ANALYSIS: F-35 LRIP 5 Contracts: Unit Cost Tops $200M for First Time

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PARIS --- Previously estimated at nearly $160 million, the unit price of F-35 fighters ordered as part of the fifth Low-Rate Initial Production batch (LRIP Lot 5) has now passed $200 million, once additional contracts awarded by the Pentagon since our previous estimate on Dec. 9, 2011 are included.

On that date, when DoD awarded the main Lot 5 Low Rate Initial Production (LRIP 5) contract worth $4,011,919,310 for 30 aircraft, we had estimated average unit costs at $159.7 million.

However, after recent claims by US Air Force and program officials that F-35 acquisition costs are being reduced as better prices are negotiated with contractors, we updated our cost estimate.

Unsurprisingly, F-35 prices in fact show no sign of decreasing, and the total cost of LRIP Lot 5 further increased after two additional contracts awarded in late December.

Intriguingly, the Pentagon picked December 27 – two days after Christmas, in what is arguably the slowest news week of the year – to award two additional LRIP 5 contracts. Had it wanted to hide these awards, it would hardly have acted differently.

One contract, worth $485,000,000, is for LRIP 5 “non-recurring requirements,” which adds $16.6 million to the price of each of 30 LRIP 5 aircraft.

The second contract, awarded to Pratt & Whitney, is for production of 30 F135 engines for the LRIP 5 aircraft, and is worth $1.12 billion; it adds an average of $37.4 million to the cost of each aircraft.

We also identified a further LRIP 5 contract not previously included in our LRIP 5 estimate: it was awarded May 10, 2010, and covers F135 engine long lead items for this batch to the value of $138.8 million. At the time, LRIP 5 included 42 aircraft, so the contract’s cost works out to $3.3 million per aircraft.

Including these three, the Pentagon has awarded five contracts, together worth $6,280 million, to fund 30 LRIP 5 aircraft, whose average unit cost – engines included -- is thus $203.4 million.

Here is an updated breakdown of this estimate:



There are two caveats, however, to the above unit cost:

1. It does not include the cost of the modifications, retrofits and upgrades that will be necessary to bring all LRIP aircraft to their nominal configuration, once flight testing and development are completed. The estimated cost of these modifications, known as concurrency costs, varies between $5 million (Lockheed Martin) and $10 million per aircraft (US Senate panel).

The JSF program office has not released its own estimate, but Venlet in December said the bill for fixing concurrency ills was so high it "sucks the wind out of your lungs."

2. Several of these LRIP 5 contracts include cost escalation clauses (“cost plus incentive contract line items”; “fixed-price-incentive (firm target)”; “cost-sharing/no-fee basis,” and “not-to-exceed cost-plus-fixed-fee”), so their actual cost will increase before they are completed.

Updated March 13, 2012
The award of additional contract fees and reimbursements has already begun. On March 12, the Pentagon announced it had awarded Lockheed:

"a $56,329,396 cost reimbursement modification to previously awarded contract (N00019-10-C-0002) to provide additional funding for the sustainment effort necessary to meet the requirements and delivery schedule for the F-35 Low Rate Initial Production V."

This contract adds another $1.9 million to the cost of each LRIP 5 aircraft, and more awards of this kind are to be expected.

It is thus inevitable that LRIP 5 costs will increase further, and by a substantial margin, as major re-design and modifications will be required, for example to fix the non-functional F-35C tail-hook and other design flaws.

Cost Varies Substantially by Version

Originally set at 42 aircraft, the F-35 Low Rate Initial Production Lot 5 now comprises 30 aircraft:
-- 21 Conventional Take Off and Landing (CTOL) aircraft for the US Air Force;
-- 6 Carrier Variant (CV) aircraft for the US Navy, and
-- 3 Short Take Off and Vertical Landing (STOVL) aircraft for the US Marine Corps.

Given the information provided in each Lot 5 contract announcement, it is possible to compute, with a degree of accuracy, the cost of each version of the F-35. If the average cost is $203.4 million per aircraft, it in fact varies substantially according to the version:

-- F-35A: $172 million per aircraft;
-- F-35B: $291.7 million per aircraft;
-- F-35C: $235.8 million per aircraft.

