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Low-Rate Initial Production (LRIP) is a statutory requirement in Title 10 of the United States Code (USC) for all Pentagon procurement projects labeled as a "Major Defense Acquisition Program." (MDAP). The B-21 Raider is one such program. LRIP was established in the wake of the Post-World War II run of large-scale weapons development and production programs - particularly aircraft. An explanation is necessary. "AcqNotes" - The Defense Acquisition Encyclopedia covers all aspects of Pentagon Weapons Procurement Programs. Ever since WWI, when aircraft were introduced into military operations, aeronautical research and development have been pursued at a breakneck speed, and it has not been cheap. The United States has been, and continues to be, the world's leader in aeronautical research and development. The DoD is spending big on aircraft acquisition with apparently few large programs for ground combat. 1 LRIP's Relationship to the Rest of the Acquisition Process LRIP is the acquisition phase with the greatest amount of risk of all types, affecting both the Air Force and Northrop-Grumman The MDAP Acquisition Process has three important phases before Low Rate Initial Production enters the picture. In the case of the B-21 Raider, the program ran from initial contract award to commencing LRIP, a span of 12 years. To streamline the program, the contract is being managed outside the Pentagon's normal contracting infrastructure. The program was assigned to the Air Force Rapid Capabilities Office (AFRCO) located at Wright-Patterson AFB in Dayton, OH. Co-located at WPAFB is the headquarters of the AFRCO's parent organization, the Air Force Systems Command. If necessary, the AFRCO can cancel the program before LRIP commencement. It would be painful, but once AFRCO issued a Notice-to-Proceed for LRIP, the program just crossed the Rubicon, and turning back would be an epic disaster for the Air Force and Northrop-Grumman. Throughout the 1940s, 1950s, and 1960s, the Pentagon contracted for the R&D of dozens of aircraft. Most of these contracts started with the government paying for all development costs. The Pentagon, defense contractors, and Congress all understood that developing new technology was time-consuming and expensive. Standard practice for Pentagon weapon systems contracting was based on the common philosophy of all walks of life: "if you want to buy something that does not exist, you are responsible for the seller's costs to create it." This led to what is now a common term in all types of manufacturing: "Non-Recurring Engineering" (NRE) costs. NRE means that a customer wants to acquire a product or service that does not exist or exists, but the customer wants some changes made to it. The contractor will require additional funding for developmental engineering. NRE is typically listed as a standalone contract line item for the additional engineering funding. NRE expenses could be a small amount of money to accommodate a customer who wants a minor modification of the seller's standard product, or billions of dollars for something brand new, like the B-21 Raider. Customers are responsible for paying NRE development expenses. Using NRE line items on a contract attracts customers because it keeps the per-unit sales price uncluttered with unseen costs. By the mid-1960s, and with hundreds of billions of dollars spent by the Pentagon on defense contractor research and development, the "you want it, you pay for it" concept was wearing thin. Pentagon contracting officials were concerned over what appeared to be avoidable cost overruns by defense contractors. The Defense Department established a standalone agency in 1965, the "Defense Contract Audit Agency" (DCAA), to monitor the financial aspects of MDAP contracts. The DCAA's efforts led Pentagon contracting officers to revamp the acquisition process to avoid contractor cost overruns. Costs such as NRE slowly transformed over the next 20 years to a negotiated, fixed price. The new fixed-price method meant the defense contractor was financially responsible for cost overruns unless it could prove the overrun resulted from a situation neither the contractor nor the Pentagon anticipated. LRIP was also a new tool, among others, using the milestone/funding contract model. To the layperson, this contracting model can be labeled "pay-as-you-go." The following quote about discovering new technology is appropriate for this discussion: "You don't know what you don't know." Weapon systems development of non-existent technology fits the quote well. Trial and error in an R&D program is part of the process. Encountered problems are no more the defense contractor's fault than the Congress or the Pentagon's. Money will be spent on R&D efforts