By Doug Cameron
The Pentagon has delayed awarding a closely watched deal to
build a new long-range bomber until the summer, and plans to retain
much of the risk in the $90 billion program in a move that
surprised many industry analysts.
Northrop Grumman Corp. is vying with a joint venture between
Boeing Co. and Lockheed Martin Corp. to build between 80 and 100
planes to start replacing aging B-52 and B-1 bombers from the
mid-2020s, a key priority at a time when officials and lawmakers
are increasingly vexed about smarter weapons being deployed by
China, Russia and others.
The Pentagon had intended to award a contract to develop the
Long-Range Strike Bomber this spring, but senior officials said
Wednesday a decision would be made in the summer using an
acquisition strategy that has been associated with some of the
department's biggest headaches, such as the F-35 fighter jet.
The Pentagon has released few details of the highly classified
bomber program, but Air Force procurement chief William LaPlante
told a congressional hearing that it would retain the requirements
laid out in 2010, including a cap on the cost of each plane.
Mr. LaPlante also surprised many industry observers by stating
that the bomber deal was likely to be a cost-plus contract, a
structure where the Pentagon pays the winning contractor's
expenses, alongside other fees for incentives.
"The bomber is the premier aerospace initiative of the Obama
years," said Loren Thompson at the Lexington Institute, a defense
think tank that is partly funded by contractors. "It seems out of
sync with their acquisition strategy,"
The Pentagon has shifted in recent years toward more fixed-price
deals, where it pays contractors a set fee and leaves industry more
liable for cost overruns.
"Cost-plus contracts are an inherently more risky contract
vehicle that require particularly diligent management to ensure
that the costs being charged to the government are fair and
reasonable, and could make it more difficult to stay under the
cap," said Mandy Smithberger at the watchdog Project on Government
Oversight.
The department said the average price of each bomber would be
capped at $550 million in 2010 dollars--equivalent to around $575
million in current-year spending--excluding development expenses
that some analysts estimate could reach at least $24 billion. It
has also pledged to use mature technology to keep the planes
affordable, which together with the price cap led many to believe
it would opt for a fixed-price deal.
The Pentagon is seeking $1.2 billion in development spending for
the bomber in its fiscal 2016 budget request, and lawmakers
expressed concern the department was departing from its stated
goals.
"Little by little, the Pentagon is breaking its promise to cap
costs at $550 million per plane and build a bomber using proven
technology," said Rep. Jackie Speier (D., Calif.) in a statement.
"The American people can't afford to foot the bill for another
multibillion-dollar albatross."
The Pentagon has been pushing more work toward fixed-price deals
as part of a broader efficiency drive for big military programs,
and it is being used on the development of the new KC-46A aerial
refueling tanker being built by Boeing.
However, senior officials have said there is little difference
between the performance of contracts awarded on a cost-plus or
fixed-price basis, with a key factor being the type of incentives
given to defense companies.
The Air Force confirmed Mr. LaPlante's remarks and declined
further comment.
Write to Doug Cameron at doug.cameron@wsj.com
Access Investor Kit for The Boeing Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0970231058
Access Investor Kit for Lockheed Martin Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5398301094
Access Investor Kit for Northrop Grumman Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6668071029
Subscribe to WSJ: http://online.wsj.com?mod=djnwires