Missile Defense
Events Related to Contractor Selection for the Exoatmospheric Kill Vehicle Gao ID: GAO-03-324R January 27, 2003Rep. Howard L. Berman asked us, as a follow-on to our recent review of the early sensor tests for the exoatmospheric kill vehicle (EKV), to look into the circumstances surrounding Boeing Lead Systems Integrator's (LSI) selection of Raytheon's EKV device for further testing. Specifically, he asked us to (1) determine whether there was a misuse of Raytheon's proprietary information by the Boeing EKV team, as had been reported in the media, and whether these events affected the planned competition for an EKV contractor; (2) determine whether a request for proposals (RFP) was ever prepared, whether proposals were submitted, whether formal criteria were used to evaluate the two systems, and whether a formal technical comparison or analysis of the two systems was used to select between them; (3) describe the basis for the selection of Raytheon; (4) identify whether the decision was made by BMDO or Boeing LSI, and, if the decision was made by Boeing LSI, determine the extent to which BMDO was aware of the circumstances surrounding the decision; and (5) identify the amount of money the U.S. government spent to develop the two EKV systems that were to be competed against each other and, if one of the contractors was excluded from the competition, determine whether any effort was made to recoup the money paid to that contractor.
In late 1998--after 8 years of funding and administering parallel research an development contracts for an EKV for National Missile Defense and 2 months prior to the scheduled completion of the competition--BMDO abandoned its planned competition to select the most promising EKV for use in follow-on missile defense programs. This decision was made by Boeing LSI, with BMDO's concurrence. This decision was made shortly after Boeing disclosed to the government that employees of its EKV team had obtained and misused proprietary information developed by the other EKV competitor, Raytheon. Our review has not located any document memorializing the selection of Raytheon to build the EKV, and both BMDO and Boeing have advised us that no such document was created or exists. As a result, we have reviewed contemporaneous e-mails and correspondence exchanged between Boeing and BMDO discussing these events, and near-contemporaneous descriptions of the selection decision prepared by government officials involved in the subsequent discussions about whether the component of Boeing responsible for its EKV effort should be debarred from federal government contracting, and about the pursuit of a financial settlement. We have supplemented these contemporaneous materials with interviews of the decisionmakers. This review has led us to the following findings: (1) The planned competition was abandoned after BMDO, Boeing LSI, and Raytheon learned of the Boeing EKV team's misuse of Raytheon proprietary information, specifically a plan for testing Raytheon's EKV's software that was submitted by Raytheon to the Army and later discovered in the offices of the Boeing EKV team; (2) The final RFP was not issued, proposals were not submitted, no formal criteria were used to evaluate the two systems, and there was no formal technical comparison or analysis used by the decisionmaker to select the EKV; (3) Raytheon received the award (a) after Boeing LSI and BMDO were unable to mitigate, to Raytheon's satisfaction--which BMDO made a condition of moving forward--the possible competitive harm arising from the Boeing EKV team's misuse of Raytheon's proprietary information; (b) after Boeing LSI and BMDO concluded that failing to obtain Raytheon's concurrence might hamper BMDO's ability to complete the testing of National Missile Defense in time for a planned presidential deployment decision in June 2000; and (c) after Boeing LSI and BMDO concluded that any risk in selecting Raytheon without a technical comparison with Boeing's EKV could be mitigated by continuing to fund Boeing's EKV, at a lower amount as a "hot back-up;" (4) Both the decision to abandon the planned competition and the decision to award to Raytheon by default were made by Boeing LSI, with BMDO's concurrence; and (5) At the point when the competition was abandoned, the U.S. government had spent approximately $400 million each, or a total of $800 million, to develop and test the Raytheon and Boeing EKVs. Although several government officials recommended debarring a component of Boeing from federal government contracting, or pursuing a financial settlement from the company, all such recommendations were ultimately withdrawn.
