Lockheed adds $771 million to early F-35 production bills

[Gerald]

Lockheed Martin has added $771 million to the final bill for the first 31 early production models of the F-35 Joint Strike Fighter, prompting a key lawmaker to describe the latest cost overrun as "disgraceful".

The Department of Defense notified Congress of the overrun two months after F-35 programme officials admitted the costs for low-rate initial production (LRIP) lots 1-3 would exceed the contracted cost.

The government is required to absorb the entire bill for overruns under the terms of the first three LRIP contracts. Last year, Lockheed accepted a cost-sharing scheme for any overruns after LRIP 3.

Sen John McCain, minority leader of the Senate Armed Services Committee, on 12 July revealed the amount of the F-35 cost overrun on his Twitter account, adding the revelation was "outrageous" and "disgraceful".

Lockheed declined to respond directly to McCain's criticism. But company officials released a statement to explain the cause of the cost overruns in LRIPs 1-3.

The $771 million reflects the impact of the 2004 weight reduction redesign on Lockheed's production system, the company said. The redesign carved off thousands of pounds of excess weight, but suppliers could not keep up with the flow of design changes. That led to late delivery of parts, then extra labour hours to install them outside of the normal manufacturing sequence, it added.

As the F-35 continues to be developed even as the first production models are delivered, the $771 million bill also includes the cost of future modifications to make the aircraft standard with jets delivered after the development phase ends in 2016.

It is possible that the bill for LRIPs 1-3 could be reduced in the future.

"The F-35 team is focused now on any opportunity to reduce the concurrency estimate and improve the final cost-to-complete on these early production lots," Lockheed said.

Meanwhile, Lockheed is continuing to negotiate costs for the LRIP 5 contract for 35 aircraft even as it learns more about actual cost data on the 32 F-35s ordered under the LRIP 4 contract last year.

"It is important to note that our LRIP 4 settlement was significantly below the government's estimate and our initial proposal for LRIP 5 is also below the December 2010 government estimate," Lockheed said.
http://img708.imageshack.us/img708/1875/6a00d83451b88369e200e54.jpg (http://imageshack.us/photo/my-images/708/6a00d83451b88369e200e54.jpg/)



http://www.flightglobal.com/articles/2011/07/13/359441/lockheed-adds-771-million-to-early-f-35-production.html

Note: 13/07/11

[Platapus]

When was the last time an adversary seriously challenged our Air Superiority?

Korea?.. The first year?

I still can't fathom the justification for a fighter aircraft where each one costs almost a third of a BILLION dollars.

A third of a billion dollars and a lost duck in the wrong place can bring it down. :nope:

[Kazuaki Shimazaki II]

Not even a 100% cost overrun. No big deal :yawn:

[kraznyi_oktjabr]

As the F-35 continues to be developed even as the first production models are delivered, the $771 million bill also includes the cost of future modifications to make the aircraft standard with jets delivered after the development phase ends in 2016.
This is what I don't understand in this JSF/F-35 program. I have accustomed to system where you first design the product and then build it. Its hard for me to understand how you can make good product at reasonable cost when you are at same time both designing and building it?

BTW I was in understanding that F-35 was intended to start entering USAF service in 2015 am I correct?

[Torvald Von Mansee]

Clearly, to balance the budget, we have to cut Social Security and Medicare.

Btw, I think I should tell you something...I think I may be going deaf!! I can't hear anything out of my right ear!!!

[JSLTIGER]

Here's a novel idea...how about a company actually charges what we're CONTRACTED (e.g. legally obligated) to pay them AND NOT A PENNY MORE. Once that contract is signed, they have to make the delivery of what they're being paid for even if they're losing money on it. Contract law demands it and there's no defense to performance for failing to turn a profit in the end if you thought you would when you set out under the contract.

[Platapus]

Here's a novel idea...how about a company actually charges what we're CONTRACTED (e.g. legally obligated) to pay them AND NOT A PENNY MORE .

That would be what is called a Firm Fixed Price and will result in the costs going up.

Think about it. If I were to contract with you to build my house and I insisted on a FFP contract, you would have to price the job high enough to make sure that any foreseeable problem would not result in any money lost by you. The result is that I, the customer, do not save any money.

It is all about who assumes the risk. In FFP contracts, the contractor assumes all the risk. Therefore the contractor raises the price to mitigate this risk. FFP contracts favour the contractor.

Cost Plus (and the other derivatives) place the risk on the government. Since the contractor does not have to assume risk, the price can come down... Unless there is a change.

I have a better solution to this problem. How about the government freeze requirements at the time of the RFP? The problem is not the contractor "wasting" money, the problem is the government coming to the contractor and asking, via ECP, "can you add this one small additional functionality?".

That is what drives up the price of military acquisition - requirements creep.

This is why it sometimes takes a decade for a major acquisition and by that time the mission may have changed. Happens a lot.

If you freeze requirements, the contractor is in a better position to accurately price the contract.

[Catfish]

Hey no problem,
cut "well(??!!)fare" altogether, raise taxes a bit more, cut even a bit more of education (sans military education of course), grant the companies (especially "defense" lol = newspeak) a bit more revenue, give some more millions to the already rich CEOs, fire (sorry "set free") some more employees and wokers, and the republicans will grant a rise of debts next week with no problem :88)
Greetings,
Catfish

[Kazuaki Shimazaki II]

That is what drives up the price of military acquisition - requirements creep.

This is why it sometimes takes a decade for a major acquisition and by that time the mission may have changed. Happens a lot.

If you freeze requirements, the contractor is in a better position to accurately price the contract.

Actually, if anything at least in some respects JSF's requirements have apparently gone DOWN (or at least the time required to fulfill them has been delayed) as time went on:
http://www.ausairpower.net/APA-2008-03.html (note the pictures with the crossed out weapons, and the bottom picture with significantly fewer weapons than the one at top)

Of course, I'm not saying that every price increase, delay or inability to meet the original spec is the fault of the manufacturers, but some of it almost certainly is.

It is true the Fixed Price will allow some overcharging at start. However, the manufacturers also know very well that very expensive prices are more easily swallowed in small doses, rather than in one big dose. It'll force them to be realistic about prices and what they can reliably deliver (knowing they can't ask for supplementary funding).

On the other side, the Fixed Price Contract already automatically reduces the scope for those "little changes" that you mention, while locking the requirements only does not prevent the manufacturer from "finding out" about "unforeseen difficulties" and asking more, while only meeting the original or even a reduced specification.

[Schroeder]

@Vendor
Isn't that a F22 Raptor in your picture?:hmm2: