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US Air Force to save millions with fixed-price satellite contracts

US: The US Air Force is hoping to save hundreds of millions of dollars by converting three of its costliest satellite programmes into fixed-price contracts. The three programmes that currently are being considered for conversion are the Global Positioning System III, the Space Based Infrared and the Advanced Extremely High Frequency satellites.

These satellite programmes will be moved from “cost-plus” agreements, where the government reimburses all contractor expenses, to the new fixed-price contracting format. In addition, for major procurements, Congress has recently passed legislation that prohibits cost-plus production contracts.

Frank Kendall, the Department of Defence’s top acquisitions official, is behind this shift, one of several directives for containing the rising costs of weaponry systems. In addition, many believe that the tipping point for cutting back out-of-control military spending happened three years ago when former Defense Secretary Robert Gates terminated a multibillion-dollar Transformational Satellite (TSAT) programme. The TSAT program was viewed as symbolic of chronically late and over-budget military programmes that are becoming a thing of the past.

However, Mark Valerio, vice president and general manager of surveillance and navigation at Lockheed Martin Space Systems, cautioned that fixed price does not guarantee savings, although it does help to restrain overruns and schedule delays. “Fixed price is not necessarily a money saver. It’s about predictability and managing risk,” he said.

Source: National Defense