The Howling Wilderness of Acquisition Reform:
February 10, 1999
 Herbert L. Fenster, "The A-12 Legacy: It Wasn't An Airplane—It Was A Train Wreck," Proceedings, February 1999. Attached.
It is becoming increasingly clear that the Defense Department's acquisition reform program is not changing the worst corruptions of the Pentagon's procurement system. At the heart of the Pentagon's systemic procurement problems is a value system really a culture — that accepts duplicity and gamesmanship as a normal part of doing business. While this culture glues all the players of the Military-Industrial-Congressional Complex (MICC) together, the government is responsible and should be held accountable for its existence.
One of the most widely-practiced decision-making pathologies is the Front Loading Power Game, or the systemic practice of downplaying or misrepresenting of the future consequences of current decisions in order to obtain a decision for, or make it easier to pursue, a given course of action.
Low-balling a bid to 'buy into' a program is a well-known albeit primitive example of front loading. A more sophisticated example is practice of promising lower operating costs in the future in order to justify higher procurement costs in the present. The F-22 is a case in point: it will cost about 3 times as much as the F-15 it is replacing, but the Air Force is telling the Secretary of Defense and Congress it is a good deal, because it will cost only 60% as much to operate on a per flying hour basis, and, therefore, total costs will be affordable over the long-term. Of course no one will really know what the F-22 will cost to operate until it is too late to do anything about it.
The case of the F/A-18E/F illustrates an even more sophisticated multi-year, multi-phased front loading strategy. Front Loading the E/F began in 1992, when the Navy deliberately hid the fact that it had a new wing and misrepresented the airplane as a modification to an existing airplane (F/A-18C/D) in order to bypass the Milestone I prototyping phase. The Navy then hid the wing drop problem in 1996 and 1997 (which would have been revealed by prototyping) in order to obtain an pre-mature authorization to begin production (Milestone III approval) in 1997. As of this moment, the Navy (and the Office of the Secretary of Defense), is about to release production money for the third lot of production, but it still refuses to answer Senator Feingold's simple questions about reports of deficient air-to-air performance in the Operational Test IIB exercise done in the Summer of 1998. [see Comments 225, 228, and 232].
Generally, as these examples illustrate, front loading operations are targeted by a faction within the government (often with contractor support) against other members of government, like a military service targeting the Office of the Secretary of Defense or Congress.
But this is not always the case, as Attachment #1 below demonstrates.
Herbert Fenster, the attorney who represented General Dynamics and beat the government in the A-12 law suite, just published a stunning case study documenting how the Navy deliberately and illegally misrepresented the nature of the A-12 program and downplayed its costs to the very contractors who were bidding on that program and then induced those contractors to illegally share costs with the government [cost sharing is not only a violation of 31 USC 1342, a felony statute, it effectively augments appropriations, which is prohibited by the Constitution, see Comment #213].
In short, Fenster shows how the Navy ran an illegal front loading operation against its own contractors … and because of this, the taxpayers will have to foot a multi-billion dollar bill!!!!!!!
Fenster concludes his case study by asking "Are these lessons being learned and applied? It would seem not. With just a few years' hiatus from fixed-price contracts for RDT&E, DoD is embarked on an even more aggressive program of such contracting for its future needs. Programs now under contract and on the drawing boards call—literally—for the contractors to "share" the cost of RDT&E. It seems not to matter that such contracting is illegal and unconstitutional—or that because of this lesson unlearned, we face the very real prospect of yet another round of A-12 adventures"
That is why the prospect of endless lawsuits, dear reader, is at the center of the vortex in the howling wilderness of acquisition reform.
Fenster's article is important — read it carefully, including the footnotes — twice.
[Disclaimer: In accordance with 17 U.S.C. 107, the following material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.]
The A-12 never amounted to more than a mockup, but the consequences of this unfortunate program are going to affect the size and composition of Naval Aviation for years to come.
