(Source: Senator Chuck Grassley; issued Aug. 01, 2019)
“The recent reports released by the Defense Department Office of the Inspector General are alarming, to say the least. When an agency is responsible for billions of dollars and the lives of our men and women in uniform, there needs to be accountability on every level,” Grassley said.
“I implore Secretary Esper to not only look seriously at the issues highlighted by the Inspector General, but move forward quickly to resolve these issues. There is no excuse for the continued wasteful spending and lack of transparency occurring at DoD.”
Highlights of the March 13, 2019 report include:
-- DoD did not maintain an independent government record of F-35 Government Furnished Property;
-- DoD did not award contracts with complete Government Furnished Property lists; and
-- DoD did not coordinate with Defense Contract Management Agency officials to transition Contractor-Acquired Property to Government Furnished Property as required.
Highlights of the June 17, 2019 report include:
-- DoD did not receive parts that were ready for use and installation for the F-35; and
-- The Joint Program Office was aware of the problem, but did not take adequate steps to resolve it or require the military branches to track the number of unusable spare parts they received.
Text of the letter is below.
Dear Secretary Esper:
Since its inception, the F-35 Joint Strike Fighter (F-35) has been plagued by technical issues, delays, and exorbitant costs.[1] Recently, two audits of the F-35 program conducted by the Department of Defense Office of the Inspector General (OIG) revealed numerous shortcomings related to the Department of Defense’s (DOD) oversight of the F-35 sustainment program.
The lack of oversight has not only resulted in financial waste and further delays to the mission readiness of the F-35, but has potentially jeopardized the lives of pilots responsible for flying these aircraft.[2]
On March 13, 2019, OIG released a report regarding DOD’s failure to properly account for and manage government property relating to the F-35 program. Specifically, OIG determined that DOD did not: (1) maintain an independent government record of F-35 Government Furnished Property; (2) award contracts with complete Government Furnished Property lists; and (3) coordinate with Defense Contract Management Agency officials to transition Contractor-Acquired Property to Government Furnished Property as required.[3]
Since DOD officials did not maintain an independent record of F-35 government property, Lockheed Martin Aeronautics (Lockheed), the prime contractor for the F-35 program, and its subcontractor hold the only record of the 3.45 million pieces of property that DOD purchased, valued at $2.1 billion. [4] (Emphasis added throughout—Ed.)
Per the OIG report, DOD currently has no mechanism to independently verify the veracity of the Lockheed record.[5] It may also further set back DOD’s already delayed operational readiness goals for the F-35.[6] A contributing factor to this predicament is DOD’s failure to appoint key oversight and accountability personnel, including a component property lead and an accountable property officer. If appointed, these individuals would have been responsible for overseeing critical property administration functions.[7] However, despite assurances from the F-35 Program Office’s Director of Program Operations that both vacancies would be filled by the end of March 2018, both positions remain vacant.[8]
In a separate report published on June 17, 2019, OIG detailed how the Joint Program Office failed to provide adequate oversight of Lockheed’s performance as it relates to F-35 spare parts and aircraft availability hours.[9] Specifically, OIG found that DOD did not receive parts that were ready for use and installation (RFI) for the F-35 “in accordance with contract requirements and paid performance incentive fees on the sustainment contracts based on inflated and unverified F-35A aircraft availability hours.”[10]
Per the terms of its contract with DOD, Lockheed is required to deliver RFI spare parts.[11] However, OIG determined that Lockheed has not been meeting this requirement since F-35 sustainment efforts began in 2015. [12]
Additionally, OIG indicated that the Joint Program Office was aware of this problem, but did not take adequate steps to resolve the issue or require the military branches to track the number of unusable (NRFI) spare parts they received.[13]
If DOD personnel receive NRFI parts for an F-35, they are instructed to attempt a seven-step process to bring the part to an RFI condition and make it available for use.[14] If DOD personnel cannot resolve the problem using the seven-step process, personnel submit an Action Request to Lockheed to resolve the issue, the cost of which is incurred by the government.[15] However, DOD personnel at two F-35 sites were forced to resort to issuing local policies allowing them to circumvent the seven-step process in order to fly aircraft with NRFI spare parts.[16] Similarly, DOD personnel at several F-35 sites used spreadsheets or whiteboards in order to track the amount of time NRFI parts were used on an aircraft.[17]
