Fixed-Price Versus Cost-Plus. U.S. Air Force acquisition chief Andrew Hunter says that the service will continue to rely on fixed price contracts for mature production programs and that the real issue is when the Air Force has enough confidence to pursue the approach early in a program’s development phase. “Common perception notwithstanding, the Air Force does not have a policy of trying to do fixed price development,” he said. “Our policy is to do appropriate levels of risk in development. Typically, risk is such that a cost plus approach is right for the development phase of a program, and then we get into production and there is a transition to fixed price. I can think of almost no major acquisition program in the history of the Department of Defense where we did cost plus well and deep into a production environment. That’s just not the way it works. We all know that fixed price is a critical tool for the Department of Defense, and we need to use it. It makes sense, and it actually works well for industry in a mature production environment where things are very predictable. So it’s really a question about the transition and how do we get there.” A decision to go ahead with fixed price early in development comes with some risk, however, to both contractor and the Air Force, as shown in the case of the Boeing KC-46A Pegasus tanker.
…Looking for Realism.
Hunter says that there are versions of fixed price and cost plus contracts “that are not that different from one another. It’s about targets and share lines, and all that.” How to ensure that defense companies do not make wildly unrealistic low bids and that the Air Force does not award contracts to such bidders is an open question. “What I’m looking for is how do I get realism from industry without putting them at inappropriate risk, but also protecting government and the taxpayers,” Hunter says. “For early production lots, in many cases, we have asked for some fixed price—not firm fixed price—elements on that to try and drive realism. At the same time, if it’s a ‘cost shootout,’ industry has a huge incentive to bid low. Where we have been doing fixed pricing in the Air Force, we have tried to avoid doing it where it’s a cost shootout unless it’s a very mature thing.”
…Government Responsibility. Hunter says that the onus is also on the Air Force to sort the wheat from the chaff. “We sometimes say, ‘You’re not in the competitive range. Your price is amazing, but we don’t believe it’ so you can exclude people from the competitive range because they can’t actually do what they say they’re donna do,” Hunter says. “The bigger challenge comes when you have companies that really can do it, but you say, ‘You can probably do it, but you’re gonna lose a ton of money at the price you bid.’ We don’t necessarily have a leg to stand on in our process to say, ‘We’re gonna say no to your proposal even if it’s the best proposal because we’re worried you’re gonna lose money.’ That’s not one of our evaluation criteria. If a company really wants to bid to win, they have that right.” While Congress at one time wanted to make price the prime consideration in DoD contract awards, Hunter says that “mission success should be the overwhelming factor” and that, in most Air Force big competitions now, “price is not the premium factor in our evaluations.”
Indemnification. The Government Accountability Office (GAO) sampled data from the U.S. Navy, Air Force, Missile Defense Agency, and Defense Logistics Agency and found that, between 2008 and 2022, defense contractors made 348 indemnity requests—most of them to the Navy and most approved. GAO said in a new report that it interviewed officials at DoD and at five defense contractors and four insurers. While defense contractors typically must pay multiple insurers to spread the risk of significant loss, in some cases, as in hypersonic weapons and nuclear attack submarine development, the potential losses are too great, and insurance is unavailable. In such infrequent cases, contractors seek DoD funding to protect them. Yet, inflation, COVID-19, and Russia’s invasion of Ukraine have helped lead to insurance price spikes. “Contractor and insurance representatives said that the current conflict in Ukraine could cause aviation industry losses in excess of $10 billion due to aircraft seizures by the Russian government,” GAO said. “As a result, at least one insurer we spoke with no longer offers coverage for aircraft seizure.” GAO found that military service and agency personnel are often unaware of a specialized insurance team at the Defense Contract Management Agency (DCMA) and urged the DoD components to include DCMA’s team in their indemnification evaluations.
Smith Is Back. Commandant of the Marine Corps Gen. Eric Smith returned to full duty on March 5 after recovering from cardiac arrest on Oct. 29. With the commandant hospitalized and recovering, Assistant Commandant of the Marine Corps, Gen. Christopher Mahoney, has performed the duties of Commandant since he was confirmed on Nov. 3. Between the two dates, Deputy Commandant for Combat Development and Integration Lt. Gen. Karsten Heckl served as acting commandant because Sen. Tommy Tuberville (R-Ala.) had kept a blanket hold on military nominations.