By Herbert L. Fenster
On 20 February 1998, Judge Robert Hodges of the U.S. Court of Federal Claims ended almost seven years of trial proceedings when he ordered the Clerk of the Court to enter an approximately $3.9 billion judgment in favor of the two A-12 contractors. Of this amount, roughly $2.6 billion already had been paid to the contractors during performance, meaning that the government now will have to pay an additional almost $1.4 billion. To this amount will be added interest, currently totaling in excess of $500 million, and continuing to run at nearly $200,000 per day. As of February 1999, the total amount payable on the judgment is just under $2 billion. Since a decision in the government's appeal (to be argued on 1 February) is not likely until the end of the calendar year, this amount will increase about $60 million.
The government has filed an appeal, but because of the posture of the case, it cannot "win" on the basis of its appeal. The most that could be accomplished is to have the case returned to the trial court for more trials (there already have been four).
But the litigation is only a sideshow to the profound issues that the A-12 program has surfaced. Regardless of one's views on the subject, the program's demise may be signaling grave doubts about most elements of Naval Aviation—and there are important lessons to be learned from a studied account of this ill-fated program concerning the procurement of major, sophisticated weapon systems in the post-Cold War era.
The A-12 program was born from the convergence in the early 1980s of the superannuating of the A-6 and the bumpy progress of stealth technology. Added to these events was an emerging contest between the Air Force and the Navy for the future of medium- to long-range attack missions. By the mid-1980s, however, the Department of Defense (DoD) had initiated a "build-down," a process accelerated by the fall of the Berlin Wall. These are only some of the more important issues that were in contest when the A-12 program came into being.
It is fair to say that the Navy did not want this program. In the early and mid-1980s, the service needed desperately to enhance the capabilities of its deep-strike operations, but it believed this goal could and should be accomplished by upgrading the A-6. Two such upgrades were proposed; they would have produced an A-6F and an A-6G, each incorporating weight, countermeasures, strike, and range and mission improvements. At the time, the Navy did not want to embark on a stealth aircraft program—the technologies were by no means ready, and the funds needed to reach such a result were nowhere to be found.1 Added to these issues were growing uncertainties about the threats such an aircraft might expect to encounter and about the threats it was supposed to address.
When Deputy Secretary of Defense Paul Thayer ordered the Navy to undertake the A-12 program in 1983, the service came up with a plan to accomplish the mission notwithstanding the unavailability of funds and technologies.2 It was remarkably simple. The Navy would go to the principal sources of fighter and attack aircraft and induce them to team and "compete" for the program. To ensure that it could keep the program within the inadequate funds it had available, the Navy employed fixed-price type contracting and specified the maximum amount that could be bid. In addition, the development of the program would be carried on in the "black" world. Not only would this ensure the protection of very sensitive technologies, but it also would virtually eliminate any oversight from outside the department.
The plan anticipated three teaming groups:
**Lockheed, which already was embarked on black programs addressing the relevant technologies, was to lead one group.
**Northrop, then embarked on the black B-2 program, teamed with Grumman and LTV.
**McDonnell Douglas and General Dynamics, the two major developers of fighter and attack aircraft for the Navy and the Air Force, respectively, joined forces.
The plan failed immediately. Lockheed, it was established in the discovery phases of litigation, refused to compete for the program. The company not only rejected the use of a fixed-price contract and the limitation of a specified amount, but also found the approach that the Navy had dictated to achieve the performance characteristics technologically infeasible.3
The Northrop team also rejected the Navy's approach. It refused to bid on a fixed-price basis; refused to agree to the performance or schedule terms; provided cost information that indicated that the Navy's estimates were at least $2 billion short; and warned the Navy that the technologies required were not yet available (something the Navy knew).4
Presumably, this left only the McDonnell Douglas-General Dynamics team. If the Navy acknowledged the facts it already knew, however, not only would the program never see the light of day, but the Navy would lose its ability to launch any A-6 replacement program. First, knowing that the other two teams had dropped out, the McDonnell Douglas-General Dynamics team would never agree to bid on a fixed-price basis; and a sole-source program would mean that the contracts would have to be cost reimbursement, which would mean much higher costs. Second, if the contract were awarded on a cost-reimbursement basis, it would be necessary to consider a bid from Northrop (which the Navy did not want to do). Third, this was 1985, and defense budgets were starting down. As discovery in the A-12 case revealed, unless some program was put in place quickly, there would be no funds at all—and the entire mission would be lost to the Air Force.
