Pentagon Halts Talks, Imposes F-35 Contract

The Pentagon cut off negotiations with Lockheed Martin on Lot 9 production of the F-35 fighter, announcing late Wednesday it is unilaterally definitizing the contract for the 57 jets in the lot at a price of $6.1 billion. A Joint Strike Fighter program office spokesman said “after 14 months of good faith negotiations, it was clear that further negotiations would not result” in an agreed contract, so the government acted unilaterally to definitize it. After production of over 200 jets, “we know what it costs” to build an F-35, he said, and “we came up with a price we thought was fair and reasonable.” A Lockheed Martin spokesman said the deal was “not a mutually agreed-upon contract” and obligates the company to perform “under standard terms and conditions, and previously agreed-to-items.” He said Lockheed is “disappointed” with the government’s action and “will continue to execute on the F-35 program, and we will evaluate our options and path forward.”

There is an appeal process available to Lockheed through the Armed Services Board of Contract Appeals, but the company has not yet decided if it will pursue it; Lockheed has about 90 days to take such action. A company spokesman said “we will deliver” the jets in Lot 9, “starting in January. That is not in doubt.” The JSF spokesman said the parties had agreed on all aspects of the deal—the scope of work, terms and conditions, profit, etc.—that were set out in the previous, undefinitized contract, but simply could not agree on an overall price. An industry source said the sore spots were fees and profit “commensurate with risk” on the program, echoing statements from Lockheed chief financial officer Bruce Tanner, who said in an Oct. 25 earnings report conference call that pricing, terms and profit were among the “typical sticking points” in the talks. The Pentagon gave Lockheed about $1 billion in August to tide it over until the low-rate initial production Lot 9 contract was definitized, because the company had been paying second-tier vendors from its own coffers.