European Stars and Stripes (Newspaper) - January 7, 1991, Darmstadt, Hesse                                Monday january 7, 1991 the stars and stripes Pago 9arms procurement facing Tough Era system needs overhaul for lean 90s by Richard w. Stevenson new York times a recent Effort by the Navy and two of its largest contractors to save the troubled a-l2.warplane is the clearest illustration yet of How policies intended for the arms buildup of the 1980s Are haunting the military and its suppliers in an Era of declining budgets. Even before they absorb the full Impact of the coming shrinkage of the nations combat forces military contractors Are reeling. They Are the victims of their own Overly optimistic business projections and harsh terms imposed by the Pentagon in the last decade in an ill fated attempt to hold Down costs. The a-12 builders for example Mcdonnell Douglas corp. And general dynamics corp., agreed to develop the plane for a pre determined fixed Price a condition of the contract. As in other fixed Price arrangements the contractors ran into unforeseen technical problems that led to expenses far higher than the value of the contract a More than $1 billion More with the a-12. The tougher procurement policies were largely a product of the Early and mid-1980s, when the Industry was flush with profits and Many members of Congress were enraged by reports of $500 hammers and ashtrays and other examples of waste and fraud. The military now finds itself increasingly forced to choose Between bailing out its contractors with More Money a a difficult step Given the budgetary and political pressures from Congress a or delaying scaling Back or killing projects that the armed services consider vital. A this is a time of rude Awakening a said Robert a costello who served As the Pentagon Stop acquisition executive in the Reagan administration. Last summer the Navy cancelled a contract with Lockheed corp. To build a submarine Hunting air plane the p-7a, after the costs of developing the plane jumped sharply. Last month after development costs tripled the army terminated the fog a missile that was being designed by Hughes aircraft co. And Boeing co. Defense Secretary Dick Cheney is expected to announce monday that he will revamp the development program for the a-12 Avenger a Carrier based radar evading attack plane. Fearful that the program was out of control Cheney last month threatened to cancel it unless the Navy could justify the additional Cost and present an acceptable plan for getting it Back on track. The changes Are expected to include a partial bailout of Mcdonnell Douglas and general dynamics As Well As a decision to slow the program and reduce its size. Navy officials and Industry executives consider it unlikely that Cheney will terminate the program. Fixed Price development contracts were part of the Pentagon a Effort in the mid-1980s to contain procure ment costs by shifting More financial risk to contractors. The Industry went along sometimes grudgingly with the shift away from contracts that guaranteed a specific margin Over costs a system known As Cost plus. On the a-12 program Mcdonnell Douglas and general dynamics under bid their competitor Grumman corp. By $1 billion on the contract to develop the plane. From the beginning Grumman executives said privately that the Mcdonnell Douglas general dynamics bid did not make financial sense. Analysts said the winning bidders might have been motivated largely by a desire to dislodge Grumman As the Navy primary aircraft builder. They also said Mcdonnell Douglas and general dynamics we recounting on making up for any losses in the planets development with the Long lucrative contract to produce the a-12. But the number of a-12s the Pentagon is Likely to buy is dropping just As most other arms programs have been scaled Back. The Navy has already trimmed its planned the system is an amalgam of Quot rules habits experiences and assumptions based on 30 years of relative Prosperity a Robert Paulson Purchase of 858 of the planes Down to 620, and the a a number is Likely to drop even lower. Military contracting has always been plagued by Cost overruns a the Industry a jargon for a project in which the developers Cost rises beyond the value of the contract a and companies have Long complained about government procurement policies that depress their profits. What is new in the current predicament is that it comes As the nation embarks on the first fundamental reduction in the size of its military Force since the end of world War ii. While the persian Gulf crisis has muted Calls for deeper cuts most analysts predict that military budgets will continue to fall in the foreseeable future breaking a decades old Cycle in which contractors were Hurt during periods of declining Pentagon spending but were rewarded when spending turned up or new contracts were awarded. The cold War is Over and the shrinkage in the defense contracting Market is Long term a said Gordon Adams the director of the defense budget project a non partisan research organization in Washington. A it hat poses a whole new problem for the Industry. For the past 40 years there was always a period of increased spending to make everything Well again. Its unlikely we re going to see that now a. The current system is an amalgam of a rules habits experience s and assumptions based on 30 years of rela Tive Prosperity in the defense Industry and on political imperatives that have been built into the system a said Robert Paulson who advises military contractors for Mckinsy amp co., the consulting firm. A but today the services can to stretch any More and the contractors can to stretch any  the Pentagon and the Industry have taken some Steps to bring their procedures in line with the harsh reality they face. The Pentagon has largely stopped demanding fixed Price contracts for the development of weapons although contractors will continue to suffer losses As they Complete work on the fixed Price programs already in place. A with fixed Price development you re depending on too Many technological breakthroughs coming on time and on budget which science generally does not yield a said retired adm. Stuart f. Platt who served As a top Navy procurement official during the 1980s. The Pentagon has also increased somewhat the Pace at which it pays contractors after having slowed its Progress payments during the last decade. The practice of pitting contractors against one another each year to compete for the right to produce missiles and other hardware is declining As the volume of weaponry decreases. Contractors have been somewhat heartened by what they consider the sympathetic attitude of Deputy l a lense Secretary Donald j. Atwood who has been supportive of overhauling the procurement system to address the problems of the 1990s. Yet there Are fears that much of the momentum for change evaporated when procurement chief John a. Betti left the Pentagon. He resigned last month after Cheney became upset that he had not received timely information about the problems plaguing the a-12, a people Are concerned but nothing really gets done a said Malcom r. Currie the chairman and chief executive of Hughes aircraft co., which is owned by general motors corp. A a it a almost As if the problem is too Large to handle.�?�. Industry executives say they Are still feeling the lingering effect of both the procurement policies and questionable corporate strategies of the 1980s. Industry executives and analysts say it is Clear that at the very least the Pentagon is going to have to do a better Job of identifying what weapons systems Are vital rather than have the Fate of new programs decided by the contractors ability to control costs. Drifting along with surprises Winter brings it May look like a Pristine Beach of White Sand but its really covered with the cold icy stuff that northerners flee to the South to escape. Last week More than 3 feet of Snow fell across the deserted Beach at Whitefish Lake in Montana when several storms struck the Northwest part of the state. The storms dogged roads bringing travel to a standstill. M u s a 4o a 4 a a a i a he it # ? map