Pentagon's Weapons Wish List Stalled As Defense Contractors Balk At Rising Costs: Report

Northrop Grumman Corporation +0.28%





Northrop Grumman Corporation




The Pentagon’s pursuit of advanced weaponry to counter global threats is facing a roadblock as major defense contractors are shying away from projects that could potentially lead to financial losses.

What Happened: The reluctance of defense contractors to take on high-risk Pentagon projects has been brewing for some time, reported The Wall Street Journal on Tuesday. This issue came to a head when Northrop Grumman Corporation (NYSE:NOC) announced a $1.2 billion charge for the initial production of the B-21 Raider, a long-range bomber designed to carry nuclear weapons.

Inflation, pandemic-related supply chain issues, and labor shortages disrupted the cost estimates for the project. This has led to the first batch of planes being more expensive to produce than initially anticipated.

Despite a surge in orders for military equipment from the U.S. and its allies, defense contractors are hesitant to take on projects with high potential for cost overruns. This has led to companies like Northrop Grumman and L3Harris Technologies Inc (NYSE:LHX) missing out on significant programs.

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Defense contractors are particularly wary of the Pentagon’s use of cost-plus contracts for developing new weapons systems. While these contracts guarantee a fixed profit for companies, they also require the government to cover any unexpected expenses that may arise.

However, when these plans are finalized, and the weapons are ready for production, the Pentagon often switches to fixed-price deals, leaving the companies liable for any additional costs.

Why It Matters: The Pentagon’s struggle to secure the cooperation of defense contractors comes when the U.S. faces significant global challenges. For example, the Pentagon has lost track of over $1 billion in military aid given to Ukraine, which could have serious implications for the ongoing conflict in the region.

Moreover, the U.S. is also facing increased competition in space from countries like China, prompting the Pentagon to invest heavily in its space capabilities. The reluctance of defense contractors to take on high-risk projects could potentially hinder the U.S.’s efforts to maintain its edge in this critical area.

Additionally, the U.S. Department of Defense is working on deploying thousands of fully autonomous, AI-controlled units by 2025.

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Photo Courtesy: Mariordo Camila Ferreira & Mario Duran Via Wikimedia Commons

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