CIAO DATE: 09/04

Misconduct and Missile Defense: How Boeing Engineers Lost the EKV Contract

Victoria Samson

Center for Defense Information

January 2003

In a Jan. 27, 2003, letter to Rep. Howard Berman, the General Accounting Office (GAO) reports that Raytheon’s design for the ground–based midcourse’s exoatmospheric kill vehicle (EKV) was not chosen because it was necessarily the best technologically, but because of Boeing’s misuse of proprietary information. The Department of Defense spent $800 million over eight years to determine whether Boeing or Raytheon would win the EKV contract, only to be forced to hastily call off the competition in December 1998 and award it to Raytheon after discovering Boeing employees had misused proprietary software of Raytheon’s. Boeing–s EKV would be kept on as a “hot back–up” and funded at about $4 million per month until three months after the fourth EKV flight test, held in January 2000. No punitive actions were ever taken against Boeing.

The Army’s Space and Missile Defense Command, acting as an agent for the Ballistic Missile Defense Organization (BMDO — now known as the Missile Defense Agency), awarded three parallel contracts for the design, development, and demonstration of an EKV in October 1990. Martin Marietta was eliminated in an initial downselect in 1995, leaving Hughes Missile Systems Company (presently Raytheon) and Rockwell International (presently Boeing) in the competition. In 1997, BMDO decided it needed a lead systems integrator (LSI) in charge of the technologies being developed for the national missile defense program, resulting in Boeing LSI winning the contract on April 30, 1998. One of the determining factors in awarding the LSI contract was how Boeing said it would handle any organizational conflicts of interest that might come up.

With an LSI decided, BMDO pushed for a quick resolution on who would build the EKV. Officials were starting to become alarmed that a contract would not be awarded in time for testing to be sufficiently completed by the scheduled presidential deployment decision in June 2000.

As part of its preparation for the contract competition, Raytheon submitted to the Army on July 8, 1998, a document titled, “Software Test Plan for the Hover Test of the Exoatmospheric Kill Vehicle.” Every page of the document was stamped “Unclassified/Competition Sensitive.” On July 20, 12 days later, a member of the Boeing EKV team called his company’s legal department to alert him that a copy of the aforementioned test plan had been found in one of Boeing’s conference rooms. Boeing secured the document and notified Raytheon of the situation in a July 28 letter. This sparked an in–house review by Boeing of the document’s discovery, as well as an investigation by the Army’s Criminal Investigation Command. In a Sept. 29 letter, BMDO attempted to assure Raytheon that this situation was amply taken care of and would not create a conflict of interest for Boeing LSI.

But it wasn’t until follow–up interviews during the end of October 1998 that Boeing’s lawyers discovered that its EKV team had not been completely honest. The Raytheon software test plan had been discovered on July 17, not July 20 as originally claimed. Furthermore, members of the Boeing EKV team had analyzed the Raytheon data, kept a copy of it and their analysis, and used the information weeks after Boeing had told Raytheon that the document had been secured. BMDO was notified of the misuse of proprietary data in the end of October.

With this news, Boeing LSI had to hold off on releasing a request for proposals (RFP) until the facts had been sorted out. Boeing spent November 1998 trying, in the words of the GAO, “to persuade BMDO that its EKV team had a sufficient record of integrity and business ethics to be considered a responsible prospective contractor appropriately eligible for the award of future contracts.” At the same time, Boeing LSI and BMDO were trying to assure Raytheon that Boeing LSI could adequately address the conflict of interest.

BMDO decided that Boeing LSI had to determine whether Boeing’s EKV team could be considered a responsible contractor. After three of the Boeing employees involved were fired and a fourth was suspended for 30 days without pay, Boeing LSI decided that its EKV team could be considered a “presently responsible offeror.” Raytheon was not so easily convinced. BMDO insisted that the competition be halted until Raytheon accepted Boeing’s efforts to ameliorate any harm caused by the misuse of the proprietary information. However, because the June 2000 presidential deployment decision deadline was weighing heavily on their minds, BMDO officials needed a quick resolution so that an EKV contractor could be chosen. Raytheon could not be persuaded in a short amount of time that there was no permanent damage done, the EKV competition was abandoned, and Boeing LSI decided on or about Dec. 1 that Raytheon should get the EKV contract. Boeing LSI and BMDO officials felt that the Raytheon and Boeing EKV designs were both far enough along that flight testing could be held and that any risks incurred by not undertaking a technical or cost assessment of the two designs would be lessened by keeping Boeing's EKV team as a “hot back–up.”

From January 1999 to July 2002, the Army and BMDO investigated various punitive measures against Boeing. The Army’s Procurement Fraud Division and Criminal Investigation Command met with the U.S. Attorney’s office in February 1999 to determine if any civil or criminal actions could be taken. The U.S. Attorney declined to pursue either, citing insufficient evidence. The Army considered undertaking debarment proceedings against the Boeing employees involved and Boeing's Electronic Systems and Missile Defense Group; if these proceedings had been undertaken and succeeded, the guilty parties would have been barred from participating in future government contracts. The Army also examined various monetary settlements as compensation for the potential savings lost when the competition was ended. No precise number was ever given, but the Army suggested that perhaps it should be around 25 percent of the cost of Raytheon’s EKV.

Under Defense Department guidelines, debarment decisions are made by the agency with the most at stake financially. In this case, that was BMDO, which declined to debar any division of Boeing, reasoning that the employees at fault had been terminated and were individually undergoing debarment actions. BMDO did eventually come up with a suggested recoupment settlement — of $6.6 million to $13.5 million. But in July 2002, all recovery efforts were dropped, according to the GAO, “because of litigation risks associated with proving damages, as well as significant anticipated litigation costs, and the belief that litigation was inconsistent with its partnership with Boeing as the LSI contractor.” After the decision was made not to attempt any recovery efforts, BMDO considered the case closed. The coda to the whole debacle: in the summer of 2000, President Bill Clinton declined to make a deployment decision for the missile defense program, as he thought the program was not technologically advanced enough.