience with
this and other aircraft development and production programs,
how good is the Pentagon's record on predicting and controlling
cost increases?
Ms. Schinasi. We have reported on many occasions that the
Department continually underestimates the costs associated with
its major systems acquisition.
Mr. Kucinich. How much are we talking about in terms of
increased costs over the long run? Billions of dollars?
Ms. Schinasi. I cannot predict that.
Mr. Shays. If you could move your mic closer.
Ms. Schinasi. Move your mic closer.
Mr. Turner. We are looking for proximity.
Ms. Schinasi. Right. In terms of the order of magnitude, I
can't address that on this program. There have been some things
done for cost control purposes on the Joint Strike Fighter
program that we have not seen in other programs. At the same
time, however, in a report that we issued to this subcommittee
in October 2001 I believe, we recommended that the program not
go forward into its current phase because a number of the
critical technologies needed to get, not just the performance,
but the costs--many of the technologies were not mature.
Mr. Kucinich. Recognizing the virtual certainty of cost
increases, why did the Defense Department negotiate cost
sharing agreements that ignored these realities?
Ms. Schinasi. That question may be better addressed to the
DOD witnesses to answer.
Mr. Kucinich. Well, then let me ask the Defense Department
then. I will ask General Hudson. Would you like to respond? Do
you agree with GAO's finding that foreign partners are
currently not required to submit additional funding when costs
increase for the program?
General Hudson. Yes, sir. I agree, they are not required to
do that.
Mr. Kucinich. So what is the Department's justification for
completely exempting foreign partners from sharing in these
increased costs? And what's the rationale for giving them this
wholesale exemption?
General Hudson. Sir, they actually are not exempt from it.
While they do not have to provide additional funds, if we were
to ask them, they have the same interests in providing an
effective and affordable system to their warfighters. And
depending on what the nature of the cost issue is, it might be
greatly in their benefit to help us share the costs for the
capability in the airplane.
Mr. Kucinich. Well, it seems that we have a condition here
where U.S. taxpayers may be sharing a disproportionate cost
burden.
Now, Ms. Schinasi, DOD claims it can manage costs and
therefore alleviate the need to ask partner countries for
additional funds by using a variety of tools. These include
program management tools, frequent partner meetings and
discussions, and contract incentives. Do you believe these
measures will guarantee that costs will not increase?
Ms. Schinasi. We have found consistently that when programs
move forward on a schedule-driven basis rather than a
knowledge-driven basis, that the risk mitigation and other
plans that are always in place on these programs are not
sufficient to control costs.
Mr. Kucinich. That was very well put.
Now, with foreign countries contributing to the program, do
they require offsets, Ms. Schinasi?
Ms. Schinasi. This can be seen as another type of offset,
actually, this program.
Mr. Kucinich. Jobs, technology transfer?
Ms. Schinasi. Yes. And we have seen trends in the offset
arrangements that defense companies enter into expand over time
to include many of the same kinds of arrangements that we will
see in these cooperative programs.
Mr. Kucinich. You know, Mr. Chairman, and Mr. Shays, I
think it would be useful for this committee to be able to probe
ever more deeply into this issue of offsets, because it may be
that the peculiarities of the structure of this system result
in loss of jobs in our country; and as we transfer technology,
it then enables manufacturers like Lockheed Martin to push
forward with the development of even newer models to be able to
be more competitive with the models that they just transferred
to other countries. And I think it would be useful to be able
to see if we are not setting in place here a system which
guarantees ever escalating expenditures for ever evolving
technologies.
I thank the Chair. Thank you.
Mr. Turner. Thank you.
Our chairman, Chairman Shays.
Mr. Shays. Thank you. It is nice to be here. I appreciate
that we are discussing what I think is a very important,
obviously a very important issue for a country. I was told when
I was first elected 16 years ago that the decisions I make for
the Defense Department won't show up for 10 years. And so as
well as I thought about how we had conducted the first Gulf war
and all the equipment that we had and so on, I mentally gave
credit to those who voted in 1980, not 1990.
Having said that, I want to just understand a few things.
And I realize some of this you have already said, but I am not
quite sure what we are saying here. First off, it is my
understanding we have the Joint Strike Fighter, the Air Force
F-22 Raptor, and the Navy FA-18EF Super Hornet. Those are the
planes that we are going to develop in the future. And, that
when we are talking about the Joint Strike Fighter, we are
looking in current dollars at a cost of $1.197 trillion. Is
that an accurate cost?
General Hudson. Sir, I would have to take that one for the
record. I don't know where that figure comes from.
Mr. Shays. What is the cost of the Joint Strike Fighter
going to be when we do our 200,457 aircraft?
General Hudson. Sir, in today's dollars, what we submitted
to Congress with the most recent select acquisition report
which came in at the start of this year was it is in the high
30's for the--high $30 million per copy. That's an average unit
recurring fly away cost for the conventional takeoff and
landing variant. And it is between the high $40 and low $50
million per copy figure for the short takeoff and vertical
landing variant.
Mr. Shays. Isn't that based on 1994 dollars?
General Hudson. That's today's dollars. It's actually 2002
dollars.
Mr. Shays. So, please do the math for me. How many planes
are we ordering, and what is it going to cost us?
General Hudson. Sir, those averages are based on 2,953--
2,593, which is 1,763 for the U.S. Air Force, 150 for the
United Kingdom, and the balance for the U.S. Navy and the U.S.
Marine Corps. The final split between the short takeoff and
vertical landing variant, the carrier variant----
Mr. Shays. You're telling me a little more than what? I'm
just going to start basic and then we are going to go out with
the details. What is this program going to cost? How many
planes are we going to order? And what is this program going to
cost in today's dollars?
General Hudson. The number of planes that the U.S.
currently intends to order is 2,443.
Mr. Shays. And what is it going to cost?
General Hudson. It's in the high 30's. It's about----
Mr. Shays. No, I don't want to know per plane. What is this
program going to cost us?
General Hudson. Sir, I don't have the grand total of that
procurement figure.
Mr. Shays. Why not? I mean, this isn't a strange question
to ask. I want to know what the program is going to cost.
General Hudson. Yes, sir.
Mr. Shays. Can anybody tell me what the program is going to
cost? Is there anyone behind you who can tell me what the
program is going to cost?
General Hudson. Well, sir, I can give you in rough terms.
The total procurement figure is approximately $200 billion.
Mr. Shays. Will GAO answer this? I'm just a little--Mr.
Volkman, you can't tell me what this program is going to cost?
Mr. Volkman. [Shaking head.]
Mr. Shays. Why not?
Mr. Volkman. We could get the information for the record,
Mr. Chairman. But off the top of my head, I don't know what
this is.
Mr. Shays. This is a hearing on the Joint Strike Fighter.
Correct? I am asking the basic questions: What does the program
cost us? Why would I have a difficult time getting a question
answered like that? And why would someone have to come back to
me? Why is that not important?
General Hudson. Sir, I can give you that figure. It is
roughly----
Mr. Shays. I know what it is says there.
General Hudson. It is roughly $200 billion for the entire
procurement program for that 2,443 number.
Mr. Shays. I will tell you what. Before this hearing ends,
I want someone to tell me what the program is going to cost--I
want you to do that--because I have a document that tells me
and I want to know if it is right or not. But I am not going to
tell you, because you are the people that are doing it. Would
GAO tell me what this program is going to cost?
Ms. Schinasi. The number--the support costs have not yet
been defined. But for R&D and procurement, for the numbers that
the General mentioned, we have said about $200 billion.
Mr. Shays. I am going to ask GAO: Do you know what this
program is supposed to cost when we build how many planes and
do we know what it is supposed to cost? I feel like I'm going
through a game here. I mean, if you tell me the F-22, you tell
me we are going to build this many planes and it's going to
cost us this amount of dollars. And then the next hearing we
have, you tell me it's going to cost us more dollars and we're
going to build less planes. And the next hearing we have after
that, they say it's going to even cost more and we're going to
build less planes. It strikes me that the reason why you don't
want to tell me is we don't want to put a number to it is
because we don't want to be held accountable to it.
Basic question: What is this going to cost?
General Hudson. Sir, I have the answer for you here in my
documents. For the 2,443 number, it is $162 billion. And that's
consistent with the Select Acquisition Report that came over
early this year.
Mr. Shays. General, I'm sorry, I want to know what the
program is going to cost us, total, when we are all done, when
we have ordered all our planes, when we've ordered--what my
briefing paper tells me is that we estimate we are going to
order 2,457 aircraft. I'm told its estimated cost in current
dollars for those aircraft is going to be $1.197 trillion.
General Hudson. Sir, the figures I have immediately
available here are the cost of the development program, which
is baselined at $33 billion, plus the $162 procurement. That is
$195. The large figure that you cite would include some
assumptions about the operating and support costs over the
lifetime of the airplane, and I don't have those immediately
with me.