GAO-03-324R, Missile Defense: Events Related to Contractor Selection for the Exoatmospheric Kill Vehicle
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GAO-03-324R:
United States General Accounting Office:
Washington, DC 20548:
January 27, 2003:
The Honorable Howard L. Berman:
House of Representatives:
Subject: Missile Defense: Events Related to Contractor Selection
for the Exoatmospheric Kill Vehicle:
Dear Mr. Berman:
In February 2002, we issued a report regarding early tests of the
sensors being developed for the exoatmospheric kill vehicle[Footnote 1]
(EKV) planned for use in missile defense programs.[Footnote 2] As
described in that report, the Department of the Army, acting on behalf
of the Ballistic Missile Defense Organization (BMDO)[Footnote 3] was
administering two parallel research and development contracts for EKVs,
one with Raytheon and one with Boeing. BMDO‘s plan was to conduct a
competition between the two teams developing an EKV to select one for
further development and flight testing.
By 1997, BMDO had decided to use a Lead Systems Integrator (LSI)
contractor to manage the National Missile Defense program, rather than
using the Army for this purpose. Boeing was awarded the LSI contract in
April 1998, and was directed to complete the competition to select an
EKV contractor by February 1999. Thus, in its capacity as LSI, Boeing
was tasked to select either Raytheon or another Boeing unit to build
the EKV. For this report, we will refer to the Boeing unit serving as
the LSI contractor as ’Boeing LSI,“ and to the Boeing unit competing
for the EKV subcontract as ’Boeing EKV.“
You asked us, as a follow-on to our recent review of the early sensor
tests, to look into the circumstances surrounding Boeing LSI‘s
selection of Raytheon‘s EKV device for further testing. Specifically,
you asked us to:
* determine whether there was a misuse of Raytheon‘s proprietary
information by the Boeing EKV team, as had been reported in the media,
and whether these events affected the planned competition for an EKV
contractor;
* determine whether a request for proposals (RFP) was ever prepared,
whether proposals were submitted, whether formal criteria were used to
evaluate the two systems, and whether a formal technical comparison or
analysis of the two systems was used to select between them;
* describe the basis for the selection of Raytheon;
* identify whether the decision was made by BMDO or Boeing LSI, and, if
the decision was made by Boeing LSI, determine the extent to which BMDO
was aware of the circumstances surrounding the decision; and;
* identify the amount of money the U.S. government spent to develop the
two EKV systems that were to be competed against each other and, if one
of the contractors was excluded from the competition, determine whether
any effort was made to recoup the money paid to that contractor.
During the months of July through September 2002, we developed the
facts reflected in the narrative that follows using contemporaneous
documents to the extent possible. In some instances, we contacted by
telephone officials who could clarify contemporaneous documents.
Finally, we conducted interviews with the key individuals involved in
these matters. Our interviews included government officials and the
contractor decisionmaker charged with making the EKV selection
decision.
Results in Brief:
In late 1998”after 8 years of funding and administering parallel
research and development contracts for an EKV for National Missile
Defense and 2 months prior to the scheduled completion of the
competition”BMDO abandoned its planned competition to select the most
promising EKV for use in follow-on missile defense programs. This
decision was made by Boeing LSI, with BMDO‘s concurrence. This decision
was made shortly after Boeing disclosed to the government that employees
of its EKV team had obtained and misused proprietary information
developed by the other EKV competitor, Raytheon.
Our review has not located any document memorializing the selection of
Raytheon to build the EKV, and both BMDO and Boeing have advised us
that no such document was created or exists. As a result, we have
reviewed contemporaneous e-mails and correspondence exchanged between
Boeing and BMDO discussing these events, and near-contemporaneous
descriptions of the selection decision prepared by government officials
involved in the subsequent discussions about whether the component of
Boeing responsible for its EKV effort should be debarred from federal
government contracting,[Footnote 4] and about the pursuit of a
financial settlement. We have supplemented these contemporaneous
materials with interviews of the decisionmakers. This review has led us
to the following findings:
* The planned competition was abandoned after BMDO, Boeing LSI, and
Raytheon learned of the Boeing EKV team‘s misuse of Raytheon proprietary
information, specifically a plan for testing Raytheon‘s EKV‘s software
that was submitted by Raytheon to the Army and later discovered in the
offices of the Boeing EKV team.
* The final RFP was not issued, proposals were not submitted, no formal
criteria were used to evaluate the two systems, and there was no formal
technical comparison or analysis used by the decisionmaker to select the
EKV.
