The F-35 program has lost track of millions of dollars in spare parts held at more than 50 domestic and international non-prime contractor sites, according to a new Government Accountability Office (GAO) report.
The F-35 Joint Program Office (JPO) said in August 2021 that it was on track to establish an Accountable Property System of Record (APSR) for the tracking of such parts by the end of last year, yet the new GAO report suggests that the work to populate the system with verified part information is ongoing (Defense Daily, Aug. 27, 2021). The F-35 program has chosen the Defense Property Accountability System as the APSR.
“The F-35 JPO does not maintain accountability over the spare parts in the global spares pool held at non-prime contractor facilities, the total value of which is unknown, by entering these spare parts into an APSR,” according to the report by GAO, which conducted the audit from June last year until this month. “Also, the F-35 JPO has not adjudicated the majority of the spare part losses identified by one of its prime contractors, and has not provided disposition instructions for thousands of the spare parts that contractors have identified as excess, obsolete, or unserviceable.”
Under the 1990s Total System Performance Responsibility approach, Lockheed Martin [LMT] and Pratt & Whitney, now owned by Raytheon Technologies [RTX], have had spare parts management responsibility, and, as a result, “DoD has never maintained its own complete F-35 property records that contain data such as how many F-35 assets it has purchased, where these assets are located, descriptions of these assets, or the full cost paid for these assets,” GAO said. “Instead, the two prime contractors for the F-35 program have maintained these property records in their own inventory tracking systems.”
The GAO report, F-35 Program: DoD Needs Better Accountability for Global Spare Parts and Reporting of Losses Worth Millions (GAO-23-106098), is at www.gao.gov/assets/gao-23-106098.pdf.
“Our analysis of data from prime contractor 1, a subcontractor, and the F-35 JPO identified that from May 2018 through October 2022, prime contractor 1 has incurred losses of over 1 million spare parts from the global spares pool totaling over $85 million,” the study said. “Of those total losses, prime contractor 1 has submitted approximately 60,000 losses worth approximately $19 million to the F-35 JPO for adjudication. Of the 1 million total lost spare parts, the F-35 JPO has adjudicated less than 2 percent of total quantity and cost. Because, as previously reported, the F-35 JPO does not have an independent record of the global spares pool, and the values of the lost spare parts are not the fully burdened cost, the $85 million of identified losses by prime contractor 1 may not accurately represent the full quantity and value of lost spare parts. According to DoD officials, the full quantity and value of these spare parts may be significantly higher.”
“Due to the lack of a loss-reporting process, as of October 2022, our analysis identified that prime contractor 1 has yet to report for adjudication approximately 940,000 spare parts valued at over $66 million that were lost at its non-prime contractor facilities worldwide,” GAO said. “For example, losses that have not been reported to the F-35 JPO include 34 actuator doors and 14 batteries with total costs of over $3.2 million and $2.1 million, respectively, that were lost in the fourth quarter of calendar year 2019.”
Part of the challenge and the delay in establishing the APSR has been a disagreement over whether spare parts held at the non-prime contractor sites are accountable under the F-35 sustainment contract.
The GAO advises that DoD and the F-35 program ensure that they have categorized all F-35 spare parts appropriately and that such parts are accountable under contract.
The office of Pentagon acquisition chief Bill LaPlante agreed with that recommendation and provided some insight on steps that DoD is taking, including the establishment of a Joint Working Group among DoD, the F-35 JPO, Lockheed Martin and the Defense Contract Management Agency and the group’s discussion of modifying the F-35 sustainment contract to incorporate Government-furnished Property (GFP).
“The JPO sustainment contracts have always included the appropriate government property clauses; however, adherence and enforcement have been inconsistent,” DoD said in its response to GAO report. “The government team took steps to modify the current sustainment contract to add the GFP attachment through an administrative modification (no change in direct cost or Terms and Conditions). On March 10, 2023, a bilateral modification was sent to Vendor 1 to incorporate a GFP list of spare parts as Attachment 48 to the FY21-23 Annualized Sustainment Contract.”
“Vendor 1 rejected the bilateral modification on March 23, 2023,” the Pentagon said. “The JPO is currently assessing next steps to address spares pool accountability and subsequent financial reporting.”
Defense Daily will add any insights from Lockheed Martin on the March 23rd rejection of the contract modification and any further insight from the F-35 program on why it did not establish an APSR by the target date of last year and when it expects to.
The F-35 program said in a statement to journalists that it concurs with the new GAO study’s recommendations but that “it is important for the American people and our global partners to understand that we know where the vast majority of F-35 spare parts are in the global supply chain.”
“At this time, our error rate is around 1 percent, and while this is considered much better than the government goal of 5 percent, we will continue to work with the services and our industry partners to improve spare parts accountability and drive readiness for our warfighters,” the F-35 JPO said. “Accountability of F-35 spare parts is currently managed through a non-government system; however, we are working with industry to move this data to a government system.”