Ms. Schinasi. The information that we rely on----
Mr. Shays. A little louder, please.
Ms. Schinasi. The information that we rely on is in the
December 2002 Selective Acquisition Report. Those are the most
current dollars that we have.
Mr. Shays. What does that mean?
Ms. Schinasi. The 2002 base-year dollars. It means the
costs change, I won't say continually, but change frequently.
Mr. Shays. Well, unless we are willing to state the
numbers, it is kind of hard to know how things change. Does GAO
have a--have they looked at the total number of planes we want
to build and the total cost that we anticipate it is going to
require us to spend?
I had lots of questions, but I want to get by this one
first. I mean, I am looking at people looking at me like I am
asking something I shouldn't be asking. I am, like, mystified
by it. It is a hearing on the Joint Strike Fighter. We don't
have a lot of hearings on it. It would seem to me that this
would be like, this is what it is costing now, and then we may
have to change it later and so on. And these are the reasons
why we are changing it.
So before the hearing is over, I would like DOD to ask
someone to call someone to tell me how much these planes are
all going to cost and have a sense of it. That is what I would
like.
Why don't we do this. While that is being done----
Mr. Turner. Mr. Chairman, would you like to even recess for
a few minutes?
Mr. Shays. No. You can ask them your questions second. They
have someone else that can get the answer. Someone can get up
and make a phone call or something. I don't mean to sound
arrogant, I am kind of amazed.
Let me ask you this: How much has the program increased
since we locked in prices with our allies, and which allies did
we lock in the prices with? Mr. Volkman, maybe you can answer.
Which allies have we locked in the price with so far?
Mr. Volkman. The allies who are participating in the
systems design and demonstration phase of the program are the
UK, Australia, Netherlands, Italy, Norway, Denmark, Turkey and
Canada.
Mr. Shays. I must have old data. I have that we have three
tiers. We have UK is one tier. The two tiers, Italy and
Netherlands, and three tiers, Turkey, Norway, Australia, Canada
and Denmark. Is that correct?
Mr. Volkman. That is correct.
Mr. Shays. So we have three tiers, correct?
Mr. Volkman. Yes, sir.
Mr. Shays. Are we locked into the price with the UK?
Mr. Volkman. The UK has agreed to a contribution of $2
billion to the systems design and development demonstration
phase.
Mr. Shays. Is that a yes? Are we locked into a price? If
the price goes up, do they have to pay the increased price?
Mr. Volkman. There is no agreement on--as the GAO report
mentions, there is no agreement that if the program exceeds the
current estimate for systems design and development, of about
$33 billion, there is no obligation for the UK to fund a share
of the--of any overruns.
However, we expect that they would if it was necessary.
Mr. Shays. So the bottom line is, they have agreed to a
price, but we are hoping that the price--if it costs more, that
they will pay their share. Is that correct?
Mr. Volkman. They have agreed to contribute $2 billion. In
the event that there is an overrun to this phase of the
program, we would negotiate with them to share in the costs of
that overrun.
Mr. Shays. How about with Italy and the Netherlands?
Mr. Volkman. It is the same.
Mr. Shays. How about with Turkey, Norway, Australia, Canada
and Denmark?
Mr. Volkman. We would do the same thing.
Mr. Shays. Explain to me the difference of these three
tiers.
Mr. Volkman. Well, the differences in the three tiers have,
of course, to do with the amount of money that is contributed
to the program by the particular partner. So in the case of the
UK, it is a $2 billion contribution to the program, in the
case--which is Tier 1. In the case of Italy and the
Netherlands, who are at Tier 2, it is approximately--it is $1
billion on the part of Italy, over $800 million on the part of
the Netherlands. And then the remaining Tier 3 partners have
contributed approximately $150 million each to the program.
Mr. Shays. Let me just follow this one point up, Mr.
Chairman, if I could. Let me understand. What does being a one
tier versus a two versus a three tier give you? What do you buy
when you are a one tier versus a three tier?
Mr. Volkman. What the partners will receive as a result of
their participation in the program is a voice in the conduct of
the program. So they will have--each of the partners has
representation in the program office. In the case of the United
Kingdom, they have a National Deputy. They will have 10 staff
who are fully integrated into the Joint Strike Fighter Program
office.
In the case of--I mean, I can go through all of them if you
like.
Mr. Shays. No. Is it basically if you are one tier, you get
to have a little bit more say how this plane turns out? If you
are third tier you basically buy whatever was made? Is that the
difference?
Mr. Volkman. Well, all of the partner nations have some
voice in the management of the program. And, in fact, I mean
General Hudson would probably be better able to answer the
specific role that they have in the program.
Mr. Shays. Let me just tell you then, I will come back for
the second round. General, if you can just write this down, or
someone on your staff. This is information I have. I would like
to know if it is true. I have that the cost of the program in
current dollars is estimated ultimately to be $1.197 trillion,
that it amounts to $81 million per aircraft, that we are
anticipating building 2,457 of these aircraft, that the Air
Force is going to ultimately have 1,763, that the Navy and the
Marines ultimately will have about 680, and that adds up to
2,443. And the difference--I basically made an assumption, was
prototype--between the 2,457 total aircraft that I had
originally said versus adding up the Air Force, the Navy and
Marines at 2,443 as prototypes.
Now, if what I have is bad, we can blame it on bad
staffwork. But, if it is not wrong, I want to know. And so
before we adjourn, in fact, we are not adjourning today, Mr.
Chairman, with your permission, until we get this information.
We may recess. But--and we will go from there for me. Thank
you.
Mr. Turner. I am assuming, although I have not seen a whole
lot of activity occur behind the table where you are all
sitting, that someone is currently working to get this done for
our chairman?
General Hudson. Yes, sir. That is correct.
Mr. Turner. Great. Obviously, there were two focuses of
this hearing. The first being the issue of cost sharing with
our international partners. The second being technology
transfer. We are all aware of the overall arching issues of the
cost overruns of the program and the issues of the management
of the program.
Obviously, there are some positives to the program. This is
a learning program. And there has never been anything of this
size in a program, both in international partners and DOD cross
services that has been done before. And certainly the lessons
that are learned here are going to be very valuable.
But, what is obviously important is as we go through the
process of learning is implementing and incorporating what we
are learning into what we are doing as we are moving forward.
With that, GAO's comments are certainly very important and
have been very helpful. I am very much intrigued by the issue
of the foreign partners not being required to share in cost
overruns while also having an opportunity to participate in the
program during the phases where we have already experienced
cost overruns.
And my understanding in this program, is that in addition
to the United States companies and contractors, that there are
also foreign companies and contractors that are participating
in this. Is that correct, Mr. Volkman?
Mr. Volkman. Yes, sir, that is correct.
Mr. Turner. Could you please tell me what percentage of the
overall cost overruns can be attributed to the foreign
companies and the foreign participation? Obviously, there is a
breakdown as to where those dollars go. Do we know to what
extent the foreign companies are enjoying the benefits of the
cost overrun, while at the same time those foreign countries
are not being burdened with the cost overruns?
General Hudson. To my knowledge, sir, international
industrial participation has not caused any change in the
program or our cost estimate, either for development or for
production.
Mr. Turner. Now, that is really interesting. Why is that?
Where are the cost overruns coming from then?
General Hudson. Well, sir, I believe that you are referring
to the change in the estimate for the development program
between the Milestone B cost, which was from October 2001,
submitted to the Congress in early 2002, and the estimate that
was submitted early this year. That was a change from the $30
billion baseline to $33 that accounted for two items.
One was the cost to do the nonrecurring work on the weapons
system, to ensure that we were technically--that is on the
airplane and its associated elements--in full compliance with
national disclosure policy for procurement of airplanes by
international partners.
And the other was a change in the estimate to do the
development work on the General Electric engine program. Back
at the Milestone B in October 2001, the estimate for the
General Electric engine work was for a limited
interchangeability qualification of that engine. By
interchangeability, I mean the ability of either the General
Electric or the Pratt engine to operate within the airplane on
an equivalent basis without any change in common hardware or
interfaces between the engine and the airplane.
Since that point, DOD decided that the qualification
program would be for the full GE engine. So there was some
additional design work, ground test and flight-test work that
would be required to ensure that the full GE and Pratt engine
were interchangeable within the JSF. So those two things were
the reason for the change in the development price from the
Milestone B to the SAR that was submitted earlier this year.
Almost nothing else changed.
Mr. Shays. Can I just ask I question? Do you agree with
what was just said?
Ms. Schinasi. I would only note that GE is partnered with--
--
Mr. Shays. But the cost numbers and the increases. Your
numbers were different than his numbers, the General's numbers.
Ms. Schinasi. No. Ours are the same for that period of
time.
Mr. Shays. From what period of time?
Ms. Schinasi. From October 2001, when the estimate was
submitted, until today.
Mr. Shays. Thank you, Mr. Chairman.
