Air Force Tightens Rules on Purchases at Douglas Plant
The Air Force has withdrawn its approval of the purchasing system at the huge McDonnell Douglas aircraft plant in Long Beach, an action that will require the company to seek government permission for every purchase of more than $100,000 on military programs, it was learned Wednesday.
McDonnell has blamed delays in its military and commercial programs, including development of the C-17 cargo jet, on late deliveries of parts from suppliers, but the Air Force action indicates that at least some of the responsibility for those problems rests with the company rather than with tardy suppliers.
The disapproval of the purchasing system in itself is not a critical blow to the company’s Douglas Aircraft unit in Long Beach, but it raises questions about whether management problems identified by executives more than a year ago are being promptly remedied.
The C-17 program is more than a year behind schedule, and it was disclosed recently that the Air Force has issued 34 contractor deficiency reports to Douglas. McDonnell has increased its management oversight of Douglas, including the assignment of McDonnell President Gerald A. Johnston to work at Douglas several days each week.
The disapproval of the purchasing system is not expected to delay the C-17 program or other government work performed at the plant, according to a statement issued by the Air Force’s Contract Management Division at Kirtland Air Force Base in New Mexico. But the statement used tough language.
“By disapproving the company’s purchasing system, the government is putting Douglas on notice that immediate corrective action is needed,” the statement said. “Douglas’ major purchasing problems are in the areas of management oversight of purchasing, competition and price analysis, and file documentation.”
Those general problems cover the gamut of a purchasing system’s operations under a government program. Experts said the problems in price analysis and competition go to the heart of what a purchasing system is supposed to accomplish. In a major aircraft program, typically more than half of the money paid by the government ends up with subcontractors.
“The Air Force is not unhappy with how we are managing the program,” Douglas spokesman Richard Hill said Wednesday, “but this is their decision and they have advised us this is what they plan to do.”
He said the company has already begun putting together a corrective action plan, but its completion and approval by the Air Force could take up to one year.
In addition to the $100,000 threshold on subcontracts, Hill said the Air Force will also want approval of all “time and material charges” of more than $25,000. Those charges relate to services that Douglas buys.
The disapproval will increase government scrutiny and involvement in the company’s day-to-day operations, according to contracting experts.
“It is more red tape,” said Charles Culver, a Northrop University instructor in government contract regulations and an industry consultant. “When the government comes in and looks things over, it means more bureaucratic delay.”
Hill, however, characterized the administrative burden of seeking prior approval as “minor” and said it could add one or two days to the process of issuing subcontracts and purchase orders.
Although the precise number of purchases that will need Air Force approval could not be determined, Culver estimated that several purchases per day of more than $100,000 each would be typical for a program as large as the C-17, not to mention Douglas’ other military programs.
Culver said the administrative process to obtain approval would require Douglas to put together a package that includes a summary of negotiations for a proposed purchase, an agreement document, required certifications, cost and pricing data, supporting documents, among other possible documents.
The Air Force said it would reinstate approval “after it has validated that the company has corrected the deficiencies.”
