[Congressional Record Volume 140, Number 80 (Wednesday, June 22, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 22, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
       NATIONAL DEFENSE AUTHORIZA- TION ACT FOR FISCAL YEAR 1995

  The Senate continued with the consideration of the bill.
  Mr. NUNN. Mr. President, I am pleased to bring before the Senate S. 
2182, the National Defense Authorization Act for fiscal year 1995.
  This bill provides the authorization in law for all the major 
functions under the jurisdiction of the Committee on Armed Services, 
including programs and activities of the Department of Defense, the 
Department of Energy nuclear programs, as well as civil defense. This 
authorization bill continues the process of reshaping the U.S. defense 
establishment for a post-cold-war world.
  The bill emphasizes and tries to set priorities on the need to 
maintain the high quality of men and women entering and serving in the 
Armed Forces, the bill increases funds above the budget request for 
readiness and training programs, and it sustains the reduced pace of 
weapons systems modernization requested in the fiscal 1995 budget. The 
bill preserves critical defense industrial base capabilities and 
strengthens the peacekeeping and peace enforcement capabilities of U.S. 
military forces.
  Finally, the bill continues the key areas of the defense conversion 
and transition program to help individual communities and businesses 
adjust to the effects of the defense drawdown.
  At the beginning of this debate I want to thank the ranking minority 
member of the committee, Senator Thurmond, for all of the help and 
cooperation he has given on this bill, and on every other aspect of our 
committees' work. And the same can be said for Dick Reynard and the 
staff on the minority side. They have worked very diligently, and very 
cooperatively with the majority and the majority staff.
  Senator Thurmond has tremendous knowledge and experience on national 
security issues, and it has been a pleasure to work with him this year 
on the Armed Services Committee, and in his capacity as the ranking 
Republican.


                  budget impact of the committee bill

  Mr. President, I want to take just a moment to put this Defense 
budget in context.
  Fiscal year 1995 will be the 10th consecutive year that the Defense 
budget will decline in real terms. Since 1985, the Defense Department's 
purchasing power has been reduced by 33 percent, or one-third. Under 
this budget, by fiscal year 1999 the Defense budget will decline by an 
additional 10 percent in real terms. We have 9 consecutive years of 
real decline in the Defense budget behind us, and we are looking at 5 
more years of real decline ahead of us.
  Since fiscal year 1990, Defense Department manpower--active duty 
personnel, reserve components, and civilian personnel--has been reduced 
by 750,000. The fiscal year 1995 budget will bring an additional 
reduction of over 180,000--86,000 active duty personnel; 46,000 
National Guardsmen and reservists; and 50,000 DOD civilians. This means 
that 15,000 positions in the Department of Defense will be eliminated 
each month during fiscal year 1995.
  Investment in research and procurement of new weapons has also been 
cut back dramatically. The fiscal year 1995 budget request of $43 
billion for procurement is the lowest level since 1950 in real terms--
and represents a decline of 53 percent in just 5 years. The economic 
impact of this reduction in defense investment, coupled with the 
increasing number of base closings in the next several years, will be 
felt in towns and communities across the whole country.
  The bill before the Senate today authorizes a total of $263.3 billion 
in budget authority for the national defense function in fiscal year 
1995, which is $400 million below the amount requested in the fiscal 
year 1995 budget. In outlays, the bill is approximately $800 million 
below the budget request for fiscal year 1995.
  I want to make clear, however, that this bill is already above the 
budget authority and outlay levels in the House and Senate Defense 
Appropriations Subcommittee 602(b) allocations.
  So the message, Mr. President, ought to be clear: Any amendments to 
this bill that Members want or expect the Defense Appropriations 
Subcommittee to be able to fund need to have offsets, both in budget 
authority and outlays.
  Amendments that are not offset will just push this bill further above 
the levels that can be appropriated. Any amendments that add 
significant amounts of budget authority and outlays to this bill could 
force the Defense Appropriations Subcommittee to make cuts in the 
faster spending personnel and readiness accounts, which I do not think 
any of us want to see.
  The net savings in this bill come mainly from reductions in 
intelligence programs recommended by the Intelligence Committee. 
Although the Armed Services Committee has joint jurisdiction with the 
Intelligence Committee over these intelligence programs, the Armed 
Services Committee applied these savings toward deficit reduction.
  Mr. President, I am becoming increasingly concerned about the 
adequacy of funding for national defense over the next several years. 
Today, our military forces are ready; they are capable; and they are 
manned by high quality, dedicated people. But there are some real 
danger signals on the horizon.

  There is the basic question of whether the current 5-year defense 
plan will be adequate to support the force levels contained in the 
administration's Bottom Up Review. We have looked at this issue 
carefully in the committee this year. I think many members of the 
committee are skeptical that the military services will be able to 
carry out the two nearly simultaneous, major regional contingencies 
with the force levels called for in the Bottom Up Review at the end of 
this decade. This is an issue that we will continue to look at in the 
next several years.
  A more immediate concern, Mr. President, are some of the hidden 
reductions in the outyears of the Defense budget. The administration's 
current 5-year Defense budget has a shortfall of $20 billion for 
inflation.
  The administration has proposed capping the annual military and 
civilian pay raises at 1 percent below current law this year and each 
of the next 4 years. Providing military and civil service employees 
with the annual cost of living increases each year required under 
current law--as Congress did last year and appears likely to do this 
year and in the future--will add another $26 billion to the cost of the 
President's 5-year defense plan.
  OMB has budgeted so-called procurement reform savings of $12 billion 
over the entire Federal Government for the next 5 years, and DOD's 
share of this is in the $6 to $9 billion range. I do not know anyone 
who thinks these savings are likely to be achieved as quickly as OMB is 
projecting.
  The fiscal year 1995 budget resolution calls for cuts in 
discretionary budget authority of $31 billion over the next 5 years. 
DOD's share of these reductions could be an additional $16 billion.
  In addition to these identifiable shortfalls, there is also a 
question of whether DOD has adequately budgeted for the upfront costs 
of the base closure process, and whether the savings DOD is expecting 
from the base closures to date and those projected for 1995 will 
actually be achieved on schedule.
  Mr. President, the current 5-year defense plan already calls for a 
continued decline in defense spending of 10 percent in real terms--
after inflation--over the next 5 years. if these additional hidden, 
reductions are not reversed, I believe that they will seriously erode 
the future capability of our military services.
  Mr. President, I want to take just a few moments now to summarize 
some of the main features of this bill for my colleagues.


     subcommittee on nuclear deterrence, arms control, and defense 
                              intelligence

  In the area of strategic programs and arms control, the committee 
preserved bomber force structure options while directing further 
analyses of future bomber requirements; added funds to improve near-
term precision bomber weapons; and continued restructuring ballistic 
missile defense programs to emphasize development and deployment of 
near-term, ABM Treaty-compliant missile defenses.
  The committee spent a great deal of time this year reviewing the 
Defense Department's proposed bomber force posture. This review led to 
the committee to conclude that:
  The Air Force bomber roadmap of 1992 and the Bottom Up Review called 
for a force structure of 184 bombers, yet the fiscal year 1995 budget 
request funds only 100 bombers during fiscal year 1995, and 80 
thereafter.
  Four recent independent studies all concluded that the planned DOD 
force structure of 80 to 100 nonstealth bombers with only 20 B-2's is 
inadequate to deal with the two major regional contingencies of the 
Bottom-Up Review.

  DOD has no plans or proposals for interim precision weapons for 
bombers, preferring to wait until the end of the decade for the tri-
service standoff attack missile [TSSAM] and the joint direct attack 
munitions [JDAM] family of weapons. Until these munitions are 
available, the bomber force will have only dumb iron bombs available.
  DOD has settled on a bomber force structure and modernization plan 
before it has completed numerous ongoing analyses and tests that bear 
on those plans.
  If DOD intends to reduce the bomber force level to between 80 and 100 
nonstealthy bombers, then more than 20 B-2 stealth bombers will be 
required to meet the demands of the two major regional contingencies of 
the Bottom-Up Review. In the coming year, however, the production base 
for the B-2 will begin to disappear.
  In light of these uncertainties over the future bomber force levels, 
the committee bill: Preserves the bomber force structure options for an 
additional year by preventing DOD from retiring any B-52 or B-1 bombers 
during fiscal year 1995; adds $150 million to the budget to preserve 
the bomber industrial base for 1 additional year; requires further 
bomber force structure and effectiveness analyses prior to 
congressional review of the fiscal year 1996 Defense budget next year; 
and adds $90 million to the budget for demonstration and procurement of 
interim precision weapons for the bomber force until the new family of 
precision guided munitions are available at the end of the decade.
  Restructuring of the Ballistic Missile Defense Program initiated last 
year in the National Defense Authorization Act for fiscal year 1994 
will continue under the committee bill. The committee reduced the 
request of $3.25 billion for the BMD program by $251 million, and 
transferred an additional $170 million from BMDO to other agencies.
  The committee bill authorizes the budget request of $648 million for 
the MILSTAR satellite communications program, but shifts the management 
responsibility for this program from the Air Force to the Navy.
  We also approved the budget request of $400.0 million for cooperative 
threat reduction programs for the States of the former Soviet Union--
the so-called Nunn-Lugar programs--and directed DOD to develop a 
multiyear strategy for these programs.
  The bill includes a reduction of $220.0 million from the budget 
request of $10.5 billion for Department of Energy defense activities. 
The level approved by the committee includes $5.2 billion for 
environmental restoration and waste management activities, the amount 
requested in the budget.
  I want to commend Senator Exon and Senator Lott for their leadership 
on these issues in the committee as chairman and ranking minority 
member of the Subcommittee on Nuclear Deterrence, Arms Control and 
Defense Intelligence.


        subcommittee on coalition defense and reinforcing forces

  The Subcommittee on Coalition Defense and Reinforcing Forces oversees 
a large portion of our conventional military capability. The committee 
bill contains a series of initiatives to strengthen conventional 
capabilities and improve the production efficiency of key weapons 
programs.
  In the area of tactical aviation, the committee approved the budget 
request of $3.9 billion for the Air Force's F-22 and the Navy's F/A-18 
E/F fighter aircraft programs. We authorized 17 F/A-18 C/D aircraft for 
the Navy, 7 fewer aircraft than in the budget request, to balance the 
budget request with requirements for this aircraft.

  The committee also authorized the budget request of $158.3 million to 
extend the life and make modest capability improvements in the Navy F-
14 aircraft. The committee disapproved the Navy's request to develop a 
more robust bomb delivery capability for the F-14 because we concluded 
that the total $1.6 billion cost of this upgrade was excessive, 
particularly in light of the air-to-ground capability already available 
in the F-18.
  The committee also added $100 million to the budget to restore 
limited operational capability to SR-71 surveillance aircraft.
  The committee authorized multiyear procurement of M1A2 Abrams tank 
upgrades for the Army, and added $25.2 million to the budget for 
enhanced warfighting capabilities for the Abrams tank. In addition, the 
committee added $108 million to the budget for 24 additional M1A2 tank 
upgrades for the Army so that the Army could transfer a comparable 
number of M1A1 tanks to the Marine Corps when the M1A2 upgrades are 
delivered to the Army.
  For some time the committee has been concerned about the need to 
maintain the production of tactical missile programs at efficient 
rates. The bill authorizes $214 million for 872 Javelin missiles, an 
increase of $82.9 million; approved $133.6 million for 1,230 Hellfire 
missiles, an increase of $12 million; and added $5 million to the 
budget to upgrade almost 600 Stinger missiles to the more capable block 
I configuration. The committee reduced the budget request of $604.2 
million for the tri-service standoff attack missile [TSSAM] by $115.8 
million, and prohibited spending fiscal year 1995 production funds 
until the program meets certain testing and evaluation criteria.
  The Subcommittee on Coalition Defense and Reinforcing Forces has 
begun a review of ways the U.S. military can improve its ability to 
support peace operations. The committee took several actions in this 
bill to improve U.S. peacekeeping and peace enforcement capabilities, 
including:
  The addition of $99.9 million to the budget for advance procurement 
of commercial airframes to be converted to JSTARS surveillance 
aircraft. This system, like the Air Force AWACS, is ideally suited to 
providing sophisticated intelligence and command and control over 
peacekeeping as well as military operations.
  The addition of $10 million to the budget request of $12 million for 
countermine warfare research. Mine warfare is a particularly serious 
problem in areas where U.S. forces are engaged in peacekeeping 
operations.
  The committee added funds to preserve certain critical capabilities 
in the defense industrial base which might otherwise disappear. The 
bill:
  Converts the $27.8 million request in the budget for closing the TOW 
II production line into production of additional TOW IIB missiles, 
pending submission of a plan for developing a follow-on missile system;
  Adds $35 million to the budget to keep the tank engine production 
base alive, and required the Defense Department to produce a tracked 
vehicle master plan; and
  Authorizes an increase of $72 million to the budget of $25 million 
for a major initiative to support the small arms industrial base by 
directing the Army to buy additional small arms until the Army's 
inventory objectives are achieved and new weapons enter production.
  The committee continued to promote the use of defense modeling and 
simulation in the areas of training, doctrine development, and 
acquisition. The bill:
  Adds $16.8 million to the budget for the Army to continue testing of 
a revolutionary concept of training an entire brigade on modern, 
inexpensive simulators;
  Adds $10 million to the budget to continue an initiative for 
distributed simulation to support National Guard and Reserve training; 
and
  Because sophisticated training devices for disaster preparedness are 
lacking, initiates a program to adapt Army training models for use in 
training local civilian authorities to cope with natural disasters.
  The committee also added $600 million to the budget for equipment for 
the National Guard and Reserve components. As in the past, the 
committee provided the funds in generic categories and directed the 
National Guard and Reserve components to purchase items of equipment 
which contribute most directly to supporting the domestic missions of 
these units.
  I want to congratulate Senator Levin and Senator Warner, the chairman 
and ranking minority member of the Subcommittee on Coalition Defense 
and Reinforcing Forces, for their leadership on these issues this year.


        subcommittee on regional defense and contingency forces

  In the areas of regional defense and contingency forces, the 
committee sought ways to maintain technological superiority and match 
investment to force structure.
  The bill authorizes a total of $3.6 billion for one nuclear powered 
aircraft carrier [CVN-76], and $2.7 billion for three DDG-51 
destroyers; approves the budget request of $507.3 million for continued 
development of the Navy's new attack submarine; and shifts $600.8 
million from the national defense sealift fund to begin construction of 
one LHD amphibious assault ship.
  For Marine expeditionary forces, the committee added $220 million to 
the budget to purchase and convert two additional ships to enhance the 
Marine Corps prepositioning ship squadrons; authorized the budget 
request of $496.9 million for continued development of the V-22 tilt-
rotor aircraft, and added 4 CH-53 helicopters to help protect mine 
countermeasures squadron force levels.
  After a lengthy review, the committee approved the administration's 
request to enter into the settlement agreement negotiated with the C-17 
prime contractor in January 1994. The committee approved the budget 
request for six new aircraft, but reduced the fiscal year 1995 
procurement request of $2.8 billion by $387.4 million. In addition, the 
committee added $46.3 million to the budget request for non-
developmental airlift aircraft for a total of $150 million.
  I want to thank Senator Kennedy and Senator Cohen, the chairman and 
ranking minority member of the Subcommittee on Regional Defense and 
Contingency Forces, for their usual excellent work on these programs 
this year.


  subcommittee on defense technology, acquisition and industrial base

  In the case of defense technology, acquisition and the industrial 
base, the committee took a number of actions to maintain the momentum 
of the Defense Reinvestment and Conversion Program enacted last year; 
emphasize manufacturing science and technology; maintain the technology 
base; and set the stage for acquisition reform.
  The committee approved the budget request of $625 million for the 
industry and technology portion of the Defense Reinvestment and 
Conversion Program. This level will maintain funding to convert defense 
industries to dual-use production at the level of the past 2 fiscal 
years. The committee also approved $50 million for a Navy Reinvestment 
Program; $56.6 million for a Defense Laboratory Diversification 
Program; and added $28 million to the budget request of $97 million to 
maintain a Manufacturing Science and Technology Program that will 
develop manufacturing processes for new military technologies.

  For the Strategic Environmental Research and Development Program, the 
committee authorized $170 million, an increase of $59 million to the 
budget request. The committee also added $20 million to the budget for 
historically black colleges and universities to increase the capacity 
of these schools to educate scientists and engineers, and authorized 
the full budget request of $50 million for the Mentor-Protege Program 
to bring minority-owned firms into the mainstream of defense 
production.
  In the area of military medical research and development, the 
committee added $40 million to the budget for research on women's 
health issues related to service in the Armed Forces. We added $20 
million to the budget for further research on telemedicine technology, 
which I believe has tremendous potential to deliver improved medical 
care to military personnel deployed to remote locations. We also added 
$4 million to the budget specifically for continued research into the 
cause and treatment for the gulf war syndrome.
  We have not included any major acquisition policy legislation in this 
bill because just a few weeks ago the Senate passed S. 1587, the 
Federal Acquisition Streamlining Act of 1994. That legislation is a 
very high priority for the administration, and we hope the House will 
pass similar legislation soon so we can begin work on a conference 
agreement. This bill does include a series of legislative provisions to 
prohibit congressional earmarking of defense funds to specific non-
Federal entities.
  I want to congratulate Senator Bingaman and Senator Smith, the 
chairman and ranking minority member of the Subcommittee on Defense 
Technology, Acquisition and Industrial Base for their leadership on 
these issues in the committee this year.


     subcommittee on military readiness and defense infrastructure

  In the areas of military readiness and defense infrastructure, the 
committee authorized funds above the budget request for high priority 
readiness programs; added funds above the budget request to assist the 
military services in meeting a more difficult recruiting environment; 
and adopted a legislative provision to encourage competition in 
contracts for DOD's depot maintenance workload.
  In reviewing the fiscal year 1995 budget, the committee found that 
the Army and the Air Force were reducing their overall civilian 
personnel levels in the current fiscal year much faster than originally 
anticipated when the fiscal year 1995 budget was submitted back in 
February. These lower civilian personnel levels in fiscal year 1994 
resulted in savings of approximately $1.2 billion in fiscal year 1995.
  The committee used these savings to authorize increases in high 
priority readiness programs, including:
  An increase of $250 million to the budget request of $7.2 billion for 
depot maintenance programs to reduce the backlog of equipment overdue 
for repair and to prevent future degradation in equipment readiness;
  An increase of $200 million to the budget request of $4.1 billion for 
repair and maintenance of real property to slow the dramatic growth in 
the backlog of real property maintenance on DOD installations; and
  An increase of $72 million to the budget request of $534 million for 
DOD recruiting programs. This increase is needed to ensure that the 
military services continue to meet their recruit quality goals in an 
increasingly difficult recruiting environment.
  Earlier this year, DOD officials indicated that in the final stages 
of preparing the fiscal year 1995 Defense budget, they were forced to 
reduce the military construction request by $900 million--in their 
words--``to absorb a department-wide inflation increase.'' As a result, 
the fiscal year 1995 military construction budget request is $1.1 
billion below last year's level--a reduction of almost 15 percent in 
real terms.
  The committee concluded that continued deep cuts in military 
construction will make it increasingly difficult for the military 
services to meet their facility modernization goals. As a result, the 
committee authorized a net increase of approximately $300 million to 
the budget request for military construction programs for fiscal year 
1995.
  Projects added to the budget were carefully reviewed by the committee 
to make sure they conform to the following stringent criteria: The 
project must be consistent with past base closure and realignment 
action; the project must represent a valid military requirement; the 
project must be included in the military service's 5 year plan; and the 
military service must be able to begin executing the project in fiscal 
year 1995.
  All of the projects added to the fiscal year 1995 budget request meet 
these stringent criteria.
  The allocation of depot maintenance workload between DOD depots and 
the private sector has been a controversial issue in the past year. The 
committee did not make any change to current law that requires not less 
than 60 percent of the depot maintenance workload in each service be 
carried out in DOD depots.
  However, the committee is concerned over recent efforts in DOD to 
limit competition for depot maintenance workload. The bill includes a 
provision that would require DOD, in moving depot maintenance work out 
of a DOD depot, to continue public/public competitions--competitions 
among DOD depots--and public/private competitions--competitions between 
DOD depots and private sector companies.
  Mr. President, I want to thank Senator Glenn and Senator McCain for 
their customary excellent work as chairman and ranking minority member 
of the Subcommittee on Military Readiness and Defense Infrastructure 
this year.


            subcommittee on force requirements and personnel

  In the areas of personnel and compensation, the committee has made 
every effort to maintain a prudent glide path to reduce military 
personnel strength, and, at the same time, continued to provide for the 
quality of life of military personnel and their families.
  After careful consideration, the committee decided to authorize a pay 
raise of 2.6 percent for military members, effective January 1, 1995.
  The committee recommends an active duty military strength of 
1,525,692 for fiscal year 1995, 85,484 below the fiscal year 1994 
estimate. For the Reserve components, the bill authorizes a strength of 
995,287 for fiscal year 1995, 48,803 below the fiscal year 1994 
estimate and 9,290 above the requested level.
  The committee reviewed also the authority of the President to call 
members of the Selected Reserve to active duty. Under current law, the 
President can call up to 200,000 members of the Selected Reserve to 
active duty for up to 90 days without declaring a national emergency. 
This 90-day callup can be extended for an additional 90 days.
  The bill includes a provision that would extend the initial callup 
period for Selected Reserve components from 90 days to 180 days, and 
would require that any extension of this callup period receive prior 
approval of the Congress. The provision would also require the 
Secretary of Defense to report to the Congress on options for 
increasing the accessibility of the Reserve components in times of 
emergency. This report should also analyze the effects of each option 
on Reserve components recruiting, retention, employer support, and 
families.
  The final personnel issue that I want to raise, Mr. President, 
involves cost-of-living increases, or COLA's, for military retirees.
  I think Congress made a mistake last year in the Omnibus Budget 
Reconciliation Act of 1993 when we put the annual COLA's for military 
and civil service retirees on a different schedule for the next 4 
years. That act delays COLA's for military retirees for 6 months beyond 
the date on which civil service retiree COLA's are paid in 1995 and 
1996. In 1997 and 1998, the additional delay for military retirees 
grows to 9 months. In 1999, both military and civil service COLA's will 
once again be paid in January.
  This so-called COLA inequity results from differences in the deficit 
reduction instructions given to the Armed Services and Governmental 
Affairs Committees. In meeting these instructions last year our 
committee noted: ``COLA equity for all Federal retirees should be a 
basic principle and we urge the full Senate and the conferees on the 
reconciliation bill to take this into consideration.''
  Unfortunately the problem has not been fixed. Most of the members of 
the Armed Services Committee continue to feel very strongly that COLA's 
for military and civilian retirees should be effective on the same 
date. The committee endorsed a committee amendment that will be offered 
later in this debate that will restore COLA equity by making military 
and civil service COLA's effective on the same date. I will have more 
to say on this issue at the time of that debate.
  I want to thank Senator Shelby and Senator Coats, the chairman and 
ranking minority member of the Subcommittee on Manpower and Personnel, 
for their leadership of this subcommittee this year.
  Mr. President, it is very important that we complete action on this 
bill as soon as possible. I do not know how many amendments there are 
going to be. The Appropriations Committee is anxious to get to work on 
the defense appropriations bill. We need to get to conference on this 
bill as soon as possible to guide the appropriation process. We have 
other matters that are going to be interrupting this bill over the next 
few days. We will have to judge as we go along as to how long this bill 
is going to take.
  I urge everyone who has an amendment to please get it to our staff, 
and we will look at it so we can determine whether it can be accepted 
or whether it will have to be opposed. That will help us guide our way 
through the time schedule involving this bill when so many other things 
are on the calendar.
  I thank all of the members of the Armed Services Committee for their 
hard work. I also thank Gregg Scott and Charlie Armstrong of the 
legislative counsel's office for their important contribution to this 
bill, as well as to the Federal acquisition reform bill of 1994, which 
passed the Senate a few weeks ago.
  Mr. President, this is a good bill, considering the budget strain we 
are under. It does continue to process the reshaping of our defense 
establishment for the post-cold-war world.
  I urge my colleagues to support the bill. I know Senator Thurmond has 
remarks. I yield the floor at this time.
  Mr. THURMOND addressed the Chair.
  The PRESIDING OFFICER. The Senator from South Carolina [Mr. Thurmond] 
is recognized.
  Mr. THURMOND. Mr. President, with the commemoration of the 50th 
anniversary of the Normandy landing fresh in our mind, I join with the 
distinguished chairman of the Senate Armed Services Committee, Senator 
Nunn, to present the national defense authorization bill for fiscal 
year 1995 to our colleagues. However, before going into the details of 
the bill, I want to congratulate Chairman Nunn for his excellent 
leadership, and the bipartisan manner in which he conducts the 
committee's business. I look forward to many more years of the close 
cooperation we have enjoyed during our long association on the Armed 
Services Committee.
  I wish to commend our chief of staff of the Republicans, General 
Reynard, and the other members of the Republican staff for the good 
work they have done, especially George Lauffer, who worked for me for a 
number of years. I also wish to commend Arnold Punaro for his good work 
on this bill and the members of the majority staff, including Mr. 
Effron who has done so much good work.
  Mr. President, during the past months, Americans reflected with pride 
on the splendid accomplishments and sacrifices of the men who stormed 
the beaches at Normandy to begin the liberation of Europe. As the 
Senate deliberates on the fiscal year 1995 Defense bill, I urge my 
colleagues to consider what it took to build the Army that assaulted 
across the beaches of France in June 1944.
  Let me point out, that at the start of 1940 the active duty military 
strength was a minuscule 458,000. By the end of 1945, that number had 
soared to over 12 million men and women in uniform. As the United 
States entered the war, many of our recruits were still using wooden 
rifles for training. By the time they landed on the beaches of 
Normandy, they fought with the best weapons available at the time. 
These achievements took untold personal sacrifices to build that force, 
billions of dollars, and a Nation totally committed to winning the war.
  Despite the cost of building the mighty forces that stormed Europe 
and island-hopped across the Pacific, the United States, convinced that 
peace was at hand, virtually disarmed after V-J Day. Regrettably, after 
winning the cold war and the battle against Saddam Hussein, our Nation 
is about to repeat history. We are reducing our forces, as previous 
administrations did after World War I and World War II, with the 
anticipation that peace is at hand.
  Mr. President, this is the 10th straight year of declining defense 
budgets and our forces are approaching the lowest level of readiness 
since the Hollow Force years of the 1970's.
  I present a series of charts here to highlight my presentation today.
  During fiscal year 1995, the Department of Defense anticipates an 
average monthly loss of 7,100 active duty military personnel, 3,800 
reserve personnel, and 4,100 civilian personnel. At the same time it 
will deactivate one combat ship, 37 combat aircraft, one combat 
battalion and close down one military installation each month. These 
are dramatic changes that unfortunately mirror the history of prior 
downsizing.
  The budget level in the bill we are considering is the lowest in 
terms of percentage of gross domestic product since 1948. It represents 
17.8 percent of the Federal Budget which is the lowest since 1940. 
Despite these startling statistics, the administration is calling for 
another 10 percent reduction in the defense budget over the next four 
years. We must stop the erosion in readiness and the decline in force 
structure. I hope that the Senate will join me in placing the 
administration on notice that further cuts in the defense budget will 
be challenged.
  Mr. President, Chairman Nunn has already discussed the highlights of 
the committee's proposed fiscal year 1995 Defense bill; therefore, I 
will not go into lengthy detail. In my judgment, this bill is bare 
bones, but basically sound, when you consider the funding constraints 
imposed by the budget resolution.

