Pentagon: Total F-35 Price Tag Could Reach $382 Billion
DEFENCE NEWS
By JOHN T. BENNETT
1 Jun 2010
Pentagon: Total F-35 Price Tag Could Reach $382 Billion - Defense News
Senior Pentagon officials on June 1 announced the F-35 fighter and five other major weapon systems have surpassed a legal cost threshold, while also criticizing the review process that triggers the "Nunn-McCurdy breaches."
The Defense Department told lawmakers the F-35 fighter program could cost as much as $382.4 billion, with each Lightning II model coming with a $92.4 million price tag, according to DoD budget documents.
Those cost estimates assume the program continues down the current path, which officials told reporters they are working to avoid. One senior Pentagon official – who declined to point to a specific cost target - said efforts already are under way to move the overall cost of the F-35 program "as close as possible" back toward substantially smaller estimates crafted in 2002.
The Defense Department sent the new estimates to Congress after determining the program had breached the so-called Nunn-McCurdy statute, which requires the Pentagon to notify Congress when major defense programs experience substantial cost growth.
The $92.4 million per-model estimate is what defense officials refer to as a "cradle-to-grave" projection, meaning spanning each fighter jet's entire life, the senior official said.
The Pentagon restructured the F-35 program just several months ago after internal DoD cost estimates showed the tri-service, international fighter initiative's price tag had grown more than expected – and more than the joint program office claimed. This formal congressional notification, the senior official said, is merely a reflection of the same growth – "the paperwork has caught up to that."
Why the bigger price tag? There are several primary drivers. One is the Navy several years ago reduced the number of F-35s it will buy. A second is a more difficult development process, which required additional years – and thus, became more expensive. The senior official said the program "will continue to struggle" with keeping the development phase on track, in part because the technology on the short take-off and landing variant is so complicated.
A DoD summary of the F-35 breach calls higher than projected "contractor labor and overhead rates and fees" the "single largest contributor to cost growth."
The senior official said the new F-35 program management has been ordered to pare these costs because "I do not think that the department should have to incur those costs."
As for the projected $382.4 billion overall price of the program, the senior official said the hope is "the taxpayers never have to pay that bill."
Meanwhile, a senior Lockheed official said the company was very pleased with the results of the recent restructuring and reiterated the company's stance that it does not expect the program to cost anywhere near the Pentagon's $382 billion estimate.
"I cannot foresee any scenario where those numbers become a reality," the official said.
Instead, the official said he expects the next batch of 32 production jets, known as "low-rate initial production lot 4," to cost more than 20 percent less than that projection. The previous batch of production aircraft also cost about 20 percent below the Pentagon's per-jet projections.
Lockheed officials have said previous Pentagon F-35 estimates have relied too heavily on data from older fighter programs, such as the F-22 Raptor and F/A-18EF Super Hornet.
Also breaching the cost growth threshold was the Navy's truncated DDG 1000 destroyer program. Costs grew from $20 billion to just over $22 billion, DoD said. The senior official pegged this growth to the Navy opting to buy three instead of 10, which drives up unit costs.
As part of the Nunn-McCurdy process, DoD officials have ordered the destroyer program to strike the "Volume Searching Radar hardware from the ship baseline design … in order to reduce cost for the program," according to a department fact sheet. The Navy has been ordered to shift the program's initial operating capability date back one year, to 2016, and alter testing and evaluation requirements.
The Air Force-led Wideband Gapfiller satellite program also experienced a breach, the result of a break in production (between satellites 6 and 7), and the subsequent production re-start costs when the service opted to build two additional WGS orbiters (satellites 7 and 8). The cost grew from around $3 billion to just over $3.5 billion. The officials said Pentagon officials are mulling future satellite communications needs, leaving open the door to buying additional WGS satellites.
The Army's Apache Block III program also made the list of over-budget programs. The initial intent was to overhaul 634 existing helicopters, but 56 "new build" birds were tacked on to meet war demands. The revamped helos saw cost growth of $9.9 billion to $12 billion; the new aircraft costs went from $2 billion in 2006 to $2.3 billion. The department has split the "AB3" program into two parts – one focused on the new helicopters and another for the upgrades ones – which has resulted in "a more conservative set of estimating assumptions." Both are slated for a
milestone C review this summer.
Another Army program made the list: the Advanced Threat Infrared Countermeasures/Common Missile Warning System, designed to take out infrared homing surface-to-air missile attacks on helicopters. The ATIC effort's costs grew from $900 million in 2003 to $1 billion; the CMWs portion's estimated price swelled from $3.1 billion in 2003 to $3.5 billion. The causes were "technological immaturity and unrealistic performance expectations," according to a DoD fact sheet.
Further, the Navy's Remote Minehunting System breached the cost growth threshold primarily because of "the result of lower than planned procurement quantities, unrealistic estimating, and failure to adequately address reliability issues," according to DoD. Costs grew from $1.2 billion in 2006 to $1.4 billion.
Each of the six programs avoided termination because Pentagon acquisition executive Ashton Carter deemed each essential to U.S. national security, which is required by the Nunn-McCurdy statute.
But is the Nunn-McCurdy process worth it? The senior official said the Pentagon is working on cost estimates of how much the Pentagon puts into the Nunn-McCurdy process. Some DoD brass wonder "whether the Nunn-McCurdy process is in Nunn-McCurdy," the senior official quipped.
Another DoD official said that estimation should be completed in several weeks.
The senior official said Pentagon leaders want to use the new Performance Assessments and Root Cause Analysis (PARCA) office to perform a similar function. PARCA has established by 2009 defense acquisition reform legislation, but Congress allowed the Pentagon to craft its charter.
In December, Carter signed a memo outlining how PARCA would work.
Its members would spring into action upon request by the defense secretary, DoD acquisition chief, a service secretary or a DoD agency director, according to the Dec. 9 memorandum.
The group would perform one of two kinds of analyses on major acquisition programs: * A performance assessment, which would "evaluate the cost, schedule, and performance of the program, relative to current metrics, performance requirements, and baseline parameters," the memo said. "The assessments shall determine the extent to which the level of program cost, schedule, and performance relative to established metrics is likely to result in the timely delivery of a level of capability to the war fighter."
* A root-cause analysis, which would examine the "underlying causes for shortcomings in cost, schedule and performance." It would also determine whether program shortcomings were due in part to "unrealistic performance expectations; unrealistic cost and schedule plans; immature technologies; and excessive manufacturing or integration risk," the memo said.
Both kinds of analyses would look at whether problems were caused by "unanticipated design, engineering, manufacturing, or integration issues arising during program performance; changes in procurement quantities; inadequate program funding or funding instability; [or] poor performance by government or contractor personnel responsible for program management," the memo said.
One defense analyst said the re-certification of the F-35 program was a done deal, showing the Nunn McCurdy process might not be working.
"Certification of F-35 is no big surprise because three of the defense department's four military services are counting on getting it, and there is no evidence of major design or engineering problems," Loren Thompson of the Lexington Institute wrote in a June 1 blog post. "But doesn't it make you wonder what the point of these costly reviews are, when even programs the department has targeted for termination are certified as complying with Nunn-McCurdy criteria for continuance?" John Reed and Kate Brannen contributed to this report.
