[Congressional Record (Bound Edition), Volume 160 (2014), Part 7]
[Senate]
[Pages 10122-10123]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    DEFENSE PROCUREMENT CONTRACTING

  Mr. McCAIN. Mr. President, when I first exercised congressional 
oversight of the F-35 Joint Strike Fighter Program in 2010--at that 
time I was the ranking member of the Senate Armed Services Committee--I 
saw a program in turmoil. Perhaps the most significant indication of 
that was that while the program had exploded from its original overly 
optimistic development cost estimates by more than $15 billion and was 
delayed by 5 years, without the prospect of delivering needed 
warfighting capability anywhere on the horizon, the program's prime 
contractor consistently received most of those award fees that were 
available to it under its contracts with the government. Let me repeat. 
The contractor continued to receive award fees that were supposed to be 
given in case of the program meeting certain milestones. In fact, it 
exceeded the cost estimates by $15 billion and was delayed by 5 years.
  Since 2010 major challenges have continued to arise. Just days ago 
the Department of Defense grounded the entire F-35 fleet because of an 
in-flight emergency involving a leak of engine oil. This is the second 
grounding of the F-35 fleet due to engine problems in the last 16 
months.
  Much work remains to be done in the program, including validating 
design and operational performance; installing state-of-the-art flight 
and combat software programs--those programs are still being written--
and making the F-35 affordable, with life-cycle costs estimated at more 
than $1 trillion--the first weapons system in the history of this 
country that is estimated to cost $1 trillion. While the Government 
Accountability Office has said the program is ``moving in the right 
direction,'' this is clearly a program that has had and continues to 
have major problems.
  With this in mind, I was greatly concerned when I read an article 
last week entitled ``Carter: JSF Program Manager Based F-35 Award Fees 
on Desire to Protect Lockheed Exec.'' It was on InsideDefense.com. The 
article describes comments made by former Deputy Secretary of Defense 
and Under Secretary of Defense for Acquisition, Technology and 
Logistics Ashton Carter--a man I admire a great deal--in a speech at 
Harvard University on May 16, 2014. He revealed that while the Joint 
Strike Fighter Program was suffering from massive cost growth and 
scheduling delays, the government's program manager for JSF 
consistently awarded prime contractor Lockheed Martin most of its 
available award fees due to concern about the job security of his 
Lockheed Martin counterpart.
  Appropriately, the Department of Defense fired its program manager, a 
Marine Corps two-star general, in February 2010. While that official 
had been giving away millions of taxpayers' dollars to his friend in 
the industry, regardless of how exceedingly poor the Joint Strike 
Fighter Program was performing, independent cost estimates were 
briefing the Pentagon that the Joint Strike Fighter Program might 
exceed its original budget estimates by as much as $60 billion.
  To understand why the cost to procure these fighters exploded, then-
Deputy Secretary of Defense Carter requested a breakdown of F-35 costs 
and challenged the program manager as to why he had been giving 
Lockheed Martin upward of 85 percent of the maximum award fee it could 
have earned. As Secretary Carter recounted, that official said:

       I like the program manager on the Lockheed Martin side that 
     I work with. And he tells me that if he gets less than an 85-
     percent award fee, he is going to get fired.

  This is totally unacceptable. It is the kind of cronyism that should 
make us all vigilant against, as President Eisenhower warned us over 50 
years ago, the ``military industrial complex.'' In this case, it 
appears taxpayers paid a massive premium for the friendship between the 
government's and the contractor's program managers. As disturbing as 
these recent revelations are, this incident also raises a few other 
questions. For example, why were award fee criteria that exposed those 
Joint Strike Fighter Program contracts to the risk of being abused in 
exactly this way originally negotiated into that contract? Why would 
the contract allow such a thing?

