Next-Generation Air Defense: No Hits and All Misses

5/16/2011
By Sandra I. Erwin
For anyone curious about the dark side of weapon procurement programs, look no further than MEADS.
The Medium Extended Air Defense System — in development since 1999 by Germany, Italy and the United States — was conceived as a mobile air defense system designed to replace the aging Patriot.
The United States has been responsible for funding 58 percent of the development costs, with Germany covering 25 percent and Italy 17 percent.
More than a decade and $3 billion later, MEADS International, the prime contractor, says it needs more time and money to complete the development. But thePentagon decided to pull the plug.
Like many other programs in the Pentagon’s acquisition trash heap, MEADS is an example of how the Pentagon spends billions of dollars on new weapon designs that never materialize. The cancellation of MEADS, however, has been far more controversial than others because the Defense Department says it must continue to spend $804 million over the next two years to avoid penalties.
“It's unbelievable the amount of money we're spending for a weapon system that's over budget but apparently going to shut down. And we've got nothing to show for it. And we may have to pay another $804 million just to close it out. I don't get it,” gripes Sen. Scott Brown, R-Mass., during anArmed Services Committee hearing on weapon acquisitions.
Brown’s singling out of MEADS as a poster child for Pentagon waste has drawn attention because Brownrepresents the state that would stand to lose thousands of jobs if MEADS ever reached fruition. The prime contractor for the system it would replace, Patriot, is The Raytheon Co., based in Tewskbury, Mass.
Dave Berganini, president of MEADS International, which is owned by Lockheed Martin Corp., has indirectly pointed fingers at Raytheon for having contributed to MEADS’ woes. “The predominant delay in the program is due to a protest by the losing contractor, Raytheon. It lasted two years and disrupted the multinational funding stream for five years,” Berganini writes in anarticle published in National Defense this month.
A Raytheon spokesman says the company, for now, prefers to not comment on Berganini’s allegations.
Raytheon did in fact protest the 1998 award of MEADS to Lockheed Martin, but it is hard to see how a protest that occurred more than 12 years ago, and held up the program for nine months, is the reason why MEADS is at least six years behind in delivering a working prototype.
A Defense Department report says MEADS “system design and development,” and flight tests are scheduled to be completed by 2012. But based on the latest review, the Pentagon estimated that MEADS needs 30 additional months and another billion dollars. That would push initial production of the system until 2017 at the earliest. Under the original schedule, the system was to have been in operation by 2008.
The initial plan was to field 48 batteries by 2034, at a cost of $17 billion.
What is now raising hackles on Capitol Hill is that the Pentagon has acknowledged that MEADS is in a deep hole, but apparently wants to keep digging. The Obama administration requested $804 million for MEADS development over the next two years, but announced it would stop short of fielding the system. The reason behind this odd decision is that, under the U.S. agreement with MEADS partners Germany and Italy, a unilateral withdrawal would incur costly fines. There is also a penalty to be paid to the contractor, which is standard practice when the government ends a contract for convenience. So the Pentagon decided that, instead of paying $800 million in penalties, it would continue to fund MEADS until development is completed.
Berganini says the $804 million for the next two years will be enough for three flight tests. After that, the program would need $1 billion more from the United States to enter production.
He contends that MEADS must go forward because the 40-year-old Patriot system is costly to maintain. “Placed side by side with MEADS, the U.S. military would need five times the manpower and 10 times the transport planes to deploy Patriot in a crisis and defend the same area,” he says.
Industry consultant Loren B. Thompson, a supporter of MEADS, contends that retiring Patriot would cover most of the cost of fielding MEADS. “Today's debate isn't really about whether MEADS would perform better, it's about who's wasting money,” Thompson writes. “My gut tells me Congress is about to waste the better part of a billion dollars in the near term and much more money over the long term because it doesn't understand the consequences of the steps it is taking on air defense.
The verbal barbs that are being thrown are not unusual in the wake of a major funding decision by the Defense Department. Weapon programs typically don’t go down without a major fight. But MEADS lost Pentagon support at a time of dwindling tolerance for programs that are perpetually behind schedule and over budget.
“The most reasonable use of scarce defense dollars would be to drop MEADS and instead modernize the Patriot missile system, potentially with cannibalized MEADS technology, at far less cost,” saysTom Schatz, president of Citizens Against Government Waste, a nonprofit organization.
Patriot manufacturer Raytheon is wasting no time to capitalize on the MEADS fiasco. Company officials are already working with the Army on a new plan to upgrade Patriot. According to industry sources, the Army will be budgeting $1.1 billion between 2013 and 2016 for Patriot improvements.
Patriot defenders point to the irony that MEADS and Patriot both use the same PAC-3 and MSE missiles. “When you’re firing at a target, there’s no difference in lethality, it’s the same kill mechanism,” an industry source says.
Behind the scenes, Patriot supporters are urging lawmakers to further investigate the Pentagon’s claim that it must spend $804 million to avert even more costly penalties. They speculate that the figure has been artificially inflated by MEADS officials in order to secure a lifeline for two more years. Contractor termination fees, they estimate, should not be more than $250 million for a program of this size. As to the requirement to compensate Germany and Italy under the “memorandum of understanding” signed by the U.S. government, there is no legal obligation, critics contend. Although it would be undiplomatic to ditch two major allies, legally the United States should not be bound to pay for penalties set in an MOU in 2005, when Congress never had appropriated that money. “It’s a question for the lawyers to sort out,” the industry source said.
Lockheed’s last ditch effort to save MEADS, assuming that Congress goes along with the president’s $804 million request, may succeed. But it is probably too little, too late.
For Raytheon, this is not only a near-term opportunity to secure funds for Patriot upgrades, but nearly guarantees worldwide sales for decades to come. If MEADS had stayed on schedule, this controversy would not be happening, and MEADS would have been positioned to take over the tactical missile and air defense market not just in the U.S. military but also in the 11 other countries that own Patriot systems.
MEADS troubles also should help Raytheon score possibly another Patriot sale in Turkey, which is considering buying new missile defense systems.
Regardless of the outcome, Lockheed Martin and Raytheon will remain partners because Lockheed makes the missiles that are fired by the Patriot batteries.
“I think it’s interesting to see the criticism of the Patriot by the MEADS supporters” considering that they both contractors depend on each other for the survival of their programs, says Victoria Samson, a missile defense analyst. She says that, in theory, MEADS was supposed to deliver a lighter and easier-to-transport system than Patriot, but fell short. “MEADS as initially envisioned could have provided much more capability, but things changed over the development process,” Sampson says.
The death of MEADS is unlikely to leave a significant “capability gap” in U.S. and allied missile defense, she says, although it does make for bad diplomacy.
The lesson for other programs struggling through development? Hurry up and start producing something. Programs that exist only in viewgraphs today are in serious peril.

Topics: Missile Defense

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