September 24, 2012
Credit: Credit: Lockheed Martin
Amy Butler Washington
The biggest threat to the stealthy, F-35 fighter program is not just the technical challenge of crafting three variants for three different purposes. It is not the engineering challenges—such as excessive weight, helmet integration problems or even software development. Nor the complexity of nine nations cooperating on the roughly $400 billion program. It is not even the financial limitations, the serious squeezes on defense budgets and growing concern among customers about rising unit cost.
Those problems are daunting enough. But the man the Pentagon has tapped to direct the program has identified yet another. In a high-profile speech last week, U.S. Air Force Maj. Gen. Christopher Bogdan dropped a bombshell, saying the dismal relationship among stakeholders, the Pentagon's joint program office and prime contractor Lockheed Martin, is the biggest threat to its success. His remarks visibly disturbed senior Lockheed Martin officials sitting in the front row of the audience at the Air Force Association conference.
In a career of managing complex Pentagon programs, Bogdan says, “it is the worst I have ever seen.” In some cases, the industry team takes seven months to respond to a request for data from the program office, he says.
Multiple current and former senior Air Force and Pentagon officials say the approach taken by Lockheed Martin leadership in contract negotiations for the F-22 has carried into the company's practices for the F-35. Both programs are managed out of the company's aeronautics sector headquartered in Fort Worth. One official suggests that the company would intentionally stall the Air Force procurement staff in F-22 negotiations in order to protract talks dangerously close to the end of the fiscal year, when Pentagon comptrollers would reclaim unused funding from a program. This would force service officials to quickly conclude deals that were less beneficial to the taxpayer, the official says. That strategy worked for years, the official says, adding that contract terms were often disproportionately favorable to Lockheed on the F-22.
“These assertions are incorrect,” Lockheed Martin spokesman Joe Lamarca says. “We negotiate all of our contracts with transparency and respect for our customers and suppliers.”
But the Pentagon and Air Force officials maintain that this culture is permeating the F-35. Low-rate, initial production (LRIP) Lot 4 negotiations for the first fixed-price, incentive-fee production contract on the program took more than a year to conclude. In their midst last November, Lockheed Martin CEO Robert Stevens said in an earnings call that Lockheed was exposed to “unprecedented” financial liability because the Pentagon was not paying $1.2 billion in bills associated with advanced work on Lot 5 aircraft.
Vice Adm. David Venlet, F-35 director until Bogdan is approved for the post, refused to pay the bill until Lockheed agreed to a “concurrency clause.” He wanted to share the cost of potential aircraft retrofits that would be required if deficiencies were found in the aircraft during development, which should wrap up around 2018. At the time of the negotiations, the company was exceeding target cost on earlier production lots by at least 15% and software delivery was lagging behind (a problem that persists). A month later, an agreement on cost sharing was reached, and the funding was delivered to Lockheed.