Lockheed's F-35 Bonus Fees Under Scrutiny by Pentagon's Watchdog

(Bloomberg) -- The Pentagon’s inspector general is reviewing bonuses paid to Lockheed Martin Corp. for performance on contracts to support its F-35 jets in light of questions about whether the military services are getting the spare parts they need.

The review will assess “the information used to support all incentive fees paid” and “whether that information substantiates the fee,” Bruce Anderson, a spokesman for acting Inspector General Glenn Fine, said in an email. “Depending on what we find, we could make recommendations to improve what fees are being used,” he said.

Lockheed’s production and support contracts for the F-35, the costliest U.S. weapons program, provide for incentive fees, which are paid out if performance goals are met or exceeded. The 300th aircraft was delivered this month out of the planned U.S. purchase of 2,456 F-35s.

“The audit isn’t about aircraft production. It’s about the incentive fees paid to Lockheed Martin on the F-35 sustainment,” or support, contracts, Anderson said. The amounts paid haven’t been disclosed.

The inspector general’s auditors will visit F-35 units at Eglin Air Force Base in Florida, Luke Air Force Base in Arizona, Naval Station Lemoore in California, and the Marine Corps Air Station Beaufort in South Carolina.

“Our objective is to determine whether the DoD is receiving ready-to-issue parts” and is paying fees according to plan, Theresa Hull, assistant inspector general for acquisition, wrote in a memo outlining the audit.

Tardy Delivery

The Government Accountability Office and Pentagon’s director of operational testing have criticized Lockheed for tardy delivery of parts in the $406 billion acquisition program. In reports published last October and this month, the GAO highlighted the aircraft’s low reliability rates, caused in part by those delays.

The Pentagon’s F-35 Joint Program Office supports the “audit effort and will ensure they have access to the data and information needed,” spokesman Joe DellaVedova said in an email.

Carolyn Nelson, a spokeswoman for Bethesda, Maryland-based Lockheed, said in an email that “we will fully support” the Pentagon program office on “the inspector general’s effort and welcome any view they may have on further reducing costs and increasing efficiencies on the program.”

‘Stagnant’ Efforts

The Pentagon’s testing office said in its annual report in January that efforts to improve F-35 reliability were “stagnant,” undercut by problems such as aircraft sitting idle over the last year awaiting spare parts from the contractor.

“Parts shortages are expected to continue for several years and may worsen if DoD and the contractor are not able to fully implement” corrective actions, the GAO said in October. The agency said this month that the program office “saw little improvement in reliability and maintainability over the past year.”

“If reliability targets are not met, the military services and the taxpayer will have to settle for aircraft that are less reliable, more costly, and take longer to maintain,” the GAO said.

Defense Secretary Jim Mattis told the House Armed Services Committee in April that although the F-35 “is performing well,” Lockheed “is not delivering the affordability that keeps solvency and security as our guideposts. We are working with the contractor to reduce the costs associated with purchasing and sustaining” the fighter, he said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert, John Harney

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