In the face of this dilemma, Navy procurement leadership realized that with the entire program then "black," no one (not even superiors in DoD) would need to be told that there was, in fact, no competition for the program and that, among the three potential teams, only the team that believed erroneously that the program could be accomplished under the required terms was willing to bid. To carry this off, Northrop would be told that it was a viable competitor and would be kept in the "bidding." The scheme almost fell apart for several reasons—one of which was that Northrop became suspicious near the end of the bidding process.5
The program was initiated formally in 1984 by issuing to the two teams fixed-price contracts of approximately equal amounts, for concept formulation and demonstration validation (CF and DemVal) of their respective designs for the aircraft. Here again, the Navy cut corners. The CF showed clearly that neither the design concepts nor their execution in a formal design were ready for the construction of an aircraft. Like almost any program of this type, flying prototypes were imperative. Both teams proposed very large projects for demonstration validation, and the Navy became certain that it should build prototypes in this portion of the program. However, not only was there insufficient time for these DemVal projects—let alone for construction of prototypes—there also was markedly insufficient funding available to complete this work. For these reasons, prototyping was rejected and the contractor-proposed funds for the DemVal work (even excluding prototyping) were reduced by 75%.6 (The F-22 program, which was running somewhat in parallel with the A-12, did contain a DemVal phase in which prototypes were built and flown at a cost that greatly exceeded the entire planned cost of the A-12 CF, DemVal, and full-scale engineering development program.)
In 1987, even though the CF and DemVal work had disclosed the need for further design and prototyping, the two teams were required to submit bids for the full-scale engineering development (FSED) and manufacture of the first eight aircraft.7 Northrop maintained its position that it would not risk a fixed-price contract. It would build six aircraft, not the eight demanded by the Navy; it would not build the aircraft to the Navy's schedule; and it would not even guarantee the design and performance results—the Navy would get only what Northrop was able to produce. At that, Northrop estimated that the work would cost fully $2 billion more then the Navy's available funds.8 Northrop was, in the language of the regulations and contemporaneous documents, "nonresponsive" and "unawardable."
Instead of telling Northrop (and McDonnell Douglas-General Dynamics) that the Northrop bid was nonresponsive and unawardable, and that there would be a sole-source negotiation—something the regulations required—the Navy did just the opposite. It told both teams that there was viable competition for the contract on a fixed-price basis and that both teams had submitted bids "within the competitive range."9
And it did not end there. Even the price proposed by the McDonnell Douglas-General Dynamics team was more than the funds available. The Navy therefore conducted a further competition—seeking "best and final offers" —in an effort to get the McDonnell Douglas-General Dynamics team to reduce its price. With Northrop out of the competition, seeking best and final offers (while representing that there was viable competition) plainly was an effort to induce McDonnell Douglas-General Dynamics to bid against itself. The resulting price obtained, however, still was not low enough to fit the Navy's funding profile, so the service sought a second best and final offer. Interestingly, this second effort at price reduction failed, and the Navy, in fact, went into the contract with inadequate funds for its performance—a violation of law.10
If all of this were not bad enough, the Navy had learned, in its examination of the McDonnell Douglas-General Dynamics bid, that the proposed aircraft's design weight would exceed that predicted by the companies. The question then was what to tell McDonnell Douglas-General Dynamics. If the Navy told what it knew, the companies would not contain their bids within the funds available, and there would need to be further development of the designs. Either of these circumstances would mean that the Navy would not be able to initiate the contract in the coming year, with the very real risk that funding would be lost and with it the program. For these reasons, it was decided to not tell McDonnell Douglas-General Dynamics that they would be unable to design and build the aircraft within the weight predicted by the contractors and specified as a contract requirement.11
There was more bad faith. When the Navy examined the cost and pricing data that had been submitted by the McDonnell Douglas-General Dynamics team, it realized that the companies had underestimated costs by more than half a billion dollars.12 If the contract were awarded at the proposed prices, the companies would experience losses in the hundreds of millions of dollars (not only the half-billion in costs, but all of the predicted profit as well). Again the decision was made not to tell the contractors. It should be noted that decisions not to reveal what are termed "suspected mistakes" violate the Federal Acquisition Regulations, and such violations would have entitled the companies to void the resulting contract.
