McDonnell Overrun on C-17 Jets Confirmed

The Defense Department has officially confirmed that the estimated cost overrun facing McDonnell Douglas on the C-17 military cargo jet has increased by $200 million.

The new projection, formally known as an “estimate at completion,” was put into effect in July.

“The amount of the estimate at completion, as far as the government is concerned, is $7.3 billion,” said Gay Maund, a spokeswoman at the Defense Contract Management Command in Los Angeles. The earlier figure was $7.1 billion.

McDonnell officials disputed an earlier Times article on the increased overrun in an Aug. 5 letter distributed widely among company employees and also on Wall Street. In the letter, spokeswoman Renee Handler disputed The Times’ story because, among other things, it did not quote named sources. It also asserted that the Air Force program office for the C-17 and the Defense Contract Management Command differed on their estimates.

Maund said the new figure of $7.3 billion, which is the cost to develop and build the first six aircraft, has been accepted by both her agency and the Air Force.

The Pentagon has reduced contract payments to McDonnell because of the higher cost estimate, Maund said. McDonnell was receiving 92.4% of the monthly amount the firm requested under the old estimate, but it is now receiving only 90.4% under the new higher estimate, Maund said.

McDonnell has long asserted that it will not lose money on the C-17 program. The firm has a contract with a ceiling of $6.6 billion, meaning that the firm is now $700 million over that ceiling, based on the Pentagon’s new cost estimate.

But McDonnell says the Pentagon’s estimate is too high.