* Raytheon received the award:
- after Boeing LSI and BMDO were unable to mitigate, to Raytheon‘s
satisfaction”which BMDO made a condition of moving forward”the
possible competitive harm arising from the Boeing EKV team‘s misuse
of Raytheon‘s proprietary information;
- after Boeing LSI and BMDO concluded that failing to obtain Raytheon‘s
concurrence might hamper BMDO‘s ability to complete the testing of
National Missile Defense in time for a planned presidential deployment
decision in June 2000; and;
- after Boeing LSI and BMDO concluded that any risk in selecting
Raytheon without a technical comparison with Boeing‘s EKV could be
mitigated by continuing to fund Boeing‘s EKV, at a lower amount as a
’hot back-up.“[Footnote 5]
* Both the decision to abandon the planned competition and the decision
to award to Raytheon by default were made by Boeing LSI, with BMDO‘s
concurrence.
* At the point when the competition was abandoned, the U.S. government
had spent approximately $400 million each, or a total of $800 million,
to develop and test the Raytheon and Boeing EKVs. Although several
government officials recommended debarring a component of Boeing from
federal government contracting, or pursuing a financial settlement from
the company, all such recommendations were ultimately withdrawn.
With respect to the decision to award the EKV subcontract to Raytheon,
both Boeing LSI and BMDO decisionmakers told us, during interviews
conducted during the summer of 2002, that the decision was made after
they concluded that either system was sufficiently advanced to permit
its selection for further flight testing. In addition, although not
reflected in any contemporaneous documents we have seen, the Boeing
LSI decisionmaker told us that his decision was also based on his
concern that software development and testing for the Boeing EKV was
lagging behind schedule. He explained that this caused him to be
concerned that selection of Boeing‘s EKV might delay the program‘s
ability to complete sufficient testing in time to permit a presidential
deployment decision planned for June 2000.
Regarding the efforts to recoup the monies paid to Boeing to develop an
EKV for the abandoned competition, we learned that the Department of
the Army and BMDO explored the potential for a financial recovery from
Boeing, but the effort was ultimately abandoned. Consideration was also
given to a civil or criminal prosecution of Boeing, which was declined
by a U.S. Attorney, and to debarment of a component of the company,
which was also abandoned. Boeing terminated, or otherwise reprimanded,
several of the EKV team employees involved in the misuse of Raytheon‘s
proprietary information, and three of the Boeing employees were
subsequently debarred by the Air Force from participating in government
contracts”one for 2 years, and two for 1 year.
Events Related To Contractor Selection For The EKV:
In October 1990, the Department of the Army‘s Space and Missile Defense
Command (acting as an agent for BMDO) awarded three parallel contracts
for the design, development, and demonstration testing of sensor
designs for an EKV to be used in National Missile Defense. These
contracts contemplated one or more ’downselects“ to eventually choose
one contractor to build an EKV using the successful design. The
original awardees were Martin Marietta (eliminated in an initial
’downselect“ in 1995), Hughes Missile Systems Company (now Raytheon),
and Rockwell International (now Boeing).[Footnote 6]
By 1997, BMDO had decided to choose an LSI contractor to integrate and
manage the various components being developed for the National Missile
Defense system. These components included an Upgraded Early Warning
Radar, an X-Band Radar, the Ground-Based Interceptor, and Battle
Management/Command, Control and Communications capability. The Ground-
Based Interceptor is the ’weapon“ of the National Missile Defense
system; it consists of the EKV discussed above, a booster rocket to
deliver the EKV to the approximate intercept location, and ground
command and launch equipment. Upon award of this integration and
management contract (the LSI contract described above), BMDO planned to
consolidate the management of each component of National Missile
Defense under its control using its LSI contractor.
