U.S.A.: Cost Climbs on Army Contract with Boeing

WASHINGTON - Just three weeks after Army Secretary Francis J. Harvey said there would be no "significant costs" in restructuring the Army's contract for its Future Combat System, the linchpin of the service's 21st-century force, Pentagon officials now say the changes will cost tens of millions of dollars.

The officials, who requested anonymity, estimated the cost of changing the contract at $25 million to $75 million, which could raise new concerns among members of Congress already sharply critical of cost overruns and lax oversight in the Army's largest acquisition program.

Asked about the possibility of added costs in the restructuring, Harvey told reporters April 6, "I don't expect there to be any significant costs. ... There may be some administrative costs, but I don't expect any substantial costs to the program."

Army Lt. Col. Tom Collins, a spokesman for Harvey, said yesterday that estimates of tens of millions of dollars in contract costs were "not even close," though he said the administrative expenses have yet to be determined.

But Pentagon officials knowledgeable about the $20.9 billion program said the Army did little or no analysis before deciding to restructure the contract, a move strongly urged by Congress. The tens of millions of dollars added to the price tag - likely a one-time cost - represent administrative and renegotiation costs associated with switching to a federal contracting category that has the more stringent disclosure rules and regulations Congress wanted for the contract, officials said.

The Future Combat System, a collection of armored vehicles, drone aircraft and ground-based sensors, is designed to give soldiers a better view of the battlefield about 2016, four years later than originally anticipated. The cost could be as high as $133 billion, said analysts, up about 45 percent from the $92 billion price tag the Army was estimating as recently as a year ago. The lead contractor on the program is Boeing Co., the Chicago-based defense giant.

The Army, which now places the system's cost at $122 billion to $125 billion, has said the higher estimates resulted from restructuring the program last summer to accelerate some of the technology, add additional capabilities to the FCS and stretch spending into the future.

One Senate staff member said any added costs to the program could further anger lawmakers, some of whom already are pressing for reductions in the Future Combat System's budget.

Randy Harrison, a Boeing spokesman, would not comment on the possible additional costs in the restructuring, referring all questions to the Army.

Besides the cost issue, there have been concerns about the development of the Future Combat System. An official with the Government Accountability Office, the watchdog arm of Congress, told lawmakers recently that the system's cost was growing, even though 52 of the 53 crucial technologies in the system remain unproven.

The likely increase in contract costs is the result of a decision by the Army to put stricter safeguards on price information, cost accountability and conflicts of interest.

Initially, the Future Combat System was placed under a federal designation meant for small research of limited prototypes. But Republican Sen. John McCain, an Arizona Republican and member of the Armed Services Committee, recently pressed the Army to restructure the contract, placing it under more stringent cost and disclosure requirements and conflict-of-interest safeguards.

Senate staffers noted that Boeing and other industry heavyweights were leading the program - including Science Applications International Corp., Lockheed Martin, TRW, General Dynamics and Raytheon - and so it belonged in the more stringent category. The Army countered that smaller companies, such as the Massachusetts-based iRobot, were involved in the Future Combat System. That company's work has led to remote-controlled vehicles that are being used in Iraq and Afghanistan, officials said.

Still, Army leaders agreed to switch the contract to the more stringent rules, saying the previous guidelines had been "appropriate for the earlier phases" of the program. The Army also pledged to review the program three times a year, create a new office headed by a three-star general to manage the contract, and set up an outside panel of advisers to conduct independent assessments of cost, schedule and technical aspects.

But Pentagon officials said the Army decided to make the switch to the new contract without a detailed look at additional costs or whether the restructuring would slow the program. "There was no analysis," said one official. "These guys shot from the hip."

On Thursday, Harvey met with top Army officers and officials involved in the Future Combat System and discussed how to move ahead with the new contract without any adverse effect on the price tag or schedule. Boeing and the other 24 companies involved in the program are expected to meet within the next two weeks to map out a transition to the restructured contract expected in late summer, officials said.

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