The proposed deal to settle the C-17 cargo jet dispute between the Pentagon and McDonnell Douglas Corp. has been dealt a severe blow by the House Armed Services Committee, which declined to fund $348 million to implement the agreement in its fiscal 1995 authorization bill.
The House bill also authorizes production of only four C-17 cargo jets, rather than the six called for under the settlement. Without funding for all six aircraft, McDonnell could claim the settlement is void and may be forced to lay off workers. The C-17 is made in Long Beach.
The settlement was crucial to saving the program from termination, and if Congress ultimately blocks the deal, it would clearly heighten the risk of a future cancellation and a protracted legal battle between the government and St. Louis-based McDonnell.
The settlement was meant to resolve a number of major problems that have dogged the program, including a dispute over who is at fault for the $1.6-billion cost overrun on the troubled program.
But the agreement has been lambasted in Congress as a bailout, because the deal includes a $234-million payment to McDonnell for a claim that was previously judged without merit by an Air Force contracting officer.
In an apparent effort to shore up the deal, Defense Secretary William Perry sent a letter to House Speaker Thomas Foley (D-Wash.) last week, stressing the importance of the settlement and the C-17 to national security.
"Enactment of this proposal is of great importance to the department, and I strongly urge its favorable consideration," Perry wrote.
The Pentagon is also dispatching John Deutch, undersecretary of defense, to testify before House Armed Services Committee Chairman Ronald V. Dellums (D-Oakland) next week.
The authorization bill could be amended by the full House or later in a House-Senate conference. The Senate Armed Services Committee has yet to take action on the settlement issue.
Rep. Bob Dornan (R-Garden Grove), a member of the House Armed Services Committee, blamed the Clinton Administration for the rejection, saying it "did not sell the C-17."
Dornan also said Dellums was personally opposed to the request for six aircraft.
McDonnell Douglas spokesman Larry McCracken said he could not comment on the potential impact of a congressional rejection of the settlement, but he noted that the company is already preparing to spend $50 million to carry out its responsibilities under the accord.
In addition to the $348 million of funding, the Pentagon needs Congress to pass legislation making the settlement legal, because the Pentagon does not have authority to cut such an unusual deal.
The proposed legislation, which the House panel declined to pass, calls for the secretary of the Air Force to modify McDonnell's contract "as may be appropriate without regard to requirements of law."