Some of the Defense Department's largest contracting partners are declining to work with the Pentagon on new projects amid concerns about cost overruns, The Wall Street Journal reported.
The news outlet noted several executives at major defense contractors have criticized recent deals as being too risky for companies compared to the rewards, largely due to the Pentagon's frequent insistence on fixed-price deals that cause companies to bear the brunt of the costs should they overrun.
Northrop Grumman Chief Executive Kathy Warden said on an investor call last week that the company has "passed on some high-profile programs" with the Pentagon after Northrop Grumman announced a $1.2 billion charge against a new batch of B-21 Raider bomber planes, which caused its stock to drop by more than 8% and cost the company about $4.5 billion in market value.
L3Harris Technologies CEO Chris Kubasik recently said he "will sacrifice revenue for earnings and cash every day of the year" after his company exited competition to manufacture a new missile for the Navy last summer, noting he had declined to compete for another project in the fall.
"In an environment of low inflation, people did step to the line and made bids because they were big, important programs," Cai von Rumohr, a defense-industry analyst at TD Cowen, told the Journal. "Most everybody is getting religion now, but you don't know how many companies have contracts in the closet that might have some risk to them."
Theodore Bunker ✉
Theodore Bunker, a Newsmax writer, has more than a decade covering news, media, and politics.
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