BMDO completed the competition for an LSI contractor on April 30, 1998,
with an award to Boeing.[Footnote 7] One of Boeing‘s first, and most
pressing, tasks was to develop a plan for, and to complete, the
competition for a single EKV contractor. Since one of the EKV
development contractors was also a component of Boeing, award by BMDO
of the LSI contract to Boeing created an inherent organizational
conflict of interest. BMDO‘s contract with Boeing LSI directed the
company to take steps to address this conflict of interest, and to do
so as part of its planning to complete the EKV competition.[Footnote 8]
On July 9, 1998, just over 2 months after winning the LSI contract,
Boeing submitted to BMDO a draft plan for the EKV competition. This
plan outlined a formal competition between the EKV contractors,
addressed the evaluation of technical and cost proposals, and
identified certain safeguards to ameliorate the conflict of interest
inherent in permitting Boeing LSI to select between the Boeing and
Raytheon EKV teams. Although Boeing LSI revised and resubmitted this
plan for the EKV competition based on input from BMDO officials, the
plan was never used, proposals were neither requested nor received, and
the anticipated evaluation of the competing EKV systems was never made.
Instead, because of the developments set forth below, BMDO directed
Boeing LSI not to request proposals.
The Disclosure and Misuse of Raytheon‘s Proprietary Information:
As Boeing LSI and BMDO were working through the details of a formal
source selection plan, the Raytheon and Boeing EKV teams were
continuing their research under the contracts administered by the
Army‘s Space and Missile Defense Command. Both teams were also actively
preparing for the upcoming competition.
On July 8, 1998, in support of ongoing EKV testing, Raytheon provided
to Army representatives a document titled ’Software Test Plan for the
Hover Test of the Exoatmospheric Kill Vehicle Subsystem.“ This 68-page
document was provided during a meeting between Raytheon and Army
officials in Tucson, Arizona. The face of the document indicated that
it was prepared by Raytheon for the Army, and every page of the
document contained the legend, ’Unclassified/Competition Sensitive.“
Less than 2 weeks later, on Monday, July 20, a member of the Boeing EKV
proposal team telephoned an attorney in Boeing‘s Law Department to
report that he had just found the above-described Raytheon Software
Test Plan on the floor of the Boeing EKV team‘s conference room, within
Boeing‘s Downey, California, facility. After securing the document and
conducting a preliminary review, the Boeing attorney notified Raytheon
of the discovery, in a July 28 letter, advising that the document had
been found in an unmarked envelope, appeared to have been slipped under
the conference room door, and that the company had been unable to
determine how it arrived.[Footnote 9] In addition, the Law Department
began a more detailed in-house review of the discovery of the document.
In response to Boeing‘s notification to Raytheon that Raytheon‘s
Software Test Plan had been discovered in the offices of Boeing‘s EKV
proposal team:
* Raytheon complained to Army officials, in an August 3 letter, about
the disclosure and requested an investigation;
* the Army‘s Procurement Fraud Division requested a review by the Army‘s
Criminal Investigation Command regarding how a Raytheon document
provided to the Army less than 2 weeks earlier ended up in a Boeing
conference room; and;
* BMDO attempted to address, in a September 29 letter, Raytheon‘s
’heightened“ concerns that discovery of its proprietary materials in
Boeing‘s EKV offices highlighted the problematic conflict of interest
caused by using Boeing LSI to select between the Boeing and Raytheon
EKV teams.
The full extent to which Boeing‘s EKV team‘s employees had misused
Raytheon‘s data, however, was apparently unknown to any of the parties
until late October 1998. During follow-up interviews conducted at
Boeing‘s Downey, California, facility, during the week of October 19,
the company‘s in-house attorneys learned”apparently for the first
time”that a small group of its EKV proposal team members had actually
discovered the Raytheon software test plan on Friday, July 17”not
Monday, July 20, as previously disclosed. In addition, the in-house
attorneys determined from their interviews that Boeing EKV team
employees had misled the company‘s Law Department about when the
document was found, how it was handled, and whether the employees had
surrendered all copies.
Specifically, the in-house review revealed that:
* certain Boeing EKV team employees had prepared an analysis of
Raytheon‘s software test plan over the weekend prior to advising Boeing
attorneys of its discovery on Monday;
* these employees had not turned over all of the copies of the test
plan to the Law Department, but had retained a copy of the test plan
and of their analysis; and;
* these employees had used these materials surreptitiously for several
weeks after Boeing‘s disclosure of the discovery of the document to
Raytheon, and after Boeing had represented to Raytheon that the
document had been secured.
