$8 Billion in Bonuses awarded to Defense Contractors, "regardless of performance"

The Defense Department paid contractors $8 billion over five years in bonuses on weapons programs that were often dogged by severe cost overruns, performance problems and delays, the Government Accountability Office said.

The agency, an independent auditor for Congress, reviewed 93 of 597 military contracts in force between 1999 and 2004 that included the possibility of a bonus. Contractors on average were awarded about 90 percent of the bonus money available, the agency said in the draft of a report it sent to the Pentagon and plans to release next week.

For example, Lockheed Martin and Boeing, the two largest defense contractors, received $1.7 billion, or about 91 percent of $1.847 billion available on four major programs, including the Joint Strike Fighter, even as these programs "experienced significant cost increases, technical problems and development delays," the draft said.

Other major programs the agency cited included the Boeing-United Technologies RAH-66 Comanche helicopter, canceled in April 2004, and two other Lockheed programs: the F/A-22 fighter and a satellite system to detect enemy missile launches.

Bonuses paid on these troubled programs ranged from 74 percent to 100 percent of the potential award, the agency said.

"These practices undermine the effectiveness of fees as a motivational tool and marginalize their use in holding contractors accountable," the audit agency said. "They also serve to waste taxpayer funds."

The agency’s draft report was sent to Pentagon weapons-buying chief Ken Krieg for comment. Krieg said Monday that he had not seen it.

Domenico Cipicchio, a deputy who is coordinating Krieg’s formal response, had no immediate comment, said spokesman Glenn Flood. The agency plans to release its final report by Tuesday.

The audit was requested by Sen. John Ensign, R-Nev., and Sen. Daniel Akaka, D-Hawaii, who chair a panel of the Senate Armed Services Committee that oversees weapons-acquisition policy. They asked the agency to review the bonus system after senior defense officials complained that the awards are paid regardless of performance.

The lawmakers could use the GAO report as the basis for legislation to tighten payment procedures.

Boeing spokesman Douglas Kennett said the company "cannot comment on a draft, yet-to-be-released report."

Lockheed spokesman Thomas Jurkowsky said in an e-mailed statement, "Questions about the amount of award fee should be addressed by the customer." Programs such as those cited "have cost, technical and schedule issues in their early stages because of the unpredictability of the technology."

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