WGS Program Breaches Nunn-McCurdy Threshold

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PARIS — Boeing officials on April 1 moved to defend the Wideband Global Satcom (WGS) military satellite communications system following the U.S. Air Force’s notification to Congress that the program’s cost had climbed more than 25 percent higher than previous estimates.

The increased average per-satellite cost, Boeing officials said, is due to the fact that the program suffered from intermittent funding, which interrupted industrial workflow, and to the Air Force’s recent decision to order two additional satellites. Boeing is prime contractor on the program.

Boeing officials issued a statement responding to the fact that Air Force Secretary Michael Donley has sent to Congress a notification that WGS’s estimated costs had risen enough to force a review under Nunn-McCurdy legislation on government program cost management. Nunn-McCurdy requires notification to Congress of programs whose costs rise by 15 percent and recertification review for those whose costs climb by 25 percent.

Donley’s letter informing Congress that WGS had reached a Nunn-McCurdy breach of its previously predicted budget, forcing a program review, was disclosed in the April 1 edition of Inside the Pentagon.

Boeing officials, saying they had been aware of the letter, immediately defended WGS as a program whose costs and schedule are under control. What is more, they said, WGS is a firm, fixed-price contract, meaning cost overruns would be assumed by Boeing, not by the Air Force.

Craig Cooning, vice president and general manager of Boeing Space and Intelligence Systems, said April 1 that the government has had full visibility into the costs associated with WGS and has validated all of them as fair and reasonable. He said Boeing has briefed several U.S. congressional committees on the issue to ensure that they do not rush to the conclusion normally associated with Nunn-McCurdy breaches — that the contractor has failed to meet its price commitments. Cooning agreed that Boeing made no profit on the first three WGS satellites and that subsequent spacecraft were priced to reflect their actual costs. But he said government contracting rules do not permit Boeing to make up for early losses in the next batch of satellites. Even under fixed-price contracts like WGS, he said, the government fully audits, reviews and approves each contractor’s cost basis before agreeing to a final contract price. None of these costs was exceeded, he said.

Three WGS satellites are in orbit, and three more are in production. In addition, the Air Force has notified Boeing that it intends to procure two additional spacecraft.