This is a breakdown of LRIP 5 contracts and resulting unit costs, by version.



While these are the projected unit costs for the LRIP 5 aircraft, there is no implication that production aircraft would cost anywhere near these amounts.

However, costs will not begin to decrease until the F-35 enters full-scale production, and this is unlikely to happen for some years yet, especially since the Pentagon has now decided to further reduce LRIP production until flight tests demonstrate that the aircraft is meeting its performance and reliability goals.

Delaying orders for 179 LRIP aircraft for five years, part of the Pentagon’s FY2013 budget request, will save over $15 billion in the short term, but will ultimately further increase unit costs for the remaining aircraft.

F-35 Low-Rate Initial Production Lot 5 Contracts:

The Pentagon has awarded five main contracts for the Lot 5 Low-Rate Initial Production, listed below.

These should have been fixed-price contracts, following former Defense Secretary Robert Gates’ decision to stop cost-plus contracts for this program. However, this is not the case, as we have highlighted in bold characters below.

This allows for a further increase in contract costs if the contractors incur higher than expected costs.

1. Long-lead items (F135 engine): May 6, 2010
United Technologies Corp., Pratt & Whitney Military Engines, East Hartford, Conn., is being awarded an advance acquisition contract with an estimated value of $138,800,000 for long lead components, parts and materials associated with the Lot V low rate initial production of 22 F135 conventional take-off and landing propulsion systems for the Air Force; 13 short take-off and vertical landing propulsion systems for the Marine Corps; and 7 carrier variant propulsion systems for the Navy.
Work will be performed in East Hartford, Conn. (70 percent); Bristol, United Kingdom (19 percent); and Indianapolis, Ind. (11 percent), and is expected to be completed in April 2011.
Contract funds will not expire at the end of the current fiscal year. This contract was not competitively procured.
This contract combines purchases for the Air Force ($51,300,000; 37 percent); Marine Corps ($65,600,000; 47 percent); and Navy ($21,900,000; 16 percent).
The Naval Air Systems Command, Patuxent River, Md., is the contracting activity (N00019-10-C-0005).
http://www.defense.gov/contracts/contract.aspx?contractid=4275

2. Long-lead items (airframe): July 6, 2010
Lockheed Martin Corp., Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded an advance acquisition contract with an estimated value of $522,200,000 to provide for long-lead efforts and materials associated with the production and delivery of 42 low-rate initial production Lot V F-35 Joint Strike Fighter aircraft.
This contract provides for 22 conventional take-off and landing aircraft for the Air Force; 13 short take off and vertical landing aircraft for the Marine Corps; and seven carrier variant aircraft for the Navy.
Work will be performed in Fort Worth, Texas (35 percent); El Segundo, Calif. (25 percent); Warton, United Kingdom (20 percent); Orlando, Fla. (10 percent); Nashua, N.H. (5 percent); and Baltimore, Md. (5 percent).
Work is expected to be completed in May 2011. Contract funds will not expire at the end of the current fiscal year. This contract was not competitively procured.
This contract combines purchases for the Navy ($329,100,000; 63 percent) and Air Force ($193,100,000; 37 percent).
The Naval Air Systems Command, Patuxent River, Md., is the contracting activity (N00019-10-C-0002).
http://www.defense-aerospace.com ... n-of-jsf-lot-v.html

