Senate lawmakers are sticking by the F-35 Lightning II, but according to a new report by Bloomberg's Tony Capaccio and Roxana Tiron, they want to put a lid on cost growth for new batches of jets -- starting now:
The Senate Armed Services Committee included a provision in the 2012 defense authorization bill that requires the secretary of defense to use a fixed-price contract with an incentive fee for low-rate initial production of the fifth F-35 lot. The provision requires Lockheed to absorb 100 percent of costs "above the target cost specified in the contract." ...Two top F-35 program officials -- DoD's deputy director, Maj. Gen. C.D. Moore, and Lockheed Martin's top F-35 boss, Tom Burbage, said this week in Paris that they're doing everything they can to get the costs per fighter as low as possible. But it's a Catch-22 -- Lockheed says it could give even better prices if the government bought more aircraft sooner, so it could get its production line running as quickly as possible. But the Pentagon isn't going to increase the orders of jets as it continues to test them and find kinks to work out -- and endures punishing headlines about the latest record-breaking cost estimates for the F-35.
"The committee supports continued development and acquisition of the JSF, but not at any cost. This provision supports getting the program on track and keeping it there," it said of the $382 billion program.
The panel's language reflects "grave concern" that the contract for the fourth and current F-35 production lot "allows the contractor to be awarded a considerable fee even in the event of significant cost growth under that contract." Bloomberg News obtained the F-35 report language, which hasn't been made public.
For the fourth F-35 production lot, the $3.9 billion Lockheed contract sets a "target cost" of $3.46 billion for 32 aircraft, plus a "target profit" for Lockheed of $440.9 million, or almost 13 percent, according to the Pentagon's program office.
Lockheed and the Pentagon would share equally any savings if the jets cost less to build than the target cost. Similarly, they would share cost overruns up to 120 percent of that figure. The full burden would fall on Lockheed for overruns of more than 120 percent.
Program officials told Congress earlier this year they think they're striking the right balance between placing orders and taking a sensible pace in development. It'll be interesting to see how this Senate language mandating fixed prices and forcing Lockheed to shoulder additional costs will affect this balance -- if it makes its way into law.