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Newsday (New York) October 13, 2004

Private bidders grab a bigger slice of the Pentagon

The power, influence and bottom line of defense contractors has grown during the Bush presidency

By Knut Royce

With the final presidential debate tonight turning to domestic issues, Newsday has been running a five-part series detailing how President George W. Bush has given many top administration posts to executives and industry advocates as part of an effort to curtail regulations and loosen the reins on federal contracts for the private sector. Tomorrow the series looks at how Democratic presidential nominee John Kerry stands on some of the same issues and who might benefit from a Kerry administration.

A giant program to modernize the Army with futuristic weapons - one of the costliest programs in the history of the U.S. military - is being managed by a private contractor.

The responsibility to ensure that the project to equip the next decade's Army with a new fleet of satellite-linked manned and unmanned ground and air vehicles moves from the drawing board to the assembly line has been contracted out to Chicago-based Boeing Co.

The results, so far, have not been promising. Until a recent restructuring that gives Boeing an even larger role in managing the program, called the Future Combat System, the Army itself gave it only a 28 percent chance of success. It now says there is a 70 percent chance the program, estimated to eventually cost upward of $100 billion, will succeed.

But Congress' auditing arm, the General Accounting Office, warns that the program is so complex and depends so much on immature technology that it "is at significant risk for not delivering required capability within budgeted resources."

Critics claim that the Army is biting off far more than it can chew - or understand. "More and more of the project is being handed over to Boeing," said Victor O'Reilly, a defense consultant close to the Army brass. "You might well argue that it is out of control, because nobody understands this. Nobody in the Army really understands what's going to come out at the other end."

Close ties between the Pentagon and defense contractors have existed in many previous administrations, Republican and Democrat.

But under the Bush administration contractors themselves increasingly are administering defense programs, including selecting subcontractors, and are venturing into areas that traditionally have been military functions - from guarding military bases to interrogating war prisoners to analyzing battlefield intelligence.

Loren Thompson of the Lexington Institute, a conservative national security think tank, said the Pentagon trend of outsourcing traditional management functions "is mainly a product of Republican political philosophy,"though it started modestly under President Bill Clinton.

Yet putting private contractors in charge of Pentagon management, critics say, has the potential of creating conflicts of interest and limiting competition, damaging to both the taxpayers and to the men in uniform.

Air Force Secretary James Roche last year criticized the growing dependence on defense contractors when he warned, "What you have to resist is the temptation, which will be very strong, especially over time, for government officials to rely too heavily on the judgment of the [contractor-manager]." His concern, reflected in several speeches, is that putting industry in charge of contract management can drive up costs by dampening competition and further eroding the defense industrial base.

Farming out contracts

Outsourcing management got its start in the late 1990s under the Clinton administration with a contract to Boeing to manage the National Ballistic Missile Defense program. But it came into full flower during the current administration, with management contracts being awarded for modest research programs, such as a $20-million contract to Battelle for defenses against chemical and biological attacks, as well as for more basic contracts, such as a current request to supply 300 million rounds of small caliber ammunition a year.

Some Army officials involved with the future combat system are clearly nervous about turning over so much of the program to Boeing, especially in the wake of several recent scandals involving the company.

"We're all over Boeing and we need to be," said an officer involved with the program since its inception but asked to not be identified. "On the other hand, we're not on them enough, in my opinion. We know what corporate America is and what motivates them. The bottom line ... We continue to make sure we're checking ourselves so that we're not in bed with these guys, because it's dangerous. And I tell you, it's dangerous every minute of every day. Look at the Air Force fiasco. The same thing could happen with FCS."

The Air Force "fiasco" he was referring to involves the controversial plan to lease to the Air Force a fleet of Boeing refueling tankers for $23.5 billion even though key federal officials say they're not needed, and the ongoing federal investigation into Boeing's hiring of a top Air Force official in exchange for favorable contract terms.

In a prepared statement in response to Newsday questions, the Army said it had decided to use a private company to manage the program for two reasons: providing the new weapons to troops will be quicker under a private manager than through the Army's traditional acquisition bureaucracy, and it doesn't have the in-house expertise for such a complex program.

"Many of the systems that we were fielding (under the Army's acquisition branch) were already obsolete by the time they got to our soldiers," the statement said. "Additionally, the complexity of the systems engineering and integration that is required on a program like FCS was simply not resident in the Army."

The Army said that Boeing's role as manager will be similar to that of a general contractor in charge of building a house, "seeking out the best experts in each area to accomplish specific requirements for the overall project." Boeing, it said, "also is responsible to make sure all the sub-parts work together as required by ... the Army. However, just as the owner of the house would, the Army retains oversight and final decision authority over all programmatic decisions."

A sensible contract

Boeing official Jack Paul says contracting the management of the project to the company and its junior partner, Science Applications International Corp., makes sense because the Army does not have the expertise to develop such a complex program.

