Fixed price grows by $103 million

Air Force exceeded $500 million price tag on Lockheed prototype

Audit faults safeguards

Defense

March 03, 2000|By BLOOMBERG NEWS

Washington -- Lockheed Martin Corp., the top defense contractor, is receiving 20 percent more than rival Boeing Co., or about $103 million, during their competition to build an Air Force rocket launch vehicle, according to the Pentagon inspector general.

The $103 million is on top of $500 million the Air Force has paid each contractor to assist in developing prototypes of rocket launch vehicles. The program, called Evolved Expandable Launch Vehicle ultimately could produce billions of dollars in contracts for the company with the winning prototype.

Past spending excesses

The audit comes as Air Force officials have been questioned in Congress over their willingness to disclose spending excesses and other financial difficulties in programs such as the new F-22 fighter being built by Lockheed Martin. The rocket launcher audit was requested two years ago by House and Senate appropriations subcommittees .

Congress may not be aware that the governments investment in the development of the EELV will exceed the reported $500 million fixed price for Lockheed Martin, said the 58-page Dec. 30 inspector generals audit obtained by Bloomberg News.

The Air Force did not implement adequate safeguards pertaining to financial management and insight into the EELV development that the governments substantial investment warranted, the audit said.

Lockheed Martin has had a string of program problems, cost overruns, and delivery slips -- woes reflected in a share price thats dropped 53 percent in 12 months. Lockheed also has told investors that the money its using to develop the rocket launch vehicle could hurt future earnings.

Limited insight

In addition to $1 billion in government funds, Lockheed and Boeing will each invest as much as $1 billion developing the launch vehicle prototype.

Though its earnings were down, Lockheed Martin invested $200 million in the project in 1999.

The Air Force isnt required by law to disclose the extra money, and overall has limited insight into the programs finances even after making such a sizeable investment, the inspector general said.

A top Air Force acquisition official dismissed the criticism. I do -- on a regular basis -- review the financial status of both Lockheed and Boeing, said Darleen Druyun, principal deputy assistant secretary for acquisition.

I drill down into whatever level of detail I need to be assured they are making the investments that they said they were going to make, Druyun said. The Air Force reviews performance milestones before making payments, she said.

Reviewed monthly

Druyun said that as a result of the audit she has scheduled regular monthly program reviews of the rocket program.

The extra $103 million will be paid to Lockheed Martins Astronautics unit in Denver.

The payment is part of an annual multimillion reimbursement Lockheed Martin receives from the Air Force for numerous military-related projects .

Boeings Space & Communications group in Huntington Beach, Calif., didnt bill the Air Force for any of its rocket launch vehicle research, the audit said.

Boeing and Lockheed Martin declined comment on the audit.

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