Skip to comments.Lockheed airs gripes with Pentagon contract demands
Posted on 10/27/2011 5:30:54 AM PDT by G Larry
WASHINGTON/ATLANTA, Oct 26 (Reuters) - After months of grumbling behind the scenes, U.S. arms makers are now publicly criticizing Pentagon plans to change the way it buys weapons and make industry shoulder more of the risks of development.
Chief Executive Robert Stevens told reporters after the earnings release on Wednesday that Lockheed would be reluctant to accept "unbounded liabilities for unpredictable or unknown events."
(Excerpt) Read more at reuters.com ...
What he doesn't say, is that Ashton Carter's concept of Defense Acquisition is one step below nationalizing the Defense Industry.
i.e. Fixed Price - Give me this many airplanes at this price on this date. ...oh, and we'll figure the performance requirements out later....
At least Lockheed is fortunate enough to be building small airplanes, rather than 15,000-ton destroyers, for which the Pentagon and Congress are balking at paying.
ummm you may be incorrect there as LMMCO supplies the main air search radar system for said destroyers... among other components.
I don't think this (putting more risk on contractors) will help. The DoD is already infamous for changing requirements (in large and small ways) mid-stream. Putting more risk on the contractors means they will do one of three things, or some combination of them.
One, accept the risk. Some, particularly the smaller companies, will lack the reserves to absorb problems and will fail and/or get gobbled up by the bigger outfits with deeper pockets. We'll see more businesses fail, and a (re) concentration of capability back into a handful of the big companies. I don't think this is a good thing.
Two, they'll simply charge more - higher overhead rates, more "cushion" in their bids to protect themselves. Net effect, the government pays more. Also not a good thing.
Three, they'll "lawyer up" and negotiate a contract change (including cost increases) for every little thing not specified in excruciating detail in the contract. Net effect, everything costs more, development slows down. The DoD says "no" to more changes/advances rather than pay for them. You end up with a slower, costlier development cycle with more overhead (lawyers and contract types), and a less capable product with less of a technological advantage over our enemies. All not good things, again.
On point 2) Overhead and G&A rates are approved by the DCAA (Defense Contract Audit Agency) Lockheed, Northrup, CSC, etc can’t just willy nilly change those rates without government approval.
This is the result of moving from Cost Plus contracts for development to more and more fixed price contracts
I’d prefer taking what is behind Door number 3 Monty..
Seriously, Your third proposal is how most of the rest of the world works on a day-to-day basis. I’ve been in a contract engineering position. You do a contract for certain features, and you add an ECO clause and a “Walk-away cost” clause to such contracts.
The ECO clause says all change costs are negotiable, and the Walk-away clause allows some recompense to the contractor if the program is cancelled prior to completion.
If the government wants better cost controls and better performance, then they have to be part of the solution, i.e. more disciplined in how they specify the program. If necessary changes come up during development process, then the ECO clause comes into play - and an agreed-upon cost addition occurs.
At this point we know EXACTLY where the cost over-run comes from, and the contractor is off the hook unless it’s for non-performance.
The Contractor has to bear the cost of R&D at some level as well.
Consider programs like the Predator drones. These were initially off-the-shelf devices! General Atomics came up with these on their own dime. When GA became a “developer” under the government for enhancements - there were cost overruns, schedule delays, etc.
Interesting contrast isn’t it.
I believe that the Lockheed Martin SPY-4 radar is being dropped in favor of the AMDR, which is being bid now.
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