Military Airlift: The C-17 Proposed Settlement and Program Update
(Testimony, 04/28/94, GAO/T-NSIAD-94-172).

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.

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

 REPORTNUM:  T-NSIAD-94-172
     TITLE:  Military Airlift: The C-17 Proposed Settlement and Program 
             Update
      DATE:  04/28/94
   SUBJECT:  Military aircraft
             Department of Defense contractors
             Defense contracts
             Defense contingency planning
             Defense cost control
             Defense appropriations
             Defense economic analysis
             Military airlift operations
             Claims settlement
             Product performance evaluation
IDENTIFIER:  Air Force C-17 Full Scale Engineering Development Program
             C-17 Aircraft
             Cost Performance Index
             C-5B Aircraft
             
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