[Congressional Record Volume 140, Number 80 (Wednesday, June 22, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: June 22, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
NATIONAL DEFENSE AUTHORIZA- TION ACT FOR FISCAL YEAR 1995
The Senate continued with the consideration of the bill.
Mr. NUNN. Mr. President, I am pleased to bring before the Senate S.
2182, the National Defense Authorization Act for fiscal year 1995.
This bill provides the authorization in law for all the major
functions under the jurisdiction of the Committee on Armed Services,
including programs and activities of the Department of Defense, the
Department of Energy nuclear programs, as well as civil defense. This
authorization bill continues the process of reshaping the U.S. defense
establishment for a post-cold-war world.
The bill emphasizes and tries to set priorities on the need to
maintain the high quality of men and women entering and serving in the
Armed Forces, the bill increases funds above the budget request for
readiness and training programs, and it sustains the reduced pace of
weapons systems modernization requested in the fiscal 1995 budget. The
bill preserves critical defense industrial base capabilities and
strengthens the peacekeeping and peace enforcement capabilities of U.S.
military forces.
Finally, the bill continues the key areas of the defense conversion
and transition program to help individual communities and businesses
adjust to the effects of the defense drawdown.
At the beginning of this debate I want to thank the ranking minority
member of the committee, Senator Thurmond, for all of the help and
cooperation he has given on this bill, and on every other aspect of our
committees' work. And the same can be said for Dick Reynard and the
staff on the minority side. They have worked very diligently, and very
cooperatively with the majority and the majority staff.
Senator Thurmond has tremendous knowledge and experience on national
security issues, and it has been a pleasure to work with him this year
on the Armed Services Committee, and in his capacity as the ranking
Republican.
budget impact of the committee bill
Mr. President, I want to take just a moment to put this Defense
budget in context.
Fiscal year 1995 will be the 10th consecutive year that the Defense
budget will decline in real terms. Since 1985, the Defense Department's
purchasing power has been reduced by 33 percent, or one-third. Under
this budget, by fiscal year 1999 the Defense budget will decline by an
additional 10 percent in real terms. We have 9 consecutive years of
real decline in the Defense budget behind us, and we are looking at 5
more years of real decline ahead of us.
Since fiscal year 1990, Defense Department manpower--active duty
personnel, reserve components, and civilian personnel--has been reduced
by 750,000. The fiscal year 1995 budget will bring an additional
reduction of over 180,000--86,000 active duty personnel; 46,000
National Guardsmen and reservists; and 50,000 DOD civilians. This means
that 15,000 positions in the Department of Defense will be eliminated
each month during fiscal year 1995.
Investment in research and procurement of new weapons has also been
cut back dramatically. The fiscal year 1995 budget request of $43
billion for procurement is the lowest level since 1950 in real terms--
and represents a decline of 53 percent in just 5 years. The economic
impact of this reduction in defense investment, coupled with the
increasing number of base closings in the next several years, will be
felt in towns and communities across the whole country.
The bill before the Senate today authorizes a total of $263.3 billion
in budget authority for the national defense function in fiscal year
1995, which is $400 million below the amount requested in the fiscal
year 1995 budget. In outlays, the bill is approximately $800 million
below the budget request for fiscal year 1995.
I want to make clear, however, that this bill is already above the
budget authority and outlay levels in the House and Senate Defense
Appropriations Subcommittee 602(b) allocations.
So the message, Mr. President, ought to be clear: Any amendments to
this bill that Members want or expect the Defense Appropriations
Subcommittee to be able to fund need to have offsets, both in budget
authority and outlays.
Amendments that are not offset will just push this bill further above
the levels that can be appropriated. Any amendments that add
significant amounts of budget authority and outlays to this bill could
force the Defense Appropriations Subcommittee to make cuts in the
faster spending personnel and readiness accounts, which I do not think
any of us want to see.
The net savings in this bill come mainly from reductions in
intelligence programs recommended by the Intelligence Committee.
Although the Armed Services Committee has joint jurisdiction with the
Intelligence Committee over these intelligence programs, the Armed
Services Committee applied these savings toward deficit reduction.
Mr. President, I am becoming increasingly concerned about the
adequacy of funding for national defense over the next several years.
Today, our military forces are ready; they are capable; and they are
manned by high quality, dedicated people. But there are some real
danger signals on the horizon.
There is the basic question of whether the current 5-year defense
plan will be adequate to support the force levels contained in the
administration's Bottom Up Review. We have looked at this issue
carefully in the committee this year. I think many members of the
committee are skeptical that the military services will be able to
carry out the two nearly simultaneous, major regional contingencies
with the force levels called for in the Bottom Up Review at the end of
this decade. This is an issue that we will continue to look at in the
next several years.
A more immediate concern, Mr. President, are some of the hidden
reductions in the outyears of the Defense budget. The administration's
current 5-year Defense budget has a shortfall of $20 billion for
inflation.
The administration has proposed capping the annual military and
civilian pay raises at 1 percent below current law this year and each
of the next 4 years. Providing military and civil service employees
with the annual cost of living increases each year required under
current law--as Congress did last year and appears likely to do this
year and in the future--will add another $26 billion to the cost of the
President's 5-year defense plan.
OMB has budgeted so-called procurement reform savings of $12 billion
over the entire Federal Government for the next 5 years, and DOD's
share of this is in the $6 to $9 billion range. I do not know anyone
who thinks these savings are likely to be achieved as quickly as OMB is
projecting.
The fiscal year 1995 budget resolution calls for cuts in
discretionary budget authority of $31 billion over the next 5 years.
DOD's share of these reductions could be an additional $16 billion.
In addition to these identifiable shortfalls, there is also a
question of whether DOD has adequately budgeted for the upfront costs
of the base closure process, and whether the savings DOD is expecting
from the base closures to date and those projected for 1995 will
actually be achieved on schedule.
Mr. President, the current 5-year defense plan already calls for a
continued decline in defense spending of 10 percent in real terms--
after inflation--over the next 5 years. if these additional hidden,
reductions are not reversed, I believe that they will seriously erode
the future capability of our military services.
Mr. President, I want to take just a few moments now to summarize
some of the main features of this bill for my colleagues.
subcommittee on nuclear deterrence, arms control, and defense
intelligence
In the area of strategic programs and arms control, the committee
preserved bomber force structure options while directing further
analyses of future bomber requirements; added funds to improve near-
term precision bomber weapons; and continued restructuring ballistic
missile defense programs to emphasize development and deployment of
near-term, ABM Treaty-compliant missile defenses.
The committee spent a great deal of time this year reviewing the
Defense Department's proposed bomber force posture. This review led to
the committee to conclude that:
The Air Force bomber roadmap of 1992 and the Bottom Up Review called
for a force structure of 184 bombers, yet the fiscal year 1995 budget
request funds only 100 bombers during fiscal year 1995, and 80
thereafter.
Four recent independent studies all concluded that the planned DOD
force structure of 80 to 100 nonstealth bombers with only 20 B-2's is
inadequate to deal with the two major regional contingencies of the
Bottom-Up Review.
DOD has no plans or proposals for interim precision weapons for
bombers, preferring to wait until the end of the decade for the tri-
service standoff attack missile [TSSAM] and the joint direct attack
munitions [JDAM] family of weapons. Until these munitions are
available, the bomber force will have only dumb iron bombs available.
DOD has settled on a bomber force structure and modernization plan
before it has completed numerous ongoing analyses and tests that bear
on those plans.
If DOD intends to reduce the bomber force level to between 80 and 100
nonstealthy bombers, then more than 20 B-2 stealth bombers will be
required to meet the demands of the two major regional contingencies of
the Bottom-Up Review. In the coming year, however, the production base
for the B-2 will begin to disappear.
In light of these uncertainties over the future bomber force levels,
the committee bill: Preserves the bomber force structure options for an
additional year by preventing DOD from retiring any B-52 or B-1 bombers
during fiscal year 1995; adds $150 million to the budget to preserve
the bomber industrial base for 1 additional year; requires further
bomber force structure and effectiveness analyses prior to
congressional review of the fiscal year 1996 Defense budget next year;
and adds $90 million to the budget for demonstration and procurement of
interim precision weapons for the bomber force until the new family of
precision guided munitions are available at the end of the decade.
Restructuring of the Ballistic Missile Defense Program initiated last
year in the National Defense Authorization Act for fiscal year 1994
will continue under the committee bill. The committee reduced the
request of $3.25 billion for the BMD program by $251 million, and
transferred an additional $170 million from BMDO to other agencies.
The committee bill authorizes the budget request of $648 million for
the MILSTAR satellite communications program, but shifts the management
responsibility for this program from the Air Force to the Navy.
We also approved the budget request of $400.0 million for cooperative
threat reduction programs for the States of the former Soviet Union--
the so-called Nunn-Lugar programs--and directed DOD to develop a
multiyear strategy for these programs.
The bill includes a reduction of $220.0 million from the budget
request of $10.5 billion for Department of Energy defense activities.
The level approved by the committee includes $5.2 billion for
environmental restoration and waste management activities, the amount
requested in the budget.
I want to commend Senator Exon and Senator Lott for their leadership
on these issues in the committee as chairman and ranking minority
member of the Subcommittee on Nuclear Deterrence, Arms Control and
Defense Intelligence.
subcommittee on coalition defense and reinforcing forces
The Subcommittee on Coalition Defense and Reinforcing Forces oversees
a large portion of our conventional military capability. The committee
bill contains a series of initiatives to strengthen conventional
capabilities and improve the production efficiency of key weapons
programs.
In the area of tactical aviation, the committee approved the budget
request of $3.9 billion for the Air Force's F-22 and the Navy's F/A-18
E/F fighter aircraft programs. We authorized 17 F/A-18 C/D aircraft for
the Navy, 7 fewer aircraft than in the budget request, to balance the
budget request with requirements for this aircraft.
The committee also authorized the budget request of $158.3 million to
extend the life and make modest capability improvements in the Navy F-
14 aircraft. The committee disapproved the Navy's request to develop a
more robust bomb delivery capability for the F-14 because we concluded
that the total $1.6 billion cost of this upgrade was excessive,
particularly in light of the air-to-ground capability already available
in the F-18.
The committee also added $100 million to the budget to restore
limited operational capability to SR-71 surveillance aircraft.
The committee authorized multiyear procurement of M1A2 Abrams tank
upgrades for the Army, and added $25.2 million to the budget for
enhanced warfighting capabilities for the Abrams tank. In addition, the
committee added $108 million to the budget for 24 additional M1A2 tank
upgrades for the Army so that the Army could transfer a comparable
number of M1A1 tanks to the Marine Corps when the M1A2 upgrades are
delivered to the Army.
For some time the committee has been concerned about the need to
maintain the production of tactical missile programs at efficient
rates. The bill authorizes $214 million for 872 Javelin missiles, an
increase of $82.9 million; approved $133.6 million for 1,230 Hellfire
missiles, an increase of $12 million; and added $5 million to the
budget to upgrade almost 600 Stinger missiles to the more capable block
I configuration. The committee reduced the budget request of $604.2
million for the tri-service standoff attack missile [TSSAM] by $115.8
million, and prohibited spending fiscal year 1995 production funds
until the program meets certain testing and evaluation criteria.
The Subcommittee on Coalition Defense and Reinforcing Forces has
begun a review of ways the U.S. military can improve its ability to
support peace operations. The committee took several actions in this
bill to improve U.S. peacekeeping and peace enforcement capabilities,
including:
The addition of $99.9 million to the budget for advance procurement
of commercial airframes to be converted to JSTARS surveillance
aircraft. This system, like the Air Force AWACS, is ideally suited to
providing sophisticated intelligence and command and control over
peacekeeping as well as military operations.
The addition of $10 million to the budget request of $12 million for
countermine warfare research. Mine warfare is a particularly serious
problem in areas where U.S. forces are engaged in peacekeeping
operations.
The committee added funds to preserve certain critical capabilities
in the defense industrial base which might otherwise disappear. The
bill:
Converts the $27.8 million request in the budget for closing the TOW
II production line into production of additional TOW IIB missiles,
pending submission of a plan for developing a follow-on missile system;
Adds $35 million to the budget to keep the tank engine production
base alive, and required the Defense Department to produce a tracked
vehicle master plan; and
Authorizes an increase of $72 million to the budget of $25 million
for a major initiative to support the small arms industrial base by
directing the Army to buy additional small arms until the Army's
inventory objectives are achieved and new weapons enter production.
The committee continued to promote the use of defense modeling and
simulation in the areas of training, doctrine development, and
acquisition. The bill:
Adds $16.8 million to the budget for the Army to continue testing of
a revolutionary concept of training an entire brigade on modern,
inexpensive simulators;
Adds $10 million to the budget to continue an initiative for
distributed simulation to support National Guard and Reserve training;
and
Because sophisticated training devices for disaster preparedness are
lacking, initiates a program to adapt Army training models for use in
training local civilian authorities to cope with natural disasters.
The committee also added $600 million to the budget for equipment for
the National Guard and Reserve components. As in the past, the
committee provided the funds in generic categories and directed the
National Guard and Reserve components to purchase items of equipment
which contribute most directly to supporting the domestic missions of
these units.
I want to congratulate Senator Levin and Senator Warner, the chairman
and ranking minority member of the Subcommittee on Coalition Defense
and Reinforcing Forces, for their leadership on these issues this year.
subcommittee on regional defense and contingency forces
In the areas of regional defense and contingency forces, the
committee sought ways to maintain technological superiority and match
investment to force structure.
The bill authorizes a total of $3.6 billion for one nuclear powered
aircraft carrier [CVN-76], and $2.7 billion for three DDG-51
destroyers; approves the budget request of $507.3 million for continued
development of the Navy's new attack submarine; and shifts $600.8
million from the national defense sealift fund to begin construction of
one LHD amphibious assault ship.
For Marine expeditionary forces, the committee added $220 million to
the budget to purchase and convert two additional ships to enhance the
Marine Corps prepositioning ship squadrons; authorized the budget
request of $496.9 million for continued development of the V-22 tilt-
rotor aircraft, and added 4 CH-53 helicopters to help protect mine
countermeasures squadron force levels.
After a lengthy review, the committee approved the administration's
request to enter into the settlement agreement negotiated with the C-17
prime contractor in January 1994. The committee approved the budget
request for six new aircraft, but reduced the fiscal year 1995
procurement request of $2.8 billion by $387.4 million. In addition, the
committee added $46.3 million to the budget request for non-
developmental airlift aircraft for a total of $150 million.
I want to thank Senator Kennedy and Senator Cohen, the chairman and
ranking minority member of the Subcommittee on Regional Defense and
Contingency Forces, for their usual excellent work on these programs
this year.
subcommittee on defense technology, acquisition and industrial base
In the case of defense technology, acquisition and the industrial
base, the committee took a number of actions to maintain the momentum
of the Defense Reinvestment and Conversion Program enacted last year;
emphasize manufacturing science and technology; maintain the technology
base; and set the stage for acquisition reform.
The committee approved the budget request of $625 million for the
industry and technology portion of the Defense Reinvestment and
Conversion Program. This level will maintain funding to convert defense
industries to dual-use production at the level of the past 2 fiscal
years. The committee also approved $50 million for a Navy Reinvestment
Program; $56.6 million for a Defense Laboratory Diversification
Program; and added $28 million to the budget request of $97 million to
maintain a Manufacturing Science and Technology Program that will
develop manufacturing processes for new military technologies.
For the Strategic Environmental Research and Development Program, the
committee authorized $170 million, an increase of $59 million to the
budget request. The committee also added $20 million to the budget for
historically black colleges and universities to increase the capacity
of these schools to educate scientists and engineers, and authorized
the full budget request of $50 million for the Mentor-Protege Program
to bring minority-owned firms into the mainstream of defense
production.
In the area of military medical research and development, the
committee added $40 million to the budget for research on women's
health issues related to service in the Armed Forces. We added $20
million to the budget for further research on telemedicine technology,
which I believe has tremendous potential to deliver improved medical
care to military personnel deployed to remote locations. We also added
$4 million to the budget specifically for continued research into the
cause and treatment for the gulf war syndrome.
We have not included any major acquisition policy legislation in this
bill because just a few weeks ago the Senate passed S. 1587, the
Federal Acquisition Streamlining Act of 1994. That legislation is a
very high priority for the administration, and we hope the House will
pass similar legislation soon so we can begin work on a conference
agreement. This bill does include a series of legislative provisions to
prohibit congressional earmarking of defense funds to specific non-
Federal entities.
I want to congratulate Senator Bingaman and Senator Smith, the
chairman and ranking minority member of the Subcommittee on Defense
Technology, Acquisition and Industrial Base for their leadership on
these issues in the committee this year.
subcommittee on military readiness and defense infrastructure
In the areas of military readiness and defense infrastructure, the
committee authorized funds above the budget request for high priority
readiness programs; added funds above the budget request to assist the
military services in meeting a more difficult recruiting environment;
and adopted a legislative provision to encourage competition in
contracts for DOD's depot maintenance workload.
In reviewing the fiscal year 1995 budget, the committee found that
the Army and the Air Force were reducing their overall civilian
personnel levels in the current fiscal year much faster than originally
anticipated when the fiscal year 1995 budget was submitted back in
February. These lower civilian personnel levels in fiscal year 1994
resulted in savings of approximately $1.2 billion in fiscal year 1995.
The committee used these savings to authorize increases in high
priority readiness programs, including:
An increase of $250 million to the budget request of $7.2 billion for
depot maintenance programs to reduce the backlog of equipment overdue
for repair and to prevent future degradation in equipment readiness;
An increase of $200 million to the budget request of $4.1 billion for
repair and maintenance of real property to slow the dramatic growth in
the backlog of real property maintenance on DOD installations; and
An increase of $72 million to the budget request of $534 million for
DOD recruiting programs. This increase is needed to ensure that the
military services continue to meet their recruit quality goals in an
increasingly difficult recruiting environment.
Earlier this year, DOD officials indicated that in the final stages
of preparing the fiscal year 1995 Defense budget, they were forced to
reduce the military construction request by $900 million--in their
words--``to absorb a department-wide inflation increase.'' As a result,
the fiscal year 1995 military construction budget request is $1.1
billion below last year's level--a reduction of almost 15 percent in
real terms.
The committee concluded that continued deep cuts in military
construction will make it increasingly difficult for the military
services to meet their facility modernization goals. As a result, the
committee authorized a net increase of approximately $300 million to
the budget request for military construction programs for fiscal year
1995.
Projects added to the budget were carefully reviewed by the committee
to make sure they conform to the following stringent criteria: The
project must be consistent with past base closure and realignment
action; the project must represent a valid military requirement; the
project must be included in the military service's 5 year plan; and the
military service must be able to begin executing the project in fiscal
year 1995.
All of the projects added to the fiscal year 1995 budget request meet
these stringent criteria.
The allocation of depot maintenance workload between DOD depots and
the private sector has been a controversial issue in the past year. The
committee did not make any change to current law that requires not less
than 60 percent of the depot maintenance workload in each service be
carried out in DOD depots.
However, the committee is concerned over recent efforts in DOD to
limit competition for depot maintenance workload. The bill includes a
provision that would require DOD, in moving depot maintenance work out
of a DOD depot, to continue public/public competitions--competitions
among DOD depots--and public/private competitions--competitions between
DOD depots and private sector companies.
Mr. President, I want to thank Senator Glenn and Senator McCain for
their customary excellent work as chairman and ranking minority member
of the Subcommittee on Military Readiness and Defense Infrastructure
this year.
subcommittee on force requirements and personnel
In the areas of personnel and compensation, the committee has made
every effort to maintain a prudent glide path to reduce military
personnel strength, and, at the same time, continued to provide for the
quality of life of military personnel and their families.
After careful consideration, the committee decided to authorize a pay
raise of 2.6 percent for military members, effective January 1, 1995.
The committee recommends an active duty military strength of
1,525,692 for fiscal year 1995, 85,484 below the fiscal year 1994
estimate. For the Reserve components, the bill authorizes a strength of
995,287 for fiscal year 1995, 48,803 below the fiscal year 1994
estimate and 9,290 above the requested level.
The committee reviewed also the authority of the President to call
members of the Selected Reserve to active duty. Under current law, the
President can call up to 200,000 members of the Selected Reserve to
active duty for up to 90 days without declaring a national emergency.
This 90-day callup can be extended for an additional 90 days.
The bill includes a provision that would extend the initial callup
period for Selected Reserve components from 90 days to 180 days, and
would require that any extension of this callup period receive prior
approval of the Congress. The provision would also require the
Secretary of Defense to report to the Congress on options for
increasing the accessibility of the Reserve components in times of
emergency. This report should also analyze the effects of each option
on Reserve components recruiting, retention, employer support, and
families.
The final personnel issue that I want to raise, Mr. President,
involves cost-of-living increases, or COLA's, for military retirees.
I think Congress made a mistake last year in the Omnibus Budget
Reconciliation Act of 1993 when we put the annual COLA's for military
and civil service retirees on a different schedule for the next 4
years. That act delays COLA's for military retirees for 6 months beyond
the date on which civil service retiree COLA's are paid in 1995 and
1996. In 1997 and 1998, the additional delay for military retirees
grows to 9 months. In 1999, both military and civil service COLA's will
once again be paid in January.
This so-called COLA inequity results from differences in the deficit
reduction instructions given to the Armed Services and Governmental
Affairs Committees. In meeting these instructions last year our
committee noted: ``COLA equity for all Federal retirees should be a
basic principle and we urge the full Senate and the conferees on the
reconciliation bill to take this into consideration.''
Unfortunately the problem has not been fixed. Most of the members of
the Armed Services Committee continue to feel very strongly that COLA's
for military and civilian retirees should be effective on the same
date. The committee endorsed a committee amendment that will be offered
later in this debate that will restore COLA equity by making military
and civil service COLA's effective on the same date. I will have more
to say on this issue at the time of that debate.
I want to thank Senator Shelby and Senator Coats, the chairman and
ranking minority member of the Subcommittee on Manpower and Personnel,
for their leadership of this subcommittee this year.
Mr. President, it is very important that we complete action on this
bill as soon as possible. I do not know how many amendments there are
going to be. The Appropriations Committee is anxious to get to work on
the defense appropriations bill. We need to get to conference on this
bill as soon as possible to guide the appropriation process. We have
other matters that are going to be interrupting this bill over the next
few days. We will have to judge as we go along as to how long this bill
is going to take.
I urge everyone who has an amendment to please get it to our staff,
and we will look at it so we can determine whether it can be accepted
or whether it will have to be opposed. That will help us guide our way
through the time schedule involving this bill when so many other things
are on the calendar.
I thank all of the members of the Armed Services Committee for their
hard work. I also thank Gregg Scott and Charlie Armstrong of the
legislative counsel's office for their important contribution to this
bill, as well as to the Federal acquisition reform bill of 1994, which
passed the Senate a few weeks ago.
Mr. President, this is a good bill, considering the budget strain we
are under. It does continue to process the reshaping of our defense
establishment for the post-cold-war world.
I urge my colleagues to support the bill. I know Senator Thurmond has
remarks. I yield the floor at this time.
Mr. THURMOND addressed the Chair.
The PRESIDING OFFICER. The Senator from South Carolina [Mr. Thurmond]
is recognized.
Mr. THURMOND. Mr. President, with the commemoration of the 50th
anniversary of the Normandy landing fresh in our mind, I join with the
distinguished chairman of the Senate Armed Services Committee, Senator
Nunn, to present the national defense authorization bill for fiscal
year 1995 to our colleagues. However, before going into the details of
the bill, I want to congratulate Chairman Nunn for his excellent
leadership, and the bipartisan manner in which he conducts the
committee's business. I look forward to many more years of the close
cooperation we have enjoyed during our long association on the Armed
Services Committee.
I wish to commend our chief of staff of the Republicans, General
Reynard, and the other members of the Republican staff for the good
work they have done, especially George Lauffer, who worked for me for a
number of years. I also wish to commend Arnold Punaro for his good work
on this bill and the members of the majority staff, including Mr.
Effron who has done so much good work.
Mr. President, during the past months, Americans reflected with pride
on the splendid accomplishments and sacrifices of the men who stormed
the beaches at Normandy to begin the liberation of Europe. As the
Senate deliberates on the fiscal year 1995 Defense bill, I urge my
colleagues to consider what it took to build the Army that assaulted
across the beaches of France in June 1944.
Let me point out, that at the start of 1940 the active duty military
strength was a minuscule 458,000. By the end of 1945, that number had
soared to over 12 million men and women in uniform. As the United
States entered the war, many of our recruits were still using wooden
rifles for training. By the time they landed on the beaches of
Normandy, they fought with the best weapons available at the time.
These achievements took untold personal sacrifices to build that force,
billions of dollars, and a Nation totally committed to winning the war.
Despite the cost of building the mighty forces that stormed Europe
and island-hopped across the Pacific, the United States, convinced that
peace was at hand, virtually disarmed after V-J Day. Regrettably, after
winning the cold war and the battle against Saddam Hussein, our Nation
is about to repeat history. We are reducing our forces, as previous
administrations did after World War I and World War II, with the
anticipation that peace is at hand.
Mr. President, this is the 10th straight year of declining defense
budgets and our forces are approaching the lowest level of readiness
since the Hollow Force years of the 1970's.
I present a series of charts here to highlight my presentation today.
During fiscal year 1995, the Department of Defense anticipates an
average monthly loss of 7,100 active duty military personnel, 3,800
reserve personnel, and 4,100 civilian personnel. At the same time it
will deactivate one combat ship, 37 combat aircraft, one combat
battalion and close down one military installation each month. These
are dramatic changes that unfortunately mirror the history of prior
downsizing.
The budget level in the bill we are considering is the lowest in
terms of percentage of gross domestic product since 1948. It represents
17.8 percent of the Federal Budget which is the lowest since 1940.
Despite these startling statistics, the administration is calling for
another 10 percent reduction in the defense budget over the next four
years. We must stop the erosion in readiness and the decline in force
structure. I hope that the Senate will join me in placing the
administration on notice that further cuts in the defense budget will
be challenged.
Mr. President, Chairman Nunn has already discussed the highlights of
the committee's proposed fiscal year 1995 Defense bill; therefore, I
will not go into lengthy detail. In my judgment, this bill is bare
bones, but basically sound, when you consider the funding constraints
imposed by the budget resolution.
According to a June 12, 1994, article in the New York Times,
approximately 17,000 of our service members qualify for food stamps.
The same article states that: ``since 1982, the gap between civilian
and military wages has widened to 13 percent, and is projected to be
near 20 percent by the end of the decade.'' The committee recognized
that the men and women of our Armed Forces are key to readiness and we
provided for them with a 2.6 percent increase. This increase and the
personnel provisions in the bill are only a start to ensure the welfare
of our service members. However, it will take a great deal more money
to provide adequate compensation.
I am pleased that the committee was able to fund, although at a
moderate rate, the continued modernization of our forces. By
authorizing funds for another aircraft carrier, an amphibious assault
ship, the F-22 advanced fighter, and the C-17, the bill provides for
future military capability, and strives to maintain key industrial base
facilities.
In my judgment, the decision on the C-17 was especially critical. It
will give our Nation a capability which will be needed more and more
frequently as we withdraw our forces from overseas bases. The Armed
Forces will need the C-17's long range and heavy lift capability as
they respond to the crises, both military and humanitarian, that are
occurring more frequently around the world.