  According to a June 12, 1994, article in the New York Times, 
approximately 17,000 of our service members qualify for food stamps. 
The same article states that: ``since 1982, the gap between civilian 
and military wages has widened to 13 percent, and is projected to be 
near 20 percent by the end of the decade.'' The committee recognized 
that the men and women of our Armed Forces are key to readiness and we 
provided for them with a 2.6 percent increase. This increase and the 
personnel provisions in the bill are only a start to ensure the welfare 
of our service members. However, it will take a great deal more money 
to provide adequate compensation.
  I am pleased that the committee was able to fund, although at a 
moderate rate, the continued modernization of our forces. By 
authorizing funds for another aircraft carrier, an amphibious assault 
ship, the F-22 advanced fighter, and the C-17, the bill provides for 
future military capability, and strives to maintain key industrial base 
facilities.
  In my judgment, the decision on the C-17 was especially critical. It 
will give our Nation a capability which will be needed more and more 
frequently as we withdraw our forces from overseas bases. The Armed 
Forces will need the C-17's long range and heavy lift capability as 
they respond to the crises, both military and humanitarian, that are 
occurring more frequently around the world.
  The committee also restored a small number of the military 
construction projects that the services has to cut after the 
Administration reduced the MILCON request by $900 million to cover 
inflation costs. These additional projects, which met the committee's 
stringent criteria, included family housing, troop barracks and 
maintenance facilities. We must remember that decent living and working 
conditions for our service personnel are as vital to force readiness as 
the latest weapons system.
  Mr. President, the services are being compelled to maintain 
unrealistically high levels of short term readiness in order to 
forestall criticism of the administration's budget priorities. They are 
doing this at the expense of long-term readiness, which will result in 
the same set of problems we had in the late 1970's and early 1980's. 
These problems include poorly maintained equipment, inadequate 
facilities, and rock bottom morale.
  We are now seeing signs that the services are heading back to the 
hollow force of the Carter years. Equipment maintenance and 
modernization are being deferred, and maintenance backlogs are growing. 
For example, the Air Force depot maintenance backlog will grow to $338 
million this year, which is a $110 million increase since fiscal year 
1993. The Army is able to fund only 56 percent of its depot maintenance 
requirement this year. Marine Corps ground equipment readiness has 
dropped below 90 percent for the first time since the hollow force 
period.
  The Armed Services Committee is concerned over these escalating 
backlogs in equipment and facility repairs and their impact on current 
and future readiness. It, therefore, authorized an increase of $250 
million and $200 million respectively to begin a long term recovery 
program in these areas.
  Mr. President, the authorization bill reported by the Armed Services 
Committee authorizes the establishment of a $300 million Contributions 
for International Peacekeeping account in the Defense Department's 
accounts. I think it noteworthy that not a single Republican member of 
the committee voted in favor of this provision, which provides $300 
million for U.N. or multilateral peackeeping in the Defense 
Department's budget. In other words, the bipartisan consensus that 
normally underlies the committee's decisions on major defense programs 
and national security policies is conspicuously absent in this case.
  Those of us who voted against establishing the fund are deeply 
concerned that the administration has crossed a major threshold in 
placing responsibility for payment of some U.N. peacekeeing costs 
directly on the Defense Department. Based on Congressional testimony 
and numerous statements by Administration officials, we have every 
reason to believe that U.S. participation in U.N. peace operations will 
increase in the coming years under the administration's policy of 
assertive multilateralism. Consequently, the peacekeeping bill to be 
paid directly by the Defense Department will proportionally increase as 
well, putting additional pressure on an already severely strained and 
underfunded defense budget.
  Mr. President, as I stated earlier, that is a bare bones bill. Like 
many of my colleagues, I would have preferred a higher funding level to 
provide for continued readiness and modernization. However, I support 
the bill and urge the Senate to support it.
  To those individuals who believe that we are spending too much on 
defense, I say ``we have already cut enough.'' Based on Department of 
Defense data, defense outlays will decrease 35 percent between 1990 and 
1999. At the same time, domestic discretionary spending will increase 
by 12 percent and mandatory spending will increase by 38 percent. As I 
said earlier, the defense budget is already at the minimum funding 
level. Any further reductions will jeopardize the security of our 
Nation, not only for the immediate future, but for the coming decades 
as well. As William Jennings Bryan said: ``Destiny is not a matter of 
chance, it is a matter of choice; it is not a thing to be waited for, 
it is a thing to be achieved.'' We have the choice to realize our 
Nation's destiny with this bill, and I challenge the Senate to make the 
choice to support a strong defense.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Georgia [Mr. Nunn].
  Mr. NUNN. Mr. President, I note the Senator from Iowa has an 
amendment. Certainly we do not control the order of the amendments. I 
am pleased he was extremely cooperative in coming over and getting us 
started on a very meaningful amendment, which I assume he is prepared 
to present now. So I thank the Senator from Iowa for helping us to get 
off to a quick start in terms of meaningful amendments which really do 
affect the defense budget.
  I understand that the Senator from Iowa is willing to enter into a 
unanimous consent agreement of 3 hours, equally divided.
  Mr. GRASSLEY. Yes.
  Mr. NUNN. I would like to propound that now, if that meets the 
Senator's approval.
  Mr. President, I ask unanimous consent that, on the Grassley 
amendment related to the C-17 agreement, there be 3 hours, equally 
divided; that the time in support of the amendment be controlled by 
Senator Grassley or his designee; that the time in opposition be 
controlled by Senator Kennedy or his designee; that no amendment to the 
amendment be in order; and that on the expiration or yielding back of 
the time, there be a vote on or in relation to the Grassley amendment.
  The PRESIDING OFFICER. Is there objection?
  Mr. GRASSLEY. Reserving the right to object.
  The PRESIDING OFFICER. The reservation is noted.
  Mr. GRASSLEY. I have no objection.
  The PRESIDING OFFICER. Hearing no objection, that will be the order.
  Who yields time?
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I yield myself such time as I may 
consume.
  If I do not stop to ask, if I have taken 20 minutes, I would like to 
have you notify me.
  The PRESIDING OFFICER. The Chair will notify the Senator.
  The Chair advises the Senator the time will not begin to toll until 
the Senator sends his amendment to the desk.
  Mr. GRASSLEY. I think I better. I know I could have more time. I 
think it would violate our gentleman's agreement here.


                           Amendment No. 1837

 (Purpose: To strike out section 131, relating to settlement of claims 
                   under the C-17 aircraft program.)

  Mr. GRASSLEY. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report the amendment.
  The assistant legislative clerk read as follows:

       The Senator from Iowa [Mr. Grassley] proposes an amendment 
     numbered 1837.

  Mr. GRASSLEY. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection it is so ordered.
  The amendment is as follows:

       On page 22, beginning with line 10, strike out all through 
     page 25, line 3, and insert in lieu thereof the following:

                       Subtitle D--Other Matters

  Mr. GRASSLEY. This amendment, if adopted, would reject the C-17 
settlement agreement authorized by section 131 of this bill. This 
amendment would deny the authority to make direct cash payments of $348 
million to McDonnell Douglas. I want to make that clear. This bill 
contains language that makes a direct payment of $348 million to 
McDonnell Douglas that I am going to say is a bailout. My amendment 
deals with striking that money out.
  If this amendment is adopted, then I would plan to offer a second 
amendment to deny that the $348 million to carry out the McDonnell 
Douglas agreement. It would be taken away completely, so that the money 
could not be spent elsewhere. But right now we are talking about 
whether or not this agreement should be allowed to go through as the 
legislation permits.
  Of the $348 million needed to put the agreement in operation, $294 
million is in the bill; $116 million is in the Air Force ADT&E account; 
and $178 million is in the Air Force procurement account. In addition, 
$53.7 million in fiscal year 1994 Air Force ADT&E funds would have to 
be reprogrammed to complete the agreement.
  If my amendment were passed, this would all be denied, as well.
  Mr. President, I want to make one point crystal clear right off the 
bat, right at the start of this discussion. My amendment is not some 
kind of a backhanded attack on the C-17. I am not trying to sabotage 
the C-17 program, because I know, as our committee has very clearly 
stated over a long period of time, that we need to modernize our aging 
fleet of long-range transport aircraft. I know that we need to do that. 
We must do it.
  All the money requested in the fiscal year 1995 budget to modernize 
our fleet of strategic airlift aircraft--in other words, to buy six new 
C-17's--remains in the bill intact. We are only talking about the $348 
million that is used as a bailout of McDonnell Douglas.
  I know, as the committee knows, that we have to modernize this fleet 
and we will be buying six new C-17's. I do not change that at all.
  My amendment is directed solely, then, at Mr. Deutch's proposed C-17 
settlement plan to give McDonnell Douglas a direct cash payment of $348 
million.
  The C-17 settlement agreement is embodied in a letter from Mr. John 
M. Deutch to Mr. John F. McDonnell, chairman and chief executive 
officer of the McDonnell Douglas Corp.
  Mr. Deutch's letter is dated January 3, 1994. The letter was 
countersigned and accepted by Mr. McDonnell on January 6, 1994.
  Mr. Deutch was Under Secretary of Defense for Acquisition when he 
negotiated the agreement. He is now the Deputy Secretary of Defense.
  Mr. President, I ask unanimous consent that the C-17 settlement 
agreement be printed in the Record, so everybody can study it.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                               The Under Secretary of Defense,

                                  Washington, DC, January 6, 1994.


                               memorandum

     Subject: C-17 Documents

       Attached, please find two documents relating to the C-17 
     program. First is the report of the Defense Science Board C-
     17 Task Force; and second is the Department's settlement 
     offer regarding the C-17 program that has been agreed to by 
     McDonnell Douglas. Within the coming months the Department of 
     Defense will seek necessary Congressional authorization and 
     the appropriation of funds to place this agreement into 
     force.
                                                   John D. Deutch.
                                  ____



                               The Under Secretary of Defense,

                                  Washington, DC, January 3, 1994.
     Mr. John F. McDonnell,
     Chairman and Chief Executive Officer,
     McDonnell Douglas Corp., St. Louis, MO.
       Dear Mr. McDonnell: As a result of our communications over 
     the past several weeks I believe that I must restate my offer 
     for settlement of C-17 issues. This letter supersedes all 
     prior letters.
       Over the past five months we have performed an intensive 
     review of the C-17 program. Based on this review, I have 
     concluded that the current C-17 program is not viable without 
     substantial change and that three elements of change are 
     required for a successful strategic airlift program:
       1. A provisional 2-year program for C-17 production at a 
     rate of 6 aircraft per year. During this period McDonnell 
     Douglas must (a) introduce major management and manufacturing 
     process changes, (b) demonstrate an ability to deliver 
     aircraft on schedule and at cost, (c) successfully complete 
     the flight test program and (d) satisfy all other contract 
     specifications including Reliability, Maintainability, and 
     Availability (RM&A) requirements.
       2. Execution of a comprehensive settlement between the 
     United States Government and McDonnell Dougles on outstanding 
     C-17 business and management issues. This prospective 
     settlement and the management and manufacturing production 
     changes mentioned above are the subject of this letter.
       3. Consideration of a mix of commercial wide-body aircraft 
     or new C5-B production to meet the requirements for military 
     airlift in the future.
       These three elements will require consideration and action 
     by Congress and my support of this course of action depends 
     upon Congressional commitment to the entire package. The 
     business settlement in this letter cannot stand alone because 
     by itself it does not accomplish the goal of assuring the 
     nation's strategic airlift military requirement will be met.


                   resolution of claims and disputes

       McDonnell Douglas has filed twelve claims of approximately 
     $450 million against the Government under contract F33657-81-
     C-2108. I understand the company is planning to file 
     additional claims of approximately $1.25 billion. The parties 
     cannot effectively work for the success of the program and 
     litigate claims of this magnitude at the same time. 
     Therefore, if McDonnell Douglas releases the Government from 
     all C-17 claims it may have as of today, whether filed or 
     not, the Air Force will modify contract F33657-81-C-2108 to 
     increase the target costs and ceiling prices by a total of 
     $237 million. Additional details on the claims settlement are 
     set forth in Attachment A.


                    revisions to the specifications

       The Air Force will revise the range/payload and other 
     specifications as stated in Attachment B and will revise the 
     delivery schedule for aircraft T-1, and P-1 through P-6. The 
     Government will waive all claims it may have as of the date 
     of this agreement for failure of McDonnell Douglas to meet 
     the original contract specifications. The Government also 
     will waive claims for the failure of McDonnell Douglas to 
     meet the delivery schedule for aircraft T-1, and P-1 through 
     P-6. The delivery schedule under contract for aircraft 
     beginning with P-7 shall remain the same.


               charging ``sustaining'' engineering costs

       McDonnell Douglas shall charge previously incurred 
     nonrecurring engineering costs for aircraft design, special 
     tooling or test equipment, and retrofit of design changes 
     required for the C-17 to meet contract specifications, 
     together with such other nonrecurring engineering costs as 
     the Defense Plant Representative directs, to the full scale 
     engineering development (FSED) portion of contract F33657-81-
     C-2108. The impact on McDonnell Douglas of these adjustments 
     will be $41 million for nonrecurring engineering costs 
     incurred through June 30, 1993, that were previously 
     allocated to the Lot IV, V, and VI production contracts.
       McDonnell Douglas also shall establish a system to identify 
     and record C-17 future nonrecurring engineering costs, and a 
     methodology to allocate these costs between the FSED portion 
     of contract F33657-81-C-2108 and C-17 production contracts. 
     The Defense Plant Representative shall approve the allocation 
     of C-17 nonrecurring engineering costs between the FSED 
     portion of contract F33657-81-C-2108 and C-17 production 
     contracts prior to McDonnell Douglas receiving any payment 
     for these costs. It is estimated that approximately $130 
     million in additional nonrecurring engineering costs will be 
     charged to the FSED portion of contract F33657-81-C-2108.


                         flight test extension

       McDonnell Douglas shall submit a proposal to modify 
     contract F33657-81-C-2108 to extend the flight test program 
     to a total of 152 ``aircraft months.'' The parties will share 
     the cost of this extension. The contracting officer and 
     McDonnell Douglas will negotiate an estimated cost for this 
     extension, and the contract will be modified to increase the 
     target cost and ceiling price by 50 percent of the negotiated 
     estimated cost. The cost of the flight test extension is 
     estimated to total $123 million, or approximately $61.5 
     million for each party.


                             redesign wing

       McDonnell Douglas shall redesign the wing to eliminate the 
     need for supplemental straps to meet design limit load 
     requirements for the wing. The redesign effort shall begin 
     immediately, and the redesigned wing shall be incorporated as 
     soon as practicable but not later than aircraft P-29. 
     McDonnell Douglas will bear the total cost of all 
     nonrecurring engineering effort for the redesign, and for all 
     new or modified production special tooling and special test 
     equipment required for the redesigned wing. Costs incurred 
     for this effort shall be separately identified and shall not 
     be allowable, directly or indirectly, on any C-17 or other 
     Government contract. The cost for the wing redesign is 
     estimated to be $32 million.


                           cad/cam, mis, aqs

       In order to improve efficiency, McDonnell Douglas must 
     implement a Computer Aided Design/Computer Aided 
     Manufacturing System, Management Information System, and 
     Advanced Quality System.
       A. Computer Aided Design/Computer Aided Manufacturing (CAD/
     CAM) System. McDonnell Douglas shall implement a CAD/CAM 
     system for use on the C-17 program, as described in 
     Attachment C. The Government and McDonnell Douglas will share 
     the cost of the CAD/CAM system equally, as provided in 
     Attachment C, with the Government share estimated at $20 
     million.
       B. Management Information System (MIS). McDonnell Douglas 
     shall implement a computerized MIS system for the C-17 
     program as described in Attachment C. Government personnel 
     shall have access to this system and its data. The Government 
     and McDonnell Douglas will share the cost of the MIS equally, 
     as provided in Attachment C, with the Government share 
     estimated at $15 million.
       C. Advanced Quality System (AQS). McDonnell Douglas shall 
     upgrade its existing quality system as described in 
     Attachment C. The Government and McDonnell Douglas will share 
     the cost of the AQS equally, as provided in Attachment C, 
     with the Government share estimated at $2.5 million.


              product improvement cost reduction projects

       As a demonstration of its commitment to the C-17 program, 
     McDonnell Douglas shall invest not less than $100 million for 
     product improvement cost reduction projects to improve the 
     efficiency of the manufacturing process and to lower the 
     aircraft unit cost. McDonnell Douglas will bear the total 
     cost of these projects, and only the Government will benefit 
     from these projects. The details are in Attachment C.


                        other settlement issues

       Additional issues that have been the subject of lengthy 
     disputes between the project office and McDonnell Douglas 
     must be settled. Those disputes will be resolved by contract 
     actions as stated in Attachment D. The estimated cost of 
     these issues is approximately $12 million to the Government, 
     and approximately $52 million to McDonnell Douglas.


                      General terms and conditions

       The general terms and conditions set forth in Attachment E 
     are applicable to this agreement.
       Attachments A through E are a part of this agreement.
       I will establish a group to monitor the implementation of 
     this agreement. The group will report directly to the Under 
     Secretary of Defense (Acquisition) and the Chief Executive 
     Officer of McDonnell Douglas Corporation. It is my intention 
     that the group shall be co-chaired by an Air Force general 
     officer and a neutral senior industry official, both of whom 
     shall have extensive acquisition experience. The group will 
     include representatives from appropriate Government offices. 
     McDonnell Douglas agrees to assign appropriate McDonnell 
     Douglas representatives to participate with the group and to 
     issue any necessary direction to McDonnell Douglas components 
     to cooperate with the group.
       This agreement will not become binding on the Department of 
     Defense or on McDonnell Douglas until: (1) Congress supports 
     the entire three-part approach; and (2) authorizing 
     legislation and appropriations necessary to implement this 
     agreement are enacted. If approved by Congress, the elements 
     set forth in this letter of agreement must be implemented by 
     modification of the existing C-17 contracts or by new 
     contractual agreements entered into by McDonnell Douglas and 
     the Air Force.
       In order to expedite the process, I am directing the Air 
     Force contract personnel to work with your representatives to 
     prepare the contract documents necessary to implement this 
     agreement promptly when it is appropriate. I request that you 
     give a similar direction to your staff.
       Please indicate your acceptance by signing below and 
     returning one copy to me by close of business on January 6, 
     1994.
           Sincerely,
                                                      John Deutch.
       Accepted: John F. McDonnell, Chairman and Chief Executive 
     Officer, McDonnell Douglas Corporation.
                                  ____


                              Attachment A


  agreement between under secretary of defense john m. deutch and mr. 
        john f. mcdonnell to settle c-17 issues, january 3, 1994

       Contract claims and disputes:
       1. Claim settlement procedures. When authorizing 
     legislation and appropriations necessary to implement this 
     agreement have been received, contract F33657-81-C-2108 will 
     be modified to increase the target costs and the ceiling 
     prices by a total of $237 million.
       2. McDonnell Douglas actions:
       a. Upon execution of this agreement, McDonnell Douglas 
     shall join with the Government in a request to the Armed 
     Services Board of Contract Appeals to defer further action on 
     all pending C-17 related ASBCA appeals. McDonnell Douglas and 
     the Government shall defer all action on these appeals. 
     McDonnell Douglas shall not file any additional appeals with 
     the ASBCA or any court, and shall not file any additional 
     claims with the contracting officer, relating to C-17 
     contracts while DoD is seeking necessary settlement authority 
     and appropriations. If DoD has not notified McDonnell Douglas 
     by December 31, 1994, that necessary settlement authority and 
     appropriations have been made available, McDonnell Douglas 
     may thereafter file any additional claims or appeals it deems 
     appropriate and proceed with further action on previously 
     filed ASBCA appeals.
       b. Upon execution of the contract modification described in 
     paragraph 1 above, McDonnell Douglas agrees to dismiss with 
     prejudice all currently pending C-17 claims and appeals, and 
     to provide the Government with the release as stated below.
       3. Release of Claims. Concurrent with, or contained in, the 
     claim settlement modification, McDonnell Douglas shall 
     provide the following release of claims:
       McDonnell Douglas Corporation, on behalf of both itself and 
     its operating divisions, including McDonnell Douglas 
     Aerospace--Transport Aircraft and its corporate predecessors 
     in interest, hereby releases and forever discharges the 
     Government from all contractual claims, demands, requests for 
     equitable adjustment, or any other causes of action, known or 
     unknown, that McDonnell Douglas may have on or before [the 
     date of execution of this agreement] arising out of C-17 
     program contracts. This release expressly includes all C-17 
     program claims, including claims under contracts for C-17 
     Aircrew Training Systems, certified or otherwise, that 
     McDonnell Douglas Corporation or any of its operating 
     divisions, may have on or before [the date of execution of 
     this agreement] and all other C-17 related contractual 
     claims, demands or causes of action, on its own behalf or on 
     behalf of any subcontractor, arising out of any Government 
     action or inaction occurring on or before [the date of 
     execution of this agreement]. With respect to any contractual 
     claim, demand, or cause of action of any kind initiated by a 
     McDonnell Douglas Corporation subcontractor, vendor, 
     supplier, or other party, McDonnell Douglas Corporation 
     agrees to resolve such disputes without involving the 
     Government, and releases and forever discharges the 
     Government from any liability whatsoever arising out of any 
     such claims, demands or causes of action. This release shall 
     not preclude McDonnell Douglas Corporation from asserting 
     defenses or offsetting amounts against Government claims, but 
     the claims and other matters encompassed by this release 
     shall not be used to assert or support any counterclaim 
     against the Government.
                                  ____


                              Attachment B


  agreement between under secretary of defense john m. deutch and mr. 
        john f. mcdonnell to settle c-17 issues, january 3, 1994

       C-17 Specifications revisions:
       1. The System Specification (MDC S0001C) for the C-17 
     Airlift System shall be revised as follows:
       Paragraph 3.2.1.1 Maximum payload mission, line 2: Replace 
     ``172,200 pounds'' by ``169,000 pounds''; line 3: Replace 
     ``160,000 pounds'' by ``157,000 pounds''.
       Paragraph 3.2.1.2 Heavy Logistics Mission, lines 2-3: 
     Replace ```150,000 pounds'' by ``145,000 pounds''; lines 4-5: 
     Replace ``130,000 pounds'' by ``120,000 pounds''.
       Paragraph 3.2.1.3 Intertheater logistics mission, lines 2-
     3: Replace ``120,000 pounds'' by ``114,000 pounds''.
       Paragraph 3.2.1.5 Ferry Range, line 2: Replace ``4,600 NM'' 
     by ``4,300 NM''.
       Paragraph 3.2.1.6.1 Maximum Gross Weight Takeoff, line 3: 
     Replace ``7,600-foot paved runway'' by ``8,200-foot paved 
     runway''.
       Paragraph 3.2.1.6.2 Small austere airfield takeoff, lines 
     3-4: Replace ``2,900-foot long'' by ``3,000-foot long''; line 
     4: Delete ``Load Classification Number (LCN) 48''; lines 5-6: 
     Delete ``with the equivalent strength and shear 
     capabilities''.
       Paragraph 3.2.1.6.3 Critical engine inoperative takeoff, 
     line 2: Replace ``2,941-foot'' by ``3,000-foot''; line 3: 
     Delete ``LCN 48''; lines 4-5: Delete ``with equivalent 
     strength and shear capabilities''.
       Paragraph 3.2.1.7.1 Normal landing, line 2: Replace 
     ``3,300-foot'' by ``3,950-foot''; lines 2-3: Delete ``LCG IV 
     (Load Classification Group)''; line 4: Replace ``with a 
     payload of 167,064 pounds and fuel'' by ``at the zero fuel 
     weight of the mission defined in paragraph 3.2.1.1 plus 
     fuel''.
       Paragraph 3.2.1.7.2 Maximum effort landing, line 2: Replace 
     ``2,650'' by ``3,200-foot''; line 2: Delete ``LCN 48''; lines 
     3-4: Delete ``with equivalent strength and shear 
     capabilities''; line 5: Replace ``with a payload of 124,076 
     pounds and fuel'' by ``at the zero fuel weight of the mission 
     defined in paragraph 3.2.1.3 plus fuel''; line 7: Replace 
     ``3,000-foot'' by ``3,400-foot''; line 7: Delete ``LCG IV''; 
     line 8: Replace ``with a payload of 134,599 pounds and fuel'' 
     by ``at the zero fuel weight of the mission defined in the 
     second sentence of paragraph 3.2.1.2 plus fuel''.
       Paragraph 3.2.1.7.3 Maximum payload landing, line 2: 
     Replace ``2,700-foot'' by ``3,000-foot''; line 2: Delete 
     ``LCG IV''; lines 3-4: Replace ``with a payload of 167,064 
     pounds and fuel'' by ``at the zero fuel weight of the mission 
     defined in paragraph 3.2.1.1 plus fuel''.
       Paragraph 3.2.1.8 Ground flotation, line 1: Replace ``with 
     a payload of 124,076 pounds'' by ``at the zero fuel weight of 
     the mission defined in the second sentence of paragraph 
     3.2.1.2''; line 3: Replace ``48'' by ``50''; line 5: Replace 
     ``runways'' by ``runways with equivalent strength and shear 
     capabilities as an LCN 50 paved runway''.
       Paragraph 3.2.1.9.1 Turning, line 2: Delete ``LCN 48''.
       Paragraph 3.2.1.9.1 Backing up, line 2: Delete ``LCG IV''; 
     line 3: Replace ``with a payload of 167,064 pounds and fuel'' 
     by ``at the zero fuel weight of the mission defined in 
     paragraph 3.2.1.1 and fuel''.
       Paragraph 3.2.1.10.1 Cruise speed and altitude, line 3: 
     Replace ``0.77 Mach'' by ``0.74 Mach''; line 4: Replace 
     ``28,000 feet'' by ``27,000 feet''.
       Paragraph 3.2.1.10.2a. Airdrop speed, line 1-2: Replace 
     ``1.2 V5, (not to exceed 130 KIAS)'' by ``130 KIAS (1.2 
     V5, or greater margin)''.
       Paragraph 4.1.1.2, Initial Squadron Operations (ISO)., line 
     7: Delete ``approximately one month''.
       Table 10.2.1 C-17A PEACETIME DESIGN MISSION PROFILES, 
     missions 7, 8: Replace ``163.6 (1000's of LBS)'' by ``157.0 
     (1000's of LBS)''; mission 11: Replace ``6500 NM'' by ``6000 
     NM''.
       Paragraph 50.1, Mission Performance, line 3: Replace ``6.5 
     pounds per U.S. gallon'' by ``6.7 pounds per U.S. gallon''; 
     line 5: Replace ``fuel'' by ``fuel at brake release for 
     takeoff. Ramp weight shall be defined as takeoff gross weight 
     plus fuel weight equal to fifteen minutes of engine operation 
     at idle power for sea level static standard day conditions 
     consistent with paragraph 50.1.1a Ground operations.''.
       Paragraph 50.1.1b.(2) Cruise, line 1: Add ``Cruise using 
     optimum step climb to start of descent''; lines 1-2: Replace 
     ``Cruise to overhead destination at long range cruise speed'' 
     by Cruise at optimum cruise speed''; line 2, Replace 
     ``0.77 Mach'' by 0.74 Mach''; lines 3-4: Delete ``at 
     altitude for best cruise performance''; line 3: replace 
     ``28,000 feet'' by ``27,000 feet''; lines 3-4: Delete 
     ``nor greater than cruise ceiling''.
       Paragraph 50.1.1 c. Descent and landing: Replace ``No time, 
     fuel or distance credit'' by ``Time, fuel and distance credit 
     shall apply''.
       Paragraph 60.6.4, Conduct of the ORE., line 3: Delete 
     ``approximately one month''.
       2. The Prime Item Development Specification (MDC S0002C(1)) 
     for the C-17 Air Vehicle shall be revised as follows:
       Paragraph 3.2.1 Performance, line 6: Replace ``mid-range 
     center of gravity'' by ``payload/range optimum center of 
     gravity''.
       Paragraph 3.2.1.11.1b. Mil-A-8860--Exceptions: Add ``12. 
     The maximum takeoff weight is the weight of the airplane with 
     the maximum internal and external loads necessary to provide 
     mission capabilities specified in the C-17 System 
     Specification; after allowance is made for fuel burned during 
     engine warmup and pre-flight taxi. This weight applies to:
       (a) Take-off loads
       (b) In-flight refueling conditions
       (c) Flight loads
       (d) Flutter and divergence prevention
       (e) Serial delivery loads
       (Ref. 6.2.1.2)
       13. The landplane weight is defined as 491,900 pounds. 
     (Ref. 6.2.1.5.2)''.
       Paragraph 3.2.1.11.1b. Mil-A-8860--additions: Add ``4. The 
     maximum ramp weight is the weight of the airplane with the 
     maximum internal and external loads necessary to provide the 
     mission capabilities specified in the C-17 System 
     Specification; with no reduction for fuel burned during 
     engine warmup and pre-flight taxi. This weight applies to:
       (a) Pre-flight taxi and ground handling loads
       (b) Wheel jacking, if such jacking is required for changing 
     wheels and tires
       (c) Vibration
       (Ref. 6.2.1.2)''.
       Paragraph 3.2.1.11.1d.6. Mil-A-8862--Exceptions: Replace 
     ``design weight'' by ``ramp weight''.
       Paragraph 3.2.1.11.1: Add ``q. Mil-W-25140B--Exceptions 1. 
     An entry for ramp weight limitations shall be entered in 
     Chart E. (Ref. 3.7.9.15.5)
       2. The ramp weight shall be defined as Takeoff Gross Weight 
     plus warmup and preflight taxi fuel. It will vary with each 
     mission in the same manner as Takeoff Gross Weight. (Ref. 
     6.2.3)''.
       Paragraph 3.3.1.2.12 Design for contamination, 
     Demonstration subparagraph: Delete.
       Paragraph 3.7.1.2.1.3b. Flotation, line 2: Replace ``LCN 
     48'' by ``LCN 50''.
       Paragraph 3.7.1.2.1.3c. Flotation, line 4: Replace ``50 
     passes'' by ``40 passes''.
       Paragraph 3.7.1.6.3.2 Sump space, lines 1-2: Replace by 
     ``The sump space for each fuel tank shall be identified''.
       Paragraph 3.7.1.7.1.6 Leakage rate, lines 2-3: Replace 
     ``0.07 V0.667 plus 0.5 pounds per minute'' by ``110 
     pounds per minute''.
       Paragraph 3.7.1.7.2.1.9 Surface temperatures, lines 6-16: 
     Replace by''
       . . . Exposed flight crew and loadmaster station surfaces 
     (panels, knobs, switches, and other hand-actuated devices) 
     which can normally be handled/contacted/actuated by air crew 
     members while not wearing protective clothing shall not 
     exceed the limits specified below for flight crew controls. 
     Exposed flight crew and loadmaster station equipment surfaces 
     which could be contacted accidentally by the bare skin of the 
     air crew shall not exceed the limits specified below for 
     inadvertent contact surfaces, or shall be shielded/guarded to 
     prevent inadvertent contact by air crew members. The air 
     vehicle, except the exposed flight crew and loadmaster 
     stations, shall conform to the biothermal requirements of 
     MIL-STD-1472 paragraph 5.13.4.6. . . . shall be used as 
     design guides.

