WASHINGTON (Reuters) - The U.S. Air Force and Boeing Co (BA.N) have agreed to convert a troubled program for next-generation satellite communications terminals to a lower-risk fixed-price contract from the current cost-plus terms, both said on Wednesday.
The move lets Boeing continue work on the Family of Advanced Beyond-line-of-sight Terminal(FAB-T), which the Air Force had nearly terminated in January after development costs ballooned to $1.6 billion from $235 million.
The Air Force and Boeing began discussions about changing the contract terms earlier this year after Boeing offered to provide a "not to exceed ceiling" for the remaining development work on ground stations needed to operate new Air Force communications satellites.
The Air Force has also invited companies to submit bids for alternate systems as part of its drive to crack down on cost increases that have plagued satellite programs for over a decade.
Boeing spokesman Matthew Billingsley said the company had completed hardware qualification on the program, and expected to finish software development and systems integration this summer.
"We look forward to entering system functional qualification testing in 2013," he said in a statement.
The Air Force provided no immediate details on the new contract terms.
The Government Accountability Office, a congressional watchdog, cited ongoing problems with the FAB-T program in a March report on satellite systems, noting that Pentagon officials now believed it would not be completed until 2017.
That is three years after military plans to start using the Advanced Extremely High Frequency (AEHF) satellites built by Lockheed Martin Corp (LMT.N). The new terminals are being developed for those satellites.
Bids for the alternate systems are due by June 8, with the Air Force expected to award a contract in September.
Boeing won a $235 million deal to develop the new terminals in September 2002, but the program's cost has risen sharply since then. The Air Force's fiscal 2013 budget proposal asked for $107.5 million to continue work on the FAB-T program, less than half the 2012 sum of $231.2 million.
In February, Major General John Hyten told reporters that the Air Force would proceed with the alternate source program regardless of how the talks with Boeing turned out.
Reporting by Andrea Shalal-Esa; Editing by Jan Paschal