Bloomberg News

Senate Rule May Force U.S. Air Force to Buy Fewer Lockheed F-35s

November 07, 2011

Nov. 2 (Bloomberg) -- A U.S. Senate proposal that requires the Pentagon to sign a fixed-price contract with Lockheed Martin Corp. for a future lot of F-35 Joint Strike Fighters may result in fewer aircraft at a higher price, an Air Force official told a congressional panel today.

The Senate Armed Services Committee included a provision in its 2012 defense authorization bill that requires the Defense Department to use a fixed-price contract with an incentive fee for low-rate initial production of the fifth F-35 lot. That would require Lockheed to absorb 100 percent of costs “above the target cost specified in the contract.”

The Senate may start debating the defense authorization bill as early as next week.

The Senate provision “will not have the desired effect of controlling costs,” Lieutenant General Herbert Carlisle, deputy chief of staff for Air Force operations, plans and requirements, said in a statement prepared for a House Armed Services Committee hearing on aviation programs.

A fixed-price contract or a fixed-price contract with an incentive fee “will result in a higher unit price and likely result in the purchase of fewer aircraft,” he said.

“Additionally, contract negotiations under those two contract vehicle scenarios would likely be contentious and protracted, possibly resulting in production line perturbations,” he said.

Lockheed Chief Executive Officer Robert Stevens last week called for the government to fund the fifth lot “without delay.” Negotiations for the batch should begin “as soon as we possibly can” and Lockheed wants them “completed by the end of the year,” he said.

--With assistance from Gopal Ratnam in Washington. Editors: Steven Komarow, Terry Atlas

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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