F136 Team Sets Fixed-Price Challenge

In a media conference call under way now, General Electric and Rolls-Royce are announcing a fixed-price offer for the first 150 F136 engines for the Joint Strike Fighter. The F136 faces another fight for survival this year, with Pratt & Whitney mounting a high-profile campaign to prevent Congress from reversing the Pentagon's decision to cancel the engine - including the recycling of old falsehoods and the minimizing of the P&W engine's hefty overruns.

GE/RR

The engine team announced a fixed price for the first low rate initial production (LRIP) lot of engines (due to be ordered in 2012) last year, but the new offer includes lower fixed prices in 2013 and 2014.

Moreover, the team is assuming the entire "execution risk" - even in so-called fixed-price defense contracts, the Pentagon often agrees to share overruns or provides incentives that cushion the contractor against increased costs.

GE notes that the $2.9 billion figure that the Pentagon calculates as the added cost of proceeding with the F136 is based on two factors: GE/RR's projected learning curve, and the extension of Pratt & Whitney's learning curve, as a result of lower production rates.

What GE and RR say they are offering, however, is a commercial-type contract where the manufacturer absorbs the cost of the early production engines and recovers it through later revenues - so if P&W does the same, much of the Pentagon's $2.9 billion goes away, leaving competitive pressures in place to hold down future acquisition and support costs.

Tags: ar99, jsf. f136, f135