U.S., Ford Sign Settlement on Sgt. York Program : Deal Will Trim Defense Firm’s Losses on Controversial Project, Sources Say

When former Defense Secretary Caspar W. Weinberger canceled the controversial Sgt. York air defense gun in August, 1985, it looked as though he had struck a crushing blow to Ford Motor’s defense business.

But Tuesday, the government signed its formal settlement with Ford over the Sgt. York program, and the results show a big surprise. Weinberger apparently did Ford a favor by canceling the program.

Ford was internally projecting that it would lose more than $200 million on the Sgt. York program just before the cancellation, according to sources close to Ford. As a result of the cancellation, Ford substantially reduced its projected losses.

Government officials who handled the negotiations declined to say how much Ford ultimately lost on the program. But they confirmed that after the final accounting, the program was still in the red.

“Our only capability in this program termination was to save taxpayers money,” said Col. Robert De Jong, commander of the Defense Contract Administration Service plant office at Ford Aerospace in Newport Beach. “I feel we did an outstanding job of it.”

The final cost to taxpayers of the ill-fated program is put at $1.445 billion, substantially less than the $1.8 billion originally projected, De Jong said. Still, it was said to be the largest and most costly contract cancellation and remains controversial even in its aftermath.

The Sgt. York, an armored vehicle equipped with radar and two guns, was intended to shoot down enemy helicopters and jets. The program faced enormous opposition in Congress because of its alleged inability to shoot down every type of Soviet aircraft.

Ford Aerospace spokeswoman Susan M. Pearce declined to comment on the company’s financial loss, but added, “We supported that program 100%, and we felt very strong about meeting our commitments.”

Nonetheless, some former Army officials said they suspect that Ford got a good deal out of the cancellation.

“I think there was a big sigh of relief at Ford when the program was terminated,” said James P. Maloney, a retired two-star general who was commander of the Army’s Air Defense Center at Ft. Bliss, Tex. “Ford would clearly have lost a substantial amount of money.”

De Jong declined to discuss the extent of Ford’s loss but acknowledged that the cancellation “cut their future losses.” He surmised that it also took away Ford’s ability to ever offset those losses in later production awards.

But it would have been a long time before Ford could begin to recover its losses, according to Maloney. He recalled that the Army was preparing to increase its orders for Sgt. Yorks by exercising the third production option in the Ford contract just before the program was terminated.

‘Would Have Taken a Bath’

“It did appear to me that Ford would have taken a bath if the Army had exercised option three,” he said, noting that Ford would have been liable for fixing a number of hardware problems that did not meet the Army’s specification.

Indeed, for that very reason, some defense critics had advocated that the government terminate Ford’s contract for default, rather than for the convenience of the government. Under a default cancellation, Ford would have been liable for restitution of the $1.445 billion in sunk costs.

“I think the government could have proven a case of default,” said Dina Rasor, whose Project on Defense Procurement was among the most acrimonious enemies of the Sgt. York.

‘Less Than Vigorous’

But Army officials felt that Ford lived up to the letter of its contract, even though it seemed reluctant to make a concerted political lobbying effort to keep the program alive, he said.

“Ford did not appear overly interested in pushing for continuation of the program,” Rasor said. “Their marketing operation in Washington was clearly inferior. They were less than vigorous in pushing for the program.”

Asked whether Ford’s loss played any role in his decision to terminate the program, Weinberger issued the following statement: “I had no idea whether Ford was making a profit or not. That was irrelevant. The point was that the system was not going to work, and we needed a system that would work. Ford was very unhappy with the cancellation at the time.”

Others involved in the program at Ford took sharp exception to any suggestion that the company was secretly hoping for the cancellation.

One knowledgeable source said the estimated $200-million loss was “greatly exaggerated” and suggested that Ford may have ended up with a loss only in the “millions of dollars.”

Despite the size of Ford’s ultimate loss, De Jong said in a recent interview that the taxpayers came out of the Sgt. York termination in good shape.

During the past 3 1/2 years, dozens of inspectors, contracting officers, auditors, accountants, consultants and others have attempted to undo the multibillion-dollar weapons program.

De Jong said the government paid $79 million in expenses “peculiar to the termination,” meaning such fees as attorneys, accountants and consultants, among other expenses that weren’t part of the original Sgt. York program.

At the time of the cancellation, contractors working on the program had $437.3 million in weapons parts, everything from gun barrels to radar, spread across the United States, Canada and Europe. An estimated 70 million parts were tracked to make sure they were properly accounted for.

Most of the inventory of Sgt. York parts was transferred to various Defense Department agencies. About $12.1 million was “disposed of in place,” meaning that it is probably rusting in a field somewhere.

De Jong noted that Ford had submitted 58 separate demands for cost restitution after the termination, worth $82.5 million. Those were negotiated down to $20.2 million.

About 64 of the guns were built, and about 25 are being used by the Air Force and Navy for training purposes. Most of the guns ended up in storage at a government depot.

“They are maintained in operating condition,” De Jong said. “They are available for whatever use we would have for them.”