The committee also restored a small number of the military
construction projects that the services has to cut after the
Administration reduced the MILCON request by $900 million to cover
inflation costs. These additional projects, which met the committee's
stringent criteria, included family housing, troop barracks and
maintenance facilities. We must remember that decent living and working
conditions for our service personnel are as vital to force readiness as
the latest weapons system.
Mr. President, the services are being compelled to maintain
unrealistically high levels of short term readiness in order to
forestall criticism of the administration's budget priorities. They are
doing this at the expense of long-term readiness, which will result in
the same set of problems we had in the late 1970's and early 1980's.
These problems include poorly maintained equipment, inadequate
facilities, and rock bottom morale.
We are now seeing signs that the services are heading back to the
hollow force of the Carter years. Equipment maintenance and
modernization are being deferred, and maintenance backlogs are growing.
For example, the Air Force depot maintenance backlog will grow to $338
million this year, which is a $110 million increase since fiscal year
1993. The Army is able to fund only 56 percent of its depot maintenance
requirement this year. Marine Corps ground equipment readiness has
dropped below 90 percent for the first time since the hollow force
period.
The Armed Services Committee is concerned over these escalating
backlogs in equipment and facility repairs and their impact on current
and future readiness. It, therefore, authorized an increase of $250
million and $200 million respectively to begin a long term recovery
program in these areas.
Mr. President, the authorization bill reported by the Armed Services
Committee authorizes the establishment of a $300 million Contributions
for International Peacekeeping account in the Defense Department's
accounts. I think it noteworthy that not a single Republican member of
the committee voted in favor of this provision, which provides $300
million for U.N. or multilateral peackeeping in the Defense
Department's budget. In other words, the bipartisan consensus that
normally underlies the committee's decisions on major defense programs
and national security policies is conspicuously absent in this case.
Those of us who voted against establishing the fund are deeply
concerned that the administration has crossed a major threshold in
placing responsibility for payment of some U.N. peacekeeing costs
directly on the Defense Department. Based on Congressional testimony
and numerous statements by Administration officials, we have every
reason to believe that U.S. participation in U.N. peace operations will
increase in the coming years under the administration's policy of
assertive multilateralism. Consequently, the peacekeeping bill to be
paid directly by the Defense Department will proportionally increase as
well, putting additional pressure on an already severely strained and
underfunded defense budget.
Mr. President, as I stated earlier, that is a bare bones bill. Like
many of my colleagues, I would have preferred a higher funding level to
provide for continued readiness and modernization. However, I support
the bill and urge the Senate to support it.
To those individuals who believe that we are spending too much on
defense, I say ``we have already cut enough.'' Based on Department of
Defense data, defense outlays will decrease 35 percent between 1990 and
1999. At the same time, domestic discretionary spending will increase
by 12 percent and mandatory spending will increase by 38 percent. As I
said earlier, the defense budget is already at the minimum funding
level. Any further reductions will jeopardize the security of our
Nation, not only for the immediate future, but for the coming decades
as well. As William Jennings Bryan said: ``Destiny is not a matter of
chance, it is a matter of choice; it is not a thing to be waited for,
it is a thing to be achieved.'' We have the choice to realize our
Nation's destiny with this bill, and I challenge the Senate to make the
choice to support a strong defense.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from Georgia [Mr. Nunn].
Mr. NUNN. Mr. President, I note the Senator from Iowa has an
amendment. Certainly we do not control the order of the amendments. I
am pleased he was extremely cooperative in coming over and getting us
started on a very meaningful amendment, which I assume he is prepared
to present now. So I thank the Senator from Iowa for helping us to get
off to a quick start in terms of meaningful amendments which really do
affect the defense budget.
I understand that the Senator from Iowa is willing to enter into a
unanimous consent agreement of 3 hours, equally divided.
Mr. GRASSLEY. Yes.
Mr. NUNN. I would like to propound that now, if that meets the
Senator's approval.
Mr. President, I ask unanimous consent that, on the Grassley
amendment related to the C-17 agreement, there be 3 hours, equally
divided; that the time in support of the amendment be controlled by
Senator Grassley or his designee; that the time in opposition be
controlled by Senator Kennedy or his designee; that no amendment to the
amendment be in order; and that on the expiration or yielding back of
the time, there be a vote on or in relation to the Grassley amendment.
The PRESIDING OFFICER. Is there objection?
Mr. GRASSLEY. Reserving the right to object.
The PRESIDING OFFICER. The reservation is noted.
Mr. GRASSLEY. I have no objection.
The PRESIDING OFFICER. Hearing no objection, that will be the order.
Who yields time?
Mr. GRASSLEY addressed the Chair.
The PRESIDING OFFICER. The Senator from Iowa.
Mr. GRASSLEY. Mr. President, I yield myself such time as I may
consume.
If I do not stop to ask, if I have taken 20 minutes, I would like to
have you notify me.
The PRESIDING OFFICER. The Chair will notify the Senator.
The Chair advises the Senator the time will not begin to toll until
the Senator sends his amendment to the desk.
Mr. GRASSLEY. I think I better. I know I could have more time. I
think it would violate our gentleman's agreement here.
Amendment No. 1837
(Purpose: To strike out section 131, relating to settlement of claims
under the C-17 aircraft program.)
Mr. GRASSLEY. Mr. President, I send an amendment to the desk and ask
for its immediate consideration.
The PRESIDING OFFICER. The clerk will report the amendment.
The assistant legislative clerk read as follows:
The Senator from Iowa [Mr. Grassley] proposes an amendment
numbered 1837.
Mr. GRASSLEY. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection it is so ordered.
The amendment is as follows:
On page 22, beginning with line 10, strike out all through
page 25, line 3, and insert in lieu thereof the following:
Subtitle D--Other Matters
Mr. GRASSLEY. This amendment, if adopted, would reject the C-17
settlement agreement authorized by section 131 of this bill. This
amendment would deny the authority to make direct cash payments of $348
million to McDonnell Douglas. I want to make that clear. This bill
contains language that makes a direct payment of $348 million to
McDonnell Douglas that I am going to say is a bailout. My amendment
deals with striking that money out.
If this amendment is adopted, then I would plan to offer a second
amendment to deny that the $348 million to carry out the McDonnell
Douglas agreement. It would be taken away completely, so that the money
could not be spent elsewhere. But right now we are talking about
whether or not this agreement should be allowed to go through as the
legislation permits.
Of the $348 million needed to put the agreement in operation, $294
million is in the bill; $116 million is in the Air Force ADT&E account;
and $178 million is in the Air Force procurement account. In addition,
$53.7 million in fiscal year 1994 Air Force ADT&E funds would have to
be reprogrammed to complete the agreement.
If my amendment were passed, this would all be denied, as well.
Mr. President, I want to make one point crystal clear right off the
bat, right at the start of this discussion. My amendment is not some
kind of a backhanded attack on the C-17. I am not trying to sabotage
the C-17 program, because I know, as our committee has very clearly
stated over a long period of time, that we need to modernize our aging
fleet of long-range transport aircraft. I know that we need to do that.
We must do it.
All the money requested in the fiscal year 1995 budget to modernize
our fleet of strategic airlift aircraft--in other words, to buy six new
C-17's--remains in the bill intact. We are only talking about the $348
million that is used as a bailout of McDonnell Douglas.
I know, as the committee knows, that we have to modernize this fleet
and we will be buying six new C-17's. I do not change that at all.
My amendment is directed solely, then, at Mr. Deutch's proposed C-17
settlement plan to give McDonnell Douglas a direct cash payment of $348
million.
The C-17 settlement agreement is embodied in a letter from Mr. John
M. Deutch to Mr. John F. McDonnell, chairman and chief executive
officer of the McDonnell Douglas Corp.
Mr. Deutch's letter is dated January 3, 1994. The letter was
countersigned and accepted by Mr. McDonnell on January 6, 1994.
Mr. Deutch was Under Secretary of Defense for Acquisition when he
negotiated the agreement. He is now the Deputy Secretary of Defense.
Mr. President, I ask unanimous consent that the C-17 settlement
agreement be printed in the Record, so everybody can study it.
There being no objection, the material was ordered to be printed in
the Record, as follows:
The Under Secretary of Defense,
Washington, DC, January 6, 1994.
memorandum
Subject: C-17 Documents
Attached, please find two documents relating to the C-17
program. First is the report of the Defense Science Board C-
17 Task Force; and second is the Department's settlement
offer regarding the C-17 program that has been agreed to by
McDonnell Douglas. Within the coming months the Department of
Defense will seek necessary Congressional authorization and
the appropriation of funds to place this agreement into
force.
John D. Deutch.
____
The Under Secretary of Defense,
Washington, DC, January 3, 1994.
Mr. John F. McDonnell,
Chairman and Chief Executive Officer,
McDonnell Douglas Corp., St. Louis, MO.
Dear Mr. McDonnell: As a result of our communications over
the past several weeks I believe that I must restate my offer
for settlement of C-17 issues. This letter supersedes all
prior letters.
Over the past five months we have performed an intensive
review of the C-17 program. Based on this review, I have
concluded that the current C-17 program is not viable without
substantial change and that three elements of change are
required for a successful strategic airlift program:
1. A provisional 2-year program for C-17 production at a
rate of 6 aircraft per year. During this period McDonnell
Douglas must (a) introduce major management and manufacturing
process changes, (b) demonstrate an ability to deliver
aircraft on schedule and at cost, (c) successfully complete
the flight test program and (d) satisfy all other contract
specifications including Reliability, Maintainability, and
Availability (RM&A) requirements.
2. Execution of a comprehensive settlement between the
United States Government and McDonnell Dougles on outstanding
C-17 business and management issues. This prospective
settlement and the management and manufacturing production
changes mentioned above are the subject of this letter.
3. Consideration of a mix of commercial wide-body aircraft
or new C5-B production to meet the requirements for military
airlift in the future.
These three elements will require consideration and action
by Congress and my support of this course of action depends
upon Congressional commitment to the entire package. The
business settlement in this letter cannot stand alone because
by itself it does not accomplish the goal of assuring the
nation's strategic airlift military requirement will be met.
resolution of claims and disputes
McDonnell Douglas has filed twelve claims of approximately
$450 million against the Government under contract F33657-81-
C-2108. I understand the company is planning to file
additional claims of approximately $1.25 billion. The parties
cannot effectively work for the success of the program and
litigate claims of this magnitude at the same time.
Therefore, if McDonnell Douglas releases the Government from
all C-17 claims it may have as of today, whether filed or
not, the Air Force will modify contract F33657-81-C-2108 to
increase the target costs and ceiling prices by a total of
$237 million. Additional details on the claims settlement are
set forth in Attachment A.
revisions to the specifications
The Air Force will revise the range/payload and other
specifications as stated in Attachment B and will revise the
delivery schedule for aircraft T-1, and P-1 through P-6. The
Government will waive all claims it may have as of the date
of this agreement for failure of McDonnell Douglas to meet
the original contract specifications. The Government also
will waive claims for the failure of McDonnell Douglas to
meet the delivery schedule for aircraft T-1, and P-1 through
P-6. The delivery schedule under contract for aircraft
beginning with P-7 shall remain the same.
charging ``sustaining'' engineering costs
McDonnell Douglas shall charge previously incurred
nonrecurring engineering costs for aircraft design, special
tooling or test equipment, and retrofit of design changes
required for the C-17 to meet contract specifications,
together with such other nonrecurring engineering costs as
the Defense Plant Representative directs, to the full scale
engineering development (FSED) portion of contract F33657-81-
C-2108. The impact on McDonnell Douglas of these adjustments
will be $41 million for nonrecurring engineering costs
incurred through June 30, 1993, that were previously
allocated to the Lot IV, V, and VI production contracts.
McDonnell Douglas also shall establish a system to identify
and record C-17 future nonrecurring engineering costs, and a
methodology to allocate these costs between the FSED portion
of contract F33657-81-C-2108 and C-17 production contracts.
The Defense Plant Representative shall approve the allocation
of C-17 nonrecurring engineering costs between the FSED
portion of contract F33657-81-C-2108 and C-17 production
contracts prior to McDonnell Douglas receiving any payment
for these costs. It is estimated that approximately $130
million in additional nonrecurring engineering costs will be
charged to the FSED portion of contract F33657-81-C-2108.
flight test extension
McDonnell Douglas shall submit a proposal to modify
contract F33657-81-C-2108 to extend the flight test program
to a total of 152 ``aircraft months.'' The parties will share
the cost of this extension. The contracting officer and
McDonnell Douglas will negotiate an estimated cost for this
extension, and the contract will be modified to increase the
target cost and ceiling price by 50 percent of the negotiated
estimated cost. The cost of the flight test extension is
estimated to total $123 million, or approximately $61.5
million for each party.
redesign wing
McDonnell Douglas shall redesign the wing to eliminate the
need for supplemental straps to meet design limit load
requirements for the wing. The redesign effort shall begin
immediately, and the redesigned wing shall be incorporated as
soon as practicable but not later than aircraft P-29.
McDonnell Douglas will bear the total cost of all
nonrecurring engineering effort for the redesign, and for all
new or modified production special tooling and special test
equipment required for the redesigned wing. Costs incurred
for this effort shall be separately identified and shall not
be allowable, directly or indirectly, on any C-17 or other
Government contract. The cost for the wing redesign is
estimated to be $32 million.
cad/cam, mis, aqs
In order to improve efficiency, McDonnell Douglas must
implement a Computer Aided Design/Computer Aided
Manufacturing System, Management Information System, and
Advanced Quality System.
A. Computer Aided Design/Computer Aided Manufacturing (CAD/
CAM) System. McDonnell Douglas shall implement a CAD/CAM
system for use on the C-17 program, as described in
Attachment C. The Government and McDonnell Douglas will share
the cost of the CAD/CAM system equally, as provided in
Attachment C, with the Government share estimated at $20
million.
B. Management Information System (MIS). McDonnell Douglas
shall implement a computerized MIS system for the C-17
program as described in Attachment C. Government personnel
shall have access to this system and its data. The Government
and McDonnell Douglas will share the cost of the MIS equally,
as provided in Attachment C, with the Government share
estimated at $15 million.
C. Advanced Quality System (AQS). McDonnell Douglas shall
upgrade its existing quality system as described in
Attachment C. The Government and McDonnell Douglas will share
the cost of the AQS equally, as provided in Attachment C,
with the Government share estimated at $2.5 million.
product improvement cost reduction projects
As a demonstration of its commitment to the C-17 program,
McDonnell Douglas shall invest not less than $100 million for
product improvement cost reduction projects to improve the
efficiency of the manufacturing process and to lower the
aircraft unit cost. McDonnell Douglas will bear the total
cost of these projects, and only the Government will benefit
from these projects. The details are in Attachment C.
other settlement issues
Additional issues that have been the subject of lengthy
disputes between the project office and McDonnell Douglas
must be settled. Those disputes will be resolved by contract
actions as stated in Attachment D. The estimated cost of
these issues is approximately $12 million to the Government,
and approximately $52 million to McDonnell Douglas.
General terms and conditions
The general terms and conditions set forth in Attachment E
are applicable to this agreement.
Attachments A through E are a part of this agreement.
I will establish a group to monitor the implementation of
this agreement. The group will report directly to the Under
Secretary of Defense (Acquisition) and the Chief Executive
Officer of McDonnell Douglas Corporation. It is my intention
that the group shall be co-chaired by an Air Force general
officer and a neutral senior industry official, both of whom
shall have extensive acquisition experience. The group will
include representatives from appropriate Government offices.
McDonnell Douglas agrees to assign appropriate McDonnell
Douglas representatives to participate with the group and to
issue any necessary direction to McDonnell Douglas components
to cooperate with the group.
This agreement will not become binding on the Department of
Defense or on McDonnell Douglas until: (1) Congress supports
the entire three-part approach; and (2) authorizing
legislation and appropriations necessary to implement this
agreement are enacted. If approved by Congress, the elements
set forth in this letter of agreement must be implemented by
modification of the existing C-17 contracts or by new
contractual agreements entered into by McDonnell Douglas and
the Air Force.
In order to expedite the process, I am directing the Air
Force contract personnel to work with your representatives to
prepare the contract documents necessary to implement this
agreement promptly when it is appropriate. I request that you
give a similar direction to your staff.
Please indicate your acceptance by signing below and
returning one copy to me by close of business on January 6,
1994.
Sincerely,
John Deutch.
Accepted: John F. McDonnell, Chairman and Chief Executive
Officer, McDonnell Douglas Corporation.
____
Attachment A
agreement between under secretary of defense john m. deutch and mr.
john f. mcdonnell to settle c-17 issues, january 3, 1994
Contract claims and disputes:
1. Claim settlement procedures. When authorizing
legislation and appropriations necessary to implement this
agreement have been received, contract F33657-81-C-2108 will
be modified to increase the target costs and the ceiling
prices by a total of $237 million.
2. McDonnell Douglas actions:
a. Upon execution of this agreement, McDonnell Douglas
shall join with the Government in a request to the Armed
Services Board of Contract Appeals to defer further action on
all pending C-17 related ASBCA appeals. McDonnell Douglas and
the Government shall defer all action on these appeals.
McDonnell Douglas shall not file any additional appeals with
the ASBCA or any court, and shall not file any additional
claims with the contracting officer, relating to C-17
contracts while DoD is seeking necessary settlement authority
and appropriations. If DoD has not notified McDonnell Douglas
by December 31, 1994, that necessary settlement authority and
appropriations have been made available, McDonnell Douglas
may thereafter file any additional claims or appeals it deems
appropriate and proceed with further action on previously
filed ASBCA appeals.
b. Upon execution of the contract modification described in
paragraph 1 above, McDonnell Douglas agrees to dismiss with
prejudice all currently pending C-17 claims and appeals, and
to provide the Government with the release as stated below.
3. Release of Claims. Concurrent with, or contained in, the
claim settlement modification, McDonnell Douglas shall
provide the following release of claims:
McDonnell Douglas Corporation, on behalf of both itself and
its operating divisions, including McDonnell Douglas
Aerospace--Transport Aircraft and its corporate predecessors
in interest, hereby releases and forever discharges the
Government from all contractual claims, demands, requests for
equitable adjustment, or any other causes of action, known or
unknown, that McDonnell Douglas may have on or before [the
date of execution of this agreement] arising out of C-17
program contracts. This release expressly includes all C-17
program claims, including claims under contracts for C-17
Aircrew Training Systems, certified or otherwise, that
McDonnell Douglas Corporation or any of its operating
divisions, may have on or before [the date of execution of
this agreement] and all other C-17 related contractual
claims, demands or causes of action, on its own behalf or on
behalf of any subcontractor, arising out of any Government
action or inaction occurring on or before [the date of
execution of this agreement]. With respect to any contractual
claim, demand, or cause of action of any kind initiated by a
McDonnell Douglas Corporation subcontractor, vendor,
supplier, or other party, McDonnell Douglas Corporation
agrees to resolve such disputes without involving the
Government, and releases and forever discharges the
Government from any liability whatsoever arising out of any
such claims, demands or causes of action. This release shall
not preclude McDonnell Douglas Corporation from asserting
defenses or offsetting amounts against Government claims, but
the claims and other matters encompassed by this release
shall not be used to assert or support any counterclaim
against the Government.
____
Attachment B
agreement between under secretary of defense john m. deutch and mr.
john f. mcdonnell to settle c-17 issues, january 3, 1994
C-17 Specifications revisions:
1. The System Specification (MDC S0001C) for the C-17
Airlift System shall be revised as follows:
Paragraph 3.2.1.1 Maximum payload mission, line 2: Replace
``172,200 pounds'' by ``169,000 pounds''; line 3: Replace
``160,000 pounds'' by ``157,000 pounds''.
Paragraph 3.2.1.2 Heavy Logistics Mission, lines 2-3:
Replace ```150,000 pounds'' by ``145,000 pounds''; lines 4-5:
Replace ``130,000 pounds'' by ``120,000 pounds''.
Paragraph 3.2.1.3 Intertheater logistics mission, lines 2-
3: Replace ``120,000 pounds'' by ``114,000 pounds''.
Paragraph 3.2.1.5 Ferry Range, line 2: Replace ``4,600 NM''
by ``4,300 NM''.
Paragraph 3.2.1.6.1 Maximum Gross Weight Takeoff, line 3:
Replace ``7,600-foot paved runway'' by ``8,200-foot paved
runway''.
Paragraph 3.2.1.6.2 Small austere airfield takeoff, lines
3-4: Replace ``2,900-foot long'' by ``3,000-foot long''; line
4: Delete ``Load Classification Number (LCN) 48''; lines 5-6:
Delete ``with the equivalent strength and shear
capabilities''.
Paragraph 3.2.1.6.3 Critical engine inoperative takeoff,
line 2: Replace ``2,941-foot'' by ``3,000-foot''; line 3:
Delete ``LCN 48''; lines 4-5: Delete ``with equivalent
strength and shear capabilities''.
Paragraph 3.2.1.7.1 Normal landing, line 2: Replace
``3,300-foot'' by ``3,950-foot''; lines 2-3: Delete ``LCG IV
(Load Classification Group)''; line 4: Replace ``with a
payload of 167,064 pounds and fuel'' by ``at the zero fuel
weight of the mission defined in paragraph 3.2.1.1 plus
fuel''.
Paragraph 3.2.1.7.2 Maximum effort landing, line 2: Replace
``2,650'' by ``3,200-foot''; line 2: Delete ``LCN 48''; lines
3-4: Delete ``with equivalent strength and shear
capabilities''; line 5: Replace ``with a payload of 124,076
pounds and fuel'' by ``at the zero fuel weight of the mission
defined in paragraph 3.2.1.3 plus fuel''; line 7: Replace
``3,000-foot'' by ``3,400-foot''; line 7: Delete ``LCG IV'';
line 8: Replace ``with a payload of 134,599 pounds and fuel''
by ``at the zero fuel weight of the mission defined in the
second sentence of paragraph 3.2.1.2 plus fuel''.
Paragraph 3.2.1.7.3 Maximum payload landing, line 2:
Replace ``2,700-foot'' by ``3,000-foot''; line 2: Delete
``LCG IV''; lines 3-4: Replace ``with a payload of 167,064
pounds and fuel'' by ``at the zero fuel weight of the mission
defined in paragraph 3.2.1.1 plus fuel''.
Paragraph 3.2.1.8 Ground flotation, line 1: Replace ``with
a payload of 124,076 pounds'' by ``at the zero fuel weight of
the mission defined in the second sentence of paragraph
3.2.1.2''; line 3: Replace ``48'' by ``50''; line 5: Replace
``runways'' by ``runways with equivalent strength and shear
capabilities as an LCN 50 paved runway''.
Paragraph 3.2.1.9.1 Turning, line 2: Delete ``LCN 48''.
Paragraph 3.2.1.9.1 Backing up, line 2: Delete ``LCG IV'';
line 3: Replace ``with a payload of 167,064 pounds and fuel''
by ``at the zero fuel weight of the mission defined in
paragraph 3.2.1.1 and fuel''.
Paragraph 3.2.1.10.1 Cruise speed and altitude, line 3:
Replace ``0.77 Mach'' by ``0.74 Mach''; line 4: Replace
``28,000 feet'' by ``27,000 feet''.
Paragraph 3.2.1.10.2a. Airdrop speed, line 1-2: Replace
``1.2 V5, (not to exceed 130 KIAS)'' by ``130 KIAS (1.2
V5, or greater margin)''.
Paragraph 4.1.1.2, Initial Squadron Operations (ISO)., line
7: Delete ``approximately one month''.
Table 10.2.1 C-17A PEACETIME DESIGN MISSION PROFILES,
missions 7, 8: Replace ``163.6 (1000's of LBS)'' by ``157.0
(1000's of LBS)''; mission 11: Replace ``6500 NM'' by ``6000
NM''.
Paragraph 50.1, Mission Performance, line 3: Replace ``6.5
pounds per U.S. gallon'' by ``6.7 pounds per U.S. gallon'';
line 5: Replace ``fuel'' by ``fuel at brake release for
takeoff. Ramp weight shall be defined as takeoff gross weight
plus fuel weight equal to fifteen minutes of engine operation
at idle power for sea level static standard day conditions
consistent with paragraph 50.1.1a Ground operations.''.
Paragraph 50.1.1b.(2) Cruise, line 1: Add ``Cruise using
optimum step climb to start of descent''; lines 1-2: Replace
``Cruise to overhead destination at long range cruise speed''
by Cruise at optimum cruise speed''; line 2, Replace
``0.77 Mach'' by 0.74 Mach''; lines 3-4: Delete ``at
altitude for best cruise performance''; line 3: replace
``28,000 feet'' by ``27,000 feet''; lines 3-4: Delete
``nor greater than cruise ceiling''.
Paragraph 50.1.1 c. Descent and landing: Replace ``No time,
fuel or distance credit'' by ``Time, fuel and distance credit
shall apply''.
Paragraph 60.6.4, Conduct of the ORE., line 3: Delete
``approximately one month''.
2. The Prime Item Development Specification (MDC S0002C(1))
for the C-17 Air Vehicle shall be revised as follows:
Paragraph 3.2.1 Performance, line 6: Replace ``mid-range
center of gravity'' by ``payload/range optimum center of
gravity''.
Paragraph 3.2.1.11.1b. Mil-A-8860--Exceptions: Add ``12.
The maximum takeoff weight is the weight of the airplane with
the maximum internal and external loads necessary to provide
mission capabilities specified in the C-17 System
Specification; after allowance is made for fuel burned during
engine warmup and pre-flight taxi. This weight applies to:
(a) Take-off loads
(b) In-flight refueling conditions
(c) Flight loads
(d) Flutter and divergence prevention
(e) Serial delivery loads
(Ref. 6.2.1.2)
13. The landplane weight is defined as 491,900 pounds.
(Ref. 6.2.1.5.2)''.
Paragraph 3.2.1.11.1b. Mil-A-8860--additions: Add ``4. The
maximum ramp weight is the weight of the airplane with the
maximum internal and external loads necessary to provide the
mission capabilities specified in the C-17 System
Specification; with no reduction for fuel burned during
engine warmup and pre-flight taxi. This weight applies to:
(a) Pre-flight taxi and ground handling loads
(b) Wheel jacking, if such jacking is required for changing
wheels and tires
(c) Vibration
(Ref. 6.2.1.2)''.
Paragraph 3.2.1.11.1d.6. Mil-A-8862--Exceptions: Replace
``design weight'' by ``ramp weight''.
Paragraph 3.2.1.11.1: Add ``q. Mil-W-25140B--Exceptions 1.
An entry for ramp weight limitations shall be entered in
Chart E. (Ref. 3.7.9.15.5)
2. The ramp weight shall be defined as Takeoff Gross Weight
plus warmup and preflight taxi fuel. It will vary with each
mission in the same manner as Takeoff Gross Weight. (Ref.
6.2.3)''.
Paragraph 3.3.1.2.12 Design for contamination,
Demonstration subparagraph: Delete.
Paragraph 3.7.1.2.1.3b. Flotation, line 2: Replace ``LCN
48'' by ``LCN 50''.
Paragraph 3.7.1.2.1.3c. Flotation, line 4: Replace ``50
passes'' by ``40 passes''.
