A new problem has emerged for the long-troubled F-35 joint strike fighter program. It concerns spare parts, and who accounts for them. Are they government-furnished parts or should they be accounted for under a contract. The Joint F-35 program office and its suppliers don’t always agree, with the result that millions of dollars worth of parts seemingly vaporize.  Federal Drive with Tom Temin gets details from the director of financial management and assurance issues at the Government Accountability Office, Kristen Kociolek. https://www.gao.gov/products/gao-23-106098

Interview Transcript: 

Tom Temin Yeah, So this is not really a problem of the airframe brakes or the software is no good. We’ve had all that in the engines, but this is the way parts are accounted for. And it seems like a really arcane issue. And yet tens of millions of dollars are at stake. Tell us what’s going on.

Kristen Kociolek Right, Tom? So like you said, we didn’t look at this as part of our audit of the US government financial statements. And this is how the problem came to our attention, the accounting for it. But when we started looking at it, there can be operational issues related to this as well. Keeping track of inventory and knowing where your spare parts are is critical to maintaining the aircraft in an effective and efficient way. Knowing where they are, how many you have, where they are located is really important for the operation of this aircraft being run efficiently. As I’m sure you’ve talked about before, it’s an extremely expensive program and so making sure the dollars are well used, you’re not buying more than you need, but you are absolutely having what you need and having that information available to management on a timely basis so they can make really important decisions about what they need, where it is, is critical.

Tom Temin And by the way, when you talk about spare parts that can be like an engine or a landing gear, not just a knob on a radio in the cockpit.

Kristen Kociolek Correct. I mean, it could be a bolt, it could be a fastener, but it could be an engine part. It could be a tire. It could be landing gear. So these are pretty important parts to the aircraft. And like I said, knowing where they are. Having management have the ability to know where those things are and being able to make good, informed decisions about what you need when you need it is important. So the operations of this program.

Tom Temin So what is the issue then for how they accounted for and where the spare parts are?

Kristen Kociolek So as you mentioned, there is some disagreement, I guess, if you will, about how the parts should be accounted for. There are systems in place for contractors to report to the government, the assets that they hold. And then also if there are losses or if the contractor determines there are excess items, obsolete items, excess could be used somewhere else, You’d want that to be reported so that those things could be used elsewhere. And like I said having efficient management of all government assets, making sure they’re protected. So by not agreeing on if these are government furnished property, they’re not being entered into those systems. And so they are kind of just in this limbo land of they’re not in the government records and they’re not in the contractor records. And so nobody has clear oversight as to where they are.

Tom Temin It almost takes you back to the old fashioned days of retail when stores would close to do a physical inspection of the shelves is the only way they could get an accurate inventory. It sounds like this is the case here almost.

Kristen Kociolek Absolutely. And so the F-35 Joint Program Office has started that process of trying to go out and count everything. But going back in time and kind of trying to recreate this list is extremely time consuming. And so I think that’s one of the difficulties they’re running into, is that because this has not been resolved from the beginning, trying to play catch up and now do that count, get everything into a system is not easy by any stretch of the imagination. These parts are very numerous and located all over the world. So going through that process is taking quite a bit of time.

Tom Temin We’re speaking with Kristen Kociolek. She’s director of financial management and assurance issues at the Government Accountability Office. And let’s just take the example of the engines that are made by Pratt and Whitney, and they blow and they need to be replaced regularly on these jets. They’re kind of under high pressure. So what does the government expect for an inventory system? I mean, once it is acquired for placing in government stockpiles, it is then I guess you could say government furnished, but it was bought from a contractor. So who is supposed to deliver these parts to where and what is the expectation of the Defense Department as to who should account for where they are?

Kristen Kociolek Well, there are two different types of equipment, like you mentioned. In some cases, the government initially acquires the property and then provides it to the contractor. But in other cases, the contractor acquires the property and then ultimately it becomes government property. And so there are, like I said, mechanisms in place where if it’s in a contractor system, there are contract oversight officers within the Department of Defense that have routine processes for evaluating the contractor systems that are being maintained, making sure that the contractors have proper internal controls to maintain security for the parts and things like that. And the problem is when these types of spare parts are not going in to those systems that are in place, are not going through those normal channels, that’s where they’re losing some of this oversight. When they’re not getting entered in, when there’s disagreement about what types of assets these are. Like I said, they’re kind of falling through the cracks and not ending up in any of those systems to allow the government to maintain the accountability that has been established in most cases.