that do not lead to a solution, but at least the team knows what does not work. Coming out of the Vietnam War and the end of the Apollo Space Program in 1973, there was a major reduction in government contracting in the defense/aerospace sector. When new contracts started coming out later in the decade, numerous contractual mechanisms were used to control runaway program costs and excessive delays. While the B-21 Raider may look similar on the outside, it differs in many ways from its predecessor B-2 Spirit. Low Rate Initial Production was implemented to prevent the Government customer or the contractor from getting too far ahead on some contract objectives but lagging too far behind in other areas. A Major Defense Acquisition Program (MDAP), like the B-21 Raider, is subject to the Pentagon's incremental contracting process. Government contracting officers and program managers strenuously resist the temptation to cut corners. The contracting cycle uses the following incremental tools (or phases) to keep programs on time and within budget. Depending on the nature of the MDAP, it may use all or some of the Tools (phases) shown below. The B-21 Program used all three contracting tools before LRIP. Contract Management Tools (focus on aircraft programs Explanation Systems Development and Demonstration (SDD) SDD is used when the Pentagon and the contractor are undecided about the program's nature and direction. Demonstrating what has been developed may require a flyable prototype, a scale model, or a mock-up. It is also possible that the work product is inconclusive, and the Pentagon either extends the SDD or issues a new contract. Engineering and Manufacturing Development (EMD) EMD commonly includes two to five test aircraft, with at least one dedicated to ground testing only. Three critical milestones during EMD, if not already completed in SDD are: 1. Preliminary Design Review (PDR) 2. Critical Design Review (CDR). A successful CDR leads to the contractor "freezing" the aircraft's engineering configuration. 3. Build 4-7 flightworthy aircraft for all types of contractually required testing. Full-Scale Development (FSD) FSD is when the contractor clears up any open action items and prepares for production. This phase is typically marked by intense negotiations to determine whether the program is ready to support actual production and not require excessive "handholding" by the design engineers. Low Rate Initial Production (LRIP) LRIP's main purpose is to "stress test" the contractor's team and possibly uncover latent issues that could prevent meeting a normal production run. Full-Rate Production (FSD) FSD uses incremental lots, or "blocks," to avoid the contractor getting too far ahead of schedule. 2 The Status of the B-21 Raider's LRIP Efforts How did the program get to where it is today? LRIP's statutory purposes are: To provide production-configured or representative articles for operational testing; To establish an initial production base for the weapon system and; To permit an orderly increase in the production rate for the weapon system sufficient to lead to full-rate production upon the successful completion of operational testing. [note: " operational testing " refers to the Defense Department's Directorate of Operational Test & Evaluation (DOT&E) , and not the contractually required flight testing done by the prime contractor] The B-21 Raider is unlike any aircraft acquisition program in recent memory. Neither Northrop-Grumman nor the Air Force wanted to go through the troubles of previous programs like the F-22 Raptor, B-2 Spirit, F-35 Lightning II, or the KC-46 Pegasus. (Fact number 4 mentions some of the problems encountered with these planes) Unbeknownst to everyone, the Air Force Rapid Capabilities Office (AFRCO) issued a classified, top-secret Request for Information (RFI) in 2011 to Northrop-Grumman, Lockheed-Martin, and Boeing. The following year, AFRCO issued Top-Secret contracts to the three defense contractors for an SDD effort. The fact that the AFRCO was assigned to be the Program Executive was the first indication that things would be different on the B-21 Program. Issuing classified RFI and SDD contracts was done to truncate the traditional, lengthy throughput timing of an aircraft MDAP. These steps easily shaved 2–3 years off of the development process. The AFRCO would continue to find prudent ways to save time and money. After the SDD contracts, the AFRCO issued an unclassified Request for Proposal in 2014 to all three contractors. Northrop Grumman's proposal won the contract in 2015, and they were issued a contract for the Engineering and Manufacturing Development (EMD) effort. The contract's SOW (statement of work) stipulated that when the B-21 manufacturing tools and equipment were completed, Northrop-Grumman would produce six planes using the new production line. Six planes have been built; three planes are airworthy. They are allocated to various teams charged with contractually required tests and evaluations. In keeping with the plan to move smartly through the B-21's milestones, AFRCO released the LRIP contract in November 2023, the same month as the Raider's first flight. The B-21's LRIP contract is unique; some features require special approval. 