Lockheed F-35 Proposal Shows Cost Creeping Up

By Andrea Shalal-Esa/Reuters

May 2, 2011

Lockheed Martin’s proposal for the latest batch of F-35 fighter jets shows the price per plane creeping up on the Pentagon’s costliest weapons program, sources familiar with the program said.

The company racked up cost overruns totaling about $500 million on the first three production contracts, said the sources, who were not authorized to speak publicly.

The Pentagon has restructured the $382 billion program twice in two years to get a grip on nagging technical issues and repeated cost overruns.

The cost of building new warplanes usually goes down over time as manufacturing quantities increase, but Lockheed’s bid for a fifth batch of 35 planes was $5 million to $7 million higher per plane than in the fourth contract, the sources said.

The rising price reflects higher actual costs on the first three sets of production planes, and a switch from “cost-plus” contracts to “fixed-price, incentive-fee” terms, which make the company more accountable for cost overruns, the sources said.

Navy Vice Admiral David Venlet, who runs the F-35 Joint Strike Fighter program, last month said that defense acquisition and audit officials would carefully review Lockheed’s proposal for a fifth batch of 35 production planes, which will be the second on fixed-price, incentive fee terms.

Pentagon acquisition chief Ashton Carter has repeatedly underscored his continuing cost concerns about the program.

Last month, he told lawmakers that costs were growing too fast on both the overall F-35 program, and the F135 engine being developed by Pratt & Whitney, a unit of United Technologies. He said cost overruns on the airframe were proportionately higher than on the engine.

Carter included the program as one of 14 weapons programs that will be subject to tougher oversight.

Lockheed, the Pentagon’s No. 1 supplier by sales, said it submitted a bid for the next lot of 35 planes on April 25.

It is developing three variants of the new warplanes as a replacement for over a dozen warplane models now flown by the U.S. military and eight partner countries.

Joe DellaVedova, spokesman for the Pentagon’s F-35 program office, declined comment on the terms of Lockheed’s LRIP 5 proposal, but said the contract would be finalized in coming months after detailed negotiations with the company.

Lockheed spokesman Joe LaMarca confirmed that Lockheed had submitted a proposal on April 25, but gave no further details.



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