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

WASHINGTON Tue Oct 8, 2013 4:20pm EDT

WASHINGTON (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 (UTX.N), 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 (LMT.N), 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.

(Reporting by Andrea Shalal-Esa; Editing by David Gregorio)

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