* Pentagon approved conversion of Boeing contract to fixed-price terms
* Bids from alternate providers due June 8
* Boeing development effort saw costs rise sharply
WASHINGTON, May 11 (Reuters) - The U.S. Air Force said on Friday it is still in talks with Boeing Co about revamping a troubled multibillion-dollar program for next-generation satellite terminals, but has now formally invited other companies to submit alternate bids.
The move is part of a drive by Air Force officials to crack down on cost increases that have plagued satellite programs for over a decade. It puts additional pressure on Boeing to finish development of the program or risk losing it to another bidder.
The Pentagon's acting chief weapons buyer, Frank Kendall, last month signed a memorandum that authorized the Air Force to convert its current contract with Boeing for the Family of Advanced Beyond-line-of-sight Terminal (FAB-T) program to fixed-price terms, and invite bids from other companies.
"It is the Air Force's intent to find the best possible cost solution in the FAB-T program, either through a new contract or by converting the current FAB-T contract from a cost-plus to a fixed price structure," said Air Force spokeswoman Major Tracy Bunko. "Negotiations with Boeing on the current contract are ongoing while we continue to look at other provider options."
The Air Force on April 25 released a final request for proposals seeking an alternate source for development of the satellite terminals, which are needed to handle the most important and sensitive communications. Bids are due by June 8, with the Air Force expected to award a contract in September.
No comment was immediately available from Boeing. Its shares were down 0.2 percent at $73.62 on Friday afternoon.
The Air Force nearly terminated the program in January, but decided to hold off after Boeing proposed switching the contract to fixed-price terms with a "not-to-exceed" ceiling.
Boeing won a $235 million deal to develop the new terminals in September 2002, but the program's cost has ballooned to $1.6 billion, according to recent Air Force estimates.
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.
A March report by the Government Accountability Office, a congressional watchdog, cited ongoing problems with the FAB-T program, noting that Pentagon officials now believed it would not be completed until 2017. That is three years after the Advanced Extremely High Frequency satellites it is being developed for were ready for military use.
The Air Force is examining overhead costs at its suppliers, and revamping acquisition plans for many of its major programs as the Pentagon begins implementing $487 billion in cuts to proposed defense spending over the next decade.