The Defense Department is considering a block buy contract for the F-35 Joint Strike Fighter for fiscal years 2018 through 2020, but winning over Congress could be a difficult endeavor.
According to written testimony submitted to the Senate Armed Services Committee on Tuesday, the F-35 joint program office is “exploring the possibility” of entering into a block buy contract for low rate initial production Lots 12 to 14, stated Air Force Lt. Gen. Christopher Bogdan, the F-35 program executive officer, and Frank Kendall, the Pentagon’s top acquisition official.
Under the current plan, participation in the block buy starting in lot 12 would be limited to international partners in the F-35 program as well as foreign military sales customers. The block buy would then open up to the Defense Department in Lot 13 and onward, the testimony said.
A RAND study found that saving on the order of $2.5 billion to $3 billion could be achieved if the United States and other F-35 customers entered into a block buy for LRIP Lots 12-14, which corresponds with fiscal 2018 through 2020 procurement dollars. If the United States joins the buy late, it “will still result in significant cost savings, although less than the amount stated above,” Kendall and Bogdan said in their testimony.
Should the department pursue a block buy strategy, it could face heavy opposition from lawmakers. SASC Chairman John McCain (R-Ariz.) declared in his opening statement that Congress is unlikely to accept a block buy or multiyear procurement contract until initial operational test and evaluation is completed and full-rate production is approved, which won’t happen until fiscal year 2019.
Michael Sullivan, the Government Accountability Office’s director of acquisition and sourcing management, also said during the hearing that he was not familiar with a block buy or multiyear procurement occurring before full-rate production begins. Usually those contracts are only agreed to later in production, when the design and industrial base are stable.
Bogdan pushed back on the idea that a block buy would incur undue risk.
“A block buy is less risky from the government standpoint than a multiyear,” he told reporters afterward. “What a block buy does is it takes the advanced procurement money for three years and moves it forward so we can buy a whole bunch of stuff right up front, pieces and parts in an economy of scales kind of way. It does not mean that when you sign that first contract, that you have to buy the second or third years quantity of airplanes without any change to them because there will be some kind of termination liability.”
Choosing a block buy structure instead of a multiyear procurement had nothing to do with the former’s more lenient oversight requirements, he said. Rather, it allows the department to change quantities ordered midway through the block buy without having to terminate the contract.
“When you do a multiyear, and you sign a three- or a five-year multiyear, you sign up for the quantities and you sign up for those quantities exactly. You change those quantities and it is possible that you’d have to renegotiate the entire contract,” he said. “A block buy simply requires you to make a price adjustment if the quantities change.”
Despite McCain’s objections, Kendall said he continues to support a block buy plan because it would help drive down the F-35’s cost. Ultimately, however, it will be up to the next administration to make that decision.
“I think we’re going to keep buying these airplanes, as many of them as we can for the foreseeable future,” he said after the hearing. “I don’t see any change in that, and given that you’re going to buy the airplane, you may as well buy them as cheaply as you can get them.”
The F-35 is manufactured by Lockheed Martin [LMT].