"It's a very large, complicated, challenging program, and when you start to go into integration, the Army has not traditionally been organized to do that," said Paul. The shift of responsibility from the military to the private sector is taking place under a Pentagon leadership dominated by former executives of large companies. According to a Newsday analysis, nearly half, or 44 percent of Bush's Pentagon appointees requiring Senate confirmation were company executives, business consultants or lobbyists, compared with 23 percent in the Clinton administration.

For his first service secretaries Clinton chose a defense industry executive, a Massachusetts Institute of Technology professor and an investment banker. Bush, selected executives from defense giants Northrup Grumman and General Dynamics and from the scandal-plagued energy company, Enron.

Last month Bush named Francis J. Harvey, vice chairman of federal contractor Duratek Inc., to be his new Army secretary. Harvey has spent his entire business career as an executive of three major federal contractors and has served on the boards of three companies controlled by the Carlyle Group, a private investment firm with large defense industry holdings and close ties to the Bush family.

Improving Army mobility

The driving force behind the Future Combat System was Gen. Eric Shinseki, the former Army chief of staff who is best known for having warned Congress that a far greater force was needed to be successful in Iraq.

Shinseki wanted to change the Army from a service whose full military might take months to position on the front lines to a fighting force that could field a well-armed brigade anywhere in the world in 96 hours.

A key problem has been size and weight. The 70-ton Abrams tank, for instance, can only be delivered in sufficient numbers by sea. It would take at least two to four weeks to move an armored brigade to the Middle East by ship, according to retired Army Lt. Gen. John Riggs. The FCS promises to replace the Abrams and the Bradley fighting vehicle with new ground systems that weigh under 20 tons and can be airlifted in the belly of a large fleet of C-130 transports.

To modernize as a rapidly deployable force, the Army has a Star Wars-like vision of eight new manned vehicles, each with revolutionary new technology and armor still undesigned; three unmanned ground vehicles, including a "robotic vehicle" that would sneak up on the enemy and collect targeting data; and four unmanned air vehicles to help with targeting.

The 18 new ground and air vehicles, sensors and munitions are to be linked by a computer system that also does not yet exist but that would give U.S. troops the ability to destroy the enemy from a distance or without being observed. Only this total battlefield awareness, combined with yet-to-be-developed active and passive armor, would make the lighter vehicles survivable, according to the GAO.

To run these systems an estimated 34 million lines of computer code will be needed, five times as many as are required for the Pentagon's current software champion, the multi-service Joint Strike Fighter, which also is under development.

The new tank, called "Mounted Combat System," will be engineered from scratch, requiring an entirely new lightweight gun; a hybrid electric drive system and high-density engine and advanced armor with an active protective system.

Any of the eight manned vehicles would be considered a major acquisition program. The Army is doing them all at once.

Some three quarters of the technology for this new system did not exist when Boeing started overseeing its development in 2002. Altogether, 53 critical new technologies are involved and 157 complimentary systems.

Skeptics not convinced

There are skeptics, including the GAO, which urged the Army in a report this year to slow down its procurement timetable or carve the program into smaller, more manageable components.

Last year, in a letter to the House Armed Services land forces subcommittee, the GAO's lead auditor for the program, Paul Francis, said that the Army was trying to develop the vast program "in less time than the [Defense Department] typically needs to develop a single advanced system."

In an interview, Francis elaborated: "Any single system, like a tank or howitzer, is a major undertaking by the Army and has been technologically difficult for the Army to acquire. And this program has multiples of those inside it ... The complexity factor is unprecedented."

Asked if Boeing can pull it off, Paul was less than assertive in his reply. "Sure," he said. "Maybe not. We do believe we can ... we think ... we can get there."

An out-of-date system

Critics claim that a major weakness in the program is that it was hatched before the current Iraq war and that the new generation of tanks and personnel carriers will have to sacrifice troop-protecting armoring to be sufficiently light and mobile.

"There were certain assumptions made that we would have superior intelligence of where the bad guys are and this would protect our soldiers, who could fight standoff [at a safe distance]," said the former Army officer who is intimately familiar with the program. "And, of course, they're wrong. Several people [in the Pentagon] tried to tell them [the Army]. But they weren't listening ... And now they've discovered, hey, we can't even defeat an RPG [rocket propelled grenade, an Iraqi resistance staple], which is a World War II weapon."

RPGs and improvised explosive devices have been responsible for a large number of U.S. casualties in Iraq. But Boeing's Paul said that new sensors, better battlefield intelligence and lighter composite materials will protect the troops as well if not better than now. The only vehicles that pose a technological challenge for "armor type survivability," he said, are the new tank and a new artillery vehicle called the non-line-of-sight cannon.

An industry source close to General Dynamics Land Systems, which is helping develop the new armor, said that the Army and Boeing have not even decided on size and weight requirements for the various vehicles, making any planning "notional." He said, however, that he foresees a mix of steel, kevlar and ceramics armoring, much of it added on near the battle zones to save on in-flight weight and size.

"We have at least six years to look at the technology before we start building," he said.

