Summary: The recent settlement between the Pentagon and McDonnell Douglas on the troubled C-17 transport plane is not a good deal for the government, which will have to waive all potential financial claims against the aircraft maker, lower the C-17's performance standards, and pay more for fewer aircraft. To acquire 120 aircraft will now cost an estimated $43 billion--$1.3 billion more than the Pentagon's last estimate to acquire 210 aircraft. In an effort to overcome the contentious relationship between the government and the contractor, the government has agreed to waive all of its potential claims arising from the contractor's failure to meet the original contract specifications and delivery schedule, without establishing the value of those claims. The government also agreed to resolve filed and unfiled contractors' claims by adding $237 million to the contract price. Department of Defense (DOD) officials acknowledge that the claims were never subjected to a full legal or price analysis. At the same time, McDonnell Douglas' out-of-pocket expenses are hundreds of millions of dollars less than the agreement implies. GAO urges DOD to determine immediately the minimum number of C-17s needed and pursue a strategy to acquire alternative wide-body aircraft that can meet its needs. DOD, in deciding whether to continue the program, also needs to establish specific cost-schedule, and performance criteria to evaluate improvement in the contract's performance.
