The Pentagon is withholding 5% of F-35 engine maker Pratt & Whitney’s billings on key contracts because of the company’s inability to comply with the department’s auditing standards.

The Defense Contract Management Agency (DCMA) implemented the withholding following an audit of the company’s compliance with the Pentagon’s Earned Value Management System (EVMS) in April. EVMS is the system by which the Pentagon tracks cost, schedule and performance of programs at contractors’ facilities.

Pratt & Whitney, manufacturer of the F135 engine used on the F-35, was decertified and found to have “inadequate compliance with four of 32” EVMS guidelines, according to Matthew Bates, a company spokesman. DCMA’s withholding 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 the FBR program, the Navy is looking at ways to improve efficiency in the F-35’s engine.

DCMA notified the company of the move on Sept. 30. Five percent is the maximum amount the Pentagon can withhold from billings, according to Joe Dellavedova, spokesman for the F-35 Joint Program Office. The JPO “fully supports” the decision to impose a withholding, he adds.

All new contracts since 2012 contain clauses that allow for such a withhold in the event of EVMS problems.

U.S. Air Force Lt. Gen. Christopher Bogdan, the F-35 Program Executive Officer, met with senior Pratt & Whitney executives on Oct. 4 to discuss corrections for the deficiencies in the company’s EVMS compliance, Dellavedova said.

“Although we have room for improvement, we have demonstrated our commitment to the success of the F135 engine program by taking on 100% of overrun risk on production engines in our last LRIP award (LRIP 5), and did so voluntarily ahead of the government’s requirement to do so,” Bates said in a statement to Aviation Week.

LRIP 5 is valued at $1.12 billion for 35 F135 engines, including three spares. The company 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. Pratt has delivered 107 F135 engines to date.

Pratt considers its lot-by-lot engine pricing to be competitive and does not release per-unit cost data. Based on the value of LRIP 5, however, the average cost is $32 million, including spares.

The cost between the different engines for the conventional A-model, short-takeoff-and-vertical-landing B-model and carrier-capable C-model vary significantly, however. This is largely due to the Rolls-Royce lift-fan on the B.

EVMS decertification is not an indictment of a company’s technology or ability to deliver quality equipment. It does, however, indicate an inability of the Pentagon to certify the data on a company’s progress in executing programs. This means that the data could be flawed.

“The EVM requirement is meant to protect taxpayers from overbilling and focuses on the business systems defense companies use to estimate costs for bids; purchase goods from subcontractors; manage government property and materials; and track for costs and schedule progress,” Dellavedova says.

Improvement areas

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 to DCMA for approval.

Once these plans are settled on, the company will have a target date to get recertified. “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.

Lockheed Martin, F-35 prime contractor, has been decertified for its EVMS compliance at the Fort Worth Joint Strike Fighter final assembly plant since 2010; a similar 5% withholding was placed on the company’s contracts. DCMA first noted Lockheed’s problems in 2007 and formally decertified the company when the needed improvements were not implemented.

In late August, DCMA reduced the withholding on Lockheed Martin to 2% when it decided the company was “making significant progress on the approved corrective action plan,” says Kenneth Ross, a Lockheed Martin spokesman.

However, getting recertified is a painstaking process, as demonstrated by the long time that Lockheed Martin has been decertified.