Mr. Turner. OK. Well, let's take one aspect of the
positive. In this process there are lessons that are being
learned in managing programs that are across DOD departments
and then also internal. In addition to the Joint Strike
Fighter, there is an opportunity for these lessons learned,
both in management procurement and also in relations, that--and
policies that might be helpful.
Could you tell us some of the things that have been learned
that may have not been known before, since this is an enormous
undertaking that can be applied to future systems for all of
our benefit?
General Hudson. Yes, sir. A couple of those lessons would
be in the area of requirements. A little over 3 years ago, the
U.S. Air Force, the U.S. Navy, the U.S. Marines Corps and the
United Kingdom signed a joint operational requirements
document. This has been one of the real success stories in the
program. That is one that, I believe, that would be a good
lesson learned for other programs in the sense that we worked
for about 5 years on that requirements document.
We got a good solid set of requirements that looked at not
only combat capability that was needed in the post-2010-threat
environment, but also considered affordability for development,
for procurement and for owning and operating the airplane. So
that was a very positive one. The other lesson I would provide
is in the area of looking forward in terms of technology
transfer. We have done a great deal of work over the last
almost 2 years now to look at technology transfer and the risk
and benefits associated with that, not only from government-to-
government perspective but from industry-to-industry
perspective.
As you know, the first global project authorization was
approved by Congress at the end of this past year. This was the
first global project authorization. It did take some time to
implement, but it is working successfully and State Department
is working the implementing agreements in less than or equal to
the 5-day goal that they signed up for.
So although that one took a good while and much work was
put into that, that is a very, very positive lesson learned for
programs of this type in the future.
Mr. Turner. Thank you, General. Mr. Schrock.
Mr. Schrock. I am not sure that I have any questions as
much as a comment. I guess I kind of understand where they are
all coming from. I was, in my two and a half decades in the
Navy, I saw every program that ever hit the street had cost
overruns. I guess I asked why then, and I ask even more so now.
I don't know how we get our hands around it, unless, as I
said earlier, from the time a concept is put on the table,
until the time it hits the water in the case of the Navy, or in
the air in the case of the Air Force, so much happens, so much
technology changes, so many ideas flow into the process, look
into your office, General, that that is what causes the cost
overruns. Is that right? Am I way offbase on that?
General Hudson. One of the things we know, sir, as you have
pointed out, is that technology can change over time. And if
requirements, that is new requirements, are allowed to flow
unabated into a program, that that does indeed drive cost. That
is why we have had, since the start of the development program
here, what we call a Configuration Steering Board, which is in
charge of working with the DOD acquisition communities and the
warfighter representatives who set the requirements.
Those two together work to ensure that we have a
disciplined approach to any potential changes that we might
entertain in the program, because it will drive costs.
Mr. Schrock. I am just wondering if there are ways to
shorten the time lines. I know Admiral Vern Clark, Chief of
Naval Operations, is trying to get the LCS, the Littoral Combat
Ship, in the water in just a couple of years to hopefully
prevent some of this, but to have a system that is plug and
play, so if there are technology changes, you unplug one thing
and plug in another.
I think that is a unique concept, and I think it is going
to work. Is that a possibility for some of the new aircraft
coming down the pike?
General Hudson. Yes, sir, it is. And, in fact, we designed
that exact capability into this airplane in terms of the
avionics and software. We did it from the ground up. We worked
about 5 years in what we call an open architecture, because we
know that, just as we see in personal computers at home, we see
fast changes in technology where the technology gets better,
and in fact cheaper, and it works better. We know the same
thing happens within avionics that go into military airplanes.
So what we designed into the backbone of the Joint Strike
Fighter was what we call this open architecture. And what that
does is it gives us a capability to cope with obsolescent
parts. It gives us the capability to insert technology into
this airplane in a way that we have to do an absolute minimum
of regression testing, and we have the capability to change
software modules, and, in fact, complete those modules if we
like, due to the way the architecture is designed and
implemented within the airplane.
And in many ways, the avionics and software on this
airplane, that is the sensors, how the data from the sensors is
processed and displayed to the pilot and used in combat is the
heart and soul of lethality and survivability. So the open
architecture is something new for us for the complete system
within a tactical jet. It will provide us tremendous
flexibility in the long term and cut down the cost to insert
new technology, and to play it into the field.
Mr. Schrock. This may be an unfair question, but I can
understand how you can shorten the time to land on a ship, to
get it in the water. Why can't we do that--when was the--when
did the Joint Strike Fighter--when did somebody first say Joint
Strike Fighter? I should know the year? How long ago was that?
General Hudson. I am sorry, sir. I didn't understand the
question.
Mr. Schrock. When the Joint Strike Fighter concept first
went to paper and people started developing that, how long ago
was that?
General Hudson. The concept demonstration phase, which was
the competitive phase between Boeing and Lockheed, started in
November 1996. There was a very short competition before that,
but that was the main competitive phase.
Mr. Schrock. And then, I guess, they will be in the Fleet
and your squadrons in the Air Force in 2008? That is 12 years.
That is what I am talking about. I am not criticizing or
complaining, but I am saying in ships now, you can do it in a
few years. Why can't that same concept, why can't that same
mentality be put into the development of some of those new air
systems? There may be a totally logical reason.
General Hudson. Yes, sir. Well, we have done some things to
cut down the cycle time and ensure that we don't overrun this
time line that we have now. For example, when Lockheed and
Boeing competed for the contract award for Joint Strike
Fighter, each company had to fly and demonstrate a conventional
takeoff and landing variant, short take off and landing and
carrier variant. They did that. And those--each company built
two airframes that flew the three variants and proved that.
Those were not prototypes, however, they were just concept
demonstrators. So they didn't have a representative set of
avionics or low-observable coatings or things like that on the
airplane. So the fact that we flew those concept demonstrators
helps us tremendously for understanding what capability we have
and being able to have confidence in the time line that we have
now.
And, in fact, 2 years from this fall, we will fly the first
of our full-up developmental airplanes that will have the
required 8,000 hours of structural life; these airlines will
have the representative avionics in them, the weapons bays and
everything that the operational airplane will have.
In 2008, our first production airplanes hit the ramp, and
we begin testing and getting them ready for full-up operational
capability in the Marine Corps in 2010, the Air Force in 2011,
and the Navy and the UK in 2012. This fall we have our first
engine in the test cell. So it does take a few years to put all
of the piece parts together to bring the airplane into the
field and ensure it is correct.
But, with the time lines that we have, it all fits together
and it is not too far away.
Mr. Schrock. The first demonstration phase, I guess, was to
prove that it wouldn't fall out of the air?
General Hudson. Yes, sir. It was designed to prove that,
whether or not the competing companies had the ability to
design and fly an airplane that would meet the fundamental
needs of the services.
Mr. Schrock. My time has expired.
Thank you, Mr. Chairman.
Mr. Turner. Mr. Chairman.
Mr. Shays. I am pretty much a fan of this program. It may
not seem evident from the way I feel right now. But, I think it
makes sense to try to have three branches use the same plane. I
think there is logic, that if you can use 80 percent of the
same part in a plane, that makes sense.
But, in the chairman's statement, he pointed out that this
could be a model for 21st century weaponry acquisition or it
could fall prey to the same cost growth, scheduling delays, and
interservice bickering that has plagued so much in the cold
war. That is one thing he pointed out. That is one thing we
want to get a handle on.
Then he said, today we ask whether international
participation and technology sharing are being managed so as to
maximize benefits and minimize risks to the Department of
Defense, DOD's larger program. That is one thing we also want
to have a sense of.
And he pointed out, at the request of GAO's Accounting
Office, at our request, we asked them to examine the complex
set of relationships between the Joint Strike Fighter Program
and its eight international partners? We want to know about the
cost-sharing benefits that go in this program.
He pointed out in their report, and I would like GAO to
speak to this, released today finds the JSF Program is strongly
in need of management and oversight because the international
participants currently have no requirement or incentive to
share in cost growth.
Now, I am not sure how that has been answered. And then, he
pointed out the level of collaboration also demands greater
access to sensitive defense technologies than we are accustomed
to, and we are trying to sort that out. So that is kind of our
objective. I mean, it would have been nice, and we will get it,
to know what this program is supposed to cost based on our
numbers today. We know it will be different, but it gives us a
target to then begin to say, well, why is it going to cost
more, why it is going to cost less? What are all of those new
things that have changed?
So I would like to know from GAO, what are you saying about
this program? Am I to feel good about it? Bad about it? Or
somewhere in between?
Ms. Schinasi. As you know, Mr. Chairman, we believe that
the program went forward into this phase before it was ready to
do that, because its technologies were not mature. That time
has already passed.
Mr. Shays. That is a criticism that you have also had with
the F-22.
Ms. Schinasi. That is correct.