At the time of award, knowing that the aircraft would never be built at its specified weight, the Navy faced yet another serious problem. Regulations required that the Navy report to DoD that the aircraft would not meet its weight threshold. DoD, in turn, was then required to disclose these facts to Congress. Because it would have put congressional support for the program at risk, no such disclosure was made. Instead, the Deputy Chief of Naval Operations for Air Warfare told the Naval Air Systems Command to proceed with the program and report the overweight condition only when it became a reality.13
The contract was to be awarded near the end of 1987. On 22 December 1987, before the contract was awarded, Congress passed the Defense Appropriation Act of 1988 and included in it a provision that prohibited the award of major development contracts on a fixed-price basis unless the schedule, technical, and cost risks had been reduced to a point where the viability of the contractors would not be threatened. The new law (which was applicable to any contract awarded for the A-12) required the Under Secretary of Defense to certify in writing that such risk reduction had taken place.
Interestingly, it would appear that both DoD and the Navy discovered the existence of this law only at the very last minute. Virtually on the eve of contract award, DoD realized that this certification would be required, and Under Secretary of Defense Robert Costello sent his deputy, Eleanor Spector, a long-time procurement expert, to the Navy to determine whether such a certificate could be executed. After a review, which took less than 24 hours, she reported that such a certificate could not be executed because the risks were too great.14
Meanwhile, staffers to the Under Secretary already had prepared such a certificate, which Dr. Costello then signed. All records of the transaction, except for the deputy's memo recommending against the certificate of approval, were destroyed.15 Simply put, the certificate was inconsistent with the available information and advice.
The A-12 program originally was intended to produce approximately 1,200 aircraft. Congress had required the program to be multiservice, and the buyers were to include not only the Navy but the Air Force and Marine Corps as well. It now has become clear that the Air Force never actually intended to purchase any of the aircraft and that its representations to the contrary were intended to mollify Congress and to ensure that its F-22 program would be allowed to proceed. As for the Marine Corps, it dropped out of the program almost immediately, and it can be assumed that it also never had a serious interest in the aircraft. Nevertheless, this left a substantial program—or so the contractors thought.
By the spring of 1989, however, the Navy's predictions about cost and weight were coming true. And by the following spring, the Berlin Wall was down and Congress was putting serious pressure on DoD to reduce its weapons budget. In the spring of 1990, DoD responded by undertaking a study of its aircraft programs, the Major Aircraft Review. All of the programs survived the review, but the quantities for the A-12 and others were cut substantially.
Additional cuts were made throughout the remainder of 1990; by the time of termination of the program in January 1991, only 150 of the planned 1,200 aircraft had survived. This was the product of: (a) a reduction in the number of carriers [to 11]; (b) the change in the mix of aircraft on carrier decks; and (c) a much slower rate of introduction—placing the ultimate program numbers in serious doubt. At that, the program had been stretched by several years because of budget limitations. What this meant was that the cost of the aircraft—the program aircraft unit cost (PAUC)—had risen to approximately $200 million per unit.16 This also meant that the possibility of the aircraft ever going into service (short of all-out war) was near zero. And away with those sheltered hopes went any prospect of the companies ever realizing a profit on the program—or recovering any significant development losses.
The reduction in the numbers of aircraft proposed in the Major Aircraft Review did not satisfy Congress, and a second round of cuts was agreed to in the summer of 1990. To meet this obligation, the DoD Comptroller ordered a further study to determine whether any ongoing programs could be eliminated. In a report completed in October 1990, the Comptroller's office recommended that the A-12 program be eliminated.17 Neither the report nor the Secretary of Defense's adoption of it were revealed to the Navy. DoD wanted to end the A-12 program in such a manner that it would be able to escape blame and at the same time avoid paying an additional $500 million that was to come due under the contract on 7 January 1991. The plan was simple: push the Navy into terminating the contract for default before the January due date. The content of this plan was developed in the testimony and memos of the Department of Defense General Counsel and Secretary Richard Cheney's executive assistant.
