South Korea on Nov. 5 canceled its KF-16 upgrade contract with BAE Systems for initial development and long-lead production, according to the Defense Security Cooperation Agency (DSCA).
The contract was the first of a two-phase Foreign Military Sales (FMS) procurement for the upgrade of 134 KF-16s. The Defense Department in May awarded BAE a $140 million firm-fixed-price contract with the first upgraded KF-16 scheduled for delivery in 2019. BAE previously said its competitive selection for KF-16 was the first time a non-original equipment manufacturer (OEM) was to perform a major upgrade for a fourth-generation United States fighter jet. The F-16 is developed by Lockheed Martin [LMT].
Phase one included associated equipment, parts, training and logistical support. Phase two, which funded completion of the systems integration and flight test activities, was to begin this year.
BAE spokesman Neil Franz said Nov. 6 the company had been successfully executing phase one of the program since May. Franz also said DoD validated BAE executed the first phase of the program with “strong performance.”
“We remain confident that we could have performed the remaining work on the program in an efficient and cost-effective manner,” Franz said in an email. “Unfortunately, the program was impacted by Korea’s strict budget limitations and the U.S. Air Force’s conservative approach to the overall program cost.”
Franz said in a later email the company will work to wind down the existing contract for phase one as appropriate and that BAE expects to be paid for all of the work it performed, including reasonable profit. DoD spokesman Lt. Col. Joe Sowers said Nov. 6 South Korea would be responsible for contract termination costs, in accordance with the Letter of Offer and Acceptance (LOA) standard terms and conditions. The Air Force does not yet have a precise figure for termination costs, he said, and final program expenses to both South Korea and BAE could take months to determine.
DoD stands by its price estimates, Sowers said, as cost is never promised nor guaranteed in the FMS process. Rather, Sowers said, the government provides a “best estimate” based on information available at the time. It also prices FMS using the “total package approach,” Sowers said, which means ensuring everything required to attain and sustain the operational or strategic effect desired by the partner nation is included.
BAE estimated in July the total value of the KF-16 upgrade program was around $1.3 billion.