An Update Supplemental Lecture for Chapter 5 Source: Image provided courtesy of Lockheed Martin Joint Strike Fighter Program Office. Available at www.jsf.mil/ • This lecture offers an extension of the JSF case study from pages 122 – 124 in the text. • Case study of JSF in text focuses on the bidding process completed in 2001. • This update details events that have unfolded since 2001 and applies them to the Principal-Agent model. The major issue affecting the JSF since 2001 has been uncertainty and monitoring costs. Source: Image provided courtesy of Lockheed Martin Joint Strike Fighter Program Office. Available at www.jsf.mil/ the same body as conventional system. This added weight (3,500 lbs overweight) making it too heavy to fly desired distance or carry adequate bombs. Source: Image provided Courtesy of Lockheed Martin Technological Uncertainty • Consequently, this caused the project to be delayed for one year and the DoD had to add $7 billion to the development costs of the project. • Lockheed committed 500 engineers to find ways to reduce weight. • 600 weight saving changes were identified. • However, some of these weight saving changes, such as smaller bomb bays, make the STOVL version of the JSF very different from the other two versions. • This could reduce the potential for economies of scope, thereby resulting in higher costs for the project. project. Lockheed required more upfront pay before work could be performed. Principal-Agent Model Application Source: Image provided courtesy of Lockheed Martin Joint Strike Fighter Program Office. Available at www.jsf.mil/ • Recall that Lockheed is not the only company involved in the production process. • European companies are also supposed to be participating in the production process. • The following chart breaks down the contribution of each European “partner” to the JSF project. Estimated Aircraft Production Source: “Joint Strike Fighter Acquisition: Observations on the Supplier Base.” General Accounting Office May 2004. p. 13 • “Partner” countries are divided into levels based on government financial contribution to project: • Level I partner: Contributes approximately $2 billion. Has direct influence on the make-up of the aircraft. • Level 2 partner: Contributes approximately $1 billion to project. • Level 3 partner: Contributes < $200 million to project. • In theory, companies in countries whose governments have contributed finances to the JSF project should be allowed to bid for subcontracts. • However, as of 2005, only British companies, such as Rolls Royce, have successfully obtained subcontracts. Source: “Joint Strike Fighter Acquisition: Observations on the Supplier Base.” General Accounting Office. May 2004. p. 8 and 14 • This has upset other partner governments • In past projects, subcontracts were typically evenly divided among partners. “When Lockheed distributes work, there’s a lot of politics behind it, beyond best value. That’s how it looks to me.” • Murad Bayar, Turkish Undersecretary for Defense Industries. Source: Spiegel, Peter. “The Serious Doubts Over $200 billion Jet Project.” Financial Times. January 30, 2005 • Why is the U.S. reluctant to distribute the subcontracts more widely? • There are two possible answers, one economic and one political. • This is because British defense industry is more sophisticated than defense industry of other partners. • Therefore, British firms can ensure low cost-high quality production (recall that cost is an independent variable with the JSF). • U.S. law restricts ability of Lockheed to disclose technological details, even to companies in UK. • Technology transfer has been a particularly sensitive issue because the European Union was considering the removal of its ban on weapon sales to China. Source on China Weapons Ban: Dombey, Daniel and Speigal, Peter. “Why Europe is ready to lift its weapon ban on China.” Financial Times. February 9, 2005. • Since China is viewed by the Pentagon as a potential future rival, the U.S. government does not want China to have access to technology used in the top-level US weaponry. • If US discloses technology to European countries and then European countries begin selling arms to China, this could result in US military technology going to China via Europe. • Though the EU has decided not to remove the weapons ban to China for the time being, it may reconsider this issue in the near future. • Need to increase the monitoring of Partner countries (to ensure no sale of sensitive technology to China) raises the monitoring costs of the contract. , Position Description Serco is excited to continue our support to the F-35 Joint Strike Fighter (JSF) Program Office. This contract provides program management support in support of the full acquisition life-cycle of the F-35 program, to include development, production, and sustainment., Search the Indiana University Library Catalog Search the library catalog.