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Army Will Restructure Modernization Contract

By Renae Merle
Washington Post Staff Writer
Wednesday, April 6, 2005; Page E05

The Army announced yesterday it would restructure its $120 billion modernization effort after facing questions from Sen. John McCain (R-Ariz.) about whether taxpayer interests were being protected.

The Future Combat Systems (FCS) program is designed to replace the Army's heavy tanks and battlefield equipment with a lightweight, high-tech mix of manned and unmanned vehicles. Chicago-based Boeing Co. is managing the program under what is known as "other transaction authority," or OTA, rather than a normal procurement contract.

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The arrangement drew criticism for excluding some standard contract provisions, including one that limits government employees' ability to negotiate a job with a contractor, and another under which the government conducts audits. Critics also questioned whether Boeing, the Pentagon's second-largest contractor, should be using a provision Congress originally intended to attract small commercial companies to the industry with small research projects.

Less than a month after defending the arrangement before Congress, the Army said yesterday it had concluded a two-month review and decided to transfer the program to a traditional contract that includes the standard provisions. The Army had originally argued that the OTA eliminated unnecessary paperwork, saved time and money, and still protected taxpayer interests.

"The OTA was appropriate for the earlier phases of FCS," Army Secretary Francis J. Harvey said in a statement. But "we need a contractual arrangement that best ensures FCS is properly positioned." Harvey and McCain met yesterday hours before the announcement was made.

This will mark the second major restructuring of the program. Last year, the Army added billions to the program's cost by accelerating some parts of the system and delaying others.

The Army did not say how much the restructuring would cost, but a government source familiar with the issue said if there is a charge related to the conversion, it will probably be administrative.

The Army's reversal marks a quick victory for McCain, who was credited last year with leading an attack on a now-defunct Air Force proposal to lease and buy tankers from Boeing.

"I am gratified by the Army Secretary's receptiveness to my concerns about the program and I am looking forward to seeing precisely how the Army implements its stated commitment to ensuring that the interests of the taxpayer are preserved," McCain said in a statement.

The 2006 defense authorization will further limit the use of OTAs in light of the FCS agreement, a Senate aide said.


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