Pratt & Whitney hit with contract withholding over F135 engine

Washington DC
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The Pentagon’s Defense Contract Management Agency (DCMA) has imposed a 5% withholding against future billings for Pratt & Whitney on the F135 engine, which powers the Lockheed Martin F-35 Joint Strike Fighter.

Imposed on 30 September, the withholding impacts the programme's fifth through eighth low-rate initial production (LRIP) contracts and a US Navy advanced engine contract to reduce fuel burn on the F135.

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US Navy

“The F-35 Joint Program Office [JPO] fully supports the Defense Contract Management Agency's decision to impose a 5% withhold against Pratt & Whitney for not being in compliance with their earned value management system [EVMS],” the JPO says. “We will continue to work closely with DCMA to ensure Pratt & Whitney corrects the four deficiencies out of 32 guidelines in their earned value management system.”

The DCMA identified the need to update P&W’s documentation to better align with processes, improving the management and integration of the company’s scheduling tools. This is in addition to the need for better cost estimates and forecasts, and the improvement of work package planning.

According to the JPO, F-35 programme executive officer Lt Gen Chris Bogdan met with P&W leaders on 4 October to discuss what steps need to be taken to fix the company’s EVMS compliance. The JPO says that all F-35 contracts awarded since August 2012 include language, which spells out the potential of withholding of payments because of “deficiencies” in EVMS compliance.

The JPO adds that EVMS data is used to determine if a contractor is meeting cost and schedule goals. The Department of Defense can impose a maximum 5% withholding on bills if a company fails to comply with the EVMS under US federal acquisition regulations. “The EVM requirement is meant to protect taxpayers from over-billing and focuses on the business systems defence companies use to estimate costs,” the JPO says.

P&W says that it is committed to comply with the EVMS. “The audit identified inadequate compliance with four of 32 of the EVMS guidelines,” the company says. “We have submitted corrective action plans to the DCMA and are working closely with the DCMA to address and close any deficiencies and regain approval of our EVMS.”

While P&W admits that there is room for improvement, a company official points out that production costs on the F135 are falling and that it is voluntarily taking on cost overrun risks ahead of its legal obligation to do so.

“We have demonstrated our commitment to the success of the F135 engine programme by taking on 100% of overrun risk on production engines in our last LRIP award [LRIP 5], and did so voluntarily ahead of the government’s requirement to do so,” the P&W official says. “We have also reduced costs of the F135 engine by more than 40% since delivery of the first production engine.”