Meanwhile, however, the Navy and the contractor had experienced substantial success going into the latter part of 1990 in overcoming the weight problems and the considerable technical difficulties that had grown out of the use of stealth technologies. As to the latter, the contract and the Navy's program planning had required that there be a close coordination among the several programs that were to employ stealth technologies, among them the B-2 and the F-117. This coordination was imperative, because the A-12 program could not afford the expense and time needed reinvent breakthroughs that programs such as the B-2 had captured.
This technical transfusion plan, to which both the Air Force and the Navy had agreed, required that the two services cooperate closely. The Air Force clearly was the dominant party, having passed the Navy in these developments many years earlier. The Navy was at the Air Force's mercy, and the Air Force was seeing an easy way to capture the entire strike mission. It helped itself materially in accomplishing this objective by the simple expedient of delaying—or denying—access to essential technology advances. The very sophisticated information developed under Air Force programs was not made available to the A-12 program.18 The Navy and the contractors could (and did) overcome this gap, but it was at the cost of much time and many dollars.
Satisfied with the aircraft, the Navy resisted DoD's efforts to require termination. This made the DoD secretariat quite unhappy. To ensure that its objective of avoiding the $550 million payment would not be compromised, DoD issued directions to send the contractors a cure notice, the content of which DoD dictated, and then it gave directions to terminate the contract for default.19
Most major weapon systems consisting of military-unique characteristics and intended for military-unique objectives are creatures of only the recent past. We have, of course, manufactured ships of war and cannon in government arsenals for most of our nation's history, but such goods are few in numbers and kinds. Resources such as tanks, military aircraft, radar, and the like have little history before World Wars I and II. Today, the increasing sophistication of such weaponry in the 20th century has made even the facilities and means of design and manufacture unique to military objectives. For these reasons, the relationship between the military and its contractors is most decidedly not one of a general customer simply buying goods off the shelf. To get sophisticated weapon systems designed and into inventory ahead of obsolescence, the relationship must be one of partnership and trust.
Unlike the manufacture of simple widgets from mature specifications, the research, development, test, and evaluation of a major weapon system is understood to contain risks of every type; it is an exercise in trial and error. Such products today are really compound weapon systems. They consist of a platform—in this case a supersophisticated air frame—in many respects incorporating shapes, materials, and performance characteristics never before attempted—and surely never before brought together in a single product. They also include engines that are themselves advances in prior art. They also include weaponry, countermeasures, navigation, and other electronics, none of which comes off the shelf. And in the end, a major feature of any weapon system program is the integration of all of these subsystems into a fighting machine.
Therefore the traditional absence of litigation in weapon development programs has represented not only the recognition of the need for partnering such projects, but also the impossibility of assigning blame when things go wrong. In such programs things invariably go wrong before they go right. Besides, the major motive driving such programs is the need to place the weapon system into service; there is a defined, generally well-conceived national defense objective.
In the last 40 years at least, there have been only two prior instances when a major weapon system research, development, test, and evaluation (RDT&E) contract has been terminated for the default of the contractor. The first, in the late 1960s, was the Army's RDT&E contract with Lockheed for the Cheyenne helicopter. The program was troubled by transmission design problems and impossible hover-out-of-ground characteristics. When the company simultaneously developed even more serious problems with the C-5A program with the Air Force, the Army saw an opportunity to rid itself of the Cheyenne program and terminated it for default. Litigation was initiated immediately by the company. In a matter of weeks, through the wise intervention of then-Deputy Secretary of Defense David Packard, the default termination was converted to one for the convenience of the government and the case was settled.
More recently, only about six months before the A-12's termination, NavAir also terminated its P-7 patrol aircraft RDT&E contract, also with Lockheed, for default. That case, too, was soon settled.
Why was the A-12 terminated for default—even if deemed truly appropriate—and not settled? The answer, it would appear, lies in the fact that the conditions that should have made it possible to continue the program (as the Navy wished to do), or to make a settlement if litigation were necessary, simply no longer exist. Continuation of the program and settlement of the litigation both required a continuing need for the object of the program—the aircraft, and a mutual need of the contractors and the government for each other as buyer and seller. Those conditions have kept RDT&E programs alive in the past and have ensured prompt settlements of all controversies related to them. They no longer exist with the A-12. When their absence is combined with the astronomical amounts involved in the litigation and the rapidly declining defense budgets from which it will be necessary to pay for any settlement or judgment, it becomes plain that no government official any longer has the incentive to resolve the A-12 case.