In Boeing‘s own words, ’[t]he assumptions about Raytheon‘s avionics
design reflected in the analysis were thereafter reflected in several
program-wide briefings addressing, among other things, Raytheon‘s
anticipated Avionics design.“[Footnote 10]
During the last week of October 1998, the President of Boeing‘s Space
and Communications Group telephoned the Director of BMDO to advise him
of the misuse of Raytheon‘s proprietary data by Boeing‘s EKV proposal
team that had been uncovered during the in-house review.
Efforts to Preserve the Competition:
Once the Director of BMDO was notified in late October that the Boeing
EKV team had misused Raytheon‘s proprietary data, the fact that Boeing
LSI was poised to release the RFP to implement the competition
triggered a need for near-immediate resolution of the controversy. Both
contemporaneous materials and our interviews indicate that BMDO needed
to quickly complete the selection of an EKV contractor and proceed to
flight tests of the device to have any hope of complying with the ’3+3“
acquisition strategy that had been adopted for National Missile
Defense. This strategy called for 3 years of development and
demonstration of the feasibility of the system to permit a presidential
deployment decision planned for June 2000. If the President decided to
deploy the system in June 2000, the program allowed 3 years for
deployment (which was later extended to 5 years).
Letters and e-mails generated among the government, Boeing, and
Raytheon during November 1998 show two major efforts. First, Boeing
attempted to persuade BMDO that its EKV team had a sufficient record of
integrity and business ethics to be considered a responsible
prospective contractor appropriately eligible for the award of future
contracts. Second, both BMDO and Boeing attempted to convince
representatives of Raytheon that Boeing LSI could appropriately address
the conflict of interest raised by using Boeing LSI to select between
the Boeing and Raytheon EKV teams, as well as take steps to mitigate
the harm to the competition caused by the misuse of Raytheon‘s
proprietary information.
With respect to whether the Boeing EKV team could be considered a
responsible government contractor, the Director of BMDO delegated the
decision to Boeing LSI. In a November 2 letter, BMDO‘s Director asked
Boeing LSI to provide a written assessment of the Boeing EKV team‘s
responsibility, identify what measures might be taken to mitigate the
harm to the competition, and identify what alternatives remained if the
competition could not be restored.
One of the first of many responses to BMDO‘s November 2 letter was
described in a November 6 letter from a Boeing vice president to the
Air Force‘s Debarment Authority.[Footnote 11] This letter advised that
Boeing was terminating 3 employees for their involvement in the misuse
of Raytheon‘s software test plan and that a fourth employee was being
suspended for 30 days without pay.[Footnote 12] Based on these actions
and others”including an advisory review of the Boeing EKV team‘s
responsibility by an outside law firm”Boeing LSI‘s project manager
eventually provided BMDO, in a December 7 letter, a written finding
that its EKV team should be considered a ’presently responsible
offeror.“ By December 7, however, it appears the ’downselect“ decision
had already been made; thus, the responsibility of the EKV team was
relevant to the continuation of Boeing as a back-up source, not as the
provider of the EKV for future flight tests.
With respect to the second major effort during November 1998”that of
convincing Raytheon that the misuse of its data could be remedied and
the competition should proceed”BMDO‘s and Boeing‘s efforts reached an
impasse. By November 11, Boeing LSI‘s Project Manager represented to
the Army Major General serving as BMDO‘s National Missile Defense
Program Executive, via e-mail, that Raytheon was no longer willing to
discuss Boeing‘s approach to implementing a ’firewall“ between Boeing
LSI and the Boeing EKV team. In this e-mail, Boeing LSI‘s Project
Manager also advised the National Missile Defense Program Executive
that Boeing had decided to resolve any remaining firewall issues in
Raytheon‘s favor; to proceed with release of the RFP to the two EKV
competitors, despite Raytheon‘s objections; and to do so at 3 p.m. on
November 12, ’unless we receive a request from the government not to do
so.“
Both Boeing LSI‘s Project Manager and BMDO‘s National Missile Defense
Program Executive confirmed during interviews that BMDO directed Boeing
not to release the RFP, pending the outcome of Boeing‘s efforts to
resolve the impasse with Raytheon. In fact, our review shows that, from
this point forward, BMDO made Raytheon‘s concurrence with Boeing‘s
attempts to mitigate the harm to the competition a condition for
resuming the competition.[Footnote 13]
During our interviews, both decisionmakers stated that after halting
the RFP and attempting again to persuade Raytheon to acquiesce to plans
to move forward with the competition, their last-ditch efforts failed
and it became increasingly clear that there was no other choice but to
abandon the competition. Thus, the RFP was never released.[Footnote
14]
The ’Downselect“ Decision:
With respect to the selection decision itself, we have not located a
contemporaneous document memorializing the downselect decision, and
both Boeing and BMDO have advised us that none exists. Instead, both
Boeing and BMDO advised that the selection decision is evidenced by the
subcontract that was eventually negotiated between Boeing LSI and
Raytheon.
