Congressional researchers raise flags that Northrop may have underbid to win.
US Air Force
That, along with the classified nature of the budget and the way the Air Force is packaging the project, has raised concerns in Congress that Northrop may have underbid the cost of its proposal to get a foot in the door, with hopes of getting more money later once the project is underway. A report released this week by the Congressional Research Service suggests that legislators may want to take a hard look at that possibility.
The Air Force made cost per plane a key factor in the award of the initial development contract, setting a fly-away cost of $550 million per aircraft (for a fleet of 100 bombers) as the benchmark for bids on the Long Range Strike Bomber program. When Northrop's bid was revealed as the winner, it was also revealed that Northrop had said it could deliver the aircraft at $511 million. But it's not clear what that price tag encompasses. Some features of the aircraft—such as sensors, nuclear weapons capability, and uncrewed flight—could be packaged under separate, classified contracts and raise the cost per plane significantly.
The classified nature of the whole program has made Congressional oversight of the LSRB program difficult at best, since there's no way for researchers to look at exactly what the cost estimate takes into account. Most of the B-21 program is classified as a Special Access Program—making it more highly classified than Top Secret, severely limiting which members of Congress can access information about it. But what is available is a matter of concern to CRS military specialists.
"The winning bid for the B-21 came in substantially below DOD’s independent estimates," noted CRS researcher Jeremiah Gertler in his report. "In the past, contractors have been accused of bidding unrealistically low prices in order to win a given contract, then using their incumbency to appeal for higher appropriations… Congress may wish to revisit DOD’s cost estimation to understand why the estimated cost was significantly higher than the actual bid [and]…may wish to use its oversight mechanisms to verify that the contract can be executed at the price bid and/or select a contract type maximizing contractor responsibility to meet the bid price."
The contract awarded by the Air Force to Northrop is a "cost-plus" contract, with incentive payments added to cost for hitting specific performance goals. Senator John McCain (R-Ariz.), chairman of the Senate Committee on Armed Services, has strongly opposed use of that kind of contract. "I will not authorize a program that has a cost-plus contract—and I told them that," he said in March. "If you have a cost-plus contract, tell me one time that there hasn’t been additional costs, then I would reconsider. The mindset in the Pentagon that still somehow these are still acceptable is infuriating."
Given how the F-35 Joint Strike Fighter program has bloated over time, McCain's concerns appear to have merit. While the B-21 program is supposed to be based on mature technologies and is slated for a much faster delivery timetable than the F-35 program (with delivery to the Air Force within 10 years as opposed to the nearly two-decade-long cycle for the F-35), there's plenty of precedent in Northrop Grumman's last effort (the B-2) for runaway costs.
- Just as a point of clarification, the DEVELOPMENT contract is cost-plus, as are the first couple airframes. The actual production run is fixed cost, and if Northrop can't hit the numbers it will eat the cost.
Development is *never* fixed cost for any ambitious program. Why? Because of the unknowns, including the fact that the customer will change specifications and requirements midstream. For example, on the B-2, the USAF demanded that Northrop add terrain following capability (to fly the radar horizon of SAM sites), as a fallback in case stealth didn't pan out long term. Since the air at low level is much thicker and more turbulent than the thinner air at 30,000+ feet, it's much more stressful on the aircraft. So the USAF was basically asking them to re-do the entire frame with double the strength.
Prototypes are cost-plus because aircraft, and the stresses they fly under, are too complex to model completely. It's expected that there will be problems, and cost-plus is easier than having to go back to Congress for an extra million to fix a wing spar issue. There are limits to this, usually referred to Nunn–McCurdy. This law states that if a problem results in 25% cost growth beyond baseline, the program has to explain to Congress and get approval to move forward. The checkbook isn't entirely blank.
Once serial production starts, the DoD expects you to hit the numbers you promised. F-35 is already in this phase. When LM and P&W promises a complete, functioning F-35 with engine for $85 million and delivery in 2019, they either build it for that cost or eat the difference. And if it isn't working on delivery, it's on the contractors dime to fix it, plus penalties for failing to deliver on spec.
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