Senate Armed Services Committee (SASC) Ranking Member John McCain (R-Ariz.), continuing on a recent wave of criticism of defense programs, criticized yesterday the Air Force’s contract for a tanker aircraft. And he joined with SASC Chairman Carl Levin (D-Mich.) in resisting a Pentagon proposal to rejigger monies to cover rising costs with the F-35 Joint Strike Fighter program.
“In the current climate of fiscal austerity, we need to assure taxpayers that their interests are protected and that every scarce defense dollar is being used wisely,” McCain said in a letter to Pentagon acquisition chief Ashton Carter.
The senator sent two missives to the Pentagon yesterday as White House and congressional leaders continued to debate how much of the federal budget, including defense spending, to cut as part of acrimonious federal-deficit-reduction deliberations.
McCain and Levin sent a letter to Defense Secretary Leon Panetta with multiple questions about a Pentagon request to reprogram funding to cover rising costs with Lockheed Martin’s [LMT] F-35, a proposal McCain said he opposes.
The Arizona senator also wrote to Carter expressing “serious concerns” about Boeing’s [BA] KC-46A aerial-refueling tanker.
The Pentagon awarded Boeing a $3.9 billion-plus tanker contract in February after years of setbacks in choosing a firm to build the aircraft. McCain said he fears the government will have to pay up to $600 million for added costs tied to the development contract.
That’s because the pact states the Pentagon will share cost overruns of up to $1 billion with the contractor, on a 60-40 basis. The contract’s target cost is $3.9 billion and the ceiling is $4.9 billion.
McCain is concerned because tanker cost overruns have been disclosed. Boeing notified the Air Force shortly after receiving the contract that completing work on the first four aircraft would cost an additional $300 million, and news reports have said further increases have been incurred.
McCain complained to Carter that Boeing’s contract is not a strict “fixed-price” arrangement.
“While I understand the terms of the contract technically allow for costs to exceed the set, established, and announced ‘fixed price,’ I find it completely unacceptable that major cost overruns are already being anticipated and ‘baked into’ the program,” McCain wrote in the letter dated July 15 but sent yesterday.
McCain questioned if the the structure of Boeing’s contract will incentivize it to control its costs or allow the company to “assume that taxpayers will invest hundreds of millions of dollars between the target cost and ceiling price.”
“On a program that you found to be low-to-moderate risk in connection with your decision to let the program go into development, the extent of exposure to the taxpayer here appears excessive,” he said to Carter. Predicting the Pentagon will have to pay $600 million tied to overruns, McCain charged the setup with Boeing is “gravely wrong” and “creates an incentive” for contractors to low-ball bids knowing that the government will pick up some of the added cost.
McCain uncovered a previous scandal tied to the Air Force tanker procurement and has kept close watch over the contract selection and award.
McCain and Levin also sounded alarms yesterday about the F-35 program.
The Pentagon’s F-35 program office told SASC staff on Tuesday that the first 28 F-35s would cost more than $771 million above projections. The added costs are “largely a result of basic manufacturing and labor costs and inefficiencies that exceed the amounts planned for the F-35 program by the Department of Defense and authorized by Congress,” McCain said.
The Pentagon wants to shift $264 million within its coffers to help cover the $771 million overrun, according to a June 30 reprogramming request now before Congress.
McCain said in a statement yesterday: “Based on the current information submitted to the Senate, I intend to oppose the Department’s ‘reprogramming request’ to transfer $264 million for unacceptable cost overruns on the F-35 program.”
Levin and McCain told Panetta “many questions” must be answered before the SASC decides on the reprogramming request. Those questions include what the legal options are for paying the cost increases to Lockheed Martin, and what it would cost the Pentagon to terminate the F-35 program.
McCain further declared in his statement that he will “strongly oppose” future reprogramming requests “unless they can be fully justified to the American taxpayer,” saying new funding proposals from the Pentagon should be vetted through the full congressional approval process involving defense committees as well as the full House and Senate.
Also this week, McCain and six other senators sent Carter a letter on Wednesday questioning the Pentagon’s plans for Littoral Combat Ships in light of reports of corrosion with General Dynamics [GD] first ship and hull cracking with Lockheed Martin’s (Defense Daily, July 14).