Both the Boeing LSI Project Manager and BMDO‘s National Missile Defense
Program Executive advised us that the selection decision was ultimately
made by Boeing LSI‘s Project Manager; that the decision was conveyed to
BMDO‘s National Missile Defense Program Executive, by telephone, on or
about December 1, 1998; and that BMDO concurred with the decision. In
addition, both decisionmakers defended the decision to select the
Raytheon EKV for flight testing, and to fund at a lesser-level the
Boeing EKV as a ’hot back-up“ until 3 months after the fourth flight
test.[Footnote 15] Both decisionmakers expressed the view that either
device was sufficiently advanced to permit its selection for further
flight testing, that the decision was a reasonable resolution of the
matter given the time pressures associated with the need to complete
testing of the system to permit the June 2000 presidential deployment
decision, and that the decision represented a sound attempt to mitigate
the risk associated with selecting the Raytheon device without the
benefit of a formal competition.
Although not reflected in any contemporaneous documents, Boeing LSI‘s
Project Manager stated during our interview that the selection decision
was also based on his concern that software development and testing of
the Boeing EKV was lagging behind schedule. He explained that this led
him to have concerns that selection of Boeing to build the EKV might
delay the program‘s ability to complete sufficient testing in time for
the June 2000 presidential deployment decision.
Finally, while it appears, as indicated above, that there was no
written documentation of the selection decision, other contemporaneous
documents support the timeframe and events that were recounted in our
interviews with the decisionmakers. No letter or e-mail we have seen,
created prior to November 30, 1998, suggests that the situation had
been resolved, while several items generated after this date indicate
that the decision had been made. In fact, in a handwritten annotation
on the face of a December 9 letter from the Director of BMDO to the
President of Boeing‘s Space and Communications Group, BMDO‘s Director
thanks Boeing for resolving this issue.
Thus, we find, based on our review of the record, that the decision to
select Raytheon to build the EKV for National Missile Defense:
* was made on or about December 1, 1998;
* was made after the competition was abandoned;
* was made without soliciting or reviewing proposals from the EKV
competitors;
* was not based on any formal comparison of the relative technical
merit or proposed cost of the two EKVs;
* was driven primarily by the inability to mitigate the competitive
harm caused by the misuse of Raytheon‘s proprietary data and concerns
that failure to either select”or satisfy”Raytheon would cause
significant slippage in the planned schedule designed to permit a
presidential deployment decision in June 2000; and;
* was made after Boeing LSI and BMDO concluded that either system was
sufficiently advanced to permit its selection for further flight
testing and that any risk in selecting Raytheon without a technical
comparison with Boeing‘s EKV could be mitigated by continuing to fund
the Boeing system, at a lower amount, as a ’hot back-up.“
Efforts to Recover Funds:
Between January 1999 and July 2002, the Department of the Army and BMDO
explored the potential for a financial recovery from Boeing, but the
effort was ultimately abandoned. In addition, consideration was given
to a civil or criminal prosecution of Boeing, and to the possibility of
debarring the business unit of Boeing responsible for the EKV effort.
Each of these considerations are set forth in greater detail below.
In February 1999, representatives of the Army's Procurement Fraud
Division and its Criminal Investigation Command met with
representatives of the U.S. Attorney's Office of Public Corruption and
Government Fraud, Central District of California, in Los Angeles, to
request review of the case for possible civil or criminal action.
