If you thought that the president’s new helicopter was expensive to buy, you should see how much it’s costing to can:
The U.S. Navy expects about $555 million in cancellation costs for Lockheed Martin Corp’s VH-71 presidential helicopter and $4.4 billion in spending to extend the life of the fleet of VH-3 and VH-60 helicopters, according to a document obtained by Reuters…
Defense Secretary Robert Gates in April announced he would terminate the VH-71 helicopter being developed by Lockheed and its partner AgustaWestland, a unit of Italy’s Finmeccanica SpA, after the program threatened to double in cost to over $13 billion…
Negotiations have not yet begun on a termination fee for Lockheed and its partners. However, some industry analysts said they expected the Lockheed team to seek much more than the $555 million projected in the Navy memo, possibly near $1 billion.
Ouch.
The general public doesn’t comprehend the implications of canceling contracts. If it’s already in the works, there is money already spent and money already promised, and also the money that is laid out in the contract to cover any possible cancellation.
If more people understood this, the famous vote getting manta of “I’ll get those contracts canceled!” wouldn’t have the effect of buying votes as it has
If I understand what it says there – even with the costs stated to cancel and keep the old aircraft going it still comes in at less than half of the expected cost of moving forward with the new helicopter. Is that correct?
Speaking of helicopters… very sad news.
It was believed to have been involved in “exercises” off NIMITZ.
On Monday I sent a brand new sailor from the USO over to TPU because he was assigned to the ship but it was already at sea. I thought of him when I heard…
It took TONS of mony to cancel the RAH-66 Commanche a couple of years ago…
“On February 23, 2004, the U.S. Army announced their decision to cancel the Comanche helicopter program in view of the need to provide funds to renovate the existing helicopter fleet of aging attack, utility, and reconnaissance aircraft. Also a factor was the growing popularity in the military of using unmanned aerial vehicles (UAVs) for reconnaissance purposes – in addition to tests, UAVs had proven their worth in Afghanistan and Iraq. About US$6.9 billion had already been invested in the Comanche program at the time of its termination. An additional US$450–680 million was required in contract termination fees to main program partners Sikorsky and Boeing Integrated Defense Systems…”
Money well spent, as usual…
$555 million is worth it to cancel that sorta flying monument to horrible program management.
Understand? Like the $2 billion (yes, that is with a B) that McAir and GD got in cancellation costs for the A12?
All TOTUS has to do, is point to Cheney and the A12 and blame him. That will get the MSNBC salivators started, and all will be OK.
A tasker deflected is a tasker accomplished — old COCOM staff officer mantra.
Has that case been settled? The last I can find is from 2007 when the U.S. Court of Federal Claims found for the government, putting the companies on the hook to REPAY over $2 billion in progress payments and interest. The companies said they planned to appeal.
Lockheed is a racket. With a virtual monopoly too.
Lockheed may be a lot of things but a monopoly, virtual or otherwise, isn’t one of them.
These costs are part and parcel to the manner the Federal Government chooses to acquire these things in the first place. It can’t have it both ways. I’m not holding the Lockheed led team blameless in the cost overruns but based on the ever changing nature of the requirements the government imposes on these programs it would be impossible or cost prohibitive to ever bid these items on a fixed-cost basis.
If you asked someone to build you a three bedroom house and, after signing the contract decided you needed a 5 BR house with a garage you might expect the contractor to expect payment. Likewise, if after the contractor expended a lot of money and effort to pour the foundation and erect the frame walls you decided to cancel the contract you might expect a bill for work performed so far. And you wouldn’t end up with a house either.
A better analogy to this thing would be
You ask someone to build a 3 BR house. Contract signed.
Then you decide you need a 5 BR house. Redesign the thing.
Then it needs a garage. Redesign.
Then it needs a gold floor. More work to integrate the gold floor.
Then the floor needs to be polished using the breast milk of a thousand virgins.
Then it needs to be a nuclear hardened house.
And then your decide you really need it to also cure AIDS while allowing you to talk on the phone with people on the moon (and your fireplace has to be redesigned to launch the rocket to send them to the moon).
At this point you decide the house is too expensive, blame the contractor, cancel the thing, and move on to some other house building project that needs your wisdom.