Paragraph 3.7.1.6.3.2 Sump space, lines 1-2: Replace by
``The sump space for each fuel tank shall be identified''.
Paragraph 3.7.1.7.1.6 Leakage rate, lines 2-3: Replace
``0.07 V0.667 plus 0.5 pounds per minute'' by ``110
pounds per minute''.
Paragraph 3.7.1.7.2.1.9 Surface temperatures, lines 6-16:
Replace by''
. . . Exposed flight crew and loadmaster station surfaces
(panels, knobs, switches, and other hand-actuated devices)
which can normally be handled/contacted/actuated by air crew
members while not wearing protective clothing shall not
exceed the limits specified below for flight crew controls.
Exposed flight crew and loadmaster station equipment surfaces
which could be contacted accidentally by the bare skin of the
air crew shall not exceed the limits specified below for
inadvertent contact surfaces, or shall be shielded/guarded to
prevent inadvertent contact by air crew members. The air
vehicle, except the exposed flight crew and loadmaster
stations, shall conform to the biothermal requirements of
MIL-STD-1472 paragraph 5.13.4.6. . . . shall be used as
design guides.
------------------------------------------------------------------------
Metal Glass Plastic
------------------------------------------------------------------------
Flight crew controls... 49 deg.C (120
deg.F) 59 deg.C (138
deg.F) 69 deg.C (156
deg.F)
Inadvertent contact.... 60 deg.C (140
deg.F) 68 deg.C (154
deg.F) 85 deg.C (185
deg.F)''.
------------------------------------------------------------------------
Paragraph 3.7.2.1.1.10 Engine Fuel, line 2: Replace ``JP4''
by ``JP8''.
Paragraph 6.1.1c., d., f., g., h. Weight terminology
(various): Replace ``No reductions'' by ``reductions'';
Replace ``taxi, warmup, or climb-out'' by ``taxi and
warmup''.
Paragraph 6.1.1g. Change title from ``Maximum design
weight'' to ``maximum take-off weight''.
Paragraph 6.1.1e. Landplane landing weight, Replace by
``The landplane landing weight is specified in 3.2.11.1.b,
item 13.''.
Paragraph 6.1.1o. Add ``o. Maximum ramp weight. The
aircraft maximum gross weight for the performance defined
under 3.2.1. No reductions are permitted for fuel used during
taxi, warmup, or climb-out.''.
Section 20.2 Pratt & Whitney Aircraft, Add: ``AF Designated
F-117-PW-100)''.
____
Attachment C
Agreement Between Under Secretary of Defense John M. Deutch and Mr.
John F. McDonnell To Settle C-17 Issues, January 3, 1994
Computer Aided Design/Computer Aided Manufacturing (CAD/
CAM) Management Information System (MIS), Advanced Quality
System (AQS) Program Improvements and product improvement
cost reduction projects
1. CAD/CAM, MIS and AQS. Within sixty days of the execution
of this agreement, McDonnell Douglas shall provide the C-17
Program Director with proposals for the program improvement
systems described below. The objectives of these programs are
to, over time, modernize business practices so as to improve
the efficiency of the program, in particular through a
transition from paper to electronic means of communication,
design and manufacturing, and to improve the management of
cost, safety, and reliability through an improved quality
system. The Contracting Officer and McDonnell Douglas will
agree to a specific description of each system, and the
nature and the timing of its implementation. The parties will
also agree on the estimated cost of the acquisition and
implementation of each of these program improvements. In
order to provide the maximum benefits to the C-17 program
from these program improvements, McDonnell Douglas will make
these improvements as expeditiously as possible, but in no
event later than one year form the date of this agreement.
However, McDonnell Douglas shall not be required to implement
these program improvements until the Government notifies
McDonnell Douglas that authorizing legislation and
appropriations for these program improvements have been
received. The parties estimate that the total costs for these
systems will be $40 million for CAD/CAM, $30 million for MIS,
and $5 million for AQS. The parties will share the cost of
these program improvements equally, within these estimates,
with the cost to the Government estimated at $20 million for
CAD/CAM, $15 million for MIS, and $2.5 million for AQS. Costs
in excess of these estimated amounts will be allowable under
the terms of the relevant C-17 contracts if the costs are
allowable under the Federal Acquisition Regulation.
a. C-17 CAD/CAM System. McDonnell Douglas shall implement
at CAD (three dimensional) network. This CAD network shall be
the single engineering and manufacturing CAM data base to
which any new or updated drawings would be added. Beginning
on the date to be specified by the C-17 Program Director,
drawings requiring update/changes shall be accomplished in a
CAD format and added to this data base. Beginning not later
than production lot 9 assembly start, McDonnell Douglas
Corporation shall begin incorporating all C-17 drawings into
this CAD system. The system shall be compliant with the
Computer-aided Acquisition and Logistics System at this time.
In addition, the CAD/CAM system shall be networked to
McDonnell Douglas elements responsible for production
planning, tooling, technical orders, and manufacturing
engineering to ensure all functions are using the same
engineering data base.
b. MIS. McDonnell Douglas shall implement a MIS system
associated with the development, production, and sustainment
of the C-17 weapon system which allows McDonnell Douglas and
the Government to exercise oversight of the program, track
and assess program technical, schedule, and funds status, and
identify problems requiring action. Access to these
information products shall be provided by electronic means as
well as on magnetic, paper, or other media, as required to
permit the timely and complete access to the information.
However, the MIS shall use electronic media for information
generation, access, transmission, storage, and integration.
As a minimum, the level of detail in the MIS information
products shall include electronic mail capability, and access
to contractor technical, funds and schedule performance,
Contract Data Requirements List status, Engineering Change
Proposal Status, and LSA data. The MIS shall be installed at
the McDonnell Douglas Corporation, with access available to
the defense Plant Representative Office, System Program
Office, Program Executive Officer, Air Force Material Command
and Air Logistic Center facilities.
c. AQS. McDonnell Douglas shall implement an AQS in
accordance with the Manufacturing Process Improvement Plan.
This system shall be compliant with ANSI/ASQC Q-90 series
standards. The system should be upgraded using ANSI/ASQC Q91-
1987 and Q94-1987, as guides. The system will be directed at
designing and building quality in by use of each tools as
process control and continuous process variability reduction
during the manufacturing process, rather than inspecting it
in at the end of the production line. An effective root cause
corrective act and disposition system will be implemented.
The system shall reflect a prevention-based, multifunctional
approach to quality. All major/critical subcontracts must
comply with these requirements.
2. Product Improvement Cost Reduction Projects. The goal of
each production improvement cost reduction project shall be
to improve the quality and lower the production cost of C-17
aircraft.
a. Schedule. No later than thirty days after execution of
this agreements McDonnell Douglas shall propose projects with
an aggregate capital investment of not less than $35 million.
No later than one year after execution of this agreement,
McDonnell Douglas shall propose additional projects with
an aggregate capital investment of not less than $65
million. The parties shall agree upon the specific
projects to be undertaken and a precise description for
each. At least $35 million of projects shall be completed
by December 31, 1995, and the remaining projects shall be
completed by December 31, 1996. However, McDonnell Douglas
shall not be required to implement product improvement
cost reduction projects until the Government notifies
McDonnell Douglas that authorizing legislation and
appropriations for this agreement have been received. If
legislation is not enacted by September 30, 1994, the
parties will negotiate alternate dates for implementation
of these projects.
b. Project Costs and Benefits. McDonnell Douglas shall bear
the total cost of these projects. The costs incurred for
these projects shall be separately identified and shall not
be allowable, directly or indirectly, on any C-17 or other
Government contract. In addition, McDonnell Douglas shall not
benefit on C-17 production contracts from cost savings
attributable to these projects. Unless the parties agree on a
different procedure, the parties shall, prior to McDonnell
Douglas implementation of these projects: (1) negotiate the
estimated net cost savings for each project; (2) reduce the
target cost of each existing C-17 production contract by the
amount of estimated cost savings attributable to these
projects that is applicable to the aircraft being produced
under the contract; and, (3) reduce the target profit, target
price, and ceiling price on each existing C-17 production
contract by the same percentage as the applicable reduction
to target cost. The price of future C-17 production contracts
shall be negotiated based on the estimated cost savings for
these projects, and McDonnell Douglas shall not receive any
profit consideration in future C-17 contracts for having
implemented these projects.
____
Attachment D
agreement between under secretary of defense john m. deutch and mr.
john f. mcdonnell to settle c-17 issues, january 3, 1994
Other settlement issues:
1. McDonnell Douglas agrees to take the following actions
at no change in contract target cost or ceiling price.
a. Ditching Locks. McDonnell Douglas shall make any design
and production modifications necessary so that the aft cargo
door latch and lock system (ditching locks) are controllable
in flight from the load master's control panels and from the
flight deck.
b. Test Requirements Document. McDonnell Douglas shall
provide Test Requirements Documents, except for depot support
equipment built-in-test, in accordance with Contract Data
Requirements List (CDRL) item 3059.
c. Fault Isolation Manuals. McDonnell Douglas shall provide
Fault Isolation Manuals (Technical Orders) prepared at the
level of detail specified by the Government (pursuant to
contract 2108 CDRL item A0005 and paragraph 3-6 of the
Specification Interpretation Document).
d. Composite/Structures Repair. McDonnell Douglas shall
provide composite/structure repair engineering data and
identification of resultant depot level support equipment.
e. Retrofit of Flaps and Slats. McDonnell Douglas shall
complete the required effort to redesign the flaps and slats,
incorporate the redesigned flaps and slats into future
production aircraft, and retrofit existing aircraft.
f. Mission Computer Reserve Capacity. McDonnell Douglas
shall implement corrective action to insure compliance with
contract specification requirements for mission computer
throughput.
g. Built-In-Test. McDonnell Douglas shall implement
corrective action to ensure compliance with contract
specification requirements relating to Built-In-Test false
alarm rates.
h. Reliability, Maintainability, and Availability (RM&A).
McDonnell Douglas shall implement a high visibility,
aggressively managed reliability growth program and a RM&A
Performance Review Board.
i. Manufacturing Process Improvement. McDonnell Douglas
shall develop and implement a Manufacturing Process
Improvement Plan.
j. Integrated Program Master Plan. McDonnell Douglas shall
develop and implement an Integrated Program Master Plan.
k. Management Plan for Software Development and Release.
McDonnell Douglas shall develop and implement a Management
Plan for Software Development and Release.
l. Government Property System. McDonnell Douglas shall take
the necessary corrective actions and submit required
documentation to qualify for recertification of its
government property system within 12 months of the date of
this agreement.
m. Improvements to Range/Payload Performance. McDonnell
Douglas shall implement the following initiatives:
(1) Use the Pratt & Whitney 94 Commercial Engine;
(2) Implement low risk weight reduction initiatives to
reduce empty weight by 1,500 lbs;
(3) Reduce total aircraft drag by one percent;
(4) Increase maximum takeoff gross weight 5,000 lbs to
585,000 lbs.
In addition, McDonnell Douglas shall continue an active
weight control program and perform trade studies on the
following alternatives to determine, by cost-benefit
analysis, the desirability of incorporation into the C-17
design:
(5) Increased fuel carrying capacity;
(6) Removal of core thrust reverser;
(7) Use of composite nacelle.
2. The Government and McDonnell Douglas will jointly take
the following actions at no change in contract target cost or
ceiling price.
a. Integrated Product Development. The parties will jointly
implement Integrated Product Development, consistent with the
Defense Science Board C-17 Task Force final report.
b. Incremental Configuration Audits. The parties will
continue the incremental Functional Configuration Audit
(FCA)/Physical Configuration Audit (PCA) process.
c. Management Plan for Affordability. the parties will
jointly develop and implement a Management Plan for
Affordability.
d. Reliability, Maintainability, and Availability (RM&A)
Testing. The parties will conduct a multibase RM&A evaluation
rather than using just Charleston AFB. The C-17 Program
Director shall specify the date on which the Operational
Readiness Evaluation (ORE) shall begin. The ORE may begin
later than 30 days after Initial Operational Capability
(IOC). Government warranty rights under the C-17 contracts
that are limited to defects identified no later than 180 days
after IOC shall be extended to 90 days after completion of
the ORE, regardless of the date of the IOC. The C-17 Program
Director shall determine what revisions to RM&A testing in
the ORE are necessary to make the testing more operationally
representative.
e. Subcontractor Engineering Data. McDonnell Douglas shall
provide and mark Subcontractor Engineering Data as required
by the C-17 contracts. The Government may challenge ``limited
rights'' markings on the data as provided in the contracts.
The parties shall establish a working group to resolve
disagreements on this issue, and shall refer any unresolved
differences to the appropriate higher level for decision.
3. Clarification of Existing Contract Requirements.
McDonnell Douglas is not currently required to perform the
work identified in this paragraph. If the Government has a
requirement in this area, it will be the subject of a future
contract or contract modification. It is noted that Technical
Order Maintenance has already been the subject of a separate
contract modification.
a. Refurbish aircraft T-1.
b. Provide Initial Squadron Operations (ISO) in excess of
12 months.
c. Provide airdrop testing instrumentation on aircraft P-3,
P-4, or P-5.
d. Implement 400 pound troop seat.
e. Provide ``Crash/Fire Rescue'' as described in the
McDonnell Douglas proposal submitted on July 2, 1993.
4. the parties shall take the preliminary steps to
implement these other settlement issues, including submission
of proposals and negotiation of any implementation details,
however, nothing in this agreement shall be deemed to require
the parties to implement these other settlement issues until
the Government has notified McDonnell Douglas that
authorizing legislation and appropriations for these other
settlement issues have been received.
____
Attachment E
agreement between under secretary of defense john m. deutch and mr.
john f. mcdonnell to settle c-17 issues, january 3, 1994
General provisions:
1. References to ``costs'' shall be deemed to mean
``allowable costs'' in accordance with Part 31 of the Federal
Acquisition Regulation. Where a subsequent contract or
contract modification is required by this agreement the
applicable revision of the Federal Acquisition Regulation
shall be the revision in effect on the date that the
implementing contract document is executed.
2. It is the intention of the parties to this agreement
that, although this agreement refers to contracts between the
Government and the McDonnell Douglas Corporation, and other
contractual documents between those parties are contemplated
by this agreement, this agreement is not a contract for the
procurement of property or services and is not subject to the
Contract Disputes Act of 1978, as amended.
3. The Government expressly reserves any and all causes of
action for fraud, misrepresentation, false statements, and
false claims arising from the C-17 program.
Mr. GRASSLEY. In a nutshell, this is what the settlement agreement
would accomplish.
For its part, the Government is willing to drop all its claims
against McDonnell Douglas. It is willing to accept the aircraft's
range/payload shortfall and schedule delays; and pay McDonnell Douglas
$348 million in cash, including $234.5 million for the wing breakout
claim.
In exchange, McDonnell Douglas would drop all its claims against the
Government and supposedly absorb $454 million in out-of-pocket
expenses.
Mr. President, the Deutch plan may not rest on firm ground.
I firmly believe that it was built on sand.
The Deutch plan presupposes that both sides are relinquishing valid
claims and avoiding a long, expensive battle in court.
The General Accounting Office has looked at this whole scheme of
things. They have evaluated the Deutch plan and concluded that the C-17
settlement agreement is a lousy deal for taxpayers.
The GAO's analysis of the settlement agreement is outlined in a
recent report entitled ``Military Airlift: C-17 Settlement Is Not a
Good Deal.''
The report is dated April, 1994.
This is what the GAO says about the validity of the claims that form
the foundation of Mr. Deutch's C-17 get-well plan.
I quote from page 2:
According to DOD officials, the claims were not subject to
full legal or price analysis. Without any legitimate basis
for establishing the realistic value of the claims of both
parties, the true cost of the settlement is not known.
That is strong language for the GAO.
Mr. President, the GAO says there is no legitimate basis for the
claims, $348 million of them included in the bill worked out by Mr.
Deutch and the company.
I fear and suspect that the settlement agreement proposed by Mr.
Deutch is really phase II of the 1990 backdoor bailout operation.
The settlement agreement is nothing more than another bailout to help
McDonnell Douglas recover the $1.5-billion loss flowing from the cost
overrun on the fixed-price R&D contract.
McDonnell Douglas cannot live up to the terms of the contract and now
wants extraordinary relief and it wants, in the words of the defense
industry, more nourishment from Congress.
McDonnell Douglas does not like the idea of losing $1.5 billion.
Company officials want Uncle Sam to shovel more money their way.
Mr. President, these defense companies have an insatiable appetite
for money.
If we keep throwing money at McDonnell Douglas--and there has been
plenty of that already, there will be no fleet of new C-17's. The C-17
will self-destruct under the sheer weight of mounting costs and
mismanagement.
McDonnell Douglas signed a fixed-price contract on the C-17.
You cannot convince me that a company this famous, this
sophisticated, could not have known what it was getting into by signing
this fixed-price contract. The company must have known what it was
getting into.
We need to hold McDonnell Douglas' feet to the fire and bring some
discipline to the program. We need to make them live up to the terms of
the contract.
McDonnell Douglas does not like being locked into the C-17 fixed-
price contract.
Mr. Deutch wants to help them escape.
It is as simple as that.
Over the past 5 years, the Air Force and McDonnell Douglas have been
staring down the throat of an ugly $1.5 billion cost overrun on the
fixed-price C-17 R&D contract.
No company wants to be in that position. If they can do anything to
get out of it they are going to do anything to get out of it.
To make matters much worse, the $1.5 billion C-17 cost overrun came
on top of major financial losses on the Navy's A-12 Stealth Bomber
Program.
These two financial disasters together caused senior DOD officials to
worry that McDonnell Douglas might go down the tubes.
DOD officials like to keep this myth alive.
They concluded that extraordinary relief was in order. They took it
on themselves to save the company. They decided on their own to give
McDonnell Douglas a massive transfusion of cash.
They devised various devious schemes to cover up mounting delays and
the burgeoning cost overrun on C-17 contracts in order to maintain an
uninterrupted flow of money to the company.
Well, the DOD inspector general blew the cover on that backdoor
bailout operation last year.
Remember in the first instance I quoted what the General Accounting
Office said was wrong with this Deutch plan? Now I want to tell you
that the DOD's own inspector general blew the cover on this other
backdoor bailout. That backdoor bailout operation cost the taxpayers at
least $350 million in illegal or improper progress payments.
Well, all the concerns about McDonnell Douglas' financial condition
were unwarranted. Today's reports from Wall Street clearly indicate the
company is healthy and well: ``The company is on the road to
recovery.''
McDonnell Douglas has so much cash in its coffers that it is looking
for new acquisitions and investments.
I do not think McDonnell Douglas has to have the $348 million cash
payment to survive. This is not a life-or-death issue for the company.
But Mr. President, my concerns today are not over the company's
financial well-being.
I am more concerned about how the taxpayer's money is being thrown
around.
A $348 million direct cash payment to McDonnell Douglas for C-17
bungling is not my idea of how our tax dollars should be put to work.
Mr. President, I have three major beefs with the proposed C-17
settlement agreement:
First, there is the cost mischarging scheme.
This issue is identified in the settlement agreement as ``Charging
Sustaining Engineering Costs.'' It was a crooked retroactive accounting
trick to channel illegal progress payments to McDonnell Douglas. I
don't like the way this issue is handled by the Deutch plan.
Second the agreement downgrades critical aircraft range/payload
specifications or specs--for the fourth time. The plane doesn't meet
the specs. Under the Deutch plan, the specs will meet the airplane.
It's the old rubber baseline. That's a lousy deal for the taxpayer. We
pay more and get less.
Third, the agreement would provide McDonnell Douglas with a $234.5
million cash payment for the so-called wing breakout claim.
The GAO says there is no legitimate basis for this claim.
The C-17 contracting officer said there was no basis for this claim.
And I have documents that clearly suggest that this claim may be
invalid.
At the appropriate point in the debate, I will place those documents
in the Record.
I am going to speak on each one of these problems in the future but I
am going to allow people who disagree with my amendment to speak,
except for one other statement I want to make at this point.
Mr. President, the House of Representatives rejected the Deutch
settlement agreement because it doesn't smell right. Well, it doesn't
smell right to me, either. It has a bad odor about it. In fact, I think
it stinks. And I hope my colleagues think so as well. I reserve the
remainder of my time. Could I ask how much time I just used?
The PRESIDING OFFICER (Mr. Wellstone). The Senator used 15 minutes.
The Senator has 75 minutes and 6 seconds remaining.
Mr. GRASSLEY. Thank you.
I hope people in opposition will speak because I want to say some
more but I do not want to say it all at once.
The PRESIDING OFFICER. Who yields time?
Mr. THURMOND. Mr. President, I yield myself such time as I may
require.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. THURMOND. Mr. President, I urge my colleagues to oppose the
Grassley amendment to the C-17 settlement. When we talked to senior
commanders during our hearings this year, one message came through
clearly. We need capable, modern airlift. With so many of our forces
returning home from overseas, we need airlift for rapid crisis
response, more now than in the recent past. The C-17 will provide that
rapid response, along with the capabilities needed for military
operations.
Last year we directed the Defense Department to review and
restructure the C-17 program. Through Dr. Deutch's determined personal
efforts, the Defense Department did restructure the C-17 program and
the settlement is an integral part of the restructured program. The
settlement is a benefit to the taxpayers, not a bailout. The department
did what we told them to do in last year's authorization act. They
worked hard to give the C-17 program the best chance to produce quality
results.
The settlement protects the taxpayers from extended expensive claims
cases. We should give the program every opportunity to produce these
aircraft and then make a decision regarding the future of the C-
17 after we have had some operational experience with aircraft.
Mr. President, the McDonnell Douglas Corp., has already lost--already
lost--$1.2 billion on the program, whatever the settlement terms. This
is no bailout. The settlement is an opportunity for both parties to set
aside many legal claims and apply resources to an improved program.
I oppose the Grassley amendment and urge my colleagues to oppose it,
also.
Mr. President, I would like to quote an excerpt from a letter written
to the Honorable Edward M. Kennedy, chairman of the Subcommittee on
Regional Defense and Contingency Forces, Committee on Armed Services,
U.S. Senate, from the deputy inspector general:
However, I believe that it is essential that the settlement
agreement be approved as part of any decision to continue
pushing C-17 aircraft and to continue the course of action
outlined by Deputy Secretary Deutch to the Congress on the
future military aircraft.
Another excerpt:
The settlement resolves all major outstanding issues and
prevents a lengthy and expensive court battle. These legal
proceedings could be costly, even if the Government were to
prevail on all the issues, which is, of course, highly
unlikely.
This is signed by Derek Vander Schaaf, deputy inspector general of
the Department of Defense.
Mr. President, I just do not see how we can afford to try to upset
this settlement. It has been worked on for months and months to get
this thing straight. The Secretary of Defense favors the settlements.
The Deputy Secretary of Defense favors the settlement. The Secretary of
the Air Force favors the settlement. The Chief of Staff of the Air
Force favors the settlement. They are our officials. They are part of
the administration that is running this Government. If we do not take
their word, whose word are we going to take?
Do we want to go off on a tangent, do not take this settlement, go
back in court and be in court for years maybe, and cause expense to the
Government? As the Secretary says, even if you win, you lose; it will
cost the Government even more. It just does not make sense.
I urge my colleagues to vote against this amendment.
Mr. KENNEDY addressed the Chair.
The PRESIDING OFFICER. Who yields time?
Mr. KENNEDY. Mr. President, how much time is there on this amendment?
The PRESIDING OFFICER. The Senator has 85 minutes remaining.
Mr. KENNEDY. Mr. President, I yield such time as I might use.
Mr. President, I oppose the Grassley amendment. Our Subcommittee on
Regional Defense and Contingency Forces of the Armed Services Committee
has jurisdiction over airlift, and we have watched the C-17 program
with concern for several years.
After long deliberation and extensive review, we feel that the
proposed settlement between the Defense Department and McDonnell
Douglas makes sense for the Nation's defense needs. I support the
settlement, and I urge my colleagues to reject this amendment.
The settlement is part of a long overdue comprehensive effort that
sensibly and thoroughly addresses serious issues in our defense
capability--to provide the airlift forces we need in the post-cold-war
era.
The C-17 should be part of that answer, but as we all know, it has
been a deeply troubled program.
The development of the aircraft has cost much more than anticipated
in the engineering and development contract.
The contractor, McDonnell Douglas, has had huge losses.
The per unit cost of the aircraft has mushroomed from the initial
estimates.
There have been performance and design problems requiring expensive
solutions. Nobody, including the contractor, denies that this program
has been plagued with problems.
The question that has faced us for several years is what to do about
our airlift needs in light of the C-17's problems? We began a serious
process 2 years ago to answer that question.
The fiscal year 1993 Defense Authorization Act directed the Defense
Department to do two things. First, it directed the Department to
contract with the Institute For Defense Analyses to conduct a
comprehensive cost and effectiveness analysis of the C-17. Second, it
called for an independent program review to determine whether and how
the program should go forward.
Last year, at the beginning of the Clinton administration, the Under
Secretary of Defense for Acquisition, John Deutch, took over the
supervision of the program. He took the congressional directive a step
further, and broadened the scope of the cost and effectiveness
analysis. He compared the C-17 to alternative airlifters for cost
effectiveness.
He also convened an independent task force of the Defense Science
Board to review the C-17 program and make recommendations about its
future.
Last year, both of these investigations submitted their findings. In
both cases, they pointed to the same conclusion--if the C-17 can be
made to work, it will prove to be the most cost-effective answer to our
strategic airlift needs.
The most important of these two investigations was carried out by the
Defense Science Board task force. This group was headed by Robert
Fuhrman, the retired president of the Lockheed Corp. and Lt. Gen. James
Fain, commander of the Aeronautical Systems Center. They brought
together leading figures from industry and the military. The group was
charged with assessing the C-17, deciding whether the contractor could
successfully complete development of the program, and identify what
changes should be made to enable it to succeed. The task force was
asked to figure out whether the program could be fixed, and if so, how
to fix it.
The conclusion of the Defense Science Board task force was clear and
unequivocal:
It is the unanimous conclusion of each member of the DSB C-
17 task force that a comprehensive settlement, implemented
immediately, is essential for the realization of a successful
C-17 program.
We believe that the C-17, implementing the recommendations
in this report, can be a highly successful program.
There it is, in black and white. The Defense Science Board said the
program can work--but that to make it work, a comprehensive settlement
must be reached and implemented immediately.
The rationale for the settlement is laid out in detail in the report.
In essence, they found that the negative environment between the
Government and the contractor had undermined the program and would
prevent it from ever succeeding.
To make the program a success, all of the claims and contentious
issues had to be resolved, so that the Government and the contractor
could stop focusing on litigation and start working to build a
successful aircraft.
Armed with this information, under Secretary Deutch went ahead and
negotiated a comprehensive settlement with McDonnell Douglas. He did so
with only one goal in mind--find a cost-effective way of fulfilling our
military airlift requirements. The result is a solution which can
achieve this goal, yet it is under attack by this amendment.
The settlement places McDonnell Douglas on a 2-year probation. The
Air Force will procure 6 planes for each of those 2 years, for a total
of 40 aircraft. During this period, the contractor must do four
things--introduce major changes in the management and manufacturing
process; demonstrate an ability to deliver aircraft on schedule and at
the designated cost; successfully complete the flight test program; and
satisfy all contract specifications.
