The Pentagon held two days of talks with Lockheed Martin [LMT] this week to present its “should-cost” estimate for the fifth low-rate initial production (LRIP) phase for the F-35 Joint Strike Fighter, the program office said yesterday.
The should-cost estimate serves as the basis for government negotiations with Lockheed Martin about the cost of the LRIP 5 production, said Joe DellaVedova, the spokesman for the F-35 Joint Program Office. It was arrived at through a Defense Department and JPO study that looked at affordability, factory flow, sustained engineering, and subcontracting “to inform the negotiations for the LRIP 5 contract,” he said.
The Air Force and Navy are expected to lower the quantity of F-35s procured under LRIP 5 to 30 to pay for past overrruns, DellaVedova said.
The JPO said last week that it remained committed to having Lockheed Martin share in “concurrency” costs associated with redesign and modifications in LRIP 5, in addition to provisions under previous LRIPs that required the firm also help pay for cost overruns (Defense Daily, Oct 27). The move was an attempt by the Pentagon to rein in costs for the $382 billion program, which has faced heavy scrutiny on Capitol Hill and some calls for cancellation.
The concurrency clause appeared to open a rift between Lockheed Martin and the JPO. Bob Stevens, company chairman and CEO, called the move “new and unprecedented.” While Lockheed Martin was open to sharing concurrency costs, it needed to be fair and equitable, he said.
“This kind of concept breaks down, however, when extended to cover the unknown, that is discoveries that might occur in the future but are not known and cannot be predicted today,” he said.
JPO said it would work in “good faith” to reach a contract agreement for LRIP 5. The Pentagon has stood by plans to have Lockheed Martin pay for some of the concurrency costs as outlined in an August memorandum calling on the production contract to reflect “reasonable allocation” for the firm to share the risk to meet F-35 requirements.
“Early production aircraft always have higher costs that come down a learning curve,” DellaVedova said. “F-35 concurrency is generating significant change that both perturbs the learning cost reduction and adds costs for modifying delivered jets.”
The first three LRIP production runs for a combined 31 aircraft exceeded cost expectations by 11-15 percent, requiring the government to pay $771 million in overruns, DellaVedova said. The ongoing procurement of 32 aircraft under LRIP 4 has shown improvement in bringing down the overruns, he said.
“Controlling costs is an absolute must,” he said.
Lockheed Martin would not comment on the should-cost discussions. The JSF JPO would not provide any figures arrived at under the should-cost estimate.