Senate Bill Would Require Northrop to Forgo Profits on Stealth if Defects Found

The Senate on Monday night adopted legislation that could require Northrop Corp. to forgo virtually all profits on the futuristic Stealth bomber if the controversial aircraft proves to have defects similar to those in the B-1 bomber.

By voice vote, the Senate adopted a proposal authored by Sen. Carl Levin (D-Mich.) requiring that, under future contracts with the government, Northrop must agree to surrender its profit to pay for all defects that can be blamed directly on the contractor.

It is estimated that Northrop will realize a profit of about $50 million on each of the 132 Stealth aircraft that the Air Force plans to buy.

Nevertheless, the measure, which was attached to the $305-billion defense spending bill for fiscal 1990, would not alter the terms of the current contract under which Northrop has agreed to deliver the first five Stealth bombers to the Air Force. It would apply only to the terms of future contracts.

Moreover, the legislation contains what was described as “an escape clause” that would permit Defense Secretary Dick Cheney to ignore the requirement if he can prove that the costs of such a warranty would outweigh the benefits. However, Levin predicted that Cheney would be “too embarrassed” to fail to negotiate a warranty in future contracts.

Adopted Without Objection

The amendment in no way alters the Senate’s expressed support for continued production of the Stealth bomber, known as the B-2. The House voted last week to halt production of the Stealth until the cost of the program can be cut. Differences between the two chambers on this issue are expected to be worked out when Congress returns from its August recess.

At present, according to Levin, Northrop’s maximum liability for defects in the Stealth bomber would be $4 million per bomber--a figure that he insisted is far too low, particularly in comparison to the $50-million profit that the contractor expects to make on each B-2.

“That doesn’t sound to me like a very good deal for the government or the taxpayers,” Levin added. “It’s wrong for the taxpayers to pay such a large share of the cost for correcting a defect which is the fault of a contractor. It’s just that simple.”

Although the amendment was adopted without objection, some senators clearly viewed it as a foolish idea and Sen. John W. Warner (R-Va.), ranking Republican on the Senate Armed Services Committee, said he hopes to weaken the provision when the legislation is rewritten in negotiations between the House and Senate.

“If we’ve got so little confidence in the people who are running the Air Force, then we should find other people to run it,” said Sen. John H. Chafee (R-R.I.), a former secretary of the Navy who portrayed the amendment as micromanagement by Congress. “I think this has gone too far.”

Levin’s amendment also would extend the length of time that the Air Force has to discover defects for which the contractor will be held liable. The current limit is six months.

$1 Billion to Repair Defects

In arguing for the amendment, Levin noted that the government paid a high price for cost overruns on the B-1, despite numerous defects. And he added: “It looks like we’re about to go down the same road on the B-2.”

Levin was referring to recent reports that the Justice Department already is looking into allegations of fraudulent billing by Northrop in connection with Stealth. According to the Pentagon, however, the Justice Department inquiry has nothing to do with any defects in the boomerang-shaped bomber.

It is estimated that the government so far has paid more than $1 billion to repair defects in the major advanced technology system aboard the B-1 bomber. Levin said this occurred because the contract warranty was very limited.

Levin said that his amendment only harks back to the “good old days” when contractors were required to deliver weapons to perform as specified in the contract. He said he was referring specifically to a contract signed by the government on Oct. 4, 1861, for the Civil War-era ironclad battleship Monitor, in which the contractor promised to return all money if the ship was not satisfactory.