                                                                        
------------------------------------------------------------------------
                              Metal           Glass          Plastic    
------------------------------------------------------------------------
Flight crew controls...   49 deg.C (120                                 
                                 deg.F)   59 deg.C (138                 
                                                 deg.F)    69 deg.C (156
                                                                deg.F)
Inadvertent contact....   60 deg.C (140                                 
                                 deg.F)   68 deg.C (154                 
                                                 deg.F)    85 deg.C (185
                                                               deg.F)''.
------------------------------------------------------------------------

       Paragraph 3.7.2.1.1.10 Engine Fuel, line 2: Replace ``JP4'' 
     by ``JP8''.
       Paragraph 6.1.1c., d., f., g., h. Weight terminology 
     (various): Replace ``No reductions'' by ``reductions''; 
     Replace ``taxi, warmup, or climb-out'' by ``taxi and 
     warmup''.
       Paragraph 6.1.1g. Change title from ``Maximum design 
     weight'' to ``maximum take-off weight''.
       Paragraph 6.1.1e. Landplane landing weight, Replace by 
     ``The landplane landing weight is specified in 3.2.11.1.b, 
     item 13.''.
       Paragraph 6.1.1o. Add ``o. Maximum ramp weight. The 
     aircraft maximum gross weight for the performance defined 
     under 3.2.1. No reductions are permitted for fuel used during 
     taxi, warmup, or climb-out.''.
       Section 20.2 Pratt & Whitney Aircraft, Add: ``AF Designated 
     F-117-PW-100)''.
                                  ____


                              Attachment C


  Agreement Between Under Secretary of Defense John M. Deutch and Mr. 
        John F. McDonnell To Settle C-17 Issues, January 3, 1994

       Computer Aided Design/Computer Aided Manufacturing (CAD/
     CAM) Management Information System (MIS), Advanced Quality 
     System (AQS) Program Improvements and product improvement 
     cost reduction projects
       1. CAD/CAM, MIS and AQS. Within sixty days of the execution 
     of this agreement, McDonnell Douglas shall provide the C-17 
     Program Director with proposals for the program improvement 
     systems described below. The objectives of these programs are 
     to, over time, modernize business practices so as to improve 
     the efficiency of the program, in particular through a 
     transition from paper to electronic means of communication, 
     design and manufacturing, and to improve the management of 
     cost, safety, and reliability through an improved quality 
     system. The Contracting Officer and McDonnell Douglas will 
     agree to a specific description of each system, and the 
     nature and the timing of its implementation. The parties will 
     also agree on the estimated cost of the acquisition and 
     implementation of each of these program improvements. In 
     order to provide the maximum benefits to the C-17 program 
     from these program improvements, McDonnell Douglas will make 
     these improvements as expeditiously as possible, but in no 
     event later than one year form the date of this agreement. 
     However, McDonnell Douglas shall not be required to implement 
     these program improvements until the Government notifies 
     McDonnell Douglas that authorizing legislation and 
     appropriations for these program improvements have been 
     received. The parties estimate that the total costs for these 
     systems will be $40 million for CAD/CAM, $30 million for MIS, 
     and $5 million for AQS. The parties will share the cost of 
     these program improvements equally, within these estimates, 
     with the cost to the Government estimated at $20 million for 
     CAD/CAM, $15 million for MIS, and $2.5 million for AQS. Costs 
     in excess of these estimated amounts will be allowable under 
     the terms of the relevant C-17 contracts if the costs are 
     allowable under the Federal Acquisition Regulation.
       a. C-17 CAD/CAM System. McDonnell Douglas shall implement 
     at CAD (three dimensional) network. This CAD network shall be 
     the single engineering and manufacturing CAM data base to 
     which any new or updated drawings would be added. Beginning 
     on the date to be specified by the C-17 Program Director, 
     drawings requiring update/changes shall be accomplished in a 
     CAD format and added to this data base. Beginning not later 
     than production lot 9 assembly start, McDonnell Douglas 
     Corporation shall begin incorporating all C-17 drawings into 
     this CAD system. The system shall be compliant with the 
     Computer-aided Acquisition and Logistics System at this time. 
     In addition, the CAD/CAM system shall be networked to 
     McDonnell Douglas elements responsible for production 
     planning, tooling, technical orders, and manufacturing 
     engineering to ensure all functions are using the same 
     engineering data base.
       b. MIS. McDonnell Douglas shall implement a MIS system 
     associated with the development, production, and sustainment 
     of the C-17 weapon system which allows McDonnell Douglas and 
     the Government to exercise oversight of the program, track 
     and assess program technical, schedule, and funds status, and 
     identify problems requiring action. Access to these 
     information products shall be provided by electronic means as 
     well as on magnetic, paper, or other media, as required to 
     permit the timely and complete access to the information. 
     However, the MIS shall use electronic media for information 
     generation, access, transmission, storage, and integration. 
     As a minimum, the level of detail in the MIS information 
     products shall include electronic mail capability, and access 
     to contractor technical, funds and schedule performance, 
     Contract Data Requirements List status, Engineering Change 
     Proposal Status, and LSA data. The MIS shall be installed at 
     the McDonnell Douglas Corporation, with access available to 
     the defense Plant Representative Office, System Program 
     Office, Program Executive Officer, Air Force Material Command 
     and Air Logistic Center facilities.
       c. AQS. McDonnell Douglas shall implement an AQS in 
     accordance with the Manufacturing Process Improvement Plan. 
     This system shall be compliant with ANSI/ASQC Q-90 series 
     standards. The system should be upgraded using ANSI/ASQC Q91-
     1987 and Q94-1987, as guides. The system will be directed at 
     designing and building quality in by use of each tools as 
     process control and continuous process variability reduction 
     during the manufacturing process, rather than inspecting it 
     in at the end of the production line. An effective root cause 
     corrective act and disposition system will be implemented. 
     The system shall reflect a prevention-based, multifunctional 
     approach to quality. All major/critical subcontracts must 
     comply with these requirements.
       2. Product Improvement Cost Reduction Projects. The goal of 
     each production improvement cost reduction project shall be 
     to improve the quality and lower the production cost of C-17 
     aircraft.
       a. Schedule. No later than thirty days after execution of 
     this agreements McDonnell Douglas shall propose projects with 
     an aggregate capital investment of not less than $35 million. 
     No later than one year after execution of this agreement, 
     McDonnell Douglas shall propose additional projects with 
     an aggregate capital investment of not less than $65 
     million. The parties shall agree upon the specific 
     projects to be undertaken and a precise description for 
     each. At least $35 million of projects shall be completed 
     by December 31, 1995, and the remaining projects shall be 
     completed by December 31, 1996. However, McDonnell Douglas 
     shall not be required to implement product improvement 
     cost reduction projects until the Government notifies 
     McDonnell Douglas that authorizing legislation and 
     appropriations for this agreement have been received. If 
     legislation is not enacted by September 30, 1994, the 
     parties will negotiate alternate dates for implementation 
     of these projects.
       b. Project Costs and Benefits. McDonnell Douglas shall bear 
     the total cost of these projects. The costs incurred for 
     these projects shall be separately identified and shall not 
     be allowable, directly or indirectly, on any C-17 or other 
     Government contract. In addition, McDonnell Douglas shall not 
     benefit on C-17 production contracts from cost savings 
     attributable to these projects. Unless the parties agree on a 
     different procedure, the parties shall, prior to McDonnell 
     Douglas implementation of these projects: (1) negotiate the 
     estimated net cost savings for each project; (2) reduce the 
     target cost of each existing C-17 production contract by the 
     amount of estimated cost savings attributable to these 
     projects that is applicable to the aircraft being produced 
     under the contract; and, (3) reduce the target profit, target 
     price, and ceiling price on each existing C-17 production 
     contract by the same percentage as the applicable reduction 
     to target cost. The price of future C-17 production contracts 
     shall be negotiated based on the estimated cost savings for 
     these projects, and McDonnell Douglas shall not receive any 
     profit consideration in future C-17 contracts for having 
     implemented these projects.
                                  ____


                              Attachment D


  agreement between under secretary of defense john m. deutch and mr. 
        john f. mcdonnell to settle c-17 issues, january 3, 1994

       Other settlement issues:
       1. McDonnell Douglas agrees to take the following actions 
     at no change in contract target cost or ceiling price.
       a. Ditching Locks. McDonnell Douglas shall make any design 
     and production modifications necessary so that the aft cargo 
     door latch and lock system (ditching locks) are controllable 
     in flight from the load master's control panels and from the 
     flight deck.
       b. Test Requirements Document. McDonnell Douglas shall 
     provide Test Requirements Documents, except for depot support 
     equipment built-in-test, in accordance with Contract Data 
     Requirements List (CDRL) item 3059.
       c. Fault Isolation Manuals. McDonnell Douglas shall provide 
     Fault Isolation Manuals (Technical Orders) prepared at the 
     level of detail specified by the Government (pursuant to 
     contract 2108 CDRL item A0005 and paragraph 3-6 of the 
     Specification Interpretation Document).
       d. Composite/Structures Repair. McDonnell Douglas shall 
     provide composite/structure repair engineering data and 
     identification of resultant depot level support equipment.
       e. Retrofit of Flaps and Slats. McDonnell Douglas shall 
     complete the required effort to redesign the flaps and slats, 
     incorporate the redesigned flaps and slats into future 
     production aircraft, and retrofit existing aircraft.
       f. Mission Computer Reserve Capacity. McDonnell Douglas 
     shall implement corrective action to insure compliance with 
     contract specification requirements for mission computer 
     throughput.
       g. Built-In-Test. McDonnell Douglas shall implement 
     corrective action to ensure compliance with contract 
     specification requirements relating to Built-In-Test false 
     alarm rates.
       h. Reliability, Maintainability, and Availability (RM&A). 
     McDonnell Douglas shall implement a high visibility, 
     aggressively managed reliability growth program and a RM&A 
     Performance Review Board.
       i. Manufacturing Process Improvement. McDonnell Douglas 
     shall develop and implement a Manufacturing Process 
     Improvement Plan.
       j. Integrated Program Master Plan. McDonnell Douglas shall 
     develop and implement an Integrated Program Master Plan.
       k. Management Plan for Software Development and Release. 
     McDonnell Douglas shall develop and implement a Management 
     Plan for Software Development and Release.
       l. Government Property System. McDonnell Douglas shall take 
     the necessary corrective actions and submit required 
     documentation to qualify for recertification of its 
     government property system within 12 months of the date of 
     this agreement.
       m. Improvements to Range/Payload Performance. McDonnell 
     Douglas shall implement the following initiatives:
       (1) Use the Pratt & Whitney 94 Commercial Engine;
       (2) Implement low risk weight reduction initiatives to 
     reduce empty weight by 1,500 lbs;
       (3) Reduce total aircraft drag by one percent;
       (4) Increase maximum takeoff gross weight 5,000 lbs to 
     585,000 lbs.
       In addition, McDonnell Douglas shall continue an active 
     weight control program and perform trade studies on the 
     following alternatives to determine, by cost-benefit 
     analysis, the desirability of incorporation into the C-17 
     design:
       (5) Increased fuel carrying capacity;
       (6) Removal of core thrust reverser;
       (7) Use of composite nacelle.
       2. The Government and McDonnell Douglas will jointly take 
     the following actions at no change in contract target cost or 
     ceiling price.
       a. Integrated Product Development. The parties will jointly 
     implement Integrated Product Development, consistent with the 
     Defense Science Board C-17 Task Force final report.
       b. Incremental Configuration Audits. The parties will 
     continue the incremental Functional Configuration Audit 
     (FCA)/Physical Configuration Audit (PCA) process.
       c. Management Plan for Affordability. the parties will 
     jointly develop and implement a Management Plan for 
     Affordability.
       d. Reliability, Maintainability, and Availability (RM&A) 
     Testing. The parties will conduct a multibase RM&A evaluation 
     rather than using just Charleston AFB. The C-17 Program 
     Director shall specify the date on which the Operational 
     Readiness Evaluation (ORE) shall begin. The ORE may begin 
     later than 30 days after Initial Operational Capability 
     (IOC). Government warranty rights under the C-17 contracts 
     that are limited to defects identified no later than 180 days 
     after IOC shall be extended to 90 days after completion of 
     the ORE, regardless of the date of the IOC. The C-17 Program 
     Director shall determine what revisions to RM&A testing in 
     the ORE are necessary to make the testing more operationally 
     representative.
       e. Subcontractor Engineering Data. McDonnell Douglas shall 
     provide and mark Subcontractor Engineering Data as required 
     by the C-17 contracts. The Government may challenge ``limited 
     rights'' markings on the data as provided in the contracts. 
     The parties shall establish a working group to resolve 
     disagreements on this issue, and shall refer any unresolved 
     differences to the appropriate higher level for decision.
       3. Clarification of Existing Contract Requirements. 
     McDonnell Douglas is not currently required to perform the 
     work identified in this paragraph. If the Government has a 
     requirement in this area, it will be the subject of a future 
     contract or contract modification. It is noted that Technical 
     Order Maintenance has already been the subject of a separate 
     contract modification.
       a. Refurbish aircraft T-1.
       b. Provide Initial Squadron Operations (ISO) in excess of 
     12 months.
       c. Provide airdrop testing instrumentation on aircraft P-3, 
     P-4, or P-5.
       d. Implement 400 pound troop seat.
       e. Provide ``Crash/Fire Rescue'' as described in the 
     McDonnell Douglas proposal submitted on July 2, 1993.
       4. the parties shall take the preliminary steps to 
     implement these other settlement issues, including submission 
     of proposals and negotiation of any implementation details, 
     however, nothing in this agreement shall be deemed to require 
     the parties to implement these other settlement issues until 
     the Government has notified McDonnell Douglas that 
     authorizing legislation and appropriations for these other 
     settlement issues have been received.
                                  ____


                              Attachment E


  agreement between under secretary of defense john m. deutch and mr. 
        john f. mcdonnell to settle c-17 issues, january 3, 1994

       General provisions:
       1. References to ``costs'' shall be deemed to mean 
     ``allowable costs'' in accordance with Part 31 of the Federal 
     Acquisition Regulation. Where a subsequent contract or 
     contract modification is required by this agreement the 
     applicable revision of the Federal Acquisition Regulation 
     shall be the revision in effect on the date that the 
     implementing contract document is executed.
       2. It is the intention of the parties to this agreement 
     that, although this agreement refers to contracts between the 
     Government and the McDonnell Douglas Corporation, and other 
     contractual documents between those parties are contemplated 
     by this agreement, this agreement is not a contract for the 
     procurement of property or services and is not subject to the 
     Contract Disputes Act of 1978, as amended.
       3. The Government expressly reserves any and all causes of 
     action for fraud, misrepresentation, false statements, and 
     false claims arising from the C-17 program.

  Mr. GRASSLEY. In a nutshell, this is what the settlement agreement 
would accomplish.
  For its part, the Government is willing to drop all its claims 
against McDonnell Douglas. It is willing to accept the aircraft's 
range/payload shortfall and schedule delays; and pay McDonnell Douglas 
$348 million in cash, including $234.5 million for the wing breakout 
claim.
  In exchange, McDonnell Douglas would drop all its claims against the 
Government and supposedly absorb $454 million in out-of-pocket 
expenses.
  Mr. President, the Deutch plan may not rest on firm ground.
  I firmly believe that it was built on sand.
  The Deutch plan presupposes that both sides are relinquishing valid 
claims and avoiding a long, expensive battle in court.
  The General Accounting Office has looked at this whole scheme of 
things. They have evaluated the Deutch plan and concluded that the C-17 
settlement agreement is a lousy deal for taxpayers.
  The GAO's analysis of the settlement agreement is outlined in a 
recent report entitled ``Military Airlift: C-17 Settlement Is Not a 
Good Deal.''
  The report is dated April, 1994.
  This is what the GAO says about the validity of the claims that form 
the foundation of Mr. Deutch's C-17 get-well plan.
  I quote from page 2:

       According to DOD officials, the claims were not subject to 
     full legal or price analysis. Without any legitimate basis 
     for establishing the realistic value of the claims of both 
     parties, the true cost of the settlement is not known.

  That is strong language for the GAO.
  Mr. President, the GAO says there is no legitimate basis for the 
claims, $348 million of them included in the bill worked out by Mr. 
Deutch and the company.
  I fear and suspect that the settlement agreement proposed by Mr. 
Deutch is really phase II of the 1990 backdoor bailout operation.
  The settlement agreement is nothing more than another bailout to help 
McDonnell Douglas recover the $1.5-billion loss flowing from the cost 
overrun on the fixed-price R&D contract.
  McDonnell Douglas cannot live up to the terms of the contract and now 
wants extraordinary relief and it wants, in the words of the defense 
industry, more nourishment from Congress.
  McDonnell Douglas does not like the idea of losing $1.5 billion.
  Company officials want Uncle Sam to shovel more money their way.
  Mr. President, these defense companies have an insatiable appetite 
for money.
  If we keep throwing money at McDonnell Douglas--and there has been 
plenty of that already, there will be no fleet of new C-17's. The C-17 
will self-destruct under the sheer weight of mounting costs and 
mismanagement.
  McDonnell Douglas signed a fixed-price contract on the C-17.
  You cannot convince me that a company this famous, this 
sophisticated, could not have known what it was getting into by signing 
this fixed-price contract. The company must have known what it was 
getting into.
  We need to hold McDonnell Douglas' feet to the fire and bring some 
discipline to the program. We need to make them live up to the terms of 
the contract.
  McDonnell Douglas does not like being locked into the C-17 fixed-
price contract.
  Mr. Deutch wants to help them escape.
  It is as simple as that.
  Over the past 5 years, the Air Force and McDonnell Douglas have been 
staring down the throat of an ugly $1.5 billion cost overrun on the 
fixed-price C-17 R&D contract.
  No company wants to be in that position. If they can do anything to 
get out of it they are going to do anything to get out of it.
  To make matters much worse, the $1.5 billion C-17 cost overrun came 
on top of major financial losses on the Navy's A-12 Stealth Bomber 
Program.
  These two financial disasters together caused senior DOD officials to 
worry that McDonnell Douglas might go down the tubes.
  DOD officials like to keep this myth alive.
  They concluded that extraordinary relief was in order. They took it 
on themselves to save the company. They decided on their own to give 
McDonnell Douglas a massive transfusion of cash.
  They devised various devious schemes to cover up mounting delays and 
the burgeoning cost overrun on C-17 contracts in order to maintain an 
uninterrupted flow of money to the company.
  Well, the DOD inspector general blew the cover on that backdoor 
bailout operation last year.
  Remember in the first instance I quoted what the General Accounting 
Office said was wrong with this Deutch plan? Now I want to tell you 
that the DOD's own inspector general blew the cover on this other 
backdoor bailout. That backdoor bailout operation cost the taxpayers at 
least $350 million in illegal or improper progress payments.
  Well, all the concerns about McDonnell Douglas' financial condition 
were unwarranted. Today's reports from Wall Street clearly indicate the 
company is healthy and well: ``The company is on the road to 
recovery.''
  McDonnell Douglas has so much cash in its coffers that it is looking 
for new acquisitions and investments.
  I do not think McDonnell Douglas has to have the $348 million cash 
payment to survive. This is not a life-or-death issue for the company.
  But Mr. President, my concerns today are not over the company's 
financial well-being.
  I am more concerned about how the taxpayer's money is being thrown 
around.
  A $348 million direct cash payment to McDonnell Douglas for C-17 
bungling is not my idea of how our tax dollars should be put to work.
  Mr. President, I have three major beefs with the proposed C-17 
settlement agreement:
  First, there is the cost mischarging scheme.
  This issue is identified in the settlement agreement as ``Charging 
Sustaining Engineering Costs.'' It was a crooked retroactive accounting 
trick to channel illegal progress payments to McDonnell Douglas. I 
don't like the way this issue is handled by the Deutch plan.
  Second the agreement downgrades critical aircraft range/payload 
specifications or specs--for the fourth time. The plane doesn't meet 
the specs. Under the Deutch plan, the specs will meet the airplane. 
It's the old rubber baseline. That's a lousy deal for the taxpayer. We 
pay more and get less.
  Third, the agreement would provide McDonnell Douglas with a $234.5 
million cash payment for the so-called wing breakout claim.
  The GAO says there is no legitimate basis for this claim.
  The C-17 contracting officer said there was no basis for this claim.
  And I have documents that clearly suggest that this claim may be 
invalid.
  At the appropriate point in the debate, I will place those documents 
in the Record.
  I am going to speak on each one of these problems in the future but I 
am going to allow people who disagree with my amendment to speak, 
except for one other statement I want to make at this point.
  Mr. President, the House of Representatives rejected the Deutch 
settlement agreement because it doesn't smell right. Well, it doesn't 
smell right to me, either. It has a bad odor about it. In fact, I think 
it stinks. And I hope my colleagues think so as well. I reserve the 
remainder of my time. Could I ask how much time I just used?
  The PRESIDING OFFICER (Mr. Wellstone). The Senator used 15 minutes. 
The Senator has 75 minutes and 6 seconds remaining.
  Mr. GRASSLEY. Thank you.
  I hope people in opposition will speak because I want to say some 
more but I do not want to say it all at once.
  The PRESIDING OFFICER. Who yields time?
  Mr. THURMOND. Mr. President, I yield myself such time as I may 
require.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. THURMOND. Mr. President, I urge my colleagues to oppose the 
Grassley amendment to the C-17 settlement. When we talked to senior 
commanders during our hearings this year, one message came through 
clearly. We need capable, modern airlift. With so many of our forces 
returning home from overseas, we need airlift for rapid crisis 
response, more now than in the recent past. The C-17 will provide that 
rapid response, along with the capabilities needed for military 
operations.
  Last year we directed the Defense Department to review and 
restructure the C-17 program. Through Dr. Deutch's determined personal 
efforts, the Defense Department did restructure the C-17 program and 
the settlement is an integral part of the restructured program. The 
settlement is a benefit to the taxpayers, not a bailout. The department 
did what we told them to do in last year's authorization act. They 
worked hard to give the C-17 program the best chance to produce quality 
results.
  The settlement protects the taxpayers from extended expensive claims 
cases. We should give the program every opportunity to produce these 
aircraft and then make a decision regarding the future of the C-
17 after we have had some operational experience with aircraft.

  Mr. President, the McDonnell Douglas Corp., has already lost--already 
lost--$1.2 billion on the program, whatever the settlement terms. This 
is no bailout. The settlement is an opportunity for both parties to set 
aside many legal claims and apply resources to an improved program.
  I oppose the Grassley amendment and urge my colleagues to oppose it, 
also.
  Mr. President, I would like to quote an excerpt from a letter written 
to the Honorable Edward M. Kennedy, chairman of the Subcommittee on 
Regional Defense and Contingency Forces, Committee on Armed Services, 
U.S. Senate, from the deputy inspector general:

       However, I believe that it is essential that the settlement 
     agreement be approved as part of any decision to continue 
     pushing C-17 aircraft and to continue the course of action 
     outlined by Deputy Secretary Deutch to the Congress on the 
     future military aircraft.

  Another excerpt:

       The settlement resolves all major outstanding issues and 
     prevents a lengthy and expensive court battle. These legal 
     proceedings could be costly, even if the Government were to 
     prevail on all the issues, which is, of course, highly 
     unlikely.

  This is signed by Derek Vander Schaaf, deputy inspector general of 
the Department of Defense.
  Mr. President, I just do not see how we can afford to try to upset 
this settlement. It has been worked on for months and months to get 
this thing straight. The Secretary of Defense favors the settlements. 
The Deputy Secretary of Defense favors the settlement. The Secretary of 
the Air Force favors the settlement. The Chief of Staff of the Air 
Force favors the settlement. They are our officials. They are part of 
the administration that is running this Government. If we do not take 
their word, whose word are we going to take?
  Do we want to go off on a tangent, do not take this settlement, go 
back in court and be in court for years maybe, and cause expense to the 
Government? As the Secretary says, even if you win, you lose; it will 
cost the Government even more. It just does not make sense.
  I urge my colleagues to vote against this amendment.
  Mr. KENNEDY addressed the Chair.
  The PRESIDING OFFICER. Who yields time?
  Mr. KENNEDY. Mr. President, how much time is there on this amendment?
  The PRESIDING OFFICER. The Senator has 85 minutes remaining.
  Mr. KENNEDY. Mr. President, I yield such time as I might use.
  Mr. President, I oppose the Grassley amendment. Our Subcommittee on 
Regional Defense and Contingency Forces of the Armed Services Committee 
has jurisdiction over airlift, and we have watched the C-17 program 
with concern for several years.
  After long deliberation and extensive review, we feel that the 
proposed settlement between the Defense Department and McDonnell 
Douglas makes sense for the Nation's defense needs. I support the 
settlement, and I urge my colleagues to reject this amendment.
  The settlement is part of a long overdue comprehensive effort that 
sensibly and thoroughly addresses serious issues in our defense 
capability--to provide the airlift forces we need in the post-cold-war 
era.
  The C-17 should be part of that answer, but as we all know, it has 
been a deeply troubled program.
  The development of the aircraft has cost much more than anticipated 
in the engineering and development contract.
  The contractor, McDonnell Douglas, has had huge losses.
  The per unit cost of the aircraft has mushroomed from the initial 
estimates.
  There have been performance and design problems requiring expensive 
solutions. Nobody, including the contractor, denies that this program 
has been plagued with problems.
  The question that has faced us for several years is what to do about 
our airlift needs in light of the C-17's problems? We began a serious 
process 2 years ago to answer that question.
  The fiscal year 1993 Defense Authorization Act directed the Defense 
Department to do two things. First, it directed the Department to 
contract with the Institute For Defense Analyses to conduct a 
comprehensive cost and effectiveness analysis of the C-17. Second, it 
called for an independent program review to determine whether and how 
the program should go forward.
  Last year, at the beginning of the Clinton administration, the Under 
Secretary of Defense for Acquisition, John Deutch, took over the 
supervision of the program. He took the congressional directive a step 
further, and broadened the scope of the cost and effectiveness 
analysis. He compared the C-17 to alternative airlifters for cost 
effectiveness.
  He also convened an independent task force of the Defense Science 
Board to review the C-17 program and make recommendations about its 
future.
  Last year, both of these investigations submitted their findings. In 
both cases, they pointed to the same conclusion--if the C-17 can be 
made to work, it will prove to be the most cost-effective answer to our 
strategic airlift needs.
  The most important of these two investigations was carried out by the 
Defense Science Board task force. This group was headed by Robert 
Fuhrman, the retired president of the Lockheed Corp. and Lt. Gen. James 
Fain, commander of the Aeronautical Systems Center. They brought 
together leading figures from industry and the military. The group was 
charged with assessing the C-17, deciding whether the contractor could 
successfully complete development of the program, and identify what 
changes should be made to enable it to succeed. The task force was 
asked to figure out whether the program could be fixed, and if so, how 
to fix it.
  The conclusion of the Defense Science Board task force was clear and 
unequivocal:

       It is the unanimous conclusion of each member of the DSB C-
     17 task force that a comprehensive settlement, implemented 
     immediately, is essential for the realization of a successful 
     C-17 program.
       We believe that the C-17, implementing the recommendations 
     in this report, can be a highly successful program.

