NASA Admits Boeing Failed Cost Reviews : Aerospace: Agency comes under fire at a congressional hearing on the awarding of the space station contract.

In an acrimonious congressional hearing Wednesday, NASA officials conceded that they selected Boeing late last year as prime contractor to build the space station--a program dogged by major cost overruns since its inception--even though the firm had flunked the agency’s own cost-control reviews.

Officials of the National Aeronautics and Space Administration also admitted that they never knew that Boeing was under 21 federal criminal investigations, nor that it had been forced to pay a total of $161 million in settlements to the government--an amount that was disclosed during a hearing by an oversight and investigation panel of the House Energy and Commerce Committee.

According to testimony during the hearing, the payments were a combination of criminal, civil and administrative settlements, primarily involving alleged fraud in its defense programs, while the criminal probes cover cases involving a variety of fraud allegations.

A Boeing spokesman in Seattle, where the firm is based, said he did not have any information about the hearing and declined to comment. He also said he was not aware of failed cost-performance reviews or the federal investigations.

Rep. John Dingell (D-Mich.), the combative and powerful chairman of the committee, angrily pressed the NASA officials to explain why Boeing’s record of poor cost performance on the space station in the past was not considered when the firm was selected as prime contractor.

“If Boeing will diddle the Department of Defense, why won’t they diddle NASA?” Dingell demanded. “You appear to have a wonderful, trusting relationship with Boeing.”

The committee disclosed the existence of four recent annual cost-performance evaluations NASA conducted on Boeing before awarding the job as prime contractor to the company in 1993. Previously, the program was run by four equal contractors, including McDonnell Douglas and Rockwell International.

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The evaluations, copies of which were provided to The Times, show that Boeing was ranked excellent or superior in its technical work. But two of the four evaluations rated the firm poor in its cost-control performance and the other two ranked the firm unsatisfactory.

Although Boeing incurred tens of millions of dollars in cost overruns over roughly a four-year period, it was given annual performance awards amounting to several million dollars.

Dingell’s rough handling clearly left the NASA bureaucrats, more accustomed to the soft touch of supportive congressional committees, stunned.

“I believe Boeing is best qualified,” said Deidre A. Lee, NASA’s associate administrator for procurements.

“You believe? You believe? I believe in the Holy Trinity, but I have the Scriptures for my belief,” Dingell said sarcastically. “But what is it that makes you believe in Boeing?”

Dingell repeatedly demanded justification for NASA’s faith in Boeing’s ability to control costs, particularly when NASA itself recognizes the program will fail if space station costs are not controlled. The space station is a controversial effort to house an international team of astronauts.

When Deputy NASA Administrator John R. Daily told Dingell that Boeing was ranked by the space agency’s criteria as the best contractor to build the station, Dingell testily shot back:

“What you are telling me is that you picked the best of a sorry lot. You are talking to somebody who voted for this thing, but I’m beginning to wonder whether I should have.”

The station’s cost was originally set at $8 billion, but it eventually rose to $31 billion before the project was scaled back last year. Those costs never included the launch and other related costs, which the General Accounting Office projected might increase the total to $121 billion.

Under the restructured space station program, NASA intends to build the station for $17.4 billion, not including the $11 billion invested in engineering designs to date or future launch costs.

In a separate interview, Lee said NASA has attempted to restructure the entire space station program to enforce better management and cost control, though she declined to comment on the hearing itself or on Dingell.

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In addition to the problems with Boeing, an audit of space station contractors identified “significant financial risk” because the firms are not using proper financial and accounting methods to track their costs, according to Michael Thibault, an assistant director of the Defense Contract Audit Agency.

Thibault said an audit of charges by IBM, a subcontractor to McDonnell Douglas, found that about 20% of IBM’s $490 million in charges over a several-year period were not allowable under its contract. The charges included $20 million to the space station for leasing a building IBM already owned, an issue now under criminal investigation in Houston.