Northrop Bonus for Mysterious Bomber Weighed Toward Contract End

  • Air Force Secretary Deborah James discloses fee structure
  • James sought to assure Senate panel costs will be controlled

Most of Northrop Grumman Corp.’s bonus fee to develop the next U.S. bomber would be earned in the later stages of the $23.5 billion development phase, providing an incentive to control costs to taxpayers and stay on schedule, Air Force Secretary Deborah James said.

James disclosed the fee structure -- but not the amount at stake -- for the first time during a hearing Thursday by the Senate Armed Services Committee. Chairman John McCain has criticized the contract as a bad deal, saying any cost overruns would be absorbed by the taxpayer. The Arizona Republican said last week he might seek language in the fiscal 2017 defense bill to block funding for the “cost-plus” development contract.

“In order to get your incentives you have to meet certain performance milestones,” James said in an interview after the hearing. “If you don’t meet the milestones you lose all or a part of your fee. The bulk of it is back-ended,” meaning there is an incentive to get through development and on to production.

“There is no incentive to drag out” the development phase, James added.

Artist Rendering

The Air Force has disclosed little about the B-21 bomber program, including the duration of the development contract, subcontractor names or the engine manufacturer. The information blackout extends to the expected timing of a first flight or a more precise definition of when the first bombers will be combat ready. They have released an artistic rendering, showing a black, stealth-like design similar to the existing B-2.

Asked how much incentive fee Northrop has at stake, James said “I can’t get into that.” More information will be available during a March 7 “State of the Air Force” briefing, she said.

In his opening statement on Thursday, McCain said “I am still not convinced that this program will not repeat the failures of past acquisition programs such as the F-35,” which experienced as much as 60 percent cost growth and at least four years of delay after Lockheed won the contract in October 2001.

Pentagon Mindset

“If you have a cost-plus contract, tell me one time that there hasn’t been additional costs, then I would reconsider,” McCain told reporters last week. “The mindset in the Pentagon that still somehow these are still acceptable is infuriating.”

McCain drew some support from members. Senator Angus King, an Independent from Maine, said McCain raised “very real and legitimate concerns.” Alabama Republican Jeff Sessions said in an interview that “I thought it was a valid question” as “we’ve had some real problems with cost-plus in the past.”

Session said James’s responses were “worthy of fair evaluation,” yet added that “the Air Force has got to plan to insure we don’t get milked.”

Lieutenant General Arnold Bunch, the Air Force’s top uniformed acquisition official, told a House panel this week the cost-plus type contract was appropriate because “even though we had mature technologies to meet the requirement” the Air Force and Northrop “have to build a never-before- built, low-observable, penetrating bomber and integrate those on it.”

Bunch also said Northrop was less able to absorb potential overruns than competitor Boeing Co., which has an extensive commercial aircraft line and foreign sales.

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