Air Force budget ax aimed at big-ticket satellites.

• Author: Erwin, Sandra I.
• Position: Space

The U.S. Air Force is hoping to save hundreds of millions of dollars by converting three of its costliest satellite programs into fixed-price contracts.

The three programs that currently are being considered for conversion are the Global Positioning System III, the Space Based Infrared and the Advanced Extremely High Frequency satellites.

The satellites' manufacturer, Lockheed Martin Corp., is in discussions with Air Force procurement officials and expects that the next eight spacecraft--four GPS, two SBIRS and two AEHF--will be fixed-price deals. Thus far, all satellites under these three projects have been built under "cost-plus" agreements where the government reimburses all contractor expenses.

Shifting cost-plus to fixed-price procurement is one of several directives by the Defense Department's top acquisitions official Frank Kendall that seek to contain rising costs in major weapon systems. Congress passed legislation that prohibits cost-plus production contracts for major procurements.

Kendall's predecessor, Deputy Defense Secretary Ashton Carter, has chided the Air Force and its suppliers for the rising cost of satellites and launch vehicles. When former Defense Secretary Robert Gates terminated a multibillion-dollar "transformational satellite," or TSAT, program three years ago, the decision was viewed as a tipping point for out-of-control space programs that were chronically behind schedule and always seemed to need additional billions of dollars to finish development.

GPS III, SBIRS and AEHF are timely candidates for fixed-price contracts because they are transitioning from low-to high-rate to production, said Mark Valerio, vice president and general manager of surveillance and navigation at Lockheed Martin Space Systems, in Littleton, Colo.

After assembling four GPS III satellites under cost-plus contracts, Lockheed is projecting that the next four will be fixed-price, Valerio said in an interview at Lockheed's Arlington, Va., offices.

"We expect to be under contract before year's end," he said. The fifth and sixth satellites in the AEHF and SBIRS constellations might be purchased under fixed-price contracts.

But Valerio cautioned that fixed price does not guarantee savings, although it does help to restrain overruns and schedule delays. "Fixed price is not necessarily a money saver. It's about predictability and managing risk," he said.

Programs such as AEHF, SBIRS and GPS, after years or decades in development, now have...