Mr. Shays. Your point is that we are actually starting to
produce before we have the technology? That is one criticism. I
would like that addressed by the rest here. So what is the
answer to that issue? Did you hear her point or were you
talking about something else? The first criticism and concern
was, both with the F-22 and the Joint Strike Fighter, we are
going into production before the technology is there to support
the production. What is the response that we have in that
regard?
General Hudson. Well, sir, the Department of Defense, prior
to the Milestone B, which is in October 2001, as part of the
requirements to go through the Defense acquisition board
review, which Mr. Aldridge chaired at that time, we did a
report that looked at the readiness of the system to enter the
system development and demonstration phase.
And the review of the documents and the work that DOD did
showed that it was ready to go. I know that----
Mr. Shays. OK. So the answer is, you disagree that you
think that your production, the technology was there to support
the production based on this study. Is that your answer?
General Hudson. Yes, sir.
Mr. Shays. OK. What is the second one?
Ms. Schinasi. You are back to me. The issues that we raised
in this report are more of a prospective nature than they are
of something that has actually happened. But, what we are
looking at, first the--the basis upon which you enter into a
cooperative program has to do with equitable sharing, which is
not defined very well, but it is still is a concept that
underlies----
Mr. Shays. You are concerned about who is going to
ultimately pay, and will they pay the full cost of the program?
Ms. Schinasi. We think it should be recognized that the
financial contribution that was part of the basis for having a
cooperative program will change over time. There are
percentages that have been established. It was originally
established in a percentage range. So for example, a Level 1
partner was going to contribute roughly 10 percent. A Level 2
partner, roughly 3 to 5 percent. A Level 3 partner, roughly 1
to 2 percent. These were the guidelines that were laid down as
we started into this program.
Mr. Shays. OK. In my way of looking at it, and maybe Mr.
Volkman you can respond to this. I would just think, and tell
me why there is a reason, or that I just don't know it, I would
think you would basically figure out the cost to produce this
plane, and then you would set the price based on the cost, and
then whoever wanted this plane, would pay this cost. I mean,
that is kind of the way that I would like at it. But, I mean,
there is a reason we are not doing it that way because----
Mr. Volkman. Well, I am not really sure how to answer the
question. We arranged--our goals at the outset were to have a
Level 1 partner contribute 10 percent to the systems design and
demonstration costs as we knew it at the time. Obviously, as a
result of our negotiations, not all of our partners or
prospective partners were able to meet a strict 10 percent
goal. So we----
Mr. Shays. How did we come up with that 10 percent?
Mr. Volkman. Maybe I should explain that. It was
recommended I explain this. The phase of the program we are in
right now, is to develop the airplane and demonstrate that it
is ready to go into production. So it is a very lengthy part of
the program where we are designing the plane so it is ready to
be manufactured.
Mr. Shays. We have seen both planes. We saw them both
together before they were chosen. I mean, I am talking about
the Boeing plane versus Lockheed. So we have had a little bit
of knowledge on the contest that has taken place. But, what I
am trying to understand, there is a reason, and it may be a
very good reason, that you went out on the hearing.
Was there the thought that somehow we might develop this
plane, but never ultimately produce it? I mean, in other words,
that we would go through this process and decide we couldn't
afford it. We ultimately figured we were going to build this
plane. Is that correct?
Mr. Volkman. That is correct.
Mr. Shays. So just get me by this hurdle. Why wouldn't we
say to whoever wants to buy this plane, you have to pay this
cost? And why did we decide we wanted someone to pay 10
percent? There is a reason, but we don't know it.
Mr. Volkman. I think it was a judgment at the time as to
what the likely participation would be among various partner
nations who might be interested in participating with us in the
program. I mean, clearly, most nations cannot afford to join as
partners in a program at the--at the same extent that the
United States can.
So I think, you know, we made a judgment that a Level 1
partner would likely to be able to contribute the approximately
$2 billion into the program that the United Kingdom has agreed
to pay. We made some other judgments as to what----
Mr. Shays. Does that give them the right to buy the plane
less than a third tier would pay?
Ms. Patrick. No. I have been listening to this, and maybe I
can help with this. The condition for being a Level 1, 2 or 3
partner has to do with the level of contribution those
countries want to make to the SDT phase. It does not at all
require them to buy aircraft. And it also does not stipulate
anything about the price at which they will buy aircraft if
they come to decide to buy aircraft later on.
Mr. Shays. Tell me why would they do it. Why even bother to
participate? I am trying to see what both sides get here. I
don't know what people get out of this.
Ms. Patrick. A number of the countries were interested,
because they do think that they will buy the Joint Strike
Fighter aircraft. So they wanted to be present at the creation,
as it were. The UK is probably the very best example of that.
Where the UK decided that it was willing to forego developing
its own tactical fighter industry to the extent that would be
required if they had to develop this aircraft on their own, and
they would partner with us instead.
A very early, very robust, tight working relationship, and
the most funding into SDD. Also, perhaps not surprisingly, one
of the most important features of the technological innovation
of the Joint Strike Fighter came from the UK, the lift-fan
technology, a lot of the work that has to do with the Marine
Corps variant.
Other countries saw this program as an opportunity to learn
about tactical aviation, whether they decided to buy the
airplane or not. The Netherlands, for instance, decided that
their knowledge and insight based on this investment in the
program, would help allow their aerospace industry to be a
major pillar in their own country. So they wanted to learn, to
the maximum extent available, keeping in mind the foreign
disclosure requirements, etc., about this program.
Mr. Shays. Do you understand why we are asking these
questions? I mean, what you are describing now raises good
questions for us to ask. And it raises, you know, some real
concerns as well. I mean, we are trying to have a sense of, our
partners, are they going to be paying the costs that that they
should be paying? And what do they get out of this? What do we
get out of it?
Well, one of the things they get out, it seems to me, is
they get our technology. One of the things you are suggesting
to me is that we have gained and learned some technologies from
them.
Ms. Patrick. Correct.
Mr. Shays. I think that needs to be put on the table. But,
I am still--it seems to me what you are saying, is if you are
either 1, 2 or 3, you get to participate in the program, and
you get to have some influence as to how the program goes.
So now I am going to ask a logical question. Does being 1
give you more ability to influence the program than being 3?
Ms. Patrick. I think, General Hudson, you can answer that
because you have worked that day to day.
General Hudson. Yes, sir, it does. The primary way that it
does that is that in the joint operation requirements document
that I mentioned earlier, there are four signatories on it.
That was signed in the spring time of the year 2000. The
signatories are the U.S. Air Force, the Marine Corps, and the
United Kingdom. So there is an advantage to being a signatory
on the requirements document.
They also have, the UK has 10 people that work for me in my
office. So they have people spread throughout my team, working
various jobs on the team.
Mr. Shays. OK. Now, Mr. Chairman, do you mind if I keep
going?
Mr. Turner. Please, proceed.
General Hudson. Sir, I have the numbers that you asked for
earlier.
Mr. Shays. Why don't we hold off on them. I am not going to
forget about them. So what you have said is they get to have
some say. If you are one tier, you got to have a little more
say than 2 or 3. Correct?
General Hudson. Yes, sir.
Mr. Shays. Now, does that allow them to be able to have an
aircraft sooner than some other countries? In other words, are
they first--do they get to jump us? The number I gave you of
2,443, do we get all our airplanes and then they get theirs? Or
do we do a kind cost sharing, not cost sharing, but they get so
many if we get so many? How does that work?
General Hudson. The United States buys the first production
airplanes, sir, planned now for 2006. The U.S. procurement
profile will go probably for about 20 years past that. What
will happen is that, as the United States buys airplanes and
deploys them into the fleet, there will be enough production
capacity to allow for airplanes to be built for partner
nations.
Mr. Shays. You are missing my question. You gave me a long
answer, I think with all respect, to what can be shorter. I am
just simply asking, do the Brits, basically because of their
participation, get to be able to say, well you get the first
100, then we get 10, you get the next and so on.
Is it that kind of arrangement? Otherwise, I am wondering
why they would participate.
General Hudson. Well, it goes by priority. They, as the
Level 1 partner, they are able to procure first amongst the
partner countries. And they start in 2008.
Mr. Shays. I understand the United States comes first. I
understand that. We are putting up most of the cost, with all
due respect. And I just wanted to know, this has to be
something that has been talked about. Is this classified
information?
General Hudson. Well, they do have an advantage in
procurement, because they are earlier----
Mr. Shays. Is there an agreement in writing that says how
many planes they get at a certain time, or is this still to be
decided?
General Hudson. It is still to be decided, sir. The UK has
a--they have a goal which they have stated of 150 Joint Strike
Fighters. We know that they intend to begin procurement in
2008. The exact number of airplanes year by year, over the life
of their procurement, is yet to be determined.
Mr. Shays. OK. Why don't you give me those numbers.
General Hudson. These are the numbers that I have here. You
were correct, 1,763 for the Air Force, and 680 for the Navy and
the Marine Corps. That makes the 2,443 that you cited earlier.
Now, there are 14 jets that will be flown in a development
program.
