15 Mar 05. JONATHAN KARP and ANDY PASZTOR Staff Reporters of THE WALL STREET JOURNAL reported that Sen. John McCain, who led the charge that doomed an Air Force plan to lease Boeing Co. aerial-refueling planes, is taking on the Army’s centerpiece modernization contract, a $100 billion-plus program run by none other than Boeing. Starting with a hearing today by a Senate Armed Services subcommittee that he chairs, the Arizona Republican will challenge the Future Combat Systems program on grounds similar to those on which he attacked the tanker-plane contract: cost and accountability. According to subcommittee staff members, Sen. McCain’s goal isn’t to kill the Army program or pick another fight with Boeing. Staff members say Mr. McCain wants to know why the FCS contract doesn’t conform to standard Pentagon procurements and to push for changes that allow more congressional oversight.

The scrutiny of FCS is likely to create a headache for Boeing as the Chicago aerospace company tries to move beyond ethical scandals and demonstrate that it can deliver on complex Pentagon contracts. The risk for the Army is that if Sen. McCain gains support for rewriting the contract, the service’s top priority could face funding and other delays.

The Pentagon requested $3.4bn for FCS in the fiscal 2006 budget, a 17% increase over this year. Technologies that will be used in the program account for nearly a quarter of the Army’s science-and-technology budget. FCS entails developing an array of manned and unmanned ground and air vehicles linked by a wireless-communications system. The aim is to make troops more agile by making them more aware of the enemy’s battlefield location. Technological obstacles already have forced the Army to restructure FCS a few times, delaying the fielding of the final equipment but accelerating development of some elements to get them to troops over the next decade.

Sen. McCain plans to examine the unusual contract structure. The contract, instead of following Pentagon regulations, gives Boeing unprecedented authority to determine, with the Army, the scope and costs of the FCS program. To accomplish that, the Army is using a contracting method, called an “Other Transaction Authority,” originally developed to speed along small research projects and encourage nondefense companies to share advanced technology with the military. Randy Harrison, a spokesman for Boeing’s FCS team, said lawmakers already receive regular updates on costs and schedules. “We recognize that any program this large warrants intense scrutiny,” he said.

Claude Bolton, head of Army acquisitions, has said that FCS’s auditing requirements are the same as in typical weapons programs but that the contract’s flexibility is designed to quickly field various weapons systems needed by troops in Iraq. Critics argue that the Army relies too heavily on Boeing to pick the right technologies and verify subcontractor prices. Some normal contracting regulations “do apply, but not the ones that give taxpayers protection,” says Scott Amey, general counsel of the Project on Government Oversight, an independent anticorruption group in Washington.

The Pentagon also is using this contract vehicle for the missile-defense system, where Boeing plays a leading role as an integrator for the ground-based interceptors. James Albaugh, head of Boeing’s space and defense business, has said that FCS and missile defense are among the company’s most profitable programs. In FCS, Boeing has a number of revenue streams, from its work developing elements such as software as well as fees for managing subcontractors and integrating their vehicles into the overall network. To date, Boeing has received more than one-third of all FCS spending.

The Army has defended the FCS program, but a senior Army official said the contract structure was “the best of bad choices” given the complexity of the program. He said questions about cost and Boeing’