Pentagon to withhold 5 pct of billings for Pratt's F-35 engines

Tue, Oct 08 16:19 PM EDT WASHINGTON, Oct 8 (Reuters) - Jet engine maker Pratt & Whitney said on Tuesday it is working to fix the system it uses to provide the Pentagon with cost and schedule information, after the U.S. government decided to withhold 5 percent of future billings on four F-35 fighter engine contracts and a Navy deal. Pratt, a unit of United Technologies Corp, said the Defense Contract Management Agency (DCMA) notified the company about the withholdings last week, citing problems with four of 32 guidelines for Pratt's "earned value management system." Earned value management (EVM) data is used to determine whether companies are meeting cost and schedule goals. Five percent is the maximum the Pentagon can withhold from company billings under federal acquisition rules. "P&W is working an aggressive schedule to correct any deficiencies," said spokesman Matthew Bates. "We are committed to having the best earned value management system possible, and to consistently and accurately track performance and execution to our contracts." The DCMA in August notified Lockheed Martin Corp, the prime contractor on the F-35 fighter jet, that it would reduce withholdings on Lockheed's F-35 contracts to 2 percent from 5 percent, after the company made significant progress in fixing problems with its earned value management system. In recent years, the Pentagon has sharply increased its oversight of the $392 billion F-35 fighter jet program, the costliest U.S. weapons program. The Pentagon's F-35 program supports DCMA's decision to withhold some funding from Pratt, said spokesman Joe DellaVedova. He said Air Force Lieutenant General Chris Bogdan, who heads the F-35 program, met with Pratt & Whitney executives on Friday to discuss measures to improve the internal system. "The EVM requirement is meant to protect taxpayers from over-billing and focuses on the business systems defense companies use to estimate costs for bids, purchase goods from subcontractors, manage government property and materials, and track for costs and schedule progress," he said. Bates, the Pratt & Whitney spokesman, said his company was focused on delivering a highly capable propulsion system for the F-35 on time, and at an affordable cost for our customers. He said DCMA identified "room for improvement" in four areas: updating documentation to better align with manufacturing processes; improving management and integration of scheduling tools; better estimating and forecasting of costs; and improving work package planning. He said the company's corrective action plans to address those problems were being reviewed by the agency. Bates said Pratt was also continuing to work with the Pentagon to finalize details of the sixth low-rate production contract for more of the F135 engines it builds for the F-35 fighter jet. A deal should be announced soon, he said. DellaVedova said work on the Pratt engine contract was briefly interrupted by the government shutdown, but contract officers and program lawyers returned to work on Monday. ============= UPDATE 1-Lockheed says Pentagon recertifies cost-tracking system Mon, Dec 02 18:31 PM EST * Move will allow Lockheed to collect withheld payments * Payments had been docked since 2010 * Aeronautics sharing "lessons learned" with other divisions By Andrea Shalal-Esa WASHINGTON, Dec 2 (Reuters) - The Pentagon has recertified an internal cost-tracking system used by Lockheed Martin Corp's aeronautics division, freeing up progress payments that were docked starting in 2010 after problems arose with the system, Lockheed said on Monday. According to a company statement, the Pentagon's Defense Contract Management Agency (DCMA) said it decided to recertify Lockheed's earned value management system (EVMS) after marked improvements in the company's approach to fixing the system. "Lockheed Martin Aeronautics' genuine commitment and disciplined approach to correcting EVMS deficiencies has resulted not only in the company regaining its EVMS compliance credentials ... but has fundamentally changed the way it thinks and will manage work in the future," David Kester, director of DCMA's earned value management division, said in the release. Lockheed said the move will allow it to collect progress payments that had been withheld over the past three years, but the company declined to give details on the exact amount. It said it was notified about the recertification on Nov. 22. The Pentagon and its contractors use the EVMS to assess the performance of weapons programs, looking at scope, schedule and costs. The DCMA has been critical of Lockheed's system since 2007 and began withholding between 2 percent and 5 percent of progress payments on the company's F-35 fighter jet program in 2010 after the company failed to make progress toward fixing it. When it first decertified Lockheed's EVMS in 2010, DCMA initially withheld 2 percent of progress payments on the F-35 program, but it increased the percentage to 5 percent in June 2012 after seeing insufficient progress with the system. In August, DCMA lowered the withholding to 2 percent, citing "significant progress" by Lockheed on fixing the internal business system. Tom Carney, vice president for program management, processes and controls for Lockheed's aeronautics division, said the recertification came after leadership changes at Lockheed and involved a much closer cooperative effort with the DCMA and the Pentagon joint program office (JPO) that runs the $392 billion F-35 program, the largest U.S. arms program. "It really was a team effort with the JPO and DCMA," Carney said. "We established measurable capabilities with specific success criteria." He said the effort "got a lot of senior leadership attention" and the aeronautics division had over 30 people working on the EVMS system. Lockheed executives met with a team of 10 DCMA officials about the recertification about six times over the past year, with each meeting lasting three to five days, he said. Carney said Lockheed was now using the EVM system more consistently and rigorously across the aeronautics division. He said it was producing detailed reports for the Pentagon on a monthly basis, tracking cost, schedule and other indicators. But company executives use the system on a day-to-day basis to oversee the F-35, F-22 and other programs, Carney said. One of the changes made to improve the system, he said, was to automate accounting data so that actual costs could be entered into the EVMS system within one to two days, instead of the seven to eight days it had taken earlier. Another change involved automating data from the factory floor and the manufacturing process so it could be entered into the F-35 integrated master schedule, Carney said. He said Lockheed had an internal EVMS working group that includes representatives from all its divisions, including the space division, which is also having some of its progress payments withheld because of problems with its system. "We have learned quite a bit," Carney said. "We're sharing all those lessons across the other business units." One primary lesson, he said, was the need to work more closely with DCMA and the government customer to establish clear expectations and create a specific and measurable corrective action plan. Lockheed is also working with DCMA to develop a more data-driven approach for its surveillance of contractors, Carney said, calling previous efforts somewhat "subjective." ====================