Lockheed Martin Offers to Shoulder Risks on F-35 Maintenance with Fixed-Price, Performance-Based Contract (excerpt)
(Source: Forbes Magazine; published Sept. 16, 2019)
By Loren Thompson
Lockheed Martin, prime contractor for all hardware and software on the F-35 fighter other than the engine, has proposed to the government that the company assume most of the risk for keeping the plane in a high state of readiness. The company would guarantee a fixed price to reach and exceed 80% fleet readiness by 2025, higher than most U.S. combat aircraft achieve today.

F-35 is the Pentagon’s biggest weapons program, producing 2,456 fighters in three variants for the Air Force, Navy and Marine Corps, plus many hundreds more for a dozen overseas allies. The cost of building each aircraft has been declining steadily, with the latest agreement aiming to produce the most common variant for less than it costs to manufacture last-generation fighters that the F-35 will replace.

However, most of the life-cycle cost for modern weapons is incurred after production, in the form of what is called “sustainment”—maintenance, spare parts and other items necessary to keep weapons in a high state of readiness. It is the cumulative cost of sustainment during a service life stretching to 2070 that has earned F-35 the reputation for being the military’s first trillion-dollar program.

What Lockheed Martin is proposing is that the Department of Defense transition F-35 to a performance-based logistics approach in which contractors are incentivized to reduce costs. Traditional sustainment concepts measure inputs, whereas performance-based logistics measures success in terms of outputs—in this case, readiness and affordability.

Under the terms of the Lockheed Martin offer, the government would be guaranteed that the F-35 fleet is over 80% mission-capable by 2025, meeting a goal set by former Secretary of Defense James Mattis. Less than 10% of the fleet could be non-mission-capable due to supply shortages, and less than 10% could be non-mission-capable due to maintenance issues. That is significantly better readiness than is currently achieved by most military aircraft.

The most unusual feature of Lockheed Martin’s offer, though, is the proposal to deliver high readiness levels at a fixed price below what current sustainment practices would permit. The company estimates that $18 billion would be saved over a 15-year period, with savings averaging about $1 billion per year after initial startup of the performance-based approach. (end of excerpt)

Click here for the full story, on the Forbes Magazine website.

(EDITOR’S NOTE: As detailed above by one of its consultants, Lockheed’s offer is intended to show it can reduce F-35 sustainment costs, which the US Air Force has repeatedly stated it cannot afford, in exchange for a five-year contract.
The figures, however, do not make much sense.
On the basis of current sustainment costs of $5 million per year per aircraft, the US Air Force would pay about $30 billion over five years for the 1,200 F-35s it will ultimately operate.
According to Defense One (see following item), Lockheed estimates that the tab for the five-year arrangement could come to $15 billion, or a discount of about 50%, but adds that “it would save the Pentagon a total of $1 billion” a year – or less than one-third.
This means that Lockheed would keep $2 billion of annual savings, while the Pentagon would only keep $1 billion.
In addition, Lockheed would lock in its control of F-35 sustainment for five years, and head off US Air Force efforts to take over its own sustainment to save money, which is strategically more important than short-term profits.
An interesting aspect of this proposal is that Lockheed is offering a fixed-price contract, which would make it responsible for cost overruns.
However, given the size of its profit margin, it would still come out comfortably ahead.)


Extra-Long Sustainment Contracts Are Lockheed’s Latest Bid to Cut F-35 Costs (excerpt)
(Source: Defense One; issued Sept 16, 2019)
By Marcus Weisgerber
The company is pitching the Pentagon on a five-year deal — with promises to keep 80 percent of the fleet mission-ready.

Lockheed Martin is pitching the Pentagon on a new idea for reducing the cost of the F-35 combat jet: sign a five-year maintenance deal instead of negotiating a new contract every year. There’s also a performance-based twist: the company would provide enough spare parts to keep 80 percent of the world’s F-35s battle-ready — or face penalties.

Currently, Lockheed and the Pentagon’s F-35 program office negotiate new deals every year to maintain the hundreds of F-35s flown by U.S. and allied forces. The negotiations often take most of the year and by the time a contract is signed, it’s time to begin negotiating the next one.

Lockheed officials pitched the idea of a longer-term contract to Pentagon acquisition leaders over the summer in a 25-page white paper, said Ken Merchant, Lockheed’s vice president for F-35 sustainment, said in a Monday interview at the Air Force Association’s annual Air, Space & Cyber conference.

“It’s a commitment on the company’s part to a five-year deal and it would bring along the partners as well as the supply chain and allow us all to establish long-term arrangements with our vendor base,” Merchant said. “If we had a five-year deal where folks could could bank on having a certain level of money coming into their activities and be able to work long-term arrangements with the vendor base, everybody benefits from that.”

Asked about Lockheed’s proposal on Monday, spokespeople for Pentagon acquisition chief Ellen Lord and Navy acquisition chief James Guerts had no immediate comment.

The Pentagon currently pays Lockheed more than $2 billion per year to sustain about 400 jets, or roughly $5 million per jet per year. But within four years, the global fleet is expected to reach nearly 1,200 aircraft as production ramps up.

Lockheed estimates that the tab for the five-year arrangement could come to $15 billion, and that it would save the Pentagon a total of $1 billion. (end of excerpt)

Click here for the full story, on the Defense One website.


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