31 Amphibs. Speaking at an Amphibious Warship Industrial Base Coalition (AWIBC) event on the Hill on March 7, Sen. Dan Sullivan (R-Alaska) said the Chief of Naval Operations confirmed the fiscal year 2025 shipbuilding plan will include at least 31 amphibious ships. “I met with the CNO last week. She assured me this year’s shipbuilding plan will have 31 ships at a minimum,” he said during a congressional forum put on by the industry lobbying group. The FY ‘24 long-term shipbuilding plan did not include LPDs or enough amphibious ships to reach 31 vessels due to a pause in LPD procurement plans directed by the Office of the Secretary of Defense. The Pentagon had been looking for ways to decrease costs of the San Antonio-class Flight II amphibious transport dock ships.
…LSMs Needed. During the same event, Mahoney said the new Landing Ship Medium (LSM) vessels are “late to need” since production was delayed from fiscal year 2022 to 2025. The Marine Corps intends to use the ship to transport Marines and their equipment between Pacific islands in the case of hostilities. “We’re embarking on deep experimentation, so the minute those ships hit the water, we’re ready to use them,” he said during the AWIBC forum. The Marine Corps is currently testing contracted Stern Landing Vessels to determine the best features and procedures for the LSM.
DDG-108. Hawaii Regional Maintenance Center (HRMC) completed the scheduled maintenance availability for the Arleigh Burke-class guided-missile destroyer USS Wayne E. Meyer (DDG-108) eight days ahead of schedule in February. DDG-108’s regularly scheduled Selected Restricted Availability (SRA) maintenance period was scheduled to last five full months following a seven-month deployment with Carrier Strike Group 11.
Northrop NGI. Northrop Grumman said on March 7 it delivered its Next Generation Interceptor Stage Three solid rocket motor (SRM) to Arnold Air Force Base ahead of schedule for an expected full static fire test early this year. SRMs power the NGI booster. The company said data from the upcoming test “will help anchor NGI’s solid rocket motors ballistic predictions, informing other SRM designs before entering qualification testing.” It also said its offering will complete further full-scale static test firings for each of its NGI SRMs in 2024 to get comprehensive data to support its All-Up Round design, which it expected to finish later this year.
VC Cheers. Palantir’s win last week of an Army contract to develop a vehicle-based sensor fusion and distribution system is a positive for the venture capital community, which backed the company as a startup before it eventually went public, venture capitalist and university lecturer Arun Gupta told Defense Daily. Palantir, which is a software company and is considered a non-traditional defense contractor, beat out RTX, a well-established prime contractor with a strong legacy in systems integration. Gupta said Palantir’s win on the TITAN program is a “positive direction” because the VC community wants to see more examples of government working with non-traditional prime contractors. The win showcases Palantir as a “model” for the VC-backed and non-traditional contractors. Without these wins, “that can freeze capital,” he said.
Engine Test for DARPA. Venus Aerospace last week said it has completed the first long-duration engine test of its Rotating Detonation Rocket Engine (RDRE) with the Defense Advanced Research Projects Agency (DARPA). Houston-based Venus is developing the RDRE, which it says “theoretically” offers 15 percent more efficiency over a traditional rocket engine, allowing for less fuel consumption and greater range. The company says that the RDRE technology could “aid in unlocking the reusable hypersonic economy.” Andrew Duggleby, chief technology officer and co-founder of Venus, said “As we continue to push towards our ultimate mission of high-speed global flight, this is an important technical milestone for having a flight-ready engine.”
Dividend Hike. General Dynamics last week said its board has approved a nearly 8 percent increase in the company’s quarterly dividend to $1.42 per share from the current $1.32 per share. GD has increased its annual dividend 27 straight years.
Defense Unicorns. Software startup Defense Unicorns has raised $35 million in a Series A funding round to continue developing its technology and add more talent. The company says its technology enables continuous delivery of software and artificial intelligence applications in any environment, even when disconnected from the internet. Defense Unicorns says that its technology allows national security systems to quickly adopt modern technologies in all domains at the speed of mission. The funding round was led by Sapphire Ventures and Ansa Capital. Defense Unicorns is base in Colorado Springs, Colo., has 125 employees and nearly $30 million in annual sales.
