William LaPlante, assistant secretary of the Air Force for acquisition, told members of the House Armed Services Subcommittee on Seapower and Projection Forces the service will "most likely" use a cost-plus contracting vehicle, and not a fixed-price agreement, on the secretive long range strike-bomber (LRS-B) program.
The LRS-B program is expected to award a contract in late spring or early summer of this year for the right to produce 80-100 next-generation bombers. Northrop Grumman is competing with a team of Boeing and Lockheed Martin for the contract, with major implications for the defense industry at stake.
That contract has been described as very favorable to the service, with Pentagon watchdogs holding it up as a good example of how costs can be controlled on major programs.
While acknowledging that fixed-price contracts can be very effective, LaPlante noted that they do not apply to every situation. Fixed-price works best for situations with more clarity on costs, such as commercial derivatives like the KC-46A, which is based on Boeing's 767 tanker. But for high-tech developments, a fixed-price contract carries risk.
"It you're on a fixed-price contract, it's really important to have a good estimate of what you think it's going to cost," LaPlante explained. "If you're wrong on it, let's say you're wrong 50 percent one way or the other, somebody is going to get really hurt.
"If a contractor ends up 50 percent over on a fixed price, they're very hurt, and they might not survive," he continued. "The opposite, we would get rightfully citizen for saying why are we giving a windfall, buying something for twice what it costs. So you really want to have a good idea on the cost estimate for development."
Given the technology development that will need to be done on the LRS-B, LaPlante said, a fixed-price contract would likely carry with it too much risk.
"My belief on the LRS-B is its going to be more traditional," he said. "We are doing a little more cutting edge, it's not based on a commercial item, so most likely it's going to be in the cost-plus regime."
"Little by little, the Pentagon is breaking its promise to cap costs at $550 million per plane and build a bomber using proven technology," Speier said. "The American people can't afford to foot the bill for another multibillion-dollar albatross. It is our responsibility in Congress to provide oversight before we are stuck with an F-35 or LCS. Lack of oversight and transparency is a recipe for the taxpayer getting ripped off."
RDT&E funding for the bomber will continue to escalate over the future years defense plan (FYDP), with a planned request of $2.2 billion in fiscal 2017, $2.8 billion in 2018, $3.6 billion in 2019 and $3.7 billion in 2020. Those figures do not reflect money that is hidden in the "black" budget as well, which could dramatically increase the cost of the program.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.