Air Force Cancels Contracts Worth $832 Million Due to Cost Overruns and Technical Issues

Strategic Insights -

The US Air Force has canceled contracts worth as much as $832 million with Boeing Co. and TRW Inc. due to excessive cost overruns and technical problems with the Space Based Infrared System-Low (SBIRS), an early-warning system designed to track ballistic missiles. The cancellations affect TRW's Space and Electronics Group in Redondo Beach, California, and Boeing North American Inc.'s Satellite & Control Systems unit in Seal Beach, California. Air Force officials estimate that the cost of both contracts has doubled since they were awarded several years ago, and new estimates show another $79 million in cost overruns over the next four years.

Key Takeaways:

  • The Air Force has canceled contracts worth up to $832 million with Boeing Co. and TRW Inc. due to cost overruns and technical issues with the SBIRS program.
  • The cancellations affect TRW's Space and Electronics Group and Boeing North American Inc.'s Satellite & Control Systems unit.
  • The cost of both contracts has doubled since they were awarded several years ago, with Boeing's contract increasing by 50% and TRW's contract increasing by 30%.
  • The Air Force estimates another $79 million in cost overruns over the next four years.
  • The cancellations will result in hundreds of millions of dollars in lost future contract payments for the two companies.
  • The program will continue at a slower pace to ensure contract effort does not diverge from the desired track and to better use available funding.
  • The Air Force took this action to strengthen its commitment to the program and address excessive risks and technical challenges experienced to date.

Statistics:

  • $832 million: Total value of contracts canceled by the Air Force.
  • $661 million: Initial contract value for TRW's Space and Electronics Group.
  • $256 million: Increase in Boeing's contract size since it was awarded.
  • $168 million: Initial contract value for Boeing's Satellite & Control Systems unit.
  • 30%: Increase in TRW's contract size since it was awarded.
  • 50%: Increase in Boeing's contract size since it was awarded.
  • $79 million: Estimated cost overruns over the next four years.
  • 2005: Projected year for the fielding of the National Missile Defense system.

Sources:

  • Defense Week (Nov. 9)
  • Statement from the US Air Force
  • Article by Capaccio, Pentagon correspondent for Bloomberg News