AWST (Ares):
Stunning Reversal -- Schwartz Expects a Cost Breach on JSF
In a stunning reversal Feb. 19, Air Force Chief of Staff Gen. Norton Schwartz told reporters that a Joint Strike Fighter cost overrun is "possible, maybe even likely." This is only a few short weeks after he expressed more optimism that a breach of the Nunn McCurdy statute was not likely. Apparently, like Defense Secretary Robert Gates said during his Feb. 1 budget briefing, Schwartz says he now knows more about the program.
Lockheed Martin officials continue to say the cost of the aircraft is coming in under the predicted costs of the most recent selected acquisition report (SAR -- a cost report that informs Congress of major shifts to pricing of Pentagon programs).
The next SAR goes to Congress in March, and it is looking more and more likely that a "critical" breach will occur. This means that either the APUC (average per unit cost -- the total procurement cost divided by the procurement quantity) or the PAUC (program acquisition unit cost -- the cost of procurement, development and construction divided by the total procurement quantity) exceeds the original baseline price by 50%. The PAUC is the troublesome piece for the F-35. The cost predications Lockheed cites refer only to the flyaway price, which does not include the rising cost of development. According to a December 2009 CRS report, development cost about $47.1 billion. The Fiscal 201 budget request boosts that by about $2.8 billion.
So ... assuming the Nunn McCurdy is breached, what is next? Typically, the secretary of defense must certify that:
*the program is critical to national security
*no alternatives exist to provide equal capability at a reduced cost
*PAUC and APUC are reasonable, and
*program management is adequate to control PAUC and APUC.
The first two should be relatively easy for DoD,especially given the momentum behind the program. What is tough are the final two elements: are the prices reasonable and under control? It will be interesting to see how DoD defines reasonable (compared to what?) and how they are able to prove that management is sound enough to control future costs.
Gates has fired Marine Corps Maj. Gen. Heinz ... and his replacement, a three-star admiral, is coming. But, Lockheed has not changed its management structure - Tom Burbage and Dan Crowley. During his press briefing Friday, Schwartz said that "Dan Crowley doesn't work for the SecDef," but that "he's short $600 million," referring to Gates's withhold of $614 worth of award fee from the company for its poor adherence to the test schedule and production of flight test assets. Schwartz did not, however, call for a change in leadership at Lockheed. "What occurred with the F-35 program was only a start," though, he said.
What could happen after a Nunn McCurdy declaration, however, would be to catch the interest of a lawmaker who could order a full review of the program. Remember what happened with the USAF plan to lease tankers to Boeing in 2001-2002 and what that sparked. One inquisitive lawmaker could put a major strain on the program. It will be interesting to see whether Congress delves further into its oversight role in the massive program.