August 2, 19'72
Page 26396
DD-963 DESTROYER PROGRAM
Mr. MUSKIE. Mr. President, I would like to call the attention of the Senate to that section of the military procurement authorization bill relating to the DD-963 class destroyers, presently scheduled for construction by Litton Industries at the Pascagoula Navy Shipyard.
In July of 1970, the Navy awarded a multi-year procurement contract to Litton Systems, Inc., for the construction of 30 destroyers. To date, Congress has approved and appropriated $1.449 billion for 16 of these ships. According to the original contract schedule, the Navy was to request funding of seven more ships this year and the last seven in fiscal year 1974. Total cost of the full program is now estimated at $2.7 billion.
In its initial fiscal year 1973 budget request, the Navy asked for $610 million for seven additional ships. The Armed Services Committee, however, reduced this to $247 million for the purchase of certain items requiring a long lead-time, rather than to approve full funding. This action was taken as a consequence of a mutual agreement by the Navy and Litton to defer exercising an option to buy seven more ships until the next fiscal year. The committee in its report, makes only passing reference to the "problems" experienced in Litton's shipyard which could have an impact on the destroyer program.
What is not mentioned is that Litton Industries is at least 24 months behind in the construction of five amphibious assault craft – LHA's – which must precede the construction of the destroyers.
Nor is it pointed out that the Pascagoula Yard continues to experience severe manpower shortages and management difficulties.
Nor is there any mention of the Navy's statement to Litton that the "slippage in the amphibious assault craft program could have a direct and potentially disastrous effect upon your ability to deliver the DD-963 class destroyers."
Nor is there any discussion of the fact that the Navy's contract calls for a shift in the basis of payments to Litton on October 1 to reflect actual physical progress on the LHA's. As a result, Litton may have to return money previously advanced to the Navy, thus calling further into question the company's financial capabilities.
Mr. President, all available evidence indicates that Litton Industries is in serious trouble. Delays and cost over-runs on the destroyer program may be inevitable. I fear, Mr. President, that the DD-963 may soon become a floating C-5A.
Although Litton has not yet defaulted on the DD-963 contract, the implications of their present difficulties are clear. The sad truth of the matter, according to the Navy, is that the terms of the contract impose on the Government an automatic cancellation charge of $279 million if Congress fails to authorize construction of more ships. Thus, without specific Congressional approval, the Navy has obligated the Federal Government to pay a penalty of a quarter of a billion dollars to a contractor if, in the judgment of Congress, further purchases cannot be justified.
This obligation, I should add, is unrelated to the cost of a complete cancellation of the contract, but would be imposed if Congress chose simply to adopt a "wait and see" attitude before approving additional ships. This, Mr. President, is the consequence of the Navy's policy of writing multi-year contracts.
The Navy has placed the Congress in a serious predicament. If we deny the authorization, we may have to pay Litton $279 million. On the other hand, if we approve the authorization, I believe we will most assuredly face future delays and escalating costs.
The solution to this problem, initiated by the distinguished chairman of the House Armed Services Committee, Mr. HEBERT and included by his committee in its report, was to arrive at an understanding with the Navy that, should Congress authorize funds for advance lead time items, the Navy would not go forward with a decision to produce additional ships without specific congressional approval. The purpose of this understanding is to preserve the integrity of the contract while temporarily delaying costly commitments to Litton by the Navy. The Senate Armed Services Committee, in effect, accepted this understanding by its recommendation.
Mr. President, I am highly skeptical that this understanding is sufficient to protect the interest, or purse, of the Federal Government. I would have preferred that no further authorizations be granted at this time.
At the very least, the conditions attached to the authorization should have been included in the language of the bill.
The DD-963 program will come before the Senate Appropriations Committee shortly. I intend to urge the committee to review this matter closely to determine if an appropriation at any level can be justified as being in the public interest.
Today we are seeing the disastrous consequences of a Defense Department policy, implemented in 1969 and 1970 in the case of Litton, to award a total procurement package to a single contractor. Despite reservations expressed by Members of the Senate and House Armed Services Committees, and under circumstances strongly indicating a "buy-in," the contract was awarded to Litton over its nearest competitor, Bath Iron Works of Maine. The issue, now as then, is not whether the contract should have been awarded to Bath, but whether the contract should have been awarded to a single company.
Two years ago, in a speech to this body on August 31, 1970, I pointed out that: There is clear evidence that award of multiple numbers of ships to a company with a large and diverse backlog presents overwhelming managerial problems which come home to roost for the Navy and Congress.
The evidence today is even more striking. It is particularly painful for our taxpayers who must bear the burden of irresponsible spending in the defense budget.