Lockheed Martin has received the first fixed-price contract for F-35 production aircraft. It took several months of negotiating to convert production orders from cost-plus to a fixed-price format two years early. Was it worth the wait? See the chart below (updated with corrected percentages in "change" column):
The pre-LRIP-4 data comes from the "selected acquisition report", dated 31 December 2009, on the F-35 program, which FlightGlobal obtained several months ago. No data on LRIP-1 is available. The chart also does not include costs for government furnished equipment, which includes engines.
Under the cost-plus contract format from the system development and demonstration (SDD) phase through the third lot of low rate initial production (LRIP-3), Lockheed's actual costs exceeded the initial target by 15-34%. Those costs were simply passed on to the government, rather than absorbed by the contractor.
The fixed-price format is supposed to mean that the contractor bears more of the risks for cost overruns. Details of the final agreement on LRIP-4, however, are still not available. We do know the new contract is not a "firm fixed-price" deal. That means a certain percentage of any cost overruns in LRIP-4 could be passed on to the customer.
| Lot | Aircraft | Targeted cost | Targeted average cost | Estimated Actuals** | Change | Average cost |
|---|---|---|---|---|---|---|
| SDD | 13 | $19 billion | $1.46 billion | $29.06 billion** | 52.95% | $2.24 billion |
| LRIP 1 | 2 | |||||
| LRIP 2 | 12 | $2.2 billion | $183.33 million | $2.6 billion** | 18.18% | $216.67 million |
| LRIP 3 | 17 | $2.62 billion | $154.12 million | $3.53 billion** | 34.74% | $207.65 million |
| LRIP 4 | 31 | $4.6 billion | $148 million | ?? |
The pre-LRIP-4 data comes from the "selected acquisition report", dated 31 December 2009, on the F-35 program, which FlightGlobal obtained several months ago. No data on LRIP-1 is available. The chart also does not include costs for government furnished equipment, which includes engines.
Under the cost-plus contract format from the system development and demonstration (SDD) phase through the third lot of low rate initial production (LRIP-3), Lockheed's actual costs exceeded the initial target by 15-34%. Those costs were simply passed on to the government, rather than absorbed by the contractor.
The fixed-price format is supposed to mean that the contractor bears more of the risks for cost overruns. Details of the final agreement on LRIP-4, however, are still not available. We do know the new contract is not a "firm fixed-price" deal. That means a certain percentage of any cost overruns in LRIP-4 could be passed on to the customer.
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