No. The house analogy doesn’t work. It’s more like this:
A large acquisition takes place over many years. While contracts have rewards and penalties as part of the agreement, in many cases the deal can become “take it or leave it”. For example, a contractor will tell the government what a certain widget will cost for the capabilities the government wants. Several years into the development the contractor may decide that they can’t make the widget do everything it was supposed to, and asks for requirement relief (or more money). Since no more money is available the only real choice may be to grant relief. Next, congress may reduce funding in a year. Now the contractor can’t pay to keep all its employees working on the project and moves them elsewhere. This means a slip to the entire schedule and more cost. As the program drags on new technologies may become available that the government would like to insert into the widget. This also costs money and time.
Eventually, the program drags on and the brochure becomes less and less glossy. The service may press the contractor, but it has already made a huge investment. There is not an option to simply change contractors. The service is keenly aware that canceling the program will not bode well for the next time it wants money for another major program. Occasionally the service may say enough is enough and move to cancel the contract. Often Congress steps in and says “you can’t cancel this program”. Smart contractors like Lockheed make sure that each state, ergo politicians from each state, have a vested interest in its product.
If Lockheed doesn’t have a monopoly, could you tell me what rival companies are producing fighter aircraft right now? The warthog doesn’t count.
The reason they have a monopoly on the aircraft they are Prime contractor on (with a lot of help form others) is that they won the contract. I don’t recall a sole source award on any of those programs as they were competed at time of original award.
No, no, the Lockheed way is thus:
RFP spells out a 5-bedroom house, You as Lockheed bid the cost of a 3-bedroom confident that you can “negotiate up” to what it will really cost to build the originally asked for 5-bedroom house. Some of this confidence comes from knowing that what the customer really wanted was a 5-bedroom house with a Garage but no one pointed that out during the solicitation process, so when the customers comes requesting the Garage you well (cover your eyes Liz), you simply rape them out of their money and get the 2 additional bedrooms and the garage. All the while your “competition” that actually bid cost for a 5-bedroom and lost, gets gobbled up in the “reform” process which simply means getting bought out.
Now, after IOC some of the other perks of going with Lockheed kick in, like all those glass-fiber panels on the Leading Edge that can only be repaired back at the factory (those titanium panels on the trailing edge, those are SMRC’d “Locally Repaired”). Oh, and did I mention that the thing is built with an all new kind of fastener!! Oh yeah, they have one of these fancy designs that require all new tools, bought from the Lockheed Tool and Die company!!!
No, not a monopoly, yet.
BT: Jimmy T sends.
Boeing.
Nevertheless, you’re 100% correct. Once the contract is awarded, the Navy is at the mercy of the vendor. Pay the price he sets, take what he gives you.
It’s why BuAer used to award dual contracts…a big one to the winner, a small one to the runner-up. It gave the Navy options…and some damned good airplanes (the F4F and F6F were both runners-up to winning aircraft that had problems).
Too bad the prez didn’t have an exit strategy.
OTF, Do you then agree they have a monopoly? It doesn’t matter why. Yes, they’ve won the contracts. We are now in a position where there are no other companies that make fighter aircraft. This is a problem. It is a problem that really doesn’t have a good solution (well, none that I’m smart enough to come up with), because any measures to curb Lockheed would adversely effect our ability to purchase fighter aircraft (unless we go overseas, and then we would lose the ability to produce our own fighters).
We have literally purchased contracts with Lockheed with agreements that they would be completed for a certain price, only to find the cost triple. Not because we added stuff, but because the costs weren’t accurately anticipated. This is happening with the JSF. It is now rougly double what the predictions were just four short years ago. The exact same thing happened with the F22.
I would admit that Lockheed has a monopoly on any contract they have won – just as every other contractor does with the exception of multiple award contracts which, due to the nature of the procured items, are not utilized for major weapons systems.
I am not suggesting that the “blame” for all cost overruns are not in any way attributable to Lockheed but that the Government has a large hand in it. partly it is the nature of the items procured. When you procure advanced technology that has not been invented yet you can expect some uncertainty about the ultimate price and even if you will be successful in achieving all your objectives.
