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Owner and Contractor in the Defense Industry

Two Sides at War

 

STUDENT PAPER

By Arthur Vaesken

SKEMA Business School

Lille, France

 



ABSTRACT

The following paper constitutes the author’s effort towards the “International Project Contracts” course at SKEMA Business School, in the context of a “Programme and Project Management and Business Development (PPMBD)” Master Degree.

In it, the author will study in details the following real-life transaction: the sale of 40 F-35As fighter jets by the Lockheed Martin corporation to the country of South Korea. Because of the heavy sums of money involved and the length it takes for the deliverables to be ready, it is important for both parties to understand exactly what each delay and acceleration might imply in terms of costs and other benefits. Extrapolating from real or assumed data, the author will try to establish a coherent analysis of the timeframe involved, and what each potential delivery date can mean for both the owner and contractor, essentially answering the question: “When is the best time for Lockheed martin to deliver?”

Coincidentally, we will see that in this case, the expected delivery date is the best compromise, but many other alternatives deserve consideration. This will allow us to discuss the pros and cons of taking risks to maximize profit, perhaps at the expense of healthy business relationships.

Keywords: military, defense, aircraft, international, contractor, time, cost, trade-off, optimum

INTRODUCTION

Time, costs and quality are often considered the three critical variables of any given project. It is generally agreed upon that compromising on quality is unacceptable, and this especially true in the defense industry, where said quality can make the difference between victory and defeat, power and impotence, and even life and death; and where contractors engage their whole reputation on every task they undertake.

Thus, we are left with time and costs as the variables at the front of everyone’s thoughts. They are, of course, just as critical as quality when it comes to deliver a defense project ; tensions do no wait for weapons to finish assembling to escalate, and the enormous costs involved, coming directly from the pockets of the state and thus the taxpayers, are under close scrutiny. But unlike quality, they are expected to vary much more, and what may be favorable for one party, such as a faster delivery of the goods ordered by the owner, may not be beneficial for the contractor and vice-versa.

For this reason, in order to maintain a harmonious and healthy business environment, project owners and contractors both need to be aware, on any given project, of their own personal cost/time optimums, and agree on a compromise that will be mutually beneficial. Finding out what it is is of course no simple task, but for the purpose of this paper, the author will use the real-life example of the March 2014 purchase of 40 F35-A fighter jets by South Korea from Lockheed Martin, the world’s largest defense contractor. The transaction will amount to $7 billion and the delivery date has been set to be between 2018 and 2025 and with an expected date of 2021 by South Korea, which, in the author’s opinion, makes it a suitable time range to assume the possibility of acceleration initiative and delays. Using estimates to fill the missing data, the author will follow the footsteps of the excellent analysis of the US Department of Transportation in the Federal Highway Agency’s document “Work Zone Road User Costs Concepts and Applications” figure 15, which also served as inspiration for Stephen J.C. Peterson’s entirely theoretical case study of an oil and gas facility project. The author will hopefully manage himself to determine a comprehensive document illustrating the time/cost optimums for both South Korea and Lockheed Martin, and then suggest a good balance of interests. It is hoped said model can then be applied to other projects in the defense industry, and inspire contractors and owners of all kinds.

All this can be summed up in a single problem statement: “When is the best time for Lockheed Martin to deliver the F-35As to South Korea?”

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected]

How to cite this paper: Vaesken, A. (2018). Owner and Contractor in the Defense Industry: Two Sides at War, PM World Journal, Vol. VII, Issue XI – November.  Available online at https://pmworldjournal.net/wp-content/uploads/2018/11/pmwj76-Nov2018-Vaesken-two-sides-at-war-student-paper.pdf

 



About the Author


Arthur Vaesken

Lille, France

 

 

 

Arthur Vaesken, MSc in “Project and Programme Management & Business Development” at SKEMA Business School, is a student with extensive international experience. He is accustomed to working in the United Kingdom, France, and the USA, having done several long-term internships there in domains such as web development, web and traditional marketing, factory logistics, and project management. His most notable achievement so far is promoting a fertility clinic owned by an eminent North Carolinian surgeon during a year-long internship, where he reworked the clinic’s website from the ground up, improved its visibility online and deployed various marketing strategies to bolster its business. He speaks fluent English and French, moderate Spanish, and basic Japanese.

Arthur can be contacted at [email protected].