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McCain Puts Spotlight on Pentagon Contracts

March 15, 2005 


Contact: Scott Amey, Eric Miller or Beth Daley 202-347-1122
For more info on the C-130J: Ken Pedeleose 770-425-4718 or 770-596-1222 (cell) or Dina Rasor 510-235-5021

Weapons acquisition is on the agenda in Chairman John McCain's Senate Airland Subcommittee hearings today and tomorrow. At the request of Chairman McCain, the Project On Government Oversight (POGO) has prepared written testimony about how the Department of Defense has recklessly waived taxpayer protections in contracting.

According to POGO testimony, the Pentagon has stretched the rules in recent years in order to circumvent vital contracting laws and regulations that protect against fraud. "Other transactions authority" (OTA), which is being used to procure the Future Combat System, is a perfect example of this abuse. OTA was established to encourage non-traditional defense contractors to access the government contracting marketplace. But government reviews show that as much as 97% of OTA dollars go to traditional contractors like Lockheed Martin and Boeing. "The big boys do not need the red carpet treatment in order to be swayed to do business with the government. They are already clamoring for government contracts," said Danielle Brian, Executive Director of POGO.

The commercial acquisition of the C-130J airlifter is another example of abuse that will be the focus at tomorrow's hearing on Air Force Acquisition Oversight. Lockheed Martin enjoys all the privileges of having a commercial contract for the C-130J but has never sold a single plane to a private customer, and does not even have the required FAA certification to do so.

A report released today by POGO outlines why the Pentagon is not obligated to owe excessive fees for the controversial C-130J should the Department of Defense cancel the aircraft, as program cheerleaders have claimed. In recent days, C-130J supporters in Congress have even claimed that the cancellation fees could be as high as $2 billion, although they do not have the actual numbers to back up their claim. Congressional aides tell POGO that behind closed doors, the Air Force has confirmed that its only contractual obligation is to pay, at most, the $383 million cancellation fee if it cancels on the timeline Rumsfeld has proposed.

"By Lockheed Martin's logic, if my grandmother returned a loaf of bread because it was moldy, she would have to buy all the flour, baking pans, and ovens at the bakery. They want a commercial contract when it suits their purposes, but they go back to the old-style government bailout when things do not go their way," said Danielle Brian, Executive Director of POGO.

After consulting with a variety of procurement experts, POGO has concluded that the $1- and $2-billion cancellation fee claims are wildly exaggerated. The standard "termination for convenience" clause provides for reimbursing the contractor for materials purchased, but not used. Normally, this should not exceed one year's worth of material. In addition, because this is a commercial contract, the government is not obligated to reimburse the contractor for machinery and other special manufacturing equipment.

The $1- and $2-billion contract cancellation assertions assume that the contract would be cancelled "at the convenience" of the government. It may be more logical for the government to seek contract cancellation "for cause" given the utter failure of the contractor to deliver a usable product.

Click Here to view POGO's Testimony

Click Here to download POGO's report on the C-130J airlifter

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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