b~15354J) : (o,::-20-07 REPORT TO -\ ':PERi\itANENT SUBCOMMITTEE ON INVESTIGATIONS CO'MMITTEE· ON GOVERNMENT OPERATIONS. ' • • •' • • - ' ' • ' - : __ :;-: o_ -- -' ~- - -·_: • - - SUMMARY OF iNFQR~1ATiON DEVJi~LOPED ON THE NAVY'S F-lllB AIRCRAFT -'" ~--' -'-·------- ~ -_-_. =~~.~~~~~~~:_~;~?.-~~,~~r.-~~+-.::--=-~- ~---=-:~-~ - ---=-=======--=--==-· ---·--·--==~-·- -. -- ·---.-..·---,-,,- - ·-· -~------=-=--'-- - :•(:~:··-_,,~~~~~~~-"~~~-~L_:~·=~ - :~':":·-_:~.;-,~:~--~--=-~~~-'~-:--:-·.' '-_,-·_:-:--_;'~~~ ~~=-~~--~ - -· _, ____ ---~_, ____ _, _____ ·---·--= -- -··-·---_,---~-;_.~~~-o~~~--_:_,_~;__:_~=- "--- =_~=:--~~:"C ;;.~· ~:- ::-~ •~===- ~--- ~-=:~-;.~-.=_~=-- _-· ==_:-~ This material contains information aHei;ting the national defense of. the Unitecl States within the tlieatjing of the espionag~ laws, Titi~ 18, u:s~C., Secs. 793 ancl. 794, as respectively am~nde:CJ, the trci.nsmlssion or revefotion. of whiCh 'in any manner to ah un.authorized person is prohibited by law. ~·-·-----~-- ~- - ~~~--=--~-.-...~-- Reason: . ~DR: _]I----,-g;-~-M~-~1rn·Ba1'/,r-..J---- 34 BY THE COMPTROLLER GENERAL OF ti-IE UNITED STATES JUNE 1967 ~J. \A ··\\'\·-4W13 REPORT TO PERMANENT SUBCOMMITTEE ON INVESTIGATIONS COMMITTEE ON GOVERNMENT OPERATIONS SUMMARY OF INFORMATION DEVELOPf;n ON THE Nt\ VY'S F-11 lll AIHCRJ\FT DEPABTMl~NT OF DEFENSE This material contains information affecting the national defense of tl1e United States within the meaning of the espionage laws, Title 18, U.S.C., Secs. 793 and 794, as respectively amended, the transmission or revelation of which in any manner to an unauthorized person is prohibited by law. BY THE COMPTROLLER GENERAL OF THE UNITED STATES .HINI': 1967 (UNCLASSIFIED IF DE~ACHED FROM REPORT) COMPTROLLER GEMERAL OF THE UNITED STATES WASHINGTON D.C. 2.05·13 B-153545 Dear Mr. Chairman: In accordance with the request contained in your letter of August 15, 1966, we have examined i!J:1:o (-1) the extent to which tlr~~=1~r::--Etlr-G-Faf_~~­ p_ri__:rp.~ <:2~!!.t:t~G_tor~h<;ts~nu!fi,,p:erformance specificatiorn34o-:r~tJte~N<1Y}r 1 -S--'---- F-ll lB aircraft, (2) th:e procii.iction schedule for the Navy's-~24pr~d~tfion F-11 lB aircraft and the model of the TF-30 engine to be used, and (3) whether additional requirements have been placed on Grumman Air­ craft Engineering Corporation over its original role of assembling and testing only the Navy aj.J'~~fj;;; Information was also optaineckpii_:QIKer n1atters-c011terning~th~H~vy' s JT-111 B ai re raft in whit}lfu:~~~-!_~~21~­ your Subcommittee staff~i:fid:i.cated an interest during the cou:!,'_S_JLOLou:i:--c _ examination. ~.:::::---.==----=-~- -=-=-----:---~- A clas s:i.fied summary of the information we developed is enclosed. Formal comments on our findings have not been requested from the De­ partment of Defense. Also, we have not requested the Departm.ent of Defense to review the sumrnary for security classification purposes and we plan to make no further _distribution of this summ_~:l~)5E-==-:.:.:::_:_~-~~~-~--· This summary s::m'l_ipl~t~s our submission of informatioii~y0u.:..:~ie-­ quested 1rn to develop in your letter of August 15, 1966. We are contin­ uing our examination of the F~ 111 aircraft program as discussed with you on May 26, 1967, and we will keep you apprised of our findings. Sincerely yours, ti. / - 2~~ l·o1~ Comptroller General of the United States Enclosure. The Honorable John L. McClellan, Chairman Perm.anent Subcommittee on Investigations Com_mittee on Government Operations United States Senate (UNCLASSIFIED IF DETACHED FROM REPORT) I C o n t e n t s Page BACKGROUND 1 DELIVERY AND CONFIGURATION OF NAVY F-lllB AIRCRAFT 8 PERFORMANCE OF NAVY'S F-lllB AIRCRAFT 11 GRUMMAN'S ROLE IN THE F-111 AIRCRAFT PROGRAM 16 PRODUCTION SCHEDULE OF TFI.E NAVY'S F-lllB AIRCRAFT 16 SUMMARY OF INFORMATION DEVELOPED ON THE NAVY'S F-lllB AIRCRAFT DEPARTMENT OF DEFENSE BACKGROUND Meetings were held during April and June 1961 between offi­ cials of General Dynamics Corporation and Grumman Aircraft Engi­ neering Corporation concerning Grumman's participation in the pend­ ing F-111 aircraft program as a major subcontractor. As a result of the meetings, agreement was reached between the two companies to initiate a concentrated joint effort in the competition for the F-111 aircraft contract. (UNCLASSIFIED) Shortly after receipt of the Government's formal request for proposal in October 1961, the two companies reached further agree­ ment that General Dynamics would be fully responsible to the Gov­ ernment for all elements of the program and Grumman would be re­ sponsible to General Dynamics for satisfactory performance of the Na\ry 1 s pec11liar subsystems designed, procured, installed, and tested by Grumman and for the structural integrity of all struc­ tures designed and fabricated by Grumman. Gr'..lmman would be a first-tier s'..lbcontractor to General Dynamics and would receive fixed-price incentive contracts with incentive arrangements no less favorable than the