Army revising Boeing contract

WASHINGTON — The Army announced yesterday it will restructure the large Future Combat Systems contract on which Boeing is the lead system integrator.

The Army, whose move had been expected, bowed to pressure from Sen. John McCain, who has been publicly skeptical of loose contractual guidelines in a program that could ultimately cost $120 billion over a decade.

Last week, the Arizona Republican asked the Army to calculate what it would cost to switch the program to a standard military contract. The current, looser structure is known as "Other Transaction Authority" or OTA.

Yesterday, McCain met with Army Secretary Francis Harvey, who agreed the contract needed to be radically revised.

In his statement, Harvey said, "The changes are comprehensive and include contractual, programmatic and managerial improvements."

The new contract, which will have to be reshaped with the companies involved, will now include provisions regarding government access to the companies' cost and pricing data, and strict rules regarding conflict of interest for military officials who may be considering employment with the companies they deal with.

McCain applauded the revisions, saying Harvey "presented an aggressive strategy" for reworking the contract "with provisions typically used to protect taxpayers' interests and help prevent fraud, waste and abuse specifically included. For whatever reason, these provisions were not included in the original OTA."

Boeing, lead systems integrator on the overall contract involving nearly a dozen companies, said it would work closely with the Army. It added, "The impacts of these changes will not be known for some time."

The Future Combat Systems program will use advanced communications to link troops with a family of 18 light, fast, manned and unmanned air and ground vehicles.

The Army also took steps to ensure tighter managerial oversight of the program within the Army, with Harvey and Chief of Staff Peter Schoomaker to do in-depth reviews at least three times a year.

The Army said any major changes to the program would require Harvey's express approval.

The changes will also formally couple the program with an Army initiative to create a more modular force, and they mandate periodic independent cost, schedule and technical assessments.

The Army said the new terms would include the Truth in Negotiation Act; the Procurement Integrity Act; Cost Accountability Standards; and an organizational conflicts-of-interest clause.

These regulations were not part of the current agreement.

McCain last week had asked Harvey, a former defense-industry executive, to provide cost estimates by this Friday for converting the agreement into a traditional contract. He argued that the OTA structure was intended for small, developmental projects and should not have been used for such a big project.

Boeing and its junior partner on the project, Science Applications International, won a $14.8 billion contract in December 2003 to oversee development of the program. In July, the Army added $6.1 billion as part of a restructuring that delayed full operational capability four years to 2016.

Sources familiar with the matter said Harvey had taken a strong interest in the project and was keen to avoid a long battle over the project with Congress.

Information from Reuters is included in this report.