Lockheed overruns on early F-35s put at US$771 million

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Lockheed Martin’s 28 early production F-35 Joint Strike Fighters overshot their cost targets by a combined total of US$771 million, according to US Senator John McCain.

“Outrageous!” the top Republican on the Senate Armed Services Committee said in a tweet on Tuesday. The Pentagon is seeking US$264 million in reprogrammed funding as a kind of downpayment on the overrun, he wrote, adding: “Disgraceful.”

Lockheed is developing three F-35 versions for the United States and eight international partners at a projected cost of more than US$382 billion for 2,443 aircraft over the next two decades. It is the most expensive ever US arms purchase.

The Pentagon’s F-35 Joint Programme Office previously had said total costs on the first three production batches overshot their contractual targets by 11 to 15%. These “cost-plus” deals required the government to pay most of an overrun.

The tweet from McCain, who has spearheaded opposition to what he regards as wasteful arms programmes, was the first public disclosure of the overrun’s dollar figure. The programme office reported the sum to the Senate Armed Services Committee staff on Monday, a McCain aide said. He said it applied to the first 28 jets.

Lockheed replied on Twitter yesterday in defence of the programme, saying “the F-35 team is focused on reducing costs of the jets and is showing significant improvement in key areas.” In reply, McCain wrote: “To most observers, a US$771M cost overrun for 28 F-35s doesn’t qualify as ‘significant improvement.’ Taxpayers deserve better.”

McCain has argued that the radar-evading F-35 cannot be allowed to drain resources from other Pentagon modernization over the next 25 years. He failed last month in a push to put the programme on “probation” at the end of this year if the 32 aircraft being built in the fourth, low-rate production lot tops target costs by 10 percent or more.

McCain’s amendment to the fiscal 2012 defence authorization bill called for ending the programme a year later, at the end of 2012, if costs were not contained.

The amendment failed on a 13-13 committee vote. But McCain told Reuters last month that he planned to revive it on the Senate floor when the bill comes to a vote.
“By rejecting my amendment, I believe we lost an opportunity to tell the Pentagon and the prime contractor (Lockheed Martin) that increased cost on the F-35 cannot and will not be tolerated,” McCain wrote in the panel’s report on its version of the defence policy bill.

The fourth production contract calls for Lockheed and the government to share equally any cost overrun up to 120 percent of the negotiated price. Lockheed would be responsible for any overruns beyond that. If costs are below the target, the government and Lockheed would share the savings equally.
“It is important to note that our LRIP (Low Rate Initial Production] 4 settlement was significantly below the government’s estimate and our initial proposal for [35] LRIP 5 [aircraft] is also below the December 2010 government estimate,” Lockheed said.