Industryweek 11747 Raytheon

Raytheon on Hook for Millions on New Smart Bomb’s Cost Overruns

Aug. 24, 2016
The program “has experienced delays due to technical discoveries, flight-test failures” and software deficiencies, according to Major Rob Leese, an Air Force spokesman.

Raytheon Co. (IW 500/48) may have to pay millions of dollars to cover part of a 28% cost overrun on development of the most sophisticated smart bomb planned for the new F-35 jet and 11 other U.S. military aircraft.

The Air Force and the Defense Contract Management Agency estimate that Raytheon’s $392 million development contract for the Small Diameter Bomb-II will cost an extra $109 million because of development setbacks and two flight-test failures, according to contract data provided to Bloomberg News. An additional overrun of about 36% is projected under the initial $27.6 million contract for production, which has yet to begin.

The 250-pound air-launched glide bomb is equipped with three different sensors and designed to attack stationary or moving targets 40 miles (64 kilometers) away in all weather. Pilots or ground-based Air Force controllers will be able to beam in-flight changes to the weapon, which eventually would be deployed on aircraft from the B-2 bomber to the MQ-9 Reaper drone.

The program “has experienced delays due to technical discoveries, flight-test failures” and software deficiencies, Major Rob Leese, an Air Force spokesman, said in an e-mail. Leese said the technical issues are either resolved or on the way to resolution. The contract management agency calls the issues “minor and typical” for a weapon this complex.

Prodding Contractor

The smart bomb is under a “fixed-price incentive” contract that’s intended to prod a contractor to stay within budget while sharing in savings for beating projections. Raytheon may have to pay as much as $50 million of the $501 million cost that’s now projected for the bomb’s development phase. The contractor would have to pay all of the overrun if it ends up exceeding the contract’s $509.9 million ceiling, but the agency says that’s not forecast at this point.

In addition, the Waltham, Mass.-based contractor stands to lose about $19 million, or 33%, of its potential $58.6 million fee -- or profit -- on the development contract if the estimated overrun materializes, according to the Air Force. It also could lose $2.4 million covering its share of the production overrun, the contract management agency said. That brings its total costs under the current projections to $71.4 million.

Raytheon remains “fully committed to delivering this game-changing capability,” company spokesman John Patterson said in an e-mail. Raytheon Chairman and Chief Executive Officer Thomas Kennedy told analysts last month the bomb “represents a $4 billion opportunity over the lifetime of this franchise program” for U.S. and allied aircraft.

The Pentagon plans to buy as many as 17,000 of the munitions. Production spending is scheduled to increase to $452 million in 2021 from $66 million this year, according to Defense Department program documents.

A “live-fire” test of the bomb failed in September 2015 when the warhead didn’t detonate. It will be tested again later this year after Raytheon Missile Systems incorporated several hardware and software fixes, the contract management agency said. The guidance system, which failed in January because of a software timing issue, was successfully reflown in June.

The first production bomb is scheduled for delivery in June 2017 instead of this November, a delay of about seven months, the service said.

By Tony Capaccio

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