Less than a week after Sen. John McCain threatened to block the Air Force’s new B-21 bomber so long as it was procured using a cost-plus contract, top service officials took to Capitol Hill to defend their acquisition strategy.
Three top Air Force officials involved in B-21 development testified in a closed briefing before the Senate Armed Services Airland subcommittee Tuesday: Lt. Gen. Arnold Bunch, the Air Force’s top uniformed acquisition official; Randall Walden, director of the Rapid Capabilities Office, a small group inside Air Force acquisitions that handles secretive programs such as the X-37B space plane; and William Bailey, B-21 system program director.
However, the meeting appears to have done little to appease the powerful chairman of the Senate Armed Services Committee.
"Sen. McCain continues to be concerned about the cost-plus structure of the B-21 development contract," his office told Defense News March 2. "He will carefully consider his legislative options to address these concerns."
Earlier in the day, Bunch also defended the B-21 before the House Armed Services Seapower and Projection Forces subcommittee. The Air Force carefully considered what contracting structure to use for the B-21, Bunch told lawmakers. The service ultimately settled on a two-part structure: a cost-plus contract with incentives for the engineering, manufacturing and development (EMD) phase; and a firm fixed-price arrangement for initial production of the first five lots of aircraft.
McCain was categorically opposed to the cost-plus contract structure, expressing his frustration during a Feb. 25 event in Washington.
“I will not authorize a program that has a cost-plus contract — and I told them that,” said McCain, R-Ariz. “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.”
“It is an evil that has grown and grown and grown over the years, and I will not stand for it on any weapon system,” McCain continued.
Bunch stressed that over 70 percent of the B-21 contract is actually on a fixed-price contract structure, where the government sets the requirements and price and the contractor absorbs any cost overrun.
Cost-plus contracts are frequently used for programs that carry a lot of technical risk, like a never-before-built, low-observable, penetrating B-21, Bunch explained to the House Armed Services subcommittee. The contract the Air Force has with Northrop Grumman on the B-21 is structured with incentives in order to minimize cost growth, Bunch emphasized. If Northrop does not control costs and schedule, the contractor will not get any fee, he said.
There are many examples where the Air Force has tried unsuccessfully to use fixed-price contracts for new technologies, Bunch stressed. Frank Kendall, the Pentagon’s top acquisition official, has previously pointed to the ill-fated A-12 aircraft as an example of such a failure. Fixed-price development tends to create situations where neither the government nor the contractor has the flexibility needed to make adjustments as they learn more about what the program requires, Kendall has argued.
Bunch pointed to Boeing’s KC-46 tanker as an example of a successful fixed-price contract, because Boeing has the resources to absorb any cost overruns. Boeing last year rang up an $835 million pre-tax charge on KC-46, but was able to continue work on the program by utilizing its commercial line, and will also be able to make up some of that loss with foreign military sales.
This is not an option with B-21, Bunch said.
“Commercialization of a long range strike bomber and foreign military sales are not two things we are looking at,” Bunch said.
The Air Force is confident it can control cost growth on the B-21 because the government-industry team is using mature technologies in development work, the service has established an independent cost estimate for the program, and the requirements are stable, Bunch said.
