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Concerns and Questions: The A-12 Aircraft Financial Fiasco

October 2, 1996 

 

A Federal Claims Court judge reportedly will soon award defense contractors McDonnell Douglas and General Dynamics a total of $1.5 Billion in damages because of the cancellation of the A-12 Navy aircraft. The government canceled the program because of huge cost overruns and schedule delays, and has said it will appeal the court's decision.

Marcus Corbin, Defense Program Coordinator at the Project on Government Oversight, notes that McDonnell Douglas and General Dynamics first bungled a contract so badly that no weapons were produced, helping themselves to $3 billion, and then mugged the public again for $1.5 billion in damages, blaming it all on the government. These corporations ran over the public once, then stopped and reversed over it all over again. The defense procurement system clearly needs serious repair to prevent this happening in the future."

Judge Robert Hodges, Jr., once an aide to Senator Strom Thurmond (R-SC) before being appointed to the bench, found that the government was at fault for the way that former Secretary of Defense Richard Cheney terminated the contract. This disturbing and costly outcome raises some serious concerns and questions about our defense procurement system and how it should be reformed:

  • Who in the government is going to be held accountable for throwing away billions of citizens dollars? Will the Defense Criminal Investigative Service report on the disaster be released to the public? The government cost analysts who reported the disaster-in-the-making to their superiors were initially threatened by supervisors. Have they since been rewarded for their efforts?

  • Should the government award any new defense contracts to companies whose bungling and misspending led to this debacle?

Former Navy Secretary H. Lawrence Garrett III complained at the time about "the contractors' failure to perform and their apparent unwillingness or inability to provide the aircraft in accordance with schedule, price and technical requirements of the contract." McDonnell Douglas and General Dynamics can no doubt point to Navy complicity in the mismanagement of the program. But should these companies - that have the gall to pretend innocence, blame the Defense Department entirely, force the government to fight the most expensive government contract lawsuit ever, and walk away with $3.5 billion in tax dollars for nothing - be given any more contracts when they have demonstrated such inability to recognize their own culpability and address their own share of the problems that led to the program's collapse? Their brazen effrontery in pursuing the case, even after Judge Hodges repeatedly urged the companies to settle the case out of court, saying "Common sense suggests that it should not be tried," must not be rewarded.

McDonnell Douglas and General Dynamics are by no means hard luck cases, with their stocks at or near record highs, and General Dynamics awash in cash already. It is expected that General Dynamics and possibly McDonnell Douglas will use the windfall profits for yet more acquisitions of defense corporations, with attendant layoffs and executive bonuses. Will the Defense Department approve payment of "restructuring" costs for these mergers, and owe millions more to the contractors?

  • What reforms will be put in place to prevent such financial fiascos if weapons are canceled in the future?

  • The judge found that a central problem with the method of cancellation was that the Secretary of Defense canceled the program, not the Navy. This curious but crucial finding by the Navy raises important concerns about effective civilian, Presidential, and ultimately, public control of defense spending and the military services in general.

Who's in charge here, a duly-appointed Cabinet official or the Navy that repeatedly misled him? Has the Secretary of Defense now been put in control of his own Department - specifically, are the Services still the only ones who can stop a weapon program - and if not what reforms are planned to restore ultimate responsibility and authority with the Secretary?

  • Many observers believe that the A-12's demise was attributable in good part to the hiding of its existence, costs, and failures in secret accounts and programs. Yet the Clinton Administration is increasing secret programs - it reportedly requested two-thirds more money for Air Force secret research and development than in the last Bush Administration budget, for example. Given the fiasco that resulted from the A-12's secrecy and lack of accountability - not to mention the difficulty of sorting out how it happened because of the Pentagon's classification of so much information - why is the Pentagon leadership still pushing secret programs so hard?

  • Most broadly, just how is it possible that the taxpayer owes $1.5 billion and can't recover another $2 billion from the contractors who botched a program so badly that the public never got a single aircraft for the billions it had spent?

In the words of Representative Andy Ireland (R-FL) at the time, "The experience with the A-12 is not an isolated incident ... What we are dealing with is a longstanding DOD and service-wide problem that has existed perhaps 20 or 30 years." Since the courts appear ready to stick citizens with the bill for the A-12 debacle, the public deserves a full official reporting on what happened, who is going to be held accountable, and what is going to be done to prevent similar cases in the future.



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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