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Costs grow for earliest F-35s in production

The cost of the first 28 production models of the Lockheed Martin F-35 has increased by at least 11% to 15%, according to the F-35 joint programme office (JPO).

The programme has committed to absorb the costs within its existing budget, with part of the savings requiring Lockheed to accept a reduced "incentive fee" during the production phase, the JPO said.

The higher costs for the first three lots of low rate initial production (LRIP) add to a list of previously reported overruns, including a $4.6 billion jump to complete flight testing reported last year.

But programme officials have been concerned about rising LRIP costs for several years. An internal version of the F-35 selected acquisition report in December 2009 showed costs already growing rapidly.

For example, with only half the contract complete about 16 months ago, the programme estimated at that time LRIP-2 costs for the Lockheed airframe could increase more than 9%, according to the internal SAR report.

Heeding both the F-35's cost trends and wider acquisition reforms, the JPO required Lockheed to absorb more of the share of cost overruns after LRIP-3. The LRIP-4 contract signed by Lockheed last year converts the contract from cost-plus to fixed-price, plus incentive fees.

Meanwhile, the JPO has started collecting the cost overruns for the first three LRIP lots into a single new contract called the "over-target baseline" (OTB), which is now in negotiation with Lockheed and engine supplier Pratt & Whitney.

In the OTB negotiations, the contractors must accept some reduction to its maximum incentive fee, which has a minimum and maximum range in the cost-plus contracts.

Further, the JPO also must find cost reductions within the programme to keep the overruns contained to the F-35. Programme officials have not disclosed the range of trade-offs being considered.

Development testing on the F-35A conventional take-off and landing variant has been extended through the end of 2016, but the programme has not set a timeline for initial operational capability under the new schedule.

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