Government's contract with General Dynamics. (UNCLASSIFIED) Grumman was awarded letter subcontract 100 by General Dynamics on February 5, 1962, for its initial participation in the F-111 aircraft program. In September 1962 General Dynamics and Grumman reached agreement on the price for Grumman's participation in the development phase of the program that was to be included in the (UNCLASSIFIED) 1 UNCLASSlflD proposal to the Government. This price, which amounted to $85 mil­ lion, had been negotiated on the basis of the award of a fixed-price incentive-type subcontract. The agreed price and terms were based on Grumman's tasks as established at that time and were predicated on the gene-ral configuration and requirements of the F-111 aircraft as they were envisioned in September 1962. After General Dynamics was awarded its letter contract for the research and development of the F--111 program by the Air Force, Grumman was extended authorization to proceed with its work on No­ vember 26, 1962. Amendment 7 to Grumman's letter subcontract, is­ sued on March!+, 1963, formally identified Grumman's responsibili­ ties under the program. Lengthy negotiations ensued between the two companies, and a chronology of these negotiations, as con­ tained in General Dynamics' request for Air Force approval of its definitive subcontract with Grumman, follows. Prior to the issuance of this amendment, tasks were both added and deleted from those contemplated in the earlier $85 million Grumman price agreement. Many of the changes were transfers of tasks between General Dynamics and Grumman, while others were gen­ erated by Government-directed changes, design refinements, deleted requirements, etc. In response to a General Dynamics request, Grumman submitted a complete proposal in September 1963 for all tasks authorized as of that time and, in addition, certain tasks that were expected to be authorized. This proposal included the Grumman-proposed credits for the work deleted and additions to the $85 million price for added task changes, and it resulted in a target price of just over $130 million. From receipt of this proposal through July 1964, General Dynamics spent many months reviewing Grumman's proposed costs for the added and deleted tasks. 2 UNCLASSIFIED In August 1964 General Dynamics and Grumman, by mutual agree­ ment, established a "price configuration." The price configuration identified which of the many tasks authorized would be included in the basic definitive contract negotiations and which tasks would be deferred for subsequent negotiations. The basic criteria for es­ tablishing this price configuration were based on the firmness of the tasks. For example, items that had recently been authorized by General Dynamics but not definitized taskwise to the extent that reliable cost es~imating could be accomplished were deferred. Grumman's total target price for the items included in this price configuration was slightly over $1011. million. Using the- data obtained during the previous months of analyzing Grumman's cost proposal, General Dynamics prepared its counteroffer. The initial counteroffer by General Dynamics was presented to Grumman on September 9, 1964, at a total target price of about $72.6 million. Grumman immediately rejected the offer and stated that acceptance of the offer would put it in a significant over­ ceiling position. Meetings held between officials of the two companies on Octo­ ber 1 and 7, 1964, resulted in Grumman's revised offer of a target price of about $94.7 million. In further discussion of Grumman's tasks concerning the PHOENIX missile system which was included in the price configuration, agreement was reached to defer negotia­ tions concerning this task. Grumman's proposal, adjusted by delet­ ing the proposed price for the PHOENIX task, was about $89 million. During the meeting of October 7, 1964, General Dynamics ad­ vised Grumman of its desire to include a price for the authorized super weight improvement program (SWIP) changes within the initial UNCU\SlflD total price of Grumman's subcontract. Grumman submitted a firm proposal for the SWIP changes for a total target price of $8.9 mil­ lion. Grumman's proposal included a SWIP change, priced at $1.5 mil­ lion, for deletion of saddle tank (additional fuel tanks) provi­ sions from the Navy aircraft. Upon learning of the dollar impact of effecting this change, General Dynamics directed Grumman not to make the change and to exclude the cost from its proposal. The Grumman proposal for SWIP was reduced to $7. L~ million and its pro­ posal was adjusted to a total target price of about $96.7 million . .(;_e.n~raLJ2}1"--P.amicSc-. s.uhmi.:t.t@d=a~~-G01111.t;ei~p-Feti0sa-1~~£or-a-·1rnt§a_l-1::a1:'­ get price of about $8i.4.million, which was immediately rejected by Grumman. Becau_9e of .the inability of the two companies to reac,:h a settlement, it was agreed that a five-man team from General Dy­ namics would perform an on-site analysis of the Grumman proposal.