Misstatement could extend McCain probe of FCS deal

Misstatements by the Army’s top acquisition chief on a $14.8 billion agreement with Boeing could spur another round of congressional hearings, forcing the Army once again to defend its decision to use a nontraditional contract for its key transformation program. During congressional testimony March 16, Claude Bolton assured the Senate Armed Services Airland Subcommittee that the Future Combat Systems contract contained a provision requiring Boeing to certify its cost and pricing figures with government contracting agencies.

Misstatements by the Army’s top acquisition chief on a $14.8 billion agreement with Boeing could spur another round of congressional hearings, forcing the Army once again to defend its decision to use a nontraditional contract for its key transformation program.

During congressional testimony March 16, Claude Bolton assured the Senate Armed Services Airland Subcommittee that the Future Combat Systems contract contained a provision requiring Boeing to certify its cost and pricing figures with government contracting agencies.

The next day, Bolton wrote Sen. John McCain (R-Ariz.), chairman of the powerful subcommittee, to correct the record to show that the contract did not include such a provision, typically detailed under a Truth in Negotiation Act (TINA) clause.

The 2-year-old contract for the Future Combat Systems development program was constructed under a so-called “other transaction authority,” or OTA, which gives the Army and Boeing more flexibility — and potentially less government oversight — than more traditional contract agreements. Essentially, service and program leaders were able to pick and choose which federal acquisition regulations they wanted to include in the contract and which they did not.

“While articles of the OTA contain procedures that would permit subsequent review and adjustment of contractor costs, the OTA does not contain the protections afforded to the government under TINA in those instances when contractors fail to provide current, accurate, and complete cost and pricing data,” Bolton wrote in the memorandum to McCain.
A Senate aide said the mistake could be grounds for another subcommittee hearing because much of the subsequent questioning was based on Bolton’s testimony.

“A lot of the remarks may change because Bolton confused the story,” the aide said. “We are not so sure what we know is what we know.”

First used in 1989, other transaction agreements typically are reserved for purchasing commercial equipment from companies not accustomed to doing business with the government. It allows small and innovative businesses to negotiate with the government without having to hire a team of lawyers to decipher the fine print of federal acquisition regulations, said Jacques Gansler, the Pentagon’s procurement chief in the Clinton administration.

But FCS, which requires extensive development and testing of 18 air and ground systems and a vast network, is far from a commercial procurement. And Boeing, the second-largest defense supplier in the country, is well-versed in negotiating with the government.

The issue has grabbed the attention of McCain, long suspicious of the Chicago-based defense giant. During the last Congress, the Arizona senator helped thwart Boeing’s deal to lease a new fleet of aerial refueling tankers to the Air Force. Several investigations and audits uncovered corruption relating to the deal.

FCS program officials assert that no foul play is involved. The other transaction agreement was necessary to stick to the ambitious program schedule and allow officials to change gears easily as new technologies and concepts are developed, they say.

“The traditional contracting process requires contracts to be rewritten when there is a change,” said Randy Harrison, Boeing’s spokesman for the FCS program. “The OTA is not as restrictive in that regard. With a program of the scope of FCS and the length of FCS and with … developing technologies and capabilities a part of FCS, it was deemed relevant to have an increased amount of flexibility for all parties.”

FCS program supporters also say the 81-page FCS contract, plus addendums, contains dozens of federal acquisition regulations and other clauses that protect the government against cost increases and give agencies the ability to audit Boeing’s financial records.

However, other observers question whether those provisions hold up as well as TINA and other contract-acquisition laws missing from the Boeing contract. Those include the Procurement Integrity Act, which prohibits the government-to-industry revolving-door phenomenon, and a standard dispute resolution clause.

“The other language is statutory protection light,” said Ken Boehm, chairman of the National Legal and Policy Center. “It doesn’t have all the substance of full protection.”

The substitute clauses, he added, use “weaker language” and “let lots of loopholes open.” For the issue of dispute resolution, for instance, the standard language has held up in court but substitute language has not, he said.
“It adds uncertainty to a project that already has a lot of uncertainty because of the technical [difficulty] of it,” Boehm said.

Ultimately, it comes down to whether or not taxpayers are overpaying for the program, said Paul “Page” Hoeper, Bolton’s predecessor and a consultant to Boeing on the FCS program.

“It’s different language,” Hoeper said of the OTA clauses. “But the question is whether or not taxpayers are adequately protected by [federal acquisition regulation] clauses in this non-FAR contract.”

Hoeper pointed to an independent Institute for Defense Analyses report completed late last year that largely concluded that the FCS contract contained extensive government protections.

The independent report did, however, also implore the Army to make sure that Boeing meets cost, schedule and performance goals.

The Government Accountability Office (GAO), Capitol Hill’s investigative arm, is currently reviewing the FCS contract, Paul Francis, director of acquisition and sourcing management at the GAO, said at the hearing.

The Army did not respond to requests for interviews by press time.