Biden Urges Passage. President Biden during his State of the Union address on March 7 urged Congress to pass the pending supplemental bill with further aid for Ukraine, as the legislation remains stalled in the House. “If anybody in this room thinks Putin will stop at Ukraine, I assure you, he will not,” Biden said, addressing lawmakers. “But Ukraine can stop Putin if we stand with Ukraine and provide the weapons it needs to defend itself. That is all Ukraine is asking.” The Senate passed its $95.3 billion foreign aid bill in February, which includes $60 billion to continue supporting Ukraine. House Speaker Mike Johnson (R-La.) has yet to commit to bringing the bill to the floor. Biden added the legislation is “being blocked by those who want us to walk away from our leadership in the world.” “If the United States walks away now, it will put Ukraine at risk,” Biden said. “Europe is at risk. The free world at risk, emboldening others who wish to do us harm.”
Sweden/NATO. Sweden on March 7 officially became the 32nd member of NATO. “Sweden is a proud democracy with a highly capable military, and its accession to NATO will strengthen the greatest Alliance in history and enhance our collective security. Sweden’s decision to join NATO reflects the appeal of our shared democratic values and our common vision of an open world of rules, rights, and responsibilities. I look forward to working closely alongside Sweden as an ally,” Defense Secretary Lloyd Austin said in a statement. “On this historic day, I join all of our fellow NATO members in welcoming Sweden to the indispensable defensive alliance that remains the foundation of our common security. Together, we will continue the Alliance’s urgent, vital work to defend every inch of NATO territory, strengthen Euro-Atlantic security, and build a safer world.”
Drone Corps. Rep. Rob Wittman (R-Va.), chair of the House Armed Services Tactical Air and Land Forces Subcommittee, has detailed his idea for a “Drone Corps” within the Army, which he said could help bolster the service’s efforts to build up its unmanned systems capabilities. “Unlocking the full potential of unmanned platforms for the Army will require soldiers to develop specialized skills and a deep understanding of various associated technologies. A Drone Corps may better lend itself to allowing the broad array of expertise required to mature within the Army and for these systems’ unique capabilities to grow beyond their role primarily as enablers to the current combat arms branches,” Wittman said during a hearing on the Army’s updated aviation priorities. Wittman told reporters at the McAleese Conference in Washington, D.C., he may propose a provision to the next National Defense Authorization Act to have the Army assess implementing such an idea.
PrSM. The Army on March 5 awarded Lockheed Martin a $219 million deal for production of additional Early Operational Capability (EOC) Precision Strike Missiles (PrSM). Lockheed Martin noted the latest PrSM order is the fourth production contract to date. “We’re proud to deliver this long-range deterrent capability to our Army customer and continue work to advance the program and production on an aggressive schedule,” Jay Price, Lockheed Martin’s vice president of precision fires, said in a statement. PrSM is the Army’s program to replace its legacy ATACMS missiles, also built by Lockheed Martin, with the base weapon reaching ranges up to 500 kilometers. The Army said in December it had officially accepted PrSM deliveries from Lockheed Martin.
ACV Order. The Marine Corps on March 6 awarded BAE Systems a $181.9 million order for 34 more base personnel variant Amphibious Combat Vehicles (ACV). Garrett Lacaillade, BAE Systems’ vice president of amphibious vehicles, told Defense Daily, deliveries on the latest order are expected to begin in late 2025. “We continue to work hand-in-hand with our strategic partner Iveco Defense Vehicles and the Marine Corps to ensure that ACVs are ready for current and future deployments,” Lacaillade said. The Marine Corps is pursuing a family of vehicles approach for ACV, which includes the base personnel vehicle along with a command and control platform (ACV-C), a recovery variant (ACV-R) and a turreted variant called the ACV-30.
New Innovation Office. The Air Force’s AFWERX innovation unit, the Defense Innovation Unit (DIU), and Navy’s NavalX innovation arm, this month opened a new Joint Defense Innovation workspace at the Capital Factory in Austin, Texas. The new office is located near the Army Applications Laboratory and other government innovation offices. The Capital Factory bills itself as the technology ecosystem for Austin and the “center of gravity for entrepreneurs in Texas.” Doug Beck, director of the DIU, said in a statement that “Catalyzing the DoD’s innovation entities into a community of impact provides an opportunity for greater synergy and impact, from the local to a national level.” The establishment of the Joint Defense Innovation office coincides with the annual South by Southwest Conference & Festivals, which focuses on technology, music, film, education, and culture.