Pentagon move on contract is blow to Boeing

FT
By Demetri Sevastopulo in Washington
Published: April 6 2005 00:36 | Last updated: April 6 2005 00:36

Boeing suffered another blow on Tuesday with a Pentagon decision to restructure a controversial $100bn contract to modernise the army, after opposition to the deal by John McCain, a senior Republican on the Senate armed services committee.

In recent months, Mr McCain has expressed concern that the army used an unorthodox contracting procedure for the Future Combat Systems contract. The expensive programme is aimed at making soldiers more effective by linking them and their vehicles to a network-based system of satellites, robotic vehicles and weaponry. Mr McCain objected to the so-called “Other Transaction Authority” (OTA) contract, usually used to help small non-defence companies avoid Pentagon red tape, saying it did not include sufficient protections for the taxpayer.

Following a meeting with Mr McCain on Tuesday, Francis Harvey, who recently took over as secretary of the army, announced that the army would restructure the FCS contract to adhere to traditional acquisition rules. The army said the changes would be “comprehensive and include contractual, programmatic and managerial improvements”.

The decision is another setback for Boeing, which has spent two years dealing with the fallout from acquisition scandals. The Pentagon last year cancelled a $23.5bn Boeing deal to provide the air force with air-to-air refuelling tankers after Darleen Druyun, a former air force official who went to work for Boeing, admitted boosting the price of the contract as a “parting gift” for the company.

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