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Who Should Read This Report and Why? Civilian and military managers involved in managing acquisition programs should read this report to obtain information about commercial item acquisition, requirements evolution, and test and evaluation planning because the report discusses an unjustified decision to use a commercial item acquisition strategy and other problems that occurred because of poor management.
Background. We performed this audit in response to allegations to the Defense Hotline concerning the Defense Contract Management Agency's oversight of Lockheed Martin's performance on the C-130, F-22, and C-5 aircraft. This is the third in a series of three reports concerning the allegations. This report addresses the allegation that the C-130J aircraft does not meet contract specifications and therefore cannot perform its operational mission.
The primary mission of the C-130J remains unchanged from the existing C-130 fleet. The C-130J performs the intratheater portion of the airlift mission and is a platform for dropping troops and equipment into hostile areas. The C-130J aircraft is a medium-range, tactical aircraft and is the newest upgrade to the C-130 fleet. Enhancements include a modern glass cockpit with digital avionics, an improved electrical system, new engines and propellers, and an enhanced cargo handling and delivery system. In addition, the C-130J aircraft requires only a three-person flight crew instead of the five-person flight crew that the previous H-version required. Lockheed Martin, the manufacturer, discontinued production of the H version in 1997 and promoted the C-130J as a commercial aircraft.
Results. We substantiated the allegation that the C-130J aircraft does not meet contract specifications and therefore cannot perform its operational mission. The Air Force conditionally accepted 50 C-130J aircraft at a cost of $2.6 billion even though none of the aircraft met commercial contract specifications or operational requirements. The Air Force also paid Lockheed Martin more than 99 percent of the C-130J aircraft's contracted price for the delivered aircraft. As a result, the Government fielded C-130J aircraft that cannot perform their intended mission, which forces the users to incur additional operations and maintenance costs to operate and maintain older C-130 mission-capable aircraft because the C-130J aircraft can be used only for training. The Assistant Secretary of the Air Force for Acquisition should stop the System Program Office from contracting for additional block upgrades until a contract-compliant aircraft is designed, developed, and delivered; use Federal Acquisition Regulation Part 15 for future modifications that add to the scope of the statement of work to the C-130J multiyear contract (F33657-03-C-2014); increase contract withhold amounts for acceptance of noncompliant aircraft; and develop a schedule for completing outstanding retrofits to accepted and fielded aircraft. (See the Finding section of the report for the detailed recommendations.)
Management Comments and Audit Response. The Assistant Secretary of the Air Force for Acquisition nonconcurred with the finding and recommendations. The Assistant Secretary stated that the commercial acquisition strategy of the C-130J was legitimate, the Air Force properly managed the program, and DoD provided effective oversight. The Assistant Secretary stated that Lockheed Martin is delivering contract-compliant C-130J aircraft, and that upgrades are necessary to meet DoD requirements. He also stated that the use of Federal Acquisition Regulation Part 12 was appropriate. In addition, withholds were consistent with the contract, and the Air Force did not have problems motivating Lockheed Martin to correct within-scope deficiencies. The Assistant Secretary also stated that all outstanding retrofits had been scheduled or completed. The Assistant Secretary's comments were nonresponsive to the report and its recommendations. We do not agree with the Assistant Secretary's comments and stand by our finding and intent of the recommendations. Because the Air Force had already accepted noncompliant aircraft, visibility on modification and development costs are lacking, the multiyear contract has already been awarded, and it would require a bilateral agreement to change the terms and conditions of the contract, we revised the recommendation from changing the existing multiyear contract terms and conditions to using Federal Acquisition Regulation Part 15 for future modifications that add to the scope of the work of the multiyear contract. The commercial acquisition strategy was unjustified, the Air Force did not properly manage the program, and the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics did not provide effective oversight. The Air Force bought the C-130J as a commercial item needing minor modification, but in the 8 years since the Air Force began contracting for the C-130J, Lockheed Martin has been unable to design, develop, or produce a C-130J aircraft that meets contract specifications. In addition, the Air Force did not determine whether the commercial version of the C-130J met the operational requirements before procuring the aircraft. The Air Force C-130J withholds do not correlate with C-130J aircraft outstanding contract deficiencies, nor do current levels of withholds ensure that corrections are performed in a timely manner. All contract deficiencies should be resolved and retrofits should be performed before the Air Force funds additional upgrades. We request that the Assistant Secretary of the Air Force for Acquisition provide comments on the final report by August 23, 2004.
Although not required, the Director, Operational Test and Evaluation in the Office of the Secretary of Defense provided comments on the report. See the Management Comments section of the report for the complete text of the comments.
See the Finding section of the report for a discussion of the Assistant Secretary of the Air Force for Acquisition's comments and the Management Comments section of the report for the complete text of the comments.
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