John McCain on Cost-Plus ContractingOctober 03, 2008

 

During the Sept. 26 presidential debate, Republican John McCain mentioned a few items related to the defense industry. This came in response to a question by the moderator, Jim Lehrer of PBS, asking McCain about how he, as president, would adjust his priorities because of the financial bailout cost. Here's what McCain said:

“Look… no matter what, we've got to cut spending… I think that we have to return — particularly in defense spending, which is the largest part of our appropriations — we have to do away with cost-plus contracts. We now have defense systems [for which] the costs are completely out of control.

"We tried to build a little ship called the Littoral Combat Ship that was supposed to cost $140 million; [it] ended up costing $400 million, and we still haven't done it.

"So we need to have fixed-cost contracts. We need very badly to understand that defense spending is very important and vital, particularly with the new challenges we face in the world, but we have to get a lot of the cost overruns under control. I know how to do that."

The background on the Littoral Combat Ship is that in 2004, the DOD reviewed preliminary designs by Lockheed Martin, General Dynamics and Raytheon for a next-generation combat ship intended for battles close to the shore. The DOD selected Lockheed Martin's and General Dynamics' designs. The idea was to test out both versions and to settle on one design or a hybrid of the designs for a bigger production run. Last year, however, the Navy first canceled the Lockheed Martin contract and then the General Dynamics contract because of cost overruns. The Navy plans a new bidding process to try to bring the program back to life.

McCain continued: "I saved the taxpayers $6.8 billion by fighting a contract that was negotiated between Boeing and DOD that was completely wrong. And we fixed it and we killed it and the people ended up in federal prison. So I know how to do this, because I've been involved these issues for many, many years. But I think that we have to examine every agency of government and find out those that are doing their job and keep them and find out those that aren't and eliminate them, and we'll have to scrub every agency of government."

Here, the situation is a little more complicated: While McCain did help to "kill" the contract, he did not quite fix the situation either. McCain is referring to his effort to derail a DOD contract with Boeing for a new fleet of in-air refueling tankers that would have replaced the refueling tankers now in use for more than 50 years. He launched a probe that unearthed corruption between air force officials and Boeing executives, resulting in prison terms for people from both Boeing and the Air Force. The Pentagon canceled that contract as a result.

A new $35 billion contract has also been derailed, further delaying the replacement of the 1950's era refueling tankers. Newsweek reported in June 2008 that government auditors ruled that the Air Force made "significant errors" when it rebid the contract and awarded it to Boeing's chief rivals, the consortium of European Aeronautic Defense and Space Company and Northrop Grumman.

The auditors' ruling has also cast light on an overlooked aspect of McCain's crusade: Five of his campaign's top advisers and fund-raisers — including Tom Loeffler, who resigned last month as his finance co-chairman, and Susan Nelson, his finance director — were registered lobbyists for EADS.