Aerospace and Defense Firms Protest Pentagon Contracting ProposalDecember 09, 2011

 

Lockheed Martin recently warned shareholders it may face financial liabilities unless the Defense Department pays the company for expenses already pumped into the nearly $4 billion Joint Strike Fighter program. The warning was triggered by concerns over the Pentagon's proposed changes to how it contracts with industry, according to a Reuters report.

As it turns out, most US aerospace and defense industry executives are also concerned with the Pentagon's initiative, which requires contractors to accept a higher percentage of the risk when developing new weapons. In response, the Aerospace Industries Association has sent a letter to Defense Secretary Leon Panetta urging him to postpone any changes to the way the Defense Department contracts with the industry, according to the Reuters article.

“The department's proposed changes to this model will have significant competitive, financial and employment implications (especially for small- and medium-sized suppliers) that we do not believe have been fully considered by the government or by the Congress,” the letter noted.

The letter, signed by more than 100 industry executives, also notes the following:

  • The established model in which both the government and industry share risk has resulted in the world's best weapons technologies.
  • The cost of developing weapons would increase under the new proposal because companies would add the risk into their bids.
  • Other companies experienced in weapons development might choose not to expose themselves to risk and might not bid for weapons programs
  • It would stifle overall innovation.