Mr. Shays. Right.
General Hudson. At one time, there used to be 13. This goes
back about 3 or 4 years----
Mr. Shays. So it is 14?
General Hudson. Yes.
Mr. Shays. What are we looking at now? What are we looking
at the cost of this?
General Hudson. For the SOD development program here, $33
billion. For the production program, this is just the U.S.
Airplanes, $162 billion. And our estimate for the operating and
support costs for the U.S. airplanes is $332 billion.
Mr. Shays. So this number that I have of $1.1 is way off,
$1.1 trillion is just totally off.
General Hudson. Yes, sir. I don't know what the basis for
that is. I would love to see those numbers and try to figure
out where they come from, but these are the numbers that we
carry in my office.
Mr. Shays. OK. If I add up all of those numbers, what did
you get to? I need it in your words, not mine. So I don't want
to add it up and put it the on the record. I want you to put it
on the record.
General Hudson. Yes, sir. I get $527, sir.
Mr. Shays. OK. So you are saying $527 buys 2,457 aircraft.
General Hudson. Yes, sir. It does the development, it buys
them, and it supports them over the life of the fleet.
Mr. Shays. Supports them. You mean, it is not just the cost
of them, it is the operation? I just want to know the cost of
this plane.
General Hudson. Yes, sir. The $33 billion does the
development work.
Mr. Shays. The $162 is production?
General Hudson. Yes, sir.
Mr. Shays. I will take those two. So that is--basically,
that is the cost of the aircraft?
General Judson. Yes, sir. The $33 and $162.
Mr. Shays. Do you want to put it on the record?
General Hudson. Yes, sir. To do the ongoing development and
to procure the airplanes.
Mr. Shays. It is $195 billion.
General Hudson. Yes, sir.
Mr. Shays. For 2,457 aircraft?
General Hudson. Yes, sir.
Mr. Shays. Maybe one of your folks could put on the cost
per aircraft from that, just division. There is an average.
Could I ask one last question?
Mr. Turner. Certainly.
Mr. Shays. I would just like to clarify a question I asked
earlier to GAO. When you were giving me costs, General, I seem
surprised by your number versus GAO. I am looking at page 13.
Maybe I misunderstood you, because I wasn't listening as well
as I should have. But, on page 13 in the second paragraph, it
says DOD--this is in the Joint Strike Fighter acquisition
report. It says, DOD and the program office officials told us
there could be instances where the partners would not be
expected to share cost increases. For example, cost estimates
for the system development and demonstration phase have
increased on multiple occasions since the program started in
1996.
During that time, the expected cost for this phase went
from $21.2 billion to $33.1 billion. And I get a difference of
$12.9 billion. And I thought you gave me a $3 billion. I am
just--that is why I asked GAO if those numbers--and you said
you agreed with the $3 billion.
General Hudson. Sir, the $3 billion number I gave was from
the Milestone B in October 2001, to the report that came over
here early this year.
Mr. Shays. So I used a different timeframe?
General Hudson. Yes, sir.
Mr. Shays. So you agree with GAO that it is $12.9 since?
General Hudson. Yes.
Mr. Shays. OK. Thank you.
Ms. Schinasi. Mr. Chairman, could I add something to that?
We came up with, instead of the $195, the roughly $200 billion
for the total cost, because we added the additional development
of about $4 billion that was in the concept demonstration
phase.
Mr. Shays. So you added the $5 billion more. Do you concur
with that number?
Ms. Schinasi. Well, it was $4 something.
General Hudson. Yes, sir. That is correct, if you count the
competitive phase.
Mr. Shays. OK. Thank you. Appreciate it. Thank you for
getting those numbers to me, General. Thank you.
Mr. Turner. Well, Chairman Shays said that he is a fan of
this program, and certainly I can tell you that I am also. And
I think in looking at this, the Joint Strike Fighter people are
very excited about its capabilities and what it is going to be
able to do for the military.
And I have a series of questions, but first I would like to
pause for a second, General. If you could highlight some of
these for us, as to the Joint Strike Fighter, what are we
talking about in trying to achieve here?
General Hudson. Well, sir, there are several very important
things that I would like to highlight for you briefly. First
off is the ability to design, develop and deploy an airplane
that is highly common between a variant that not only works off
the U.S. aircraft carrier, but off an expeditionary airfield,
such as the Marine Corps might use, and have from a
conventional runway that the Air Force might use.
This gives us, by means of high commonalty within the
airframe and within the avionics and software in the airplane,
a very affordable airplane to buy and also to operate. Within
any system, the largest expense in the life-cycle cost is a
cost of owning and operating the airplane. With high
commonality, we can certainly make inroads into what we know is
the high cost of operating and owning most systems.
The other thing is that we will be able to do is, we have
an airplane that is multi-role in nature, that is, can
accomplish both the air-to-ground mission, and it has inherent
air-to-air capability. And we have been able to design that
such that it is highly common, which also gives us a broad base
of operations to cut into operating and support costs.
And we have interoperability as one of our key performance
parameters. We know that in coalition warfare, we want to have
this plane to be able to interoperate, in other words, pass
voice and data information with ships at sea, with the
facilities on the ground, with other airplanes in the air and
with spaceborne assets. So we designed this capability up
front.
Mr. Turner. This weekend, I led a congressional delegation
of 11 Members that went to Wright-Patterson Air Force Base. It
included the chairman of the Armed Services, Duncan Hunter, the
chairman of Airland, who is also the vice chairman of the
overall Armed Services Committee, Kurt Weldon, to look at the
development of science and technologies and research and
development.
We had a focus of the technology of tomorrow that is going
to be for the battlefields of tomorrow. One of the phrases that
we heard from Ms. Schinasi, is that the technology has not been
mature, but yet you moved forward into different phases. And
one of the things that I find in this whole process is that to
some extent, when you are talking about research and
development, you are talking about inventions, you are talking
about creativity, you are talking about doing something that
someone hasn't done before, we don't want to go buy something
that is yesterday's technology, we don't even want to buy
today's technology, we want to buy tomorrow's technology.
And managing how we incorporate tomorrow's technology into
a process that is being managed today is a difficult one
financially. The phrase mature technology, though, is one that
I would like you to respond to, General, in that it does seem
to me that this is a process, specifically of the Joint Strike
Fighter, which is one at the same time that we want to manage
costs, we are talking about innovation, and we are talking
about projecting toward the technology of tomorrow in this and
the inherent impact that that is going to have on cost.
General Hudson. Yes, sir. One of the significant challenges
that we have in this development program is to integrate the
technologies that we identified the last phase of the program
into our design. So, I would like to give you a couple of
examples of work that we did in the last phase of the program
that we are now integrating into the design.
The first one is in the radar. We did some work in the last
phase of the program on technology maturation, so that we could
build a high-performing radar in a very affordable fashion.
That technology demonstration work we did in the last phase has
paid off handsomely. In fact, approximately next April, we will
have our first radar hit the test bench.
So that is a good example of technology maturation work
that was done in that last phase. We are building that now. And
we will begin testing it next year. But it gives us the
capability to put the technology we need in the airplane in an
affordable manner. There is an example in the subsystems in the
airplane. We did a project where we took an F-16, and tore out
the traditional hydraulic flight controls in the airplane and
replaced it with what we call--it is actually a system that
runs by digital control to actuators located at the flight
control services, eliminating the usual lines and hydraulic
requirements in an airplane.
We demonstrated this. This it is now part of our baseline
design. It is brand new technology that was never used like
this in a fighter before. So we have captured that in our
design process. So we have attempted to focus in this phase on
the integration of those technologies, which we know need to be
in airplane to make sure that it is survivable, lethal,
supportable and affordable, but yet allow us to keep ourselves
on track for schedule and performance and cost in this phase of
development.
Mr. Turner. In the materials that we have for this hearing
from the staff of the committee, they highlight some of the
costs savings that we will experience, or have experienced, as
a result of the Joint Strike Fighter Program's structure. And
its goals being one, that the services anticipate that the size
of their order will hold down production costs because a common
base or common craft that is being designed, that the
acquisition program's affordability is impacted by reducing the
development production and ownership costs of the program,
relative to other fighter procurements and that you have
incorporated various DOD and commercial best practices in the
Joint Strike Fighter program.
Still, obviously that is not enough to have warded off the
cost increases that everyone wants to avoid. And the program
can be open to criticism as we have looked to others that have
not shared in those cost increases. But I think that, I would
like you to clear this up for me, because as we have had this
discussion, the--when we talk about costs and the different
phases and what the partners will pay for their various portion
of costs, once this plane actually gets into production, the
full cost of production of the plane will be paid by anyone
non-United States who purchases that plane, correct?
General Hudson. Yes, sir. That is correct.
Mr. Turner. So that the concern, though, is that the
initial cost, the development costs, the invention costs are
not at a 100 percent basis going to be placed or burden onto
that purchase price cost of a copy. That is what I am getting
from this hearing. So there will not be a recovery of the
overall expectation of what we are going to have spent to come
up to the level of production?
