Lockheed, Pentagon Agree on $71 Million Credit Over F-35 Parts

(Bloomberg) -- Lockheed Martin Corp. and the Pentagon’s contracts management agency reached an informal agreement that the company will provide about $71 million in services for the F-35 jet program as compensation for delivering aircraft parts that weren’t ready for installation.

The Defense Contract Management Agency began negotiations with the No. 1 defense contractor in April for either refunds or equivalent services over F-35 parts delivered from 2015 to early 2020. The parts were delivered without electronic data that personnel need to track their history and remaining service life. The accord was reached on Sept. 18.

The agency and Lockheed are still “working out the repayment details before a formal document will be signed,” agency spokesman Matthew Montgomery said in an emailed statement. “Negotiations on repayment are ongoing, but we anticipate it being a combination of credits toward improvements already made” and future improvements to Lockheed’s parts management system, he said.

The refund action was initiated under a provision in the fiscal 2020 defense policy bill that was sought by the House Armed Services Committee after the Pentagon’s inspector general exposed the problem in a 2019 audit.

The parts in question were considered inadequate for installation solely because of the lack of data, not due to safety or manufacturing flaws.

The agency initially estimated that Lockheed was responsible for at least $183 million in expenses to the U.S. from the missing or delayed electronic logs. The Pentagon inspector general recommended last year that officials seek $303 million in refunds.

Montgomery said the agency “did not lead compensation discussions” using a specific dollar figure but “attempted to agree with” Lockheed on the number of reported parts-data issues “they were accountable for and then progressed to the dollar value associated” with those reported issues.

The agreed-upon $71 million represents an amount the agency “believes is reasonable” for Lockheed “to reimburse the government for delivery” of parts that weren’t ready to install since 2015, Montgomery said.

Brett Ashworth, a spokesman for Bethesda, Maryland-based Lockheed, said in an emailed statement that the agreement calls for the company to compensate the U.S. with “investments toward improving” parts data “compliance and accuracy.”

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