If the contractor can meet these requirements, the Air Force will
consider procuring additional aircraft. I want to underline that, Mr.
President. If the contractor can meet these requirements, the Air Force
will consider procuring additional aircraft. The decision in terms of
future aircraft, therefore, is dependent upon the compliance with this
particular agreement. They will be making that judgment in the future
based upon our national security needs. Obviously, if this program does
not go forward, that particular option is not available. The Department
is in no way committed to buying more than 40 C-17's. I emphasize this
to make clear that the settlement in no way reduces the pressure on the
contractor to perform and produce a successful aircraft. Just the
opposite--it holds the contractor's feet to the fire.
As part of this arrangement, the Government and the contractor have
agreed to settle a wide range of claims and outstanding issues that
have plagued the program and prevented a cooperative effort to build a
good aircraft. This is the part of the settlement that the Grassley
amendment opposes.
To settle these issues and make investments in the program, the
contractor will pay a total of $454 million, and the Government will
spend $348 million. These amounts will settle $1.6 billion in
outstanding claims by McDonnell Douglas against the Government. They
will fund additional flight testing. And they will provide for
investment in the program to reduce production costs and improve
productivity.
Finally, the settlement eases some of the specifications in the
original development contract. The air mobility command has made clear
that these alterations do not prevent the aircraft from meeting their
military requirements. The C-17 specified in the new contract will meet
our core airlift requirements.
That is the settlement, and there is no justification to block it.
Implementing the settlement is necessary for successfully continuing
with the C-17 Program.
I would point out, Mr. President, as was made very evident from the
various scientific and professional groups that reviewed it, they
understood that this is basically a package. There had to be compliance
in terms of meeting various requirements on the production and in terms
of the competency of the aircraft, and there was also going to have to
be resolution of the outstanding financial disputes for the basic
reason that the whole program was being addressed in terms of whether
it was going to continue as a realistic program in terms of meeting our
airlift capability and our national security interest.
Both of those elements go together, and you begin to unwind one, in
this instance the agreement, there is no question in my mind as well as
those who are involved in the program itself that you undermine the
totality of the agreement and therefore remove a very important element
in the airlift capability for our national security.
Some argue that we should authorize six aircraft but not approve the
settlement. But that ignores the fundamental conclusion of the Defense
Science Board--you cannot have a program without the settlement. It is
that simple.
As the Board made clear, the claims and recriminations between the
Government and the contractor are the single largest obstacle to a
successful C-17 Program. If we do not proceed with the settlement, we
should kill the program. You cannot have a plane without taking the
settlement too.
Some may agree in principle that a settlement makes sense, but that
this particular settlement is not good enough. The Defense Department
should try again. But Robert Fuhrman, the task force chairman, on
behalf of the entire task force, has written to endorse the settlement
as a faithful implementation of the recommendations.
In addition, I have a letter written to me by Derek Vander Schaaf,
the inspector general of the Department of Defense, in which he states:
I believe that it is essential that the settlement
agreement be approved as part of any decision to continue
purchasing C-17 aircraft and to continue the course of action
outlined by Deputy Secretary Deutch to the Congress on the
future of military airlift.
He continues:
Failure to approve the settlement agreement will leave the
program with a management environment that is not working and
the prospect of wasting millions of dollars in litigation.
The print is clear. If you want to proceed with the program, you must
fund the settlement. If you do not authorize the settlement, you might
as well not bother with the program.
If McDonnell Douglas improves its performance, the Defense Department
will be able to buy a cost-effective military airlifter beyond 40
planes. If McDonnell Douglas does not achieve this goal, we will still
have a force of 40 C-17's with their specialized military airlift
capabilities. These planes will provide much-needed outsize cargo-
carrying capacity, and meet other specialized military capabilities.
If we stop the program now, we will have to restart the C-5B
production line, in order to obtain the outsize cargo capability we
need. Restarting the line would cost somewhere between $600 and $900
million, and take upwards of 3 years to achieve. This lengthy delay
would deprive us of the airlift capability we need now.
I also have letters from Gen. John Shalikashvili, chairman of the
Joint Chiefs of Staff, Gen. Gordon Sullivan, Chief of Staff of the
Army, and Gen. Joseph P. Hoar, commander in chief of Central Command.
They all agree that we need this aircraft, and we need it now.
In addition to the judgment of these top military officers that the
C-17 meets our military requirements, let me mention one other letter.
It is signed by the Secretary of Defense, Bill Perry, and Deputy
Secretary John Deutch.
They state categorically that to meet our military requirements and,
in their words, to protect the Department's interests on business
issues and contractual claims, proceeding with the C-17 and proceeding
with the settlement are the right steps at the right time.
In the time since the letter of agreement was signed between the
Government and the contractor, there have been visible improvements in
the program. The 12th aircraft was delivered last month--within a month
of the scheduled date. The 13th aircraft, scheduled for delivery in
June, is expected on time.
The recent aircraft have required the fewest days from flight
preparations to delivery and have required the fewest waivers for
unfinished work.
The improved atmosphere has already paid off. Rejecting the
settlement would plunge the program back into the kind of litigation
and controversy that has dragged the program down.
Some may argue that the House of Representatives did not authorize
the settlement during their consideration of the defense authorization
bill. No negative inferences can be drawn from that fact. The Members
of the House did not have the opportunity to vote on the settlement.
The only issue in the House was the C-17 program itself, and some
thought the program itself was in trouble. But that was not the case.
On the key vote, the House voted 330-100--an overwhelming bipartisan
margin of more than 3 to 1--to increase the procurement level from 4
planes to 6. It is clear that if given the opportunity to endorse the
settlement, House support for it would have been equally resounding.
On June 8, the Senate passed by voice vote S. 1587, the Acquisition
Reform Act of 1994. The purpose of this legislation was to help make
Government procurement more like acquisition in the private sector.
``Make Government act more like business'' is the slogan we have all
heard over and over again.
This settlement is an example of top Government officials trying to
do just that--act more like business executives in handling this
program. They did not act like Government lawyers, pursuing lengthy and
costly litigation, wasting time, leaving us deadlocked in our efforts
to build the military airlift we need.
Instead, they investigated the program, took the advice of the
Nation's top experts, and negotiated a settlement that in their
judgment serves the Nation's best interests.
If you want to oppose this settlement, fine. But do so with the
knowledge that you do not really mean it when you say you want to see
the Government act more like business. Because this settlement is the
best example of Government acting like business we have seen in many
years.
The C-17 program has many problems with no easy solution. But you do
not have to be an expert on military airlift to know how urgently we
need additional cargo-carrying capacity. You only need to see the news
reports of U.S. aircraft carrying aid, troops, and equipment to
Somalia, and Bosnia, aiding the evacuation of civilians from Rwanda, to
understand the importance of having adequate airlift. You only need to
read the reports about North Korea. Our military forces need to be
ready for any contingency, and the C-17 program and the settlement are
part of that readiness.
The administration has come up with a sensible approach to meeting
our airlift needs. The C-17 settlement is an indispensable part of that
solution. It takes the program out of the hands of the Government
lawyers and puts it back into the hands of the engineers and men and
women on the assembly line who will build this airplane and make it
work. That is where this issue belongs. That is where the C-17 belongs.
I urge the Senate to support the settlement and reject the Grassley
amendment.
I yield 10 minutes to the Senator from Maine.
The PRESIDING OFFICER. The Senator from Maine is recognized.
Mr. COHEN. I thank the Senator for yielding.
Mr. President, first let me congratulate my colleague and friend from
Massachusetts for this fine statement on this subject, and to commend
him also for the hearings which he--Senator Thurmond suggests I take
his place until he returns. It is an impossible task for me to take his
place. But in any event, for the hearings that the Senator scheduled
and held and for the testimony that was presented.
I think the Senator from Massachusetts really outlined the key
reasons why we should be supporting this particular proposed settlement
and opposing the Grassley amendment. I think the C-17 program is an
important one, and answers a real need.
I think we have to ask ourselves a question. Do we need an aircraft
to provide this kind of additional airlift? If the answer is no, that
is fine. You vote for the Grassley amendment. This is a decision that
was made some time ago. We needed substantial additional airlift for
outsize cargo. What were the alternatives considered at that time? The
C-5 was considered. They said no. That is not really going to fit our
needs for the future. How about some wide-body alternative; commercial
airlines? No. That will not work either. They are available. They may
be less expensive. But they will not be as useful in a time of crisis.
So we decided to go forward with the C-17 program to have a rapidly
deployable force if necessary in the future.
Mr. President, at the Armed Services Committee hearings this year, at
one point it was made very clear by the commanders in chief. We need a
capable airlift. We have an aging C-141 fleet that is making a valiant
effort. But it is falling victim to its years.
I might say that, if the Senator from South Carolina were here, and
if the C-141 were as sturdy and as durable as he is, we might allow
that fleet to stay in existence for some time to come, and not to have
to deal with the C-17. That is not the reality of what we face.
As the Senator from Massachusetts has pointed out, the C-17 has had
its share of problems. We should also point out that the C-5 had its
share of problems in getting off the ground. All of these programs have
their problems in the initial stages.
I think there has been a good-faith effort on the part of the
administration under the leadership of Secretary Deutch to try and
resolve the problems. The GAO says the C-17 has fallen short of its
original cost schedule in performance expectations. That is true;
absolutely true. The settlement acknowledges the past failures. It lays
out a plan to overcome them.
More importantly, the settlement is no more than what we insisted
upon last year. In last year's DOD authorization we directed the
administration to do precisely what they have done. We said provide us
a report on the C-17 program containing a discussion of corrective
actions to be taken, which they have done; a proposed resolution about
standing contractor claims, which they have done; any legislation
relating to those claims; and, finally, a discussion of corrective
actions to be taken by the contractor concerning the program, all of
which has been done.
We can stay here and debate ad infinitum into the night and tomorrow
in terms of the exact numbers and the merits of the contractor's claim
against the U.S. Government and the Government's claim against the
contractor. That will get us nowhere, let me suggest. That will be the
beginning and the end as far as the unraveling of this particular
agreement.
So if we want to go back to mandating litigation, we can do that. We
can pluck out the agreement, in which case for all practical purposes
that is the end of this program. That was the deal that was struck. It
was a business arrangement, a business decision. We forgo our claims
against you, Mr. Contractor, and you will forgo your claims against us.
That was the arrangement.
If you do not have any confidence in Secretary Deutch, then reject
his agreement. I think he is an outstanding public servant. I think he
has made a really heroic effort to resolve this issue, to put the past
problems behind us and go forward with the minimum of 40 aircraft. If
the contractor demonstrates that they can produce an aircraft that is
serviceable, that meets the revised specifications requirements, then
at that time they can go forward and perhaps we will buy more. But in
the absence of that, we will terminate the program after 40.
Mr. President, I think this settlement agreement is an appropriate
one. It is not a bailout of the contractor. The contractor has already
lost $1.2 billion in the program even with a settlement in place. It is
out $1.2 billion. This settlement is based on a reasoned analysis by
the Defense Science Board task force. And simply put, Mr. President, I
think it is an agreement that has been directed by the Congress for the
benefit of the taxpayers. It avoids unproductive, costly litigation
from both sides and instead applies funds to program improvements that
benefit each side.
If the contractor can show on time cost control production, they will
have a chance, as I have indicated, at further production. We are not
going to know the answers until the fall of 1995, until we have a C-17
reliability data and contractor performance to examine.
But we should not waste the over $6 billion spent for the development
and the production so far by walking away from this agreement that we
directed that the DOD negotiate. That is the irony involved. They have
done precisely what we have asked for, and now we this year come back
and say take it away; it is not good enough; let us unravel the whole
package.
Mr. President, I hope the Grassley amendment will be rejected and we
will continue to support the C-17 program as negotiated in this
agreement by the administration.
I yield the remainder of my time.
Mr. KENNEDY. Mr. President, how much time remains?
The PRESIDING OFFICER. The Senator has 63 minutes remaining.
Mr. KENNEDY. I yield 15 minutes to the Senator from California.
The PRESIDING OFFICER. The Senator from California is recognized.
Mrs. FEINSTEIN. Thank you Mr. President. I also thank the Senator
from Massachusetts.
Mr. President, I rise to associate myself with the comments just made
by the Senator from Maine. I rise in strong support of the C-17
airlifter and in opposition to the Grassley amendment. Stated simply,
we cannot have it both ways. You cannot be for the C-17 program and not
support the settlement because you need the settlement to have a
productive C-17 program.
I support six more C-17's in the 1995 fiscal year. Early approval of
funding for eight additional aircraft in the 1996 fiscal year, and
approval of the comprehensive Defense Department--McDonnell Douglas
settlement.
I have personally visited Edwards Air Force Base. I make no bones
about the C-17. It is important to my State. But more important than
that is the valid military mission for this plane. I have talked to
McDonnell Douglas officials. I have received an overview of the flight
test program from Air Force personnel. I have talked with military test
pilots who have flown the aircraft, and I have had the loadmaster show
me the impressive parts of loading the aircraft.
As a result of my visit and extensive briefing, I concluded that the
C-17 is a priority program that must continue in order to ensure our
Nation's national security well into the next century.
In today's post-cold-war world, it is vitally important to have the
ability to deliver troops and supplies anywhere in the world--quickly,
directly, and efficiently. By 1997, 80 percent of the U.S. Army will be
stationed in the continental United States as we transition to a power
projection military. Airlift and the C-17 in particular, will be
crucial to ensure that U.S. Forces can respond to any crisis, whenever
and wherever they may occur all over the globe.
The world today, though safer than during the height of the cold war,
is still a dangerous place. There are currently over 30 armed conflicts
raging throughout the world--from Yugoslavia to Africa, and from South
America to the Republics of the former Soviet Union.
The C-17 is fully capable of meeting our future airlift needs.
Whether delivering tanks to help counter an armed invasion; delivering
troops to the front lines; or delivering emergency relief supplies to
disaster victims here at home, the C-17 can deliver.
the unique capabilities of the c-17
The unique capabilities of the C-17 are unmatched by any other
aircraft in the world today.
The C-17 is capable of direct delivery. Unlike the C-5, C-141, or C-
130 cargo aircraft, the C-17 can take off from an airfield in the
United States with a full load of equipment or troops, and through
aerial refueling, the C-17 can deliver its cargo to small airfields
near the front lines--landing on unimproved runways as short as 3,000
feet.
Some will say, the C-5 can too. I am told that is not correct. The C-
5 and the C-141 must land at larger airfields, and then transfer
equipment to smaller aircraft or land transport vehicles. And the C-130
does not have the range to provide direct delivery nor the cargo size
to deliver large amounts of equipment. Though similar in external size
to the C-141, the C-17 can carry twice the cargo. Though smaller than
the massive C-5, the C-17 has a more efficient cross section and is
able to carry two trucks side by side.
And though the C-130 can also land on short runways, the C-17 carries
four times as much cargo. The C-17 is the only airlift aircraft capable
of meeting all of these core military capabilities that must be met by
any airlift modernization program.
The C-17 is also a cost-effective investment, as fewer personnel are
required to operate it than other cargo aircraft--only a pilot, a
copilot, and one load master are needed. Because of the superior
technology of the aircraft, including a heads-up display and full fly-
by-wire controls, the C-17 is the most technologically advanced
airlifter in the world today. As one Air Force test pilot--a woman, as
a matter of fact--recently told me, flying the C-17 is a pilot's dream.
The time is right for the C-17, as America needs a new airlifter. The
other cargo aircraft in our current fleet--the C-5A's, C-141's, C-
130's--are 20 years old. These older aircraft are on their last leg.
Production of the C-17 is essential to modernize our airlift
capabilities to meet our future national security needs.
Let me talk for a moment about civilian and military support.
Our Nation's civilian and military leaders also strongly support the
C-17 program, from the President on down to the regional commanders in
chief:
The C-17's capabilities are crucial to the Air Force's
ability to deliver and sustain forces in support of theater
commanders. The C-17 can carry outsize cargo to give early
forces firepower; it can deliver its cargo into remote
locations with short runways; and it has the ability to
airlift heavy equipment, supplies and troops * * *. There
will be certain core capabilities that can only be provided
by the C-17.--May 23, 1994 letter to Speaker Foley.
Defense Secretary Perry and Deputy Secretary Deutch:
Our war fighting CINC's must have the capability to project
and sustain forces worldwide * * *. The C-17 is the only
airlifter in production that meets these core military
requirements.--June 21, 1994 joint letter to Senator
Feinstein.
Chairman of the Joint Chiefs of Staff, General Shalikashvilli:
America must have a core airlifter to replace the aging C-
141. The continuing myths of a service life extension program
for the C-141 or the ability of a commercial derivative to
meet the needs of a core airlifter are just that--myths.
Neither aircraft can carry the equipment to forward areas
that the Army needs to win on tomorrow's battlefield. There
may be a future role for a commercial derivative to
supplement a core airlifter, but a CONUS-based force that
lacks a core airlifter is a hollow force. Today there is only
one alternative that can meet the requirements of a core
airlifter--the C-17.--May 17, 1994 letter to Senator Nunn.
Army Chief of Staff, General Sullivan:
The C-17 will provide the Air Force the capability to
deliver critical Army ``out-sized loads'' while allowing
access to 9,000 more runways (an increase of 300%) worldwide
than the C-141 and C-5. The C-17 can land on the same runways
as the C-130 and deliver four times the cargo weight. Equally
important, the C-17 will improve throughput capacity, or
rapid off-load and turn-around on the ground, by increasing
the ``maximum on ground'' or MOG capacity. The performance
characteristics of the C-17 will permit 8 C-17's to fit where
3 C-5's fit. Had we had the C-17 during Desert Shield, we
could have delivered the first airborne brigade in 54 hours
with just 93 aircraft--an improvement of some 34% over the 82
hours it took to deliver that brigade with 158 C-141's and 2
C-5's.--May 17, 1994 letter to Senator Nunn.
As the President, Secretaries of Defense, and military leaders have
stated, the C-17 program is vitally needed to ensure adequate airlift
capability for the future and to help protect America's vital national
interests.
settlement
Just as important as the authorization of actual C-17 aircraft, is
approval of the comprehensive Defense Department/McDonnell Douglas
settlement. As both Secretary Perry and Deputy Secretary Deutch have
said, for the Pentagon to proceed with its airlift strategy, approval
of the settlement agreement is needed.
The settlement removes the gridlock that paralyzed the C-17
program for years and protects the Department's interests on
business issues and contractual claims. It gives the program
a fresh start while holding the contractor strictly
accountable for improving its performance.
The settlement is a comprehensive agreement that must be taken as a
whole. It is a package--different elements should not be scrutinized
separately. As the Defense Science Board states, it is ``an overall
consolidated settlement'' that has pros and cons for both the Defense
Department and McDonnell Douglas. This is in no way a bail-out for the
contractor. Yes, the cost to the Government is $348 million. But, the
cost to the contractor is even more, $454 million.
Let me quote from, what I believe, is a very credible source, the
deputy inspector general of the Defense Department, whose office has
been very critical of the C-17 program in the past. This is from a June
3 letter to the Armed Services Committee:
I believe that it is essential that the settlement
agreement be approved as part of any decision to continue
purchasing C-17 aircraft and to continue the course of action
out-lined by Deputy Secretary Deutch to the Congress on the
future of military airlift. * * *
The settlement resolves all major outstanding issues and
prevents a lengthy and expensive court battle. These legal
proceeding could be costly even if the Government were to
prevail on all issues, which is of course highly unlikely. *
* *
Failure to approve the settlement agreement will leave the
program with a management environment that is not working and
the prospect of wasting millions of dollars in litigation.
The settlement agreement is an integral part of the C-17 program and
the Pentagon's plan to move forward with airlift modernization. To
oppose the settlement agreement, would be to oppose the C-17 program
and jeopardize the future of our military airlift.
economic impact
Let me talk about the economic impact of the C-17 program nationally
and in California.
Nationally, more than 100,000 people are employed as a result of C-17
production. In my State of California, 35,000 jobs are dependent on the
C-17 program. These are good, high-wage jobs. Not minimum wage jobs,
but jobs that pay between $30,000 and $40,000 a year. People can raise
a family and, yes, buy a home. They are mostly blue collar jobs--good
paying jobs.
As you know, California has been hit hard by defense downsizing. More
than 250,000 defense-related jobs have been lost in California in just
the last 2 years. The State is still in the depths of a recession from
which most of the country has already recovered.
The nearly 800 California companies that help produce the C-17 and
the over $153 million in C-17 contracts that are directed at
California, are crucial to my State's economy.
conclusion
I realize that the C-17 has been the subject of controversy over the
past year or two, and that many allegations have been raised concerning
the program. The program is currently on probation and needs to
continue on track until November 1995, when Secretary Deutch will
review the program and make a determination on how to proceed. But to
reach that point, the President's budget request must be approved in
full.
Full authorization of the six aircraft in fiscal year 1995, long-lead
for eight aircraft in fiscal year 1996 and approval of the settlement
is crucial to ensure that the Pentagon can go forward with its airlift
modernization strategy.
As I have pointed out, there is clearly a need for the C-17. Its
unique capabilities are unmatched by any other cargo aircraft in the
world today. Our Nation must invest in a new, state-of-the-art
airlifter to assure our national security in the post-cold-war world.
America needs a cargo aircraft that can provide superior airlift
capability well into the next century. America needs a cargo aircraft
that can deliver troops and supplies anywhere in the world, quickly and
directly. America needs the C-17.
I urge my colleagues to support the Grassley amendment and support
the C-17 program.
I ask unanimous consent that several letters in support of the C-17
program and settlement agreement be printed in the Record at this time.
There being no objection, the material was ordered to be printed in
the Record, as follows:
The Secretary of Defense,
Washington, DC, June 21, 1994.
Hon. Dianne Feinstein,
U.S. Senate,
Washington DC.
Dear Senator Feinstein: The Fiscal Year (FY) 1995 National
Defense Authorization bill (S. 2182) reported by the Senate
Armed Services Committee supports our commitment to airlift
modernization by funding the C-17 and approving the C-17
settlement agreement. As the Senate continues consideration
of S. 2182, we urge you to support the Committee position on
the C-17 and the settlement agreement.
Our warfighting CINCs must have the capability to project
and sustain forces worldwide. To do this they need a
survivable airlifter that can deliver outsize cargo to remote
locations with austere fields; and it must be able to airdrop
heavy equipment, supplies, and troops. The C-17 is the only
airlifter in production that meets these core military
requirements.
We developed an integrated strategy to meet our airlift
requirements after comprehensively reviewing the C-17 program
and the airlift needs of our combatant commanders. The
necessary first step is to continue the C-17 program on a
probationary basis to obtain 40 C-17s.
If McDonnell Douglas proves it can deliver quality
aircraft, on time, at an affordable price, we will have
positioned ourselves to acquire additional C-17s. The second
step is to assess the capabilities and costs of non-
developmental alternative aircraft.
For us to proceed with our airlift strategy, we need
approval of the settlement agreement. As the Deputy Inspector
General of the Department of Defense, Mr. Derek J. Vander
Schaaf, expressed to the Senate Armed Services Committee, it
is essential that the settlement agreement be approved as
part of any decision to continue purchasing the C-17 and to
continue our strategy on future military airlift.
The settlement removes the gridlock that paralyzed the C-17
program for years and protects the Department's interests on
business issues and contractual claims. It gives the program
a fresh start while holding the contractor strictly
accountable for improving its performance.
For these reasons we request that you and your colleagues
support the Senate Armed Services Committee and our airlift
strategy when finalizing the FY 1995 defense bill.
Sincerely,
John M. Deutch,
Deputy Secretary of Defense.
William J. Perry,
Secretary of Defense.
____
Inspector General,
Department of Defense,
Arlington, VA, June 3, 1994.
Hon. Edward M. Kennedy,
Chairman, Subcommittee on Regional Defense and Contingency
Forces, Committee on Armed Services, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: I am writing at the request of Deputy
Secretary of Defense John Deutch regarding the C-17
settlement agreement. I and seven members from our audit
staff participated in a Defense Science Board review of the
C-17 program that ultimately led to the settlement proposal
that is now under consideration by the Senate Armed Services
Committee.
Prior to participating in the program review, our office
had issued a number of reports highly critical of the C-17
program. A central theme in those reports was the lack of a
candid assessment of the status of the program and its
continued cost-effectiveness in light of significant cost,
schedule and performance problems. In an effort to correct
those deficiencies, we made a series of recommendations in a
May 1992 audit report prepared in response to a request by
the Senate Armed Services Committee. We recommended that a
comprehensive cost and operational effectiveness analysis of
the C-17 program and a Defense Acquisition Board program
review be conducted prior to award of additional production
contracts.
Our recommendations were not accepted by DoD management at
that time. However, the essence of the recommendations were
embodied in the FY 1993 DoD Authorization Act. Efforts by the
new Defense Management Team to comply fully with the Act,
together with acknowledgement of the seriousness of the C-17
problems, became the basis for formation of the special
Defense Science Board Task Force on the C-17 program.
While we found no basis to withdraw any of our previous
criticism of the C-17 program during our work in support of
the Defense Science Board Task Force, we were encouraged
by the candid assessments of problems and the diligence
with which corrective actions were sought and pursued. The
course of action outlined by DoD management to complete
the C-17 flight test program--an indepth assessment of
nondevelopmental aircraft and a comprehensive cost and
operational effectiveness analysis--should provide a sound
basis for rendering decisions on fulfilling future airlift
requirements in the most prudent manner.
However, I believe that it is essential that the settlement
agreement be approved as part of any decision to continue
purchasing C-17 aircraft and to continue the course of action
outlined by Deputy Secretary Deutch to the Congress on the
future of military airlift. The C-17 program is not viable
without substantial change and resolution of numerous program
management and contracting issues. For example, issues over
range, payload and other performance requirements need to be
settled--pending claims and counterclaims will prove to be a
significant drag on the program. It is also essential that
issues over who will pay for the lengthened flight test
program and RDT&E costs that have been charged to production
contracts be resolved now.
The settlement resolves all major outstanding issues and
prevents a lengthy and expensive court battle. These legal
proceedings could be costly even if the Government were to
prevail on all the issues, which is of course highly
unlikely. It is hard enough to manage a program of the C-17's
size, complexity and problems. It is next to impossible if
the Government and the contractor are in court arguing over
costs incurred under a fixed price contract that is at least
$1.2 billion over ceiling but is still supposed to serve as
the operative document under which the program is managed.
Failure to approve the settlement agreement will leave the
program with a management environment that is not working and
the prospect of wasting millions of dollars in litigation. I
see the settlement agreement as a sensible business
arrangement in which McDonnell Douglas incurs additional
costs of $454 million, recognizes some of its
responsibilities for the C-17 shortcomings, and agrees to
modernize its engineering and management systems. The
Government spends $348 million and ensures that we complete
the test program that will ultimately prove the viability/
nonviability of the C-17 and settle all outstanding claims
while paying a relatively small percentage of the needed
contractor management improvements.
Should the Congress approve the settlement agreement, we
are prepared to ensure that the agreement is implemented as
approved and provide regular independent reports to the
Committee on its implementation.
If we may be of further assistance, please contact me or
Mr. John R. Crane, Office of Congressional Liaison, at (703)
614-0491.
