One of the Aerospace Industries Association’s (AIA) 22 bullet point priorities for the fiscal 2025 defense authorization bill is to limit contracting officers in buying “not more than one lot of low-rate initial production (LRIP) end items using fixed price options” through an amendment to Title 10, Section 3322.
That suggestion to congressional defense authorizers is one of five under the AIA heading, “Streamline the Acquisition Process.”
On April 25, DoD implemented a final rule to enact Section 808 of the fiscal 2023 National Defense Authorization Act (NDAA).
Unless the pertinent service acquisition chief notifies Congress and justifies a waiver, “the government may not procure more than one [LRIP] production lot associated with a major defense acquisition program if, at the time of Milestone B approval, the milestone decision authority authorizes the use of a fixed-price type contract and the scope of work of the fixed-price contract includes both development and low-rate initial production of items associated with such major defense acquisition program,” according to the final rule.
The latter “does not impact contractor operations,” DoD said. “However, it may limit contractor risk assumed under such contracts. Development and initial production of an item likely involve the discovery and resolution of problems that are unknown beforehand. Risk to a contractor is higher when the contractor must propose prices for multiple production lots of an item before the development and initial production of that item are complete. By limiting the number of low-rate initial production lots on a fixed-price contract that also includes development, this risk to the contractor may be reduced.”
Asked last week the reasoning behind the one lot limit for fixed price LRIP contracts that AIA is advocating, Eric Fanning, the organization’s president, replied, “I don’t want to give you an answer that’s more speculation, but my guess is going to be that there were enough examples of that [more than one fixed price LRIP lot] having been a problem.”
Defense Daily will add any further insights from AIA to this article.
A legacy of Robert McNamara’s systems analysis mindset when he was defense secretary in the early 1960s, LRIP took hold after the report of the “Packard Commission,” President Reagan’s Blue Ribbon Commission on Defense Management of 1986, and the fiscal 1991 NDAA codified LRIP to try to ensure that systems did not enter full-rate production until validated through operational testing.
For systems other than Navy ships and military satellites, Section 4231 of Title 10 provides that DoD limit LRIP to 10 percent of total production unless the defense secretary justifies an increase beyond that threshold.
In January, Northrop Grumman [NOC] reported a $1.2 billion after-tax charge due to “macroeconomic” factors on the initial five, fixed-price LRIP lots for the B-21 Raider stealth bomber (Defense Daily, Jan. 25). The company said that the macroeconomic problems included inflation, supply chain and labor constraints and that the company will lose money on the five lot work through 2030.
DoD and the Air Force have cited classification in not saying how many B-21s are in the five LRIP lots, but the Congressional Research Service said in a 2021 report that “plans call for initial acquisition of B-21s to take place in five low-rate production lots totaling 21 aircraft.”
Those 21 exceed 10 percent of the Air Force’s planned buy of 100 B-21s. Defense Daily asked DoD whether the B-21 received a waiver from the 10 percent LRIP threshold and will add any insights from the Pentagon.
In February, DoD acquisition chief William LaPlante said that the B-21 “was designed to be resilient to Washington turbulence” and that DoD had learned “painful lessons” from the Nunn-McCurdy breach in 2010 of the Lockheed Martin [LMT] F-35 fighter (Defense Daily, Feb. 8).
LaPlante served as Air Force acquisition chief between 2014 and 2017 during the inception of B-21 and began his current job in 2022.
“The F-35 had this gigantic production run, and, if you don’t hit the ramp, the price won’t come down, and the learning won’t happen so you had to hit that ramp,” LaPlante said in February. “What do you think was attacked by the budgeteers, unfortunately, during those days [of sequestration]? It was going after the ramp. Our fear was you’d reach a point where it [F-35] would go into a ‘death spiral”–we’re not producing enough airplanes so Lockheed couldn’t get over the hump of learning. It never happened, thankfully, but we were worried.”
“So, for B-21, there’s no big ramp,” he said. “It’s like, ‘Stay away, budgeteers. Don’t touch me’ because we want to make it resilient. I don’t want to be pejorative to budgeteers. It’s really about the [budgetary] turbulence, but you can learn and design these programs to try to be survivable, given all the climates we’re talking about, but you have to really think hard.”