F-35 Bookkeeping

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Numbers can get complicated pretty quickly. Especially at the Pentagon. Especially when it comes to paying – or not paying — contractors.

As defense secretary, Robert Gates withheld $614 million from Lockheed Martin in 2010 for its lackluster work on the $400 billion F-35 fighter program, the most costly weapon system ever bought.

Air Force Lieutenant General Christopher Bogdan, who runs the tri-service, 2,457-plane program, explained to a Senate panel Wednesday what became of that money:

— “The secretary of defense took $190 million of that money and just took it away and said, `Lockheed, you will never have the opportunity to earn that money again.’ So right off the bat he took $190 million.”

— “Over the next three years from 2010 to 2012, there was award fee in the total of about $101 million that Lockheed could have earned. They only earned $34 million of that.”

— “So if you do the math, the 190 (million dollars) we took away, the 101 (million dollars) they could have earned over the last three years, what’s left today is $337 million.”

— “We transitioned the contract from award fee in 2012 to what we call incentive fee. So every bit of that $337 million now is in what we call incentive fee, and there’s very little subjectivity. It’s things that Lockheed has to do and has to perform over the next four years to earn that money.”

— “Let me give you an example. There’s $100 million of that 337 (million dollars) that’s broken up. If they deliver [specific software] capability on time, they get $40 million. If they deliver [a second software] capability on time with all the capability, they’ll earn $25 million. If they deliver the [third software] capability on time with all the capability, they’ll earn $35 million. That’s $100 million of the remaining $337 million.”

— “I’ve taken the last $237 million that’s leftover, I put it at the end of the contract, and I have said to Lockheed Martin, `You must deliver me a weapons system that meets each and every one of the system spec requirements, you must do that on time, and you must do it within the budget I have remaining on the development program. If you don’t meet those criteria, you will not earn a penny of that $237 million.”

— “And that’s where we have it today.”

Oh. There was one other key number Bogdan mentioned. Four:

“There have been significant leadership changes in Lockheed Martin over the last few months, all the way up and down the F-35 chain,” he said. “The deputy program manager, the program manager, the president of Lockheed Martin Aero, and the CEO have all changed out. I would tell you that those four individuals in those positions now have a different culture and a different attitude than when I first walked in on this program nine months ago. That is a good thing.”