Between December 2015 and June 2018, DOD personnel submitted over 15,000 Action Requests to Lockheed to fix NRFI spare parts.[18]
OIG could not determine the cost resulting from these ARs because Lockheed refused to disclose the amount it charged DOD for each Action Request, despite numerous requests by OIG to do so.[19]
However, OIG did determine that, since 2015, DOD has spent up to $303 million in labor costs as a result of manual processes necessary to remedy the issues with NRFI parts.[20] DOD will continue to pay up to $55 million annually until the issue is finally resolved.[21] Even more egregious than the financial burden of the DOD’s lack of oversight is the fact that “until the DOD addresses the delivery of [NRFI] spare parts, the use of manual processes to mitigate [NRFI] problems creates a life and safety concern for aircrews.”[22]
Under its sustainment contracts with DOD, Lockheed receives performance incentive fees based on its ability to meet certain performance metrics related to the number of aircraft availability hours.[23] By installing NRFI spare parts on F-35s that did not have the necessary logistical paperwork, DOD personnel unintentionally inflated aircraft availability hours.[24] Additionally, Lockheed was solely responsible for collecting and reporting F-35 aircraft availability hours. As a result, the Joint Program Office paid Lockheed nearly $26 million in performance incentive fees for the 2017 sustainment contract, 85% of the total amount available for this purpose, based on inflated and unverified data. [25]
In short, due to a lack of DOD oversight, and insufficient internal mechanisms, Lockheed is delivering NRFI parts to DOD, resulting in overinflated “up aircraft” statistics – for which they receive financial incentives – and receiving additional payment for repairing the parts they initially delivered in an NRFI condition.
Both of these reports indicate significant mismanagement and poor oversight of the F-35 program on the part of DOD.
So long as these issues remain, DOD will continue hemorrhaging money on the F-35 program. Even more egregious is that continued reliance on manual processes to mitigate NRFI parts problems threatens not only the operational readiness of F-35s but also the safety of the men and women who pilot them.[26]
It is imperative that DOD act quickly to resolve the issues addressed herein in order to prevent additional wasteful spending. In an effort to better understand how DOD oversees the F-35 program and how the agency can improve oversight standards, please answer the following questions no later than August 15, 2019:
-- DOD concurred with DOD OIG’s recommendations in both reports.[27] When does the Department expect to complete implementation of those recommendations?
-- Is there any way to restructure future F-35 sustainment contracts to require Lockheed to incur the cost of fixing NRFI parts improperly provided to DOD?
-- What DOD personnel are taking part in negotiating the next F-35 sustainment contract?
-- What steps has the DOD taken to ensure that personnel are complying with FAR requirements and ethics standards to ensure fair, impartial negotiations in the best interests of the United States?
-- Does DOD have any mechanism for verifying Lockheed’s self-reported losses? If not, why not?
-- Does DOD intend to conduct a full audit of its Government Furnished Property and other inventory related to the F-35? If so, when? If not, why not?
-- Does DOD intend to develop and implement a system to verify and track the parts it receives from Lockheed? If not, why?
-- Does the F-35 Program Office intend to appoint a component property lead and an accountable property officer per OIG’s recommendation and as required by DOD Instruction 5000.64? If so, how will the persons selected to fill these roles be chosen?
-- How will DOD ensure these officials improve oversight of F-35 program, specifically regarding the acquisition of RFI spare parts?
-- Has anyone been held accountable for the mismanagement/loss of over $2 billion of government property?
-- Who was initially responsible for appointing a DOD component property lead as required by DOD Instruction 5000.64?
-- Who was in charge of supervising the Contract Officer’s Representatives?
-- Does DOD intend to better equip personnel to identify NFRI parts prior to accepting shipment? If not, why?
Should you have questions, please contact Daniel Boatright or Quinton Brady of my Committee staff at (202) 224-4515. Thank you for your attention to this important mater.
Sincerely,
PS: I hope you will take this issue seriously. The F-35 is the best, but not so if the organization to supply parts is not functioning well.
-ends-
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