Lawmakers are concerned that the Air Force’s newest proposed aircraft, the B-21 bomber, could see major cost overruns similar to those on the F-35, which is already estimated to be $160 billion over budget.
“I remain seriously concerned about the acquisition strategy for the B-21 Long Range Strike Bomber, especially the use of a cost-plus contract for the development of this aircraft,” said Sen. John McCain, (R-Ariz.), chairman of the Senate Armed Services Committee. “I am still not convinced that this program will not repeat the failures of past acquisition programs such as the F-35.”
In February, McCain had threatened to block the B-21 over concerns of cost overruns. Since holding a closed-door briefing with the Air Force on March 1, the senator has not overtly repeated that he would block the bomber, but said he is still concerned about cost overruns and the program's contracting structure.
In a committee hearing March 3, senators questioned Air Force Secretary Deborah Lee James and Chief of Staff Gen. Mark Welsh on the potential for unforeseen expenses.
Sen. Tom Cotton, (R-Ark.), agreed with McCain, saying that while the Air Force needs the bomber to meet strategic threats, the service hasn’t convinced Congress that the plane won’t be so expensive that the Pentagon will be forced to cut quantities.
“Why will the B-21 be different?” Cotton questioned. “We have ongoing issues with the F-35. We were supposed to have 600 F-22s, we got 187. We’re supposed to have 80-something B-2s, we got 20. What gives us the confidence, given the vital need for the aircraft, that we will, at the end of the program, in fact have a hundred aircraft?”
Welsh said it’s going to take special effort from the Air Force to ensure that costs for the B-21 don’t run rampant.
“For it to be different we have to make it different, which is going to require attention from this minute forward on this program at every level of our Air Force,” the general said. “We can’t take our eye off this ball or it will drift like everything else has. We just can’t let it.”
Many senators have taken exception to the Air Force using a “cost plus” contract structure instead of a “fixed price.”
In a fixed price structure, the Air Force sets a limit – say $500 million per plane – and the contractor must meet that price per plane, no matter how much they incur in expenses. The Air Force sets the price and the contractor absorbs any cost overruns.
A cost plus contract, however, is set up to include incentives or bonuses that the contractor can get. If the contractor meets a specific requirement on time, they can get a full bonus. Being late can lead to a partial bonus. Not fulfilling the requirement means no bonus.
But watchdog investigations by Congress and the Inspector General have repeatedly found that contractors that work with all branches of the military are often paid the bonuses in full, no matter what the condition of the project is and no matter if the work is being completed on time or not.
James admitted that there have been some notable cost plus contract failures in the past, including the F-22, B-2, and F-35, that “went way over cost and didn’t produce the performance on time.”
But she said the Air Force is learning from the mistakes of the past and trying to ensure that the B-21 will be different.
The Air Force is using mature and already developed technologies to build the plane which will reduce costs, James said. Plus most of the incentives for the contractor are structured toward later dates in the bomber timeline, meaning the contractor has incentive to get the work done quickly to reach those bonuses and not drag out the process.
And the requirements for the bomber have and will continue to remain stable, James said. Requirements that change in the middle of the contract has been a key culprit of cost overruns in past projects.
“We believe we have a good approach and we will control cost on this program,” she said. “We’re mindful about all of these examples and we are also very mindful of the potential for cost growth and we believe that we’ve taken steps to address this.”
The cost plus contract is only expected to apply to the initial engineering and design of the bomber by Northrop Grumman, which would cover about 30 percent of the project, James said.
The other 70 percent would be a fixed-price contract for the first five lots of aircraft. Back in 2010, then Secretary of Defense Robert Gates set a goal of $550 million per plane, or $564 million in Fiscal 2016 dollars. If the Air Force and Northrop Grumman can stick to that price point, it would make the B-21 roughly half the cost per plane of its predecessor, the B-2 Spirit, which was estimated at $1 billion an aircraft.
James noted that compared to other aircraft – such as the service’s new KC-46 Pegasus refueling tanker – there aren’t any commercial or foreign sales that would allow the B-21 to reduce costs on the development side.
“Unlike the KC-46, the B-21 is neither a commercial derivative aircraft, nor is it a commercial derivative design,” the secretary said. “Unlike the KC-46, the B-21 has no anticipated commercial or foreign sales market to offset any unexpected development costs.”
The bomber, which was only officially labeled the B-21 on Feb. 26, will be “an essential piece of our nation’s nuclear backbone,” James told the lawmakers.
“The B-21 will be a vital global precision attack platform that will give our country a deep, penetrating capability enabling us to hold targets at risk anywhere on the globe and provide the president with flexible options in addressing future threats,” she said.