General Hudson. Yes, sir. It is correct that partner
countries are not required. We have the option of going to them
for additional funds, but they are not required to share in
development cost increases.
Mr. Turner. And I guess that is where it begins to defy
what people's normal common sense expectation would be of how
cost and prices are set. Because, you know, generally if
someone is going to go set about doing research and development
for a product that they are going to put in production, they
include those costs, as to what it took them to get to that
point. I think that that is where people are struggling here is
that not only are they not going to be included, but they are
also, even though they shared in a portion of those, other
countries, they are not sharing in the escalation of those
costs as we get to the production point.
Now, is that correct? Is that a correct description of
basically what people are struggling with?
General Hudson. Yes, sir. I think you have described that
correctly. It is correct that when we come to the production of
the airplanes, the partner countries or whoever else would
procure the airplane, they pay the full price of the airplane.
And also for operating and support, they would pay the costs of
spare parts and the cost of training and so on and so forth,
just like the United States would.
Mr. Turner. But they will not be paying the costs that have
been expended prior, in research and development that takes it
up to the point of production?
General Hudson. No, sir. Not unless, if there are cost
overruns in the development phase that the United States went
to them for additional funds, and if they produced those
additional funds, they would, of course, share in an increase
in the cost of development. If they did not, they would not.
Mr. Turner. So then the sharing of those costs, though,
does not bear a relationship to the per unit number that they
will be acquiring?
General Hudson. That is correct, sir.
Mr. Turner. Let's shift just a second, Mr. Chairman, if you
don't mind, to the issue of technology transfer. We are almost
coming to the planned ending point of the hearing, although I
understand from the chairman that we may continue it.
General, could you speak about the issue of technology
transfer. Here you are in a partnership where you are sharing
technology internationally, and you are sharing in technology
because you want your product to be responsive to your
customers, which also may be your partners on battle fields. So
you also want the sharing of knowledge there in technology as
this is developed, so that as a team, when these countries get
together, they will be more effective.
I think one of the concerns that was raised, of course, is
that your friend today may be your foe tomorrow. But in the
group that you have put together, perhaps the degree of concern
is not as high of those individuals. But, there may be in the
next level of that, you know our friends may not necessarily be
our friends. And could you talk about that, expanding on
distribution of technology transfer and what--how that might be
being addressed in this program?
General Hudson. Yes, sir. We spent some years developing
and working on the process for Joint Strike Fighter. There is a
rigorous process in place to determine which technologies can
be transferred on an industry-to-industry basis, let's say for
example from Lockheed Martin or one of their subs or suppliers
to a company who would be performing Joint Strike Fighter work
from another country.
So that process is in place. We adhere to it very
carefully. There are measures in place to ensure that that
technology is appropriate for transfer. We worked that through
the national disclosure policy community. And it is defined by
what kind of authorizations exist for that technology transfer,
either within the global project authorization, or the various
TAAs that might be put in place for this program.
There are also equivalent agreements in place between the
government of the United States and other participating
governments as there would be for any type of cooperative
development program. These security agreements are in place.
They are carefully structured within each one of our partner
countries to ensure that any information that might be provided
to these countries is carefully protected, and that the
individuals who get access to that information are properly
vetted within their own systems as they are in ours.
So we have that disciplined system in place for government-
to-government as well as industry-to-industry. And the
importance of the technology transfer, I think, is illustrated
very well by the time that it took to get the global project
authorization in place. It was very carefully done.
It covers only unclassified information, and only
unclassified information that is not very sensitive. The rest
is all done by the normal TAA process. So there is agreements
and procedures in place to govern the transfer of this
information on both sides.
Ms. Schinasi. Mr. Turner, can I add to that?
Mr. Turner. Yes, please.
Ms. Schinasi. I think one of the things that we tried to
raise in our report is the concept of expectations, and how
there may be differing expectations on this program. What we
have seen and heard from some of the partner countries in here
is that there is an expectation that they will have access to
certain technology that they believe they need, to not just
develop and produce, but also to support this airplane.
And that those expectations are probably, if not certainly,
going to run into conflict with previous decisions that the
United States has made on transferring technology.
The partner expectations for what technology they will have
access to are not always going to be in accord with what the
United States has certainly not done in the past, and maybe is
not willing to do right now. So one of the issues that we have
looked at is this idea of supportability of this aircraft.
Many of the partner countries want the ability to maintain
and support the aircraft. There are significant technology
transfer issues associated with that. And we have not yet
determined what the support plan is going to look like. So what
we have tried to do is say this is--the General described a set
of safeguards in place--but, there will continue to be pressure
pushing on the policy level about how much technology we are
going to transfer.
I would say the GPA that has been referred to, the Global
Project Authorization, is more a matter of process, how quickly
can we get it through, not what the decision should be as to
whether or not to release it.
Mr. Turner. Very good. That is a good point as to how we
operationally do this and that being overly restrictive may
impact our overall goals. I appreciate you making that point,
Mr. Chairman.
Mr. Shays. Thank you. We are getting toward the end here.
But let me go through a few questions as it relates to the
issue of strategic best value sourcing, as some call it.
I am going to read you the explanation before I read you
the questions. Because I want to make sure the explanation is
accurate. DOD and the Joint Strike Fighter Program Office have
said that the use of competitive contracting is central to
meeting partner expectations for industrial return and will
assist in controlling program costs. Two things. In other
words, one advantage is controlling program costs. Another is
we participate, and we get to have our industry make some of
the product that goes into making the airplane.
Joint Strike Fighter officials use the term ``best value''
to describe this approach, which is a departure from other
cooperative development programs that guarantee predetermined
levels of work based on contribution.
I guess I was kind of in the old world. I figure you
contribute so much, then you get to make so much. Partner
representatives generally agree with the Joint Strike Fighter
competitive approach to contracting, but some emphasize that
their industry's ability to win Joint Strike Fighter contracts
whose total value approaches or exceeds their financial
contributions for the Joint Strike Fighter's system development
and demonstration phase is important for their continued
involvement in the program.
So I would like to ask Mr. Volkman and General Hudson to
describe the relationship between the strategic best value
sourcing, as described in the DOD Industrial Impact Study, and
the best value concept that has been promoted since the
beginning of the system development and demonstration phase.
Mr. Volkman. Well, I think what we do in the award of
subcontracts, generally, is we expect our prime contractors to
make subcontract decisions on a best value basis.
Mr. Shays. So if they can make it overseas, you make it
overseas.
Mr. Volkman. Well, what I am trying to do initially is to
say that we ordinarily expect our contractors to make a
decision as to who they subcontract with on what would be
characterized as a best value basis.
Mr. Shays. I am trying to understand it. Maybe I jumped in
too quick. But since I already jumped in, what I am hearing you
say to me is, wherever they can make the project the best at
the lowest cost, you want them to make it there.
Mr. Volkman. Right. So if there were foreign sources that
can make it at the best value, at the best cost, we would
expect that they would go to foreign sources. Now, of course,
it is a lot more complicated than that, because of limitations
on certain foreign sourcing that are contained in laws and
regulations. But as a general rule yes, we would expect that
they would do that.
Mr. Shays. Conceptually, I understand that. Now what?
Mr. Volkman. So in the case of the Joint Strike Fighter
Program, clearly, one of the things that we would like to see
is our partner countries who are participating in the program,
for their industries to benefit on a best value basis.
Mr. Shays. Right.
Mr. Volkman. So there is--I am now going to the strategic
sourcing concept. There is some value in the prime contractors
making decisions to award work in a particular country on a
best value basis.
Mr. Shays. Is it accurate to say that if you are 10 percent
of the total production--excuse me, of the development costs,
that you don't--aren't guaranteed that you will have 10 percent
of the production contracting? That is not--you won't.
Mr. Volkman. Well, at this phase of the program, we are not
making any commitments as far as----
Mr. Shays. But the answer to the question is really yes? I
am repeating what I think you told me. And tell me if I am
wrong. You are going to, wherever you can make the product the
best, the best product at the lowest cost, as a general rule
that is the concept that guides you. So if the Brits contribute
10 percent of the development cost, if they did, they are not
guaranteed that they get 10 percent of the production?
Mr. Volkman. That is correct.
Mr. Shays. OK. Now, in a helicopter that Sikorski makes in
my district, as I was viewing the plant, the frame was built by
the Japanese, the tanks that are going to be on the outside of
this aircraft are built by the Brazilians. And the arguement to
me now is, but the value added, the real, you know, expensive
value-added stuff is still going to be done in the United
States. And so it was intriguing to see this case brought in
and these various parts coming in from all over the world.
I make an assumption that the Joint Strike Fighter is going
to be made all over the world and that we hope that more than
eight countries buy it. Is that an accurate statement?
Mr. Volkman. That is correct.
Mr. Shays. OK. Ms. Patrick, do you want to add anything?