Sincerely,
Derek J. Vander Schaaf,
Deputy Inspector General.
____
Deputy Secretary of Defense,
Washington, DC, June 6, 1994.
Hon. Sam Nunn,
Chairman, Committee on Armed Services, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: I want to take the opportunity to
reaffirm our commitment to airlift modernization. To provide
a coherent airlift acquisition strategy, we request that the
Committee approve the President's Budget Request for airlift
modernization and approve the settlement agreement.
The warfighting CINCs speak with one voice on their
requirement for airlift. They must have the capability to
project and sustain forces worldwide. To do this they need a
survivable airlifter that can deliver outsize cargo to remote
locations with austere fields; and airdrop heavy equipment,
supplies, and troops when necessary. The C-17 is the only
airlifter in production that meets these core military
requirements.
As I testified before the Subcommittee on Regional Defense
and Contingency Forces, after comprehensively reviewing the
C-17 program and the airlift issue, we developed an
integrated strategy to meet our airlift requirements. The
first element is to continue the C-17 program on a
probationary basis to obtain 40 aircraft.
If McDonnell Douglas proves during the probationary period
that it can deliver quality aircraft, on time, at an
affordable price, we will have positioned ourselves to
acquire additional C-17s. The second element is to assess the
capabilities and costs of non-developmental alternative
aircraft.
The assessment of alternative aircraft is crucial to our
airlift strategy. We have airlift needs that can be met with
either a core military airlift aircraft or with commercial
wide-body aircraft for those airlift missions that do not
require unique military capabilities. The assessment will
help us determine the capability of alternative aircraft and
the cost.
As part of the assessment, the Air Force will develop a
draft request for proposal (RFP) in August 1994 with industry
consultation and will issue a final RFP in March 1995. The
RFP will contain mission scenarios and will ask contractors
to propose their solutions to the mission scenarios. The RFP
will provide for full and open competition and will permit
contractors to propose various solutions for evaluation,
including new commercial aircraft, a restart of C-5
production, commercial wide-body aircraft, and use of
remanufactured used aircraft. We will then use the
information from the contractors' responses to the RFP as
an input to our airlift force structure decision in
November 1995. At the same time, the Department is
committed to the approach outlined in the settlement
agreement--continue the C-17 program but retain the
flexibility to move quickly to an alternative should the
C-17 program not meet our requirements at an affordable
price.
For us to proceed with our airlift strategy, we need
approval of the settlement agreement. The settlement removes
the gridlock that paralyzed the C-17 program for years and
protects the Department's interests on business issues and
contractual claims. It gives the program a fresh start while
holding the contractor strictly accountable for improving its
performance.
The settlement agreement has been criticized by the GAO as
lacking in specific, quantified cost, schedule, and
performance criteria. I disagree. Such criteria do exist and
can be described in three parts.
First, through our cost and operational effectiveness
analysis we have defined our overall airlift requirements.
These are currently being reviewed as part of the Mobility
Requirements Study Bottom-Up Review Update. The results of
this review will feed directly into the Congressionally-
mandated comparative C-17/Non-/Developmental Airlift Aircraft
cost and operational effectiveness analysis that will support
the November 1995 Defense Acquisition Board.
We also have a definition of the criteria involving the
cost, schedule and performance of the C-17 aircraft. These
include specific unit target costs and schedule criteria that
have been established on current contracts and will be
established as future contracts are awarded; and schedule and
performance criteria in the Acquisition Program Baseline and
in statute in the National Defense Authorization Act for FY
1994.
Finally, regarding the contractor's ability to build
quality aircraft on a modern assembly line, the settlement
agreement provides clear direction for improvements in
producibility and factory modernization.
For these reasons, we urge your support of the President's
Budget Request for airlift modernization and approval of the
settlement agreement.
Sincerely,
John Deutch.
____
Chairman of the
Joint Chiefs of Staff,
Washington, DC, May 17, 1994.
Hon. Sam Nunn,
Chairman, Committee of Armed Services, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: As I look into the future, it is clear
that America's combatant commanders will become increasingly
dependent upon strategic mobility. This mobility will
continue to be based on an integrated triad of air, sea and
surface capabilities. Despite the fact that two of these
transportation modes are in relatively good condition with
bright prospects for the future, I am deeply concerned that
recent congressional actions may seriously degrade our
airlift capability and ultimately threaten the viability of
the entire strategic mobility system.
America must have a core airlifter to replace the aging C-
141. The continuing myths of a service life extension program
for the C-141 or the ability of a commercial derivative to
meet the needs of a core airlifter are just that--myths.
Neither aircraft can carry the equipment to forward areas
that the Army needs to win on tomorrow's battlefields. There
may be a future role for a commercial derivative to
supplement a core airlifter, but a CONUS-based force that
lacks a core airlifter is a hollow force.
Today there is only one alternative that can meet the
requirements of a core airlifter--the C-17. We have all been
frustrated with the repeated setbacks in the program, but we
must not let this frustration obscure the facts. We now have
an agreement in hand that allows us to test the capabilities
of the airplane to meet warfighting requirements of America's
combatant commanders and the capability of the program to
meet efficiency and quality standards America's taxpayers
deserve.
I ask for your support of the President's Budget Request
for six C-17s in FY95, and for the reliability,
maintainability, and availability and operational testing
programs. Without the former, the program will not have the
opportunity to demonstrate its significant improvements and
production efficiencies. Without the latter, the C-17 will
not be challenged to demonstrate its capabilities in the most
rigorous testing program ever devised for an airlifter.
Without your support, the program will be guaranteed to fail.
We must not let this happen on our watch.
With best wishes,
Sincerely,
John M. Shalikashvili,
Chairman of the Joint Chiefs of Staff.
____
U.S. Army,
The Chief of Staff,
May 17, 1994.
Hon. Sam Nunn,
Chairman, Armed Services Committee, U.S. Senate, Washington
DC
Dear Mr. Chairman: By 1997, 80% of America's Army will be
stationed in the continental United States as we complete our
transformation to a power projection Army. Our capability to
lift the Army's heavy equipment by air and sea must keep pace
with our changing requirements. This Nation must have the
strategic lift capabilities to project power rapidly to any
potential trouble spot in the world. We must get our forces
to the fight.
Early arriving lethal combat power is the key to our joint
warfighting capability. The Congressionally mandated Mobility
Requirements Study generated the need for delivery of
``outsized cargo'' prior to the arrival of the fastest
sealift. For the Army, this means armor, rocket systems,
helicopters, and attack missiles. These weapon systems won't
fit on any commercial aircraft--nor will they fit on most
military airlifters in service today. Future air-deployable
Army combat units will rely increasingly on the availability
of airlift to carry this type of cargo.
The C-17 will provide the Air Force the capability to
deliver critical Army ``outsized loads'' while allowing
access to 9,000 more runways (an increase of 300%) worldwide
than the C-141 and C-5. The C-17 can land on the same runways
as the C-130 and deliver four times the cargo weight. Equally
important, the C-17 will improve throughput capacity, or
rapid off-load and turn-around on the ground, by increasing
the ``maximum on the ground'' or MOG capacity. The
performance characteristics of the C-17 will permit 8 C-17's
to fit where 3 C-5's fit. Had we had the C-17 during Desert
Shield, we could have delivered the first airborne brigade in
54 hours with just 93 aircraft--an improvement of some 34%
over the 82 hours it took to deliver that brigade with 158 C-
141's and 2 C-5's.
Finally, I am concerned about our joint capabilities for
forced entry operations. In the Gulf War, we enjoyed the
luxury of time and deployment to a country with secure and
modern air and seaports. This may not always be the case.
While the aging C-141 fleet helps the Army fulfill this
requirement today, we will need the C-17 to provide the
strategic airlift for troops and equipment to provide our
forced entry capability and simultaneous application of joint
combat power across the depth of the battlefield in the 21st
century.
Mr. Chairman, I fully appreciate the concern over the
troubled history of the C-17 acquisition program. However, I
urge you to stay the course outlined by the Secretary of
Defense earlier this year. The C-17 is the only aircraft that
can get the Army's outsized combat systems to the next war
when required. I respectfully solicit your support to
maintain the President's request for the FY 1995 funding for
the C-17.
Respectfully,
Gordon R. Sullivan,
General, U.S. Army.
____
U.S. Central Command,
Office of the Commander in Chief,
MacDill Air Force Base, FL, June 3, 1994.
Hon. Sam Nunn,
Chairman, Committee on Armed Services, Russell Senate Office
Building, Washington, DC.
Mr. Chairman: As you know I am concerned and have been
critical of the current state of America's airlift forces.
However, I am even more concerned about our future ability to
project US forces by air.
As our forces are returning from overseas and increasingly
based in the CONUS, I become the CINC faced with the most
strenuous requirement for mobility in the world. In the
CENTCOM theater, because of the long deployment distances, we
are particularly sensitive to, and dependent on, our ability
to ensure the timely deployment of the early arriving lethal
firepower--key to limiting the escalation of a conflict. This
means armor, helicopters, rocket systems, and air defense
missiles, most of which do not fit on any commercial
aircraft. Only the C-17 and C-5 can deliver this requirement.
In addition, during the Gulf War, we were able to deploy in
a country with secure air and sea ports. In this scenario, I
have said we could be well served by the effectiveness of
large commercial type aircraft moving large amounts of bulk
cargo, particularly during the sustainment phase of an
operation. However, I do not feel this will be the case in
the early surge phase of future operations.
We must ensure that all CINCs have the flexibility to
conduct deployment operations given any set of theater
constraints. In the foreseeable future only the C-17, acting
as the Nation's core military airlifter, can provide us this
flexibility.
Mr. Chairman, CENTCOM is dependent on the country's
mobility system. We need the C-17. I urge you to support the
modernization of the nation's strategic airlift as proposed
by the Secretary of Defense and requested by the President in
his FY 1995 budget.
J.P. Hoar,
General, U.S. Marine Corps.
____
Hon. Sam Nunn,
Chairman, Committee on Armed Services, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: I want to take the opportunity to affirm
my personal support, as well as the support of the other four
senior members of the C-17 Defense Science Board Task Force,
for the comprehensive settlement between the Department of
Defense and the McDonnell Douglas Corporation. A key
recommendation of last Summer's C-17 Task Force was ``. . .
to implement a solution in which all contractual issues,
claims and program deficiencies are combined and implemented
as a consolidated settlement.'' This recommendation has
clearly been accomplished with this settlement.
It should also be recognized that the settlement proposed
by the task force was carefully adjusted by Mr. Deutch to
significantly shift more of the financial burden of the
settlement from the government to the contractor. This
involved reducing the government financial liability by $37.5
million and increasing the contractor financial liability by
$137.5 million. All other elements of the task force proposed
settlement remain essentially intact, thus helping to provide
a basis for successful program execution.
I recognize that enactment of authorizing language by the
Congress is a necessary prerequisite that must be satisfied
before this settlement becomes binding on the Department of
Defense or on McDonnell Douglas. I strongly and respectfully
urge you to support enactment of such language.
Sincerely,
Robert A. Fuhman,
C-17 DSB Task Force, Co-chairman.
____
The White House,
Washington, May 23, 1994.
Hon. Thomas S. Foley,
House of Representatives,
Washington, DC.
Dear Mr. Speaker: As the House of Representatives continues
its consideration of H.R. 4301, the National Defense
Authorization Act of FY 1995, I want to re-emphasize the
critical importance of the C-17 to this Nation's strategy and
force posture.
The C-17's capabilities are crucial to the Air Force's
ability to deliver and sustain forces in support of theater
commanders. The C-17 can carry outsize cargo to give early
forces firepower; it can deliver its cargo into remote
locations with short runways; and it has the ability to
airdrop heavy equipment, supplies and troops. The C-17 is the
only aircraft that can meet these core military requirements.
Thus even with a ``mixed'' strategic airlift enhancement
program that includes procurement of nondevelopmental
aircraft, there will be certain core capabilities that can
only be provided by the C-17.
The House Armed Services Committee recommended reducing the
C-17 production rate from six aircraft to four aircraft for
fiscal year 1995. Such a reduction would drastically undercut
the Department of Defense's strategy to control costs and
resolve program deficiencies. After consultation with outside
experts, the Defense Department determined the C-17 meets
essential airlift requirements and is affordable. A reduction
to four aircraft in 1995 would increase the annual unit costs
by $40-50 million, cause at least 8,000 layoffs over the next
two years, and undermine program stability at a time we are
holding the contractor's feet to the fire for cost and
schedule performance. Our careful evaluation of contractor
performance will lead to a decision in November 1995 on full
rate production and procurement of non-developmental
aircraft.
For these reasons, I urge Congress to support the amendment
to be offered by Representative Harman and others to restore
our Budget Request for six C-17s in FY95.
Sincerely,
Bill Clinton.
Mr. GRASSLEY. Mr. President, I yield myself such time as I might
consume.
The PRESIDING OFFICER. The Senator from Iowa is recognized.
Mr. GRASSLEY. Mr. President, I have had an opportunity to listen to
four of my distinguished colleagues, the Senator from South Carolina,
the Senator from Massachusetts, and now the junior Senator from
California, and the Senator from Maine. They have talked very well, and
I agree 99 percent with what they say, because they have spent most of
their time justifying the need for the C-17.
As I said in the beginning, I have no quarrel with the C-17. There is
money in this bill to buy six C-17's. My amendment has nothing to do
with the decision to buy six C-17's.
I am talking about this agreement, and I would like to have my
colleagues who are in opposition to my amendment focus upon the
agreement.
I have said that the C-17 can go forward without this agreement. I
say the C-17 can go forward without this agreement because we have
money in the bill to go forward with the C-17. I am just saying that we
should not be spending $348 million to bail out McDonnell Douglas, a
cash payment to McDonnell Douglas. I have heard fine justifications for
the C-17. I agree with that.
But my colleagues have not spoken to the agreement. My colleagues
have not said why, if we do not have this agreement, we still cannot
purchase those six C-17's.
Now, as I said, this is a cash infusion of taxpayers' money into
McDonnell Douglas.
I want to read a May 6, 1994, article. By the way, in my previous
time on the floor, I said I had quoted from the Wall Street Journal.
That needs to be corrected. The source of my information was the
Financial Times. But I want to give you a summary of that from Reuters'
entitled ``McDonnell Douglas Looking at Possible Acquisitions.''
``The McDonnell Douglas Corporation with an increased
amount of cash in its coffers is looking at possible
additions to its military business,'' the company chairman
John McDonnell said yesterday after the annual meeting.
``Up to now we really could not consider acquisition or
major investments in our core business.''
Continuing the quote:
``Now we are in a position that we can take advantage of
opportunities either in the form of acquisition or internal
investments in our core businesses. We intend to be doing
that.''
That is the end of quote, but going on, according to Reuters:
In the first quarter alone McDonnell Douglas increased cash
and cash equivalents for aerospace operations from $215
million to $230 million as of March 31.
There is a major corporation in America who, its CEO says, is looking
at making major acquisitions. We are talking about here whether or not,
because of mistakes that the company had made, even considering the
cooperation of our Government to rewrite the specs four times to meet
the plane rather than building the plane to meet the specs, they should
have $348 million of taxpayers' money.
I do not think it is justified. I do not think that my colleagues
have made the case of why we cannot go ahead with the C-17 program and
not have this agreement and finance this agreement to the tune of $348
million.
I think I need to respond to the points raised by my colleagues from
these States on another point, that Congress, as they said correctly,
last year did direct the Department of Defense to evaluate the
restructure of the C-17 program. I do not dispute that, but at no time
did we say that we had to bail out the program.
Based on my reading of the documents, at that time we had McDonnell
Douglas over the barrel. We had leverage to get the program back on
track, like Congress said last year. But in the meantime with all these
negotiations, we have changed places with the company, and now it is
the taxpayers that happen to be over the barrel.
This is not, in my view, a realistic response given the mismanagement
of this program. I support the program, the C-17 program, but not this
settlement, and this settlement is not necessary to move forward with
the C-17 program.
The issue is the settlement. The issue on this floor, the issue of my
amendment, is the settlement, not whether or not we should have the C-
17 program.
I think that this is the proper solution. If you asked my advice what
I think should be done on this, if the C-17 does not meet contract
specs, then McDonnell Douglas should be made to either correct the
problem or to repay the Government a reasonable sum of money for lost
performance. If McDonnell Douglas refuses to do that, then I think the
contract should be terminated by default.
On another comment, it was said that this settlement reflects the
Government acting more like business, and we should, I suppose,
compliment that if that were in fact the case. But as I view this, it
is more like business as usual as far as our relationships with the
military industrial complex.
I would like to explore then, because I want to keep the focus on the
agreement, not on the C-17 program, why this is a bad deal.
In my first remarks on my amendment I provided an overall assessment
of the proposed C-17 settlement agreement. My amendment would strip out
the C-17 agreement in the bill that would give McDonnell Douglas a $348
million direct cash payment.
I also stated that I had three specific complaints about the
settlement agreement.
First, there is the cost mischarging scheme.
The C-17 cost mischarging scheme gets a quasi-blessing under the
Deutch plan.
It is referred to as the charging-sustaining-engineering cost in the
settlement agreement.
The cost mischarging scheme is documented in two DOD IG reports:
``Audit of Contractor Accounting Practice Changes for C-17 Engineering
Costs,'' Report No. 92-046, February 13, 1992; and ``Government Actions
Concerning McDonnell Douglas Corporation Financial Condition During
1990,'' January 1993.
When all fiscal year 1990 R&D money for the C-17 was exhausted on or
about October 1, 1990, the Air Force and company officials arbitrarily
agreed to shift R&D costs and work-to-production contracts that were
fat on cash.
This was the infamous journal voucher transfer operation that I have
spoken about many times in morning business over the last several
months on the floor. This journal voucher transfer operation
temporarily prevented a cost overrun on the R&D contract. It made
McDonnell Douglas appear to be performing well. It hid the cost overrun
and made the company look good. That was before this present good
financial condition of McDonnell Douglas as I just quoted from the
Financial Times.
This deception, meaning the journal voucher transfer, facilitated a
steady flow of cash and the award of follow-on contracts.
Had the true cost picture been known up front, the payments might
have stopped.
As a result of this retroactive accounting change, at least $172
million in R&D costs were reallocated to production lots.
This procedure violated Federal statutory law: the Anti-Deficiency
Act, section 1517 of title 31 of the United States Code; and the
Purposes Act, section 1301 of title 31 of the United States Code.
The illegal practice continues today on C-17 contracts.
Eventually, $500 to $600 million in R&D expenses will have to be
moved back to the R&D contract where they belong.
Sadly, there is no more R&D money left over to cover these expenses.
The ceiling on the R&D contract was busted a long time ago. McDonnell
Douglas will have to pick up the tab, unless Uncle Sugar provides some
extraordinary relief.
And that brings me back to the settlement agreement.
The agreement identifies $171 million in C-17 R&D costs that were
mischarged to production contracts.
Under the agreement, these costs must now be charged to the R&D
contract.
As I said a moment ago, there is no more R&D money left over to cover
those costs, not unless the ceiling on the fixed-price R&D contract is
raised.
Well, Mr. President, guess what?
The Deutch plan raises the ceiling on the R&D contract by $237
million.
The Deutch agreement provides a direct cash payment of $348 million
to McDonnell Douglas but does not specify how that money is to be used.
There are two big-ticket items covered by the agreement: the $234.5
million to pay for the wing breakout claim and $171 million to correct
the cost mischarging scheme.
Who can say that McDonnell Douglas will not use some of the $348
million cash payment to cover the cost mischarging scheme?
The wing breakout claim and cost mischarging scheme are treated
differently under the Deutch plan.
The $234.5 million for the wing breakout claim is supposedly covered
by the $348 million cash payment. The cost mischarging scheme is not.
The $171 million needed to correct the cost mischarging scheme is
supposedly an expense that McDonnell Douglas is willing to absorb.
Mr. Deutch wants us to think that the company will have to eat it and
swallow a bitter pill.
Under the Deutch plan it is listed as an out-of-pocket expense for
McDonnell Douglas.
The Deutch plan may be misleading on that score.
The GAO has evaluated those expenses and concludes that McDonnell
Douglas' out-of-pocket expenses are really only $46 million, not the
$454 million touted by Mr. Deutch.
I quote from page 5 of the GAO report:
The stated cost to McDonnell Douglas should be offset by
$237 million that the government would add to the target cost
and ceiling price of the development contract to settle
unspecified contractor claims. In addition, we believe that
the $171 million for nonrecurring engineering should also be
excluded from the $454 million estimate.
The $171 million is not additional funding that the
contractor will have to provide to implement the settlement,
but rather, according to the DOD, full-scale engineering and
development costs that the contractor had inappropriately
allocated to current and future production contracts. The
engineering cost either have been or will be incurred whether
or not the settlement is implemented. The proper charging of
the nonrecurring engineering costs to the development
contract will increase the total cost of that contract.
However, because the development contract is over ceiling,
the contractor would not have been reimbursed for these costs
anyway.
The cost mischarging scheme was used to make a series of illegal
progress payments to McDonnell Douglas. Those payments violated the
Purposes Act and the Anti-Deficiency Act.
Under the law, those violations must be reported and investigated.
Those responsible must be identified and held accountable.
These violations occurred between July and December 1990. That was
just about 4 years ago. Four years have passed, but nothing has
happened.
Has the investigation been completed? Well, of course not.
I do not think we should raise the ceiling on the R&D contract by one
penny, as the Deutch Plan does, until the DOD IG has conducted an
independent investigation; identified those responsible for all the
illegal progress payments to McDonnell Douglas; recovered the money;
and determined what, if any, disciplinary action is called for.
I want to really thank the chairman of the committee, Sam Nunn, and
the ranking Republican, Senator Thurmond, because they are trying to
help in some of these areas. They have put in very strong language that
appears on pages 217 and 218 of the committee report regarding the
proper use of the Antideficiency Act, the investigations connected
thereto, or at least what investigations are supposed to pursue when
there is identified a potential illegal expenditure of money, and
hopefully use that law the way it was intended to be used and hold
people accountable.
The committee's proposal in this regard I think will help re-energize
the Purposes Act and the Antideficiency Act.
The antideficiency law goes right to the heart of Congress'
constitutional responsibility to control the purse strings. The
Department of Defense is violating this law with impunity. That needs
to be brought to a screeching halt.
So I compliment the committee for the guidance that they are giving
to the Department of Defense in this.
Mr. President, I yield the floor and I ask for an accounting of my
time.
The PRESIDING OFFICER (Mr. Akaka). The Senator from Iowa has 50
minutes and 30 seconds remaining.
Mr. GRASSLEY. I yield the floor.
The PRESIDING OFFICER. The Senator from Iowa yields the floor.
Mr. KENNEDY. How much time does the Senator desire.
Mr. BOND. Twenty minutes.
Mr. KENNEDY. I ask unanimous consent that Senator Danforth be
recognized following the Senator from Missouri.
How much time would he like?
Mr. DANFORTH. Twenty minutes.
Mr. KENNEDY. And that he be recognized for 20 minutes.
How much time, then, will we have?
The PRESIDING OFFICER. The Senator from Massachusetts [Mr. Kennedy]
has 49 minutes and 40 seconds remaining.
Mr. KENNEDY. Mr. President, I ask unanimous consent that these two
Senators be recognized in that order for 20 minutes each.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BOND addressed the Chair.
The PRESIDING OFFICER. The Senator from Missouri [Mr. Bond].
Mr. BOND. Mr. President, I thank my distinguished colleague from
Massachusetts, the chairman of the subcommittee.
I join with him, the ranking Republican, Senator Thurmond, the
Senator from Maine, and the Senator from California in opposing the
amendment before us today.
The committee bill contains a reasoned and appropriate coverage of
the C-17 issue--including the omnibus settlement--and it should be
approved by this body. Approval of the Grassley amendment, on the other
hand, would result in dissolution of the settlement and a likely
failure of the C-17 program.
Make no mistake about it. This settlement is critical to going
forward on the C-17. Without the C-17 settlement, the program is
fatally crippled and will likely dissolve into a lengthy series of
litigious actions costing the millions and millions of dollars that the
A-12 litigation is costing.
The issue before us is very simple: Are we going to go forward with
the desperately needed program to modernize our strategic airlift, or
not? Approval of the bill before us will allow the Defense Department
to go forward with the modernization plan. Approval of this amendment,
on the other hand, would likely result in cancellation of the C-17
program, years of litigation, and a disaster the next time this Nation
is forced to deploy our troops to an overseas conflict.
There is no question that we need a new core airlifter. I think
everybody agrees with that. The C-141 fleet has served well beyond its
intended period of service. The fleet has already undergone a service
life extension program, or SLEP, and is now almost constantly under
restriction or grounded for one problem or another. The average
aircraft is 27 years old and has almost 37,000 hours of use out of a
lifetime of 45,000 hours. The simple bottom line is that the C-141 is
fast coming to the end of its useful service life.
We must replace that core capability. The Joint Chiefs of Staff have
laid out a series of requirements that they must have in a core
airlifter. These include the ability to carry outsize cargo such as
armored vehicles, air defense systems and helicopters; the ability to
deliver cargo to austere airfields with short runways and limited ramp
space; and the ability to air drop cargo.
I have here a chart which was blown up from a pamphlet provided to me
by Gen. Ronald Fogleman, commander in chief, U.S. Transportation
Command, when I visited his command at Scott Air Force Base in
Illinois.
The chart gives a detailed review of the capabilities needed in a
core airlifter.
The red means it is in the bottom third and cannot do the job; yellow
means it is in the middle third and in some cases marginal; green means
it fulfills the job.
It shows which aircraft can perform them. For those who may not be
able to use it, this third column over here represents the C-17. The
critical segments are the combat and the military segments.
You can see that the C-17 is the only one of all the aircraft--the C-
5, C-141; two commercial wide bodies, probably a 747 and an L-1011; two
commercial narrow bodies, probably a DC-9 and a 767, or a service life
extension program C-141.
The Chairman of the Joint Chiefs of Staff has made clear that that is
the case--in a recent letter to Senator Inouye he wrote, ``Today there
is only one alternative that can meet the requirements of a core
airlifter--the C-17.''
Now, let us look at a few of these requirements.
Looking at the combat capabilities, the core airlifter must be able
to airdrop cargo and troops, perform low-level parachute extraction,
operate on 3,000 foot runways and unimproved airfields, and have the
capability to survive in combat. Only the C-17 can do all of these
things.
The C-5 cannot do many of them--it was not designed to airdrop troops
or equipment, it cannot do low-level parachute extraction, it cannot
operate on 3,000 foot runways or unimproved airfields, and it is not as
survivable as the C-17. It is a fine aircraft for its intended job--
moving large amounts of equipment to rear staging bases for downloading
to smaller aircraft--but it cannot replace the C-17.
Commercial wide-body aircraft cannot perform any of these combat
requirements. And a SLEPed C-141--which I do not even consider a
realistic option--cannot perform many of them.
We see the same situation when we look at the military requirements.
The core airlifter must have a high throughput--that is the ability
continuously to deliver large amounts of cargo in a constrained
environment such as crowded ramps and limited ground support equipment.
The airlifter must be able to carry outsize and oversize cargo. It must
have the ability to drive vehicles on and off. It must have air
refueling capability; it must have limited ground support requirements,
and configuration flexibility.