  There it is, in black and white. The Defense Science Board said the 
program can work--but that to make it work, a comprehensive settlement 
must be reached and implemented immediately.
  The rationale for the settlement is laid out in detail in the report. 
In essence, they found that the negative environment between the 
Government and the contractor had undermined the program and would 
prevent it from ever succeeding.
  To make the program a success, all of the claims and contentious 
issues had to be resolved, so that the Government and the contractor 
could stop focusing on litigation and start working to build a 
successful aircraft.
  Armed with this information, under Secretary Deutch went ahead and 
negotiated a comprehensive settlement with McDonnell Douglas. He did so 
with only one goal in mind--find a cost-effective way of fulfilling our 
military airlift requirements. The result is a solution which can 
achieve this goal, yet it is under attack by this amendment.
  The settlement places McDonnell Douglas on a 2-year probation. The 
Air Force will procure 6 planes for each of those 2 years, for a total 
of 40 aircraft. During this period, the contractor must do four 
things--introduce major changes in the management and manufacturing 
process; demonstrate an ability to deliver aircraft on schedule and at 
the designated cost; successfully complete the flight test program; and 
satisfy all contract specifications.
  If the contractor can meet these requirements, the Air Force will 
consider procuring additional aircraft. I want to underline that, Mr. 
President. If the contractor can meet these requirements, the Air Force 
will consider procuring additional aircraft. The decision in terms of 
future aircraft, therefore, is dependent upon the compliance with this 
particular agreement. They will be making that judgment in the future 
based upon our national security needs. Obviously, if this program does 
not go forward, that particular option is not available. The Department 
is in no way committed to buying more than 40 C-17's. I emphasize this 
to make clear that the settlement in no way reduces the pressure on the 
contractor to perform and produce a successful aircraft. Just the 
opposite--it holds the contractor's feet to the fire.
  As part of this arrangement, the Government and the contractor have 
agreed to settle a wide range of claims and outstanding issues that 
have plagued the program and prevented a cooperative effort to build a 
good aircraft. This is the part of the settlement that the Grassley 
amendment opposes.
  To settle these issues and make investments in the program, the 
contractor will pay a total of $454 million, and the Government will 
spend $348 million. These amounts will settle $1.6 billion in 
outstanding claims by McDonnell Douglas against the Government. They 
will fund additional flight testing. And they will provide for 
investment in the program to reduce production costs and improve 
productivity.
  Finally, the settlement eases some of the specifications in the 
original development contract. The air mobility command has made clear 
that these alterations do not prevent the aircraft from meeting their 
military requirements. The C-17 specified in the new contract will meet 
our core airlift requirements.
  That is the settlement, and there is no justification to block it. 
Implementing the settlement is necessary for successfully continuing 
with the C-17 Program.
  I would point out, Mr. President, as was made very evident from the 
various scientific and professional groups that reviewed it, they 
understood that this is basically a package. There had to be compliance 
in terms of meeting various requirements on the production and in terms 
of the competency of the aircraft, and there was also going to have to 
be resolution of the outstanding financial disputes for the basic 
reason that the whole program was being addressed in terms of whether 
it was going to continue as a realistic program in terms of meeting our 
airlift capability and our national security interest.
  Both of those elements go together, and you begin to unwind one, in 
this instance the agreement, there is no question in my mind as well as 
those who are involved in the program itself that you undermine the 
totality of the agreement and therefore remove a very important element 
in the airlift capability for our national security.
  Some argue that we should authorize six aircraft but not approve the 
settlement. But that ignores the fundamental conclusion of the Defense 
Science Board--you cannot have a program without the settlement. It is 
that simple.
  As the Board made clear, the claims and recriminations between the 
Government and the contractor are the single largest obstacle to a 
successful C-17 Program. If we do not proceed with the settlement, we 
should kill the program. You cannot have a plane without taking the 
settlement too.
  Some may agree in principle that a settlement makes sense, but that 
this particular settlement is not good enough. The Defense Department 
should try again. But Robert Fuhrman, the task force chairman, on 
behalf of the entire task force, has written to endorse the settlement 
as a faithful implementation of the recommendations.
  In addition, I have a letter written to me by Derek Vander Schaaf, 
the inspector general of the Department of Defense, in which he states:

       I believe that it is essential that the settlement 
     agreement be approved as part of any decision to continue 
     purchasing C-17 aircraft and to continue the course of action 
     outlined by Deputy Secretary Deutch to the Congress on the 
     future of military airlift.

  He continues:

       Failure to approve the settlement agreement will leave the 
     program with a management environment that is not working and 
     the prospect of wasting millions of dollars in litigation.

  The print is clear. If you want to proceed with the program, you must 
fund the settlement. If you do not authorize the settlement, you might 
as well not bother with the program.
  If McDonnell Douglas improves its performance, the Defense Department 
will be able to buy a cost-effective military airlifter beyond 40 
planes. If McDonnell Douglas does not achieve this goal, we will still 
have a force of 40 C-17's with their specialized military airlift 
capabilities. These planes will provide much-needed outsize cargo-
carrying capacity, and meet other specialized military capabilities.
  If we stop the program now, we will have to restart the C-5B 
production line, in order to obtain the outsize cargo capability we 
need. Restarting the line would cost somewhere between $600 and $900 
million, and take upwards of 3 years to achieve. This lengthy delay 
would deprive us of the airlift capability we need now.
  I also have letters from Gen. John Shalikashvili, chairman of the 
Joint Chiefs of Staff, Gen. Gordon Sullivan, Chief of Staff of the 
Army, and Gen. Joseph P. Hoar, commander in chief of Central Command. 
They all agree that we need this aircraft, and we need it now.
  In addition to the judgment of these top military officers that the 
C-17 meets our military requirements, let me mention one other letter. 
It is signed by the Secretary of Defense, Bill Perry, and Deputy 
Secretary John Deutch.
  They state categorically that to meet our military requirements and, 
in their words, to protect the Department's interests on business 
issues and contractual claims, proceeding with the C-17 and proceeding 
with the settlement are the right steps at the right time.
  In the time since the letter of agreement was signed between the 
Government and the contractor, there have been visible improvements in 
the program. The 12th aircraft was delivered last month--within a month 
of the scheduled date. The 13th aircraft, scheduled for delivery in 
June, is expected on time.
  The recent aircraft have required the fewest days from flight 
preparations to delivery and have required the fewest waivers for 
unfinished work.
  The improved atmosphere has already paid off. Rejecting the 
settlement would plunge the program back into the kind of litigation 
and controversy that has dragged the program down.
  Some may argue that the House of Representatives did not authorize 
the settlement during their consideration of the defense authorization 
bill. No negative inferences can be drawn from that fact. The Members 
of the House did not have the opportunity to vote on the settlement. 
The only issue in the House was the C-17 program itself, and some 
thought the program itself was in trouble. But that was not the case.
  On the key vote, the House voted 330-100--an overwhelming bipartisan 
margin of more than 3 to 1--to increase the procurement level from 4 
planes to 6. It is clear that if given the opportunity to endorse the 
settlement, House support for it would have been equally resounding.
  On June 8, the Senate passed by voice vote S. 1587, the Acquisition 
Reform Act of 1994. The purpose of this legislation was to help make 
Government procurement more like acquisition in the private sector. 
``Make Government act more like business'' is the slogan we have all 
heard over and over again.
  This settlement is an example of top Government officials trying to 
do just that--act more like business executives in handling this 
program. They did not act like Government lawyers, pursuing lengthy and 
costly litigation, wasting time, leaving us deadlocked in our efforts 
to build the military airlift we need.
  Instead, they investigated the program, took the advice of the 
Nation's top experts, and negotiated a settlement that in their 
judgment serves the Nation's best interests.
  If you want to oppose this settlement, fine. But do so with the 
knowledge that you do not really mean it when you say you want to see 
the Government act more like business. Because this settlement is the 
best example of Government acting like business we have seen in many 
years.
  The C-17 program has many problems with no easy solution. But you do 
not have to be an expert on military airlift to know how urgently we 
need additional cargo-carrying capacity. You only need to see the news 
reports of U.S. aircraft carrying aid, troops, and equipment to 
Somalia, and Bosnia, aiding the evacuation of civilians from Rwanda, to 
understand the importance of having adequate airlift. You only need to 
read the reports about North Korea. Our military forces need to be 
ready for any contingency, and the C-17 program and the settlement are 
part of that readiness.
  The administration has come up with a sensible approach to meeting 
our airlift needs. The C-17 settlement is an indispensable part of that 
solution. It takes the program out of the hands of the Government 
lawyers and puts it back into the hands of the engineers and men and 
women on the assembly line who will build this airplane and make it 
work. That is where this issue belongs. That is where the C-17 belongs.
  I urge the Senate to support the settlement and reject the Grassley 
amendment.
  I yield 10 minutes to the Senator from Maine.
  The PRESIDING OFFICER. The Senator from Maine is recognized.
  Mr. COHEN. I thank the Senator for yielding.
  Mr. President, first let me congratulate my colleague and friend from 
Massachusetts for this fine statement on this subject, and to commend 
him also for the hearings which he--Senator Thurmond suggests I take 
his place until he returns. It is an impossible task for me to take his 
place. But in any event, for the hearings that the Senator scheduled 
and held and for the testimony that was presented.
  I think the Senator from Massachusetts really outlined the key 
reasons why we should be supporting this particular proposed settlement 
and opposing the Grassley amendment. I think the C-17 program is an 
important one, and answers a real need.
  I think we have to ask ourselves a question. Do we need an aircraft 
to provide this kind of additional airlift? If the answer is no, that 
is fine. You vote for the Grassley amendment. This is a decision that 
was made some time ago. We needed substantial additional airlift for 
outsize cargo. What were the alternatives considered at that time? The 
C-5 was considered. They said no. That is not really going to fit our 
needs for the future. How about some wide-body alternative; commercial 
airlines? No. That will not work either. They are available. They may 
be less expensive. But they will not be as useful in a time of crisis.
  So we decided to go forward with the C-17 program to have a rapidly 
deployable force if necessary in the future.
  Mr. President, at the Armed Services Committee hearings this year, at 
one point it was made very clear by the commanders in chief. We need a 
capable airlift. We have an aging C-141 fleet that is making a valiant 
effort. But it is falling victim to its years.
  I might say that, if the Senator from South Carolina were here, and 
if the C-141 were as sturdy and as durable as he is, we might allow 
that fleet to stay in existence for some time to come, and not to have 
to deal with the C-17. That is not the reality of what we face.
  As the Senator from Massachusetts has pointed out, the C-17 has had 
its share of problems. We should also point out that the C-5 had its 
share of problems in getting off the ground. All of these programs have 
their problems in the initial stages.
  I think there has been a good-faith effort on the part of the 
administration under the leadership of Secretary Deutch to try and 
resolve the problems. The GAO says the C-17 has fallen short of its 
original cost schedule in performance expectations. That is true; 
absolutely true. The settlement acknowledges the past failures. It lays 
out a plan to overcome them.
  More importantly, the settlement is no more than what we insisted 
upon last year. In last year's DOD authorization we directed the 
administration to do precisely what they have done. We said provide us 
a report on the C-17 program containing a discussion of corrective 
actions to be taken, which they have done; a proposed resolution about 
standing contractor claims, which they have done; any legislation 
relating to those claims; and, finally, a discussion of corrective 
actions to be taken by the contractor concerning the program, all of 
which has been done.
  We can stay here and debate ad infinitum into the night and tomorrow 
in terms of the exact numbers and the merits of the contractor's claim 
against the U.S. Government and the Government's claim against the 
contractor. That will get us nowhere, let me suggest. That will be the 
beginning and the end as far as the unraveling of this particular 
agreement.
  So if we want to go back to mandating litigation, we can do that. We 
can pluck out the agreement, in which case for all practical purposes 
that is the end of this program. That was the deal that was struck. It 
was a business arrangement, a business decision. We forgo our claims 
against you, Mr. Contractor, and you will forgo your claims against us. 
That was the arrangement.
  If you do not have any confidence in Secretary Deutch, then reject 
his agreement. I think he is an outstanding public servant. I think he 
has made a really heroic effort to resolve this issue, to put the past 
problems behind us and go forward with the minimum of 40 aircraft. If 
the contractor demonstrates that they can produce an aircraft that is 
serviceable, that meets the revised specifications requirements, then 
at that time they can go forward and perhaps we will buy more. But in 
the absence of that, we will terminate the program after 40.
  Mr. President, I think this settlement agreement is an appropriate 
one. It is not a bailout of the contractor. The contractor has already 
lost $1.2 billion in the program even with a settlement in place. It is 
out $1.2 billion. This settlement is based on a reasoned analysis by 
the Defense Science Board task force. And simply put, Mr. President, I 
think it is an agreement that has been directed by the Congress for the 
benefit of the taxpayers. It avoids unproductive, costly litigation 
from both sides and instead applies funds to program improvements that 
benefit each side.
  If the contractor can show on time cost control production, they will 
have a chance, as I have indicated, at further production. We are not 
going to know the answers until the fall of 1995, until we have a C-17 
reliability data and contractor performance to examine.
  But we should not waste the over $6 billion spent for the development 
and the production so far by walking away from this agreement that we 
directed that the DOD negotiate. That is the irony involved. They have 
done precisely what we have asked for, and now we this year come back 
and say take it away; it is not good enough; let us unravel the whole 
package.
  Mr. President, I hope the Grassley amendment will be rejected and we 
will continue to support the C-17 program as negotiated in this 
agreement by the administration.
  I yield the remainder of my time.
  Mr. KENNEDY. Mr. President, how much time remains?
  The PRESIDING OFFICER. The Senator has 63 minutes remaining.
  Mr. KENNEDY. I yield 15 minutes to the Senator from California.
  The PRESIDING OFFICER. The Senator from California is recognized.
  Mrs. FEINSTEIN. Thank you Mr. President. I also thank the Senator 
from Massachusetts.
  Mr. President, I rise to associate myself with the comments just made 
by the Senator from Maine. I rise in strong support of the C-17 
airlifter and in opposition to the Grassley amendment. Stated simply, 
we cannot have it both ways. You cannot be for the C-17 program and not 
support the settlement because you need the settlement to have a 
productive C-17 program.
  I support six more C-17's in the 1995 fiscal year. Early approval of 
funding for eight additional aircraft in the 1996 fiscal year, and 
approval of the comprehensive Defense Department--McDonnell Douglas 
settlement.
  I have personally visited Edwards Air Force Base. I make no bones 
about the C-17. It is important to my State. But more important than 
that is the valid military mission for this plane. I have talked to 
McDonnell Douglas officials. I have received an overview of the flight 
test program from Air Force personnel. I have talked with military test 
pilots who have flown the aircraft, and I have had the loadmaster show 
me the impressive parts of loading the aircraft.

  As a result of my visit and extensive briefing, I concluded that the 
C-17 is a priority program that must continue in order to ensure our 
Nation's national security well into the next century.
  In today's post-cold-war world, it is vitally important to have the 
ability to deliver troops and supplies anywhere in the world--quickly, 
directly, and efficiently. By 1997, 80 percent of the U.S. Army will be 
stationed in the continental United States as we transition to a power 
projection military. Airlift and the C-17 in particular, will be 
crucial to ensure that U.S. Forces can respond to any crisis, whenever 
and wherever they may occur all over the globe.
  The world today, though safer than during the height of the cold war, 
is still a dangerous place. There are currently over 30 armed conflicts 
raging throughout the world--from Yugoslavia to Africa, and from South 
America to the Republics of the former Soviet Union.
  The C-17 is fully capable of meeting our future airlift needs. 
Whether delivering tanks to help counter an armed invasion; delivering 
troops to the front lines; or delivering emergency relief supplies to 
disaster victims here at home, the C-17 can deliver.


                  the unique capabilities of the c-17

  The unique capabilities of the C-17 are unmatched by any other 
aircraft in the world today.
  The C-17 is capable of direct delivery. Unlike the C-5, C-141, or C-
130 cargo aircraft, the C-17 can take off from an airfield in the 
United States with a full load of equipment or troops, and through 
aerial refueling, the C-17 can deliver its cargo to small airfields 
near the front lines--landing on unimproved runways as short as 3,000 
feet.
  Some will say, the C-5 can too. I am told that is not correct. The C-
5 and the C-141 must land at larger airfields, and then transfer 
equipment to smaller aircraft or land transport vehicles. And the C-130 
does not have the range to provide direct delivery nor the cargo size 
to deliver large amounts of equipment. Though similar in external size 
to the C-141, the C-17 can carry twice the cargo. Though smaller than 
the massive C-5, the C-17 has a more efficient cross section and is 
able to carry two trucks side by side.
  And though the C-130 can also land on short runways, the C-17 carries 
four times as much cargo. The C-17 is the only airlift aircraft capable 
of meeting all of these core military capabilities that must be met by 
any airlift modernization program.
  The C-17 is also a cost-effective investment, as fewer personnel are 
required to operate it than other cargo aircraft--only a pilot, a 
copilot, and one load master are needed. Because of the superior 
technology of the aircraft, including a heads-up display and full fly-
by-wire controls, the C-17 is the most technologically advanced 
airlifter in the world today. As one Air Force test pilot--a woman, as 
a matter of fact--recently told me, flying the C-17 is a pilot's dream.
  The time is right for the C-17, as America needs a new airlifter. The 
other cargo aircraft in our current fleet--the C-5A's, C-141's, C-
130's--are 20 years old. These older aircraft are on their last leg. 
Production of the C-17 is essential to modernize our airlift 
capabilities to meet our future national security needs.

  Let me talk for a moment about civilian and military support.
  Our Nation's civilian and military leaders also strongly support the 
C-17 program, from the President on down to the regional commanders in 
chief:

       The C-17's capabilities are crucial to the Air Force's 
     ability to deliver and sustain forces in support of theater 
     commanders. The C-17 can carry outsize cargo to give early 
     forces firepower; it can deliver its cargo into remote 
     locations with short runways; and it has the ability to 
     airlift heavy equipment, supplies and troops * * *. There 
     will be certain core capabilities that can only be provided 
     by the C-17.--May 23, 1994 letter to Speaker Foley.

  Defense Secretary Perry and Deputy Secretary Deutch:

       Our war fighting CINC's must have the capability to project 
     and sustain forces worldwide * * *. The C-17 is the only 
     airlifter in production that meets these core military 
     requirements.--June 21, 1994 joint letter to Senator 
     Feinstein.

  Chairman of the Joint Chiefs of Staff, General Shalikashvilli:

       America must have a core airlifter to replace the aging C-
     141. The continuing myths of a service life extension program 
     for the C-141 or the ability of a commercial derivative to 
     meet the needs of a core airlifter are just that--myths. 
     Neither aircraft can carry the equipment to forward areas 
     that the Army needs to win on tomorrow's battlefield. There 
     may be a future role for a commercial derivative to 
     supplement a core airlifter, but a CONUS-based force that 
     lacks a core airlifter is a hollow force. Today there is only 
     one alternative that can meet the requirements of a core 
     airlifter--the C-17.--May 17, 1994 letter to Senator Nunn.

  Army Chief of Staff, General Sullivan:

       The C-17 will provide the Air Force the capability to 
     deliver critical Army ``out-sized loads'' while allowing 
     access to 9,000 more runways (an increase of 300%) worldwide 
     than the C-141 and C-5. The C-17 can land on the same runways 
     as the C-130 and deliver four times the cargo weight. Equally 
     important, the C-17 will improve throughput capacity, or 
     rapid off-load and turn-around on the ground, by increasing 
     the ``maximum on ground'' or MOG capacity. The performance 
     characteristics of the C-17 will permit 8 C-17's to fit where 
     3 C-5's fit. Had we had the C-17 during Desert Shield, we 
     could have delivered the first airborne brigade in 54 hours 
     with just 93 aircraft--an improvement of some 34% over the 82 
     hours it took to deliver that brigade with 158 C-141's and 2 
     C-5's.--May 17, 1994 letter to Senator Nunn.

  As the President, Secretaries of Defense, and military leaders have 
stated, the C-17 program is vitally needed to ensure adequate airlift 
capability for the future and to help protect America's vital national 
interests.


                               settlement

  Just as important as the authorization of actual C-17 aircraft, is 
approval of the comprehensive Defense Department/McDonnell Douglas 
settlement. As both Secretary Perry and Deputy Secretary Deutch have 
said, for the Pentagon to proceed with its airlift strategy, approval 
of the settlement agreement is needed.

       The settlement removes the gridlock that paralyzed the C-17 
     program for years and protects the Department's interests on 
     business issues and contractual claims. It gives the program 
     a fresh start while holding the contractor strictly 
     accountable for improving its performance.

  The settlement is a comprehensive agreement that must be taken as a 
whole. It is a package--different elements should not be scrutinized 
separately. As the Defense Science Board states, it is ``an overall 
consolidated settlement'' that has pros and cons for both the Defense 
Department and McDonnell Douglas. This is in no way a bail-out for the 
contractor. Yes, the cost to the Government is $348 million. But, the 
cost to the contractor is even more, $454 million.
  Let me quote from, what I believe, is a very credible source, the 
deputy inspector general of the Defense Department, whose office has 
been very critical of the C-17 program in the past. This is from a June 
3 letter to the Armed Services Committee:

       I believe that it is essential that the settlement 
     agreement be approved as part of any decision to continue 
     purchasing C-17 aircraft and to continue the course of action 
     out-lined by Deputy Secretary Deutch to the Congress on the 
     future of military airlift. * * *
       The settlement resolves all major outstanding issues and 
     prevents a lengthy and expensive court battle. These legal 
     proceeding could be costly even if the Government were to 
     prevail on all issues, which is of course highly unlikely. * 
     * *
       Failure to approve the settlement agreement will leave the 
     program with a management environment that is not working and 
     the prospect of wasting millions of dollars in litigation.

  The settlement agreement is an integral part of the C-17 program and 
the Pentagon's plan to move forward with airlift modernization. To 
oppose the settlement agreement, would be to oppose the C-17 program 
and jeopardize the future of our military airlift.


                            economic impact

  Let me talk about the economic impact of the C-17 program nationally 
and in California.
  Nationally, more than 100,000 people are employed as a result of C-17 
production. In my State of California, 35,000 jobs are dependent on the 
C-17 program. These are good, high-wage jobs. Not minimum wage jobs, 
but jobs that pay between $30,000 and $40,000 a year. People can raise 
a family and, yes, buy a home. They are mostly blue collar jobs--good 
paying jobs.
  As you know, California has been hit hard by defense downsizing. More 
than 250,000 defense-related jobs have been lost in California in just 
the last 2 years. The State is still in the depths of a recession from 
which most of the country has already recovered.
  The nearly 800 California companies that help produce the C-17 and 
the over $153 million in C-17 contracts that are directed at 
California, are crucial to my State's economy.


                               conclusion

  I realize that the C-17 has been the subject of controversy over the 
past year or two, and that many allegations have been raised concerning 
the program. The program is currently on probation and needs to 
continue on track until November 1995, when Secretary Deutch will 
review the program and make a determination on how to proceed. But to 
reach that point, the President's budget request must be approved in 
full.
  Full authorization of the six aircraft in fiscal year 1995, long-lead 
for eight aircraft in fiscal year 1996 and approval of the settlement 
is crucial to ensure that the Pentagon can go forward with its airlift 
modernization strategy.
  As I have pointed out, there is clearly a need for the C-17. Its 
unique capabilities are unmatched by any other cargo aircraft in the 
world today. Our Nation must invest in a new, state-of-the-art 
airlifter to assure our national security in the post-cold-war world.
  America needs a cargo aircraft that can provide superior airlift 
capability well into the next century. America needs a cargo aircraft 
that can deliver troops and supplies anywhere in the world, quickly and 
directly. America needs the C-17.
  I urge my colleagues to support the Grassley amendment and support 
the C-17 program.
  I ask unanimous consent that several letters in support of the C-17 
program and settlement agreement be printed in the Record at this time.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                     The Secretary of Defense,

                                    Washington, DC, June 21, 1994.
     Hon. Dianne Feinstein,
     U.S. Senate,
     Washington DC.
       Dear Senator Feinstein: The Fiscal Year (FY) 1995 National 
     Defense Authorization bill (S. 2182) reported by the Senate 
     Armed Services Committee supports our commitment to airlift 
     modernization by funding the C-17 and approving the C-17 
     settlement agreement. As the Senate continues consideration 
     of S. 2182, we urge you to support the Committee position on 
     the C-17 and the settlement agreement.
       Our warfighting CINCs must have the capability to project 
     and sustain forces worldwide. To do this they need a 
     survivable airlifter that can deliver outsize cargo to remote 
     locations with austere fields; and it must be able to airdrop 
     heavy equipment, supplies, and troops. The C-17 is the only 
     airlifter in production that meets these core military 
     requirements.
       We developed an integrated strategy to meet our airlift 
     requirements after comprehensively reviewing the C-17 program 
     and the airlift needs of our combatant commanders. The 
     necessary first step is to continue the C-17 program on a 
     probationary basis to obtain 40 C-17s.
       If McDonnell Douglas proves it can deliver quality 
     aircraft, on time, at an affordable price, we will have 
     positioned ourselves to acquire additional C-17s. The second 
     step is to assess the capabilities and costs of non-
     developmental alternative aircraft.
       For us to proceed with our airlift strategy, we need 
     approval of the settlement agreement. As the Deputy Inspector 
     General of the Department of Defense, Mr. Derek J. Vander 
     Schaaf, expressed to the Senate Armed Services Committee, it 
     is essential that the settlement agreement be approved as 
     part of any decision to continue purchasing the C-17 and to 
     continue our strategy on future military airlift.
       The settlement removes the gridlock that paralyzed the C-17 
     program for years and protects the Department's interests on 
     business issues and contractual claims. It gives the program 
     a fresh start while holding the contractor strictly 
     accountable for improving its performance.
       For these reasons we request that you and your colleagues 
     support the Senate Armed Services Committee and our airlift 
     strategy when finalizing the FY 1995 defense bill.
           Sincerely,
     John M. Deutch,
                                      Deputy Secretary of Defense.
     William J. Perry,
                                             Secretary of Defense.
                                  ____

                                                Inspector General,


                                        Department of Defense,

                                      Arlington, VA, June 3, 1994.
     Hon. Edward M. Kennedy,
     Chairman, Subcommittee on Regional Defense and Contingency 
         Forces, Committee on Armed Services, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: I am writing at the request of Deputy 
     Secretary of Defense John Deutch regarding the C-17 
     settlement agreement. I and seven members from our audit 
     staff participated in a Defense Science Board review of the 
     C-17 program that ultimately led to the settlement proposal 
     that is now under consideration by the Senate Armed Services 
     Committee.
       Prior to participating in the program review, our office 
     had issued a number of reports highly critical of the C-17 
     program. A central theme in those reports was the lack of a 
     candid assessment of the status of the program and its 
     continued cost-effectiveness in light of significant cost, 
     schedule and performance problems. In an effort to correct 
     those deficiencies, we made a series of recommendations in a 
     May 1992 audit report prepared in response to a request by 
     the Senate Armed Services Committee. We recommended that a 
     comprehensive cost and operational effectiveness analysis of 
     the C-17 program and a Defense Acquisition Board program 
     review be conducted prior to award of additional production 
     contracts.
       Our recommendations were not accepted by DoD management at 
     that time. However, the essence of the recommendations were 
     embodied in the FY 1993 DoD Authorization Act. Efforts by the 
     new Defense Management Team to comply fully with the Act, 
     together with acknowledgement of the seriousness of the C-17 
     problems, became the basis for formation of the special 
     Defense Science Board Task Force on the C-17 program.
       While we found no basis to withdraw any of our previous 
     criticism of the C-17 program during our work in support of 
     the Defense Science Board Task Force, we were encouraged 
     by the candid assessments of problems and the diligence 
     with which corrective actions were sought and pursued. The 
     course of action outlined by DoD management to complete 
     the C-17 flight test program--an indepth assessment of 
     nondevelopmental aircraft and a comprehensive cost and 
     operational effectiveness analysis--should provide a sound 
     basis for rendering decisions on fulfilling future airlift 
     requirements in the most prudent manner.
       However, I believe that it is essential that the settlement 
     agreement be approved as part of any decision to continue 
     purchasing C-17 aircraft and to continue the course of action 
     outlined by Deputy Secretary Deutch to the Congress on the 
     future of military airlift. The C-17 program is not viable 
     without substantial change and resolution of numerous program 
     management and contracting issues. For example, issues over 
     range, payload and other performance requirements need to be 
     settled--pending claims and counterclaims will prove to be a 
     significant drag on the program. It is also essential that 
     issues over who will pay for the lengthened flight test 
     program and RDT&E costs that have been charged to production 
     contracts be resolved now.
       The settlement resolves all major outstanding issues and 
     prevents a lengthy and expensive court battle. These legal 
     proceedings could be costly even if the Government were to 
     prevail on all the issues, which is of course highly 
     unlikely. It is hard enough to manage a program of the C-17's 
     size, complexity and problems. It is next to impossible if 
     the Government and the contractor are in court arguing over 
     costs incurred under a fixed price contract that is at least 
     $1.2 billion over ceiling but is still supposed to serve as 
     the operative document under which the program is managed.
       Failure to approve the settlement agreement will leave the 
     program with a management environment that is not working and 
     the prospect of wasting millions of dollars in litigation. I 
     see the settlement agreement as a sensible business 
     arrangement in which McDonnell Douglas incurs additional 
     costs of $454 million, recognizes some of its 
     responsibilities for the C-17 shortcomings, and agrees to 
     modernize its engineering and management systems. The 
     Government spends $348 million and ensures that we complete 
     the test program that will ultimately prove the viability/
     nonviability of the C-17 and settle all outstanding claims 
     while paying a relatively small percentage of the needed 
     contractor management improvements.
       Should the Congress approve the settlement agreement, we 
     are prepared to ensure that the agreement is implemented as 
     approved and provide regular independent reports to the 
     Committee on its implementation.
       If we may be of further assistance, please contact me or 
     Mr. John R. Crane, Office of Congressional Liaison, at (703) 
     614-0491.
           Sincerely,
                                           Derek J. Vander Schaaf,
                                         Deputy Inspector General.
                                  ____



