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Military Airlift: The C-17 Program Update and Proposed Settlement (Testimony, 04/19/94, GAO/T-NSIAD-94-166)

The recent settlement between the Pentagon and McDonnell Douglas on the
troubled C-17 transport plane is not a good deal for the government,
which will have to waive all potential financial claims against the
aircraft maker, lower the C-17's performance standards, and pay more for
fewer aircraft.  To acquire 120 aircraft will now cost an estimated $43
billion--$1.3 billion more than the Pentagon's last estimate to acquire
210 aircraft.  In an effort to overcome the contentious relationship
between the government and the contractor, the government has agreed to
waive all of its potential claims arising from the contractor's failure
to meet the original contract specifications and delivery schedule,
without establishing the value of those claims.  The government also
agreed to resolve filed and unfiled contractors' claims by adding $237
million to the contract price.  Department of Defense (DOD) officials
acknowledge that the claims were never subjected to a full legal or
price analysis.  At the same time, McDonnell Douglas' out-of-pocket
expenses are hundreds of millions of dollars less than the agreement
implies. GAO urges DOD to determine immediately the minimum number of
C-17s needed and pursue a strategy to acquire alternative wide-body
aircraft that can meet its needs.  DOD, in deciding whether to continue
the program, also needs to establish specific cost-schedule, and
performance criteria to evaluate improvement in the contract's
performance.
--------------------------- Indexing Terms -----------------------------
 REPORTNUM:  T-NSIAD-94-166
     TITLE:  Military Airlift: The C-17 Program Update and Proposed 
             Settlement
      DATE:  04/19/94
   SUBJECT:  Military aircraft
             Defense contracts
             Claims settlement
             Contractor performance
             Contract monitoring
             Cost effectiveness analysis
             Life cycle costs
             Expense claims
             Department of Defense contractors
             Contract specifications
IDENTIFIER:  C-17 Aircraft
             C-5B Aircraft
------------------------------------------------------------------------
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