3 B-21 LRIP Contract Gets a Waiver From the B-21's Program Executive A necessary action to maintain program momentum and cost control Title 10 (USC) Section 4231 specifies that the LRIP phase of an MDAP acquisition cannot exceed 10% of the expected total production quantity. One of the statutory MDAP requirements to complete and move forward from an SDD contract is an agreement between contracting officers and the contractor on the quantity of aircraft to be produced over the lifetime of the B-21 program. They expect to produce a total of 100 aircraft. Simple math shows that the B-21 LRIP is supposed to be 10 aircraft. This poses a problem in keeping the cost per plane in line with what the AFRCO and Northrop-Grumman agreed to for the first 21 production airframes. Throughout the B-21 Program, Northrop-Grumman and the Air Force have pursued opportunities to conduct as many contractual obligations concurrently rather than serially. Doing this sort of thing is well-known by the AFRCO. Part of their charter is to identify and mitigate roadblocks. Aside from the statutory LRIP requirement of producing a maximum of 10% of the B-21 Program's total of 100 aircraft, they also had a statutory problem that blocks any MDAP from moving out of LRIP and into Full-Rate Production if DOT&E has not been favorably completed. These issues were validated by the AFRCO and the DOT&E. Rather than waiting for Northrop-Grumman to complete its testing before DOT&E commenced its work, the two organizations are conducting all of the testing jointly. The Defense Secretary concurred with Northrop-Grumman, AFRCO, and DOT&E, and endorsed a waiver request sent to the Program Executive for approval. The waiver was granted to increase the LRIP quantity from 10 to 21 aircraft. This takes advantage of the previously agreed-upon fixed pricing for the first 21 production aircraft. LRIP will be conducted in lots of five aircraft each, with six in the final lot. The final LRIP lot has a 2030 delivery date. After granting the LRIP waiver, AFRCO and Northrop-Grumman agreed on the fixed pricing for an additional 19 aircraft, bringing the total to 40 planes. The Program Executive has extended the LRIP waiver from 21 to 40 aircraft. All of these contract process adjustments have never been done before. 4 Northrop-Grumman Absorbs a Financial Loss in LRIP Better to take a charge-off on 2023 taxes and not carry it on the books long-term From the 1980s until the present day, Pentagon contracting officers have issued contracts with ever-tightening cost controls on defense contractors. Cost controls helped, but there have been plenty of cases where neither the Pentagon nor the defense contractor was happy with the outcome. Troublesome aircraft development contracts include the Northrop-Grumman B-2 Spirit, the Boeing-Lockheed F-22 Raptor, the Lockheed-Martin F-35 Lightning II, and the Boeing KC-46 Pegasus tanker program. Aircraft Program Results Due to Cost Overruns B-2 Spirit Cut production from 132 to 21 aircraft; Congress bans export F-22 Raptor Cut production from 750 to 381 to 195 to 187; Congress bans exports F-35 Lightning II First flight: December 2006, but the first delivery was not until 2015. The nine-year span between the first flight and the first delivery had numerous technical problems, with contentious cost negotiations to determine how to handle cost overruns. The Pentagon intends to buy 2,456 planes. Nine countries are under contract to buy the F-35. The program for all countries and models has delivered more than 1,000 planes. Within the past 3-4 years, the Air Force and Lockheed-Martin have agreed on applying excess costs. KC-46 Pegasus The KC-46 is based on Boeing's successful 767 program's freighter derivative. The Air Force intends to buy 179 aircraft. Thus far, the KC-46 has two additional customers besides the USAF: Japan and Israel. The contract was negotiated to be a Firm, Fixed Price per aircraft and a fixed program development amount of $4.9 billion. Profit margins are very thin. Two major engineering errors incurred an additional $700 million charge that Boeing was contractually obligated to absorb. Before the $700 million charge, Boeing calculated that the 179 planes on order would allow them to break even and profit on the eleven planes for Japan and Israel. At this