[[Page 10123]]

  Where was this program manager's superiors, the Service Acquisition 
Executive, and particularly on the Joint Strike Fighter Program the 
Under Secretary of Defense for Acquisition Technology and Logistics? 
What about his superiors. Were they not supposed to be overseeing how 
and why he was awarding Lockheed Martin fees throughout the relevant 
period?
  This whole episode underscores the importance of ethics in government 
contracting. If the program manager or the program executive officers, 
senior officials in the acquisition chain of command do not recognize 
the fiduciary responsibility they have to the taxpayer in their 
stewardship of defense dollars, any attempt to reform the defense 
procurement process or otherwise exercise vigilance vis-a-vis the 
military industrial complex will fail.
  This episode also emphasizes the importance of the trade craft of 
government procurement contracting. Those skills and judgment that 
comprise the trade craft of government procurement contracting provide 
government acquisition managers with the tools he or she needs to keep 
the ``unwarranted influence'' of the military industrial complex at bay 
and make sure the product or service to be delivered into his or her 
watch will be delivered on time, with the required capability, and at a 
reasonable cost.
  That starts with structuring government procurement contracts 
properly so that given the nature of the work and the deliverables 
being placed on contract, one, exactly the kind of performance that is 
important to the government in a given program is being incentivized, 
and, two, the government is incentivizing its industry partner to 
render that performance effectively. If in a given program the 
performance that is important to us is cost control, as it should have 
been in the case of the Joint Strike Fighter Program development 
contracts, why were we even using an award fee as opposed to an 
incentive fee contract?
  By their very nature, incentive fee contracts provide that the cost 
of overruns be shared between industry and government and therefore 
incentivizes prime contractors to minimize them. This, of course, has 
not been a problem that has been limited to the Joint Strike Fighter 
Program. For years we have seen a widespread use of award fee 
contracts, including those that support major defense acquisition 
programs with subjective measures of award fees not clearly tied to 
cost control.
  Any internal Department of Defense guidance that simply prescribes 
the use of ``appropriate'' contract types that are not accompanied by 
effective guidance and training on exactly how contract types should be 
tailored to a given product or service should be viewed with 
skepticism.
  This matter, and indeed the broader possibility that the episode that 
Dr. Carter alluded to in his speech may be more pervasive throughout 
the whole of government than we realize and should concern all 
congressional committees of jurisdiction, inspectors general, and 
Americans who value how their taxpayer dollars are being used.
  I repeat: As a proud supporter of our Nation's defense, as an 
outspoken opponent of sequestration and the damage it is doing to our 
Nation and our ability to defend it, when we look at a program such as 
this, where it exceeded its original cost estimates by more than $15 
billion and more than 5 years of delay and there are still problems 
with the most expensive weapons system in history, and the first time 
$1 trillion is being spent on one weapons system, we need to do a lot 
better.
  One of the actions that has to be taken, which has not been taken, is 
holding people accountable. I remember talking at a hearing and asking 
the Chief of Naval Operations about the USS Gerald R. Ford, their 
brandnew aircraft carrier. It had a $3 billion cost overrun. I asked 
the Chief of Naval Operations who was responsible. The Chief of Naval 
operations said he did not know. That is absolutely unacceptable.
  So what we are doing by these terrible cost overruns--and the list 
goes on and on. I will come to the floor one of these days with a long 
list of programs that did not even reach fruition, that were canceled, 
such as the Future Combat System Program that the Army was touting for 
many years, for which we got zero return at a cost, as I recall, of 
over $3 billion.
  Unless we fix this cost overrun problem, the American people will 
stop supporting spending money on defense. That is just a fact. It is 
time we in Congress exercised much greater oversight, much greater 
scrutiny, much greater questioning, both before, during, and after the 
acquisition process. I strongly recommend the work of inspectors 
general. I strongly recommend using the Government Accountability 
Office, which is one of our most important tools. I strongly recommend 
using committee staffs and sending them to the places where these 
weapons systems are being assembled to get detailed briefings because 
this has to stop. I am getting a little bit repetitious over the years 
saying it has to stop, but when we look at the strains and the 
challenges around this globe that are taking place now, from the China 
Sea to Iraq, we are going to have to have a strong national defense. We 
cannot have that with these outrageous and unacceptable cost overruns.
  I yield the floor and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________