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Lockheed F-35 Cost Controls in $662 Billion Defense Bill

Dec. 13 (Bloomberg) -- Lawmakers in the U.S. Senate and House plan to vote this week on a $662 billion defense bill that seeks to control rising costs of the Lockheed Martin Corp. F-35 jet, the Pentagon’s most expensive weapons program.

The bill endorsed by negotiators from the two chambers yesterday also mandates that members of al-Qaeda be placed in military detention and includes a provision passed by the Senate last week to impose sanctions on Iran’s central bank.

It’s “a bill that provides for the national defense, ensures that our troops and their families are cared for, and delivers maximum value for taxpayers’ hard-earned dollars,” said Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Armed Services Committee.

Both the House and Senate are moving to vote on the bill this week and send it to President Barack Obama for his signature.

The negotiators agreed to a provision that directs the Pentagon, in an upcoming sixth F-35 production contract, to place greater risk on Lockheed Martin to absorb overruns.

If costs exceed a negotiated target, the company would absorb the entire amount instead of splitting the increase with the U.S. government. The U.S. is negotiating the fifth contract for the F-35. At $382 billion, the F-35 is the Pentagon’s largest weapons program.

F-35 Cut

The Senate and House negotiators also agreed to cut funding for one F-35 jet for the Air Force, dropping its purchase to 18 for 2012. The negotiators approved funding for seven carrier-based F-35s requested by the Navy and six short take-off-and-vertical landing versions for the Marine Corps.

The one-jet cut matches an agreement in an unreleased defense appropriations bill that may be completed today, said two congressional staff members who spoke on condition they not be identified. The appropriations bill provides for the obligation of funds in a fiscal year.

The 2012 defense authorization bill sets military policy and spending targets at about $26.6 billion less than the Pentagon’s request for the fiscal year that started Oct.1.

The bill includes $115.5 billion for the wars in Afghanistan and Iraq, and about $16.9 billion for Department of Energy defense programs. It also would hold defense contractors responsible for counterfeit parts in weapons systems.

Missile Defense

House and Senate negotiators agreed to $390 million for the multinational missile-defense program known as the Medium Extended Air Defense System. Three-fourths of that funding would be restricted until the Defense Secretary submits a detailed plan “either for implementing a smaller restructured program, or for paying contract termination costs.”

The $4.2 billion development program is managed from Orlando, Florida, by Meads International LLC, a joint venture of Lockheed, Lfk-Lenkflugkorpersysteme Gmbh of Germany and MBDA of Italy. MBDA is owned by BAE Systems Plc, European Aeronautic, Defence and Space Co. and Finmeccanica SpA.

“ The conferees are extremely disappointed that in 2004 the Department of Defense negotiated and signed a Memorandum of Understanding on the Medium Extended Air Defense System with Germany and Italy that effectively created an unacceptable situation for the United States in the event of poor program execution, significant schedule delays, or significantly increased cost estimates, such as have taken place,” lawmakers wrote in the conference report.

Tactical Vehicle Supported

The Pentagon in February said it would terminate the program when the current contract ends in 2013. In July, Italy joined Germany in pressing the U.S. to maintain funding.

The bill also supports the Army and Marine Corps Joint Light Tactical Vehicle program. The conference agreement authorizes $152.2 million for continued development.

Three companies in 2008 won technology development contracts for the program: General Tactical Vehicles, a joint venture of General Dynamics Land Systems, part of Falls Church, Virginia-based General Dynamics Corp., and South Bend, Indiana-based AM General LLC; BAE Systems Land & Armaments, part of London-based BAE Systems Plc; and Bethesda, Maryland-based Lockheed Martin Corp.

The final defense bill cuts $297.7 million of $775.8 million in the Army’s budget request for the Joint Tactical Radio System, or JTRS. JTRS is a family of wirelessly linked computers designed to deliver voice, video and data for numerous platforms, including tanks and aircraft. Boeing Co., General Dynamics Corp. and Lockheed Martin Corp. have a stake in the program.

Ships and Tankers

The House and Senate negotiators agreed on $14.9 billion for 10 new ships and shipbuilding support, including the Navy’s Littoral Combat Ship program, the DDG-51 Arleigh Burke destroyer, the DDG-1000 guided missile destroyer and the LPD-17 amphibious transport dock ship.

The defense authorization conference report requires the U.S. Comptroller General to submit an annual report on Boeing’s KC-46A tanker program, beginning in fiscal year 2012 and concluding in fiscal 2017. The reports would include assessments as to whether the Air Force was making changes to the program‘s requirements or documentation.

Military Detentions

The bill requires the Secretary of the Army to certify that the acquisition strategy for the production of radio systems provides for “full and open competition that includes commercially developed systems that are certified by the National Security Agency and pass Army testing,” according to a summary of the conference report provided by the Senate Armed Services Committee.

The bill includes a requirement that members of al-Qaeda be held in military detention.

At the request of the Obama administration, the compromise bill adopts language to make it “100 percent clear” that the revised bill wouldn’t interfere with the detention authority of the Federal Bureau of Investigation or other law enforcement agencies, Levin told reporters.

“I just can’t imagine that the president would veto this bill,” Levin said.

The president would have the power to determine what suspects have an al-Qaeda connection and therefore would go into military detention, according to a committee news release.

The bill is H.R. 1540.

To contact the reporters on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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