engine-maker Pratt & Whitney is the latest Pentagon contractor to attract the scrutiny of contracts auditors, who seem to be using sharper teeth in demanding that companies follow the department's exacting auditing standards.
The Defense Contract Management Agency found that Pratt fell short in adhering to auditing standards, so it is withholding 5% of the company's billings on key F-35 contracts until a fix has been implemented. DCMA imposed the penalty after an April audit of compliance with the Pentagon's Earned Value Management System (EVMS) by the company, which is owned by. EVMS is the system by which the Pentagon tracks cost, schedule and performance of programs at contractors' facilities.
The manufacturer of theengine—used on the F-35 Joint Strike Fighter—was decertified and found to have “inadequate compliance with four of 32” EVMS guidelines, according to Matthew Bates, a Pratt spokesman. DCMA's withhold covers 5% of future billings against the company's low-rate, initial-production Lots 5-8 for the F135 engine and the Navy's Fuel Burn Reduction (FBR) program, under which the Navy is looking at ways to improve efficiency in the F-35 engine.
DCMA notified Pratt of the withhold Sept. 30. Five percent is the maximum amount the Pentagon can withhold from billings, according to the government's accounting regulations, says Joe Dellavedova, spokesman for the F-35 Joint Program Office. The JPO “fully supports” the decision to impose a withhold, he adds.
All new contracts since 2012 contain clauses that allow for such a sanction in the event of EVMS problems, giving DCMA more clout in demanding compliance. And, the agency is likely to find other contractors with EVMS problems, so Pratt's situation may simply be the tip of the iceberg.
F-35 Program Executive OfficerLt. Gen. Christopher Bogdan met with senior Pratt & Whitney executives Oct. 4 to discuss corrections for the deficiencies in the company's EVMS compliance, Dellavedova says.
“Although we have room for improvement, we have demonstrated our commitment to the success of the F135 engine program by taking on 100 percent of overrun risk on production engines in our last LRIP 5 [low rate initial production award], and did so voluntarily, ahead of the government's requirement,” Bates said in a statement for Aviation Week.
LRIP 5 is valued at $1.12 billion for 35 F135 engines, including three spares. Pratt has a handshake agreement with the F-35 Joint Program Office for LRIP 6, including 38 engines, but has not signed the deal; the price has not been released. To date, 115 F135 engines have been delivered.
Pratt considers its lot-by-lot engine pricing to be competitive and does not release per-unit cost data. But based on the value of LRIP 5, the average cost is $32 million, including spares. The cost between the different engines for the conventional A-model, the short-takeoff-and-vertical-landing B-model and the carrier-capable C-model vary significantly, however. This is largely due to thelift-fan on the B-model.
EVMS decertification is not an indictment of a company's technology or its ability to deliver quality equipment. It does, however, indicate an inability for the Pentagon to certify the data on a company's progress in executing programs. This means data could be flawed, which could leave a company or program susceptible to criticism—warranted or not—by outside parties.
“The EVM requirement is meant to protect taxpayers from over-billing and focuses on the business systems defense companies use to estimate costs for bids; purchase goods from subcontractors; manage government property and materials; and to track costs and schedule progress,” says Dellavedova.
Pratt is working on four areas to improve its EVMS compliance: updating documentation to better align with process, improving how scheduling tools are managed and integrated, better cost estimating and forecasting, and improving planning for work packages. The company has submitted corrective action plans for each area to DCMA for approval. Once the corrective actions are approved, the company will have a target date for recertification. “We are committed to having the best earned-value management system possible, and to consistently and accurately track performance and execution to our contracts,” Bates says.
Pratt, however, is not the only manufacturer to face EVMS challenges.and were the only two contractors to be decertified in the last decade, before the standard compliance language was added to contracts in August 2012.
Lockheed Martin, F-35 prime contractor, remains decertified for its EVMS compliance at the Fort Worth JSF final assembly plant since 2010; a similar 5% withhold was placed on the company's contracts, owing to its problems. DCMA first noted Lockheed's deviance in 2007 and formally decertified the company when the required improvements failed to be implemented.
In late August, DCMA reduced the withhold on Lockheed Martin to 2%, because the company was “making significant progress on the approved corrective action plan,” says Kenneth Ross, a company spokesman.
However, getting recertified is a painstaking process, as demonstrated by the length of time Lockheed Martin has struggled with the issue.
Bell was decertified from 2006-09, and recertification was the result of “years of misery,” a company executive says. But, he reports, a smoother-running operation was the end result.
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