The government will wind up paying the two contractors an additional $2 billion. Then, an almost equal amount will have to be repaid by the Navy to the Treasury, because the Navy, arguing that it was going to win the litigation, accrued on the books of the Treasury a sum representing what it believed the contractors would have to refund to the government in progress payments. What lies ahead for Naval Aviation is that it will have to repay the Treasury more than $4 billion in the year that the case finally is resolved. By law, this amount will come off the top of the Navy's then-year aircraft appropriations account.20 In such year, possibly 2001, the amount is likely to be greater than the account itself, and one can easily see the devastating result.
The A-12: Bellweather of Naval Aviation
With aircraft carriers on station in the Persian Gulf and Mediterranean to project our nation's military might, it is easy to presume that Naval Aviation is secure for the future. Nothing could be further from the truth. The experience of the past ten years, including the contracted life of the A-12 program, demonstrates that remarkable uncertainties exist regarding the place of Naval Aviation in the national defense.
The deep-strike mission was the primary function of the A-12. That mission was taken from the Navy during the A-12 controversy and it likely will not be returned. Not only did the Air Force inherit the Navy's role, but now the entire subject of a manned strike mission—no matter by whom—is open to serious debate.
Competition between the Air Force and the Navy for strike missions was nothing new when the A-12 program began. The battle, based on technology, prepositioning, and cost, had been ongoing for more than ten years. The cost to the country of this internecine warfare was mounting, and the DoD secretariat seemed unwilling to intervene. The Air Force had three important advantages. First, it was controlling the critical stealth technologies, which would be required for future generations of strike aircraft. It now appears clear that it had no intention of sharing that technology with its rival, even though Congress had so ordered and even though it had entered into memorandums of understanding to do so.
Second, the Air Force had the better and more advanced platforms. That service had no need to tailor platforms to a carrier deck. The Air Force smartly designed its programs as pure R&D, slowly and fully funding them. It shrouded them with complete technological secrecy, so that aircraft such as the B-2 and the F-117 provided either much quicker routes to development, or virtually no public profile for criticism. All of this gave the Air Force considerably more flexibility in range, mission, and cost. In addition, it could leave prepositioning issues for the future. It also should be noted that the programmed aircraft unit costs have wound up in the $2 billion to $500 million class, vastly exceeding even the most pessimistic projections for the A-12.
Third, the total cost of carrier battle groups bears the continuing and imminent risk of putting the Navy out of the business. Advances in detection, penetration, and kill potential mean that the battle group and carrier deck complement necessary simply to protect the carrier is swiftly making the entire operation too costly. From a high of 16 planned carrier battle groups in 1985, the number already had fallen to 12 by the time the A-12 program was under way, and unannounced plans called for additional reductions, as soon as politics permitted.
Other problems overtook the A-12 strike mission and perhaps many other Navy carrier missions. These more generic problems reach to combat naval aviation much more generally. Late in the A-12 litigation, a remarkably candid deposition of Under Secretary of Defense for Acquisition Paul Kaminski revealed that plans for the somewhat more distant future call for much of the naval aviation mission to be accomplished by unmanned aerial and remotely piloted vehicles (UAVs and RPVs) and ground- and sea-launched weaponry. On a cost-effectiveness basis, this made sense. Given that DoD had slow-rolled UAV/RPV development for the preceding 20 years, what did not make sense was the introduction of the idea only near the end of the A-12's development life.
Lessons Learned and Unlearned
Among the unlearned lessons of the A-12 adventure is the unchecked major investment in the old order of Naval Aviation. Being on station in the Persian Gulf proves very little except that we are not making adequate progress in defining what complement of manned aviation objectives remain for the Navy and what platforms are necessary for their fulfillment.
The second set of lessons to be learned from the A-12 program relates to the manner in which we develop weapon systems in peacetime. This subject has not yet been addressed directly by either the legislative or the executive branches of government, but attention to it is long overdue. The A-12 program demonstrates that funding for the development of weapon systems must get in line with other priorities, which are not defense related. It is beyond argument that most such systems will be reviewed not only against one another but also against other national objectives (even the reduction of budget deficits and debt) that we perceive we can afford to consider in times of "peace."