                                  Deputy Secretary of Defense,

                                     Washington, DC, June 6, 1994.
     Hon. Sam Nunn,
     Chairman, Committee on Armed Services, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: I want to take the opportunity to 
     reaffirm our commitment to airlift modernization. To provide 
     a coherent airlift acquisition strategy, we request that the 
     Committee approve the President's Budget Request for airlift 
     modernization and approve the settlement agreement.
       The warfighting CINCs speak with one voice on their 
     requirement for airlift. They must have the capability to 
     project and sustain forces worldwide. To do this they need a 
     survivable airlifter that can deliver outsize cargo to remote 
     locations with austere fields; and airdrop heavy equipment, 
     supplies, and troops when necessary. The C-17 is the only 
     airlifter in production that meets these core military 
     requirements.
       As I testified before the Subcommittee on Regional Defense 
     and Contingency Forces, after comprehensively reviewing the 
     C-17 program and the airlift issue, we developed an 
     integrated strategy to meet our airlift requirements. The 
     first element is to continue the C-17 program on a 
     probationary basis to obtain 40 aircraft.
       If McDonnell Douglas proves during the probationary period 
     that it can deliver quality aircraft, on time, at an 
     affordable price, we will have positioned ourselves to 
     acquire additional C-17s. The second element is to assess the 
     capabilities and costs of non-developmental alternative 
     aircraft.
       The assessment of alternative aircraft is crucial to our 
     airlift strategy. We have airlift needs that can be met with 
     either a core military airlift aircraft or with commercial 
     wide-body aircraft for those airlift missions that do not 
     require unique military capabilities. The assessment will 
     help us determine the capability of alternative aircraft and 
     the cost.
       As part of the assessment, the Air Force will develop a 
     draft request for proposal (RFP) in August 1994 with industry 
     consultation and will issue a final RFP in March 1995. The 
     RFP will contain mission scenarios and will ask contractors 
     to propose their solutions to the mission scenarios. The RFP 
     will provide for full and open competition and will permit 
     contractors to propose various solutions for evaluation, 
     including new commercial aircraft, a restart of C-5 
     production, commercial wide-body aircraft, and use of 
     remanufactured used aircraft. We will then use the 
     information from the contractors' responses to the RFP as 
     an input to our airlift force structure decision in 
     November 1995. At the same time, the Department is 
     committed to the approach outlined in the settlement 
     agreement--continue the C-17 program but retain the 
     flexibility to move quickly to an alternative should the 
     C-17 program not meet our requirements at an affordable 
     price.
       For us to proceed with our airlift strategy, we need 
     approval of the settlement agreement. The settlement removes 
     the gridlock that paralyzed the C-17 program for years and 
     protects the Department's interests on business issues and 
     contractual claims. It gives the program a fresh start while 
     holding the contractor strictly accountable for improving its 
     performance.
       The settlement agreement has been criticized by the GAO as 
     lacking in specific, quantified cost, schedule, and 
     performance criteria. I disagree. Such criteria do exist and 
     can be described in three parts.
       First, through our cost and operational effectiveness 
     analysis we have defined our overall airlift requirements. 
     These are currently being reviewed as part of the Mobility 
     Requirements Study Bottom-Up Review Update. The results of 
     this review will feed directly into the Congressionally-
     mandated comparative C-17/Non-/Developmental Airlift Aircraft 
     cost and operational effectiveness analysis that will support 
     the November 1995 Defense Acquisition Board.
       We also have a definition of the criteria involving the 
     cost, schedule and performance of the C-17 aircraft. These 
     include specific unit target costs and schedule criteria that 
     have been established on current contracts and will be 
     established as future contracts are awarded; and schedule and 
     performance criteria in the Acquisition Program Baseline and 
     in statute in the National Defense Authorization Act for FY 
     1994.
       Finally, regarding the contractor's ability to build 
     quality aircraft on a modern assembly line, the settlement 
     agreement provides clear direction for improvements in 
     producibility and factory modernization.
       For these reasons, we urge your support of the President's 
     Budget Request for airlift modernization and approval of the 
     settlement agreement.
           Sincerely,
                                                      John Deutch.
                                  ____

                                                   Chairman of the


                                        Joint Chiefs of Staff,

                                     Washington, DC, May 17, 1994.
     Hon. Sam Nunn,
     Chairman, Committee of Armed Services, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: As I look into the future, it is clear 
     that America's combatant commanders will become increasingly 
     dependent upon strategic mobility. This mobility will 
     continue to be based on an integrated triad of air, sea and 
     surface capabilities. Despite the fact that two of these 
     transportation modes are in relatively good condition with 
     bright prospects for the future, I am deeply concerned that 
     recent congressional actions may seriously degrade our 
     airlift capability and ultimately threaten the viability of 
     the entire strategic mobility system.
       America must have a core airlifter to replace the aging C-
     141. The continuing myths of a service life extension program 
     for the C-141 or the ability of a commercial derivative to 
     meet the needs of a core airlifter are just that--myths. 
     Neither aircraft can carry the equipment to forward areas 
     that the Army needs to win on tomorrow's battlefields. There 
     may be a future role for a commercial derivative to 
     supplement a core airlifter, but a CONUS-based force that 
     lacks a core airlifter is a hollow force.
       Today there is only one alternative that can meet the 
     requirements of a core airlifter--the C-17. We have all been 
     frustrated with the repeated setbacks in the program, but we 
     must not let this frustration obscure the facts. We now have 
     an agreement in hand that allows us to test the capabilities 
     of the airplane to meet warfighting requirements of America's 
     combatant commanders and the capability of the program to 
     meet efficiency and quality standards America's taxpayers 
     deserve.
       I ask for your support of the President's Budget Request 
     for six C-17s in FY95, and for the reliability, 
     maintainability, and availability and operational testing 
     programs. Without the former, the program will not have the 
     opportunity to demonstrate its significant improvements and 
     production efficiencies. Without the latter, the C-17 will 
     not be challenged to demonstrate its capabilities in the most 
     rigorous testing program ever devised for an airlifter. 
     Without your support, the program will be guaranteed to fail. 
     We must not let this happen on our watch.
       With best wishes,
           Sincerely,
                                            John M. Shalikashvili,
                            Chairman of the Joint Chiefs of Staff.

                                  ____

                                                        U.S. Army,


                                           The Chief of Staff,

                                                     May 17, 1994.
     Hon. Sam Nunn,
     Chairman, Armed Services Committee, U.S. Senate, Washington 
         DC
       Dear Mr. Chairman: By 1997, 80% of America's Army will be 
     stationed in the continental United States as we complete our 
     transformation to a power projection Army. Our capability to 
     lift the Army's heavy equipment by air and sea must keep pace 
     with our changing requirements. This Nation must have the 
     strategic lift capabilities to project power rapidly to any 
     potential trouble spot in the world. We must get our forces 
     to the fight.
       Early arriving lethal combat power is the key to our joint 
     warfighting capability. The Congressionally mandated Mobility 
     Requirements Study generated the need for delivery of 
     ``outsized cargo'' prior to the arrival of the fastest 
     sealift. For the Army, this means armor, rocket systems, 
     helicopters, and attack missiles. These weapon systems won't 
     fit on any commercial aircraft--nor will they fit on most 
     military airlifters in service today. Future air-deployable 
     Army combat units will rely increasingly on the availability 
     of airlift to carry this type of cargo.
       The C-17 will provide the Air Force the capability to 
     deliver critical Army ``outsized loads'' while allowing 
     access to 9,000 more runways (an increase of 300%) worldwide 
     than the C-141 and C-5. The C-17 can land on the same runways 
     as the C-130 and deliver four times the cargo weight. Equally 
     important, the C-17 will improve throughput capacity, or 
     rapid off-load and turn-around on the ground, by increasing 
     the ``maximum on the ground'' or MOG capacity. The 
     performance characteristics of the C-17 will permit 8 C-17's 
     to fit where 3 C-5's fit. Had we had the C-17 during Desert 
     Shield, we could have delivered the first airborne brigade in 
     54 hours with just 93 aircraft--an improvement of some 34% 
     over the 82 hours it took to deliver that brigade with 158 C-
     141's and 2 C-5's.
       Finally, I am concerned about our joint capabilities for 
     forced entry operations. In the Gulf War, we enjoyed the 
     luxury of time and deployment to a country with secure and 
     modern air and seaports. This may not always be the case. 
     While the aging C-141 fleet helps the Army fulfill this 
     requirement today, we will need the C-17 to provide the 
     strategic airlift for troops and equipment to provide our 
     forced entry capability and simultaneous application of joint 
     combat power across the depth of the battlefield in the 21st 
     century.
       Mr. Chairman, I fully appreciate the concern over the 
     troubled history of the C-17 acquisition program. However, I 
     urge you to stay the course outlined by the Secretary of 
     Defense earlier this year. The C-17 is the only aircraft that 
     can get the Army's outsized combat systems to the next war 
     when required. I respectfully solicit your support to 
     maintain the President's request for the FY 1995 funding for 
     the C-17.
           Respectfully,
                                               Gordon R. Sullivan,
                                               General, U.S. Army.
                                  ____

                                             U.S. Central Command,


                             Office of the Commander in Chief,

                         MacDill Air Force Base, FL, June 3, 1994.
     Hon. Sam Nunn,
     Chairman, Committee on Armed Services, Russell Senate Office 
         Building, Washington, DC.
       Mr. Chairman: As you know I am concerned and have been 
     critical of the current state of America's airlift forces. 
     However, I am even more concerned about our future ability to 
     project US forces by air.
       As our forces are returning from overseas and increasingly 
     based in the CONUS, I become the CINC faced with the most 
     strenuous requirement for mobility in the world. In the 
     CENTCOM theater, because of the long deployment distances, we 
     are particularly sensitive to, and dependent on, our ability 
     to ensure the timely deployment of the early arriving lethal 
     firepower--key to limiting the escalation of a conflict. This 
     means armor, helicopters, rocket systems, and air defense 
     missiles, most of which do not fit on any commercial 
     aircraft. Only the C-17 and C-5 can deliver this requirement.
       In addition, during the Gulf War, we were able to deploy in 
     a country with secure air and sea ports. In this scenario, I 
     have said we could be well served by the effectiveness of 
     large commercial type aircraft moving large amounts of bulk 
     cargo, particularly during the sustainment phase of an 
     operation. However, I do not feel this will be the case in 
     the early surge phase of future operations.
       We must ensure that all CINCs have the flexibility to 
     conduct deployment operations given any set of theater 
     constraints. In the foreseeable future only the C-17, acting 
     as the Nation's core military airlifter, can provide us this 
     flexibility.
       Mr. Chairman, CENTCOM is dependent on the country's 
     mobility system. We need the C-17. I urge you to support the 
     modernization of the nation's strategic airlift as proposed 
     by the Secretary of Defense and requested by the President in 
     his FY 1995 budget.
                                                        J.P. Hoar,
                                       General, U.S. Marine Corps.
                                  ____

     Hon. Sam Nunn,
     Chairman, Committee on Armed Services, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: I want to take the opportunity to affirm 
     my personal support, as well as the support of the other four 
     senior members of the C-17 Defense Science Board Task Force, 
     for the comprehensive settlement between the Department of 
     Defense and the McDonnell Douglas Corporation. A key 
     recommendation of last Summer's C-17 Task Force was ``. . . 
     to implement a solution in which all contractual issues, 
     claims and program deficiencies are combined and implemented 
     as a consolidated settlement.'' This recommendation has 
     clearly been accomplished with this settlement.
       It should also be recognized that the settlement proposed 
     by the task force was carefully adjusted by Mr. Deutch to 
     significantly shift more of the financial burden of the 
     settlement from the government to the contractor. This 
     involved reducing the government financial liability by $37.5 
     million and increasing the contractor financial liability by 
     $137.5 million. All other elements of the task force proposed 
     settlement remain essentially intact, thus helping to provide 
     a basis for successful program execution.
       I recognize that enactment of authorizing language by the 
     Congress is a necessary prerequisite that must be satisfied 
     before this settlement becomes binding on the Department of 
     Defense or on McDonnell Douglas. I strongly and respectfully 
     urge you to support enactment of such language.
           Sincerely,
                                                 Robert A. Fuhman,
                                 C-17 DSB Task Force, Co-chairman.
                                  ____



                                              The White House,

                                         Washington, May 23, 1994.
     Hon. Thomas S. Foley,
     House of Representatives,
     Washington, DC.
       Dear Mr. Speaker: As the House of Representatives continues 
     its consideration of H.R. 4301, the National Defense 
     Authorization Act of FY 1995, I want to re-emphasize the 
     critical importance of the C-17 to this Nation's strategy and 
     force posture.
       The C-17's capabilities are crucial to the Air Force's 
     ability to deliver and sustain forces in support of theater 
     commanders. The C-17 can carry outsize cargo to give early 
     forces firepower; it can deliver its cargo into remote 
     locations with short runways; and it has the ability to 
     airdrop heavy equipment, supplies and troops. The C-17 is the 
     only aircraft that can meet these core military requirements. 
     Thus even with a ``mixed'' strategic airlift enhancement 
     program that includes procurement of nondevelopmental 
     aircraft, there will be certain core capabilities that can 
     only be provided by the C-17.
       The House Armed Services Committee recommended reducing the 
     C-17 production rate from six aircraft to four aircraft for 
     fiscal year 1995. Such a reduction would drastically undercut 
     the Department of Defense's strategy to control costs and 
     resolve program deficiencies. After consultation with outside 
     experts, the Defense Department determined the C-17 meets 
     essential airlift requirements and is affordable. A reduction 
     to four aircraft in 1995 would increase the annual unit costs 
     by $40-50 million, cause at least 8,000 layoffs over the next 
     two years, and undermine program stability at a time we are 
     holding the contractor's feet to the fire for cost and 
     schedule performance. Our careful evaluation of contractor 
     performance will lead to a decision in November 1995 on full 
     rate production and procurement of non-developmental 
     aircraft.
       For these reasons, I urge Congress to support the amendment 
     to be offered by Representative Harman and others to restore 
     our Budget Request for six C-17s in FY95.
           Sincerely,
                                                     Bill Clinton.

  Mr. GRASSLEY. Mr. President, I yield myself such time as I might 
consume.
  The PRESIDING OFFICER. The Senator from Iowa is recognized.
  Mr. GRASSLEY. Mr. President, I have had an opportunity to listen to 
four of my distinguished colleagues, the Senator from South Carolina, 
the Senator from Massachusetts, and now the junior Senator from 
California, and the Senator from Maine. They have talked very well, and 
I agree 99 percent with what they say, because they have spent most of 
their time justifying the need for the C-17.
  As I said in the beginning, I have no quarrel with the C-17. There is 
money in this bill to buy six C-17's. My amendment has nothing to do 
with the decision to buy six C-17's.
  I am talking about this agreement, and I would like to have my 
colleagues who are in opposition to my amendment focus upon the 
agreement.
  I have said that the C-17 can go forward without this agreement. I 
say the C-17 can go forward without this agreement because we have 
money in the bill to go forward with the C-17. I am just saying that we 
should not be spending $348 million to bail out McDonnell Douglas, a 
cash payment to McDonnell Douglas. I have heard fine justifications for 
the C-17. I agree with that.
  But my colleagues have not spoken to the agreement. My colleagues 
have not said why, if we do not have this agreement, we still cannot 
purchase those six C-17's.
  Now, as I said, this is a cash infusion of taxpayers' money into 
McDonnell Douglas.
  I want to read a May 6, 1994, article. By the way, in my previous 
time on the floor, I said I had quoted from the Wall Street Journal. 
That needs to be corrected. The source of my information was the 
Financial Times. But I want to give you a summary of that from Reuters' 
entitled ``McDonnell Douglas Looking at Possible Acquisitions.''

       ``The McDonnell Douglas Corporation with an increased 
     amount of cash in its coffers is looking at possible 
     additions to its military business,'' the company chairman 
     John McDonnell said yesterday after the annual meeting.
       ``Up to now we really could not consider acquisition or 
     major investments in our core business.''

  Continuing the quote:

       ``Now we are in a position that we can take advantage of 
     opportunities either in the form of acquisition or internal 
     investments in our core businesses. We intend to be doing 
     that.''

  That is the end of quote, but going on, according to Reuters:

       In the first quarter alone McDonnell Douglas increased cash 
     and cash equivalents for aerospace operations from $215 
     million to $230 million as of March 31.

  There is a major corporation in America who, its CEO says, is looking 
at making major acquisitions. We are talking about here whether or not, 
because of mistakes that the company had made, even considering the 
cooperation of our Government to rewrite the specs four times to meet 
the plane rather than building the plane to meet the specs, they should 
have $348 million of taxpayers' money.
  I do not think it is justified. I do not think that my colleagues 
have made the case of why we cannot go ahead with the C-17 program and 
not have this agreement and finance this agreement to the tune of $348 
million.
  I think I need to respond to the points raised by my colleagues from 
these States on another point, that Congress, as they said correctly, 
last year did direct the Department of Defense to evaluate the 
restructure of the C-17 program. I do not dispute that, but at no time 
did we say that we had to bail out the program.
  Based on my reading of the documents, at that time we had McDonnell 
Douglas over the barrel. We had leverage to get the program back on 
track, like Congress said last year. But in the meantime with all these 
negotiations, we have changed places with the company, and now it is 
the taxpayers that happen to be over the barrel.
  This is not, in my view, a realistic response given the mismanagement 
of this program. I support the program, the C-17 program, but not this 
settlement, and this settlement is not necessary to move forward with 
the C-17 program.
  The issue is the settlement. The issue on this floor, the issue of my 
amendment, is the settlement, not whether or not we should have the C-
17 program.
  I think that this is the proper solution. If you asked my advice what 
I think should be done on this, if the C-17 does not meet contract 
specs, then McDonnell Douglas should be made to either correct the 
problem or to repay the Government a reasonable sum of money for lost 
performance. If McDonnell Douglas refuses to do that, then I think the 
contract should be terminated by default.
  On another comment, it was said that this settlement reflects the 
Government acting more like business, and we should, I suppose, 
compliment that if that were in fact the case. But as I view this, it 
is more like business as usual as far as our relationships with the 
military industrial complex.
  I would like to explore then, because I want to keep the focus on the 
agreement, not on the C-17 program, why this is a bad deal.
  In my first remarks on my amendment I provided an overall assessment 
of the proposed C-17 settlement agreement. My amendment would strip out 
the C-17 agreement in the bill that would give McDonnell Douglas a $348 
million direct cash payment.
  I also stated that I had three specific complaints about the 
settlement agreement.
  First, there is the cost mischarging scheme.
  The C-17 cost mischarging scheme gets a quasi-blessing under the 
Deutch plan.
  It is referred to as the charging-sustaining-engineering cost in the 
settlement agreement.
  The cost mischarging scheme is documented in two DOD IG reports: 
``Audit of Contractor Accounting Practice Changes for C-17 Engineering 
Costs,'' Report No. 92-046, February 13, 1992; and ``Government Actions 
Concerning McDonnell Douglas Corporation Financial Condition During 
1990,'' January 1993.
  When all fiscal year 1990 R&D money for the C-17 was exhausted on or 
about October 1, 1990, the Air Force and company officials arbitrarily 
agreed to shift R&D costs and work-to-production contracts that were 
fat on cash.
  This was the infamous journal voucher transfer operation that I have 
spoken about many times in morning business over the last several 
months on the floor. This journal voucher transfer operation 
temporarily prevented a cost overrun on the R&D contract. It made 
McDonnell Douglas appear to be performing well. It hid the cost overrun 
and made the company look good. That was before this present good 
financial condition of McDonnell Douglas as I just quoted from the 
Financial Times.
  This deception, meaning the journal voucher transfer, facilitated a 
steady flow of cash and the award of follow-on contracts.
  Had the true cost picture been known up front, the payments might 
have stopped.
  As a result of this retroactive accounting change, at least $172 
million in R&D costs were reallocated to production lots.
  This procedure violated Federal statutory law: the Anti-Deficiency 
Act, section 1517 of title 31 of the United States Code; and the 
Purposes Act, section 1301 of title 31 of the United States Code.
  The illegal practice continues today on C-17 contracts.
  Eventually, $500 to $600 million in R&D expenses will have to be 
moved back to the R&D contract where they belong.
  Sadly, there is no more R&D money left over to cover these expenses. 
The ceiling on the R&D contract was busted a long time ago. McDonnell 
Douglas will have to pick up the tab, unless Uncle Sugar provides some 
extraordinary relief.
  And that brings me back to the settlement agreement.
  The agreement identifies $171 million in C-17 R&D costs that were 
mischarged to production contracts.
  Under the agreement, these costs must now be charged to the R&D 
contract.
  As I said a moment ago, there is no more R&D money left over to cover 
those costs, not unless the ceiling on the fixed-price R&D contract is 
raised.
  Well, Mr. President, guess what?
  The Deutch plan raises the ceiling on the R&D contract by $237 
million.
  The Deutch agreement provides a direct cash payment of $348 million 
to McDonnell Douglas but does not specify how that money is to be used.
  There are two big-ticket items covered by the agreement: the $234.5 
million to pay for the wing breakout claim and $171 million to correct 
the cost mischarging scheme.
  Who can say that McDonnell Douglas will not use some of the $348 
million cash payment to cover the cost mischarging scheme?
  The wing breakout claim and cost mischarging scheme are treated 
differently under the Deutch plan.
  The $234.5 million for the wing breakout claim is supposedly covered 
by the $348 million cash payment. The cost mischarging scheme is not.
  The $171 million needed to correct the cost mischarging scheme is 
supposedly an expense that McDonnell Douglas is willing to absorb.
  Mr. Deutch wants us to think that the company will have to eat it and 
swallow a bitter pill.
  Under the Deutch plan it is listed as an out-of-pocket expense for 
McDonnell Douglas.
  The Deutch plan may be misleading on that score.
  The GAO has evaluated those expenses and concludes that McDonnell 
Douglas' out-of-pocket expenses are really only $46 million, not the 
$454 million touted by Mr. Deutch.
  I quote from page 5 of the GAO report:

       The stated cost to McDonnell Douglas should be offset by 
     $237 million that the government would add to the target cost 
     and ceiling price of the development contract to settle 
     unspecified contractor claims. In addition, we believe that 
     the $171 million for nonrecurring engineering should also be 
     excluded from the $454 million estimate.
       The $171 million is not additional funding that the 
     contractor will have to provide to implement the settlement, 
     but rather, according to the DOD, full-scale engineering and 
     development costs that the contractor had inappropriately 
     allocated to current and future production contracts. The 
     engineering cost either have been or will be incurred whether 
     or not the settlement is implemented. The proper charging of 
     the nonrecurring engineering costs to the development 
     contract will increase the total cost of that contract.
       However, because the development contract is over ceiling, 
     the contractor would not have been reimbursed for these costs 
     anyway.

  The cost mischarging scheme was used to make a series of illegal 
progress payments to McDonnell Douglas. Those payments violated the 
Purposes Act and the Anti-Deficiency Act.
  Under the law, those violations must be reported and investigated. 
Those responsible must be identified and held accountable.
  These violations occurred between July and December 1990. That was 
just about 4 years ago. Four years have passed, but nothing has 
happened.
  Has the investigation been completed? Well, of course not.
  I do not think we should raise the ceiling on the R&D contract by one 
penny, as the Deutch Plan does, until the DOD IG has conducted an 
independent investigation; identified those responsible for all the 
illegal progress payments to McDonnell Douglas; recovered the money; 
and determined what, if any, disciplinary action is called for.
  I want to really thank the chairman of the committee, Sam Nunn, and 
the ranking Republican, Senator Thurmond, because they are trying to 
help in some of these areas. They have put in very strong language that 
appears on pages 217 and 218 of the committee report regarding the 
proper use of the Antideficiency Act, the investigations connected 
thereto, or at least what investigations are supposed to pursue when 
there is identified a potential illegal expenditure of money, and 
hopefully use that law the way it was intended to be used and hold 
people accountable.
  The committee's proposal in this regard I think will help re-energize 
the Purposes Act and the Antideficiency Act.
  The antideficiency law goes right to the heart of Congress' 
constitutional responsibility to control the purse strings. The 
Department of Defense is violating this law with impunity. That needs 
to be brought to a screeching halt.
  So I compliment the committee for the guidance that they are giving 
to the Department of Defense in this.
  Mr. President, I yield the floor and I ask for an accounting of my 
time.
  The PRESIDING OFFICER (Mr. Akaka). The Senator from Iowa has 50 
minutes and 30 seconds remaining.
  Mr. GRASSLEY. I yield the floor.
  The PRESIDING OFFICER. The Senator from Iowa yields the floor.
  Mr. KENNEDY. How much time does the Senator desire.
  Mr. BOND. Twenty minutes.
  Mr. KENNEDY. I ask unanimous consent that Senator Danforth be 
recognized following the Senator from Missouri.
  How much time would he like?
  Mr. DANFORTH. Twenty minutes.
  Mr. KENNEDY. And that he be recognized for 20 minutes.
  How much time, then, will we have?
  The PRESIDING OFFICER. The Senator from Massachusetts [Mr. Kennedy] 
has 49 minutes and 40 seconds remaining.
  Mr. KENNEDY. Mr. President, I ask unanimous consent that these two 
Senators be recognized in that order for 20 minutes each.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BOND addressed the Chair.
  The PRESIDING OFFICER. The Senator from Missouri [Mr. Bond].
  Mr. BOND. Mr. President, I thank my distinguished colleague from 
Massachusetts, the chairman of the subcommittee.
  I join with him, the ranking Republican, Senator Thurmond, the 
Senator from Maine, and the Senator from California in opposing the 
amendment before us today.
  The committee bill contains a reasoned and appropriate coverage of 
the C-17 issue--including the omnibus settlement--and it should be 
approved by this body. Approval of the Grassley amendment, on the other 
hand, would result in dissolution of the settlement and a likely 
failure of the C-17 program.
  Make no mistake about it. This settlement is critical to going 
forward on the C-17. Without the C-17 settlement, the program is 
fatally crippled and will likely dissolve into a lengthy series of 
litigious actions costing the millions and millions of dollars that the 
A-12 litigation is costing.
  The issue before us is very simple: Are we going to go forward with 
the desperately needed program to modernize our strategic airlift, or 
not? Approval of the bill before us will allow the Defense Department 
to go forward with the modernization plan. Approval of this amendment, 
on the other hand, would likely result in cancellation of the C-17 
program, years of litigation, and a disaster the next time this Nation 
is forced to deploy our troops to an overseas conflict.
  There is no question that we need a new core airlifter. I think 
everybody agrees with that. The C-141 fleet has served well beyond its 
intended period of service. The fleet has already undergone a service 
life extension program, or SLEP, and is now almost constantly under 
restriction or grounded for one problem or another. The average 
aircraft is 27 years old and has almost 37,000 hours of use out of a 
lifetime of 45,000 hours. The simple bottom line is that the C-141 is 
fast coming to the end of its useful service life.
  We must replace that core capability. The Joint Chiefs of Staff have 
laid out a series of requirements that they must have in a core 
airlifter. These include the ability to carry outsize cargo such as 
armored vehicles, air defense systems and helicopters; the ability to 
deliver cargo to austere airfields with short runways and limited ramp 
space; and the ability to air drop cargo.
  I have here a chart which was blown up from a pamphlet provided to me 
by Gen. Ronald Fogleman, commander in chief, U.S. Transportation 
Command, when I visited his command at Scott Air Force Base in 
Illinois.
  The chart gives a detailed review of the capabilities needed in a 
core airlifter.
  The red means it is in the bottom third and cannot do the job; yellow 
means it is in the middle third and in some cases marginal; green means 
it fulfills the job.
  It shows which aircraft can perform them. For those who may not be 
able to use it, this third column over here represents the C-17. The 
critical segments are the combat and the military segments.
  You can see that the C-17 is the only one of all the aircraft--the C-
5, C-141; two commercial wide bodies, probably a 747 and an L-1011; two 
commercial narrow bodies, probably a DC-9 and a 767, or a service life 
extension program C-141.
  The Chairman of the Joint Chiefs of Staff has made clear that that is 
the case--in a recent letter to Senator Inouye he wrote, ``Today there 
is only one alternative that can meet the requirements of a core 
airlifter--the C-17.''
  Now, let us look at a few of these requirements.
  Looking at the combat capabilities, the core airlifter must be able 
to airdrop cargo and troops, perform low-level parachute extraction, 
operate on 3,000 foot runways and unimproved airfields, and have the 
capability to survive in combat. Only the C-17 can do all of these 
things.
  The C-5 cannot do many of them--it was not designed to airdrop troops 
or equipment, it cannot do low-level parachute extraction, it cannot 
operate on 3,000 foot runways or unimproved airfields, and it is not as 
survivable as the C-17. It is a fine aircraft for its intended job--
moving large amounts of equipment to rear staging bases for downloading 
to smaller aircraft--but it cannot replace the C-17.
  Commercial wide-body aircraft cannot perform any of these combat 
requirements. And a SLEPed C-141--which I do not even consider a 
realistic option--cannot perform many of them.
  We see the same situation when we look at the military requirements. 
The core airlifter must have a high throughput--that is the ability 
continuously to deliver large amounts of cargo in a constrained 
environment such as crowded ramps and limited ground support equipment. 
The airlifter must be able to carry outsize and oversize cargo. It must 
have the ability to drive vehicles on and off. It must have air 
refueling capability; it must have limited ground support requirements, 
and configuration flexibility.
  The C-17 has all of these capabilities. No other available aircraft 
does. Commercial aircraft have almost none of them.
  Throughput is going to be a problem if we are operating planes that 
require extensive ground support equipment including tractors to 
maneuver them and loaders to load and unload them. The inability to 
drive vehicles on and off will exacerbate the problem. No commercial 
aircraft is going to be able to meet the outsize and oversize cargo 
requirement. And they certainly do not have air refueling capability.
  So the bottom line then is that if we are going to field a core 
airlifter with the capabilities that our best military minds say we 
need, then we are going to have to field the C-17 or some new, 
undeveloped aircraft. It is clear to me that of those two choices, the 
C-17 is the right choice.
  It makes no sense to go out and try to develop a new aircraft at this 
point. It would almost certainly give us an aircraft that costs more 
than the C-17, is delivered later than the C-17 and provides similar 
capability to the C-17. Instead, we ought to take this program and make 
it work. That is the path that this administration has endorsed, that 
the past administration endorsed, and that the panel of experts 
appointed by the Defense Science Board has endorsed.
  The only other alternative is to give our troops an inadequate 
aircraft--an aircraft that our most senior military leaders have said 
will not be adequate to do the job. I am not willing to do that, and I 
am confident that most of my colleagues are not either.
  I know that the GAO has criticized the C-17 program and the 
settlement and has argued for a fleet of commercial aircraft. If I have 
time later I will answer, point by point, the GAO contentions. I even 
heard a senior member of the House Armed Services Committee suggest we 
should just let UPS get our troops and equipment there. But there is no 
question that our ability to win in future conflicts will be directly 
tied to our ability to respond quickly and in force. That means we have 
to get our front-line troops to the battle quickly and with their 
equipment. That means their Apache and Blackhawk helicopters have to go 
in the first few days; their oversize communications vans have to go; 
they need Patriot missile batteries to protect them from enemy 
ballistic missiles; and they may need armored vehicles or even tanks in 
certain circumstances. UPS simply will not be able to deliver.
  I know that some have looked at our experience in Desert Storm and 
say that it shows we can do the job with aircraft other than the C-17. 
However, there were several factor at work in that conflict that we are 
unlikely to see repeated. First, we were deploying our troops to a 
country that has one of the most modern and extensive systems of 
airfields in the world. We did not have to deal with austere airfields. 
Although I would note we still ran into problems with throughput, ramp 
space, and similar issues. Second, we had an opponent who gave us 
months to build up our force. If we had had to fight Saddam in the 
first few weeks of Operation Desert Shield, we would have had problems 
getting our equipment there because we did not have the C-17.
  I would turn, for just a moment, from the specific issue of the need 
for a new core airlifter, to the more general issue of our overall 
mobility requirements. Mobility issues have been a major topic of 
debate throughout the time I have served in the Senate, and 
particularly since the end of the gulf war. That conflict focused this 
Nation on the importance of moving our forces to a conflict, and on the 
drastic shortfall in our current capability. It appears that there will 
be a significant discussion of mobility issues on this bill.

