The Defense Department late Wednesday forced a $6 billion contract on Lockheed Martin [LMT] for the ninth lot of F-35 Joint Strike Fighters, effectively breaking a negotiating logjam but prompting a rebuke from the company contending the agreement was not mutual.

Low Rate Initial Production (LRIP) Lot 9 came in at $6.1 billion for 57 aircraft, a 3.7 percent reduction from the previous LRIP 8 contract signed in December 2014, according to the F-35 Joint Program Office (JPO). The lot price of the aircraft has fallen 58 percent from LRIP 1.

Lockheed Martin and the JPO are at odds over the terms of the agreement and issued conflicting statements Wednesday as to the mutuality of the deal. Negotiations for LRIP 9 had been in the works considerably longer than dealings for the previous eight lots.

“The LRIP 9 contract represents a fair and reasonable deal for the U.S. government, the international partnership and industry,” said Lt. Gen. Chris Bogdan, F-35 program executive officer.  “We will continue to negotiate in good faith with industry to keep the F-35 affordable and provide the best possible value for our customers.”  

BF-17, Major Richard "BC" Rusnok & BF-18, LtCol Jon "Miles" Ohma

Lockheed Martin shot back with its own statement, contending the Defense Department is forcing its terms on the company. Lockheed Martin has the option of appealing the action to the Armed Services Contract Board of Appeals but has not aired its intention to do so.

“The definitized contract for LRIP 9 announced today was not a mutually agreed upon contract. It was a unilateral contract action, which obligates us to perform under standard terms and conditions, and previously agreed-to items,” Lockheed Martin said. “We are disappointed with the decision by the Government to issue a unilateral contract action on the F-35 LRIP 9 contract. For the past 18 months, Lockheed Martin has negotiated in good faith consistent with our commitment to reach a fair and reasonable agreement on this critical program. We will continue to execute on the F-35 program and we will evaluate our options and path forward.”

Aerospace industry analyst Richard Aboulafia, vice president at Teal Group, called the deal the “LRIP at gunpoint” finalized unilaterally by the JPO out of frustration over stalled negotiations. By the ninth lot of production representing hundreds of aircraft, Lockheed Martin and the Defense Department ought to be fairly confident what an F-35A should cost, he said.

“It seems the JPO got frustrated by the logjam and decided to break it unilaterally.” Aboulafia told Defense Daily. “It’s an interesting maneuver but not without precedent. It also is the ultimate paradox, because it is a shotgun maneuver where the recipient of the shotgun blast is not without recourse.

Lockheed Martin now must thoroughly crunch its numbers and decide if it can swallow the $6.1 billion agreement. If not, the next step is taking the Defense Department to court, Aboulafia said. That would add another wrinkle to a program plagued by schedule and development delays, cost overruns and tense relations between Lockheed Martin and the Defense Department.

Bogdan has established rigid and relatively aggressive cost reduction goals following a 2010 re-baselining of the program. Issuing the contract without agreement from Lockheed Martin, in effect, is asking the company to commit to the JPO’s cost schedule, Aboulafia said.

Efforts to achieve economies of scale and the Blueprint for Affordability program have brought the per-unit F-35 cost down $1.1 million to $107 million in Lot 9, the lowest per-plane price tag in the program’s history, the JPO said. The per-jet price tag for the 43 aircraft in Lot 8 was about $108 million.

Lockheed Martin F-35 program officials have said the per-jet unit cost of a benchmark F-35A is set to fall below $100 million in LRIP 10. Negotiations over that 93-aircraft deal are ongoing. Both Lockheed and the JPO are bent on bringing the per-plane cost in line with fourth-generation fighters, or about $80 million apiece.  

Of the 57 aircraft in LRIP 9, there are 42 Air Force conventional takeoff and landing F-35As, 13 Marine Corps short-takeoff and vertical landing F-35Bs and two Navy carrier-launched F-35Cs. Aircraft will start delivery in early 2017. Once production of LRIP 9 aircraft is completed, more than 250 F-35s will be in operation by eight nations.

The LRIP 9 contract with Lockheed Martin is for air vehicles and does not include the propulsion systems.  A contract between the government and F135 engine manufacturer Pratt & Whitney [UTX] was agreed to in April.

The LRIP 9 aircraft join 209 F-35s contracted under LRIPs 1-8.  As of Nov. 2, 196 F-35s, including test aircraft, were delivered from production facilities in Fort Worth, Texas, and Cameri, Italy. The United States, eight partner nations and foreign military sales participants have announced plans to procure more than 3,100 F-35 fighters.