Yet another message from the A-12 program is that we are not going to develop and place in inventory weapon systems that are not responsive to specific threat objectives. This means, for example, that we are not going to develop an A-12 stealth aircraft for attack missions when (1) it no longer measures passive and active stealth-related threats; (2) there are no targets against which it can be effectively deployed; (3) there is no logical means to make the weapon system affordable; and (4) its technologies are not ready for production. Such weapon systems, if they are to be developed at all, will have to be confined to what may be termed "shelf technology." This term refers to much more slowly paced RDT&E/low-rate initial production (LRIP) activity that ends with the weapon system—reasonably well matured and possibly only prototyped—being placed on the shelf without being placed in service. And these are not circumstances under which DoD can foist on an increasingly smaller industry base the obligation to sponsor partially RDT&E.
The final lesson of A-12 has to do with the answer to this question: If not the A-12, then what? And the answer leads back to the fate of Naval Aviation and weapon system development in general. The answer is nothing. We need to come to grips with the fact that 50 years of rapidly escalating weapon technology developed for battlefield use is, for the most part, over. With some exceptions, we are in a period when we will need to revert to lesser technologies to respond to low-intensity environments in which there are such densities of civilian functioning that much of our advanced weaponry is not only not responsive but also produces unacceptably high levels of destruction.
Are these lessons being learned and applied? It would seem not. With just a few years' hiatus from fixed-price contracts for RDT&E, DoD is embarked on an even more aggressive program of such contracting for its future needs. Programs now under contract and on the drawing boards call—literally—for the contractors to "share" the cost of RDT&E. It seems not to matter that such contracting is illegal and unconstitutional—or that because of this lesson unlearned, we face the very real prospect of yet another round of A-12 adventures.
1. The Navy (in the person of Secretary John Lehman) had anticipated that it would embark on a stealth program only after programs such as the Air Force's B-2 had been advanced to the point where the stealth-related technologies were proven. This was certainly not the case in the 1980s or even by the date of the A-12's termination in 1991. Funds for R&D had begun to shrink even as the Reagan administration buildup was hitting its peak about 1985, thus funds for very risky new starts such as the A-12 were at a premium or (as was the case when A-12 began in 1985) entirely unavailable.
2. Over the objections of Navy Secretary Lehman, Deputy Secretary of Defense Paul Thayer ordered the start of the A-12 program. The plan was based on an initiative of then Assistant Secretary of the Navy Melvin Paisley. It called for requiring industry to cost share the R&D with the vague promise that the investment would be returned in production.
3. Documents discovered in Navy files and interviews and depositions conducted during the A-12 litigation established that Lockheed management led by Skunk Works Director Ben Rich had rejected nearly every aspect of the Navy's planned program.
4. The Navy's Source Evaluation Team documents and correspondence and memoranda of meetings with Northrop executives (along with the Northrop proposal documents themselves) made it indisputably clear that Northrop would, under no circumstances, agree to the Navy's program plan.
5. In August of 1987, Northrop executives became suspicious of the Navy's conduct of the so-called "competition" and threatened to withdraw from the bidding. The Navy was well aware that such an act would become known to the General Dynamics/McDonnell Douglas team and along with it the entire "competition" would be revealed. To keep Northrop from formally withdrawing, Navy officials represented to Northrop that it was still a viable bidder, a representation that was false.
6. The General Dynamics/McDonnell Douglas team had proposed a demonstration validation program that (even excluding the development of a prototype), would have cost approximately $150 million and consumed approximately two years. From the performance of essentially the same work during the later Full Scale Engineering Development (FSED) program, it is now clear that the company-proposed DemVal would have revealed most of the technical issues that later were used as an excuse to terminate the program. Thus, skipping most of the DemVal work defeated the very purpose for which DemVal is prescribed by the regulations.
7. The mandatory directions for the program required the submission of bids for the FSED fixed-price contract in the fall of 1987. The reasons for the rush have since become clear: The Navy feared (rightly) that it would lose all funding for the program if the contract were not awarded at or soon after the beginning of fiscal year 1988.
