JLTV Program Is Caught In A Budget-Cost Cap Squeeze
The Army has just published its long-anticipated Request for Proposal (RFP) for the next phase of its Joint Light Tactical Vehicle (JLTV) program. The JLTV was intended initially to replace the venerable Humvee while improving on that system’s survivability and performance. At the same time, the JLTV was supposed to have survivability on a par with the MRAP/M-ATV while being substantially cheaper. The new RFP is for what is called the Engineering and Manufacturing Development (EMD) phase. This phase comes after the completion of a technology development phase which saw three companies -- BAE Systems-Navistar, General Tactical Vehicles (GTV), and Lockheed Martin-BAE Systems -- provide competing designs. The EMD competition will be open to all interested parties, not just those that completed the first round. A final downselect is expected in 2015 for a single company that will produce a minimum of 20,000 vehicles for the Army and an as yet undefined number for the Marine Corps.
From the start the performance parameters the Army established for the JLTV were sporty, to say the least. The JLTV was to be more survivable than the Humvee while having equal or greater ability to carry payloads, additional power generation capacity compared to current vehicles, better mobility than the MRAP and advanced diagnostics. Did I mention that the JLTV was supposed to come in at least six different varieties as well? All this and a price tag well below that of the MRAP/M-ATV armored trucks built for Iraq and Afghanistan.
One of the perennial problems in defense contracting is that technical success is no guarantee of winning the brass ring. The three companies that won the initial development contracts have by all accounts achieved amazing success in most regards. Yet, the JLTV program appears caught in a budget-cost cap squeeze that could doom the entire effort. The defense budget is shrinking, somewhere between $400 billion and a trillion dollars over the next 10 years, depending on whether sequestration goes into effect. Moreover, the House and Senate Armed Services committees agreed to cut $50 million from the requested $172 million fiscal 2012 budget for the JLTV. Within the Army’s shrinking portion of that pie, the competition for acquisition dollars is becoming more intense as that service tries to support not only JLTV but the new Ground Combat Vehicle, a recap program for the Humvee and ongoing modernization programs for the Bradley Fighting Vehicle and the Stryker. The Army has already signaled that it wants to take more money out of the JLTV program. In addition, the Army has been steadily reducing its estimates of the total number of JLTVs it intends to buy.
Even as the size of the JLTV buy appears to be shrinking and the pot of money available diminishes, the contractors are faced with another challenge: the price the Army wants to pay for the vehicles. According to the new RFP, the target price of the JLTV, depending on the variant, is between $230,000 and $270,000, exclusive of an additional set of heavy armor, the so-called B-kit, which is to cost no more than $65,000. This compares with a ceiling price of $180,000 for a recapped Humvee. So, the Army wants a next generation tactical vehicle at a premium of less than fifty cents on the dollar compared to the one it is replacing. Good luck.
What exactly is good about this deal for the three companies that put so much effort into the first phase competition? A failure to meet the cost caps, even if for good reasons such as to meet performance requirements, will pretty much kill JLTV. In addition, the companies have to compete not only against the other teams who won the initial round but anybody else who wants to enter the game, for less money in the EMD phase, a reduced overall buy and the possibility that the Congress or even the Army might pull the plug on the whole effort. In any other sector, this is a deal no company would touch. Frankly, it says something about the commitment of defense firms to their customers and the American people that they are willing to work under these conditions.
