Pentagon Report: C-130J Cancellation Costs Were OverestimatedJun 29, 2006 09:16 UTC by Defense Industry Daily staff
The C-130J Super Hercules aircraft was the subject of heavy criticism and a near-death budget experience, followed by its reinstatement by Defense Secretary Rumsfeld on grounds that canceling the contract would be almost as expensive as completing it. The C-130J serves with a number of other air forces, and has since been deployed into theater by the USAF where its vastly improved performance in “hot and high” environments has come in very handy.
The US has since issued a follow-on orders for the basic C-130J aircraft and some key variants (KC-130J tanker, EC-130J broadcaster, WC-130J weather, et. al.) in order to begin recapitalizing its decaying C-130 fleet, making the C-130J their successor by default. Unlike the pending Airbus A400M, however, the C-130J doesn’t solve the sub-survivable 20-ton armored vehicle limit that has stymied multiple US armored vehicle programs from the Stryker IAV to Future Combat Systems. As such, it represents an improvement that fails to address US tactical airlift’s key bottleneck limitation.
The excuse of C-130J contract cancellation fees being too high may or may not have been face-saving dodge in the face of Congressional lobbying. What is now far more certain is that the cancellation figures cited were over-estimated.
The WAshington Post reports that the Pentagon’s inspector general has issued a report claiming that the purported $1.78 billion cancellation costs may have been overstated by up to $1.1 billion. According to the report, the estimate Rumsfeld was given was “incomplete and did not provide reliable information for making an informed decision,” leaving decision-makers incapable of rationally deciding the cost-effectiveness of continuing or terminating the contract.
Part of the problem was that the contract was commercial rather than military in nature, a move that may reduce red tape and hence costs while offering more flexibility, but at the price of more ambiguity. For instance, unlike a military contract, the company was not obliged to provide cost and pricing data, including its profit margin. The report also noted that “conflicting statements and ambiguities in the contract limited the Air Force’s ability to assess” cancellation costs.
At this point, the report will make little difference to US procurement plans. The C-130J’s US future is pretty much assured performance has been positive, Congressional support is solid, production is assured, and international orders continue (with possible upcoming buys from Canada, India, and Israel, among others).
Where it may make a difference is with respect to ongoing attempts to reform the US military procurement system. The phenomenon of hammers that cost hundreds of dollars is partly a consequence of the bureaucracy and specification overhead found in many military contracts, and this overhead also tends to slow the system’s delivery time. Countries around the world are trying various approaches that may offer hope for improvement, from Singapore’s unique public-private approaches and Israel’s combination of universal service and rapid prototyping, to integrator-led programs like the USA’s Future Combat Systems and Britain’s FRES to commercial contracts or even commercial leasing.
All contracting approaches have upsides and downsides, however – and the C-130J contract’s execution has revealed one of the possible downsides from commercial approaches.
whether that revelation creates an impetus to refine alternative approaches, or simply makes procurement officers more risk-averse and less inclined to try alternatives, remains to be seen.