WASHINGTON: Sen. Carl Levin, D-Mich., made the following statement regarding the Government Accountability Office Report “GAO-10-1020R JSF Alternate Engine Program” assessing Defense Department estimates of funds need to continue the F136 Joint Strike Fighter Alternate Engine program:
This week, the Government Accountability Office (GAO) issued a report that I requested. In my request, I noted that the Secretary of Defense has stated that an additional $2.9 billion would be needed as a near-term investment to continue the F136 alternate engine program for the F-35 Joint Strike Fighter (JSF) program.
I asked GAO the following:
“Since the F136 program portends to be a major issue in the coming deliberations on the National Defense Authorization Act for Fiscal Year 2011, I believe that we would benefit from having your organization conduct an independent review of the $2.9 billion estimate. It would be most helpful if you could complete your review and report your results by September 15, 2010.”
The GAO report points out that:
1. DOD’s alternate engine cost projection is not a detailed, comprehensive estimate.
2.There are two key assumptions in the DOD methodology that have a significant impact on the amount of up-front investment needed. These assumptions were:
a. 4 years of noncompetitive engine procurement would be needed to allow the alternate engine contractor sufficient time to gain production experience and complete developmental qualification of the engine; and
b. The Government would need to fund quality and reliability improvements for engine components on both engines.
DOD officials have stated that the financial differences between the two alternatives, continuing with sole source procurement for the F135 and competing procurement of the F135 and F136 engines, is a wash. In other words, the net present value calculation of the two alternatives is at the break-even point. That being the case, anything that would tend to reduce the near-term costs of the competition alternate would tend to tip the economics in favor of competition.
On the period of noncompetitive procurement, as noted in the GAO report, during the engine competition between the F100 and the F110 in the mid 1980s, the price of the alternate engine became competitive after only a single year of noncompetitive procurement. The DOD estimated cost of $747 million assumes that, since the underlying JSF development program has slipped 3 years, competitive purchases of the F136 would have to slip 3 years.
However, as GAO points out, the F136 development program is only 7 months behind the contract schedule and 2 years of noncompetitive procurements could still allow sufficient time to complete the alternate engine development and qualify the engine. A reduction in the period of noncompetitive procurement would tend to reduce the estimated cost of the competition alternative, and tend to push the economic argument in favor of competition.
On the second point, GAO points out that competition and the pressures on the two engine teams might cause them to invest their own corporate funds, and thereby, the Government would not have to pay for a component improvement program, estimated by DOD to cost roughly $345 million. The GAO report also points out that a JSF Joint Program Office program management advisory group study concluded in 2002 that competition has the potential to offset or eliminate the need for Government funding for a component improvement program. If that were the case, it could also reduce the cost of competition, and tend to push the economic argument in favor of competition.
I believe that both of these observations add to economic arguments in favor of competition, but I have long believed that the economic benefits are not the only argument in favor of competition. That is why I strongly supported enactment of the Weapons System Acquisition Reform Act of 2009 (WSARA), which, among its main directions to the Defense Department, calls for competition throughout the life cycle of major acquisition programs.
Since the JSF program is the single largest DOD acquisition program, the JSF engine is a great place to begin implementing WSARA.