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Pentagon Clarifies Cost Increases on the JSF Production

by: Matthew Potter
July 26, 2011

Category: Business Line, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, development program, Events, Federal Budget Process, Lockheed Martin, Military Aviation, Pratt & Whitney, production program, Services, U.S. Air Force, U.S. Marine Corps, U.S. Navy, UTC | RSS 2.0

A few weeks ago when a funding reprogramming from the Defense Department was submitted to the Congress for their consideration it caused Senator John McCain (R-AZ) and the Senate Armed Services Committee (SASC) to question the program’s status. As part of the request it was asked by the Air Force to move over $240 million to pay cost increases on the F-35 Joint Strike Fighter (JSF) first production contracts. The total bill was actually closer to $750 million as the plan was to move internal JSF funding to make up the difference. Needless to say given the history of the program the SASC was not happy to see the further increases.

As part of their response McCain and Senator Levin (D-MI), the Chair, sent the Defense Department six questions about the reprogramming and the program’s funding status. One of the questions asked the Government to state how much of the cost increase is recoverable and most interestingly the cost to terminate the program.

The Pentagon has now responded to parts of the letter. They revealed that Lockheed Martin (LMT), the prime contractor, and Pratt & Whitney, part of United Technologies (UTX), will pay $283 million of the increase based on the cost sharing provisions of the production contracts.

One could assume this means the total bill to the Government now is below $500 million once this figure is subtracted. Unfortunately that is wrong. The total increase may ultimately be closer to $1 billion and the $283 million is the contractor share with the Pentagon picking up the rest, or just over $700 million. Pratt & Whitney estimates that their portion of the increase is about 6% of the total cost of the contracts.

The F-35 has suffered a series of production delays and cost increases due to testing issues and changes in the design of the aircraft. It had long been expected that there would be cost increases with the first three production batches. The Senate, though, has been trying to draw a hard line on future cost increases and have written into their version of the 2012 Authorization Act a requirement that Lockheed pick up all cost overruns beyond the target price and that the contract be a fixed price one. Normally at this stage in the program where much development and testing remains the contract would be cost plus and there would be some risk sharing as on the current ones.

There are many who are starting to get tired of the JSF status. The program has been re-baselined and repriced but it is not near its original schedule and cost. That is why the SASC raised the idea of terminating the program at its current state. This would be expensive, although no official estimate has been made, and would still leave the requirement for a new aircraft that would either require a new development program or a decision to buy an existing U.S. or foreign aircraft.

As with most things about the JSF there will be more to come in the near future on these latest rounds of cost increases and their ultimate effect on the program.

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