Lockheed Martin lose $70 million on GPS III overruns

Lockheed Martin will lose its entire fee of ~$70 million to defray an 18% cost overrun on first GPS III satellites.

A USAF spokesman says that it estimates that the first 2 GPS III satellites will cost $1.62 billion. But, as recently as February, prime contractor Lockheed Martin had estimated the cost for development, testing and building at $1.5 billion.

According to USAF, the Lockheed Martin’s fee is 5% of the target cost – that includes one-time engineering tasks, test equipment and satellite assembly. But ‘cost incentives on the contract’ has caused the company to lose that fee – although the government continues to bear the ‘cost-risk’ for development and production of the first 2 satellites.

The Pentagon has been withholding fees for deficient performance on such ‘cost-plus’ contracts after Congressional auditors in December 2005 said that companies had received billions of dollars in bonuses from1999 to 2004 on systems with major cost, schedule and performance problems.

However, Lockheed stresses that the first GPS III satellite remains on schedule to be available for launch in 2014.

A Lockheed spokesman adds ‘While we have encountered challenges associated with higher standards for parts testing and first-time technical issues, the programme is on firm footing and our cost estimate remains within the original Air Force budget.’

Lockheed’s subcontractors include General Dynamics, ITT Exelis and Honeywell International.

In 2008, Lockheed Martin beat Boeing in a contract to build up to 12 GPS III satellites. USAF may eventually buy 32 satellites.