The C-17 has all of these capabilities. No other available aircraft
does. Commercial aircraft have almost none of them.
Throughput is going to be a problem if we are operating planes that
require extensive ground support equipment including tractors to
maneuver them and loaders to load and unload them. The inability to
drive vehicles on and off will exacerbate the problem. No commercial
aircraft is going to be able to meet the outsize and oversize cargo
requirement. And they certainly do not have air refueling capability.
So the bottom line then is that if we are going to field a core
airlifter with the capabilities that our best military minds say we
need, then we are going to have to field the C-17 or some new,
undeveloped aircraft. It is clear to me that of those two choices, the
C-17 is the right choice.
It makes no sense to go out and try to develop a new aircraft at this
point. It would almost certainly give us an aircraft that costs more
than the C-17, is delivered later than the C-17 and provides similar
capability to the C-17. Instead, we ought to take this program and make
it work. That is the path that this administration has endorsed, that
the past administration endorsed, and that the panel of experts
appointed by the Defense Science Board has endorsed.
The only other alternative is to give our troops an inadequate
aircraft--an aircraft that our most senior military leaders have said
will not be adequate to do the job. I am not willing to do that, and I
am confident that most of my colleagues are not either.
I know that the GAO has criticized the C-17 program and the
settlement and has argued for a fleet of commercial aircraft. If I have
time later I will answer, point by point, the GAO contentions. I even
heard a senior member of the House Armed Services Committee suggest we
should just let UPS get our troops and equipment there. But there is no
question that our ability to win in future conflicts will be directly
tied to our ability to respond quickly and in force. That means we have
to get our front-line troops to the battle quickly and with their
equipment. That means their Apache and Blackhawk helicopters have to go
in the first few days; their oversize communications vans have to go;
they need Patriot missile batteries to protect them from enemy
ballistic missiles; and they may need armored vehicles or even tanks in
certain circumstances. UPS simply will not be able to deliver.
I know that some have looked at our experience in Desert Storm and
say that it shows we can do the job with aircraft other than the C-17.
However, there were several factor at work in that conflict that we are
unlikely to see repeated. First, we were deploying our troops to a
country that has one of the most modern and extensive systems of
airfields in the world. We did not have to deal with austere airfields.
Although I would note we still ran into problems with throughput, ramp
space, and similar issues. Second, we had an opponent who gave us
months to build up our force. If we had had to fight Saddam in the
first few weeks of Operation Desert Shield, we would have had problems
getting our equipment there because we did not have the C-17.
I would turn, for just a moment, from the specific issue of the need
for a new core airlifter, to the more general issue of our overall
mobility requirements. Mobility issues have been a major topic of
debate throughout the time I have served in the Senate, and
particularly since the end of the gulf war. That conflict focused this
Nation on the importance of moving our forces to a conflict, and on the
drastic shortfall in our current capability. It appears that there will
be a significant discussion of mobility issues on this bill.
The issue of lift is growing in importance with each passing day as
we continue to draw down our force and as we continue to withdraw our
troops from their forward bases overseas.
Focusing on airlift, for the moment. Currently we face a shortfall in
airlift capability. Even with the aging C-131's in the force, the Air
Mobility Command is unable to meet the airlift needs that have been
determined as minimum by the Joint Chiefs of Staff, and it cannot meet
the requirement of deploying our forces to two nearly simultaneous
major regional conflicts as the current administration has said we must
be able to do. In fact, in a recent statement before the House Armed
Services Committee, Deputy Secretary Deutch said, ``During the Bottom-
Up Review it was clear that strategic lift was the single greatest
shortage from meeting our ability to deal with two major regional
conflicts.'' (5/17/94)
The shortage is so acute that even the full buy of 120 C-17's will
not alleviate it, however, it will at least get us within a moderate
level of risk of meeting that requirement.
The shortfall in our existing capability is particularly acute in the
ability to move outsize and oversize cargo. These are the items that
can only be moved by the C-17 and, as I have already stated, these are
the items that will have to be moved in the first few days of a
conflict. In fact, Secretary Deutch has said that fully 75 percent of
the cargo moved in the early weeks of a conflict would be either
oversized or outsized. (Testimony before HASC, 5/17/94).
Currently, according to the information I received during a recent
briefing at TRANSCOM headquarters, we can come nowhere close to
deploying our troops and their equipment to two MRC's in time to win
both scenarios. In fact, we would give our opponents in the second
conflict months in which to move nearly unchallenged because of an
inability to move our forces on schedule. This focuses--at least in my
mind--the need for moving forward with deployment of the C-17.
Let me turn to the issue of the comprehensive settlement, signed last
year by DOD and McDonnell Douglas. First, let us make clear that the
settlement which would be vitiated by this amendment deleting the
bill's funding was not negotiated with McDonnell Douglas. It was a take
it or leave it offer from the Defense Department to McDonnell Douglas
and they took it. My colleague from Iowa says he is only concerned
about the settlement; not the need for the C-17, or for the purchase of
six C-17's.
The issue is the C-17 program because if we do not get the
settlement, then the whole program is at risk. If the settlement is
denied then McDonnell Douglas would have to pursue its legal claims
against the Air Force, the program would falter and die and our
soldiers would be unable to get their equipment to the next conflict.
The settlement does not, as my colleague from Iowa said, give a $348
million cash payment to McDonnell Douglas. It gives $234 million plus
the Government agrees to take on certain ongoing responsibilities.
This settlement is a reasonable one and it makes sense for all
parties involved. It was first recommended by a specially-appointed
Defense Science Board panel of senior experts. It was adopted by the
current Pentagon leadership which certainly has no ties to this
program--no reason to defend it other than because it is the right
thing to do. And it has even been supported by the acting DOD inspector
general, who has certainly been no friend of the program.
The Senator from Iowa has cited extensively comments by the IG. The
IG Mr. Vander Schaaf, in a letter to Senator Kennedy earlier this month
wrote. ``I believe that it is essential that the settlement agreement
be approved as part of any decision to continue purchasing C-17
aircraft and to continue the course of action outlined by Deputy
Secretary Deutch to the Congress on the future of military airlift.''
He went on to say, ``The settlement resolves all major outstanding
issues and prevents a lengthy and expensive court battle. These legal
proceedings could be costly even if the Government were to prevail on
all the issues, which is of course highly unlikely.'' And he goes on
characterize the settlement as a ``sensible business arrangement.''
I would just highlight this for my friend from Iowa. This is the
inspector general speaking--an individual who has been highly critical
of the C-17, the Air Force and McDonnell Douglas. And someone whom the
Senator has used as a source for many of his efforts on the floor. He
has spent a considerable amount of time to study the program,
testifying before Congress in relation to it--and, he participated in
the Defense Science Board review. Even he agrees that this settlement
makes sense.
Despite what the sponsors of this amendment would have us believe,
this is not a bail-out for the contractor, and it is not a rip-off for
taxpayers. It is a reasonable solution for fixing a program that has
seen its share of trouble, but which is now back on track and working.
The settlement will resolve all of the lose ends that currently
threaten the program. It assigns ultimate responsibility for all issues
to either the contractor or the Government. It eliminates the
possibility of wide-ranging and lengthy litigation which would cost the
taxpayers millions, it gets all parties focused solely on making the
program a success, and it results in our forces getting the aircraft
they need to defend this Nation.
There are claims from the contractor of approximately $1.7 billion on
this program.
The counsel's office in the DOD has advised me that on average,
contractors win about 30 cents on the dollar. That is over $500 million
potential liability to the Federal Government if they do not accept
this settlement.
Make no mistake, this settlement is key to the success of the
program. To quote from the Defense Science Board panel report:
We believe the C-17 program will be successful if, and only
if, the consolidated settlement is executed and the other
recommendations detailed in this report are carried out.
I want my colleagues to understand, you cannot say you support the C-
17 program but do not support the settlement. They go hand in hand.
They cannot be separated.
Who said that? The panel was composed of the retired president and
CEO of Lockheed, the commander of the Aeronautical Systems Center, the
president of the Aerospace Corporation, the president and general
manager of the B-2 Division of Northrop, and the chairman and CEO of
Hughes Aircraft.
Mr. President, there is another issue that I wish to touch on
briefly. That is the current status of the C-17 itself. There has been
a lot of misinformation and hysteria circulated by opponents of the
program. I think just to be clear, we ought to understand the status.
McDonnell Douglas has to date delivered 13 aircraft. Six of these are
being used in the test program; seven are in operation at Charleston
Air Force Base in South Carolina. The contractor will deliver the next
aircraft this month.
The testing program is going forward at a healthy rate. Static ground
testing to 150 percent has been completed successfully; lifetime
durability testing has been completed. The aircraft is going to be
cycled through a second lifetime for 60,000 hours.
Many numerous achievements have been indicated. The C-17 has
demonstrated it can back up with payload aboard, turn around on a 90-
foot runway, and offload eleven 10,000-pound pallets without ground
support.
I have seen the pictures of it engaged in a low-altitude parachute
extraction, which is something that the C-17 is unique in being able to
do.
It has already set 21 new world flight records. But just as the
distinguished Senator from California has said, probably the most
important and persuasive thing about this, when you talk to the people
who are operating it, when you talk to the loadmaster--that is the guy
who really delivers the cargo, the person who is responsible for
getting the packages there--he says: ``This is the best plane that we
have ever had to allow me to do my job.''
This is designed to get the payloads in.
The reports from men and women who operate the C-17 are nothing short
of glowing. It is a working aircraft. It is in production. Adopting the
amendment before us today would wipe that progress away. Instead of
having an operational first squadron in 6 months, we might be looking
at 6 years or more and a significant degree of litigation.
That is good news for the lawyers who would fight it out in court,
but bad news for our national security.
The C-17 Program is working. Both the Defense Department and the
contractor have indicated their strong desire to make it a success.
There is no question that we desperately need the system.
I urge my colleagues to reject this amendment. Let this plan go
forward and make the program work; get the C-17 to the men and women
who need it as quickly as possible.
The PRESIDING OFFICER. Who yields time?
Mr. DANFORTH addressed the Chair.
The PRESIDING OFFICER. The Senator from Missouri [Mr. Danforth], is
recognized.
Mr. DANFORTH. Mr. President, I strongly oppose the Grassley amendment
and I support the efforts of the chairman of the subcommittee of the
Armed Services Committee, Senator Kennedy, and the efforts of the
ranking member, Senator Cohen, in opposing this amendment.
Let me say especially that I want to compliment Senator Kennedy for
the enormous amount of time and attention he has paid to this issue.
His subcommittee has held hearings on this matter and, in addition to
the hearings, he has taken the time and the trouble to sit down with
the appropriate people in the Defense Department, including Deputy
Secretary Deutch, to go over the C-17 program and this settlement in
enormous detail.
I think it is fair to say that Senator Kennedy would not be listed
among the knee-jerk supporters for every defense spending effort that
comes before the U.S. Senate. He is a person who is not an automatic
vote in favor of more and more defense spending. I think when he is
convinced about the soundness of a program and the soundness of what
the administration is attempting to do, that in itself is a very strong
statement about the program and about the solution that has been
offered by the Defense Department and by this administration.
Mr. President, there is no dispute before us about the importance of
the C-17. This is a matter that has been spoken about on the floor of
the Senate in this debate already. My colleague, Senator Bond, made a
very strong case about the importance of the C-17, as did Senator
Kennedy, Senator Cohen, and Senator Feinstein. Senator Grassley himself
has conceded the importance of the C-17 and, in fact, has told the
Senate that he supports the C-17. So on both sides of this issue, there
is agreement on the efficacy of this equipment, of the C-17, and of
support for the C-17.
This high regard for this particular aircraft is shared by the
Department of Defense, and certainly by the Chairman of the Joint
Chiefs of Staff, who has said:
Today there is only one alternative that can meet the
requirements of a core airlifter: The C-17.
That is the position of the Joint Chiefs of Staff.
The Secretary of Defense has said:
The C-17 is the only airlifter in production that meets
these core military requirements.
So, again, the professional judgment of the Department of Defense and
the professional judgment of the Joint Chiefs of Staff coincides with
the views expressed on both sides of this issue on the floor of the
Senate.
This is a very important system. That is not to say it has not been a
troubled system. It has been troubled. It has been troubled because of
the fact that the contract under which the aircraft was developed--the
fixed price development contract--created real problems. Those problems
have been recognized because now there is no such thing as a fixed
price development contract.
It is recognized that a fixed price does not go with a development
contract. The nature of development is that you cannot have a fixed
price. So the concept of a fixed price development contract is now
defunct.
But the problem was incurred under the fixed price development
contract, and it did create a mess and it did create a major dispute.
To the credit of the Clinton administration, when it came into office,
it attempted to unwind this situation somehow to make it right. It
assigned within the Department of Defense seven different teams to look
at the C-17 and the contracting problems with the C-17. Those seven
teams were comprised of 75 individuals, experts on the subject, who
looked at the details. As a result of their effort, they created an
ultimatum.
Now, Mr. President, the term ``settlement'' has been bandied about
the floor of Senate. It is said that, well, this is a settlement, or a
bailout, for McDonnell Douglas; somehow they settled the claim with the
Department of Defense.
It is not a settlement. It is an ultimatum, an ultimatum that was
issued by the Department of Defense: take it or leave it. And on
January 6 of this year, McDonnell Douglas took it. And the ultimatum
was no great deal for McDonnell Douglas because McDonnell Douglas had
already filed claims of $450 million against the Department of Defense,
and in addition had $1.25 billion of claims that were prepared. And the
Defense Department said: Drop them, drop your claims. Forget about
them. We are not going to pay those claims.
The Defense Department said, furthermore, not only are you going to
drop the claims, you are going to invest $100 million to lower the
production costs and improve productivity; you, McDonnell Douglas, are
going to redesign the wing at no cost to the Government; you are going
to split the costs of additional flight testing and certain
productivity improvements with the Government. And in return for all of
this, in return for dropping your claims and paying these additional
costs, the Government will pay $237 million for the contractor's claims
and make a limited release of claims for late delivery of certain
aircraft.
Overall, McDonnell Douglas pays $454 million, the Government pays
$348 million compared to claims of $450 million plus another $1.25
billion that were prepared. That is hardly a bailout, and it is hardly
a settlement. It is a very tough deal.
Now, the Senator from Iowa says, well, he is not against the C-17. He
concedes the significance and the efficacy of the C-17. He says his
problem is not with the C-17. His problem is with the settlement. And
yet, Mr. President, the position of the Department of Defense is that
the settlement and the future of the settlement are identical to the
future of the C-17. They cannot be separated.
Deputy Secretary of Defense John Deutch testified before the House
Armed Services Committee this year, and here is his quote:
Without a settlement, a productive business requirement,
which is essential to getting the C-17 program back on track,
will not be established. Instead of putting in the necessary
technical and management reforms, we will be back in claims
court, back in claims adjudication dealing with a fixed price
development contract * * * and there will be no basis for
instituting the required management and technical reforms.
Furthermore, in a letter signed by Secretary Perry and Deputy
Secretary of Defense Deutch to me dated June 21, 1994, they said:
The settlement removes the gridlock that paralyzed the C-17
program for years and protects the Department's interests on
business issues and contractual claims. It gives the program
a fresh start while holding the contractor strictly
accountable for improving its performance.
Mr. President, I ask unanimous consent that this letter be printed in
the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
The Secretary of Defense,
Washington, DC, June 21, 1994.
Hon. John C. Danforth,
U.S. Senate,
Washington, D.C.
Dear Senator Danforth: The Fiscal Year (FY) 1995 National
Defense Authorization bill (S. 2182) reported by the Senate
Armed Services Committee supports our commitment to airlift
modernization by funding the C-17 and approving the C-17
settlement agreement. As the Senate continues consideration
of S. 2182, we urge you to support the Committee position on
the C-17 and the settlement agreement.
Our warfighting CINCs must have the capability to project
and sustain forces worldwide. To do this they need a
survivable airlift that can deliver outsize cargo to remote
locations with austere fields; and it must be able to airdrop
heavy equipment, supplies, and troops. The C-17 is the only
airlifter in production that meets core military
requirements.
We developed an integrated strategy to meet our airlift
requirements after comprehensively reviewing the C-17 program
and the airlift needs of our combatant commanders. The
necessary first step is to continue the C-17 program on a
probationary basis to obtain 40 C-17s.
If McDonnell Douglas proves it can deliver quality
aircraft, on time, at an affordable price, we will have
positioned ourselves to acquire additional C-17s. The second
step is to assess the capabilities and costs of non-
developmental alternative aircraft.
For us to proceed with our airlift strategy, we need
approval of the settlement agreement. As the Deputy Inspector
General of the Department of Defense, Mr. Derek J. Vander
Schaaf, expressed to the Senate Armed Services Committee, it
is essential that the settlement agreement be approved as
part of any decision to continue purchasing the C-17 and to
continue our strategy on future military airlift.
The settlement removes the gridlock that paralyzed the C-17
program for years and protects the Department's interests on
business issues and contractual claims. It gives the program
a fresh start while holding the contractor strictly
accountable for improving its performance.
For these reasons we request that you and your colleagues
support the Senate Armed Services Committee and our airlift
strategy when finalizing the FY 1995 defense bill.
Sincerely,
John M. Deutch,
Deputy Secretary of Defense.
William J. Perry,
Secretary of Defense.
Mr. DANFORTH. Then, Mr. President, the deputy inspector general wrote
a letter to Senator Kennedy which has already been cited in this
Chamber, a letter dated June 3, 1994. Deputy Inspector General Derek J.
Vander Schaaf wrote the letter. A number of people have pointed out
that the inspector general has not exactly been fawning over the C-17
for the last number of years. But here is what the deputy inspector
general of the Defense Department has said about this settlement.
Bear in mind the issue is whether the settlement is related to the
underlying program, which everybody concedes is a good program. This is
the deputy inspector general of the Defense Department, and here is
what the deputy inspector general of the Defense Department says on the
question of this settlement and the relationship between this
settlement and the underlying program:
I believe that it is essential that the settlement
agreement be approved as part of any decision to continue
purchasing C-17 aircraft and to continue the course of action
outlined by Deputy Secretary Deutch to the Congress on the
future of military airlift.
The deputy inspector general goes on to say:
It is hard enough to manage a program of the C-17's size,
complexity and problems. It is next to impossible if the
Government and the contractor are in court arguing over costs
incurred under a fixed price contract that is at least $1.2
billion over ceiling but is still supposed to serve as the
operative document under which the program is managed.
Failure to approve the settlement agreement will leave the
program with a management environment that is not working and
the prospect of wasting millions of dollars in litigation.
That is the deputy inspector general speaking. That is not a lobbyist
for McDonnell Douglas. That is the deputy inspector general. That is
not some Senator from a State where McDonnell Douglas is located. That
is the deputy inspector general speaking, saying that it is essential,
if this program is to go forward that this settlement be approved.
I only would make one other point, Mr. President, and it is this. The
ultimatum which was made by the Defense Department to McDonnell Douglas
was agreed to by McDonnell Douglas on January 6 of this year. That is
approximately 5\1/2\ months ago.
Now, when an ultimatum is handed down from the Defense Department and
when the contractor says, all right, we will meet that obligation, and
then the contractor goes ahead, moves forward, acts on that
representation, acts on the ultimatum, then a new relationship has been
created with the Defense Department. Now, for that relationship to be
undercut in this Chamber creates not only contractual problems for the
Government; it creates enormous precedential problems for any
contractor that is even thinking about doing business with the
Department of Defense in the future.
I have had one former defense contractor explain why his business--he
is the CEO of this business--is no longer a defense contractor. He
said, ``I do not want to do business with anybody who does not want me
to make a profit and who thinks I am a crook.''
Well, if people are going to get into the business of defense
contracting or stay in that business, they have to have some reasonable
assurance about the good will and the integrity and the reliability of
those with whom they are doing business. And when the Department of
Defense says here is the deal, and McDonnell Douglas 5\1/2\ months ago
says, all right, we do not like it but we will take it, it is an
ultimatum and we will take it, and they act in accordance with that
agreement, then in this Chamber to offer an amendment and for the
Senate to vote against that agreement and undo that agreement and undo
the deal is in the opinion of this Senator the breaching of a contract
if not legally--and maybe legally--certainly in principle.
It sends a very powerful message to other defense contractors that
whatever arrangement they have with the Department of Defense, forget
about it, because Congress is coming. Somebody is going to offer an
amendment on the floor of the Senate to undo it. Do not rely on
anything you hear from DOD.
For all those reasons, Mr. President, I support strongly the position
taken by Senator Kennedy, as chairman of the subcommittee, and Senator
Cohen, who is the ranking member of the subcommittee, in opposition to
the Grassley amendment.
The PRESIDING OFFICER. Who yields time?
Mr. LIEBERMAN addressed the Chair.
The PRESIDING OFFICER. The Senator from Connecticut [Mr. Lieberman],
is recognized.
Mr. LIEBERMAN. I thank the Chair.
Mr. President, I yield to myself such time as remains that was
allocated to Senator Kennedy, with his permission.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LIEBERMAN. Mr. President, I thank the Chair.
Mr. President, I first ask unanimous consent that Debra Shelton, who
is a congressional fellow on my staff, have access to the floor during
consideration of S. 2182.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LIEBERMAN. I thank the Chair.
Mr. President, I rise to oppose the amendment offered by the Senator
from Iowa and to support both the C-17 aircraft and the settlement that
has been negotiated by the Pentagon involving the C-17.
I rise as a member of the subcommittee of the Armed Services
Committee chaired by Senator Kennedy to join with him and the ranking
Republican member, Senator Cohen, in supporting this settlement and to
particularly offer my thanks and congratulations to Senator Kennedy for
the leadership he has given on this very difficult, complicated, and
controversial matter to try to bring it to a point where we can go
forward with some confidence that we are going to be able to obtain the
airlift capacity that everybody, including, apparently, people on both
sides of this particular amendment, agree that America really needs for
its national security.
I do not want to belabor the point about the C-17. I am just going to
cite two or three sentences given to our committee, the Armed Services
Committee, by leaders of the military.
Gen. Gordan Sullivan, Chief of Staff for the U.S. States Army, said
to us: ``The C-17 is the only aircraft that can get the Army's outsized
combat systems to the next war when required.''
Gen. Joe Hoar, the commander in chief of the U.S. Central Command,
wrote to the committee saying simply: ``We need the C-17. I urge you to
support the modernization of the Nation's strategic airlift.''
Finally, the Chairman of the Joint Chiefs of Staff, General John
Shalikashvili, wrote to the House Armed Services Committee: ``Today
there is only one alternative that can meet the requirements of a core
airlifter--the C-17.''
So, Mr. President, the military has been quite clear with us. It does
not take much more than reading today's newspapers to understand the
unique nature of the conflicts we are going to face in the future. This
is a remarkable airplane coming along which can carry outsized
equipment to remote locations and land on difficult and often smaller
airfields. That is exactly what we need.
The question raised by the amendment--and I think the Senator from
Iowa is quite direct; he has accepted the need for the six C-17's that
are authorized in this bill--the question is, do we need the settlement
to obtain the C-17's? What is the relevance of the settlement to the C-
17's? I think my colleagues have spoken well to this point. I just
would like to add a few thoughts to it. The first is that this
settlement did not just arrive out of the air as some deal, secret or
otherwise, that was concocted by the Under Deputy Secretary of Defense,
John Deutch, and the folks at McDonnell Douglas, or the Pentagon and
McDonnell Douglas. This settlement follows a course of behavior that
has been urged on the Pentagon by Members of Congress and, indeed, by
independent oversight authorities such as the DOD Inspector General's
office.
In fact, in the letter quoted earlier by a few of my colleagues from
the Deputy Inspector General Derek J. Vander Schaaf, Mr. Vander Schaaf
makes clear that in May of 1992 the Inspector General of the Department
of Defense made a series of recommendations which included one for a
comprehensive cost and operational effectiveness analysis of the C-17
program. He recommended a Defense Acquisition Board program review be
conducted prior to award of additional contracts.
This was a troubled program. Those recommendations worked their way
into the fiscal year 1993 DOD authorization act adopted by this
Congress, and, pursuant to that, a special Defense Science Board task
force on the C-17 was appointed.
It was that task force that recommended to the new management team at
the Pentagon early last year that they try to clear the air; that they
try to negotiate a settlement with McDonnell Douglas to see if we could
give this troubled program--which was aimed at meeting a very real and
universally accepted need that we had--a way to get over its troubles.
Mr. Deutch went forward and argued effectively, I think, in his
negotiations with McDonnell Douglas and came up with this settlement.
Mr. President, supporting a public official such as Deputy Secretary
Deutch would not be reason enough to support the settlement if we did
not think the settlement made sense. But I do think it is important to
note here that Deputy Secretary Deutch was acting in response to a
series of requests that were issued by Congress' oversight authorities
in negotiating this settlement.
As a member of the Armed Services Committee, I have had the
opportunity to watch and work with Mr. Deutch. I have found him to be
extremely hardworking, thoughtful, effective, and totally committed to
our national security.
I think it is important to say that we sent him out on a mission. I
happen to think he performed it ably. But we ought to think twice not
only before we send a message, as Senator Danforth said earlier, that
military contractors can negotiate agreements with the Pentagon and
then they will be nullified by second-guessing in Congress, but that we
ought to send another message which is to the very effective public
officials who serve us, as Deputy Secretary Deutch does, that if they
go out and perform a mission that we have asked them to perform, that,
unless we have awfully good reason, we are not going to second-guess
them or micromanage and cut them off at the knees after they have done
their best to carry out the mission we have given them.
In the case of the C-17 settlement have they done their best? I think
this settlement clears the air. It gives McDonnell Douglas the best
hope of building this aircraft that we need. It gives, incidentally, a
program design for the Pentagon and now sets the Pentagon on a course
that will give them a year. And then, in November of 1995, they have to
look back and decide whether, in fact, as a result of the settlement
and the authorization of these six aircraft, McDonnell Douglas has
performed up to the desired standard. During that time, the Pentagon
will also consider other options for meeting the airlift requirement,
including the modification of conventional commercial aircraft.
But this settlement clears the decks fairly. It is a win-win for the
Government and for McDonnell Douglas. And it gives us our best hope of
getting this very serious airlift requirement met as soon as possible
and as effectively as possible.
I come back to the words of the deputy inspector general, Mr. Vander
Schaaf, about this settlement.
This is not McDonnell Douglas; it is not even a Member of this
Chamber. This is the IG saying:
``The C-17 program is not viable without substantial change
and resolution of numerous program management and contracting
issues. The settlement resolves all major outstanding issues
and prevents a lengthy and expensive court battle. These
legal proceedings could be costly even if the Government were
to prevail on all the issues which is, of course, highly
unlikely.
The IG concludes:
I see the settlement agreement as a sensible business
arrangement in which McDonnell Douglas incurs additional
costs of $454 million, recognizes some of its
responsibilities for the C-17 shortcomings, and agrees to
modernize its engineering and management systems.
And then in a final statement--and one we should remember--Mr. Vander
Schaaf says:
Should the Congress approve the settlement agreement, we
(the IG's office) are prepared to ensure that the agreement
is implemented as approved and provide regular independent
reports to the Committee on its implementation.
