B-21 Bomber Contract: How Much Is Too Much Risk?

Air Force Secretary Deborah James and Chief of Staff Gen. Mark Welsh brief reporters

Air Force leaders have insisted from day one that they learned the lessons from the past and have taken every precaution to ensure the new stealth bomber does not turn into another B-2: an aircraft that was so expensive that only 21 were purchased.

Service officials nonetheless arecoming under political fire for awarding Northrop Grumman Corp. a “cost plus” contract for the development of the next-generation B-21 long-range strike bomber, estimated to run about $23.5 billion. A cost-plus contract exposes the government to cost overruns, as opposed to a fixed-price contract which shifts the burden to the contractor if expenses exceed the agreed-upon amount. 

Once development is completed, the goal is to acquire 80 to 100 bombers at a cost of no more than $55 billion.

After extensive deliberations, a cost-plus contract with incentives was determined to be the best option for the development phase, said Lt. Gen. Arnold W. Bunch Jr., military deputy to the assistant secretary of the Air Force for acquisition.

“It’s a weighing of the risk,” Bunch told reporters March 7. “There is no one-size-fits-all contract type” for a cutting-edge weapon system like the B-21, he said. “Most studies have shown that you can have overruns on fixed price” deals too.

The Air Force awarded Boeing a fixed-price contract to develop the KC-46 refueling tanker. So far, the company has absorbed more than a billion dollars in cost overruns during the development phase, which has raised questions about why the Air Force would not follow a similar path with the bomber and shift the financial risk to the contractor.

“In my mind the KC-46 is completely different than the bomber,” Bunch said. The tanker is a derivative of the 767 commercial airliner, a “line that was already hot,” so Boeing is positioned to cushion the blow because it can continue to make commercial or foreign military sales, he added. With the B-21, Northrop Grumman would have no prospect of commercial or foreign sales. Further, Bunch said, “You are building an aircraft that has never been built before. You’re integrating, yes, mature technology but integrating it into a never before built platform.”

The risk is “predominantly in the technology and the ability and desire of the contractor to continue to perform in the event they get into a loss situation where they can make it up with other means,” Bunch explained. “When we got into the discussions about contract types, the milestone decision authority at the time decided that a cost plus contract based on the risk was the more appropriate.”

Air Force Secretary Deborah Lee James made the case that the B-21 is technologically more mature and less risky than the B-2 was in the early 1990s. In the B-21 program, she said, “we will have the discipline to keep requirements stable. With the B-2, everything was new, it was the equivalent of a miracle a day.”

Bunch, who was a B-2 test pilot, said the new bomber program made for a tough balancing act because the technology is relatively advanced, but not to the point where it can be handled as a fixed-price contract. “I can relate back to what we were trying to do at that time. There was more risk involved,” he said of the B-2 development. “There is still risk here but a risk I do not equate to the same level of risk we had in the B-2 program.” In the B-21, “We are using mature technology to meet requirements but we’re still building a brand new airplane. That carries risk. And we’re integrating mature technology into a never before built airplane. And that also carries risk.”

Is it the same risk as the B-2? No, said Bunch. “Would I believe the risk is low enough that we would want to go to a fixed price? I wouldn’t. It’s somewhere in between.”

The Air Force has refused thus far to disclose the exact amount of the contract awarded in October to Northrop Grumman, citing the classified nature of the program. It also has keep under wraps the fee structure or the precise incentives built into the contract.

Bunch said the company is being incentivized to meet cost and schedule goals. “The contractor must focus on both of those throughout the program in order to capture the amount of incentive fee that turns into profit for the company,” he said. The bigger incentives are for meeting schedule targets. “If the contractor doesn’t meet it on that date, the fee goes down until it goes to zero. …Schedule incentives increase toward the end of the development program. The fee will be dramatically larger as we get to the end and we try to deliver the aircraft and do the test program,” said Bunch. “The incentive is back loaded.”

The Air Force does acknowledge one similarity between the B-21 and the B-2: their batwing design.

The blended wing is a proven design that does the job, Bunch said. “When you have a requirement and a blended wing meets that requirement,” you go with it, he said. “Nothing special there. It’s worked, it’s been successful.”

The Air Force did finally disclose the major subcontractors in the program. Pratt & Whitney is the engine supplier. The providers of key mission systems are BAE Systems and Rockwell Collins. GKN, Orbital ATK, Spirit AeroSystems and Janicki Industries will provide aerostructures and tooling.

Photo: Defense Dept.

Topics: Aviation, Defense Contracting