U.S. Senate Proposal Would Require Pentagon to Sign a Fixed Price Contract for F-35

Bloomberg is reporting that the a U.S. Senate proposal that requires the Pentagon to sign a fixed-price contract with Lockheed Martin Corp. (LMT) for a future lot of F-35 Joint Strike Fighters may result in fewer aircraft at a higher price. That comes from an Air Force official’s testimony on Tuesday to a congressional panel.

More from Bloomberg:

The Senate Armed Services Committee included a provision in its 2012 defense authorization bill that requires the Defense Department to use a fixed-price contract with an incentive fee for low-rate initial production of the fifth F-35 lot. That would require Lockheed to absorb 100 percent of costs “above the target cost specified in the contract.”

The Senate may start debating the defense authorization bill as early as next week.

The Senate provision “will not have the desired effect of controlling costs,” Lieutenant General Herbert Carlisle, deputy chief of staff for Air Force operations, plans and requirements, said in a statement prepared for a House Armed Services Committee hearing on aviation programs.

A fixed-price contract or a fixed-price contract with an incentive fee “will result in a higher unit price and likely result in the purchase of fewer aircraft,” he said.

“Additionally, contract negotiations under those two contract vehicle scenarios would likely be contentious and protracted, possibly resulting in production line perturbations,” he said.

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http://www.bloomberg.com/news/2011-11-02/senate-rule-may-force-u-s-air-force-to-buy-fewer-lockheed-f-35s.html