So I say, for those who may have any doubts, that should be the one
final convincing argument to support the settlement and cause us to
oppose the amendment. I thank the Chair and yield the floor.
The PRESIDING OFFICER. Who yields time?
Mr. GRASSLEY. Mr. President, I yield myself such time as I might
consume.
Mr. President, I am learning an awful lot on this floor about the C-
17, none of it which I dispute as to why it is needed. What I am not
learning much about is why we need this specific agreement, why it
cannot be renegotiated to give the taxpayers a fair deal.
I think that we are giving an awful lot of consideration for an awful
lot of interests here except the taxpayers' interests. I heard it
spoken about 70 people in the Defense Department that worked on this
deal. I heard about five people that are on a special high-level review
group as an independent expert body to reconsider it. For instance,
these are the five people: Robert Furman, president and chief operating
officer, Lockheed Corp.; Lt. Gen. James A. Fayne, commander of the
Aeronautical System Center; Edward C. Baldridge, president of the
Aerospace Corp.; Mr. Oliver C. Wallo, Jr., president of the B-2
division, Northrop Corp.; Dr. Malcolm R. Curry, chairman and CEO,
retired, of Hughes Aircraft.
Think of those people. They are the special high-level review group
that has been referred to here by all my colleagues, and that this
compromise and agreement was very carefully worked out. And then 70
other people within the Defense Department were working on it.
Where are the taxpayers' interests in this group? Where are the
taxpayers' interests in this group? That is the question we have not
heard much discussion about.
Why $348 million? Why do we need $348 million for a company that
looks pretty good financially? I quoted from Reuter's on this. Let me
quote from the Financial Times of May 6, 1994:
McDonnell Douglas and the U.S. Aerospace and Defense Group
is building up financial muscle. It wants to put itself in a
good position to take advantage of investments and
acquisition opportunities for its core aerospace business.
This company saw its stock go from $48 in 1992 to around $120 this
year. That is as of May 6, 1994. This settlement, supposedly, this
agreement, is a justification for keeping this program going. If this
program does not keep going, if this settlement does not go through,
then the C-17 program does not go. What is the tie-in between this
agreement and $348 million and keeping the C-17 program going when you
have a company that is so well off financially, it has improved its
financial condition so well that it can think about acquisition
opportunities, according to the Financial Times?
I just do not think there has been a case made that you need $348
million to keep this company afloat so that we can keep getting the C-
17.
We have heard a big deal made about this agreement as we have viewed
it, and a settlement being an ultimatum; that this group of 75 people,
and four out of the top five people are major or retired corporate
heads that have a great deal of special interest in defense business,
so I do not know whether that is an impartial consideration. But we are
told that they gave McDonnell Douglas a $348 million ultimatum--take it
or leave it.
Well, we all wish we could have an ultimatum where that kind of cash
is shoved down your throat.
On the other hand, the General Accounting Office--and I want to point
out the General Accounting Office, because so many of the speakers in
this body have quoted the inspector general--well, the General
Accounting Office says that this $348 million ultimatum ``is a lousy
deal for the taxpayers.'' I agree with that. In fact, the General
Accounting Office report, dated April 1994, is entitled ``The C-17
Settlement is Not a Good Deal.''
So I hope that all of my colleagues who are looking at this
settlement and listening to people quote the inspector general, and
saying what a great deal this is, will consider the position of the
General Accounting Office that says that the C-17 settlement is not a
good deal.
The C-17 agreement, as I see it, would lower the range payload
specifications on this airplane. It would do it for the fourth time.
Mr. President, we are building an aircraft, and we are writing the
specs to meet what the aircraft can do.
The way we ought to look out for the taxpayers' money in the Defense
Department is to decide what our national security goals are, then
decide how much money it takes to meet those national security goals,
then build equipment to meet those national security goals, have the
Government write those specifications, and put it out for bid to a
company that will try to do what the Government and taxpayers want done
to meet our national security responsibilities.
The C-17 aircraft that have been delivered to date do not meet
important range and payload specifications.
This is not Mickey Mouse stuff.
Mr. BOND. Mr. President, will the Senator yield for a question?
Mr. GRASSLEY. I will yield for a question.
Mr. BOND. Mr. President, I would ask my good friend from Iowa if he
is aware of the statements made by under Secretary Deutch to the House
Armed Services Committee on May 17, 1994, in which he said, ``In the
Joint Chiefs of Staff judgment, there is no impact on the operational
military capability of this plane''?
He further said, ``Some of these specifications we have indeed
reduced, not because it was a problem for the contractor to meet them,
but because they had no value for the military condition.''
Is my colleague familiar with that statement?
Mr. GRASSLEY. Mr. President, I say to the Senator from Missouri, I am
not specifically familiar with it. I will accept what he said.
I do not think it detracts from what I have said that I can factually
and specifically verify.
Regardless of what the Joint Chiefs of Staff say now might be
necessary to meet our national security goals, when it was decided that
this airplane was needed there were specifications written for that.
Those specifications have been modified four times and they have been
modified because the plane could not do what the Defense Department
said it wanted it to do in each of those original specifications.
Mr. President, they do not meet the important range and payload
specifications. What we are talking about here is the primary
justification for the airplane: The ability to deliver vital military
cargo overseas to our troops fighting in the field.
The C-17 simply, as it is being built now, is not able to do what was
originally said that it should accomplish. The C-17 cannot carry cargo
over the required distance. This is a problem. It is a very big
problem.
But this is not the first time the range/payload specs have been
revised downward. As I said, this is the fourth time. The C-17 range/
payload is headed South.
The C-17 range/payload specs have been moved downward on three
different occasions.
Under the initial specs, the C-17 was supposed to carry 172,200
pounds 2,400 nautical miles.
Since then, the range/payload specs have been moved down three times:
November 1985, March 1990, and July 1991. And now under the Deutch
plan, it is about to take another dive.
And DOD is developing a way to change the methodology for calculating
the C-17 range/payload performance. That worries me. That is a way to,
as I see it, scheme on their part to really bugger up the data. Pretty
soon we will not know where we are compared to, where we started, and
where we are supposed to be.
Of course, that is the rubber baseline at its worst.
That is probably part of Mr. Deutch's plan to keep us confused.
The latest data suggests that current C-17 performance on the heavy
logistics mission is only 93,345 pounds. That is well below the
original spec of 130,000 pounds and the proposed Deutch spec of 120,000
pounds.
I have a feeling that we have not reached the end of the road on the
C-17 range/payload shortfall. Another trip down that road is already in
the making.
The Deutch plan will help the contractor and the airplane meet the
specs. The specs will meet the airplane rather than having the airplane
meet the specs. It is not supposed to work like that.
The Deutch plan is wasteful.
We paid McDonnell Douglas top dollar to meet the more stringent
specs.
More stringent specs are more costly because they involve greater
risk. They may not be achievable, as we now know.
McDonnell Douglas signed up to the more stringent specs. Now, we are
about to let them off the hook.
We should hold their feet to the fire and make them live up to the
terms of the contract.
If the C-17 does not meet contract specs, then McDonnell Douglas
should be made to either correct the problem or repay the Government a
reasonable sum of money for lost performance.
If McDonnell Douglas refuses to do that, then I think the contract
should be terminated for default.
Under no circumstances should we be making a $348 million cash
payment to McDonnell Douglas when the airplane does not meet important
contract specs, like range/payload specs.
Those specs were written into the contract for a reason. That is what
the military said they needed to carry out the mission. We are not even
close to meeting those requirements. The C-17 is not going to give us
the airlift capability we need to do the job somewhere down the road.
We paid McDonnell Douglas billions of dollars to develop and deliver
an airplane that could deliver the goods over the required distance.
Well, the airplane falls far short of the need. But we still paid full
price. And now, Mr. Deutch is asking us to pay full price plus.
We pay full price plus $348 million. We pay more and get less.
That is not right.
The Deutch plan makes a mockery of defense contracting.
The Deutch plan is a lousy deal for the taxpayers.
I will yield 10 minutes to Senator Roth of my time.
The PRESIDING OFFICER (Mr. Conrad). Senator Roth is recognized for 10
minutes.
Mr. ROTH. Mr. President, I rise today to oppose the settlement
between the Defense Department and McDonnell Douglas. The C-17 aircraft
is a program that typifies the problems with the Pentagon's buying
system. It is far over budget, behind schedule, and does not meet
requirements.
Approving the settlement would condone business as usual. Moreover,
it would remove any accountability for those who are responsible for
the problems in this program.
Here is the situation in a nutshell. In 1990, the Defense Department
determined that McDonnell Douglas was overrunning significantly its
fixed price development contract on the C-17 aircraft. The Government
began to take actions to rein-in the contractor. In response, the
contractor filed a claim against the Government to get reimbursed for
the cost overruns, stating that the Government's poor program
management caused the problems. There never was a question that the
technology was too risky. The issue was always whether it was the
Pentagon or McDonnell Douglas that had the management problem.
About 6 months ago, the Secretary of Defense announced that the
situation had worsened and that the Undersecretary of Defense for
Acquisition had developed a plan to fix the problems or terminate the
program at 40 aircraft. It was supposed to cost $41.7 billion for 210
planes; now it will cost $43 billion for 120 planes.
I think that is worth reading once more. It was supposed to cost
$41.7 billion for 210 planes, but now it will cost $43 billion for 120
planes.
At that time the Secretary said: ``The C-17 is late, it's over
ceiling price, and it has serious operational deficiencies.''
Under the terms of the settlement the taxpayers will pay McDonnell
Douglas $348 million, in return for its dropping the claims suit. In
addition, the Government agrees to buy 40 C-17 aircraft and then to
reevaluate the contractor's performance. The General Accounting Office
has reviewed the settlement and determined that ``it is not in the best
interest of the Government.'' One reason why the settlement is not a
good deal is that even if the problems are fixed, it is still going to
cost $1.3 billion more to get 90 fewer planes than were planned 3 years
ago. This deal is a turkey for American taxpayers, and like a turkey,
it just will not fly.
Mr. President, I have spent many years analyzing the problems of the
Pentagon's buying system. I do not believe that the settlement will fix
the problems in the C-17 program. First, the deal holds no one
accountable for this horror story or for fixing the problems. The
settlement states that the Defense Department will reassess the
situation in November 1995. But, the General Accounting Office, in its
review of the settlement, found that ``DOD will have little more
information in November 1995 than it does now on the contractor's
ability to cost-effectively produce the C-17.''
Moreover, the GAO found that there are no cost, schedule, and
performance criteria to determine whether the problems have been fixed.
The taxpayers are supposed to pay to fix the program, and no one will
be able to tell if the problems have been fixed. It is like taking your
car to get fixed, paying for the repairs, and then hoping that the
repairs get made.
Mr. President, the second reason that this is a bad deal is that it
removes all recourse for the Government. The agreement lowers the
contract specifications to a level that the plane can meet, rather than
the capability that is required. For example, the C-17 specification
for heavy lift will be lowered to nearly 20,000 pounds less than the
minimum requirement. According to the Pentagon, failure to meet a
minimum requirement normally is a reason to terminate a program. In the
private sector, if you pay for a repair that isn't made there are
consumer protection laws. Under the terms of this agreement, the
Government waives its own consumer protection laws.
Mr. President, I am also concerned that this settlement represents a
double standard. One for big, prime contractors and another for small
businesses trying to sell to the Government. Recently, many contractors
in Delaware were put out of business by one program that experienced a
cost overrun. Unlike the C-17, the Government is very happy with the
results of that contract.
However, according the Defense inspector general, the Government
added some gold-plating after it had approved the design and
construction was underway. When the small contractors asked for
additional funds to cover the costs of gold plating, they were told to
file a claim. They did not have a stable of lawyers or the savings
accounts to pay lawyers during the years of litigation that are usual
in claims cases. While the contractors tried to work with the
government to settle the situation, several went bankrupt.
This is hardly the treatment that McDonnell Douglas received. Their
stock value has reached and maintained new highs since the settlement
was announced. The Contract Disputes Act and the Alternative Disputes
Resolution Act provide judicious evaluation of contractor claims. Why
should McDonnell Douglas not have to live up to the standards in those
laws? Why should we fund contract claims that the Air Force's
contracting officer has denied?
Mr. President, let us not kid ourselves. The C-17 problems will not
be fixed if they are swept under the rug, and that's what this
settlement agreement does. The GAO says that the settlement is a bad
deal. The amendment that I join in cosponsoring rejects the settlement.
If it passes, the Pentagon gets the message to negotiate a better deal
or tell McDonnell Douglas to use the normal procedures.
Mr. President, I yield back the balance of my time.
The PRESIDING OFFICER. Who yields time?
Mr. GRASSLEY. Mr. President, I yield myself such time as I might
consume. But let me give people a rough idea. I think I will probably
have about 8 or 10 more minutes to speak now, and then I think I will
still have about 20 minutes left. The other side has 3 minutes left. If
the other side does not say anything that needs a lot of rebuttal, I
will probably yield back and not use all my time. But I need to know
what the other side might do before that is real conclusive.
Before I make my final point, I want to praise Senator Roth not only
for his cosponsorship of this amendment, but a long time before I came
to this Senate he was a leader in efforts, and still is a leader in
efforts, to ferret out waste in Government and to make Government
officials accountable. I want to compliment him for that and to say
keep up the good work.
I think one final point that would be my third main point of concern
with the proposed C-17 settlement agreement is the $234.5 million for
what is called the ``wing breakout'' claim. The wing breakout applies
to subcontracting out wings for the C-17 with another company.
To a large extent, the proposed $348 million direct cash payment to
McDonnell Douglas is based on the wing breakout claim. The wing
breakout claim makes up about 70 percent of the total cash proposed by
Mr. Deutch to be given to McDonnell Douglas.
Mr. President, the wing breakout claim has a bad odor about it. I
want to explain to you how I think the Government here on this wing
breakout claim is being taken, and how there is some effort to cloud
the issue. I think I can uncloud the issue.
First of all, the C-17 contracting officer looked at this deal and
said that it was invalid and unjustified. Now, that person is a DOD
employee. The contracting officer, the guy that makes the big
decisions, looked at this claim and said: Unjustified.
We had the GAO report--and I have referred to this document many
times--entitled ``C-17 Settlement is Not a Good Deal.''
Well, the GAO looked at it and said that it was not legitimate.
The documents bearing on the wing breakout claim show conclusively
that it is invalid and unjustified.
So how did the wing breakout claim wind up in the Deutch settlement?
From day one, McDonnell Douglas had planned to breakout the wing job.
They promised to put the job for bids at source selection, way back in
July 1982.
Now, I want to say to my colleagues, this was an empty promise,
because all along McDonnell Douglas had other plans, and I hope that I
can convince you of that.
McDonnell Douglas changed its mind and decided to spend $365 million
and get into the wingmaking business at its Long Beach, CA plant. But
it did not work out very well. You think these big corporations are
always going to make the right judgments. Well, they do not. This was
one bad judgment McDonnell Douglas made.
They ran head-on into serious technical and cost problems with the
wing.
So the word got out. And this made the competition salivate.
Pressure mounted to break out the wing job into subcontracts, as
McDonnell Douglas had promised to do from the very beginning.
Several Members of Congress recommended that the subcontract go to
AVCO of Nashville, TN. But that idea did not go very far.
The Air Force and McDonnell Douglas balked at that idea. They decided
in November 1986 to compete the job.
Four companies submitted bids for the wing subcontract: McDonnell
Douglas, AVCO, Lockheed, and Rockwell.
Lockheed won the contract.
On August 18, 1987, Lockheed was awarded a $140 million contract to
build nine wing sets.
The wing work then moved to Lockheed plant at Marietta, GA.
At the time, the Air Force claimed the wing breakout competition
would save the taxpayers $76.5 million on the R&D contract and first
two production lots.
Well, the wing breakout led to another fiasco--2,300 engineering
design changes--another cost overrun--and a nasty dispute between
Lockheed and McDonnell Douglas.
By March 1990, Lockheed had over $150 million in claims against
McDonnell Douglas.
On March 7, 1990, McDonnell Douglas agreed to pay Lockheed $99
million for delays, errors, and 2,300 design changes.
The subcontract was terminated and the wing work went back to the
Long Beach plant.
Mr. President, I ask unanimous consent to have the McDonnell Douglas/
Lockheed settlement agreement printed in the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
[See exhibit 1.]
Mr. GRASSLEY. McDonnell Douglas claims the mess eventually cost the
company $234.5 million and blames the Government for creating the
problem.
Remember back in July 1982 they promised us they were going to break
it out. Then they decided not break it out. Then they decided to do it.
McDonnell Douglas submitted the $234.5 million wing breakout claim on
July 2, 1993.
Mr. Deutch recommends that we pay 100 percent of this claim.
Now, Mr. President, what is the basis for McDonnell Douglas' claim
and why is it not legitimate?
It seems to rest on one main assertion.
McDonnell Douglas claims that the Air Force and Congress directed the
wing breakout. We forced them to do it.
The Air Force examined this claim and concluded that it had no merit.
The decision was made by the C-17 contracting officer, Mr. James C.
David, on November 10, 1993.
As the C-17 contracting officer, he had sole legal authority to make
that determination.
I have his letter in my hand. I would like to read from it and then
place it in the Record.
Mr. David states and I quote:
At no time did the government overrule McDonnell Douglas'
September 18, 1985 decision to make the wing nor did it
direct a change thereto * * * The Air Force was sensitive to
McDonnell Douglas' contractual rights * * * As a consequence
of congressional concerns regarding the C-17 program,
McDonnell Douglas, senior Air Force, and C-17 officials met
on several occasions in the August to October 1986 time
period to discuss how to assure a cost-effective make or buy
decision.
This is Mr. David, working for the Department of Defense, the chief
contracting officer saying at no time did the Government overrule
McDonnell Douglas's September 18, 1985, decision to make the wing, nor
did it direct a change thereto. But it is costing us $234.5 million.
Mr. BOND. Will the Senator yield?
Mr. GRASSLEY. I would like to finish the letter and then I will
yield. I have about four paragraphs.
I will continue to go quote, because I digressed there, I am sorry to
say.
In October 1986, McDonnell Douglas agreed to a plan which
envisioned a competition to select the most cost-effective
source. * * * McDonnell Douglas guaranteed there would be no
price change to the C-17 contract. * * * In fact, $141
million in savings were anticipated by McDonnell Douglas * *
* At no time did the Government direct the wing competition
or decision to subcontract to Lockeed * * * McDonnell Douglas
voluntarily agreed to and executed the wing competition plan
* * *.
Based on the decision to subcontract to Lockheed, the
parties [McDonnell Douglas and the Air Force] negotiated a
modification to the C-17 contract [known as] P00137.
That is the end of the quote. Those are the words of the C-17
contracting officer, I would say to the Senator from Missouri. If he
wants to ask me a question I will yield, but I will yield only for the
asking of the question. Those are the words of the C-17 contracting
officer, Mr. David.
Mr. BOND. Mr. President, I would ask my colleague from Iowa, No. 1,
does he have any evidence that the settlement is based solely on the
wing breakout claim? The McDonnell Douglas claims against the
Government are said to aggregate approximately $1.7 billion. I wanted
to know if there is a specific line or reference in the proposed
settlement that suggests that the wing breakout was the only claim and
somehow the sole claim on which the cash payment was based? It appears
to be a relatively close dollar figure.
But I wonder if my colleague from Iowa can indicate to me what basis
he has for saying the cash settlement was based on the wing breakout
claim? That is No. 1.
No. 2, is he aware that McDonnell Douglas had already filed an appeal
before the decision to which my colleague referred was handed down? So,
in fact, the contracting officer who made the decision was representing
an adverse party at the time, since the matter had already been
appealed? I ask those two questions.
Mr. GRASSLEY. On the latter point, I do not think the fact that the
contracting officer may have been in a particular position has any
bearing on it. We are talking about the person who was in charge. It
seems to me that ought to be given considerable weight.
In the first instance, I do not have a specific document but the
Senator from Missouri I do not think disputes my claim that it is 70
percent of it, and 70 percent of the $348 million is $234 million, and
that Mr. Deutch recommended that it be paid 100 percent. Those are not
disputable so I do not see how the question raises any new issue.
So I want to go on now at this point.
Mr. President, I want to also place the C-17 contracting officer's
assessment of the wing breakout claim in the Record as well.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 2.)
Mr. GRASSLEY. Mr. President, now, as I said earlier, the wing
breakout claim seems to rest on the assertion that Congress directed
the Air Force to do it.
I can find nothing in the legislative history to suggest that the
Congress directed it or forced the Air Force to subcontract the wing.
Let me read from the pertinent section of the fiscal year 1987
conference report.
The conferees are pleased that the Air Force has decided to
conduct a competition for the production of the C-17 wings.
Mr. President, that is as strong as the language gets. If that is a
direct order, I will eat my hat.
Mr. President, I ask unanimous consent to place the legislative
history on the wing breakout contract in the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
[See exhibit 3.]
Mr. GRASSLEY. The most telling piece of evidence against the wing
breakout claim is the last paragraph in a document known as P00137.
P00137 was a negotiated change to the basic C-17 contract resulting
from the decision to subcontract the wing to Lockheed. It was signed by
McDonnell Douglas and the Air Force. It is dated September 21, 1987.
I will read paragraph 4 in P00137. I quote:
This Supplemental Agreement is a full settlement of any
claims of the Contractor resulting from the changes effected
by P00137.
Mr. President, I ask for unanimous consent to place the Air Force
document P00137 in the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
[See exhibit 4.]
Mr. GRASSLEY. This mutually agreed to clause should be viewed, I
think, as a bar to the McDonnell Douglas wing breakout claim. It is a
big barrier standing in the way of further consideration of the wing
breakout claim.
Why did McDonnell Douglas wait over 3 years to file the wing breakout
claim? They settled the wing breakout claim with Lockheed on March 7,
1990. Between March 1990 and July 2, 1993, McDonnell Douglas never
complained about the problem. As the C-17 contracting officer put it,
``McDonnell Douglas never requested any additional equitable
adjustments until the filing of this alleged claim.''
This does not add up. It does not make sense.
According to the GAO, senior defense officials recommended that the
Government audit the claim before paying anything to McDonnell Douglas.
That idea was rejected.
I have a DOD document that states and I quote:
After analysis and discussion the Senior Level Review Group
decided the government should pay 100% of the cost. * * *
This [wing breakout] claim should be included in the
settlement and a contract modification issued paying the
contractor 100% * * * of reasonable costs and profit claimed
by McDonnell Douglas not-to-exceed $234.5 million.
Mr. President, I ask unanimous consent to place the DOD document in
the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
[See exhibit 5.]
Mr. GRASSLEY. Mr. Deutch signed off on that recommendation. That is
how the $234.5 million for the wing breakout claim found its way into
the bill.
The General Accounting Office says that we should not pay the full
value of this claim in the absence of any legal or pricing analysis.
The C-17 contracting officer says that we should not pay the claim.
Contractual documents suggest the Air Force is legally barred from
paying it. So what is the basis for Mr. Deutch's decision to pay 100
percent of this claim? That question must be answered before the C-17
settlement agreement is approved by Congress.
We have before us most of the debate in opposition to my amendment
from those people who say that this C-17 settlement must be accepted by
Congress or else we will not have any C-17's.
My amendment does not strike any money that is in the bill to buy six
C-17's. The settlement is one issue and buying the C-17's is another
issue, and I am for buying those six C-17's. I am not for this
settlement.
My opposition has not made a strong case that this settlement is so
closely tied to the C-17, the continuation of the manufacture of the C-
17. Quite to the contrary. I have submitted evidence to this body that
shows the financial condition of McDonnell Douglas being so great that
they are thinking now at the highest corporate level of having cash for
acquisitions.
So a company in that position cannot be dependent upon $348 million
from the taxpayers to continue their assembly line for the C-17. It
just does not add up.
The other point that I think is very clear is they made a good case
that 75 people looked at this issue and came to the conclusion that
this settlement should be agreed to. Seventy of those people are from
within the Defense Department; then there are six at the highest level
in the top level review group. Five of those six are from the defense
industry, various corporations in the defense industry.
How impartial of a consideration of the taxpayers' interest do you
get from a group that is scratching each other's back all the time
within the military industrial complex?
Exhibit 1
Settlement Agreement for FSED, Lots I and II
Douglas Aircraft Company (DAC) and Lockheed Aeronautical
Systems Company (LASC) agree to settle the C-17 Wing
Component Contract for FSED, Lots I and II at a revised total
price of $239,000,000 subject to the following:
1. DAC releases and waives all past, present and future
rights/claims against LASC including the exercise of options
beyond Lot II. LASC and DAC agree that neither party releases
or waives any rights/claims they may have regarding the DAC
authorized long lead tasks related to Lot III. The resolution
of such rights/claims shall be negotiated by the parties in
accordance with the terms and conditions of the Basic
Agreement.
2. LASC releases and waives all past, present and future
rights/claims for increased compensation, damages or schedule
relief, including any claims for changes, delay and
disruption directly or indirectly related to completion of
FSED, Lots I and II requirements, except all changes received
by LASC after 7 March 1990 and those specifically excluded on
Attachment A ``Changes Excluded from Settlement''.
3. The expedited effort for the test stand pylon will be
continued under the current separate time and material
contract.
4. The $4M maximum liability for changes under the Basic
Agreement is liquidated and otherwise satisfied by this
agreement.
5. Regarding Class I and Class II changes received by LASC
after the date of subject agreement, the parties agree that
only individual changes valued in excess of $5,400 in cost
shall be submitted by LASC to DAC and shall require an
equitable adjustment in contract price or schedule.
6. The capacity for processing of the current C-17 parts
will be maintained for Lot III through Lot VI and the actual
processing will be done, if requested by DAC, under a new
separate priced contract between LASC and a specified
subcontractor.
7. LASC agrees to work diligently and in good faith with
DAC in the expeditious transfer of existing C-17 assembly and
fabrication tooling, mock-up and operational data/
documentation to the new source(s). All costs associated with
LASC preparation, removal and transfer of tooling and data/
documentation is included in this settlement. LASC will not
be responsible for shipping costs related to the transfer of
work.
8. LASC agrees to meet the delivery schedule dated 7 March
1990 attached hereto. (See Attachment ``B'')
9. LASC will comply with applicable DOD statutory or
regulatory requirements (such as CAS, defective pricing,
etc.) contained in the Basic Agreement. The settlement amount
may be adjusted downward by DAC to the extent that the
Government subsequently disallows any portion of the
settlement amount and such action is due to LASC's inability
or failure to comply with such contract requirements. Should
the Government disallow any portion of said settlement
amount, then DAC agrees to either appeal such decision or
shall provide LASC the opportunity to process such appeal in
accordance with the applicable disputes clauses of DAC's
prime contract or the DAC/LASC Basic Agreement. DAC agrees to
cooperate and diligently support any appeal pursued by LASC.
10. DAC will amend the Basic Agreement to incorporate the
provisions of this MOA within ten (10) days of execution.
Upon execution of subject Agreement, DAC and LASC agree to
promptly (NTE 7 work days), and in good faith, negotiate a
definitization schedule, including an equitable schedule for
resumption of progress payments.
11. All other terms/conditions, requirements and
obligations under FSED, Lots I and II shall remain unchanged.
12. The effective date of this agreement shall be 7 March
1990.
