Boeing and Lockheed Martin are locked in a high-stakes stand-off over costs with the US military.
The winner – contractors or customer – will set the precedent for adjudicating such disputes over the remaining years of the Trump administration.
The US Department of Defense is normally at a disadvantage in these conditions, but this time it has two new high-ranking players who seem determined to reset the relationship with the military’s largest and most powerful suppliers.
Patrick Shanahan, now deputy secretary of defense, spent two decades as Boeing’s most senior executive “fixer”, always tasked to solve the company’s biggest production problems. Ellen Lord, formerly chief executive of Textron Systems, is now under secretary of defense for acquisition and sustainment.
It has become routine to suspect foul motives in the “revolving door” of executives moving between government and industry jobs, but no-one knows better where the weak points are than its former masters.
Shanahan and Lord appear to have launched their public sector tenure with the aim of using the defence industry’s cleverest pricing tactics against it.
The stand-off concerns two of the DoD’s highest acquisition priorities: Boeing’s KC-46A Pegasus tanker and Lockheed’s F-35 Lightning II fighter.
Both programmes are now structured under fixed-price contracts, yet remain in the late development phase, where technical surprises are bound to arise. As each new problem is revealed, it usually takes more time – and money – to fix.
Boeing already faces a long list of deficiencies on the KC-46A that the US Air Force wants addressed before it accepts delivery of the first 18 operational aircraft in October, including a new software problem uncovered by FlightGlobal. Lockheed acknowledged last year delivering scores of F-35s with a part that must be replaced.
Both require more money to fix, but the question now is which side is responsible? In the DoD’s view, a fixed-price contract means responsibility rests with industry.
In the past, contractors always believed they had the upper hand in such disputes. After all, the DoD has already invested billions of dollars and several years developing these new systems. The opportunity to switch to a competitive alternative ended after contract signing.
But now the defence industry encounters a very different leadership at the DoD, who seem determined to turn the tables.
Source: Flight International