You are nodding your head. It doesn't get on the transcript.
Ms. Patrick. No. I do agree with all that you have said.
Mr. Shays. OK.
Ms. Patrick. It is really a very radical departure from the
offset paradigm, in that really never before have countries
made investments in the SDT phase of a program, in the way that
the Joint Strike Fighter is structured. And they make those
investments without any guarantee of a proportionate amount of
business in return for that.
And so it could be more, it could be less than their
proportion.
Mr. Shays. I think you kind of sense where I am going.
Conceivably, first off, I would in a chauvinistic way, like to
think that Americans would make the best no matter what part it
is. We wouldn't necessarily make the cheapest, but I would also
make an assumption that we would make the best. Now, maybe that
is an assumption that I shouldn't make.
Having said that, I also make an assumption that when we
are making a plane, that it is my obligation to make sure the
best part is in every place, so that if for instance the
Brazilians can do something that makes the plane lighter and
safer or whatever, I owe it to the men and women and to our
country to make sure that that is what we buy. I would like to
think again, though, that we can do it ourselves.
But I know that in some cases it might be built at less
cost and maybe even superior in some instances. What I am
wondering, though, is now I am back to where I was in the
beginning. I don't understand--you have to explain to me in a
way that I can understand why we are seeing a 1-percent
investment in production with the Phase 3.
Ms. Schinasi. Level 3 was originally roughly 1 to 2
percent.
Mr. Shays. OK. I don't understand that. Unless it is to
say, I mean, I can understand wanting to buy it at 1 percent.
That is a pretty good deal. I like that part of the deal. I can
understand why they want it. I don't quite--it seems to me that
it gives them a plane before someone else who hasn't
participated, logically, though, you are saying that hasn't
been resolved yet. Is that true, Ms. Patrick?
Mr. Volkman. I think your questions earlier were, do
partner nations have some priority in receiving airplanes? I
think that is what you asked earlier. The answer is yes.
Mr. Shays. What you told me hasn't been resolved is, how we
phase in our 2,400 plus planes with what the Brits want and the
others. So before we get our final 2,400, the Brits are going
to get some along the way. And what I am hearing you say under
oath in this committee is there is no agreement yet as to when
they start to get their planes. That still has to be resolved.
Is that correct, Ms. Patrick?
Ms. Patrick. That is correct, as well. The final quantities
or intents of the partner countries have not been set yet.
Mr. Shays. But have the phase-ins of when they start to get
planes been? This is a digression, but I want to clear the
record for that.
General? This is a trick question. What is on the record
right now is there is no agreement, which is a little hard for
me to accept, because it would seem to me that there would be
some general agreement, that, you know, you don't get 2,000
planes before we get 50. If I were the Brits, I would want to
make sure that somewhere--I was going to get my planes when I
wanted them.
General Hudson. Sir, the only firm time we have is from the
UK, which would start in 2008. That would be their first
procurement of an airplane.
Mr. Shays. We don't know how many planes--in 2008 is when
we get our planes too?
General Hudson. Yes, sir. Our first delivery is in 2008.
The UK will procure their first airplane planes in 2008, with
the first delivery in 2010.
Mr. Shays. How many will they get?
General Hudson. Nominally, 150 total over a certain number
of years.
Mr. Shays. Has that been determined? I am not asking what
it is. I am not asking you to tell me what that is, but has
that been determined?
General Hudson. The number per year in each and every year?
No.
Mr. Shays. OK. That was somewhat of a digression, but we
seemed to be on that topic. I want to come back to the issue of
best value. Tell me what we get having the Turks, the
Norwegians, the Australians, the Canadians and Denmark with
their 1 percent participation. What do we get for that?
Mr. Volkman. Well----
Mr. Shays. In each case.
Mr. Volkman. Well, first of all, we get a financial
contribution from those nations to participate in the
development phase. And they share in the risks associated with
developing the airplane. They are putting money up with no
guarantee that the product that comes out the other end is
going to be an airplane that is usable. Now, we have high
confidence that that is the case.
But since development of high performance airplanes are
risky, what we have asked, and what our partners have agreed to
do, is to share in that risk by putting up costs.
Mr. Shays. I guess if I was in Turkey, I would want to be
able to explain why I invested $150 million into this. Tell me
what they tell their constituents.
Mr. Volkman. Well, I mean the reason why these countries
are interested in investing $150 million or $2 billion into
this program is because they will be in a position at some
point in the future, like us, to have a high performance
aircraft. They also believe that----
Mr. Shays. Let me just--it relates to my question, so allow
me to do this. But based on the way we are going to develop the
plane, there is no promise that they get to make any part of
the production, because their investment does not guarantee
them any production. Is that correct for the record?
Mr. Volkman. Their investment in the systems design and
demonstration program does not guarantee them any portion of
the production program.
Mr. Shays. Because we are going to go to the strategic best
value sourcing, correct?
Mr. Volkman. We have--the way in which contracts will be
awarded for the present phase of the program, systems design
and demonstration----
Mr. Shays. I am not talking about buying the plane
contracts. I am talking about the production. I asked the
question, that their participation in the $150 million does not
guarantee them any production contracts.
Mr. Volkman. No, it does not.
Mr. Shays. So the only thing it seems to me that they have
bought is that if there are 12 countries in line, these 1, 2,
3, 4, 5, Tier 3 comes before those who didn't participate at
all. I am not fishing around. I just want some logic here.
Ms. Patrick. Well, let me see if I can take a shot at this.
For all of the countries who have made partnership investments,
in addition to some of the motivations having to do with the
spot in line for buying airplanes if they decide to do it,
their hope is that by learning more about the aircraft,
learning more about which contracts are going to be let, being
closer, having closer ties to the program office and to the
contractor team, their industries will be in a better position
to bid effectively on a best value basis.
We call it best value, not low cost. Best value. In other
words, best technology at, you know, the appropriate cost.
On components on this aircraft program. And your example of
Turkey was very much to the point, in that for a number of the
companies, a number of the countries rather, they are having
trouble explaining this to their parliamentarians because they
have not been sourcing a proportionate return yet on their
investment. And so----
Mr. Shays. And the fact is----
Ms. Patrick. And that shows that the best-value principle
is in fact working as advertised.
Mr. Shays. OK. Thank you for putting it in the record. I
mean it's very logical to me. For 150 million, you're--and this
is not a bad thing--you're on the inside track. You are there
as the plane is being developed. You begin to know where the
needs are. You make contacts. So all things being equal, you've
got a better shot at knowing, to say--you know, you can point
out to the people, to Lockheed in particular, we can make that
for you. You can go to your people back home and say, we can do
it for you. OK. That makes sense.
So I guess the last thing that I would want to do--thank
you. I think I should have asked you first, why did you keep
that a secret in any way? Is there anything else you want to
tell me that you----
Ms. Patrick. Well, I think the other--I mean, since you
asked.
Mr. Shays. I mean, you know, what I've been wrestling with;
if you can end my agony here, we could have the hearing end a
lot sooner.
Ms. Patrick. I would be delighted to do that, sir. But I
think it's very important to understand how these contracts
have actually worked and how the competitions have worked.
Mr. Shays. I would like to understand.
Ms. Patrick. Because it really has worked as a level
playing field in that, you know, the RFPs go out and all
bidders bid: numerous U.S. companies, some foreign companies.
And it's not as if there's any direction to a foreign supplier
or if, you know, there's anything other than full and open
competition. And as I said earlier, a number of the foreign
countries and companies have been very disappointed that they
haven't won each time; that at the current stage of the
program, their return is not equal to their investment.
But in my office we studied some of those issues pretty
carefully because we wanted to learn those lessons quickly. And
there were instances where companies submitted their bids late,
you know, foreign companies. Well, that's a noncompliant bid.
There were issues where they bid in terms of ship sets instead
of units. You know, the contracting system is working on a
best-value basis. So, you know, I think that----
Mr. Shays. Are you going to have anything to do with the
purchase of the Presidential helicopter? Because if so, I'd
like to put in a good word for Sikorsky.
Let me end with this, if I could. There are three different
numbers now--two different numbers on the record. One I put on
the record, which was 1.1--I put in the record $1.1 trillion
for total cost of these planes. General, you put on the record
3 point--excuse me, $332 million, billion, or $332 trillion.
And I misspoke, because where we got the number--and help me
out here. We got the number from the ``CRS Report for Congress
Joint Strike Fighter, JSF, Program Background Status'' and
issues updated June 16, 2003. And in that report I'll read you
this first paragraph, because the numbers there, unless I'm
just missing something and deserve to be embarrassed here, this
is what I'm reading: ``It's under funding and project cost. The
Defense Department's quarterly Select Acquisition Report, SAR,
of December 30, 2002 estimated the Joint Strike Fighter program
at $1.997 trillion.'' So it wasn't $1.1; they had $1.9 in
current year dollars for 2,457 aircraft, which equates to a
program unit acquisition cost of $81 billion per aircraft. So
am I adding some other number? Are they adding other numbers
that are not--or are they just way off the chart?
