Lockheed Faulted for Failure to Control Costs
Wednesday, June 4, 2008
Lockheed Martin, the biggest U.S. defense contractor, failed to follow military guidelines to track and manage costs on major weapons programs, according to an internal Pentagon document released yesterday by a government watchdog group.
The Bethesda company did not comply with 19 of 32 guidelines, which led to a lack of controls on the cost and schedule of multibillion-dollar programs including the F-35 Joint Strike Fighter and the F-22 and F-16 fighter jets, the Defense Contract Management Agency said in a November 2007 report made public yesterday by the Project on Government Oversight.
John Young, the Pentagon's chief weapons buyer, said yesterday in a hearing before the Senate Armed Services Committee that a corrective plan had been worked out between the Pentagon and Lockheed since the DCMA completed its report last fall. Young said that the Pentagon would withhold $10 million in payments from Lockheed if it missed any of 12 milestones established in the plan and that the DCMA was also meeting with Lockheed every two weeks to review its progress.
Tom Jurkowsky, a Lockheed Martin spokesman, said the company had "achieved three milestones that are part of the plan" and was working to train more of its managers and subcontractors on the guidelines.
"We're putting improvements in place that are going to be effective in keeping our programs on track with cost and schedule," he said.
The DCMA's report came as senators questioned government auditors and Pentagon officials about how 95 of the military's largest weapons programs are $295 billion over their original projected cost, bringing their total estimated cost to $1.6 trillion. The cost of the Joint Strike Fighter, for example, has risen from $203 billion in 2001 to $298.8 billion, according to a recent government report. Lockheed said part of the reason was an increase in the price of raw materials such as titanium, as well as changes in what the government wanted.
Another source of cost overruns, government auditors said, is that there has been a dramatic cut in the government's acquisition workforce over the past decade, leaving fewer people for oversight and management, while at the same time, the amount of work contracted out has doubled to $600 billion annually.
In its report, the DCMA said Lockheed was not "following, nor consistently applying" a set of Pentagon guidelines called the Earned Value Management System that flag cost overruns. The agency said Lockheed's attempt to follow the guidelines was "superficial at best."
"This undisciplined approach to program management and towards the maintenance of the EVMS, will ultimately jeopardize the long-term stability" of Lockheed's aeronautics program "and diminishes the purchasing power of the Department" of Defense, the report said.
The agency said that Lockheed had "vague and confusing" documentation on the management system and that it was altering some cost overruns and performance levels, which made the "accuracy and validity" of Lockheed's data "suspect" and hard for the Pentagon to figure out the costs and completion date of a program.
"This shows that the world's largest defense contractor can't spot cost problems before they get out of control," said Nick Schwellenbach, national security investigator for the Project on Government Oversight.