  The issue of lift is growing in importance with each passing day as 
we continue to draw down our force and as we continue to withdraw our 
troops from their forward bases overseas.
  Focusing on airlift, for the moment. Currently we face a shortfall in 
airlift capability. Even with the aging C-131's in the force, the Air 
Mobility Command is unable to meet the airlift needs that have been 
determined as minimum by the Joint Chiefs of Staff, and it cannot meet 
the requirement of deploying our forces to two nearly simultaneous 
major regional conflicts as the current administration has said we must 
be able to do. In fact, in a recent statement before the House Armed 
Services Committee, Deputy Secretary Deutch said, ``During the Bottom-
Up Review it was clear that strategic lift was the single greatest 
shortage from meeting our ability to deal with two major regional 
conflicts.'' (5/17/94)
  The shortage is so acute that even the full buy of 120 C-17's will 
not alleviate it, however, it will at least get us within a moderate 
level of risk of meeting that requirement.
  The shortfall in our existing capability is particularly acute in the 
ability to move outsize and oversize cargo. These are the items that 
can only be moved by the C-17 and, as I have already stated, these are 
the items that will have to be moved in the first few days of a 
conflict. In fact, Secretary Deutch has said that fully 75 percent of 
the cargo moved in the early weeks of a conflict would be either 
oversized or outsized. (Testimony before HASC, 5/17/94).
  Currently, according to the information I received during a recent 
briefing at TRANSCOM headquarters, we can come nowhere close to 
deploying our troops and their equipment to two MRC's in time to win 
both scenarios. In fact, we would give our opponents in the second 
conflict months in which to move nearly unchallenged because of an 
inability to move our forces on schedule. This focuses--at least in my 
mind--the need for moving forward with deployment of the C-17.
  Let me turn to the issue of the comprehensive settlement, signed last 
year by DOD and McDonnell Douglas. First, let us make clear that the 
settlement which would be vitiated by this amendment deleting the 
bill's funding was not negotiated with McDonnell Douglas. It was a take 
it or leave it offer from the Defense Department to McDonnell Douglas 
and they took it. My colleague from Iowa says he is only concerned 
about the settlement; not the need for the C-17, or for the purchase of 
six C-17's.
  The issue is the C-17 program because if we do not get the 
settlement, then the whole program is at risk. If the settlement is 
denied then McDonnell Douglas would have to pursue its legal claims 
against the Air Force, the program would falter and die and our 
soldiers would be unable to get their equipment to the next conflict.
  The settlement does not, as my colleague from Iowa said, give a $348 
million cash payment to McDonnell Douglas. It gives $234 million plus 
the Government agrees to take on certain ongoing responsibilities.
  This settlement is a reasonable one and it makes sense for all 
parties involved. It was first recommended by a specially-appointed 
Defense Science Board panel of senior experts. It was adopted by the 
current Pentagon leadership which certainly has no ties to this 
program--no reason to defend it other than because it is the right 
thing to do. And it has even been supported by the acting DOD inspector 
general, who has certainly been no friend of the program.
  The Senator from Iowa has cited extensively comments by the IG. The 
IG Mr. Vander Schaaf, in a letter to Senator Kennedy earlier this month 
wrote. ``I believe that it is essential that the settlement agreement 
be approved as part of any decision to continue purchasing C-17 
aircraft and to continue the course of action outlined by Deputy 
Secretary Deutch to the Congress on the future of military airlift.'' 
He went on to say, ``The settlement resolves all major outstanding 
issues and prevents a lengthy and expensive court battle. These legal 
proceedings could be costly even if the Government were to prevail on 
all the issues, which is of course highly unlikely.'' And he goes on 
characterize the settlement as a ``sensible business arrangement.''
  I would just highlight this for my friend from Iowa. This is the 
inspector general speaking--an individual who has been highly critical 
of the C-17, the Air Force and McDonnell Douglas. And someone whom the 
Senator has used as a source for many of his efforts on the floor. He 
has spent a considerable amount of time to study the program, 
testifying before Congress in relation to it--and, he participated in 
the Defense Science Board review. Even he agrees that this settlement 
makes sense.
  Despite what the sponsors of this amendment would have us believe, 
this is not a bail-out for the contractor, and it is not a rip-off for 
taxpayers. It is a reasonable solution for fixing a program that has 
seen its share of trouble, but which is now back on track and working.
  The settlement will resolve all of the lose ends that currently 
threaten the program. It assigns ultimate responsibility for all issues 
to either the contractor or the Government. It eliminates the 
possibility of wide-ranging and lengthy litigation which would cost the 
taxpayers millions, it gets all parties focused solely on making the 
program a success, and it results in our forces getting the aircraft 
they need to defend this Nation.
  There are claims from the contractor of approximately $1.7 billion on 
this program.
  The counsel's office in the DOD has advised me that on average, 
contractors win about 30 cents on the dollar. That is over $500 million 
potential liability to the Federal Government if they do not accept 
this settlement.
  Make no mistake, this settlement is key to the success of the 
program. To quote from the Defense Science Board panel report:

       We believe the C-17 program will be successful if, and only 
     if, the consolidated settlement is executed and the other 
     recommendations detailed in this report are carried out.

  I want my colleagues to understand, you cannot say you support the C-
17 program but do not support the settlement. They go hand in hand. 
They cannot be separated.
  Who said that? The panel was composed of the retired president and 
CEO of Lockheed, the commander of the Aeronautical Systems Center, the 
president of the Aerospace Corporation, the president and general 
manager of the B-2 Division of Northrop, and the chairman and CEO of 
Hughes Aircraft.
  Mr. President, there is another issue that I wish to touch on 
briefly. That is the current status of the C-17 itself. There has been 
a lot of misinformation and hysteria circulated by opponents of the 
program. I think just to be clear, we ought to understand the status.
  McDonnell Douglas has to date delivered 13 aircraft. Six of these are 
being used in the test program; seven are in operation at Charleston 
Air Force Base in South Carolina. The contractor will deliver the next 
aircraft this month.
  The testing program is going forward at a healthy rate. Static ground 
testing to 150 percent has been completed successfully; lifetime 
durability testing has been completed. The aircraft is going to be 
cycled through a second lifetime for 60,000 hours.
  Many numerous achievements have been indicated. The C-17 has 
demonstrated it can back up with payload aboard, turn around on a 90-
foot runway, and offload eleven 10,000-pound pallets without ground 
support.
  I have seen the pictures of it engaged in a low-altitude parachute 
extraction, which is something that the C-17 is unique in being able to 
do.
  It has already set 21 new world flight records. But just as the 
distinguished Senator from California has said, probably the most 
important and persuasive thing about this, when you talk to the people 
who are operating it, when you talk to the loadmaster--that is the guy 
who really delivers the cargo, the person who is responsible for 
getting the packages there--he says: ``This is the best plane that we 
have ever had to allow me to do my job.''
  This is designed to get the payloads in.
  The reports from men and women who operate the C-17 are nothing short 
of glowing. It is a working aircraft. It is in production. Adopting the 
amendment before us today would wipe that progress away. Instead of 
having an operational first squadron in 6 months, we might be looking 
at 6 years or more and a significant degree of litigation.
  That is good news for the lawyers who would fight it out in court, 
but bad news for our national security.
  The C-17 Program is working. Both the Defense Department and the 
contractor have indicated their strong desire to make it a success. 
There is no question that we desperately need the system.
  I urge my colleagues to reject this amendment. Let this plan go 
forward and make the program work; get the C-17 to the men and women 
who need it as quickly as possible.
  The PRESIDING OFFICER. Who yields time?
  Mr. DANFORTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Missouri [Mr. Danforth], is 
recognized.
  Mr. DANFORTH. Mr. President, I strongly oppose the Grassley amendment 
and I support the efforts of the chairman of the subcommittee of the 
Armed Services Committee, Senator Kennedy, and the efforts of the 
ranking member, Senator Cohen, in opposing this amendment.
  Let me say especially that I want to compliment Senator Kennedy for 
the enormous amount of time and attention he has paid to this issue. 
His subcommittee has held hearings on this matter and, in addition to 
the hearings, he has taken the time and the trouble to sit down with 
the appropriate people in the Defense Department, including Deputy 
Secretary Deutch, to go over the C-17 program and this settlement in 
enormous detail.
  I think it is fair to say that Senator Kennedy would not be listed 
among the knee-jerk supporters for every defense spending effort that 
comes before the U.S. Senate. He is a person who is not an automatic 
vote in favor of more and more defense spending. I think when he is 
convinced about the soundness of a program and the soundness of what 
the administration is attempting to do, that in itself is a very strong 
statement about the program and about the solution that has been 
offered by the Defense Department and by this administration.
  Mr. President, there is no dispute before us about the importance of 
the C-17. This is a matter that has been spoken about on the floor of 
the Senate in this debate already. My colleague, Senator Bond, made a 
very strong case about the importance of the C-17, as did Senator 
Kennedy, Senator Cohen, and Senator Feinstein. Senator Grassley himself 
has conceded the importance of the C-17 and, in fact, has told the 
Senate that he supports the C-17. So on both sides of this issue, there 
is agreement on the efficacy of this equipment, of the C-17, and of 
support for the C-17.
  This high regard for this particular aircraft is shared by the 
Department of Defense, and certainly by the Chairman of the Joint 
Chiefs of Staff, who has said:

       Today there is only one alternative that can meet the 
     requirements of a core airlifter: The C-17.

  That is the position of the Joint Chiefs of Staff.
  The Secretary of Defense has said:

       The C-17 is the only airlifter in production that meets 
     these core military requirements.

  So, again, the professional judgment of the Department of Defense and 
the professional judgment of the Joint Chiefs of Staff coincides with 
the views expressed on both sides of this issue on the floor of the 
Senate.
  This is a very important system. That is not to say it has not been a 
troubled system. It has been troubled. It has been troubled because of 
the fact that the contract under which the aircraft was developed--the 
fixed price development contract--created real problems. Those problems 
have been recognized because now there is no such thing as a fixed 
price development contract.
  It is recognized that a fixed price does not go with a development 
contract. The nature of development is that you cannot have a fixed 
price. So the concept of a fixed price development contract is now 
defunct.
  But the problem was incurred under the fixed price development 
contract, and it did create a mess and it did create a major dispute. 
To the credit of the Clinton administration, when it came into office, 
it attempted to unwind this situation somehow to make it right. It 
assigned within the Department of Defense seven different teams to look 
at the C-17 and the contracting problems with the C-17. Those seven 
teams were comprised of 75 individuals, experts on the subject, who 
looked at the details. As a result of their effort, they created an 
ultimatum.
  Now, Mr. President, the term ``settlement'' has been bandied about 
the floor of Senate. It is said that, well, this is a settlement, or a 
bailout, for McDonnell Douglas; somehow they settled the claim with the 
Department of Defense.
  It is not a settlement. It is an ultimatum, an ultimatum that was 
issued by the Department of Defense: take it or leave it. And on 
January 6 of this year, McDonnell Douglas took it. And the ultimatum 
was no great deal for McDonnell Douglas because McDonnell Douglas had 
already filed claims of $450 million against the Department of Defense, 
and in addition had $1.25 billion of claims that were prepared. And the 
Defense Department said: Drop them, drop your claims. Forget about 
them. We are not going to pay those claims.
  The Defense Department said, furthermore, not only are you going to 
drop the claims, you are going to invest $100 million to lower the 
production costs and improve productivity; you, McDonnell Douglas, are 
going to redesign the wing at no cost to the Government; you are going 
to split the costs of additional flight testing and certain 
productivity improvements with the Government. And in return for all of 
this, in return for dropping your claims and paying these additional 
costs, the Government will pay $237 million for the contractor's claims 
and make a limited release of claims for late delivery of certain 
aircraft.
  Overall, McDonnell Douglas pays $454 million, the Government pays 
$348 million compared to claims of $450 million plus another $1.25 
billion that were prepared. That is hardly a bailout, and it is hardly 
a settlement. It is a very tough deal.
  Now, the Senator from Iowa says, well, he is not against the C-17. He 
concedes the significance and the efficacy of the C-17. He says his 
problem is not with the C-17. His problem is with the settlement. And 
yet, Mr. President, the position of the Department of Defense is that 
the settlement and the future of the settlement are identical to the 
future of the C-17. They cannot be separated.
  Deputy Secretary of Defense John Deutch testified before the House 
Armed Services Committee this year, and here is his quote:

       Without a settlement, a productive business requirement, 
     which is essential to getting the C-17 program back on track, 
     will not be established. Instead of putting in the necessary 
     technical and management reforms, we will be back in claims 
     court, back in claims adjudication dealing with a fixed price 
     development contract * * * and there will be no basis for 
     instituting the required management and technical reforms.

  Furthermore, in a letter signed by Secretary Perry and Deputy 
Secretary of Defense Deutch to me dated June 21, 1994, they said:

       The settlement removes the gridlock that paralyzed the C-17 
     program for years and protects the Department's interests on 
     business issues and contractual claims. It gives the program 
     a fresh start while holding the contractor strictly 
     accountable for improving its performance.

  Mr. President, I ask unanimous consent that this letter be printed in 
the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                     The Secretary of Defense,

                                    Washington, DC, June 21, 1994.
     Hon. John C. Danforth, 
     U.S. Senate,
     Washington, D.C.
       Dear Senator Danforth: The Fiscal Year (FY) 1995 National 
     Defense Authorization bill (S. 2182) reported by the Senate 
     Armed Services Committee supports our commitment to airlift 
     modernization by funding the C-17 and approving the C-17 
     settlement agreement. As the Senate continues consideration 
     of S. 2182, we urge you to support the Committee position on 
     the C-17 and the settlement agreement.
       Our warfighting CINCs must have the capability to project 
     and sustain forces worldwide. To do this they need a 
     survivable airlift that can deliver outsize cargo to remote 
     locations with austere fields; and it must be able to airdrop 
     heavy equipment, supplies, and troops. The C-17 is the only 
     airlifter in production that meets core military 
     requirements.
       We developed an integrated strategy to meet our airlift 
     requirements after comprehensively reviewing the C-17 program 
     and the airlift needs of our combatant commanders. The 
     necessary first step is to continue the C-17 program on a 
     probationary basis to obtain 40 C-17s.
       If McDonnell Douglas proves it can deliver quality 
     aircraft, on time, at an affordable price, we will have 
     positioned ourselves to acquire additional C-17s. The second 
     step is to assess the capabilities and costs of non-
     developmental alternative aircraft.
       For us to proceed with our airlift strategy, we need 
     approval of the settlement agreement. As the Deputy Inspector 
     General of the Department of Defense, Mr. Derek J. Vander 
     Schaaf, expressed to the Senate Armed Services Committee, it 
     is essential that the settlement agreement be approved as 
     part of any decision to continue purchasing the C-17 and to 
     continue our strategy on future military airlift.
       The settlement removes the gridlock that paralyzed the C-17 
     program for years and protects the Department's interests on 
     business issues and contractual claims. It gives the program 
     a fresh start while holding the contractor strictly 
     accountable for improving its performance.
       For these reasons we request that you and your colleagues 
     support the Senate Armed Services Committee and our airlift 
     strategy when finalizing the FY 1995 defense bill.
           Sincerely,
     John M. Deutch,
       Deputy Secretary of Defense.
     William J. Perry,
       Secretary of Defense.

  Mr. DANFORTH. Then, Mr. President, the deputy inspector general wrote 
a letter to Senator Kennedy which has already been cited in this 
Chamber, a letter dated June 3, 1994. Deputy Inspector General Derek J. 
Vander Schaaf wrote the letter. A number of people have pointed out 
that the inspector general has not exactly been fawning over the C-17 
for the last number of years. But here is what the deputy inspector 
general of the Defense Department has said about this settlement.
  Bear in mind the issue is whether the settlement is related to the 
underlying program, which everybody concedes is a good program. This is 
the deputy inspector general of the Defense Department, and here is 
what the deputy inspector general of the Defense Department says on the 
question of this settlement and the relationship between this 
settlement and the underlying program:

       I believe that it is essential that the settlement 
     agreement be approved as part of any decision to continue 
     purchasing C-17 aircraft and to continue the course of action 
     outlined by Deputy Secretary Deutch to the Congress on the 
     future of military airlift.

  The deputy inspector general goes on to say:

       It is hard enough to manage a program of the C-17's size, 
     complexity and problems. It is next to impossible if the 
     Government and the contractor are in court arguing over costs 
     incurred under a fixed price contract that is at least $1.2 
     billion over ceiling but is still supposed to serve as the 
     operative document under which the program is managed.
       Failure to approve the settlement agreement will leave the 
     program with a management environment that is not working and 
     the prospect of wasting millions of dollars in litigation.

  That is the deputy inspector general speaking. That is not a lobbyist 
for McDonnell Douglas. That is the deputy inspector general. That is 
not some Senator from a State where McDonnell Douglas is located. That 
is the deputy inspector general speaking, saying that it is essential, 
if this program is to go forward that this settlement be approved.
  I only would make one other point, Mr. President, and it is this. The 
ultimatum which was made by the Defense Department to McDonnell Douglas 
was agreed to by McDonnell Douglas on January 6 of this year. That is 
approximately 5\1/2\ months ago.
  Now, when an ultimatum is handed down from the Defense Department and 
when the contractor says, all right, we will meet that obligation, and 
then the contractor goes ahead, moves forward, acts on that 
representation, acts on the ultimatum, then a new relationship has been 
created with the Defense Department. Now, for that relationship to be 
undercut in this Chamber creates not only contractual problems for the 
Government; it creates enormous precedential problems for any 
contractor that is even thinking about doing business with the 
Department of Defense in the future.
  I have had one former defense contractor explain why his business--he 
is the CEO of this business--is no longer a defense contractor. He 
said, ``I do not want to do business with anybody who does not want me 
to make a profit and who thinks I am a crook.''
  Well, if people are going to get into the business of defense 
contracting or stay in that business, they have to have some reasonable 
assurance about the good will and the integrity and the reliability of 
those with whom they are doing business. And when the Department of 
Defense says here is the deal, and McDonnell Douglas 5\1/2\ months ago 
says, all right, we do not like it but we will take it, it is an 
ultimatum and we will take it, and they act in accordance with that 
agreement, then in this Chamber to offer an amendment and for the 
Senate to vote against that agreement and undo that agreement and undo 
the deal is in the opinion of this Senator the breaching of a contract 
if not legally--and maybe legally--certainly in principle.
  It sends a very powerful message to other defense contractors that 
whatever arrangement they have with the Department of Defense, forget 
about it, because Congress is coming. Somebody is going to offer an 
amendment on the floor of the Senate to undo it. Do not rely on 
anything you hear from DOD.
  For all those reasons, Mr. President, I support strongly the position 
taken by Senator Kennedy, as chairman of the subcommittee, and Senator 
Cohen, who is the ranking member of the subcommittee, in opposition to 
the Grassley amendment.
  The PRESIDING OFFICER. Who yields time?
  Mr. LIEBERMAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Connecticut [Mr. Lieberman], 
is recognized.
  Mr. LIEBERMAN. I thank the Chair.
  Mr. President, I yield to myself such time as remains that was 
allocated to Senator Kennedy, with his permission.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LIEBERMAN. Mr. President, I thank the Chair.
  Mr. President, I first ask unanimous consent that Debra Shelton, who 
is a congressional fellow on my staff, have access to the floor during 
consideration of S. 2182.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LIEBERMAN. I thank the Chair.
  Mr. President, I rise to oppose the amendment offered by the Senator 
from Iowa and to support both the C-17 aircraft and the settlement that 
has been negotiated by the Pentagon involving the C-17.
  I rise as a member of the subcommittee of the Armed Services 
Committee chaired by Senator Kennedy to join with him and the ranking 
Republican member, Senator Cohen, in supporting this settlement and to 
particularly offer my thanks and congratulations to Senator Kennedy for 
the leadership he has given on this very difficult, complicated, and 
controversial matter to try to bring it to a point where we can go 
forward with some confidence that we are going to be able to obtain the 
airlift capacity that everybody, including, apparently, people on both 
sides of this particular amendment, agree that America really needs for 
its national security.
  I do not want to belabor the point about the C-17. I am just going to 
cite two or three sentences given to our committee, the Armed Services 
Committee, by leaders of the military.
  Gen. Gordan Sullivan, Chief of Staff for the U.S. States Army, said 
to us: ``The C-17 is the only aircraft that can get the Army's outsized 
combat systems to the next war when required.''
  Gen. Joe Hoar, the commander in chief of the U.S. Central Command, 
wrote to the committee saying simply: ``We need the C-17. I urge you to 
support the modernization of the Nation's strategic airlift.''
  Finally, the Chairman of the Joint Chiefs of Staff, General John 
Shalikashvili, wrote to the House Armed Services Committee: ``Today 
there is only one alternative that can meet the requirements of a core 
airlifter--the C-17.''
  So, Mr. President, the military has been quite clear with us. It does 
not take much more than reading today's newspapers to understand the 
unique nature of the conflicts we are going to face in the future. This 
is a remarkable airplane coming along which can carry outsized 
equipment to remote locations and land on difficult and often smaller 
airfields. That is exactly what we need.
  The question raised by the amendment--and I think the Senator from 
Iowa is quite direct; he has accepted the need for the six C-17's that 
are authorized in this bill--the question is, do we need the settlement 
to obtain the C-17's? What is the relevance of the settlement to the C-
17's? I think my colleagues have spoken well to this point. I just 
would like to add a few thoughts to it. The first is that this 
settlement did not just arrive out of the air as some deal, secret or 
otherwise, that was concocted by the Under Deputy Secretary of Defense, 
John Deutch, and the folks at McDonnell Douglas, or the Pentagon and 
McDonnell Douglas. This settlement follows a course of behavior that 
has been urged on the Pentagon by Members of Congress and, indeed, by 
independent oversight authorities such as the DOD Inspector General's 
office.
  In fact, in the letter quoted earlier by a few of my colleagues from 
the Deputy Inspector General Derek J. Vander Schaaf, Mr. Vander Schaaf 
makes clear that in May of 1992 the Inspector General of the Department 
of Defense made a series of recommendations which included one for a 
comprehensive cost and operational effectiveness analysis of the C-17 
program. He recommended a Defense Acquisition Board program review be 
conducted prior to award of additional contracts.
  This was a troubled program. Those recommendations worked their way 
into the fiscal year 1993 DOD authorization act adopted by this 
Congress, and, pursuant to that, a special Defense Science Board task 
force on the C-17 was appointed.
  It was that task force that recommended to the new management team at 
the Pentagon early last year that they try to clear the air; that they 
try to negotiate a settlement with McDonnell Douglas to see if we could 
give this troubled program--which was aimed at meeting a very real and 
universally accepted need that we had--a way to get over its troubles. 
Mr. Deutch went forward and argued effectively, I think, in his 
negotiations with McDonnell Douglas and came up with this settlement.
  Mr. President, supporting a public official such as Deputy Secretary 
Deutch would not be reason enough to support the settlement if we did 
not think the settlement made sense. But I do think it is important to 
note here that Deputy Secretary Deutch was acting in response to a 
series of requests that were issued by Congress' oversight authorities 
in negotiating this settlement.
  As a member of the Armed Services Committee, I have had the 
opportunity to watch and work with Mr. Deutch. I have found him to be 
extremely hardworking, thoughtful, effective, and totally committed to 
our national security.
  I think it is important to say that we sent him out on a mission. I 
happen to think he performed it ably. But we ought to think twice not 
only before we send a message, as Senator Danforth said earlier, that 
military contractors can negotiate agreements with the Pentagon and 
then they will be nullified by second-guessing in Congress, but that we 
ought to send another message which is to the very effective public 
officials who serve us, as Deputy Secretary Deutch does, that if they 
go out and perform a mission that we have asked them to perform, that, 
unless we have awfully good reason, we are not going to second-guess 
them or micromanage and cut them off at the knees after they have done 
their best to carry out the mission we have given them.
  In the case of the C-17 settlement have they done their best? I think 
this settlement clears the air. It gives McDonnell Douglas the best 
hope of building this aircraft that we need. It gives, incidentally, a 
program design for the Pentagon and now sets the Pentagon on a course 
that will give them a year. And then, in November of 1995, they have to 
look back and decide whether, in fact, as a result of the settlement 
and the authorization of these six aircraft, McDonnell Douglas has 
performed up to the desired standard. During that time, the Pentagon 
will also consider other options for meeting the airlift requirement, 
including the modification of conventional commercial aircraft.
  But this settlement clears the decks fairly. It is a win-win for the 
Government and for McDonnell Douglas. And it gives us our best hope of 
getting this very serious airlift requirement met as soon as possible 
and as effectively as possible.
  I come back to the words of the deputy inspector general, Mr. Vander 
Schaaf, about this settlement.
  This is not McDonnell Douglas; it is not even a Member of this 
Chamber. This is the IG saying:

       ``The C-17 program is not viable without substantial change 
     and resolution of numerous program management and contracting 
     issues. The settlement resolves all major outstanding issues 
     and prevents a lengthy and expensive court battle. These 
     legal proceedings could be costly even if the Government were 
     to prevail on all the issues which is, of course, highly 
     unlikely.

  The IG concludes:

       I see the settlement agreement as a sensible business 
     arrangement in which McDonnell Douglas incurs additional 
     costs of $454 million, recognizes some of its 
     responsibilities for the C-17 shortcomings, and agrees to 
     modernize its engineering and management systems.

  And then in a final statement--and one we should remember--Mr. Vander 
Schaaf says:

       Should the Congress approve the settlement agreement, we 
     (the IG's office) are prepared to ensure that the agreement 
     is implemented as approved and provide regular independent 
     reports to the Committee on its implementation.

