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‘Lockheed Martin to lose USD 70 mn after cost overrun’

USA: Lockheed Martin will lose its entire fee of about USD 70 million to defray an 18 percent cost overrun on the first newly designed GPS satellites, according to the US Air Force. The company had estimated that it would cost USD 1.5 billion to develop, test and build the first two GPS III satellites. However, the US Air Force spokeswoman Vicki Stein said the cost had risen to USD 1.62 billion.

The GPS, operated by the US Air Force, provides navigation for national security as well as civilian uses, including traffic-mapping devices in cars. The new GPS III satellites are designed to deliver more accuracy, an anti-jamming capability and a civilian signal that can operate with Europe’s Galileo system, the company said.

Lockheed Martin’s fee is 5 percent of the target cost, which includes one-time engineering tasks, test equipment and satellite assembly, the Air Force stated.

“Cost incentives on the contract” caused the company to lose the fee, Stein said, adding that the government continues to bear the “cost-risk” for development and production of the first two satellites.
The Pentagon has been withholding fees for deficient performance on such “cost-plus” contracts after congressional auditors in December 2005 said companies received billions of dollars in bonuses between 1999 and 2004 on systems with major cost, schedule and performance problems.

The US Government Accountability Office stated in a written Senate testimony on March 21 that the Air Force has cited multiple reasons for the overrun, including test-equipment delays and development “inefficiencies.”

Lockheed “is also behind in completing some tasks on schedule, but the programme does not expect these delays to affect launch of the first satellite,” Cristina Chaplain, GAO director of acquisition management, said in the testimony.

Source: Washington Post