The Pentagon and have finally agreed to share the cost of modifications for roughly 30 aircraft to be procured in the next lot of production.
The question of who would pay for the so-called concurrency costs—the cost of retrofitting fixes to problems discovered during the program’s testing on already-built aircraft—has been the subject of a hearty debate between the parties this year. Lockheed executives have said before that the amount of cost-sharing on concurrency devised in the low-rate initial production (LRIP) Lot 5 deal is precedent-setting for industry.
According to the F-35 Joint Program Office, “the key terms include agreement on a fixed-price type contract vehicle and a concurrency clause where [the] and Lockheed Martin will share responsibility on costs for concurrency changes.” Industry officials decline to say how the costs will be split.
As a result of this agreement, the Pentagon now will issue an undefinitized contract action (UCA) allowing Lockheed to be reimbursed for unpaid bills incurred for LRIP 5 since long-lead funding ran out in February. Last month, Chief Financial Officer Bruce Tanner said the company would face $150 million in cash exposure if the UCA was not submitted by year’s end.
CEO Robert Stevens said last month that the government was potentially exposing the company to “unbounded risk” when it initially asked for Lockheed to pay the full tab for concurrency costs found in LRIP 5. However, recent problems managing concurrency cost in such programs as Lockheed’s Joint Air-to-Surface Standoff Missile and F-35 likely will dissuade government officials from pursuing programs in which development and production substantially overlap.
After turning to concurrency more than a decade ago to try to help speed up defense programs, officials in recent years have backed away after several cost and schedule slippages, although industry has complained that too many program changes by government also have led to delays.
In previous JSF lots, the Pentagon paid for 100% of the concurrency costs. However, in LRIP 4, the Pentagon will take any concurrency costs of more than $52 million out of Lockheed’s available award fee, diminishing the potential profit for that lot, according to the contract terms. Concurrency costs in LRIPs 1-3 totaled $136 million, or roughly $4.86 million per aircraft.
This agreement clears the way for the Pentagon and Lockheed to negotiate the remaining terms for LRIP 5, including the per-unit cost.
The cost of the LRIP 4 jets exceeded targets by about 7%; this is roughly the same amount offered by Lockheed in its original LRIP 4 proposal, according to one program official.