Tom Temin And there’s a little twist here, because in some circumstances, contractors have the right or the contractual obligation to do the installation of the spare parts. So therefore, even though they might have made them, they might have already sold them the government and then the term government furnished means furnished to the contractor. So they kind of go around in a circle in that sense.

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Kristen Kociolek Absolutely right. And many of these contracts are written that there is the expectation that the contractor holds this equipment. So there’s really nothing wrong with that or that in itself is not problematic. But making sure that these accountability mechanisms and oversight mechanisms are in place just to have these checks and balances in place to ensure, like I said, that government assets are being protected, taxpayer dollars are being used as the government thinks they are being used, and everybody kind of knows where everything is. Everybody is on the same page so that the program can run efficiently, effectively is really, really what’s potentially at risk here.

Tom Temin But in the meantime, you found some pretty expensive examples of where it hasn’t been efficient and where things have gone unaccounted for, let’s say, even though they might actually exist somewhere on a shelf.

Kristen Kociolek Absolutely. Like I said, there are processes in place where if a contractor would determine, for example, that they have some excess parts or parts that are obsolete and can no longer be used for the F-35, let’s say, but could potentially be used for another contract, could potentially be used for another part of the government. We did find instances where these parts have been identified by the contractor but are not being reported back to the government. So there is a potential risk that some of these parts could be used elsewhere, but instead additional parts are being purchased when maybe that’s not necessary because these parts could be reused elsewhere. Or if there are excess perhaps we are paying for storage costs that we don’t need. We could be getting rid of these. We could be freeing up storage space. So there is a risk that there are some additional expenditures being incurred because of the lack of reliable data readily available for management to be making this decision.

Tom Temin Well, in one case, some parts have been unaccounted for for five years. There’s a million of them. They’re worth more than $85 million. This is the kind of thing you’re seeing.

Kristen Kociolek Absolutely right. It’s big numbers of parts. It’s big dollars that are potentially at risk here that could be used for other things, that could be used for other purposes. And so that’s really what we’re talking about is the potential mismanagement of resources, given this lack of oversight.

Tom Temin Any the other good examples you came across, big dollars?

Kristen Kociolek Yeah, like you said, there were instances where we found thousands of parts that the contractor had reported as lost. And so when they go through the normal channels, the government then has the opportunity to assess the reason for that loss and then determine who is liable for paying for those parts. Was it some lack of controls on the government? Was the lack of controls on the contractor? Who’s liable for paying for that loss? And without having timely reporting of that, the government could be incurring those liabilities and losses that really should be borne by others.

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Tom Temin Yeah, 34 actuator doors with a total cost of 3.2 million that were lost. How do you lose an actuated door? I don’t know what that is exactly. It could be as big as a refrigerator door. It could be as small as a jewelry box door, I guess, on a F-35. But 34 of them are gone.

Kristen Kociolek Right. Absolutely. And that’s the concern. And without having this oversight as to understanding why that happened exactly like you said why are these things happening? Could we be putting some additional controls in place so it doesn’t happen again? It’s something you don’t want to continue to be repeated. And that’s why there are these processes in place for the government to be able to provide some oversight, do some investigating, understand what’s going on so that hopefully in the future you wouldn’t have these problems happening again and without this information and understanding and the timely looking in so that the longer time goes by, if this is occurred five years ago, the understanding what happened and being able to identify root causes, put some corrective actions in place. The more time passes, that becomes excessively difficult to do. And so in the next five years, you could have lost 34 more and not even know it.

Tom Temin Yikes. So you’ve got four recommendations basically for the acquisition and sustainment function at the undersecretary of defense to fix all of this. Do they pretty much agree with them?

Kristen Kociolek They did concur with all the recommendations, which is wonderful. They have mentioned in their comment letter that they provided with their report steps they do plan to take to try to put additional procedures in place, corrective actions in place. So so that’s very encouraging.

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