By Andrea Shalal-Esa
WASHINGTON (Reuters) - The Pentagon's chief arms buyer wants details on how Lockheed Martin Corp (NYS:LMT) and other companies will be held accountable for the quality and reliability of the F-35 fighter jet as he considers whether to approve an increase in the plane's production, U.S. defence officials said on Friday.
Frank Kendall, undersecretary of defence for acquisition, technology and logistics, is asking the Pentagon office that runs the $392 billion (242.4 billion pounds) F-35 program to map out how it will ensure the quality, reliability and maintainability of the new warplanes as production ramps up in coming years, said the officials, who were not authorized to speak publicly.
Kendall chaired a five-hour review of the Pentagon's biggest arms program on Monday that showed progress in F-35 development, production and testing, and confirmed that Lockheed and its suppliers were technically ready to increase production.
But Kendall and other Pentagon officials want to make sure that they have contractual language and other tools in hand to hold Lockheed and engine maker Pratt & Whitney, a unit of United Technologies Corp (NYS:UTX), responsible if problems arise.
"The government wants to see how it can incentivize the contractors to do well, and what leverage it will have if they don't," said one source familiar with the program.
The Pentagon drive for more rigorous oversight could result in additional clauses in the next contracts for jets and engines. The contracts are being negotiated separately by Pratt and Lockheed with the government in coming months.
Government plans call for Lockheed to increase F-35 production from around 36 planes this year to 45 in 2016 and ramping up to 110 planes a year by the end of the decade. The company expects to build about 200 jets a year when the program, the largest in Pentagon history, is in full production.
Decisions on future production rates have been complicated by the lack of a federal government budget for the new fiscal year that began October 1 and uncertainty about additional cuts in Pentagon spending due to take effect under sequestration unless Congress agrees on other deficit-reducing measures.
Production levels also depend on F-35 orders by other countries, such as South Korea, which is expected to announce plans as early as December to buy F-35 fighters.
South Korea would be the eighth foreign country to make a firm commitment to buying the F-35, joining the Netherlands, Britain, Italy, Australia, Norway, Israel and Japan.
ASSEMBLED IN TEXAS
Lockheed is anxious to lock down the production plan so it can buy additional $5 million assembly stations for the Fort Worth, Texas, plant where the jets are built.
Kendall's office is expected to spell out its requirements for continued rigorous oversight of the F-35 program next week. Maureen Schumann, Kendall's spokeswoman, declined comment on the expected acquisition decision memorandum, or ADM.
The Pentagon restructured the F-35 program in 2010, adding $6 billion to its development effort and slowing down production to reduce the number of possible retrofits needed since the plane was being produced as it was still undergoing testing, an approach known as "concurrency."
The F-35 program has also been subjected to intense oversight in recent years, including a 2012 review by the Pentagon inspector general's office of program quality that found over 800 issues on each jet built. Lockheed and the government say they have made significant progress since then.
Air Force Lieutenant General Chris Bogdan, who runs the program for the Defence Department, was sharply critical of the contractors when he first took over last year and later accused them of trying to "squeeze every nickel" out of the government.
But in September he told an Air Force audience that while he wished the program was "further along," relations with the contractors were improving.
Lockheed spokesman Michael Rein said it would be inappropriate for the company to comment on a government meeting it did not attend. But he said the company was committed to continuing to improve the production and quality of the jets.
"We are fully committed to cost effectively driving costs out of the program while improving efficiencies to deliver the F-35's capabilities to the war fighter, allowing the services to meet their (initial operational capability) dates," he said.
(Editing by Philip Barbara)