The Pentagon paid over $114M in incentive fees as F-35 readiness fell

The U.S. F-35 fleet's full mission capable rate -- the share of time it can perform every assigned mission, not just one -- fell from 38 percent to 25 percent between fiscal years 2021 and 2025, according to a June 2026 GAO report⧉.▸ Over the same stretch, the Pentagon paid the aircraft's sustainment contractor, Lockheed Martin, over $114 million in incentive fees tied to readiness and supply metrics that GAO found had "generally stagnated or worsened." A December 2025 Defense Department Inspector General audit⧉ examined what happened next: the Pentagon's newest sustainment contract, signed in June 2024, contained no financial incentive or penalty tied to readiness at all -- and the government paid Lockheed Martin $1.7 billion on it anyway, even as every readiness measure fell short.

The F-35 is the Pentagon's largest acquisition program, with a lifetime price tag of over $2 trillion to buy, operate, and sustain -- $442 billion in acquisition costs and $1.58 trillion in sustainment.▸ As the U.S. fleet grew from about 450 aircraft in fiscal 2021 to more than 800 in fiscal 2025, its readiness moved the wrong direction: the mission capable rate (able to fly at least one assigned mission) fell from 67 percent to 44 percent, and the full mission capable rate fell from 38 percent to 25 percent. GAO has made 46 recommendations to fix F-35 sustainment since 2014; 32 remain open.

In response, the F-35 Joint Program Office launched what it calls the Global Support Solution Reset in June 2025 -- an additional $13.7 billion through fiscal 2031, on top of previously planned spending, aimed at an 80 percent mission capable rate and 65 percent full mission capable rate fleetwide by 2030.▸ About half that money, $7.3 billion, buys more spare parts and repair materials; $3.1 billion expands depot repair capacity; $3.3 billion covers additional operations and maintenance. It's a real plan with real money behind it. But GAO found the Joint Program Office has not written formal risk-mitigation plans for it, despite identifying its own risks: limited access to technical data, an industrial base a 2025 contractor study found could only meet 95 percent of parts demand, and a projected $1.2 billion-a-year gap between sustainment costs and what the services can afford once the program reaches steady state in the mid-2030s.

The readiness numbers are only half the story GAO tells.▸ The other half is what the Pentagon did about it. For the 2020-2023 air vehicle sustainment contract, JPO negotiated incentive fees tied to the full mission capable rate and a set of supply metrics -- fees Lockheed Martin could only earn by hitting specific targets. Across 39 quarterly performance periods, JPO and the contractor reconciled the FMC rate upward -- moving it into a higher payout bracket -- 19 times, nearly half, "with little, if any, improvement to actual FMC rates." The contractor collected over $55 million in FMC fees; GAO estimates that paying strictly on the unreconciled numbers would have yielded about $30 million. The supply-rate incentive followed the same pattern: $59 million paid against a raw-metric estimate of $30 million.

GAO's reviewers say the individual reconciliation justifications look valid under the contract's own terms -- delivery delays outside the contractor's control, that kind of thing.▸ The problem is the aggregate pattern: fees kept flowing while the underlying readiness numbers didn't move. When JPO negotiated the 2024 contract, it dropped FMC and mission-capable incentives from the metrics altogether, keeping only a supply metric -- and lowered even that target, from 82 percent to 77 percent, despite the contractor sitting at 76 percent the previous quarter. The current 2025-2028 contract goes further: it incentivizes only supply-chain metrics and includes nothing tied to maintenance performance or full mission capable rates at all.

The Inspector General's audit picks up where GAO's leaves off, examining the June 2024 contract in detail.▸ Its finding: that contract -- and the $3.4 billion undefinitized modification that followed it in December 2024, and the definitized version signed in August 2025 -- contained no financial incentive or disincentive tied to Full Mission Capable, Mission Capable, or Air Vehicle Availability requirements at all. Not lowered targets. No targets. By July 1, 2025, the Pentagon had paid Lockheed Martin $1.7 billion on that contract, without economic adjustment, while all three readiness rates missed the military services' minimum requirements. Fiscal 2024's average Air Vehicle Availability across the services was 50 percent -- the aircraft unavailable to fly half the time -- 17 percentage points below the average requirement. Some individual categories were far worse: Marine Corps training aircraft were required to hit a 60 percent full mission capable rate and managed 0.5 percent; Navy aircraft in operational test and evaluation were required to hit 60 percent and managed 0.0 percent.

JPO officials told the Inspector General it wasn't realistic to write every service requirement into the contract, since readiness can be dragged down by factors outside Lockheed Martin's control, like maintenance delays.▸ That may be true of any single metric. It doesn't explain removing all of them. The Inspector General also found the JPO didn't enforce a routine parts-inspection paperwork requirement because Lockheed Martin said it was too burdensome, and that regulators approved a deviation -- requested by the program office itself, in effect through the end of 2026 -- that blocks the Pentagon's own contract-administration agency from withholding payment over property-reporting failures.

The Pentagon assigns contracting officer's representatives -- CORs -- to F-35 bases specifically to watch contractor performance and flag problems in real time.▸ The Inspector General surveyed all 24 of them. Twenty-three said they weren't overseeing performance requirements or incentive metrics at all. Twenty-two said they weren't tracking how often squadrons were cannibalizing parts from one aircraft to keep another flying -- itself a sign of supply failure. Nineteen said the contract language was too vague to enforce: it required Lockheed Martin to provide pilot training and working flight simulators, for instance, but specified no training levels or availability targets to check against. Twelve said they lacked the system access to do their jobs -- one estimated missing 60 percent of the oversight duties without it. Five of the 16 F-35 bases had no contracting officer's representative assigned at all.

None of this is new to the Inspector General's office -- it flagged inadequate F-35 contractor oversight and missing base-level monitors in a 2019 audit, too.▸ This time, the office made seven recommendations: write readiness metrics back into the contract or get a formal waiver from each service; give contracting officer's representatives clearer duties and better system access; and study how many of them the program actually needs. The Pentagon agreed to six. It did not agree to the recommendation that it put readiness performance back into the contract.