Army revising its FCS Boeing deal

Just weeks after arguing before Congress that an untraditional contract was the best approach to developing its flagship transformation program, the Army has decided to revise dramatically its $14.8 billion agreement with lead contractor Boeing.

Army Secretary Francis Harvey told reporters yesterday that the service had evaluated the contract over the past two months and decided that a federal-acquisition-based agreement would be a “more appropriate” contract for a program the size and scope of the massive Future Combat Systems (FCS).

The FCS program had become the latest target for Sen. John McCain (R-Ariz.), who has pressed the service to change its deal from a so-called “other transaction authority,” or OTA, to a more conventional contract. McCain had expressed concern that the original contract did not contain adequate oversight provisions requiring Boeing to report its cost and pricing data to government contracting agencies.

Harvey informed McCain of the Army’s decision during a meeting Tuesday afternoon. The secretary said yesterday that he was in “total agreement” with the Arizona senator on the FCS program.

However, Harvey stressed that the Army made its decision independent of McCain’s efforts. He said he initially discussed changing the contract with the service’s chief of staff, Gen. Peter Schoomaker, in late January.

“It was probably two independent efforts going on,” Harvey said.

The change to the program, whose price tag eventually will top $120 billion, will not add any “significant” costs, Harvey said. It also will not delay the schedule for FCS development and production, which last summer the Army pushed back four years.

The new contract will contain a host of acquisition provisions omitted from the original agreement, signed two years ago. It will include Truth in Negotiation Act, Procurement Integrity Act and Cost and Accounting Standard clauses — all of which are designed to facilitate government oversight.
The Army will renegotiate the deal with Boeing and plans to have a new contract in place in the next three or four months, Harvey said. Boeing has said in recent weeks that it will be amenable to any contract changes the Army makes.

Army leaders do not expect the new contract to have any impact on Boeing’s role as the program’s “lead system integrator,” or LSI. Under that arrangement, the Chicago-based firm has greater management authority of the program than traditional prime contractors. Science Applications International Corp. has a smaller role on the LSI team.

“Boeing is going to be the LSI,” Harvey said. “That’s not going to change.”
FCS consists of 18 manned and unmanned systems tied together by a vast network. By far the most ambitious and costly program the service has ever undertaken, the combat systems form the technical core of the Army’s transformation efforts.

Until now, the Army had argued that the OTA provides more flexibility on the program and would help it rapidly and affordably develop FCS’s many systems and subsystems.

“We need to acquire the best capabilities that we can afford within the constraints given to us by the war fighter and the public,” Claude Bolton, the service’s acquisition chief and the architect of the FCS development contract, told the Senate Armed Services Airland Subcommittee March 15. “I believe that this — that the LSI and the OTA — are both vitally important to our success.”

At that time, Army leaders had been evaluating the contract but their conclusions were “not ready to go to prime time,” Harvey said.

“These are big changes,” he added. The service needed to make sure “we thought it through.”

First used in 1989, other transaction agreements typically are reserved for purchasing commercial equipment from companies not accustomed to doing business with the government. It is a much simpler contracting vehicle and allows small and innovative businesses to negotiate with the government without having to take a crash course on federal acquisition regulations.

Opponents of the FCS agreement, including McCain, have argued that FCS requires extensive development and testing and is far from a commercial procurement. And Boeing, the second-largest defense supplier in the country, is well-versed on government contracting regulations.

Lawmakers have long been leery of OTAs. In the 1999 Defense Authorization Act, authorizers warned that OTAs should “only be used in exceptional cases where it can be clearly demonstrated that a normal contract or grant will not allow sufficient access to affordable technologies.”

They particularly wanted to prevent the government and contractors from using the agreements to circumvent standard acquisition and budgeting processes.