The GAO released the report on Wednesday that showed the first two GPS 3 satellites were already 18 percent over budget, with Lockheed Martin’s costs driven up to $1.6 billion from the $1.4 billion initially estimated.

   Air Force Gen. William Shelton released a statement March 23 asserting that Lockheed’s satellite program was doing well and “not even close” to breaching cost thresholds that would trigger a mandatory notification to Congress under the Nunn-McCurdy law.

   “There is no question in my mind that that program is going extremely well,” said Shelton. “Any increase on the first two developmental satellites likely stemmed from increased government requirements for the program, adding that unit costs for the first two satellites had not been finalized. I understand that from a bean-counter perspective that it might look like an increase but I don’t see it that way. It’s still a development program.”

   Lockheed Martin Spokesman Michael Friedman also said the GPS 3 program was making progress and remained on schedule to launch as many as 32 potential satellites in the new constellation by mid-2014. “We are experiencing no technical show-stoppers and our program cost estimates remain within the original Air Force program office budget,” Friedman said.    “The program had run into some challenges, but we have been able to resolve those issues using a full-sized, flight equivalent prototype of a GPS 3 satellite, avoiding the higher costs of redoing the satellites actually headed for launch.”

   Lockheed Martin is under a cost-plus contract to build the first four GPS 3 satellites. The company said it is open to moving to a fixed-price type of contract starting with the fifth satellite, which would shift the primary responsibility for any cost overruns to the company.

Shelton added the Air Force also was moving ahead with plans to launch two new GPS satellites at a time on a single rocket to cut the cost of launching the satellites into space in half.

   In addition to the GPS-3 cost overruns, the GAO report also cited a $438 million cost overrun and potential one-year delay on Lockheed’s production of the third and fourth missile warning satellites in the Space Based Infrared System (SBIRS), as well as problems with Boeing’s Family of Advanced Beyond-Line-of-Sight Terminals (FAB-T). GAO officials now believe those terminals will not be completed until 2017 — almost three years after the Pentagon’s AEHF satellites would be ready for military use.