By Marina Malenic
A day after Defense Secretary Robert Gates docked Lockheed Martin [LMT] $614 million in performance fees for problems with the F-35 Joint Strike Fighter program, company executives said they remain in discussions with the Pentagon on a future fee structure for the work.
“The government wants to pay for results, not for activity,” Lockheed Martin’s F-35 program manager Dan Crowley told reporters during a teleconference yesterday. “We are in negotiations with the government on what the fee structure should be.”
Regarding Gates’ public announcement of the punitive action on Monday, Crowley said the secretary “is sending a clear message to industry that, until we perform, such fees will be withheld.”
Crowley said he sees the move as a harbinger for the defense industry as a whole.
“They’re really phasing out award fee contracts…and going more toward incentive-based fees,” he said.
The Pentagon’s acquisition executive Ashton Carter played a key role in the shakeup, according to Crowley.
“They intend to budget conservatively, but hold industry to high standards,” Crowley explained.
Crowley said the company would look for ways to push the cost of the F-35 down: “If we outperform…we hope (DoD) will support a buy-to-budget strategy.” In that way, he said, some of the quantities that would be lost in the restructure could be regained over time.
Crowley also said that Lockheed Martin’s subcontractors on the program, Northrop Grumman [NOC] and BAE Systems, would lose pro-rated shares of the $614 million performance fee.
Asked about Defense Secretary Robert Gates’ decision to replace the Pentagon’s program manager, Marine Maj. Gen. David Heinz with a three-star officer, Crowley said that Heinz’s deputy, Air Force Maj. Gen. C.D. Moore would provide “continuity” for the program.
The Pentagon had not announced a replacement for Heinz at press time.
Tom Burbage, Lockheed Martin executive vice president and general manager of F-35 program integration, said response from the eight international buyers of the aircraft to Gates’ announcements yesterday had been “very favorable.”
“We are pleased with the level of support the program is receiving,” Crowley added.
“We do recognize that we have been late in getting the airplanes into flight test….But we are committed to getting them fielded on time.