  So I say, for those who may have any doubts, that should be the one 
final convincing argument to support the settlement and cause us to 
oppose the amendment. I thank the Chair and yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. GRASSLEY. Mr. President, I yield myself such time as I might 
consume.
  Mr. President, I am learning an awful lot on this floor about the C-
17, none of it which I dispute as to why it is needed. What I am not 
learning much about is why we need this specific agreement, why it 
cannot be renegotiated to give the taxpayers a fair deal.
  I think that we are giving an awful lot of consideration for an awful 
lot of interests here except the taxpayers' interests. I heard it 
spoken about 70 people in the Defense Department that worked on this 
deal. I heard about five people that are on a special high-level review 
group as an independent expert body to reconsider it. For instance, 
these are the five people: Robert Furman, president and chief operating 
officer, Lockheed Corp.; Lt. Gen. James A. Fayne, commander of the 
Aeronautical System Center; Edward C. Baldridge, president of the 
Aerospace Corp.; Mr. Oliver C. Wallo, Jr., president of the B-2 
division, Northrop Corp.; Dr. Malcolm R. Curry, chairman and CEO, 
retired, of Hughes Aircraft.
  Think of those people. They are the special high-level review group 
that has been referred to here by all my colleagues, and that this 
compromise and agreement was very carefully worked out. And then 70 
other people within the Defense Department were working on it.
  Where are the taxpayers' interests in this group? Where are the 
taxpayers' interests in this group? That is the question we have not 
heard much discussion about.
  Why $348 million? Why do we need $348 million for a company that 
looks pretty good financially? I quoted from Reuter's on this. Let me 
quote from the Financial Times of May 6, 1994:

       McDonnell Douglas and the U.S. Aerospace and Defense Group 
     is building up financial muscle. It wants to put itself in a 
     good position to take advantage of investments and 
     acquisition opportunities for its core aerospace business.

  This company saw its stock go from $48 in 1992 to around $120 this 
year. That is as of May 6, 1994. This settlement, supposedly, this 
agreement, is a justification for keeping this program going. If this 
program does not keep going, if this settlement does not go through, 
then the C-17 program does not go. What is the tie-in between this 
agreement and $348 million and keeping the C-17 program going when you 
have a company that is so well off financially, it has improved its 
financial condition so well that it can think about acquisition 
opportunities, according to the Financial Times?
  I just do not think there has been a case made that you need $348 
million to keep this company afloat so that we can keep getting the C-
17.
  We have heard a big deal made about this agreement as we have viewed 
it, and a settlement being an ultimatum; that this group of 75 people, 
and four out of the top five people are major or retired corporate 
heads that have a great deal of special interest in defense business, 
so I do not know whether that is an impartial consideration. But we are 
told that they gave McDonnell Douglas a $348 million ultimatum--take it 
or leave it.
  Well, we all wish we could have an ultimatum where that kind of cash 
is shoved down your throat.
  On the other hand, the General Accounting Office--and I want to point 
out the General Accounting Office, because so many of the speakers in 
this body have quoted the inspector general--well, the General 
Accounting Office says that this $348 million ultimatum ``is a lousy 
deal for the taxpayers.'' I agree with that. In fact, the General 
Accounting Office report, dated April 1994, is entitled ``The C-17 
Settlement is Not a Good Deal.''
  So I hope that all of my colleagues who are looking at this 
settlement and listening to people quote the inspector general, and 
saying what a great deal this is, will consider the position of the 
General Accounting Office that says that the C-17 settlement is not a 
good deal.
  The C-17 agreement, as I see it, would lower the range payload 
specifications on this airplane. It would do it for the fourth time. 
Mr. President, we are building an aircraft, and we are writing the 
specs to meet what the aircraft can do.
  The way we ought to look out for the taxpayers' money in the Defense 
Department is to decide what our national security goals are, then 
decide how much money it takes to meet those national security goals, 
then build equipment to meet those national security goals, have the 
Government write those specifications, and put it out for bid to a 
company that will try to do what the Government and taxpayers want done 
to meet our national security responsibilities.
  The C-17 aircraft that have been delivered to date do not meet 
important range and payload specifications.
  This is not Mickey Mouse stuff.
  Mr. BOND. Mr. President, will the Senator yield for a question?
  Mr. GRASSLEY. I will yield for a question.
  Mr. BOND. Mr. President, I would ask my good friend from Iowa if he 
is aware of the statements made by under Secretary Deutch to the House 
Armed Services Committee on May 17, 1994, in which he said, ``In the 
Joint Chiefs of Staff judgment, there is no impact on the operational 
military capability of this plane''?
  He further said, ``Some of these specifications we have indeed 
reduced, not because it was a problem for the contractor to meet them, 
but because they had no value for the military condition.''
  Is my colleague familiar with that statement?
  Mr. GRASSLEY. Mr. President, I say to the Senator from Missouri, I am 
not specifically familiar with it. I will accept what he said.
  I do not think it detracts from what I have said that I can factually 
and specifically verify.
  Regardless of what the Joint Chiefs of Staff say now might be 
necessary to meet our national security goals, when it was decided that 
this airplane was needed there were specifications written for that. 
Those specifications have been modified four times and they have been 
modified because the plane could not do what the Defense Department 
said it wanted it to do in each of those original specifications.
  Mr. President, they do not meet the important range and payload 
specifications. What we are talking about here is the primary 
justification for the airplane: The ability to deliver vital military 
cargo overseas to our troops fighting in the field.
  The C-17 simply, as it is being built now, is not able to do what was 
originally said that it should accomplish. The C-17 cannot carry cargo 
over the required distance. This is a problem. It is a very big 
problem.

  But this is not the first time the range/payload specs have been 
revised downward. As I said, this is the fourth time. The C-17 range/
payload is headed South.
  The C-17 range/payload specs have been moved downward on three 
different occasions.
  Under the initial specs, the C-17 was supposed to carry 172,200 
pounds 2,400 nautical miles.
  Since then, the range/payload specs have been moved down three times: 
November 1985, March 1990, and July 1991. And now under the Deutch 
plan, it is about to take another dive.
  And DOD is developing a way to change the methodology for calculating 
the C-17 range/payload performance. That worries me. That is a way to, 
as I see it, scheme on their part to really bugger up the data. Pretty 
soon we will not know where we are compared to, where we started, and 
where we are supposed to be.
  Of course, that is the rubber baseline at its worst.
  That is probably part of Mr. Deutch's plan to keep us confused.
  The latest data suggests that current C-17 performance on the heavy 
logistics mission is only 93,345 pounds. That is well below the 
original spec of 130,000 pounds and the proposed Deutch spec of 120,000 
pounds.
  I have a feeling that we have not reached the end of the road on the 
C-17 range/payload shortfall. Another trip down that road is already in 
the making.
  The Deutch plan will help the contractor and the airplane meet the 
specs. The specs will meet the airplane rather than having the airplane 
meet the specs. It is not supposed to work like that.
  The Deutch plan is wasteful.
  We paid McDonnell Douglas top dollar to meet the more stringent 
specs.
  More stringent specs are more costly because they involve greater 
risk. They may not be achievable, as we now know.
  McDonnell Douglas signed up to the more stringent specs. Now, we are 
about to let them off the hook.
  We should hold their feet to the fire and make them live up to the 
terms of the contract.
  If the C-17 does not meet contract specs, then McDonnell Douglas 
should be made to either correct the problem or repay the Government a 
reasonable sum of money for lost performance.
  If McDonnell Douglas refuses to do that, then I think the contract 
should be terminated for default.
  Under no circumstances should we be making a $348 million cash 
payment to McDonnell Douglas when the airplane does not meet important 
contract specs, like range/payload specs.
  Those specs were written into the contract for a reason. That is what 
the military said they needed to carry out the mission. We are not even 
close to meeting those requirements. The C-17 is not going to give us 
the airlift capability we need to do the job somewhere down the road.
  We paid McDonnell Douglas billions of dollars to develop and deliver 
an airplane that could deliver the goods over the required distance. 
Well, the airplane falls far short of the need. But we still paid full 
price. And now, Mr. Deutch is asking us to pay full price plus.
  We pay full price plus $348 million. We pay more and get less.
  That is not right.
  The Deutch plan makes a mockery of defense contracting.
  The Deutch plan is a lousy deal for the taxpayers.
  I will yield 10 minutes to Senator Roth of my time.
  The PRESIDING OFFICER (Mr. Conrad). Senator Roth is recognized for 10 
minutes.
  Mr. ROTH. Mr. President, I rise today to oppose the settlement 
between the Defense Department and McDonnell Douglas. The C-17 aircraft 
is a program that typifies the problems with the Pentagon's buying 
system. It is far over budget, behind schedule, and does not meet 
requirements.
  Approving the settlement would condone business as usual. Moreover, 
it would remove any accountability for those who are responsible for 
the problems in this program.
  Here is the situation in a nutshell. In 1990, the Defense Department 
determined that McDonnell Douglas was overrunning significantly its 
fixed price development contract on the C-17 aircraft. The Government 
began to take actions to rein-in the contractor. In response, the 
contractor filed a claim against the Government to get reimbursed for 
the cost overruns, stating that the Government's poor program 
management caused the problems. There never was a question that the 
technology was too risky. The issue was always whether it was the 
Pentagon or McDonnell Douglas that had the management problem.
  About 6 months ago, the Secretary of Defense announced that the 
situation had worsened and that the Undersecretary of Defense for 
Acquisition had developed a plan to fix the problems or terminate the 
program at 40 aircraft. It was supposed to cost $41.7 billion for 210 
planes; now it will cost $43 billion for 120 planes.
  I think that is worth reading once more. It was supposed to cost 
$41.7 billion for 210 planes, but now it will cost $43 billion for 120 
planes.
  At that time the Secretary said: ``The C-17 is late, it's over 
ceiling price, and it has serious operational deficiencies.''
  Under the terms of the settlement the taxpayers will pay McDonnell 
Douglas $348 million, in return for its dropping the claims suit. In 
addition, the Government agrees to buy 40 C-17 aircraft and then to 
reevaluate the contractor's performance. The General Accounting Office 
has reviewed the settlement and determined that ``it is not in the best 
interest of the Government.'' One reason why the settlement is not a 
good deal is that even if the problems are fixed, it is still going to 
cost $1.3 billion more to get 90 fewer planes than were planned 3 years 
ago. This deal is a turkey for American taxpayers, and like a turkey, 
it just will not fly.
  Mr. President, I have spent many years analyzing the problems of the 
Pentagon's buying system. I do not believe that the settlement will fix 
the problems in the C-17 program. First, the deal holds no one 
accountable for this horror story or for fixing the problems. The 
settlement states that the Defense Department will reassess the 
situation in November 1995. But, the General Accounting Office, in its 
review of the settlement, found that ``DOD will have little more 
information in November 1995 than it does now on the contractor's 
ability to cost-effectively produce the C-17.''
  Moreover, the GAO found that there are no cost, schedule, and 
performance criteria to determine whether the problems have been fixed. 
The taxpayers are supposed to pay to fix the program, and no one will 
be able to tell if the problems have been fixed. It is like taking your 
car to get fixed, paying for the repairs, and then hoping that the 
repairs get made.
  Mr. President, the second reason that this is a bad deal is that it 
removes all recourse for the Government. The agreement lowers the 
contract specifications to a level that the plane can meet, rather than 
the capability that is required. For example, the C-17 specification 
for heavy lift will be lowered to nearly 20,000 pounds less than the 
minimum requirement. According to the Pentagon, failure to meet a 
minimum requirement normally is a reason to terminate a program. In the 
private sector, if you pay for a repair that isn't made there are 
consumer protection laws. Under the terms of this agreement, the 
Government waives its own consumer protection laws.
  Mr. President, I am also concerned that this settlement represents a 
double standard. One for big, prime contractors and another for small 
businesses trying to sell to the Government. Recently, many contractors 
in Delaware were put out of business by one program that experienced a 
cost overrun. Unlike the C-17, the Government is very happy with the 
results of that contract.
  However, according the Defense inspector general, the Government 
added some gold-plating after it had approved the design and 
construction was underway. When the small contractors asked for 
additional funds to cover the costs of gold plating, they were told to 
file a claim. They did not have a stable of lawyers or the savings 
accounts to pay lawyers during the years of litigation that are usual 
in claims cases. While the contractors tried to work with the 
government to settle the situation, several went bankrupt.
  This is hardly the treatment that McDonnell Douglas received. Their 
stock value has reached and maintained new highs since the settlement 
was announced. The Contract Disputes Act and the Alternative Disputes 
Resolution Act provide judicious evaluation of contractor claims. Why 
should McDonnell Douglas not have to live up to the standards in those 
laws? Why should we fund contract claims that the Air Force's 
contracting officer has denied?
  Mr. President, let us not kid ourselves. The C-17 problems will not 
be fixed if they are swept under the rug, and that's what this 
settlement agreement does. The GAO says that the settlement is a bad 
deal. The amendment that I join in cosponsoring rejects the settlement. 
If it passes, the Pentagon gets the message to negotiate a better deal 
or tell McDonnell Douglas to use the normal procedures.
  Mr. President, I yield back the balance of my time.
  The PRESIDING OFFICER. Who yields time?
  Mr. GRASSLEY. Mr. President, I yield myself such time as I might 
consume. But let me give people a rough idea. I think I will probably 
have about 8 or 10 more minutes to speak now, and then I think I will 
still have about 20 minutes left. The other side has 3 minutes left. If 
the other side does not say anything that needs a lot of rebuttal, I 
will probably yield back and not use all my time. But I need to know 
what the other side might do before that is real conclusive.
  Before I make my final point, I want to praise Senator Roth not only 
for his cosponsorship of this amendment, but a long time before I came 
to this Senate he was a leader in efforts, and still is a leader in 
efforts, to ferret out waste in Government and to make Government 
officials accountable. I want to compliment him for that and to say 
keep up the good work.
  I think one final point that would be my third main point of concern 
with the proposed C-17 settlement agreement is the $234.5 million for 
what is called the ``wing breakout'' claim. The wing breakout applies 
to subcontracting out wings for the C-17 with another company.
  To a large extent, the proposed $348 million direct cash payment to 
McDonnell Douglas is based on the wing breakout claim. The wing 
breakout claim makes up about 70 percent of the total cash proposed by 
Mr. Deutch to be given to McDonnell Douglas.
  Mr. President, the wing breakout claim has a bad odor about it. I 
want to explain to you how I think the Government here on this wing 
breakout claim is being taken, and how there is some effort to cloud 
the issue. I think I can uncloud the issue.
  First of all, the C-17 contracting officer looked at this deal and 
said that it was invalid and unjustified. Now, that person is a DOD 
employee. The contracting officer, the guy that makes the big 
decisions, looked at this claim and said: Unjustified.
  We had the GAO report--and I have referred to this document many 
times--entitled ``C-17 Settlement is Not a Good Deal.''
  Well, the GAO looked at it and said that it was not legitimate.
  The documents bearing on the wing breakout claim show conclusively 
that it is invalid and unjustified.
  So how did the wing breakout claim wind up in the Deutch settlement?
  From day one, McDonnell Douglas had planned to breakout the wing job. 
They promised to put the job for bids at source selection, way back in 
July 1982.
  Now, I want to say to my colleagues, this was an empty promise, 
because all along McDonnell Douglas had other plans, and I hope that I 
can convince you of that.
  McDonnell Douglas changed its mind and decided to spend $365 million 
and get into the wingmaking business at its Long Beach, CA plant. But 
it did not work out very well. You think these big corporations are 
always going to make the right judgments. Well, they do not. This was 
one bad judgment McDonnell Douglas made.
  They ran head-on into serious technical and cost problems with the 
wing.
  So the word got out. And this made the competition salivate.
  Pressure mounted to break out the wing job into subcontracts, as 
McDonnell Douglas had promised to do from the very beginning.
  Several Members of Congress recommended that the subcontract go to 
AVCO of Nashville, TN. But that idea did not go very far.
  The Air Force and McDonnell Douglas balked at that idea. They decided 
in November 1986 to compete the job.
  Four companies submitted bids for the wing subcontract: McDonnell 
Douglas, AVCO, Lockheed, and Rockwell.
  Lockheed won the contract.
  On August 18, 1987, Lockheed was awarded a $140 million contract to 
build nine wing sets.
  The wing work then moved to Lockheed plant at Marietta, GA.
  At the time, the Air Force claimed the wing breakout competition 
would save the taxpayers $76.5 million on the R&D contract and first 
two production lots.
  Well, the wing breakout led to another fiasco--2,300 engineering 
design changes--another cost overrun--and a nasty dispute between 
Lockheed and McDonnell Douglas.
  By March 1990, Lockheed had over $150 million in claims against 
McDonnell Douglas.
  On March 7, 1990, McDonnell Douglas agreed to pay Lockheed $99 
million for delays, errors, and 2,300 design changes.
  The subcontract was terminated and the wing work went back to the 
Long Beach plant.
  Mr. President, I ask unanimous consent to have the McDonnell Douglas/
Lockheed settlement agreement printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  [See exhibit 1.]
  Mr. GRASSLEY. McDonnell Douglas claims the mess eventually cost the 
company $234.5 million and blames the Government for creating the 
problem.
  Remember back in July 1982 they promised us they were going to break 
it out. Then they decided not break it out. Then they decided to do it.
  McDonnell Douglas submitted the $234.5 million wing breakout claim on 
July 2, 1993.
  Mr. Deutch recommends that we pay 100 percent of this claim.
  Now, Mr. President, what is the basis for McDonnell Douglas' claim 
and why is it not legitimate?
  It seems to rest on one main assertion.
  McDonnell Douglas claims that the Air Force and Congress directed the 
wing breakout. We forced them to do it.
  The Air Force examined this claim and concluded that it had no merit. 
The decision was made by the C-17 contracting officer, Mr. James C. 
David, on November 10, 1993.
  As the C-17 contracting officer, he had sole legal authority to make 
that determination.
  I have his letter in my hand. I would like to read from it and then 
place it in the Record.
  Mr. David states and I quote:

       At no time did the government overrule McDonnell Douglas' 
     September 18, 1985 decision to make the wing nor did it 
     direct a change thereto * * * The Air Force was sensitive to 
     McDonnell Douglas' contractual rights * * * As a consequence 
     of congressional concerns regarding the C-17 program, 
     McDonnell Douglas, senior Air Force, and C-17 officials met 
     on several occasions in the August to October 1986 time 
     period to discuss how to assure a cost-effective make or buy 
     decision.

  This is Mr. David, working for the Department of Defense, the chief 
contracting officer saying at no time did the Government overrule 
McDonnell Douglas's September 18, 1985, decision to make the wing, nor 
did it direct a change thereto. But it is costing us $234.5 million.
  Mr. BOND. Will the Senator yield?
  Mr. GRASSLEY. I would like to finish the letter and then I will 
yield. I have about four paragraphs.
  I will continue to go quote, because I digressed there, I am sorry to 
say.

       In October 1986, McDonnell Douglas agreed to a plan which 
     envisioned a competition to select the most cost-effective 
     source. * * * McDonnell Douglas guaranteed there would be no 
     price change to the C-17 contract. * * * In fact, $141 
     million in savings were anticipated by McDonnell Douglas * * 
     * At no time did the Government direct the wing competition 
     or decision to subcontract to Lockeed * * * McDonnell Douglas 
     voluntarily agreed to and executed the wing competition plan 
     * * *.
       Based on the decision to subcontract to Lockheed, the 
     parties [McDonnell Douglas and the Air Force] negotiated a 
     modification to the C-17 contract [known as] P00137.

  That is the end of the quote. Those are the words of the C-17 
contracting officer, I would say to the Senator from Missouri. If he 
wants to ask me a question I will yield, but I will yield only for the 
asking of the question. Those are the words of the C-17 contracting 
officer, Mr. David.
  Mr. BOND. Mr. President, I would ask my colleague from Iowa, No. 1, 
does he have any evidence that the settlement is based solely on the 
wing breakout claim? The McDonnell Douglas claims against the 
Government are said to aggregate approximately $1.7 billion. I wanted 
to know if there is a specific line or reference in the proposed 
settlement that suggests that the wing breakout was the only claim and 
somehow the sole claim on which the cash payment was based? It appears 
to be a relatively close dollar figure.
  But I wonder if my colleague from Iowa can indicate to me what basis 
he has for saying the cash settlement was based on the wing breakout 
claim? That is No. 1.
  No. 2, is he aware that McDonnell Douglas had already filed an appeal 
before the decision to which my colleague referred was handed down? So, 
in fact, the contracting officer who made the decision was representing 
an adverse party at the time, since the matter had already been 
appealed? I ask those two questions.
  Mr. GRASSLEY. On the latter point, I do not think the fact that the 
contracting officer may have been in a particular position has any 
bearing on it. We are talking about the person who was in charge. It 
seems to me that ought to be given considerable weight.
  In the first instance, I do not have a specific document but the 
Senator from Missouri I do not think disputes my claim that it is 70 
percent of it, and 70 percent of the $348 million is $234 million, and 
that Mr. Deutch recommended that it be paid 100 percent. Those are not 
disputable so I do not see how the question raises any new issue.
  So I want to go on now at this point.
  Mr. President, I want to also place the C-17 contracting officer's 
assessment of the wing breakout claim in the Record as well.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 2.)
  Mr. GRASSLEY. Mr. President, now, as I said earlier, the wing 
breakout claim seems to rest on the assertion that Congress directed 
the Air Force to do it.
  I can find nothing in the legislative history to suggest that the 
Congress directed it or forced the Air Force to subcontract the wing.
  Let me read from the pertinent section of the fiscal year 1987 
conference report.

       The conferees are pleased that the Air Force has decided to 
     conduct a competition for the production of the C-17 wings.

  Mr. President, that is as strong as the language gets. If that is a 
direct order, I will eat my hat.
  Mr. President, I ask unanimous consent to place the legislative 
history on the wing breakout contract in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  [See exhibit 3.]
  Mr. GRASSLEY. The most telling piece of evidence against the wing 
breakout claim is the last paragraph in a document known as P00137.
  P00137 was a negotiated change to the basic C-17 contract resulting 
from the decision to subcontract the wing to Lockheed. It was signed by 
McDonnell Douglas and the Air Force. It is dated September 21, 1987.
  I will read paragraph 4 in P00137. I quote:

       This Supplemental Agreement is a full settlement of any 
     claims of the Contractor resulting from the changes effected 
     by P00137.

  Mr. President, I ask for unanimous consent to place the Air Force 
document P00137 in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  [See exhibit 4.]
  Mr. GRASSLEY. This mutually agreed to clause should be viewed, I 
think, as a bar to the McDonnell Douglas wing breakout claim. It is a 
big barrier standing in the way of further consideration of the wing 
breakout claim.
  Why did McDonnell Douglas wait over 3 years to file the wing breakout 
claim? They settled the wing breakout claim with Lockheed on March 7, 
1990. Between March 1990 and July 2, 1993, McDonnell Douglas never 
complained about the problem. As the C-17 contracting officer put it, 
``McDonnell Douglas never requested any additional equitable 
adjustments until the filing of this alleged claim.''
  This does not add up. It does not make sense.
  According to the GAO, senior defense officials recommended that the 
Government audit the claim before paying anything to McDonnell Douglas. 
That idea was rejected.
  I have a DOD document that states and I quote:

       After analysis and discussion the Senior Level Review Group 
     decided the government should pay 100% of the cost. * * * 
     This [wing breakout] claim should be included in the 
     settlement and a contract modification issued paying the 
     contractor 100% * * * of reasonable costs and profit claimed 
     by McDonnell Douglas not-to-exceed $234.5 million.

  Mr. President, I ask unanimous consent to place the DOD document in 
the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  [See exhibit 5.]
  Mr. GRASSLEY. Mr. Deutch signed off on that recommendation. That is 
how the $234.5 million for the wing breakout claim found its way into 
the bill.
  The General Accounting Office says that we should not pay the full 
value of this claim in the absence of any legal or pricing analysis. 
The C-17 contracting officer says that we should not pay the claim. 
Contractual documents suggest the Air Force is legally barred from 
paying it. So what is the basis for Mr. Deutch's decision to pay 100 
percent of this claim? That question must be answered before the C-17 
settlement agreement is approved by Congress.
  We have before us most of the debate in opposition to my amendment 
from those people who say that this C-17 settlement must be accepted by 
Congress or else we will not have any C-17's.
  My amendment does not strike any money that is in the bill to buy six 
C-17's. The settlement is one issue and buying the C-17's is another 
issue, and I am for buying those six C-17's. I am not for this 
settlement.
  My opposition has not made a strong case that this settlement is so 
closely tied to the C-17, the continuation of the manufacture of the C-
17. Quite to the contrary. I have submitted evidence to this body that 
shows the financial condition of McDonnell Douglas being so great that 
they are thinking now at the highest corporate level of having cash for 
acquisitions.
  So a company in that position cannot be dependent upon $348 million 
from the taxpayers to continue their assembly line for the C-17. It 
just does not add up.
  The other point that I think is very clear is they made a good case 
that 75 people looked at this issue and came to the conclusion that 
this settlement should be agreed to. Seventy of those people are from 
within the Defense Department; then there are six at the highest level 
in the top level review group. Five of those six are from the defense 
industry, various corporations in the defense industry.
  How impartial of a consideration of the taxpayers' interest do you 
get from a group that is scratching each other's back all the time 
within the military industrial complex?

