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marksengineer wrote:
The problem with L-M is that they haven't had a commercial product since the L1011 and have become less cost efficient. When you bid only cost plus contracts there is little incentive to constrain your costs thru engineering and efficient production techniques because it lowers your profits. I have always thought that the defense contractors know that any program has a high likelyhood of being terminated early so they structure their efforts to make the most profit in the engineering and devevelopment phases of the project. Remember the mangement team of any corporation is there to maximise stockholder return on investment.
DOD should just mandate fixed price contracts on the F-35 from this point on and require L-M to meet efficiency targets not only in the program but throughtout their organization. In other words require L-M to lower their overhead costs. What you will see around the country right now are businesses that have found a way to get buy with less people facilities and equipment. Don't think that has set it with the defense contractors. Additionally L-M would need to start a stock buyback program to reduce the shares on the market increasing the profit to share ratio to keep the investors happy. The big question is how much can the government demand in a free market economy?
Mark, since production costs are coming down the predicted learning curve, they are not the central issue -- so called 'concurrency' costs (i.e. change requirements) are. The government, which runs 'change' oversight on the program, wants the contractor to assume unlimited liability for any change traffic which the government approves during the remainder of SDD. What responsible CEO would sign up to that business model? |
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