By AARON MEHTA
WASHINGTON — At the request of South Korean officials, the Pentagon has officially canceled an F-16 upgrade contract with BAE Systems, paving the way for South Korea to recompete the program for competitor Lockheed Martin.
The Pentagon announced Wednesday that the contract, which covered “Phase 1” of the planned upgrade for 134 KF-16 jets, would be terminated “for convenience.”
Because the contract was conducted through a foreign military sale, the US government had to cancel on behalf of South Korea, but the move is driven at the behest of Seoul, which two weeks ago began complaining of unexpected price increases on Phase 2 of the planned upgrade.
When BAE won the contract, which includes a series of avionics and radar upgrades, it was seen as a major breakthrough for the company. Lockheed Martin, the prime on the F-16, had a stranglehold on the lucrative upgrade market for the jet. The program appeared to be on track through most of this year, as Phase 1 began and negotiations for Phase two got under way.
So it was unexpected in October when top South Korean officials began publicly complaining about what they described as hidden cost jumps. Military officials there claimed the US government added about US $470 million and BAE Systems about $280 million in costs that were not part of the original agreement for Phase 2.
What seemed like a potentially minor argument over costs quickly spiraled, leading to Wednesday’s official cancellation of the contract.
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