My point is, and it was based on the VH-71 contract is that a large part of the cost overruns were based on the ever shifting requirements the government imposes. Both sides game the system as I suspect that more than one or two programs have understated their requirements for fear that a realistic assessment of costs up front would endanger funding in the first place. Likewise the contractors play their version of the game.
My point was not to defend Lockheed but to object to what I interpreted as a one-sided view of where the problems were in this program. If the government awarded Lockheed to contract for VH-71 because they were the only bidder I’d agree with you. But they didn’t and so they are not a monopoly in this case.
The fact they are having the contract canceled proves that, even in a post award monopoly position, nothing is sacred if you can’t perform.
I guess a better way of making my point is just to state that the acquisition system is a mess as that is something everyone involved can agree on at some level.
Now Newport News Shipbuilding is a monopoly as they are the only place who can bid on building the next CVN until we decide to buy them from Russia or something.
Yeah, nobody else can make fightes. Not like Northrop Grumman made the YF-23 prototype. Or Boeing made the X-32 and still has a F-15 line, and oh yeah Super Hornets.
Not to mention that LockMart is barely in the UCAV game compared to Boeing or NG.
On first blush my thoughts are it was over budget and overdue, hit them for breach and move on with no payday. On second thought, the bird most likely would have performed at or near the original spec’s as written. NOW we get into the goodies, how much weight and material did the Secret Service, FBI, NSA, Homeland Security, ad nausem ad with MUST have hardening, etc.. Goes to the old joke of a horse by committee is a camel. IMHO, whatever group or groups added to the original specs of this bird should pony up that same percentage for the cancellation penalties so that DOD isn’t the one that gets shafted with the payoff. OR the payoff could just be added to the JSF, did I mention it is also overdue and over budget????
What’s another $350,000,000?
I think it all comes down to lousy program management on the Navy’s part. Figure out what you need it (in this case, the new helo) to do FIRST and then stick to it. Every time you go chasing after some new golden widget to stick in the thing you drive the hell out of the price. Also, look at the contract structure – you’re going to have hi cancelation costs because the contractor’s on a phased ffp-type contract with stage reviews, up front testing costs, etc. Hell yes it costs to cancel – that’s why you’re supposed to verify and properly scope the need before you sign the contract. That’s what all those beltway bandits get paid so much to do – properly write the requirements.
Saw the whole mess up close and personal in NAVAIR back in ‘93 time frame. Hasn’t changed muc from what I can tell.
I think you have to take two steps back and realize the huge costs of what is called “requirements creep” when new ideas pop into the governments head and are placed on a contractor, but are not fully funded or Rough Order of Magnitude (ROMed) out you get the spiraling costs of development, and then the costs of verifying all these requirements. If you took all the requirements for the VH-71 vs. the current presidential helicopter, you could see the difference. The new one was tasked to be much much more capable a platform with a price tag to match. If I recall Lockheed Martin is a FOR PROFIT company. I am sure they have done an excellent job, and now we must pay the piper if the decision is to terminate the program. You forget you have to disposition ALL of the development hardware, documentation, and on and on. This costs money as well. Just my two cents for free! You just can’t put it on ebay to get rid of it, or that would be a separate issue!
Another example of perfect being the enemy of good enough.
The mission of the VH-71 is unchanged or damned well should be, unchanged from the mission of the current Marine 1. What imbecile decided that we needed an all new revolutionary helo to transport a man to Camp David? If there was ever a case of just go out and buy something off the shelf, this was it. Just buy more of what you’re already using…. Did nobody see the potentials for fiscal catastrophe in a new helo program? How could they? Every single one of the military’s helo programs over the last 20 years has been an absolute fiscal disaster.
How do we continue to get away with this charade? Well, every single dime spent on these dismal failures gets spent in some Congress critter’s district and the smart contractors come up with a subcontracting plan that by golly has design, planning, fabrication, ILS and assembly going on for each project in 424 Congressional districts and we wonder why weapon systems are so expensive?
Following up Curtis’ comments, and at the risk of sounding dumb: isn’t the Blackhawk production line still up? Why not just buy a few new VH-70s?
Or is that too “20th-century?”