Boeing again finds itself in McCain's investigative sights

Sen. John McCain (R-Ariz.) has set his sights on another pricey Boeing program, this time asking the Army tough questions about the company’s $14.8 billion contract for the Future Combat Systems (FCS).

Unlike most major defense programs, the contract was negotiated under an “other transaction authority,” or OTA, which gives the Army and Boeing more flexibility — and potentially less congressional oversight — than more traditional contracts.

Other transaction agreements, first used in 1989, typically are reserved for so-called “off the shelf” procurement. But FCS, which requires extensive development and testing, is far from off-the-shelf. The program, which could eventually be valued at nearly $120 billion, is the core of the Army’s transformation efforts and includes 18 air and ground systems tied together by a massive network. It is by far the largest acquisition undertaking in the Army’s history.

“The FCS system is being included in the fiscal ’06 budget as a commercial off-the-shelf item,” McCain said during a March 2 Senate Armed Services Committee hearing. “Tell me … where might I be able to purchase such a vehicle commercially?”

McCain, who last month was named chairman of the Senate Armed Services Committee’s powerful Airland Subcommittee, plans to hold a hearing on Army programs in general — and FCS in particular — as early as next week, sources said. Boeing’s OTA contract with the Army, formalized nearly two years ago, promises to be central to that hearing.

The Arizona senator was the driving force behind a successful effort in the last Congress to thwart Boeing’s deal to lease a new fleet of aerial refueling tankers to the Air Force. Investigations and audits uncovered a number of corruptions relating to the deal, which ended in the resignations of several officials.
Now he has turned his interest to the FCS program and acquisition law and regulations. Congress has long been skeptical of other transaction agreements, only gradually extending OT authority from Defense Advanced Research Projects Agency advanced research and development efforts to other defense programs.

In the 1999 Defense Authorization Act, authorizers warned that OTAs should “only be used in exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies.” Lawmakers were particularly concerned that an agreement not be used to “circumvent the appropriate management controls in the standard acquisition and budgeting process,” according to the act.

Historically, OTA contracts have been negotiated with companies unfamiliar with the government’s lengthy contracting processes. But Boeing is the second largest defense contractor in the country, and FCS is a major development program — and, as such should receive the same level of scrutiny as other defense efforts, foes of the OTA arrangement contend.

“The fact that this is an OTA … limits congressional oversight, accountability and prohibits adequate audibility of the system by the typical government auditors who are responsible for ensuring the taxpayer gets the most … for the taxpayer’s dollars,” a congressional source said.

However, FCS program advocates contend that Army and Boeing program officials discuss FCS — and how FCS money is being spent — with lawmakers and staffers on a regular basis. Others say that the OTA agreement negotiated for the program is far more detailed than most and includes several clauses that parallel wording found in traditional defense contracts.

“This is a good idea, and I don’t think there is any risk to the Army in it,” said Paul “Page” Hoeper, a former Army acquisition chief and a consultant to Boeing on the FCS program. “In a way … the Army’s been a little too cautious.”

A report released late last year by the Institute for Defense Analyses discusses the agreement in depth and likewise concluded that the 205-page FCS contract is a more traditional arrangement than most OTAs.

“The Army-Boeing agreement … provides for flexibility in managing FCS, but overall it implements a very conservative approach for employing OT authority and as a consequence is very much like a conventional defense contract,” according to the study, which was requested by then-Army Secretary Les Brownlee. “The form of the Army-Boeing agreement at least in part reflects the fact that Boeing Integrated Defense Systems is an experienced defense contractor.”

A Pentagon official said that the use of an OTA agreement for FCS signifies a gap in the government’s contracting laws and that no ideal contract mechanism exists for a new crop of Pentagon programs — such as FCS and national missile defense — that require sprawling lists of subcontractors and massive amounts of engineering and system-integration work.

“OTA is your only option,” the official said. “You have to play the cards you’re dealt. There are not any other appropriate acquisition methodologies for these complex systems engineering” programs.