                               Exhibit 1

              Settlement Agreement for FSED, Lots I and II

       Douglas Aircraft Company (DAC) and Lockheed Aeronautical 
     Systems Company (LASC) agree to settle the C-17 Wing 
     Component Contract for FSED, Lots I and II at a revised total 
     price of $239,000,000 subject to the following:
       1. DAC releases and waives all past, present and future 
     rights/claims against LASC including the exercise of options 
     beyond Lot II. LASC and DAC agree that neither party releases 
     or waives any rights/claims they may have regarding the DAC 
     authorized long lead tasks related to Lot III. The resolution 
     of such rights/claims shall be negotiated by the parties in 
     accordance with the terms and conditions of the Basic 
     Agreement.
       2. LASC releases and waives all past, present and future 
     rights/claims for increased compensation, damages or schedule 
     relief, including any claims for changes, delay and 
     disruption directly or indirectly related to completion of 
     FSED, Lots I and II requirements, except all changes received 
     by LASC after 7 March 1990 and those specifically excluded on 
     Attachment A ``Changes Excluded from Settlement''.
       3. The expedited effort for the test stand pylon will be 
     continued under the current separate time and material 
     contract.
       4. The $4M maximum liability for changes under the Basic 
     Agreement is liquidated and otherwise satisfied by this 
     agreement.
       5. Regarding Class I and Class II changes received by LASC 
     after the date of subject agreement, the parties agree that 
     only individual changes valued in excess of $5,400 in cost 
     shall be submitted by LASC to DAC and shall require an 
     equitable adjustment in contract price or schedule.
       6. The capacity for processing of the current C-17 parts 
     will be maintained for Lot III through Lot VI and the actual 
     processing will be done, if requested by DAC, under a new 
     separate priced contract between LASC and a specified 
     subcontractor.
       7. LASC agrees to work diligently and in good faith with 
     DAC in the expeditious transfer of existing C-17 assembly and 
     fabrication tooling, mock-up and operational data/
     documentation to the new source(s). All costs associated with 
     LASC preparation, removal and transfer of tooling and data/
     documentation is included in this settlement. LASC will not 
     be responsible for shipping costs related to the transfer of 
     work.
       8. LASC agrees to meet the delivery schedule dated 7 March 
     1990 attached hereto. (See Attachment ``B'')
       9. LASC will comply with applicable DOD statutory or 
     regulatory requirements (such as CAS, defective pricing, 
     etc.) contained in the Basic Agreement. The settlement amount 
     may be adjusted downward by DAC to the extent that the 
     Government subsequently disallows any portion of the 
     settlement amount and such action is due to LASC's inability 
     or failure to comply with such contract requirements. Should 
     the Government disallow any portion of said settlement 
     amount, then DAC agrees to either appeal such decision or 
     shall provide LASC the opportunity to process such appeal in 
     accordance with the applicable disputes clauses of DAC's 
     prime contract or the DAC/LASC Basic Agreement. DAC agrees to 
     cooperate and diligently support any appeal pursued by LASC.
       10. DAC will amend the Basic Agreement to incorporate the 
     provisions of this MOA within ten (10) days of execution. 
     Upon execution of subject Agreement, DAC and LASC agree to 
     promptly (NTE 7 work days), and in good faith, negotiate a 
     definitization schedule, including an equitable schedule for 
     resumption of progress payments.
       11. All other terms/conditions, requirements and 
     obligations under FSED, Lots I and II shall remain unchanged.
       12. The effective date of this agreement shall be 7 March 
     1990.
     Abraham Goldfarb,
       Lockheed Aeronautical Systems Co.
     Gerald D. Staffieri,
       Douglas Aircraft.
                                  ____


                               Exhibit 2

                                      Department of the Air Force,


                          Wright-Patterson Air Force Base, OH,

                                                November 18, 1993.
     To: ASBCA (Recorder), Skyline Six, 7th Floor, 5109 Leesburg 
         Pike, Falls Church, VA.
     From: ASC/YCKBA, 2600 Paramount Place, Fairborn, OH.
     Subject: ASBCA Case No. 46356, Appeal of McDonnell Douglas 
         Corp., Under Contract No. F33657-81-C-2108.
       The attached Contracting Officer's Final Decision was 
     dispatched to the appellant on November 10, 1993. The 
     appellant was informed by letter dated October 29, 1993 that 
     a decision would be provided on November 10, 1993.
                                                   James C. David,
                                              Contracting Officer.
                                  ____

                                      Department of the Air Force,


                          Wright-Patterson Air Force Base, OH,

                                                 October 29, 1993.
     To: Rich Grimm, C-17 Program, C1-DE4, M/S 217A-410, McDonnell 
         Douglas Government Aerospace (MDA), Transport Aircraft, 
         1510 Hughes Way, Long Beach, CA.
     From: ASC/YCKBA, 2600 Paramount Place, Fairborn, OH.
     Subject: Recertified Claim Submitted July 1993: Wing 
         Breakout.
       1. Reference ASC/YCKBA letter dated September 7, 1993, 
     subject--Recertified Claims Submitted July 1993: SEAFAC and 
     Wing Breakout.
       2. The final decision on the subject claim has been 
     delayed. Pursuant to FAR 33.211(c)(2), a final decision on 
     the above referenced claim will be provided on or before 10 
     November 1993.
                                                   James C. David,
                                              Contracting Officer.
                                  ____

                                      Department of the Air Force,


                          Wright-Patterson Air Force Base, OH,

                                                November 10, 1993.
     To: McDonnell Douglas Corp., McDonnell Douglas Aerospace 
         (MDA), Rich Grimm, C-17 Program, C1-DE4, M/S 217A-410, 
         1510 Hughes Way, Long Beach, CA.
     From: ASC/YCKBA.
     Subject: Contract F33657-81-C-2108, Claim No. 015, Wing 
         Breakout, Protective Claim, 02 July 1993.
       1. References:
       a. MDA letter TA-DEO-2000-00-0000, dated 02 July 1993--
     Protective Claim.
       b. Air Force letter YCKBA, dated 07 September 1993, 
     entitled Recertified Claims Submitted July 1993: SEAFAC, and 
     Wing Breakout.
       2. The Air Force has finished its review of MDA's July 2, 
     1993, recertified claim No. 15, entitled ``Wing Breakout--
     Protective Claim.'' The arguments of the claim have been 
     carefully considered in accordance with FAR 33.211. MDA 
     claims that the Air Force directed it to perform work over 
     and above contract requirements; that ``In reaction to 
     Congress' strong pressure'' (on Senior Air Force Officials), 
     ``the Air Force conceded to Congress'' and, contrary to the 
     contract requirements, the Air Force overruled Douglas' make 
     or buy decision. Consequently, ``Douglas was required to 
     conduct a competition and subcontract production of wing 
     components to the lowest bidder,'' ``in a manner outlined and 
     directed by the Government.''
       3. A review of the contract and relevant documents 
     demonstrates the Government is not liable for any of the 
     costs alleged in your protective claim dated 2 July 1993. 
     Accordingly, your July 2 1993 Protective Claim is denied in 
     its entirety for the following reasons.
       a. The concerns expressed and actions taken by members of 
     Congress were entirely appropriate for officials elected to 
     safeguard the interests of the United States. Despite 
     expressions of the interests of their constituents, the 
     correspondence of Congress reflects the goal of costs savings 
     and cost-effective manufacture of the C-17 Weapon System. 
     Moreover, MDA is obligated by its own Make or Buy Plan, 
     (which is incorporated into the contract) and by its own 
     procedures, to consider facts such as ``sound business 
     principles'' and ``Reasonable life cycle costs consistent 
     with . . . delivery capabilities'' when making make or buy 
     decisions. The contract Make-or-Buy clause in fact requires 
     the contractor to ``submit justification in sufficient detail 
     to permit evaluation of the proposed change.'' Government 
     officials involved in this matter were therefore, entirely 
     justified in requesting MDA to demonstrate cost-effective 
     make or buy decisions.
       b. At no time did the Government overrule MDA's September 
     18, 1985 Make decision, nor did it direct a change thereto. 
     Mr. Thomas Cooper's (Assistant Secretary of the Air Force) 
     letters of August 7, 1986 to Senators Sasser and Gore state; 
     ``Since the Air Force is under contract with McDonnell 
     Douglas for the total C-17 System, any decision on the wing 
     must, of course, recognize the contractual rights and 
     obligations of both parties.'' This clearly shows that the 
     Air Force was sensitive to MDA's contractual rights and made 
     this fact known to Congress. However, as a consequence of 
     Congressional concerns regarding the cost of the C-17 
     Program, MDA, Senior Air Force and C-17 SPO officials met on 
     several occasions in the August to October 1986 time period 
     to discuss how to assure a cost-effective make or buy 
     decision. In October 1986, MDA voluntarily agreed to a plan 
     which envisioned a competition to select the most cost-
     effective source.
       c. The key elements of this plan included MDA revising the 
     contract make-or-buy plan with respect to the wing; and 
     competing for potential subcontracting, the fabrication and 
     partial assembly of a substantial portion of the wing, with 
     no schedule slip. The potential subcontract was to be firm 
     fixed price with firm FSED pricing and Not To Exceed pricing 
     for five production options. MDA guaranteed there would be no 
     price change to the C-17 contract. As early as 15 September 
     1986, MDA had advised the Air Force of its agreement that 
     there would be no changes in Target Cost, Target Price, or 
     Ceiling Price for FSED and Lots I and II as a result of MDA's 
     decision to compete a portion of the wing. This advice was 
     reiterated in MDA letters of September 26 and October 29, 
     1986. In fact, substantial savings were anticipated by MDA 
     for FSED and Lots I and II, and these savings would be shared 
     80/20 by the Air Force and MDA under the incentive structure 
     of the C-17 contract. MDA's plan was within the contractual 
     framework.
       d. At no time did the Government direct the make-or-buy 
     plan change, the wing competition, the method for conducting 
     it or the decision to subcontract to Lockheed. MDA 
     voluntarily agreed to and executed the wing competition plan. 
     In the final analysis, MDA made clear its willingness to 
     evaluate and select the best approach to accomplish and 
     demonstrate a cost-effective make-or-buy decision, so that 
     the program would continue. Further substantiation from Mr. 
     Johnson's (Corporate vice-president Aerospace Group 
     Executive) 29 October 86 letter follows: ``. . . It is my 
     opinion that we have arrived at the best possible resolution 
     of the wing competition issue . . . The timely conclusion of 
     this issue will permit us to conduct an effective competition 
     and to maintain the program schedule.'' At the conclusion of 
     the competition Douglas provided the Government, in its June 
     19, 1987 letter, its own analysis which indicated an 
     estimated $141M in savings for FSED and 5 lots, as a result 
     of the wing competition and resultant MDA subcontract to 
     Lockheed. This analysis verified the savings which had been 
     anticipated in late 1986.
       e. Based upon MDA's changes to its Make-or-Buy plan to 
     compete a portion of the wing manufacture and assembly, and 
     its decision to subcontract to Lockheed, the parties 
     negotiated modification No. P00137. This modification had an 
     effective date of 30 October 1987, estimated anticipated 
     savings of $76.5M for FSED and Lots I and II, and set up a 
     management reserve account to receive these savings. The last 
     paragraph (Page 2, Paragraph 5) of P00137 states ``This 
     Supplemental Agreement is a full settlement of any claims of 
     the Contractor resulting from the changes effected by 
     P00137.'' This modification is a full accord and satisfaction 
     between the parties.
       f. After the execution of P00137 Douglas never requested 
     any additional equitable adjustments until the filing of this 
     alleged claim, despite the fact that there program 
     restructures set out in P00108, P00384, and P00384 occurred 
     subsequently. Further, MDA never provided a notice that 
     constructive change had occurred, as required by the 
     contract. See Special Provisions H-67 and H-83(d).
       4. This is the final decision of Contracting Officer. You 
     may appeal this decision to the Board of Contract Appeals. If 
     you decide to appeal, you must, within ninety (90) days from 
     the date you receive this decision, mail or otherwise furnish 
     written notice to the Board Of Contract Appeals and provide a 
     copy to the Contracting Officer from whose decision that 
     appeal is taken. The notice shall indicate that an appeal is 
     intended, reference this decision and identify the contract 
     by number. Instead of appealing to the Board of Contract 
     Appeals, you may bring an action directly in the U.S. Court 
     of Federal Claims (except as provided in the Contract 
     Disputes Act of 1978, 41 U.S.C. 603, regarding Maritime 
     Contracts) within twelve (12) months of the date you receive 
     this decision. If you appeal to the Board of Contracts 
     Appeals, you may, solely at your election, proceed under 
     Board's Small Claims procedure for Claims of $10,000.00, or 
     less or its accelerated procedure for Claims of $50,000.00 or 
     less.
                                                   James C. David,
                                              Contracting Officer.

                               Exhibit 3

                   Excerpt From House Report 99-1005


                             c-17 aircraft

       The conferees agree that C-17 tooling costs in fiscal year 
     1987 are more properly financed in the Research, Development, 
     Test and Evaluation appropriation rather than in procurement. 
     Production tooling for the C-17 in future years will follow 
     the agreed-on tooling policy discussed elsewhere in this 
     report. The conferees agree to provide $650,000,000 to RDT&E 
     (including tooling), $15,000,000 in the procurement line for 
     production planning, and $35,000,000 for advanced 
     procurement.
       The conferees are pleased that the Air Force has decided to 
     conduct a competition for the production of C-17 wings. The 
     Air Force should report the results of the competition and 
     the Comptroller General should provide his independent 
     assessment of the competition to the Committees on 
     Appropriations as required by the House report.
                                  ____


                    Excerpt From House Report 99-793


                                  c-17

       The C-17 is a multiengine aircraft for inter and intra 
     theater airlift missions, for either strategic or tactical 
     purposes. Fiscal year 1987 is the first year proposed for C-
     17 procurement funding. Acquisition of a fleet of 210 
     aircraft at a cost of $35,828,100,000 is envisioned. The Air 
     Force budgeted $182,300,000 for production nonrecurring items 
     and $35,000,000 for advance procurement of long lead parts. 
     The Committee recommends $145,300,000, a reduction of 
     $37,000,000 as recommended by the House Armed Services 
     Committee, and $35,000,000 for advanced procurement of 2 
     aircraft in fiscal year 1988.
       During deliberations on the fiscal year 1987 defense budget 
     request, the Committee became concerned about the Air Force's 
     proposed acquisition strategy to have C-17 wing manufactured 
     by the prime contractor. Significant cost savings may be 
     available if C-17 wing production is competed. The Committee 
     commends the Air Force for its recent decision to conduct a 
     formal competition for C-17 wing production in response to 
     the Committee's concerns.
       The Committee directs the Secretary of the Air Force to 
     report the results of the formal competition for C-17 wing 
     production to the Committee prior to releasing fiscal year 
     1987 C-17 procurement or RDT&E funds to the prime contractor 
     that would be used for production tooling, long lead parts, 
     or other efforts related to manufacture of the wings. This 
     restriction is not intended to affect or otherwise delay 
     other elements of the C-17 production program. The 
     Secretary's report should demonstrate the Air Force's 
     preferred acquisition strategy for production of C-17 wings 
     will result in the lowest total acquisition cost to the 
     Government, including the tax implications of constructing a 
     new wing manufacturing facility, if applicable. The Committee 
     further directs the Comptroller General to provide an 
     independent assessment of the Air Force cost analysis 
     supporting its C-17 wing production strategy to the Committee 
     within two weeks of publication of the Air Force's report.

                               Exhibit 4


                                         Douglas Aircraft Co.,

                                Long Beach, CA, 22 September 1987.
     Subject: Contract F33657-81-C-2108, Supplemental Agreement 
         P00137, Wing Competition Savings
     To: Department of the Air Force, Headquarters Aeronautical 
         Systems Division (AFSC), Wright-Patterson Air Force Base, 
         OH 45433-6503.
     Attention: Daniel E. Rosner (ASD/AF/C-17KA).
     Reference: AF/YCK letter, dated 01 September 1987, same 
         subject.
       1. In response to the reference letter, the Contractor 
     forwards herewith a signed copy of the subject modification.
       2. The Contractor requests the Air Force incorporate 
     paragraphs 2 and 3 of the subject agreement in block 16 of 
     CDRL sequence No. 301A as follows:
       *``The management reserve narrative found in format 5 of 
     the Cost Performance Report entitled, ``Baseline revisions 
     this Month'' is hereby divided into two different parts. Part 
     1 will be the standard management reserve tracking of all 
     changes, with the exception of those associated with the wing 
     management reserve. Part 2 will separately track any changes 
     against the wing management reserve account.
       *``Any changes (drawdown or increase) to the part 2 
     management reserve account will require System Program 
     Director approval.''
                                                      M. W. Hogan,
                                          Manager, C-17 Contracts.
                                  ____


           Amendment of Solicitation/Modification of Contract

       Instrument ID No. 33657-81-C-2108.
       Issued by: USAF/AFSC Aeronautical Systems Div. (ASD), 
     Wright-Patterson AFB OH 45433-6503.
       Administered by: AFPRO, Douglas Aircraft Company, 3855 
     Lakewood Blvd., Long Beach, CA 90846-0001.
       Buyer: Jeff Patterson, ASD/AF/C-17KA.
       Contractor: McDonnell Douglas Corporation, Douglas Aircraft 
     Company, 3855 Lakewood Blvd., Long Beach, CA 90846-0001.
       Security Class: U.
       This supplemental agreement is entered into pursuant to 
     authority of mutual agreement of the parties. If modifies the 
     above numbered contract as set forth herein.
       Remarks (Except as provided herein, all items and 
     conditions of the contract, as herefore changed, remain 
     unchanged and in full force and effect.)
       Subject: Wing Competition Savings.
       Change in contract price: None.
       Change in obligation: None.
       Name and title of signer: W. Hogan, Manager.
       1. By mutual agreement of the parties, it is hereby 
     understood, that based on a change to the make or buy plan to 
     compete as a single subcontract package the following: 
     fabrication of stringers, wing skins and spar caps, 
     fabrication and subassembly effort related to the bulkhead 
     assembly, fabrication and assembly of pylons, winglets, slats 
     and fixed leading edge, an estimated savings of $65.6M will 
     be realized for subject contract. The estimated savings for 
     Lot I production, when exercised, will be $9.5M and the 
     estimated savings for Lot II production, when exercised, will 
     be $1.4M. All actual savings realized as a result of this 
     wing subcontract will be subject to final price 
     redetermination under Section H paragraph 46 of this 
     contract.
       2. The management reserve narrative found in format 5 of 
     the Cost Performance Report entitled, ``Baseline revisions 
     this Month'' is hereby divided into two different parts, 1 
     and 2. Part 1 will be the traditional management reserve 
     tracking pre-existing changes and Part 2 will be a fenced 
     management reserve consisting of the savings resulting from 
     the wing competition. Both Part 1 & 2 amounts will be tracked 
     separately.
       3. Any changes (drawdown or increase) to the part 2 
     management reserve account will require System Program 
     Director approval.
       4. This Supplemental Agreement is a full settlement of any 
     claims of the Contractor resulting from the changes effected 
     by P00137.

   Mr. GRASSLEY. Mr. President, I yield the floor. I have some time 
remaining. I would like to consult with the chairman of the committee 
or whoever is managing for the other side--they have 3 minutes left--if 
they want to continue or do they want to yield back time, because even 
though I have more time to yield back than they do, I will yield back 
my time.
  Mr. NUNN. The Senator from Hawaii has been waiting. I know he would 
like to speak for 3 or 4 minutes and then at that stage I think we are 
ready to come to a vote.
  Mr. GRASSLEY. I will reserve my judgment to see what the Senator from 
Hawaii says. If it does not need rebuttal, I will be glad to yield back 
time.
  Mr. INOUYE addressed the Chair.
  The PRESIDING OFFICER. The Senator from Hawaii controls 3\1/2\ 
minutes.
  Mr. INOUYE. Mr. President, I rise today to ask the Senate to vote 
against the amendment offered by the Senator from Iowa, and vote to 
give the C-17 program a fair chance to prove its value as our core 
airlifter of the future.
  I take this position because we need the C-17 now more than ever. The 
C-17 is uniquely suited for the demands of the post-cold-war era. And 
while others have come forward with alternatives, no other airlifter--
now in the fleet or under consideration--can go as far in meeting our 
current and future military airlift needs.
  Those who question the need for the C-17 overlook several important 
realities. In today's world, where the mission of our military forces 
has expanded to include localized conflict, ethnic strife, and 
humanitarian missions, America must have the means to respond quickly 
and effectively to crisis. As we continue to close and cut back our 
bases overseas, we are placing more and more importance on the ability 
to dispatch troops, equipment, and supplies over long distances--and to 
get them where they are needed, when they are needed.
  The C-17 is key to that essential rapid-deployment capability. It can 
carry more cargo to more airfields in less time than any other 
airlifter. Only the C-17 will have the versatility to conduct airdrop 
and combat offload operations, operate at austere airfields, cover 
transcontinental distances, survive hostile environments, and maneuver 
on the ground in such a way that it can deliver more cargo in shorter 
times than other aircraft. It can haul the kind of outsize cargo that 
will be critical to the early hours of future crises--armor, 
helicopters, Patriot missile systems, and the like.
  The promises of the C-17 are being kept. Its unique capabilities are 
being validated in flight and ground tests involving load tolerances, 
range and payload, takeoff and landing, ground maneuverability, and 
environmental conditions.
  In the last year, this aircraft and this program have been subjected 
to intense scrutiny and independent analysis. A study of the Institute 
for Defense Analyses confirmed that the C-17 remains the most cost-
effective solution to our increasingly urgent military airlift needs. 
The Joint Requirements Oversight Council, composed of four-star 
generals, confirmed the C-17 would meet the military's future 
operational requirements for strategic airlift. The Pentagon's cost 
analysis improvement group, certified that the C-17 is affordable with 
planned Defense Department budget parameters, and the Defense Science 
Board recommended continuation of the C-17 program. The findings of 
these various assessments were embraced by the Secretary of Defense and 
the White House; they support the request before us in this 
authorization bill.
  Listen to what the commander in chief of the U.S. Transportation 
Command Gen. Ronald Fogleman says about the C-17:

       All studies have validated our requirement for a core 
     military airlifter, and every cost and operational 
     effectiveness analysis to date confirms the C-17 Design as 
     the best option.

  In a letter dated May 23 to the Speaker of the House, President 
Clinton called the C-17's capabilities:

       Crucial to the Air Force's ability to deliver and sustain 
     forces in support of theater commanders * * * .Even with a 
     ``mixed'' strategic airlift enhancement program, that 
     includes procurement of non-developmental aircraft, there 
     will be certain core capabilities that can only be provided 
     by the C-17.

  The C-17 is demonstrating those capabilities today. It is a real 
product that has been delivered and it is meeting the tests set for it 
by the military and by Congress.
  Eight aircraft are in operational service.
  Of the 10 specific performance and program mandates set last year by 
Congress for continued support of the C-17, all have been met or 
exceeded.
  The latest program assessment by the Defense Department found that 
deliveries were improving in terms of schedule and quality, and 
reported that other schedule commitments were being met.
  In short, the C-17 is earning our support. It is showing steady 
progress in meeting Defense Department and congressional demands. It is 
critical that we do our part in this authorization bill to nurture that 
process and lay a foundation for further progress.
  Let me just acknowledge for the record that the C-17 has been a 
troubled program. It has encountered challenges and difficulties--many 
of which are not uncommon to programs of this size and complexity. But 
I believe it is time to drop this fixation on problems of the past. We 
believe we have a solution at hand--a way to put the troubles of the C-
17 behind us and get the C-17 program squarely back on track. That 
solution lies in approval of the settlement reached almost 6 months ago 
between the Defense Department and McDonnell Douglas; that settlement 
is the subject of debate here today.
  That settlement resolves all of the major issues and problems 
identified by the Defense Science Board task force review of the C-17 
program. It cleans the slate of disputes that threatened to add cost 
and delay to the C-17 program. It eliminates around $1.6 billion in 
actual and potential claims at a fraction of that cost to the 
Government and requires the contractor to make substantial direct 
investments in program improvements. It avoids the risks and costs of 
litigation, and enables both sides to focus their resources on 
producing quality aircraft at affordable prices.
  To paraphrase the Deputy Secretary of Defense John Deutch, this is a 
fair and balanced settlement--a good deal for the Government, a good 
deal for the taxpayer, and one that satisfies the military requirement 
before us. In his words, it establishes ``A new basis for doing 
business.''
  The Defense Department reported only last month that ``The benefits 
attributed to the settlement are not all speculative or prospective. 
The agreement has already produced tangible results.''
  In a sign of good faith, the contractor has begun fulfilling its 
financial end of the bargain, even in the absence of approval by 
Congress. It is time that we authorize the Defense Department to uphold 
the Government's end of this agreement.
  Over the next 15 months or so, the C-17 will be undergoing stringent 
tests as part of the most rigorous evaluation ever applied to an 
aircraft of its kind. The settlement agreement covered by this bill 
provides an ambitious but realistic plan to cut costs and meet the 
operational requirements set by the military. Approval of this 
agreement is crucial if we are to receive our desired return on what we 
have already invested in this much-needed program. Moreover, it is 
needed to give the C-17 the fair chance it needs--and deserves--to meet 
the high expectations set for it, and take its rightful place as the 
core of our worldwide airlift fleet.
  According to the Department of Defense, our refusal to approve this 
hard-won settlement would mean either a return to the problem 
environment of the past and the prospect of complicated, costly 
litigation, or program termination and associated litigation. That, 
quite simply, is an unacceptable, irresponsible alternative.
  As the Chairman of the Joint Chiefs of Staff Gen. John Shalikashvili 
has said, the C-17 must be given ``the opportunity to demonstrate its 
significant improvements and production efficiencies.''
  To those who would prefer to see the program fail, he warns--and I 
quote--``We must not let this happen on our watch.''
  Our military and civilian leaders agree on the importance of the C-17 
to meet the challenges America faces in the foreseeable future and to 
fulfill our commitments around the world. The Department of Defense has 
presented us with a reasonable plan to assure that the C-17 meets the 
expectations that have been set for it. I ask that you join me in 
supporting that approach as the single best solution to the erosion of 
our airlift capability--a fair deal that meets the twin tests of fiscal 
responsibility and military need.
  The PRESIDING OFFICER. The Senator's time has expired.
  The PRESIDING OFFICER. Who yields time?
  Mr. GRASSLEY. Mr. President, I am going to take 1 minute and then 
yield back my time. Time has expired on the other side?
  The PRESIDING OFFICER. The Senator is correct.
  Mr. GRASSLEY. First of all, I ask for the yeas and nays on the 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mr. GRASSLEY. Mr. President, as always, I appreciate the wisdom of 
the Senator from Hawaii. I have worked closely with him on such issues. 
Just last year, he was very helpful to me with some matters on the 
defense appropriations bill. I consider him very cooperative.
  He has expressed his feelings on this. I do not have anything in 
rebuttal to what he had to say, but I have something to add because he 
did make some mention of the claims that McDonnell Douglas had against 
the Federal Government that are settled and that that would be a 
rationale why this should be agreed to.
  They have been mentioned by several other people on this floor, as 
well, during this debate. There has never been any mention--when you 
talk about the claims McDonnell Douglas had against the U.S. 
Government--that the U.S. Government also had up to 3 billion dollars' 
worth of claims against McDonnell Douglas--3 billion dollars' worth of 
claims against McDonnell Douglas.
  In conclusion, after all this debate is said and done, there is still 
no explanation of why it should be this specific agreement. Why is the 
future of the C-17 so dependent on this agreement? I think and I hope I 
have made clear that this is a lousy deal for the taxpayers.
  So I urge my colleagues to send this agreement back to the drawing 
board. I yield back the remainder of my time.
  The PRESIDING OFFICER. Is there further debate?
  Mr. LEVIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, I rise in support of the C-17 settlement 
and budget request, as the armed services supported, and in opposition 
to the Grassley amendment. I know this is a controversial issue, but 
you cannot separate the purchase of the C-17 from the settlement 
between DOD and the contractor. Based on my analysis of the C-17 
program, it is clear that the settlement is a reasonable one and that 
it and the procurement are like the two blades of a pair of scissors: 
you don't get a fully functioning tool unless you have both components. 
If we are going to go ahead with the Defense Department plan to buy 40 
C-17's as the minimal fleet of C-17's, we must reach a settlement that 
permits the procurement to go forward. Otherwise, the Department of 
Defense and the contractor will spend years in litigation and claims, 
battling each other instead of producing the aircraft. To kill the 
settlement is to kill the C-17 program.
  Mr. President, I know many of my colleagues are concerned about the 
settlement of the C-17 program, and about the status of the program 
generally. I, too, am concerned that the program work, and that we get 
working aircraft at a reasonable price. The Defense Department has 
arrived at a conditional solution to the previous problems identified 
with the C-17 program. If the contractor meets DOD's terms, then DOD 
will go forward with continued procurement. If not, DOD will terminate 
the program at 40 planes. DOD should have a chance to make this 
solution work.
  Mr. President, I urge my colleagues to oppose the Grassley amendment.
  Mr. D'AMATO. Mr. President, one of the more controversial aspects of 
the finely crafted C-17 bail-out is the issue of claims. Much has been 
made of the fact that the contractor forwent $1.2 billion in threatened 
claims as part of the settlement proposal. My question is, why did the 
contractor give in?
  The contractor is expected to lose over $1 billion on the full scale 
development/lot I/lot II contract, but is willing to waive the right to 
recover some or all of these costs. Just how real were these threatened 
claims? Was the contractor's decision influenced by the record on 
claims prior to the proposed settlement: 6 of 11 denied outright, with 
5 more under negotiation or review?
  Conversely, what did we get, and what did we give up, by wiping the 
slate clean without a thorough adjudication of both contractor and 
government claims? What role did the system program office, the Defense 
plant representative office, and the Defense Contract Audit Agency play 
in assessing claims on either side as the settlement proposal was 
taking shape?
  Finally, was the Government forced to forgo claims because of the 
apparent inability of the Justice Department to recover even a penny on 
the dollar from the contractors involved in the A-12 debacle?
  These are questions troubling me as we consider the bailout before 
us.
  The PRESIDING OFFICER. All time having been yielded back, the 
question is on agreeing to amendment No. 1837 offered by the Senator 
from Iowa [Mr. Grassley]. The yeas and nays have been ordered. The 
clerk will call the roll.
  The legislative clerk called the roll.
  Mr. FORD. I announce that the Senator from Connecticut [Mr. Dodd] is 
absent because of illness in the family.
  Mr. SIMPSON. I announce that the Senator from Wyoming [Mr. Wallop] is 
necessarily absent.
  I further announce that, if present and voting, the Senator from 
Wyoming [Mr. Wallop] would vote ``nay.''
  The result was announced--yeas 32, nays 66, as follows:

                      [Rollcall Vote No. 162 Leg.]

                                YEAS--32

     Baucus
     Biden
     Bingaman
     Bradley
     Breaux
     Brown
     Bumpers
     Byrd
     Conrad
     D'Amato
     Dorgan
     Feingold
     Glenn
     Graham
     Grassley
     Gregg
     Harkin
     Hatfield
     Kohl
     Lautenberg
     Mack
     Mathews
     Metzenbaum
     Nunn
     Pressler
     Pryor
     Roth
     Simon
     Smith
     Specter
     Wellstone
     Wofford

                                NAYS--66

     Akaka
     Bennett
     Bond
     Boren
     Boxer
     Bryan
     Burns
     Campbell
     Chafee
     Coats
     Cochran
     Cohen
     Coverdell
     Craig
     Danforth
     Daschle
     DeConcini
     Dole
     Domenici
     Durenberger
     Exon
     Faircloth
     Feinstein
     Ford
     Gorton
     Gramm
     Hatch
     Heflin
     Helms
     Hollings
     Hutchison
     Inouye
     Jeffords
     Johnston
     Kassebaum
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Leahy
     Levin
     Lieberman
     Lott
     Lugar
     McCain
     McConnell
     Mikulski
     Mitchell
     Moseley-Braun
     Moynihan
     Murkowski
     Murray
     Nickles
     Packwood
     Pell
     Reid
     Riegle
     Robb
     Rockefeller
     Sarbanes
     Sasser
     Shelby
     Simpson
     Stevens
     Thurmond
     Warner

                             NOT VOTING--2

     Dodd
     Wallop
       
  So the amendment (No. 1837) was rejected.
  Mr. KENNEDY. Mr. President, I move to reconsider the vote.
  Mr. SIMPSON. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  (Mrs. FEINSTEIN assumed the chair.)
  Mr. CRAIG. Madam President, I ask unanimous consent to speak for 3 
minutes as in morning business.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The Senator from Idaho [Mr. Craig], is recognized for 3 minutes as in 
morning business.

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