Abraham Goldfarb,
Lockheed Aeronautical Systems Co.
Gerald D. Staffieri,
Douglas Aircraft.
____
Exhibit 2
Department of the Air Force,
Wright-Patterson Air Force Base, OH,
November 18, 1993.
To: ASBCA (Recorder), Skyline Six, 7th Floor, 5109 Leesburg
Pike, Falls Church, VA.
From: ASC/YCKBA, 2600 Paramount Place, Fairborn, OH.
Subject: ASBCA Case No. 46356, Appeal of McDonnell Douglas
Corp., Under Contract No. F33657-81-C-2108.
The attached Contracting Officer's Final Decision was
dispatched to the appellant on November 10, 1993. The
appellant was informed by letter dated October 29, 1993 that
a decision would be provided on November 10, 1993.
James C. David,
Contracting Officer.
____
Department of the Air Force,
Wright-Patterson Air Force Base, OH,
October 29, 1993.
To: Rich Grimm, C-17 Program, C1-DE4, M/S 217A-410, McDonnell
Douglas Government Aerospace (MDA), Transport Aircraft,
1510 Hughes Way, Long Beach, CA.
From: ASC/YCKBA, 2600 Paramount Place, Fairborn, OH.
Subject: Recertified Claim Submitted July 1993: Wing
Breakout.
1. Reference ASC/YCKBA letter dated September 7, 1993,
subject--Recertified Claims Submitted July 1993: SEAFAC and
Wing Breakout.
2. The final decision on the subject claim has been
delayed. Pursuant to FAR 33.211(c)(2), a final decision on
the above referenced claim will be provided on or before 10
November 1993.
James C. David,
Contracting Officer.
____
Department of the Air Force,
Wright-Patterson Air Force Base, OH,
November 10, 1993.
To: McDonnell Douglas Corp., McDonnell Douglas Aerospace
(MDA), Rich Grimm, C-17 Program, C1-DE4, M/S 217A-410,
1510 Hughes Way, Long Beach, CA.
From: ASC/YCKBA.
Subject: Contract F33657-81-C-2108, Claim No. 015, Wing
Breakout, Protective Claim, 02 July 1993.
1. References:
a. MDA letter TA-DEO-2000-00-0000, dated 02 July 1993--
Protective Claim.
b. Air Force letter YCKBA, dated 07 September 1993,
entitled Recertified Claims Submitted July 1993: SEAFAC, and
Wing Breakout.
2. The Air Force has finished its review of MDA's July 2,
1993, recertified claim No. 15, entitled ``Wing Breakout--
Protective Claim.'' The arguments of the claim have been
carefully considered in accordance with FAR 33.211. MDA
claims that the Air Force directed it to perform work over
and above contract requirements; that ``In reaction to
Congress' strong pressure'' (on Senior Air Force Officials),
``the Air Force conceded to Congress'' and, contrary to the
contract requirements, the Air Force overruled Douglas' make
or buy decision. Consequently, ``Douglas was required to
conduct a competition and subcontract production of wing
components to the lowest bidder,'' ``in a manner outlined and
directed by the Government.''
3. A review of the contract and relevant documents
demonstrates the Government is not liable for any of the
costs alleged in your protective claim dated 2 July 1993.
Accordingly, your July 2 1993 Protective Claim is denied in
its entirety for the following reasons.
a. The concerns expressed and actions taken by members of
Congress were entirely appropriate for officials elected to
safeguard the interests of the United States. Despite
expressions of the interests of their constituents, the
correspondence of Congress reflects the goal of costs savings
and cost-effective manufacture of the C-17 Weapon System.
Moreover, MDA is obligated by its own Make or Buy Plan,
(which is incorporated into the contract) and by its own
procedures, to consider facts such as ``sound business
principles'' and ``Reasonable life cycle costs consistent
with . . . delivery capabilities'' when making make or buy
decisions. The contract Make-or-Buy clause in fact requires
the contractor to ``submit justification in sufficient detail
to permit evaluation of the proposed change.'' Government
officials involved in this matter were therefore, entirely
justified in requesting MDA to demonstrate cost-effective
make or buy decisions.
b. At no time did the Government overrule MDA's September
18, 1985 Make decision, nor did it direct a change thereto.
Mr. Thomas Cooper's (Assistant Secretary of the Air Force)
letters of August 7, 1986 to Senators Sasser and Gore state;
``Since the Air Force is under contract with McDonnell
Douglas for the total C-17 System, any decision on the wing
must, of course, recognize the contractual rights and
obligations of both parties.'' This clearly shows that the
Air Force was sensitive to MDA's contractual rights and made
this fact known to Congress. However, as a consequence of
Congressional concerns regarding the cost of the C-17
Program, MDA, Senior Air Force and C-17 SPO officials met on
several occasions in the August to October 1986 time period
to discuss how to assure a cost-effective make or buy
decision. In October 1986, MDA voluntarily agreed to a plan
which envisioned a competition to select the most cost-
effective source.
c. The key elements of this plan included MDA revising the
contract make-or-buy plan with respect to the wing; and
competing for potential subcontracting, the fabrication and
partial assembly of a substantial portion of the wing, with
no schedule slip. The potential subcontract was to be firm
fixed price with firm FSED pricing and Not To Exceed pricing
for five production options. MDA guaranteed there would be no
price change to the C-17 contract. As early as 15 September
1986, MDA had advised the Air Force of its agreement that
there would be no changes in Target Cost, Target Price, or
Ceiling Price for FSED and Lots I and II as a result of MDA's
decision to compete a portion of the wing. This advice was
reiterated in MDA letters of September 26 and October 29,
1986. In fact, substantial savings were anticipated by MDA
for FSED and Lots I and II, and these savings would be shared
80/20 by the Air Force and MDA under the incentive structure
of the C-17 contract. MDA's plan was within the contractual
framework.
d. At no time did the Government direct the make-or-buy
plan change, the wing competition, the method for conducting
it or the decision to subcontract to Lockheed. MDA
voluntarily agreed to and executed the wing competition plan.
In the final analysis, MDA made clear its willingness to
evaluate and select the best approach to accomplish and
demonstrate a cost-effective make-or-buy decision, so that
the program would continue. Further substantiation from Mr.
Johnson's (Corporate vice-president Aerospace Group
Executive) 29 October 86 letter follows: ``. . . It is my
opinion that we have arrived at the best possible resolution
of the wing competition issue . . . The timely conclusion of
this issue will permit us to conduct an effective competition
and to maintain the program schedule.'' At the conclusion of
the competition Douglas provided the Government, in its June
19, 1987 letter, its own analysis which indicated an
estimated $141M in savings for FSED and 5 lots, as a result
of the wing competition and resultant MDA subcontract to
Lockheed. This analysis verified the savings which had been
anticipated in late 1986.
e. Based upon MDA's changes to its Make-or-Buy plan to
compete a portion of the wing manufacture and assembly, and
its decision to subcontract to Lockheed, the parties
negotiated modification No. P00137. This modification had an
effective date of 30 October 1987, estimated anticipated
savings of $76.5M for FSED and Lots I and II, and set up a
management reserve account to receive these savings. The last
paragraph (Page 2, Paragraph 5) of P00137 states ``This
Supplemental Agreement is a full settlement of any claims of
the Contractor resulting from the changes effected by
P00137.'' This modification is a full accord and satisfaction
between the parties.
f. After the execution of P00137 Douglas never requested
any additional equitable adjustments until the filing of this
alleged claim, despite the fact that there program
restructures set out in P00108, P00384, and P00384 occurred
subsequently. Further, MDA never provided a notice that
constructive change had occurred, as required by the
contract. See Special Provisions H-67 and H-83(d).
4. This is the final decision of Contracting Officer. You
may appeal this decision to the Board of Contract Appeals. If
you decide to appeal, you must, within ninety (90) days from
the date you receive this decision, mail or otherwise furnish
written notice to the Board Of Contract Appeals and provide a
copy to the Contracting Officer from whose decision that
appeal is taken. The notice shall indicate that an appeal is
intended, reference this decision and identify the contract
by number. Instead of appealing to the Board of Contract
Appeals, you may bring an action directly in the U.S. Court
of Federal Claims (except as provided in the Contract
Disputes Act of 1978, 41 U.S.C. 603, regarding Maritime
Contracts) within twelve (12) months of the date you receive
this decision. If you appeal to the Board of Contracts
Appeals, you may, solely at your election, proceed under
Board's Small Claims procedure for Claims of $10,000.00, or
less or its accelerated procedure for Claims of $50,000.00 or
less.
James C. David,
Contracting Officer.
Exhibit 3
Excerpt From House Report 99-1005
c-17 aircraft
The conferees agree that C-17 tooling costs in fiscal year
1987 are more properly financed in the Research, Development,
Test and Evaluation appropriation rather than in procurement.
Production tooling for the C-17 in future years will follow
the agreed-on tooling policy discussed elsewhere in this
report. The conferees agree to provide $650,000,000 to RDT&E
(including tooling), $15,000,000 in the procurement line for
production planning, and $35,000,000 for advanced
procurement.
The conferees are pleased that the Air Force has decided to
conduct a competition for the production of C-17 wings. The
Air Force should report the results of the competition and
the Comptroller General should provide his independent
assessment of the competition to the Committees on
Appropriations as required by the House report.
____
Excerpt From House Report 99-793
c-17
The C-17 is a multiengine aircraft for inter and intra
theater airlift missions, for either strategic or tactical
purposes. Fiscal year 1987 is the first year proposed for C-
17 procurement funding. Acquisition of a fleet of 210
aircraft at a cost of $35,828,100,000 is envisioned. The Air
Force budgeted $182,300,000 for production nonrecurring items
and $35,000,000 for advance procurement of long lead parts.
The Committee recommends $145,300,000, a reduction of
$37,000,000 as recommended by the House Armed Services
Committee, and $35,000,000 for advanced procurement of 2
aircraft in fiscal year 1988.
During deliberations on the fiscal year 1987 defense budget
request, the Committee became concerned about the Air Force's
proposed acquisition strategy to have C-17 wing manufactured
by the prime contractor. Significant cost savings may be
available if C-17 wing production is competed. The Committee
commends the Air Force for its recent decision to conduct a
formal competition for C-17 wing production in response to
the Committee's concerns.
The Committee directs the Secretary of the Air Force to
report the results of the formal competition for C-17 wing
production to the Committee prior to releasing fiscal year
1987 C-17 procurement or RDT&E funds to the prime contractor
that would be used for production tooling, long lead parts,
or other efforts related to manufacture of the wings. This
restriction is not intended to affect or otherwise delay
other elements of the C-17 production program. The
Secretary's report should demonstrate the Air Force's
preferred acquisition strategy for production of C-17 wings
will result in the lowest total acquisition cost to the
Government, including the tax implications of constructing a
new wing manufacturing facility, if applicable. The Committee
further directs the Comptroller General to provide an
independent assessment of the Air Force cost analysis
supporting its C-17 wing production strategy to the Committee
within two weeks of publication of the Air Force's report.
Exhibit 4
Douglas Aircraft Co.,
Long Beach, CA, 22 September 1987.
Subject: Contract F33657-81-C-2108, Supplemental Agreement
P00137, Wing Competition Savings
To: Department of the Air Force, Headquarters Aeronautical
Systems Division (AFSC), Wright-Patterson Air Force Base,
OH 45433-6503.
Attention: Daniel E. Rosner (ASD/AF/C-17KA).
Reference: AF/YCK letter, dated 01 September 1987, same
subject.
1. In response to the reference letter, the Contractor
forwards herewith a signed copy of the subject modification.
2. The Contractor requests the Air Force incorporate
paragraphs 2 and 3 of the subject agreement in block 16 of
CDRL sequence No. 301A as follows:
*``The management reserve narrative found in format 5 of
the Cost Performance Report entitled, ``Baseline revisions
this Month'' is hereby divided into two different parts. Part
1 will be the standard management reserve tracking of all
changes, with the exception of those associated with the wing
management reserve. Part 2 will separately track any changes
against the wing management reserve account.
*``Any changes (drawdown or increase) to the part 2
management reserve account will require System Program
Director approval.''
M. W. Hogan,
Manager, C-17 Contracts.
____
Amendment of Solicitation/Modification of Contract
Instrument ID No. 33657-81-C-2108.
Issued by: USAF/AFSC Aeronautical Systems Div. (ASD),
Wright-Patterson AFB OH 45433-6503.
Administered by: AFPRO, Douglas Aircraft Company, 3855
Lakewood Blvd., Long Beach, CA 90846-0001.
Buyer: Jeff Patterson, ASD/AF/C-17KA.
Contractor: McDonnell Douglas Corporation, Douglas Aircraft
Company, 3855 Lakewood Blvd., Long Beach, CA 90846-0001.
Security Class: U.
This supplemental agreement is entered into pursuant to
authority of mutual agreement of the parties. If modifies the
above numbered contract as set forth herein.
Remarks (Except as provided herein, all items and
conditions of the contract, as herefore changed, remain
unchanged and in full force and effect.)
Subject: Wing Competition Savings.
Change in contract price: None.
Change in obligation: None.
Name and title of signer: W. Hogan, Manager.
1. By mutual agreement of the parties, it is hereby
understood, that based on a change to the make or buy plan to
compete as a single subcontract package the following:
fabrication of stringers, wing skins and spar caps,
fabrication and subassembly effort related to the bulkhead
assembly, fabrication and assembly of pylons, winglets, slats
and fixed leading edge, an estimated savings of $65.6M will
be realized for subject contract. The estimated savings for
Lot I production, when exercised, will be $9.5M and the
estimated savings for Lot II production, when exercised, will
be $1.4M. All actual savings realized as a result of this
wing subcontract will be subject to final price
redetermination under Section H paragraph 46 of this
contract.
2. The management reserve narrative found in format 5 of
the Cost Performance Report entitled, ``Baseline revisions
this Month'' is hereby divided into two different parts, 1
and 2. Part 1 will be the traditional management reserve
tracking pre-existing changes and Part 2 will be a fenced
management reserve consisting of the savings resulting from
the wing competition. Both Part 1 & 2 amounts will be tracked
separately.
3. Any changes (drawdown or increase) to the part 2
management reserve account will require System Program
Director approval.
4. This Supplemental Agreement is a full settlement of any
claims of the Contractor resulting from the changes effected
by P00137.
Mr. GRASSLEY. Mr. President, I yield the floor. I have some time
remaining. I would like to consult with the chairman of the committee
or whoever is managing for the other side--they have 3 minutes left--if
they want to continue or do they want to yield back time, because even
though I have more time to yield back than they do, I will yield back
my time.
Mr. NUNN. The Senator from Hawaii has been waiting. I know he would
like to speak for 3 or 4 minutes and then at that stage I think we are
ready to come to a vote.
Mr. GRASSLEY. I will reserve my judgment to see what the Senator from
Hawaii says. If it does not need rebuttal, I will be glad to yield back
time.
Mr. INOUYE addressed the Chair.
The PRESIDING OFFICER. The Senator from Hawaii controls 3\1/2\
minutes.
Mr. INOUYE. Mr. President, I rise today to ask the Senate to vote
against the amendment offered by the Senator from Iowa, and vote to
give the C-17 program a fair chance to prove its value as our core
airlifter of the future.
I take this position because we need the C-17 now more than ever. The
C-17 is uniquely suited for the demands of the post-cold-war era. And
while others have come forward with alternatives, no other airlifter--
now in the fleet or under consideration--can go as far in meeting our
current and future military airlift needs.
Those who question the need for the C-17 overlook several important
realities. In today's world, where the mission of our military forces
has expanded to include localized conflict, ethnic strife, and
humanitarian missions, America must have the means to respond quickly
and effectively to crisis. As we continue to close and cut back our
bases overseas, we are placing more and more importance on the ability
to dispatch troops, equipment, and supplies over long distances--and to
get them where they are needed, when they are needed.
The C-17 is key to that essential rapid-deployment capability. It can
carry more cargo to more airfields in less time than any other
airlifter. Only the C-17 will have the versatility to conduct airdrop
and combat offload operations, operate at austere airfields, cover
transcontinental distances, survive hostile environments, and maneuver
on the ground in such a way that it can deliver more cargo in shorter
times than other aircraft. It can haul the kind of outsize cargo that
will be critical to the early hours of future crises--armor,
helicopters, Patriot missile systems, and the like.
The promises of the C-17 are being kept. Its unique capabilities are
being validated in flight and ground tests involving load tolerances,
range and payload, takeoff and landing, ground maneuverability, and
environmental conditions.
In the last year, this aircraft and this program have been subjected
to intense scrutiny and independent analysis. A study of the Institute
for Defense Analyses confirmed that the C-17 remains the most cost-
effective solution to our increasingly urgent military airlift needs.
The Joint Requirements Oversight Council, composed of four-star
generals, confirmed the C-17 would meet the military's future
operational requirements for strategic airlift. The Pentagon's cost
analysis improvement group, certified that the C-17 is affordable with
planned Defense Department budget parameters, and the Defense Science
Board recommended continuation of the C-17 program. The findings of
these various assessments were embraced by the Secretary of Defense and
the White House; they support the request before us in this
authorization bill.
Listen to what the commander in chief of the U.S. Transportation
Command Gen. Ronald Fogleman says about the C-17:
All studies have validated our requirement for a core
military airlifter, and every cost and operational
effectiveness analysis to date confirms the C-17 Design as
the best option.
In a letter dated May 23 to the Speaker of the House, President
Clinton called the C-17's capabilities:
Crucial to the Air Force's ability to deliver and sustain
forces in support of theater commanders * * * .Even with a
``mixed'' strategic airlift enhancement program, that
includes procurement of non-developmental aircraft, there
will be certain core capabilities that can only be provided
by the C-17.
The C-17 is demonstrating those capabilities today. It is a real
product that has been delivered and it is meeting the tests set for it
by the military and by Congress.
Eight aircraft are in operational service.
Of the 10 specific performance and program mandates set last year by
Congress for continued support of the C-17, all have been met or
exceeded.
The latest program assessment by the Defense Department found that
deliveries were improving in terms of schedule and quality, and
reported that other schedule commitments were being met.
In short, the C-17 is earning our support. It is showing steady
progress in meeting Defense Department and congressional demands. It is
critical that we do our part in this authorization bill to nurture that
process and lay a foundation for further progress.
Let me just acknowledge for the record that the C-17 has been a
troubled program. It has encountered challenges and difficulties--many
of which are not uncommon to programs of this size and complexity. But
I believe it is time to drop this fixation on problems of the past. We
believe we have a solution at hand--a way to put the troubles of the C-
17 behind us and get the C-17 program squarely back on track. That
solution lies in approval of the settlement reached almost 6 months ago
between the Defense Department and McDonnell Douglas; that settlement
is the subject of debate here today.
That settlement resolves all of the major issues and problems
identified by the Defense Science Board task force review of the C-17
program. It cleans the slate of disputes that threatened to add cost
and delay to the C-17 program. It eliminates around $1.6 billion in
actual and potential claims at a fraction of that cost to the
Government and requires the contractor to make substantial direct
investments in program improvements. It avoids the risks and costs of
litigation, and enables both sides to focus their resources on
producing quality aircraft at affordable prices.
To paraphrase the Deputy Secretary of Defense John Deutch, this is a
fair and balanced settlement--a good deal for the Government, a good
deal for the taxpayer, and one that satisfies the military requirement
before us. In his words, it establishes ``A new basis for doing
business.''
The Defense Department reported only last month that ``The benefits
attributed to the settlement are not all speculative or prospective.
The agreement has already produced tangible results.''
In a sign of good faith, the contractor has begun fulfilling its
financial end of the bargain, even in the absence of approval by
Congress. It is time that we authorize the Defense Department to uphold
the Government's end of this agreement.
Over the next 15 months or so, the C-17 will be undergoing stringent
tests as part of the most rigorous evaluation ever applied to an
aircraft of its kind. The settlement agreement covered by this bill
provides an ambitious but realistic plan to cut costs and meet the
operational requirements set by the military. Approval of this
agreement is crucial if we are to receive our desired return on what we
have already invested in this much-needed program. Moreover, it is
needed to give the C-17 the fair chance it needs--and deserves--to meet
the high expectations set for it, and take its rightful place as the
core of our worldwide airlift fleet.
According to the Department of Defense, our refusal to approve this
hard-won settlement would mean either a return to the problem
environment of the past and the prospect of complicated, costly
litigation, or program termination and associated litigation. That,
quite simply, is an unacceptable, irresponsible alternative.
As the Chairman of the Joint Chiefs of Staff Gen. John Shalikashvili
has said, the C-17 must be given ``the opportunity to demonstrate its
significant improvements and production efficiencies.''
To those who would prefer to see the program fail, he warns--and I
quote--``We must not let this happen on our watch.''
Our military and civilian leaders agree on the importance of the C-17
to meet the challenges America faces in the foreseeable future and to
fulfill our commitments around the world. The Department of Defense has
presented us with a reasonable plan to assure that the C-17 meets the
expectations that have been set for it. I ask that you join me in
supporting that approach as the single best solution to the erosion of
our airlift capability--a fair deal that meets the twin tests of fiscal
responsibility and military need.
The PRESIDING OFFICER. The Senator's time has expired.
The PRESIDING OFFICER. Who yields time?
Mr. GRASSLEY. Mr. President, I am going to take 1 minute and then
yield back my time. Time has expired on the other side?
The PRESIDING OFFICER. The Senator is correct.
Mr. GRASSLEY. First of all, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRASSLEY. Mr. President, as always, I appreciate the wisdom of
the Senator from Hawaii. I have worked closely with him on such issues.
Just last year, he was very helpful to me with some matters on the
defense appropriations bill. I consider him very cooperative.
He has expressed his feelings on this. I do not have anything in
rebuttal to what he had to say, but I have something to add because he
did make some mention of the claims that McDonnell Douglas had against
the Federal Government that are settled and that that would be a
rationale why this should be agreed to.
They have been mentioned by several other people on this floor, as
well, during this debate. There has never been any mention--when you
talk about the claims McDonnell Douglas had against the U.S.
Government--that the U.S. Government also had up to 3 billion dollars'
worth of claims against McDonnell Douglas--3 billion dollars' worth of
claims against McDonnell Douglas.
In conclusion, after all this debate is said and done, there is still
no explanation of why it should be this specific agreement. Why is the
future of the C-17 so dependent on this agreement? I think and I hope I
have made clear that this is a lousy deal for the taxpayers.
So I urge my colleagues to send this agreement back to the drawing
board. I yield back the remainder of my time.
The PRESIDING OFFICER. Is there further debate?
Mr. LEVIN addressed the Chair.
The PRESIDING OFFICER. The Senator from Michigan.
Mr. LEVIN. Mr. President, I rise in support of the C-17 settlement
and budget request, as the armed services supported, and in opposition
to the Grassley amendment. I know this is a controversial issue, but
you cannot separate the purchase of the C-17 from the settlement
between DOD and the contractor. Based on my analysis of the C-17
program, it is clear that the settlement is a reasonable one and that
it and the procurement are like the two blades of a pair of scissors:
you don't get a fully functioning tool unless you have both components.
If we are going to go ahead with the Defense Department plan to buy 40
C-17's as the minimal fleet of C-17's, we must reach a settlement that
permits the procurement to go forward. Otherwise, the Department of
Defense and the contractor will spend years in litigation and claims,
battling each other instead of producing the aircraft. To kill the
settlement is to kill the C-17 program.
Mr. President, I know many of my colleagues are concerned about the
settlement of the C-17 program, and about the status of the program
generally. I, too, am concerned that the program work, and that we get
working aircraft at a reasonable price. The Defense Department has
arrived at a conditional solution to the previous problems identified
with the C-17 program. If the contractor meets DOD's terms, then DOD
will go forward with continued procurement. If not, DOD will terminate
the program at 40 planes. DOD should have a chance to make this
solution work.
Mr. President, I urge my colleagues to oppose the Grassley amendment.
Mr. D'AMATO. Mr. President, one of the more controversial aspects of
the finely crafted C-17 bail-out is the issue of claims. Much has been
made of the fact that the contractor forwent $1.2 billion in threatened
claims as part of the settlement proposal. My question is, why did the
contractor give in?
The contractor is expected to lose over $1 billion on the full scale
development/lot I/lot II contract, but is willing to waive the right to
recover some or all of these costs. Just how real were these threatened
claims? Was the contractor's decision influenced by the record on
claims prior to the proposed settlement: 6 of 11 denied outright, with
5 more under negotiation or review?
Conversely, what did we get, and what did we give up, by wiping the
slate clean without a thorough adjudication of both contractor and
government claims? What role did the system program office, the Defense
plant representative office, and the Defense Contract Audit Agency play
in assessing claims on either side as the settlement proposal was
taking shape?
Finally, was the Government forced to forgo claims because of the
apparent inability of the Justice Department to recover even a penny on
the dollar from the contractors involved in the A-12 debacle?
These are questions troubling me as we consider the bailout before
us.
The PRESIDING OFFICER. All time having been yielded back, the
question is on agreeing to amendment No. 1837 offered by the Senator
from Iowa [Mr. Grassley]. The yeas and nays have been ordered. The
clerk will call the roll.
The legislative clerk called the roll.
Mr. FORD. I announce that the Senator from Connecticut [Mr. Dodd] is
absent because of illness in the family.
Mr. SIMPSON. I announce that the Senator from Wyoming [Mr. Wallop] is
necessarily absent.
I further announce that, if present and voting, the Senator from
Wyoming [Mr. Wallop] would vote ``nay.''
The result was announced--yeas 32, nays 66, as follows:
[Rollcall Vote No. 162 Leg.]
YEAS--32
Baucus
Biden
Bingaman
Bradley
Breaux
Brown
Bumpers
Byrd
Conrad
D'Amato
Dorgan
Feingold
Glenn
Graham
Grassley
Gregg
Harkin
Hatfield
Kohl
Lautenberg
Mack
Mathews
Metzenbaum
Nunn
Pressler
Pryor
Roth
Simon
Smith
Specter
Wellstone
Wofford
NAYS--66
Akaka
Bennett
Bond
Boren
Boxer
Bryan
Burns
Campbell
Chafee
Coats
Cochran
Cohen
Coverdell
Craig
Danforth
Daschle
DeConcini
Dole
Domenici
Durenberger
Exon
Faircloth
Feinstein
Ford
Gorton
Gramm
Hatch
Heflin
Helms
Hollings
Hutchison
Inouye
Jeffords
Johnston
Kassebaum
Kempthorne
Kennedy
Kerrey
Kerry
Leahy
Levin
Lieberman
Lott
Lugar
McCain
McConnell
Mikulski
Mitchell
Moseley-Braun
Moynihan
Murkowski
Murray
Nickles
Packwood
Pell
Reid
Riegle
Robb
Rockefeller
Sarbanes
Sasser
Shelby
Simpson
Stevens
Thurmond
Warner
NOT VOTING--2
Dodd
Wallop
So the amendment (No. 1837) was rejected.
Mr. KENNEDY. Mr. President, I move to reconsider the vote.
Mr. SIMPSON. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
(Mrs. FEINSTEIN assumed the chair.)
Mr. CRAIG. Madam President, I ask unanimous consent to speak for 3
minutes as in morning business.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
The Senator from Idaho [Mr. Craig], is recognized for 3 minutes as in
morning business.
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