By Calvin Biesecker

Months later than expected, the Defense Department and prime contractor Lockheed Martin [LMT] yesterday said they have agreed to terms for the fourth low-rate initial production (LRIP) contract for 32 F-35 Joint Strike Fighter aircraft, although the final award amount was not released.

The new contract is fixed-price, which puts more risk on Lockheed Martin if it can’t deliver the aircraft on budget. The old contract structure was cost-plus, which means the government absorbs the cost overruns, although the company can receive award payments for good performance. In February, Defense Secretary Gates eliminated over $600 million in performance fees to Lockheed Martin for problems with the program (Defense Daily, Feb. 3).

The contract had originally been expected to be awarded in the spring.

The Pentagon released a statement saying that the price for the aircraft "is below the independent cost estimate prepared earlier this year and reflects the contract type deemed most efficient by the department." The Pentagon also said that the new contract "sets the appropriate foundation for future production lots."

Lockheed Martin said in a statement that "We remain confident that this agreement keeps us on track to reach our long-term price projections for the F-35 at full-rate production. We know we have to adapt to the new reality that we face, with more demanding affordability goals that place an even greater premium on program execution, and we are committed to meeting that challenge."

The Pentagon’s latest cost estimate for the aircraft is $112.4 million per plane, an 81 percent increase over the baseline set in 2002. The higher costs and schedule delays are due to a major wing redesign, increased labor costs and supplier component delays (Defense Daily, June 3).

With the latest award, Lockheed Martin is under contract to build 63 F-35s under low-rate production. Of the 32 aircraft just awarded, 30 are for the United States, one is for the United Kingdom, and one is an option for the Netherlands.

Different variants of the F-35 are being developed for the Air Force, Navy and Marine Corps and a number of foreign militaries. The program is several years behind schedule with development not slated to wrap up until 2015. The Air Force expects to have an initial operating capability around 2016 with the aircraft.

In July, the Navy awarded Lockheed Martin a $522 million contract for long-lead materials for the next batch of low-rate production F-35s, which will be 42 aircraft.