According to the Army's Criminal Investigative Command report, the U.S.
Attorney declined to pursue a civil action, and in a May 11, 1999,
letter, the U.S. Attorney declined to pursue a criminal prosecution
"based on insufficient evidence of criminal wrongdoing."
Concurrently, the Army recommended debarment proceedings against the
Boeing employees involved in the wrongdoing, and against Boeing's
Electronics Systems and Missile Defense Group. The Army also considered
the alternative recommendation of a monetary settlement commensurate
with the damages suffered by the government.
The Army‘s assessment of damages focused on: the loss of the integrity
of a planned competition that had been carefully maintained for 8 years
at great administrative expense; the loss of the benefit of a head-to-
head ’best value“ comparison of two technical approaches developed at
the cost of approximately $400 million each; and the loss of the
potential savings that might have been achieved by the abandoned
competition, which the Army suggested should be valued at approximately
25 percent of the cost of Raytheon‘s EKV. However, given the difficulty
of computing damages, the Army never assigned a precise quantum to the
monetary recovery objective.
In concurrence with long-standing Department of Defense policy to place
responsibility for debarment decisions in the hands of the agency with
the greatest financial interest in the outcome, this matter was
referred first to BMDO, with responsibility for action ultimately
assigned to the Air Force debarment official. BMDO recommended against
debarring any division of Boeing”noting that the employees involved had
been terminated and were the subjects of individual debarment actions
by the Air Force. In contrast to the Army, BMDO assigned a precise
quantity to its proposed financial settlement, although all agreed that
the BMDO-recommended settlement was lower than that wanted by the Army.
Specifically, BMDO argued for recoupment of $6.6 million to $13.5
million. BMDO‘s proposed recoupment was described as an estimate of the
additional potential award fee payable to Boeing LSI as a result of
paying higher costs for the Raytheon EKV subcontract than would have
been paid had Raytheon‘s costs been subjected to the downward pressure
of competition.
In July 2002, BMDO (now the Missile Defense Agency) abandoned recovery
efforts because of litigation risks associated with proving damages, as
well as significant anticipated litigation costs, and the belief that
litigation was inconsistent with its partnership with Boeing as the LSI
contractor.[Footnote 16] In addition, BMDO determined that the
termination and debarment of the employees involved had largely
resolved the matter.
A draft of this report was given to representatives of the Department
of Defense. The Department did not elect to provide formal comments.
Instead, the Department‘s official representative provided, via e-mail,
informal technical comments, portions of which were accepted where
their inclusion would improve the accuracy of the report.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter. We will then send copies to other
appropriate congressional committees; the Secretary of Defense; and the
Director, Missile Defense Agency. We will make copies available to
others upon request. In addition, the report will be available on GAO‘s
webpage at [hyperlink, http://www.gao.gov].
If you, or your staff, have any questions about this report, please
contact me at (202) 512-5400, or Ralph White, Deputy Assistant General
Counsel, at (202) 512-8278. In addition, Adam Vodraska, Senior
Attorney, and David Hand, Senior Analyst, made key contributions to
this report.
Sincerely yours,
Signed by:
Anthony H. Gamboa:
General Counsel:
[End of section]
Footnotes:
[1] The EKV is the intercept component of the former National Missile
Defense program. The EKV is mounted on a defensive missile, is
delivered by that missile to the midcourse (or exoatmospheric)
phase of an incoming missile‘s trajectory, and uses a seeker in a
separate flight package to guide and propel itself into an incoming
enemy warhead, thus destroying the warhead above the earth‘s
atmosphere. During our preparation of this report, the Missile Defense
Agency announced, in September 2002, that it was pursuing concepts for
a new-generation EKV.
[2] See Missile Defense: Review of Allegations about an Early National
Missile Defense Flight Test, GAO-02-125 (Washington, D.C.: Feb. 28,
2002).
[3] On January 2, 2002, BMDO was renamed the Missile Defense Agency. In
addition, National Missile Defense and several other programs have
recently been renamed. National Missile Defense is now referred to as
the Ground-Based Midcourse System, which, together with Sea-Based
Midcourse Systems, comprise the Midcourse Defense Segment. For this
report, we will use the names in place at the time of these events.
