Military Airlift

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. GAO summarized this report in testimony before Congress; see: Military Airlift: The C-17 Program Update and Proposed Settlement, by Frank C. Conahan, Assistant Comptroller General for National Security and International Affairs, before the Subcommittee on Regional Defense and Contingency Forces, Senate Committee on Armed Services. GAO/T-NSIAD-94-166, Apr. 19, 1994 (44 pages); and Military Airlift: The C-17 Proposed Settlement and Program Update, by Frank C. Conahan, Assistant Comptroller General for National Security and International Affairs, before the Subcommittee on Military Acquisition, House Committee on Armed Services. GAO/T-NSIAD-94-172, Apr. 28, 1994 (43 pages).

GAO found that: (1) significant doubts remain about the C-17 program's cost-effectiveness and credibility because of cost increases, poor contractor performance, operational deficiencies, and lengthy schedule delays; (2) the proposed settlement with the prime contractor is not in the government's best interest because the exact cost of resolving its and the contractor's claims cannot be determined and the prime contractor's costs may be significantly overstated; (3) although Congress has directed DOD to identify alternatives that would reduce program costs and meet its airlift requirements, DOD has not determined the minimum number of C-17 aircraft needed for its operations and delayed action on the C-17 program until 1995; (4) delaying action until 1995 would unnecessarily add $5 billion to the total program cost because most of the benefits from the contractor's management improvements will not be realized until 1996; and (5) DOD needs to establish specific cost, schedule, and performance criteria to evaluate the contractor's performance and determine whether more than 40 aircraft are needed.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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