A defense source who has tracked Boeing's performance said that the company had been unable to meet some of the research milestones but that the Army effectively waived the milestone requirements last year by giving the company the contract to go ahead and start building. The Army acknowledged to the GAO that the program "was not really ready" for the acquisition phase but told the auditors that "it was necessary to create irreversible momentum'" to assure funding for the FCS.

Absence of oversight

Riggs, who was put in charge of the program by Shinseki and brought in Boeing to run it, admitted that he, too, is apprehensive. "I think that if it's too much Boeing and not enough government oversight you probably are negating the logic behind why you formed the [management contract] in the first place," he said in an interview.

The Lexington Institute's Thompson said there are two problems with assigning the management to a private contractor.

First, he said, "The customer, in this instance the Army, eventually doesn't understand what's going on in the program because they've outsourced that competence."

Second, he says, there is danger of a conflict of interest.

Boeing also is a large manufacturing company and is allowed to bid on subcontracts. It and the Army have created a "firewall" to prevent conflicts by requiring that the Army, not Boeing, decide on the winning bid if Boeing submits a bid. Boeing has bid on five contracts so far, winning one, for $90 million, according to a company spokesman.

There nonetheless are risks for conflicts, Thompson said. He said that Boeing also manufactures the C-17 transport plane, a wide body jet that can carry larger and heavier goods than Lockheed Martin's C-130, which the Army says will be the sole carrier for the FCS ground and air vehicles, limiting their weight to less than 20 tons. "How much incentive does Boeing have to crack the whip and make this requirement [of under 20 tons] stick?"

Also controversial is the means by which Boeing was awarded the FCS research contract in 2002 and the acquisition contract last year, which to date has been budgeted for $21.2 billion. The contracts were awarded under an authority that eliminates traditional contracting laws and regulations, and reduces government oversight.

Congress created the contracting mechanism, called an "other transaction authority," in 1989 to make it easier for small high-tech companies that otherwise would not bid on government work to share their knowledge with the Pentagon's research agency. In 1996, Congress authorized the three services to use this contracting authority for research and prototype projects. Critics say that the contracting vehicle, intended to attract companies that are not part of the military-industrial complex, is now a virtual monopoly of the giant defense contractors.

The Pentagon's inspector general found that from 1994 to 2001 defense contractors like Boeing received more than 94 percent of the $5.7 billion spent under the new procedure.

The Army's Riggs said he decided on that approach "because legally it could be done and it allowed for the selection process to be facilitated more rapidly."

"Quite candidly," he said, "our bureaucracy in our acquisition community is such that it takes forever to get something developed and fielded. We have a system that's been preparing for 50 years for war but we don't have a system to accommodate a nation that is at war."

The contract may make life easier for the Army and Boeing but, according to a source who has reviewed the document, it will result in added costs to the Army and the taxpayer.

"There is very loose language in the contract that wasn't necessarily to the benefit of the Army," this source said. "Boeing gets paid for process ... It makes money by throwing bodies at the process."

A traditional cost-plus contract ensures that "at least something has to be delivered," the source, said, but the Boeing contract is so loosely written that the company gets paid even if it can't deliver on the technology.

Eric Miller, senior defense investigator for the Project on Governmental Oversight, a respected private watchdog, says that the FCS contract has let the genie out of the bottle. "A new precedent has been set," he says. "No longer will the idea of eliminating taxpayer protection and transparency requirements . . . be limited to million-dollar contracts with small, nontraditional contractors. The practice could be routinely utilized for billion-dollar contracts with large, traditional contractors."

TOMORROW: Examining John Kerry's record

Futurisic military

In an effort to become a more efficient fighting force in the 21st century, the U.S. Army is moving from bigger and stronger weapons systems to sleeker and more agile ones. The futuristic project, examples of which are shown below, is being contracted out to Chicago-based Boeing Co.

A 15-foot long, 6-foot wide vehicle that will be capable of carrying a payload of up to 2,000 pounds of weapons, supplies or personnel.

A four-soldier workstation that also will include room for a driver and commander. Will include a selfprotection weapon capable of neutralizing incoming enemy fire.


One-ton unmanned platform that will provide equipment and/or supply support in dismounted military operations.

Will feature 120 to 155 mm cannon. System will be capable of delivering precision-guided, extended-range projectiles of three payloads.

Vehicle will be equipped with a 120 mm mortar gun. Will also include a selfprotection weapon capable of neutralizing incoming enemy Fire.


The business of defense

In staffing the Pentagon, the Bush administration has drawn more heavily from the business sector than the Clinton administration, which preferred government experience.


Total appointees.
Business 30.6%
Government 26.5
Lawyers, lobbyists, consultants 22.4
Academics 12.2
Nonprofit 8.2


Total appointees
Business 18.0%
Government 41.0
Lawyers, lobbyists, consultants 21.3
Academics 6.6
Nonprofit 13.1

NOTE: Figures reflect the previous jobs of those appointed to defense olicy-making posts that require Senate confirmation during first three years of both administrations

Copyright 2004, Newsday, Inc.