point, Boeing is unlikely to see any profits. Pushing defense contractors into deals with fixed development costs and fixed unit pricing has had mixed results. This contracting practice has become problematic in programs like the KC-46 and the B-21, especially when the product has high NRE development costs and subsequent production. If the government and the contractor get into too much of a rush, additional costs always follow. These days, the biggest culprit in cost overruns is trying to save large chunks of money and time by conducting contract tasks concurrently instead of serially, as intended. A good example of how NOT to do it is the McDonnell-Douglas-Boeing T-45 Goshawk jet trainer debacle. Northrop-Grumman has diligently kept investors apprised of the B-21 Program's progress and challenges, including financial issues. To that end, it was no surprise that they took a pre-tax charge of $1.56 billion on their 2023 taxes earlier this year. AFRCO awarded the B-21 Raider Program to Northrop-Grumman in 2015, including a contract for the Engineering and Manufacturing Development phase. The contract required building six aircraft using the actual production line and trained technicians that EMD paid for. During the same 2015 timeframe, AFRCO also issued an LRIP contract based on a negotiated, firm, fixed price per aircraft. Eight years later, when the Raider made its first flight in November 2023, Northrop was finally able to submit billing on LRIP work. This same process would have applied to Boeing and Lockheed Martin had either of them won the program. When the AFRCO announced the award and issued the EMD and LRIP contracts, all three bids were revealed and became public information. The B-21 Raider and China's H-20 reveal distinct advances in stealth and range, shaping each nation’s future strategic airpower. Northrop Grumman's competitors filed a protest in short order with the Government Accountability Office (GAO). Since the three defense contractors could only respond to the Air Force RFP if they had completed the SDD phase, any award protest could not be based on work already done. Lockheed-Martin and Boeing protested because Northrop Grumman's firm, fixed-price bid had been "lowballed." This was a reasonable protest, as both contractors were painfully aware that when the Air Force said the bids had to be firm, fixed-price, they meant it. Boeing, for example, was awarded the KC-46 Pegagus Tanker Program in 2011 at a firm, fixed price per aircraft, with a separate contract line item for all development costs not to exceed $4.9 billion. With these numbers, Boeing did not expect to turn a profit until the latter stages of production for the 179 tankers on order. After flight testing commenced during the EMD phase in 2014, it revealed two major problems: Cobham Aerospace's aerial refueling system had a serious flaw that could not be easily rectified. Cobham had to absorb a $206 million charge to redesign the system, then remove and replace it in the half-dozen testbed aircraft Boeing had already been paid for. This caused a 19-month program delay. Compounding Cobham's $206 million gaff, flight testing revealed a serious problem with the Boeing-designed aircraft wire harness system. The KC-46 was designed with triple redundancy in all major systems, including the wiring. Flight test engineers found excessive signal interference on multiple systems, including crosstalk in the wiring harnesses. Further ground testing found the problem. Instead of designing the wiring harnesses to route them with the triple redundancy in three separate areas of the plane, like one set of wires routed through the left side of the fuselage, on the right side, and finally, the bottom of the plane beneath the floorboards, all three redundant wire harnesses were designed and built right next to each other on one side of the plane only. Boeing spent another $425 million on the wiring problem fix. In total, Boeing has incurred $7 billion in KC-46 non-recurring engineering charges. The contract only covered the first $4.9 billion. The Air Force has covered only a small portion of the additional $2.1 billion. 