He Dared Say the C-17 Had No Clothes : Aerospace: Kenneth Tollefson is the star witness as hearing opens on the Pentagon’s handling of problems with the cargo jet at McDonnell Douglas.

From his home atop a coastal bluff, Air Force Col. Kenneth Tollefson could gaze eastward across Los Angeles harbor and, even through a hazy sunset sky, look out on the huge McDonnell Douglas aircraft hangars in Long Beach.

Every evening for five years, Tollefson was bedeviled by the enormous letters painted on the side of the McDonnell plant, proclaiming it “Home of the USAF C-17.” It seemed his problems were never out of sight.

As the Pentagon’s chief representative at the plant, Tollefson’s job was to ensure that taxpayers got what they paid for in the $42-billion C-17 cargo jet program.

But he soon became convinced that McDonnell management, despite its unending optimism, had lost control of the program, fallen too far behind schedule and experienced too many technical problems.

“It was like dealing with an alcoholic,” recalled Tollefson, 54. “They were in self-denial.”

He became a lone voice from his Long Beach outpost in 1988, when he began warning the Pentagon that its largest contractor was headed for a financial crisis. His warnings went largely unheeded.

The C-17 cost overruns began to grow, first by $400 million and then by $800 million. Today, the overrun is estimated at $1.2 billion, and the C-17 has become the most controversial defense procurement program of the 1990s. By late 1990, senior Air Force officials had erected a secret bailout for McDonnell, a recent Pentagon investigation found.

The House Armed Services Committee will open a two-day hearing today, and Tollefson, now retired from federal government service, will be the star witness. He is expected to give the most complete picture yet of how the Pentagon failed to deal with serious problems in the C-17 program early on.

Under intense pressure to cut the Pentagon budget, Congress is likely to consider almost every major program for cancellation, including the C-17. The Army continues to assert that it needs the C-17’s cargo transport capability, saying that its old C-140s are wearing out.

McDonnell officials have said that any number of mistakes were made but that those problems are in the past and the C-17 is now on track. On Monday, McDonnell officials told reporters that the C-17 is a viable program with strong military support.

The C-17 case, however, has left experts wondering where the defense procurement system failed. Even though the system underwent half a dozen major reforms during the 1980s, it was prone to the same weaknesses that have dogged the government for decades: an inability to confront problems and fix them before they become a multibillion-dollar mess.

Tollefson was bucking a procurement system based in large measure on complacency, in which senior Pentagon officers and their industry counterparts defend troubled weapons programs rather than jeopardize their lifelines of political support.

“Defense programs are most vulnerable in the early years because they have the fewest number of jobs associated with them and the most technical risk,” said Robert Paulson, director of the aerospace practice at consulting firm McKinsey & Co. “It is not a time when you want to be washing your laundry in public.”

Paulson said intense congressional oversight, coupled with the need for annual funding reviews, has created a situation that makes it difficult for either the military or the industry to cope with problems that are typical in every program.

“Our system does not reward people for admitting they have a long-range problem,” he said.

The rationale for continuing work on a troubled program has weakened with the demise of the Soviet Union. And if at one time the rationale for continuing troubled programs was that the nation could afford it, “that no longer is true, either,” Paulson said.

Although Congress has attempted to create a separation of powers and more high-level control of spending, the system was prone to letting problems fester, Tollefson said in a wide-ranging interview.

McDonnell insisted that a number of government estimates pointing to major cost overruns were flawed. It continued to espouse optimism that it would meet its budget until mid-1992, when it abruptly reversed four years of denials and acknowledged that it would sustain an overrun not much different from what Tollefson’s office had been projecting for some time.

Tollefson said he tried every trick in his book to wake up McDonnell officials in Long Beach. He rescinded official approval of the firm’s purchasing system, gave poor marks to the firm on a host of reviews and issued 34 deficiency reports.

When his government inspectors found 40 pounds of debris inside the wing of the first C-17 aircraft, he had it bagged and delivered to the desk of Douglas Aircraft President Robert Hood.

When the company insisted on unrealistic cost projections showing everything was fine on the program, Tollefson suspended payments amounting to several hundred million dollars.

And he threatened to shut down the entire plant when it appeared that production operations were becoming sloppy. In 1989, several injuries occurred when work rules were violated at the plant, he said. One worker, for example, was crushed by a crane.

Even though dealing with the company became tough, officials under Tollefson crafted in jest a large wooden punishment paddle and labeled it “Total Quality Management System Adjustment Device,” referring to the firm’s quality control program.

Many of the company’s problems stemmed from the now-famous February, 1989, decision to call 5,000 managers into a paint hangar to tell them they had lost their positions and would have to reapply for new jobs. Many jobs remained unfilled for months.

To Tollefson, the company’s erratic behavior amounted to “corporate suicide,” as he told his superiors at the Defense Contract Management Command.

“We would have to get a whole room full of people together to find out who was in charge of various operations,” he said of the 1989 incident.

In July, 1990, McDonnell Vice President John Cappelupo called a news conference to proclaim the C-17 problems fixed and to say the firm had “met all of its major milestones.”

But less than six months later, company Chairman John McDonnell asked for a $1-billion bailout from the Pentagon.

Senior Air Force officers erected a secret $500-million bailout of the firm in late 1990, according to a Pentagon inspector general’s report this year. The report singled out Tollefson as one of the few top officials who tried to stop the bailout.

Defense experts say Tollefson is among a rare breed of government managers willing to go to the mat with senior military officers and defense industry executives.

“I have never seen a man with more integrity,” said Jack Faradjollah, who worked with Tollefson as the Defense Department’s chief technical manager in Long Beach. “This guy is something else. He was under all kinds of pressure and, even though he didn’t talk about it with me, I could see it in his face.”

Senior Air Force officers told Tollefson that he would never be given responsibility for a major program again. For his fight, Tollefson was left with few opportunities but to retire last year.