8. See note 4.
9. Again, in the A-12 litigation, the notes and memoranda of the Source Selection Evaluation Board were produced by the Navy along with memoranda of meetings and memoranda of counsel. These documents clearly revealed that at no time was Northrop's proposal capable of being made responsive. With funds severely limited and the General Dynamics/McDonnell Douglas team willing to submit a responsive proposal, the Navy was able to continue the "competition" by the simple expedient (simple because of the black program information restrictions) of concealing Northrop's objections.
10. This second effort to obtain a lower price is known in defense-procurement circles as a Best and Really Final Offer or (appropriately) a "BARFO." The Navy could count on only limited R&D funds for the first two years of the program and the funding profile presented was substantially in excess of these funds. Thus, when the contract was awarded, the available appropriations did not cover the projected costs of performance and the minimum termination liability. Awarding the contract under these circumstances violated the Antideficiency Act, a felony statute.
11. Memoranda of high-level meetings of Navy personnel revealed that a purposeful decision was made not to reveal this information because it would have precluded award of the contract. It is important to note that the Naval Air Systems Command (NavAir) had information developed from a host of proposals containing much proprietary and classified information on weight projections that no single company possessed.
12. Much of the Navy's cost information was the product of its knowledge that the aircraft would exceed the contractor-projected weight. Other information was the product of the proposal data submitted by the Northrop team that revealed a great deal about the problems in bringing related stealth and weight-reduction technologies to manufacturing fruition.
13. The exchange of memoranda on this subject between the Commander, NavAir, and the Vice Chief of Naval Operations are very revealing in the boldness of the Navy in conduct that violated DoD and Congressional mandates for reporting. The subterfuge helped set the program on a course that would inevitably be self-defeating.
14. Eleanor Spector was DoD's most knowledgeable procurement executive. She had the additional advantage of having spent several years at NavAir. She later revealed what knowledgeable procurement people all know: A program such as this to produce a new highly sophisticated aircraft, incorporating unproven technologies to accomplish unproven mission objectives presented huge risks. She also had the advantage of having been advised of these risks by Brigadier General Keith Glenn, U.S. Air Force, who had been the B-2 program director and was then functioning as the special access programs director for DoD. He had told her, in unequivocal terms, that the program was far too risky for fixed-price contracting.
15. These remarkable facts were revealed through the conduct of nearly three years of discovery in the A-12 litigation directed at determining just what information was presented to Under Secretary Robert Costello. The government could produce not a single document (other than Ms. Spector's memo objecting to the procurement) of what was presented to Costello or what was presented to the Defense Acquisition Board at its meeting approving the procurement. Every document had been destroyed and not a single person at the meeting (there were at least 12) could remember what had occurred in a meeting in which the Board had approved the expenditure of nearly $5 billion dollars.
16. The PAUC is the product of combining the recurring costs of manufacture over the life of the program (including influences such as inflation) with the nonrecurring costs of RDT&E. As the program is stretched out and the numbers are reduced, the PAUC increases substantially.
17. Information developed in interviews of personnel from the Comptroller's office and the Joint Chiefs of Staff revealed that DoD had decided to "zero out" the program in 1991. This meant that, even had there been no default termination, the Navy would have been required to terminate the program in the succeeding year anyway.
18. A wealth of documents and testimony developed in the A-12 litigation revealed that the Air Force simply slow-rolled the Navy in its efforts to obtain needed stealth and manufacturing technology information. This conduct directly violated a Memorandum of Agreement that had been executed by the two service secretaries at the time the program was begun.
19. Secretary Cheney (through his general counsel) caused a "show cause" notice to be issued to the Navy. This forced the Navy to issue a "cure notice" to the contractors. The process started the Navy down the path of termination for default. The evidence revealed that the Navy would not have followed this course on its own.
20. Under the Gramm-Rudman-Hollings statute and the Contract Disputes Act, the entire amount will have to be "repaid" to the judgment fund by the Navy in the year the litigation ends. The amount will be "scored," which means that it will be paid from the then-year appropriations for naval aviation and will not be covered by additional appropriations from Congress.
Mr. Fenster, a senior partner in the law firm of McKenna and Cuneo, L.L.P., led the multifirm team of lawyers representing General Dynamics who, on 23 February 1998, obtained a judgment against the United States in the amount of $3.877 billion.