December 17, 2012
Credit: Lockheed Martin
The Pentagon and Lockheed Martin have finally agreed on a 4% decrease in the target cost for the next production lot of stealthy F-35s after more than a year of antagonistic negotiations.
Target per-unit airframe costs are as follows for the three variants of the Joint Strike Fighter (JSF): $105 million for the conventional-takeoff-and-landing F-35A; $113 million for the short-takeoff-and-vertical-landing F-35B and $125 million for the carrier suitable F-35C, according to Joe Dellavedova, a spokesman for the JSF program executive officer. Low-rate, initial production (LRIP) lot 5 includes 32 aircraft — 22 F-35As, three F-35Bs and seven F-35Cs, all for the U.S.
The contract’s total value is $3.8 billion and covers the airframe only; negotiations between the Pentagon and Pratt & Whitney on purchasing the F135 engines for the single-engine fighter are still ongoing, Dellavedova says.
The contract increases Lockheed Martin’s exposure to risk for cost overruns if they occur in building the aircraft. The company must pay 55% of any overruns up to a ceiling of 112% of the target cost, with the government picking up the remainder, Dellavedova says. The LRIP 4 contract evenly split the cost of overruns.
The Pentagon has paid $136 million in concurrency costs for LRIP deals 1-3, or about $4.86 million per aircraft.
The unlikely benefits of cost underruns are equally shared between the Pentagon and Lockheed.
Perhaps more significant is a shift on potential “concurrency costs” associated with the aircraft. This refers to the price of retrofits to already produced aircraft that would be needed as a result of discoveries made during the ongoing F-35 testing program.
In LRIP 4, the Pentagon took any concurrency cost of more than $52 million out of the company’s award fee. The LRIP 5 deal includes a 50/50 split on costs associated with concurrency, Dellavedova says.
The Pentagon embraced the concept of concurrently developing and producing the F-35 when it signed the contract with Lockheed in 2001, but has since worked to shift the financial risk for the strategy to the contractor as a result of ongoing cost overruns, earlier testing delays and missed delivery deadlines.