As the Pentagon looks to shift the risk of cost overruns to contractors, some are sitting on the sidelines instead of bidding on projects from their best client: The Defense Department.
The hesitancy comes in the wake of several high-profile contract losses.
Northrop Grumman Corp. took a $1.56 billion pre-tax loss in January on the B-21 Raider program. The company bid on the U.S. Air Force project in 2015, before the pandemic, inflation and supply chain issues, which have led to cost overruns that the company has to eat under the terms of its contract.
“We have passed on some high-profile programs,” Northrop Grumman Chief Executive Kathy Warden said on an investor call earlier this year.
Boeing lost $7 billion after winning a fixed-price development program for the U.S. Air Force’s next-generation tanker, the KC-46. The contract was firm-fixed-price, meaning Boeing was on the hook if costs ran higher than expected. The total value of the contract was $4.9 billion.
Since then, Boeing has said it won’t enter into new fixed-price contracts for the development stage of weapons citing unpredictability in designing and testing a new product.
