By Emelie Rutherford and Geoff Fein

The Navy’s E-2D Advanced Hawkeye being developed by Northrop Grumman [NOC] suffered a critical cost breach triggering an already completed Pentagon certification under the so-called Nunn-McCurdy statute.

Additionally, the aircraft was approved to begin low-rate initial production (LRIP) June 11.

Northrop Grumman yesterday was awarded a $432 million fixed-price incentive contract for LRIP.

Navy Secretary Raymond Mabus notified Congress’ leaders and the heads of its defense panels in letters dated June 11 that the aircraft program experienced critical cost growth, in relation to its June 2003 acquisition program baseline, to its average procurement unit cost (APUC) and its program acquisition unit cost (PAUC); both increased by at least the 25 percent threshold that triggers the need for a Pentagon recertification under the so-called Nunn-McCurdy law.

Pentagon acquisition chief Ashton Carter also sent the same lawmakers letters dated June 11 stating he certifies the E-2D effort meets five criteria that must be met to continue programs that experience critical cost breaches. The criteria are: continuing the program is essential to national security; there are no acceptable alternatives that cost less; the new cost estimates are deemed reasonable by a senior Pentagon official; the program is a higher priority than others whose funding must be reduced to accommodate the cost growth; and the program’s management structure is adequate to manage and control costs.

The certification is based on the Pentagon’s review of the program in accord with an April 14 acquisition decision memorandum and on revised production profiles and cost estimates, Carter’s letter says.

The E-2D is the first program to suffer a Nunn McCurdy breach since President Obama on May 22 signed into law the Weapon Systems Acquisition Reform Act of 2009, which changes how programs proceed after such cost overruns.

Thus, Carter was required to take new steps required under the law, including reassessing the E-2D’s previous milestone-approval criteria and conducting a root-cause analysis of the cost overruns.

“It found that the root causes of E-2D (Advanced Hawkeye) AHE program unit cost growth were an underestimation of the cost of the radar at Milestone B, multiple production quantity profile changes since setting the program cost baseline at Milestone B, increased contractor overhead rates primarily due to growing pension costs, and added capabilities since the MS B Acquisition Program Baseline,” Carter states in the certification letter. “The E-2D AHE program is developing capability two generations beyond current command, control, and surveillance aircraft and the increases in unit cost are not a result of poor management by government or contractor program personnel.”

Carter tells lawmakers that the E-2D’s program unit cost is “highly sensitive” to its production quantity. He said he determined that taking two steps to garner more economical production rates–accelerating the purchase of six of the planes between fiscal years 2012 and 2014 and then ending procurement in FU ’10, a year earlier than previously planned–will control cost growth. The acquisition czar says the Navy has committed to the new funding scheme, and that Congress’ support is vital.

Carter says he also directed the Navy institute a “concerted” cost-reduction program, and the service already has identified ways to reverse cost growth in the restructured E- 2D program.

Carter last week also signed an Acquisition Decision Memorandum that delivered the LRIP decision following a Milestone C review for which the program underwent a system design verification and demonstration during developmental testing, according to Marcia Hart-Wise, a Navy spokeswoman.

LRIP allows a ramp-up in manufacturing of a weapon system, allowing the program to prove confidence in the aircraft’s development before moving into full-rate production, she added.

The decision comes after the E-2D’s completion of an operational assessment last fall to verify the aircraft’s systems capability, suitability and design will be fully responsive to the future needs of the carrier air strike group.

Under the E-2D’s low-initial rate production, the Navy will procure two aircraft each in fiscal year 2009 and 2010. The program of record indicates the Navy will purchase 75 total aircraft, Hart-Wise added.

The first E-2D System Development and Demonstration aircraft, known as Delta One, arrived at Naval Air Station Patuxent River, Md., on May 31 for continued developmental testing in preparation for Initial Operational Test and Evaluation (IOT&E). The second E-2D, known as Delta Two, will arrive at Pax River later this summer. The program is on- track for IOT&E in 2011.