Leading defense companies, including Lockheed Martin and Northrop Grumman, are expressing concerns about the risks associated with fixed-price contracts, a trend highlighted by recent earnings calls and interviews. These contracts, while aimed at reducing taxpayer risk, have led to significant cost overruns for companies, prompting a reevaluation of their bidding strategies and potential withdrawal from certain government competitions.
During recent earnings calls, executives from top defense firms like Lockheed Martin and Northrop Grumman articulated their growing reluctance to engage in fixed-price contracts, citing past experiences with cost overruns and unanticipated risks. Lockheed Martin CEO Jim Taiclet stated that the company is moving away from the “must-win” mindset in government contracts, due to the high risk of absorbing extra costs in fixed-price agreements. Similarly, Northrop Grumman acknowledged its shift in approach since winning the B-21 Raider stealth bomber contract, emphasizing a more cautious stance towards bidding on fixed-price deals without a mature design.