Defense contractors can expect the Pentagon to take increasingly tough negotiating positions as future procurements move forward.
That was in a nutshell the message delivered by senior officials last week at an industry conference in Washington, D.C.
In extensive comments to an audience of executives and investors, Director of Defense Pricing Shay Assad and F-35 Program Executive Officer Lt. Gen. Christopher Bogdan made it clear that they intend to push contractors into a corner.
Defense companies are in the best financial shape in years, but little of that windfall is trickling down into military programs, they complained. The government will seek to regain leverage and press contractors to “bring down the cost of DoD weapon systems,” Assad said at the annual McAleese Credit Suisse defense programs conference.
Government buyers and contract negotiators are encouraged by the Trump administration’s hard-line business approach, Assad said. “When you get somebody who is president of the United States and who understands precisely what you do for a living … This is terrific from my point of view.”
Assad for years has been a thorn in the side of Pentagon contractors as his office oversees pricing negotiations. He suggested the Defense Department is unhappy with the attitude of many defense companies that put profit ahead of the customer’s interest. His priorities going forward: Getting better deals for the Defense Department and looking for ways to increase competition in the market.
The F-35 joint strike fighter, the Pentagon’s largest weapons acquisition, is poised to become a litmus test for the new approach to negotiating with industry. “I am excited about the opportunities,” Assad said.
There is no one specifically to blame for the F-35 being far more expensive than anticipated, said Assad, but he believes that from now on, the Pentagon will look to manufacturers to deliver cost reductions.
Executives from prime contractor Lockheed Martin have insisted that as soon as production ramps up, the unit price of the aircraft will drop. Assad is skeptical, however. “It’s not as simple as, ‘We increase the rate and that reduces the price,’” he said. “It’s not what this is about. This is about reducing the cost of building the product. We’ll get the inherent benefits of rate as we go along.” (end of excerpt)
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