Boeing, Army Revise Fee Plan

Boeing Co.’s profit on its contract to manage development of the Army’s Future Combat System of armored vehicles and drones will be more closely tied to performance, the program’s manager said.

Boeing’s base fee will now be 3% of the $21-billion contract, down from 10%, and its potential “award fee” or bonus will rise to 12% from 5%, Brig. Gen. Charles Cartwright said. The amount of money available for bonus and the goals to which it is tied are still under negotiation, he said.

“If they meet the criteria, they’ll get a good award fee,” Cartwright said.

The new contract aims to strengthen oversight and keep costs down on the Pentagon’s second-most-costly program. The Future Combat System -- a new family of faster, lighter battle vehicles linked by high-speed digital communications, unmanned drones and new combat radios -- is now projected to cost about $128 billion, up 38% from an earlier estimate of $92 billion, Cartwright said.

That’s about $32 billion for research and development and $96 billion for production, he said.

Chicago-based Boeing co-manages the program with San Diego-based Science Applications International Corp.

General Dynamics Corp., United Defense Industries Corp., Lockheed Martin Corp., Raytheon Co., Northrop Grumman Corp., BAE Systems, Textron Inc. and Computer Science Corp. are the major subcontractors.

The fiscal 2006 defense budget passed by the House last month cut $449 million, or 13%, from the Army’s request for $3.4 billion for the new system.

A report accompanying the House measure cited “significant development and contracting delays” and said Congress “harbors serious concerns about the FCS program.” The Senate’s version of the defense budget, which hasn’t been voted on, does not cut the program.

Revising Boeing’s contract to comply with long-standing federal acquisition regulations will give the military a greater number of audit rights, including provisions that require Boeing to certify under law that its cost and pricing data are accurate.

Boeing spokesman Randy Harrison said that “as a matter of long-standing policy, Boeing does not comment on details of financial agreements with its customers.”

Boeing shares fell 67 cents to $64.30. Shares have increased 28% in the last year.