5 What Challenges Are on the Horizon for LRIP? The Air Force and Northrop-Grumman are aware of the high stakes throughout LRIP All parties recognize the seriousness of the B-21 Program challenges going forward. There are three major program challenges: Managing the critical B-21 subcontractor relationships Mitigating future cost control issues Anticipating and preparing for future problems to maintain program momentum Managing the critical B-21 subcontractor relationships The B-21 Program has seven major subcontractors: Pratt & Whitney Janicki Industries BAE Systems Spirit AeroSystems Orbital ATK Rockwell-Collins GKN Aerospace There are also 400+ smaller suppliers. The seven major suppliers and many smaller suppliers have done business with Northrop-Grumman for many decades. The seven critical suppliers are on all American military aircraft to one degree or another. Each of the seven suppliers is also critical to many other aircraft manufacturers. The B-21 Program is risky for everyone, from the Air Force to Northrop-Grumman to the seven critical suppliers and beyond. If Northrop-Grumman stumbles badly, many of the B-21's suppliers could face serious hardships. It is one thing for Northrop-Grumman to take a $1.56 billion write-off, but the B-21 supply chain is not similarly positioned. Most certainly, if any critical supplier is unable to absorb a major program delay or a revenue loss not of their own making, Northrop-Grumman would likely have to take the "hits" on behalf of the affected supplier(s). Northrop-Grumman has squeezed $60 million extra from AFRCO to offset inflationary factors over the past few years. This is a paltry sum, considering the costs that were written off. Cost controls are also a major factor during LRIP. An instructive, telling situation for Boeing on the KC-46 program was the length of time it took to complete flight testing: over four years. This was for an aircraft that was a derivative of the B767-200 Freighter, which had been in service for more than twenty years. As soon as the Air Force finalized the KC-46 deal with Boeing, FedEx immediately put 50 new B767-200s on order. FedEx's planes came down the same production line as the KC-46, alternating with each other. If it took four years to test a derivative aircraft, imagine how long it could take for an all-new plane, from the wheels up? It took Lockheed-Martin 11 years to complete flight testing on the three all-new models of the F-35. The Air Force said it was the most comprehensive flight testing program in aviation history. Lockheed-Martin and Boeing leadership cautioned Northrop-Grumman about the pitfalls of bidding a firm, fixed price for the production of a newly developed aircraft during the 2014 timeframe of the B-21 Request for Proposal. Northrop-Grumman did not take the advice, feeling they had rigorously vetted their costs and stood by their proposal's fixed price bid. Both the AFRCO and the General Accountability Office agreed that Northrop Grumman's B-21 bid was fair and reasonable. The GAO rejected the protest from the two competitors. Now that AFRCO and Northrop-Grumman have agreed on fixed pricing for the first 40 aircraft controlling costs is paramount. Northrop-Grumman will have little sympathy for cost overruns in the supply chain since firm, fixed prices have been locked in by the B-21's suppliers. Neither will AFRCO look favorably upon Northrop-Grumman if they ask for pricing relief. Northrop Grumman's CEO, Kathy Warden, stated earlier this year that company leadership now understands what Boeing and Lockheed-Martin meant by their admonishment about the pitfalls of firm, fixed-price contracts for developmental aircraft. Even Pentagon contracting leadership has acknowledged their concern over defense contractors losing money on firm, fixed-price contracts with significant R&D work covered by an NRE line item. Warden said that the agreed-upon pricing for the 40th aircraft would be booked as a loss. Northrop-Grumman would begin turning a profit in Full-Rate Production of the final 60 aircraft. Warden also noted the Air Force is doing a comprehensive force structure design review. There is a strong possibility that the AFRCO will increase the program from 100 aircraft to 134 or more. Recapping the B-21's LRIP Situation As Boeing and Lockheed-Martin can attest, working on major contractual obligations in parallel instead of serially is a risky move with no room for error. One of the main goals of completing flight testing before full-rate production is to detect problems and correct them via design changes and/or revised manufacturing processes. Whatever problems are detected and solutions found require two paths of corrective action: Implementing them with suppliers and/or in-house manufacturing Determine what to do with any affected parts and equipment already produced, and then take action. This is why MDAP regulations limit LRIP to a maximum of 10% of the total expected to be made and do not allow the program to move forward from LRIP until flight testing has been successfully completed. The B-21 Program is now scheduled to produce 40 aircraft in the LRIP phase. If flight testing reveals any serious problems, it could easily impact costs, production scheduling, and flight test completion. The stakes and risk are high, with no room for error. Only time will tell. These two aircraft will form the backbone of the USAF’s bomber force for years to come.