General Hudson. I don't know sir. I'm going to have to go
back and look at that and figure it out. What you said earlier
about the $332, that was the cost of owning and operating the
airplanes over the fleet life.
Mr. Shays. Oh I'm sorry. Right. It's $195. I'm sorry.
General Hudson. Yes, sir. I gave you $145; and the GAO is
correct, if you count the $4 billion that was spent on the----
Mr. Shays. I understand. But you understand my problem is
when I'm looking at a document from the congressional report--
and I just read it to you--and we are at this unbelievable
number of $1.9 trillion versus your $195 billion, you can
understand--I like the Library of Congress you know. So they're
way off or I'm just reading it wrong.
So anyway, that's on the record, we need to clarify. OK. I
just wanted you to know where staff got our information from.
Does anybody need to speak to that issue at all?
Ms. Schinasi. Do you want to say something, Brian?
Mr. Shays. Yes, thank you.
Mr. Mullins. Yes, sir. I have a copy of the Selected
Acquisition Report that you referenced from your report, and I
haven't seen the CRS report so I don't want to comment on
anything they've done. But in the SAR it says that the total
cost for the quantity you mention was $199 billion, like we
referenced before, you may have.
Mr. Shays. Which is your number with the--and it's your
number, General, with the 4. OK.
Mr. Mullins. I think you might have a decimal, or comma, in
the wrong place there.
Mr. Shays. Who might?
Mr. Mullins. Somebody might. I'm sorry. Not you. They might
have. But I haven't seen their report so I don't know.
Mr. Shays. Could we--and by the way, if they're doing a
report that's so inaccurate, I hope they show them to you and I
hope you review them because it needs to be straightened out.
Would you get back to us as to the dialog with the Library of
Congress? I'll ask the GAO to do that.
Ms. Schinasi. Yes.
Mr. Shays. I appreciate, Mr. Chairman, the time you have
given me. I think I've asked the questions I've wanted to ask.
Do you have others?
Mr. Turner [presiding]. No, Mr. Chairman and I'm assuming
at this point, not at this instant, but that we would proceed
to adjourn rather than just continue.
Mr. Shays. Right. Now we would definitely adjourn. But if
you could do the question that you and I both ask--if I could
ask it.
Is there anything that you were prepared to answer that we
should have asked you? Is there anything that we should have
asked that you didn't want to answer but I'd still like you to
answer? No, bottom line is I learn a lot from the something
that we left out that you put on the record.
I'll give you an example. At one of the hearings we had on
biological warfare, we were about to adjourn and one of our
witnesses said, well, I just want to tell you what weighs on my
mind a lot. He said--and this was an editor of a major medical
magazine. He said, My biggest fear is that a small group of
dedicated scientists will create an altered biological agent
that will wipe out humanity as we know it.
Now, I'm not asking for a show stopper like that, but that
was important he put on the record. Is there anything that
needs to be put on the record? And, Mr. Mullins and Ms.
Schinasi, is there anything that was said that was not the way
you view it? Otherwise I'm going to assume that everything
we've learned from DOD has basically been as you see it. Is
there anything, any disagreement?
Ms. Schinasi. I don't know about a disagreement, but I
would like to restate what I see is the issue. I'm not sure
it's been stated exactly this way. We went into this program
with a certain set of assumptions. One of those is that we
would have increased interoperability with our allies. You can
get interoperability in ways that don't require them to have
the same kind of equipment we do. That's one.
But the other is that there are a set of expectations that
the partner governments have here and the partner industries
that will continue to push most heavily on Lockheed Martin as
the prime supplier. They are the ones who have to look at
future sales and profitability, and so the decisions that they
make now will be geared, you know, obviously toward their
continued well-being.
And so I would just like to caution that there are places
where their well-being may in fact deviate from the well-being
of the Department of Defense in terms of its own goals and the
broader U.S. technology base in terms of what we would pay to
develop the technologies that we provide to the military. And
so I would just like to say that the pressures are going to be
on Lockheed Martin, and I think it is important, even though
our work was prospective, to continue to look at the decisions
that get made in this program to make sure that we stay on
track with our original goals.
Mr. Shays. I'll tell you my concern. My concern is that in
the process of their--of all of us looking at cost, that
conclusions are made that too much of this plane can be made
overseas, and that in fact we make too much of it overseas in
spite of the fact that the United States is the major purchaser
of it. You could argue, well, we're getting a cheaper plane;
but the problem is we're not getting our men and women making
this plane.
And I'm not supporting the requirement that 75 percent of
something or 50 percent has to be U.S. content. But I hope that
somehow, General, you have the ability to say, you know, no,
this product, this part of the plane is going to be made in the
United States. I don't know, ultimately, I mean is it
conceivable that--well, I--you know, I'm opening up another
door. But the bottom line is I'm looking at three people
looking at me, and I'm thinking, what were they thinking? The
bottom line to this, is there a danger that too much of this
plane will be made overseas if it's based on price and quality,
but price? Yes.
Mr. Volkman. Well, I'll ask Ms. Patrick to address that.
But one of the things that I would like to say before the
hearing closes is it seems to me that the Joint Strike Fighter
is a program that we in the Department of Defense should be
proud of and in fact are proud of.
Mr. Shays. Right.
Mr. Volkman. I think we've done and General Hudson has done
a remarkable job of putting together what so far is a highly
successful international program. And my hope is that in the
future, more of our major programs are conducted with partners
like we're doing on the Joint Strike Fighter program, where we
share the benefits and share the risks and the costs associated
with developing a complex piece of military equipment with
partners, so that in fact they will also have the military
capability that we feel is essential for our allies to have so
that they can participate with us as equal partners in military
operations around the world.
In the final analysis, the Department of Defense is about
military capability, and we want our allies to have similar
military capabilities to ours so that we can operate
effectively with them. I think that our allies are not
concerned about having too much of the airplane built overseas.
They're concerned that in fact they will get a fair--what they
consider to be a fair amount of aircraft in their countries.
And I think that that's really going to be the balancing act.
Mr. Shays. But there is some irony if they never buy the
plane but they get to make a lot of it. It does raise some
questions.
But I do want to agree with Mr. Volkman. I've had a number
of hearings and I've been much more comfortable with the Joint
Strike Fighter program than I have been on a number of other
our defense programs, which I think some have been quite good.
So I think so far I have a view that we're doing pretty well.
And I do want to thank you, General, and Ms. Patrick as well. I
think it is a program that is working fairly well.
Anything, Ms. Patrick. General.
General Hudson. Yes, sir. Just a point for clarification.
Three of our eight key performance parameters are in this area
of supportability. We talked a little bit about that, but that
was done up front to have the right emphasis on design such
that the airplane would be affordable to own and operate. The
production MOUs that we expect to sign starting with the U.K.,
that's an ongoing process that will take another year to 2
years before we get all that in place. There's much discussion
about that timing, but that's work yet to come.
This program has all the potential to give us the
advantages we need in coalition warfare with interoperability
and other things so that our sons and daughters can fly and
fight in the future and win successfully.
So thank you for the additional time, sir.
Mr. Shays. I thought you were going to close by saying that
you think it's very important that an American President be
flown in an American-built helicopter. Thank you very much.
Mr. Turner. Thank you, Mr. Chairman. Well, I know one thing
for certain, that both--for the chairman, myself as vice
chairman, Mr. Schrock, and other members of this committee, the
committee certainly supports this program regardless of what
other individual members might say. The purpose of this hearing
is in the aspect of oversight by this committee, is not a
position of opposition to the program. And in that process of
oversight, what we're looking at is, you know, what are we
doing? What are we learning? Are our policies correct? Are our
past policy decisions correct? Is there anything that needs to
be modified?
We know that that is a very difficult program, both
technologically, the relationships internal to DOD and the
joint services and the foreign partnerships, and certainly the
financial issues and the staggering numbers of the actual costs
that we're dealing with both in research and development and
ultimately in production. We appreciate your participation.
Mr. Shays. Mr. Chairman, just one last thing. I'm going to
save GAO the trouble of verifying with the Library of Congress.
They've called us and they said a decimal point was in the
wrong place. So therefore it wasn't, you know, 1.997 billion.
And they also said therefore the 81 is wrong. So to their
credit, they're allowing us to say that. A wrong decimal point,
amazing what it can do. Thank you all very much.
Mr. Turner. Excellent. Which illustrates that as we go
through this process----
Mr. Shays. At least someone was watching.
Mr. Turner. As we go through this process of oversight,
making certain that the information that everyone has is
correct, and that was occurring is occurring. We do know that
there are a tremendous amount of successes and we certainly
look forward to your success. And with that we'll be adjourned.
Thank you.
[Whereupon, at 1:20 p.m., the subcommittee was adjourned.]