The contracts will be immune from the automatic budget cuts known as sequestration taking effect in 2013 if Congress and the White House can’t negotiate an agreement to prevent more than $600 billion in tax increases and the spending reductions. Pentagon officials have said that most contracts awarded before the start of 2013 wouldn’t be reduced.
Lockheed’s Fort Worth, Texas-based Aeronautics unit’s contract for a sixth installment of F-35s can’t exceed $3.67 billion when its final details are hammered out next year. The Pentagon said it also awarded the company’s Sunnyvale, California, Space Systems unit a $1.93 billion contract for the final two Advanced Extremely High Frequency (AEHF) satellites in a constellation of six.
Today’s so-called “undefinitized contract action” for the F-35 doesn’t trigger a $3.67 billion payment to the nation’s largest defense contractor. Instead, it sets a threshold target and obligates an unspecified amount to begin assembly of 18 conventional U.S. Air Force models, seven U.S. Navy variants designed to land on aircraft carriers and six U.S. Marine Corps short take-off and vertical landing (STOVL) versions.
Details such as the contract’s target costs, profit, cost ceiling and overrun share line will be completed next year when a final contract price is settled, much as those were for the recently completed, $3.8 billion fifth production contract for 32 jets.
Initial ContractToday’s initial contract doesn’t include as many as five conventional F-35s for Italy and Australia, or engines from the Pratt & Whitney unit of Hartford, Connecticut-based United Technologies Corp. (UTX)
The satellite contract is a fixed-price incentive type that requires Lockheed Martin to share the cost of overruns or material failures. Contracts for the previous four AEHF satellites were cost-plus types that required the Air Force to foot the entire bill.
Lockheed Martin already has received about $489 million in advance payments to start buying and making hard-to-get satellite parts, according to Air Force figures. Those payments bring the total value of the satellite contract to $2.4 billion, according to the service figures.