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Armed Reconnaissance Helicopter Threatened As Costs Jump Over 25%

The U.S. Army notified Congress July 9 of a Nunn-McCurdy breach with the Armed Reconnaissance Helicopter program. The prime contractor for this program is Bell-Textron.

The Army sent July 3 a critical program deviation report to the Under Secretary Of Defense - Acquisition, Technology And Logistics (USD(AT&L)), satisfying the statutory requirement to provide notification of critical military-acquisition program deviations.

Neither the program nor the contract is terminated by this breach. The Army's requirement for the capability provided by the Armed Reconnaissance Helicopter continues to be valid and critically needed. The ARH is the designated replacement for the current Kiowa warrior helicopter. The Army currently has no wartime replacement aircraft available.

The Army's Armed Reconnaissance Helicopter program manager identified cost growth in excess of 25 percent from the July 26, 2005, acquisition program baseline, resulting in a critical Nunn-McCurdy breach. Independent analysis verified the program manager's cost-growth assessment.

There are two primary reasons for the increase in the estimated production unit cost. First, the actual labor hours and material costs to complete the prototype aircraft were significantly higher than previously projected; and second, the contractor labor rates and overheads are increasing at a higher rate than previously projected.

The Army will work diligently with the Under Secretary Of Defense - Acquisition, Technology And Logistics to complete the Nunn-McCurdy process. The USD(AT&L) will direct integrated product teams to address and answer questions in four statutory areas:

1) Is the program essential to national security?
2) Is there a viable alternative that provides equal capability at less cost?
3) Are new estimates of program costs reasonable?
4) Is the program management structure adequate to control program costs?

(EDITOR’S NOTE: According to US media reports, the cost overrun on the $6.2 billion program is actually 42 percent. Breach of the 25 percent Nunn-McCurdy cap automatically triggers a mandatory review, which could lead to cancellation.
“We remain confident that that we can produce the ARH at an affordable price," Thomas Dolney, a Bell Textron spokesman, told Reuters in an email message. "Bell Helicopter and its team of suppliers are ready to begin low-rate initial production of the ARH, and we are dedicated to producing a world-class weapons system for the Army's warfighters."

Armed Reconnaissance Helicopter Faces Critical Cost Growth