3. Main LRIP 5 contract (airframes): December 27, 2011
Lockheed Martin Corp., Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded a $4,011,919,310 fixed-price-incentive (firm target) (FPIF) modification to a previously awarded advance acquisition contract (N00019-10-C-0002).
This modification provides for the manufacture and delivery of 30 Low Rate Initial Production Lot V F-35 Joint Strike Fighter (JSF) Aircraft for the U.S. Air Force (21 Conventional Take Off and Landing (CTOL) aircraft); the U.S. Navy (6 Carrier Variant (CV) aircraft) and the U.S. Marine Corps (3 Short Take Off and Vertical Landing (STOVL) aircraft).
In addition, this modification provides for associated ancillary mission equipment and flight test instrumentation for those aircraft, and flight test instrumentation for the United Kingdom.
All effort will be contracted for on a FPIF basis, with the exception of work scope for the incorporation of certain specified concurrency changes that will be contracted for on a cost-sharing/no-fee basis.
Work will be performed in Fort Worth, Texas (67 percent); El Segundo, Calif. (14 percent); Warton, United Kingdom (9 percent); Orlando, Fla. (4 percent); Nashua, N.H. (3 percent); and Baltimore, Md. (3 percent), and is expected to be completed in January 2014. Contract funds will not expire at the end of the current fiscal year.
This contract combines purchases for the U.S. Air Force ($2,644,270,340; 65.9 percent); the U.S. Navy ($937,374,286; 23.34 percent); the U.S. Marine Corps ($426,190,013; 10.6 percent); and the United Kingdom ($4,084,671; 0.1 percent).
The Naval Air Systems Command, Patuxent River, Md., is the contracting activity.
http://www.defense-aerospace.com ... for-lrip-5-lot.html

4. LRIP 5 (production non-recurring requirements): December 27, 2011
Lockheed Martin Corp., Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded a $485,000,000 not-to-exceed cost-plus-fixed-fee undefinitized modification to a previously awarded advance acquisition contract (N00019-10-C-0002).
A total of $131,500,000 is being obligated at time of award.
This modification provides the F-35 Lightning II, Joint Strike Fighter Low Rate Initial Production Lot V production non-recurring requirements inclusive of special tooling/special test equipment and subcontractor technical assistance for the Air Force, Navy, and the Cooperative Partner participants.
Work will be performed in Fort Worth, Texas (30 percent); El Segundo, Calif. (20 percent); Wharton, United Kingdom (20 percent); Turin, Italy (15 percent); Nashua, N.H. (8 percent); and Baltimore, Md. (7 percent).
Work is expected to be completed in December 2013. Contract funds will not expire at the end of the current fiscal year. This contract combines purchases for the Air Force ($186,725,000; 38.5 percent); the U.S. Navy ($186,725,000; 38.5 percent); and the Cooperative Partner participants ($111,550,000; 23 percent).
The Naval Air Systems Command, Patuxent River, Md., is the contracting activity. (ends)
http://www.defense-aerospace.com ... or-f_35-lrip-5.html

5. Main LRIP 5 contract (engines): December 27, 2011
United Technologies Corp., Pratt & Whitney Military Engines, East Hartford, Conn., is being awarded a $1,122,306,649 not-to-exceed undefinitized modification to a previously awarded advanced acquisition contract (N00019-10-C-0005).
A total of $358,597,078 is being obligated at time of award. The contract includes both fixed price incentive and cost plus incentive contract line items.
This undefinitized modification provides for the Lot V Low Rate Initial Production of 21 F135 Conventional Take Off and Landing (CTOL) Propulsion Systems for the Air Force; 3 Short Take-off and Vertical Landing (STOVL) Propulsion Systems for the Marine Corps; and 6 Carrier Variant (CV) Propulsion Systems for the Navy.
In addition, this modification provides for production non-recurring effort, non-recurring autonomic logistics effort and recurring sustainment effort for the U.S. Services and Cooperative Partner Participants.
Work will be performed in East Hartford, Conn. (67 percent); Bristol, United Kingdom (16.5 percent); and Indianapolis, Ind. (16.5 percent), and is expected to be completed in February 2014. Contract funds will not expire at the end of the current fiscal year.
This contract was not competitively procured. This contract combines purchases for the Air Force ($520,650,335; 46.3 percent); Marine Corps ($387,099,090; 34.5 percent); Navy ($166,710,445; 14.9 percent); and the Cooperative Partner Participants ($47,846,779; 4.3 percent).
The Naval Air Systems Command, Patuxent River, Md. is the contracting activity.
http://www.defense-aerospace.com ... lrip-5-engines.html

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