BAE's $1.3 Billion Contract for Howitzer Delayed by U.S. Army

(Bloomberg) -- The U.S. Army is delaying approval of full-scale production of BAE Systems Plc’s new self-propelled howitzer, citing the need to improve quality before proceeding with additional contracts options valued at about $1.3 billion.

The Army postponed triggering the most lucrative phase of the program for London-based BAE to “adequately address quality control issues,” service spokeswoman Ashley John said in an email Wednesday. “The Army will continue to work closely with BAE leadership to resolve the concerns.”

The delay came after Bloomberg News reported last week that the howitzer’s manufacture was hobbled by poor welding, supply-chain problems and delivery delays. Among the setbacks have been a six-month halt in deliveries last year because of welding flaws and the return of 50 of 86 vehicles that had already been delivered to repair production deficiencies.

Self-propelled 155mm howitzers are the centerpiece of the Army’s artillery. The weapon is mounted on a tracked vehicle and travels with another that hauls ammunition. The Army’s “long-range precision strike” program tops the service’s list of modernization priorities.

“We are working very closely” with the Army and the Defense Contract Management Agency, which oversees contractor performance, “and are confident the actions we have taken will support the effective transition to full production,” BAE spokeswoman Alicia Gray said in a statement.

The Army eventually wants to buy 576 howitzers and ammunition carriers in an $8.1 billion program. An initial $413.7 million contract laying the groundwork for full production was awarded in December. A full-production decision would have increased vehicle production to about 60 from 48 a year. The program has been in low-rate production for several years.

Gray said last week that the company is investing about $125 million to upgrade equipment to prepare “for an expanded production portfolio and accommodate the expected surge in customer requirements.”

‘Tough-Love’ Approach

The delay “is consistent with the increasing Army ‘tough-love’ approach to contractor program-execution challenges,” such as its continuing refusal to accept delivery of Boeing Co.’s AH-64 Apache attack helicopters because of corrosion of a critical rotor assembly part that needs to be fixed, according to James McAleese of McAleese & Associates, a McLean, Virginia-based defense consulting firm.

Contractors should expect “quality assurance scrutiny to increase” as the Army “drives aggressive increases in multiple production programs” for missiles, ammunition and ground combat vehicles, he said.

Sections of the howitzers are initially produced at BAE’s York, Pennsylvania, facility with final assembly in Elgin, Oklahoma. The program has a strong advocate in Senator Jim Inhofe of Oklahoma, the No. 2 Republican on the Senate Armed Services Committee. In its version of the fiscal 2019 defense policy bill, the panel authorized spending $110 million more than the $351.8 million requested.

In a new report, the Pentagon’s testing office said that testing of the howitzer at Fort Riley in Kansas found it was “operationally effective,” providing accurate fire as it traveled with other units of a brigade combat team while evading enemy counter-fire.

That, however, is when the howitzers weren’t dogged by reliability problems, according to the report by testing office Director Robert Behler. It cited “the number of breech, cannon, and firing train sub-component failures” and “interruptions from stuck and ruptured primers” that “contributed to delays in mission completion.”

The Army’s leadership is on a campaign to assure the public it’s improving the oversight of its major acquisition programs, including getting its new Futures Command ready for initial operations. The Army last week chose Austin, Texas, as the location for the command that will consolidate brainpower to evaluate future threats facing the Army, decide on the technology needed to counter them and oversee development of that technology through existing commands.

©2018 Bloomberg L.P.

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