[4] Debarment and suspension are discretionary sanctions available to
government agencies, under policies set forth at Federal Acquisition
Regulation (FAR) Subpart 9.4, which permit a finding that a government
contractor should be deemed ineligible for the award of future
contracts as a means to protect the government‘s interest in awarding
contracts to responsible contractors only. FAR § 9.402. The debarment
and suspension process anticipates ’prompt reporting, investigation,
and referral to the debarring official of matters appropriate for that
official‘s consideration.“ FAR § 9.406-3. The process also anticipates
providing contractors an opportunity to respond to proposed debarments.
Id.
[5] This back-up funding of Boeing‘s EKV continued at a rate of
approximately $4 million per month until 3 months after the fourth EKV
flight test, which took place in January 2000.
[6] As illustrated above, none of the entities originally selected to
design EKV sensors for National Missile Defense exist in the same form
today due to consolidations in the defense industry during the 1990s.
[7] Boeing‘s competitor for the LSI contract was a joint venture of
Lockheed-Martin, Raytheon, and TRW.
[8] In addition, both competitors for the LSI contract were required to
address in their proposals their plans for handling the organizational
conflicts of interest that would arise while serving as the LSI
contractor. BMDO‘s Director told us that Boeing was selected for the
LSI role, in part, based on the strength of its response in this area.
[9] The source of the Raytheon document found in the offices of the
Boeing EKV team has not been established, even though the matter was
investigated by several entities, including the Army Criminal
Investigation Command. The contracting officer‘s debarment report, as
well as other materials reviewed (including the Army Criminal
Investigation Command report), states that Army personnel, and
independent contractor personnel, visited Boeing‘s Downey facility from
July 14 to 16, 1998, for a software readiness review in the offices of
the Boeing EKV team. Since the document at issue involved Raytheon‘s
software testing plans, and since the Army team was meeting with the
Boeing EKV team about Boeing‘s plans for testing its software, Army
officials opined that the document may have been inadvertently left
behind by a member of this team.
[10] ’Report Re Raytheon Document Incident,“ Office of the General
Counsel Memorandum, The Boeing Company, at 3.
[11] The Air Force‘s Debarment Authority was involved in this matter in
his capacity as the Department of Defense official charged with
monitoring Boeing‘s compliance with government ethics requirements. The
Air Force‘s role as a monitor of Boeing had been established by an
administrative agreement between the Air Force and Boeing, which was
designed to address the company‘s ongoing responsibility as a
government contractor given earlier ethical issues unrelated to this
matter that involved companies subsequently acquired by Boeing.
[12] Three of these employees were subsequently debarred by the Air
Force from participating in government contracts.
[13] As early as November 12, an e-mail from the Boeing Vice President
mentioned above, to the Air Force Debarment Authority, advised that
Boeing had indicated its willingness to withdraw but was still trying
to implement BMDO‘s stated desire to preserve the competition if
possible.
[14] Draft RFPs were released and discussed with the parties on August
21 and October 21, 1998. A bidder‘s conference was held on September
16. The discussion above involves the release of the final RFP, which
would have triggered the requirement to submit proposals.
[15] As indicated above, the fourth flight test took place in January
2000. BMDO‘s National Missile Defense Program Executive advised that he
agreed to fund the Boeing EKV as a ’hot back-up“ to the Raytheon
device; the funding was at the level of approximately $4 million per
month, until 3 months after the fourth flight test. In addition, the
selection plan prepared for BMDO by Boeing LSI anticipated funding the
unsuccessful EKV contractor as a back-up prior to the disclosure of the
Boeing EKV team‘s misuse of Raytheon‘s proprietary information.
[16] For the record, we note that BMDO‘s decision to abandon pursuit of
monetary damages was based, in part, on advice received from the Army
that the resources required to prevail in any litigation against
Boeing, together with the ’very difficult evidentiary issues,“ created
’the risk of unsuccessful litigation.“ Earlier, the Army had endorsed
the recommendation to pursue either debarment of a component of Boeing,
or alternatively, a financial settlement.
[End of section]
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