Monday, September 28, 2009

Fixed Price Claim: Another Alternate Engine Misfire

The manufacturers of the F136 alternate engine continue to manipulate the debate over continued funding of their back-up engine for the Joint Strike Fighter. Three weeks ago, the GE/Rolls team announced they had provided the Defense Department with an unsolicited “fixed price proposal”. Last week Colin Clark pointed out in his DoD Buzz blog that GE’s proposal was little more than a pledge to keep costs under control for a program – the alternate engine – that is so immature that such a promise is all but meaningless.

And today, GE/Rolls have once again announced that they are offering the government an unsolicited firm fixed price proposal. So now they are offering two firm fixed price proposals complete with the PR extravaganza that goes with such an announcement all in one month? That seems strange. GE may argue that their first offering was a “concept” and that this offering is an actual “proposal.” Why didn’t they just offer the proposal to begin with? Whatever semantics you use in naming both of these offers, it’s important to remember that both have been unsolicited by the government because the Joint Program Office has been clear that a FFP is not what they want at this stage of the program.

As GE/Rolls-Royce touts this latest “offer” as big news, they ignore an inconvenient fact – Pratt & Whitney offered the same fixed price option to the Joint Program Office several months ago, and the government decided to stay with their current acquisition strategy, which Pratt & Whitney has respected and complied with. Respecting the JPO’s wish to remain with the cost plus acquisition strategy, back on Sept. 15 – two weeks before today’s “big” announcement – Pratt & Whitney presented a proposal to the DoD that detailed significant progress in reducing costs for the matured F135 engine. The company released information on their Low Rate Initial Production Lot 4 contract proposal, which offers double digit percentage cost savings over the previous contract for Lot 3, reflects aggressive efforts to reduce costs and provides the Joint Program Office specific protections against cost growth and incentives for even further cost reduction.

And, as has already been reported for several weeks, Pratt & Whitney stands ready to offer a real fixed price contract for F135 engine production if the JPO requests one, which they have not.

The differences between how this issue has been handled by the manufacturers of the two engines speak volumes about the programs. The F135 is established and mature, with production engines set for delivery later this year after more than 12,000 hours of testing. It is also based on the proven and highly successful F119 engine powering the F-22 aircraft, meaning testing and operational performance on that fielded engine has pushed the F135 engine even further along its path to maturity. Pratt & Whitney achieved a 30% cost reduction in the F119 program (and did so without a back-up engine program in place), and because of this experience with fifth generation engine production, Pratt & Whitney can pinpoint specific savings for the government that come along with the efficiencies accompanying later stages of production. Pratt & Whitney believes similar cost savings can be achieved on the F135 engine and is working towards this goal, realizing additional cost savings with every day, week and month that passes.

The F136 alternate engine, on the other hand, is immature and unproven. It has been reported that nine months into SDD testing it has accomplished fewer than 50 test hours and has already experienced numerous challenges resulting in both test engines being taken offline, putting the program behind schedule. By comparison, P&W’s F135 had four engines running, both CTOL and STOVL configurations, and had accumulated 695 hours nine months into SDD testing. The alternate engine is not based on a legacy production design, putting it even further behind the learning curve in stark contrast to the proven F135.

As tempting as it is to see today’s announcement of an unsolicited firm fixed price proposal for the F136 engine as big news, it is important to have the perspective and context of the overall program. How can a fixed price be offered on an engine that lacks final specs or a production contract?

As I mentioned in a previous post, GE claims they have already spent 70% of the $2.4B allocated to develop their engine, yet they have only accumulated 50 hours of test with no engines currently running. In comparison the F135 Program had more than 6,500 hours and 9 engines in the test program at the same funding point.

So you have two engine programs; one has spelled out the specific cost management of engines with more than 12,000 hours of testing and in production. The other tries to make news with an announcement on a firm fixed price proposal when they don’t even have any engines running at test. The doublespeak falls flat when it is revealed the proposal is for an engine that is not running and facing daunting schedule, performance and cost risks.

-- Eagleblogger

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