Military Airlift: C-17 Settlement Is Not a Good Deal (Letter Report,
04/15/94, GAO/NSIAD-94-141).

The recent settlement between the Pentagon and McDonnell Douglas on the
troubled C-17 transport plane is not a good deal for the government,
which will have to waive all potential financial claims against the
aircraft maker, lower the C-17's performance standards, and pay more for
fewer aircraft.  To acquire 120 aircraft will now cost an estimated $43
billion--$1.3 billion more than the Pentagon's last estimate to acquire
210 aircraft.  In an effort to overcome the contentious relationship
between the government and the contractor, the government has agreed to
waive all of its potential claims arising from the contractor's failure
to meet the original contract specifications and delivery schedule,
without establishing the value of those claims.  The government also
agreed to resolve filed and unfiled contractors' claims by adding $237
million to the contract price.  Department of Defense (DOD) officials
acknowledge that the claims were never subjected to a full legal or
price analysis.  At the same time, McDonnell Douglas' out-of-pocket
expenses are hundreds of millions of dollars less than the agreement
implies. GAO urges DOD to determine immediately the minimum number of
C-17s needed and pursue a strategy to acquire alternative wide-body
aircraft that can meet its needs.  DOD, in deciding whether to continue
the program, also needs to establish specific cost-schedule and
performance criteria to evaluate improvement in the contract's
performance.  GAO summarized this report in testimony before Congress;
see: Military Airlift: The C-17 Program Update and Proposed Settlement,
by Frank C. Conahan, Assistant Comptroller General for National Security
and International Affairs, before the Subcommittee on Regional Defense
and Contingency Forces, Senate Committee on Armed Services.
GAO/T-NSIAD-94-166, Apr. 19, 1994 (44 pages); and Military Airlift: The
C-17 Proposed Settlement and Program Update, by Frank C. Conahan,
Assistant Comptroller General for National Security and International
Affairs, before the Subcommittee on Military Acquisition, House
Committee on Armed Services. GAO/T-NSIAD-94-172, Apr. 28, 1994 (43
pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-94-141
     TITLE:  Military Airlift: C-17 Settlement Is Not a Good Deal
      DATE:  04/15/94
   SUBJECT:  Defense contracts
             Military aircraft
             Cost overruns
             Department of Defense contractors
             Contractor performance
             Claims settlement
             Delivery terms
             Defense contingency planning
             Contract administration
             Cost effectiveness analysis
IDENTIFIER:  C-17 Aircraft
             C-5B Aircraft
             
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