To hear Navy Secretary John F. Lehman Jr. tell it, the story of the Tacoma Boatbuilding Co. is a tale of sound and fury, signifying a new hard-nosed Pentagon reluctance to rescue troubled contractors.
"If they went bankrupt , we told them, that would be the consequence of the free-enterprise system," Lehman told Defense Week recently. "We must be prepared to see companies get into financial trouble."
A closer look at Tacoma Boat, however, yields a different moral. Far from unsheathing the terrible swift sword of free enterprise, the Navy had first bent backward to keep the shipyard afloat by approving delays and accelerating payments, showing just how misnamed a "firm fixed-price" contract can be.
With 2,000 workers in the Pacific Northwest, Tacoma Boat from 1980 to 1982 won contracts to build 12 submarine trackers with names such as Vindicator, Assertive and Dauntless. Tacoma's bid for the dozen ships was $146.9 million, $45 million less than the nearest competitor.
During the course of the contract, the Navy approved about 130 changes. The shipyard schedule was allowed to slip. Then it slipped again. And again. And again -- five times by the spring of 1984, according to congressional testimony by Vice Adm. Earl B. Fowler, head of Naval Sea Systems Command.
The Navy also agreed to buy $1.4 million worth of spare parts for each ship instead of $300,000 as originally planned, Fowler said.
Then, Fowler said, the contract "was restructured to help the company financially," which helped swell the value of the "firm fixed-price contract" to $213 million. Fowler said the increase didn't change the contract's value because it simply moved anticipated inflation costs from a special pot into the contract; but it provided a larger base on which to calculate Navy progress payments to Tacoma.
That was an important consideration, because by April 1984, the Navy had paid Tacoma 71 percent of the total price of six ships that the shipyard hadn't begun to build. In fact, when the progress payments failed to stave off the shipyard's creditors, the Navy dropped $26.5 million into a "Special Bank Account." Tacoma Boat used that money to pay local taxes and to finance work on non-Navy ships, including two patrol boats for Thailand, Fowler said.
B. James Lowe, chairman and president of Tacoma Boatbuilding Co., last week disputed the Navy's contention that government funds went toward nongovernment contracts as "absolutely and totally incorrect." He also said Navy progress payments had been in line with the shipyard's progress, including extensive preparations before construction began.
Last August, the Navy advanced Tacoma Boat $15 million, after the firm obtained a bond insuring that the money would be repaid even if the shipyard went broke. Earlier this year, another company bought a controlling interest in Tacoma, and "excellent" ships now are being delivered on schedule, Lowe said.
It was the demand for insurance, almost unheard of in Pentagon contracting, that Lehman referred to when he boasted about pushing Tacoma to the wall.
"He gave us no favors, God knows," Lowe agreed.